Planning ahead for increasing pension costs for school districts

By Ellen Wheeler

Having a sound district budget means planning ahead for increasing pension costs and other potential cuts. We need budget reserves to help get us through bad times.

Experts in school district financial planning recommend that school districts keep a reserve of 15% - 25% of their budget. In MVWSD our "unrestricted reserve" is 20%. ("Unrestricted" means that we are not restricted in how we spend those monies.) In an organization as large as Mountain View Whisman School District, that equals about $12 million.

Governor Brown has requested that school districts enact a 6% cap on the reserves that districts save up for. That's a long way between the 20-25% reserves that financial experts recommend for school districts. There is an exception that I think we would apply for if the reserve cap is enacted. According to this legislation, school districts can apply to their county superintendent for a waiver of the cap. I think a lot of school districts in Santa Clara County and around the state would request that waiver. It's unknown who would be granted that waiver. Lastly, many state legislators and education analysts predict that this cap will be revisited in the near future. (The cap was rushed through the legislature on the last day of the legislative session at nearly the last minute, with no time for effective discussion of its merits.) So, I have some hope that the negative effect of the cap will not be permanent. This is another reason why it's important for all of us to pay attention to what happens in Sacramento, not just in our own back yard.

Governor Brown famously talked about "subsidiarity" or local control decision making, saying that local school districts know best what their school children need. When times are good (like now), we can use our reserves to give raises and to add programs like more preschool and to work to open a new school. But, those reserves also buffer us in the bad years when we have to use our own money when the state is cutting education funding. For these reasons, school districts make budgets with 3-year projections. This means that not only do we budget for this year, but we also budget for the year after that and the year after that. What happens if we can't project stable funding in year 3? For example, in 3 years our local parcel tax expires, leaving our music, counseling, science, PE, and library programs at risk without re-approval by our voters. In 4 years Proposition 30 expires, and the additional state sales tax we've depended on goes away. To be prudent custodians of our financial resources we have to plan for a worst-case scenario of losing Proposition 30 and parcel tax funds. Our budget reserve reflects that prudent financial planning. It would be disastrous to lose those funds and have no reserves to pay for our programs and personnel.