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State funding reductions and deferred payments could force Del Norte Unified School District leaders to cut its 2020-21 budget by $3.5 million in order to pay staff at the end of the next fiscal year.

DNUSD had also projected a $1.5 million deficit for the current fiscal year, according to Assistant Superintendent of Business Jeff Napier. But since it’s using roughly $1 million in restricted funds that had been carried over from the 2018-19 fiscal year, DNUSD is experiencing an actual deficit of $500,000 as it heads into the final month of 2019-20, Napier told trustees during a workshop on the 2020-21 preliminary budget last week.

“If we had more substantial reserves — if we were at the state’s 17 percent to 18 percent reserves — I would say we could be spending reserves. We don’t have to make all $3.5 million cuts. We could make $2 million this year and work it out over (the next year),” Napier told trustees.

“But with the deferrals and the cash flow issue, the more we deficit spend, the less cash we’re going to have for payroll. It’s going to have to be this balance. We can’t throw the baby out with the bathwater — maybe we can’t make all $3.5 million cuts — but we have to cut as much as we can out of next year’s budget to maintain reserves for cash flow,” he said.

DNUSD’s budget workshop on May 27 came after California Governor Gavin Newsom released his revised budget proposal on May 14. Newsom’s budget proposal seeks to close a $54 billion budget gap created by the COVID-19 recession.

This also includes a reduction in Proposition 98 dollars, which sets the funding threshold for K-12 schools and community colleges. In January, Newsom had proposed allocating $84 billion to education for fiscal year 2020-21. In May, his revised budget calls for reducing that amount by $13.5 billion.

If approved, California schools would get roughly $7 billion less than 2019-20, according to Napier’s May Revise report to the Board of Trustees.

California lawmakers are currently reviewing the governor’s proposed budget and will make their own budget, which will return to Newsom in July. Newsom could either veto line items in the budget, accept it as-is or send it back to the Legislature, Napier said.

DNUSD must approve its 2020-21 budget by June 30. However, according to Napier, since the state will likely revise its budget in August or September after it receives tax receipts in July, DNUSD will have to do likewise.

Along with funding cuts to education, Newsom’s revised budget calls for deferring the state’s payments to school districts for April, May and June of 2020-21 to the following fiscal year, Napier said.

“During the recession, we had some deferrals that were up to 9 months deferred,” Napier said. “We estimated that we need $15 million cash to cover April, May and June payrolls at the end of next year.”

There are options for school districts to borrow the cash needed to make their payroll, said Superintendent Jeff Harris. One potential option is a tax revenue anticipation note, which he called a payday loan.

DNUSD will track its cash flow next year, presenting to the Board of Trustees monthly, Napier said. He said he will also work with Barbara Lopez, the Del Norte County treasurer, to monitor the district’s cash flow.

DNUSD could also potentially borrow money from the county if it’s unable to cover its payroll, Napier said. But, he noted, the district would have to pay back that money at the end of the next fiscal year and it would need the money at the end of the next fiscal year.

District 4 Trustee Charlaine Mazzei also pointed out that Del Norte County will likely have to deal with its own cash flow issues due to COVID-19 budget shortfalls.

Since the governor’s May revise calls for suspending a 2.31 percent cost of living adjustment, every K-12 school district in California will likely see a reduction in per-student funding. But for districts that receive additional funding because their number of English language learners, low-income and foster students is greater than 54 percent, they could see an even greater reduction in per-student funding, Napier said.

Since 68 percent of its students fall into those categories, Del Norte Unified is one of those school districts taking that additional per-student financial hit.

“I want that to soak in,” Harris told trustees last week. “Kids that are needier, in a community that has more challenges, will take a larger hit than communities who aren’t.”

At that Board President Frank Magarino spoke up, saying there’s got to be something trustees can do to mitigate the effects of those cuts.

“There’s going to be some kind of mental issues on a broad spectrum and eventually we as a society, we’re going to pay that price,” he said. “We need to try to do the best we can now to make sure we have a system — even if we have to move things around — we really need to keep track of that.”

According to Napier, DNUSD received $36.5 million for the 2019-20 fiscal year in additional dollars for its English language learners, low-income, foster and homeless youth. Next year, it’s projected to receive $33.6 million — a loss of about $3 million — he said.

As a result, DNUSD administrators discussed potentially reducing every department’s budget by about 10 percent, preserving what’s “mission critical” and suspending what isn’t part of its “core function,” Harris said. He noted that some programs could be resurrected if the funding is available.

Harris said Napier and Tom Kissinger, DNUSD’s assistant superintendent of educational services, will be going through the budget line by line with principals and directors to discuss what could be reduced and eliminated. Harris noted that administrators would have a better indication of what individual campuses and departments would look like next year.

Another potential money savings is transportation, Harris said. Districts aren’t required to provide transportation for its students, he said, and cutting it would save DNUSD $2 million.

But, Mazzei noted, the district must still provide home-to-school transportation for special education students if it’s part of their individual education program.

“You may not be able to cut as many stops as you think you can if you still have to serve that population,” she said.

Napier also proposes paying off a lease the district took out about two years ago to pay for information technology. The current 2020-21 preliminary budget calls for transferring $450,000 to the Fund 40, which covers that lease.

Napier said it would cost about $1.34 million to pay off that lease, which has another two years until it expires. He proposes to use voter-approved General Obligation Bond dollars to make that payment.

“If we pay it off with GO Bond money, we’d keep the $1.1 million that we have in Fund 40 for cash flow,” he said. “Or if it’s dire and we need to do inter-fund borrowing for the general fund, it’s just a board resolution to borrow from Fund 40.”

Electing not to transfer $450,000 into Fund 40 would mean $450,000 less in cuts DNUSD would have to make for the next two years, Napier said.

Documents

• Governor's May revise report to the DNUSD Board

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