The Santa Monica Malibu Unified School District’s ledger is headed into the red with the District forecasting budget deficits for the next two budget cycles.
SMMUSD will formally adopt its budget at the end of this month but the Board heard a preliminary update last week with bad news in the short term.
The District projected total revenues for next school year as $132,538,788. That is projected to increase slightly to $137,119,554 for the 24/25 school year. Expenses are estimated to be $141,918,920 for next year and $139,110,031 for the 24/25 year.
"We’re projecting a possible $9.3 million deficit for that fiscal year and then the next fiscal year about $1.9 million deficit," said Assistant Superintendent Melody Canady.
The preliminary budget is based on a set of assumptions including declining enrollment of 8,394, average daily attendance of 7,974 (95%), about 28 percent of students requiring additional fiscal support and a cost of living adjustment (COLA) of 8.2%.
Staff said the surging inflation rate and its impact on COLA rates closed the gap between the amount of money the District received from property taxes and what it could receive from the state based on attendance but as tax revenues continue to outpace state funding, the District continues to draw its funding from the property taxes.
The two funding sources (state vs. property tax) arrive at different points in the year with the property tax revenues arriving about six months after State payments. That will require the District to temporarily borrow money for a few weeks to preserve cash flow at the end of the year.
The District will dip into its reserves to cover the losses but boardmembers said more needed to be done to safeguard the District’s financial future.
"This is not a ‘Chicken Little the sky is falling’ budget but it is a ‘wake the heck up budget’," said Boardmember Jon Kean. "We did something that was important in terms of our pay scale last year. And this budget is showing us that by not making larger reductions or adjustments and 23/24, we’re seeing that."
In July of last year, SMMUSD approved rates for contracts going into the 2022-23 school year, with teachers earning 10% wage increases. Teachers also got a 0.57% salary increase as part of "step and column" increases, which essentially provide increases to salaries in a "step" program to incentivize teachers to stay with the District. The raises are retroactive back to June 2021 and with salary as the District’s largest expense, the raises have a significant impact on the budget.
Kean said he wanted to see more cuts more quickly to right the ship before the shortfalls reached critical levels.
"Cuts made now compound," he said. "So the longer we take to adjust, the harder it is to get back online. Our budget is telling us that. This budget is saying our reserves are threatened."
He said the district really needed to find more income but in the absence of additional revenue, spending cuts were the only choice.
"I would like to see a little more austerity before this comes back to us," he said. "Because anything we do for 23/24 will show the double effect in 2024/25. I don’t know if there’s any more belt tightening to do. But if we don’t do it next year, we’re just making it harder for us the year after."
Boardmember Alica Mignano agreed saying the District should evaluate its current programs.
"I think they really need to look at what we’re offering and what we’re spending and how effective it is," she said. And we need to work on that as soon as possible."
Kean said he agreed with a program analysis and stressed that the current problems were largely the result of broader economic factors. As the District is funded through property taxes, it doesn’t receive the same funding increases tied to inflation that it would get as a State Aid district.
"The cost of what we have to provide has gone up and our revenue has not necessarily increased at that same rate," he said. "I don’t believe we have a spending problem … but our issue is just a basic economic problem. The cost of goods and services has skyrocketed, and our revenue streams have not matched that."
The Board will have two more opportunities to reflect on the budget during a June 22 special meeting and at their regularly scheduled meeting of June 29.
