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Frequently Asked Questions

Q: Why do we need to “right size the budget?”

A: In spite of prudent stewardship of district assets, there are several factors contributing to a structural deficit (expenses outpacing revenue) and eroding the district’s fund balance. The District’s multi-year projection reflects that our fund balance will be spent down by nearly $7.3 million over the next three school years. In order to comply with school board policy, the district must maintain a fund balance of at least three months of the general fund’s operating budget, which is roughly 17% of the entire budget. The current fund balance cannot sustain projected deficits and still meet the reserve policy, thus the need to reduce spending.

Q: What is a fund balance?

A: A fund balance is a “rainy day fund” that is intended to bridge the gap when expenses are greater than revenue, known as a structural deficit. District administration was purposeful in building a robust fund balance to ensure it could sustain investments made to enhance and improve student learning through staffing and programming. However, with increased costs in areas that the district cannot control, we must reduce spending in other areas to comply with our obligation under board policy.

Q: Why is a fund balance so important to the District? If we have money, shouldn’t we spend it in the classroom where it’s needed?

A: The fund balance serves three main purposes:

  1. Cash flow for payments to employees and vendors;
  2. Allows districts to manage changes in payments from the state; and
  3. Serves as a “rainy day fund” for unforeseen decreases to attendance or negative changes to expected revenues or expenditures.

California schools receive a large majority of their funding from the State, primarily from income and sales tax revenues, but also from property taxes that are collected at the local level and distributed by the State. By their nature, income and sales taxes are more volatile revenue sources because they can rise and decline dramatically. As a result of this volatility, California school districts face dramatic cyclical funding variations as the economy changes.

Over the past five years, school district funding has been partially restored to its pre-recession levels; however, we recognize that the inherent economic volatility in our state revenues will limit the ability of the State to fund education, especially during periods of economic downturn. For that very reason, it is imperative that we keep a reserve on hand. A school district’s reserve is best viewed as a safety net that allows us to meet our financial obligations when we face unforeseen changes in revenue or unplanned changes in expenditures.

Districts across California have very little control over revenues, since they are mainly controlled by the state government. Historically, State revenues have been undependable, even in good times. Holding a stable reserve is the only way that a public education system such as ours can protect its programs and its staff from dramatic changes when funding cuts occur. Unlike a private or chartered organizations, closing our doors and telling the students to go elsewhere is not an option.

One important thing to remember is that reserves are one-time funds—once used, they are not replenished except by purposeful action. Therefore, reserves will help carry an organization through financially difficult years but a budget cannot sustain itself over time if the structural expenditures outrace the dependable income.

Q: I thought we received an increase in state funding, why are we still right sizing the budget?

A: There are actually three primary factors leading to the district’s structural deficit that necessitated a multi-year effort to “right size the budget.” These are:

  1. Enrollment – which affects staffing needs – stable or fewer students mean no additional or less state funding;
  2. State Funding – annual increases to the Cost of Living Adjustment range from 1.56% to 2.35% for the next three years which is not sufficient to cover inflationary costs; and
  3. Increase in District program costs.

While enrollment numbers directly affect our staffing needs, student attendance directly affects our revenue. The majority of our revenue is dependent on student attendance, when a student misses school, whether for an unexcused or excused absence, the District loses as much as $60 per day. Last year alone, the District lost over $3.3 million dollars in revenue due to student absences.

Any additional funding from the State is subsequently offset by increases to the State pension/retirement benefits, minimum wage increases (which drive up other salaries), and salary advancement increases paid annually to employees. These are expenses the District can not change.

Q: The State provided schools with an inflation increase, or cost of living adjustment, of 1.56%. The District has provided a 3% increase in employee salaries. Where does the District plan to find the additional funding?

A: This past year, the Board made an informed decision, in cooperation with our employee groups, to give well deserved increases in wages to our staff members. Fortunately the District had built up reserves, or savings, over time which allowed the District to provide for an increase in compensation that exceeded the increase in State revenues. We know that our students are more successful when we can attract and retain personnel by paying competitive salaries. The decision to invest in our employees was intentional and when mixed with other increased costs, the District was fully aware that it would be required to make changes in other areas to support these increases.

Q: How does a decrease in Federal monies for the 2017-18 year affect the District’s budget?

A: School district recieve revenue for various sources. One of them comes in the form of categorical funds from the Federal government, such as Title I and Individuals with Disabilities Education Act (IDEA). Categorical funds are intended for specific purposes.

Funding for numerous education programs from the federal government would be reduced by $400 million in President Trump’s 2017-18 proposed budget. There continues to be uncertainty at the federal level, with regard to policies toward special education, immigration, taxation, and education in general, which are all policies that have resulted in inadequate funding. Based on current federal funding proposals, we have budgeted for a 20% reduction in funding.

Q: The year-end/closure of the books showed the district ended the 2016-17 fiscal year $2.8 with million more than projected. Why do we still have to right size the budget?

A: It is not uncommon for a school district to spend less than its entire budget allocation and have funds remaining at the year-end. Often, those funds are reallocated in the next year’s budget and called carryover. A combination of factors contributed to the General Fund finishing the fiscal year $2.8 million better than projected. One of the factors was that revenues the District received were $606K more than estimated. Efforts to limit department and program budget spending limits were also put in place mid-year.

Q: Why is conservative budgeting good for Morgan Hill Unified School District?

A: “Conservative budgeting” is a matter of opinion. The District budgets based on assumptions provided by the Santa Clara County Office of Education, School Services of California, Inc., California County Superintendents Association Business and Administration Steering Committee, and Fiscal Crisis and Management Assistance Team. As assumptions change the District updates its budget and financial projections. Managing public money is a matter of public trust and a responsibility we take very seriously. Our stable financial environment is the result of conservative business practices so we can focus on doing what’s best for students. We have a Aa1 credit rating, among the highest for school districts, and are praised by financial auditors for our budgeting process and financial stability. MHUSD consistently shows taxpayers and the community that we are spending tax dollars wisely.

Q: Why are we not seeing more options of cuts at the district level vs. the threat of losing teachers?

A: An essential feature of a budget that best aligns resources with student achievement is that spending activities that support the school district’s instructional priorities is prioritized above spending on other items. The Board and administration values smaller class sizes, we also value compensating our teachers well. This is one of our values because we want to recruit and retain the best and brightest teachers so they can inspire our students to be the best they can be. Balancing a budget that values staff salaries/wages and having small class sizes is a formidable challenge in a time of increased operating costs and administrative responsibilities.

The reality is, just like most districts, almost 90% of our annual spending goes to staffing costs. The other reality is that the majority of the remaining 10% of District spending are for essentials (utilities, insurance, student transportation, etc.). Therefore, although reductions are being done in other areas a major share of the reductions must include staff positions.

Q: Why are we re-building Britton and remodeling other school sites, if we are in deficit spending?

A: Facility and technology upgrades to our schools sites are funded through voter approved Measure G bonds. Measure G bonds are solely for the purpose of facility and technology upgrades and cannot be used for general expenditures such as staff salaries, pensions, and benefits.