Budget Deficit Creates Tough Decisions for Pasadena Unified

Pension costs place increasing strains on PUSD budget planning

Published : Monday, August 14, 2017 | 5:46 AM

Pasadena Unified School District school will be operating at a deficit of $5.7 million in the current 2017-2018 fiscal year, a deficit which could grow to $10 to $12 million in future years, as rising pension costs begin to account for more than a third of proposed increases to next year’s state education budget.

In December 2016, the California Public Employees’ Retirement System (CalPERS) Board of Administration voted to lower the discount rate from 7.5 percent to 7.0 percent over the next three years. This incremental lowering of the discount rate will give employers more time to prepare for the changes in contribution costs, the board said, in a formal announcement..

“This was a very difficult decision to make, but it is an important step to ensure the long-term sustainability of the Fund,” said Rob Feckner, president of the CalPERS Board of Administration. “We know this will have an impact on the state, schools, and public agencies that partner with us, and we’re committed to making sure the changes are implemented in a phased approach so our employers and affected members have time to plan their budgets responsibly.”

The discount rate changes approved by the Board for the next three Fiscal Years, 7.375% for  FY 2017-2018;  7.25% for Fiscal Year 2018-2019; and 7.00% in Fiscal Year 2019-2020

The CalPERS Board also approved separate timelines for implementing the new rate for state, school, and public agencies. The new discount rate for the state would go into effect July 1, 2017. The new discount rate for the school districts and public agencies would take effect July 1, 2018. The difference allows schools and public agencies additional time to plan for rate increases.

Lowering the discount rate, also known as the assumed rate of return, means that employers who contract with CalPERS to administer their pension plans will see increases in their normal costs and unfunded actuarial liabilities, said the announcement. Active members hired after January 1, 2013, under the Public Employees’ Pension Reform Act will also see their contribution rates rise.

Normal cost is the cost of pension benefits for one year.

As reported in June, Pasadena Unified Superintendent Brian MacDonald said that the approved budget was a “dire situation,” and that the District was in danger of “going insolvent in the next few years.”

The 2017 budget shows projected revenues of $206, 205, 630 against projected expenditures of $211, 975, 672, for  a projected deficit of just over $5.7 million. Of those expenditures, $79.7 million is earmarked for certificated salaries, $37.4 million for classified employee salaries, $52.8 million for employee benefits, $7 million for books and supplies, and an additional $35.1 million for other operating expenditures.

Vacant positions continue to be funded, the PUSD budget report noted, and projected expenditures do not include increases for any collective bargaining unit for 2017-18 and beyond.

According to Chief Business Officer Bernadette Griggs, the new budget has no usual built-in contingency, in order to hold close to its reserves.

“This is all we have,” said Griggs.

The budget presentation noted that “major decisions (have) to be made regarding 2018-19 and 2019-20 budget reductions to identify what adjustments must be made to implement the budget reduction proposed in those fiscal years.”

Among the budget considerations were possible school consolidations and cost-sharing increases in Health and Welfare.

For PUSD Superintendent Brian McDonald, the difficult fiscal situation is both a challenge and an opportunity.

“While we have weathered budget difficulties in the past, the reality of our current financial situation, coupled with declining enrollment, means that we must fundamentally change the way in which we operate,” McDonald said in an email to the PUSD community last week. “Our focus is and must remain on the instructional core of our work:  student learning.”

McDonald said the situation is an opportunity for the PUSD team to “work together on addressing the root causes of systemic issues, and make fundamental and sustainable changes.”

“We are already working on making systemic changes to boost student attendance,” McDonald said. “I know that when we work together, we are capable of achieving great things for our students and our schools.”

In a separate interview, McDonald said the other systemic change PUSD is pursuing is having instructional plans “dictate the budget as opposed to the budget dictating what we do.” (See related story.)

“What it will mean is that we have to fine tune our operating principles – it’s what we call our “theory of action for change” at the elementary and secondary levels – and then use that to develop our strategies knowing that we can’t do everything in any given year,” McDonald said. “We want to be very, very efficient in how we plan and develop our budget so that we’re able to survive and remain physically solvent.”

McDonald said the District is also working with legislators to find solutions to the deficit problem and to increase funding for PUSD.

PUSD Board Board Member and Vice President Lawrence Torres, sharing his views on the District’s budget deficit, said it’s frustrating but it’s a common truth that funding is always a problem in public education.

“Unfortunately, we’re going to have to start to make some tough choices in moving forward,” Torres said. “But we’re going to attempt to keep the problem as far away from the classroom as we can.”

Torres said the District may decide not to fill some of the vacancies in the schools as well as in the District office, and ask some people to double up on roles.

“We’re going to look at programs that perhaps we can’t afford anymore and work with our Union partners to try to see if we can come up with creative ways to move forward,” Torres said.

Board member Scott Phelps is more inclined to lead an effort toward fine-tuning the budget process every year and having transparent budget presentations. Phelps said recently he plans to suggest that every office in the District, and maybe even every school, be required to present their budgets to the school board, instead of just to the Board’s finance committee.

“So they’re going to present to us in open session their budgets,” said Phelps. and they’re going to say very transparently, ‘This is what we spend money on, and this is what we would like to have more money for. And here are some areas where we could achieve possible savings.’

Continued Phelps, “As the Chair of the Finance Committee Operation, and in speaking with my fellow members, we would like to change that approach to from just a Finance Committee, where just a few people come, to having them in public board meetings.  So there’s more transparency and more opportunity for questions and a better understanding of the budget for the public.”

Apart from having to make hard decisions related to the budget deficit, PUSD officials are in agreement that a number of things are looking up as far as PUSD’s programs are concerned, and people are getting more interested in checking out public schools because of the good programs.

McDonald struck an optimistic note in a recent message to the community, saying, “It’s good to know the District and the community have accomplished great things together,” and with that cooperation, McDonald believes PUSD can always rise above the challenge, even with the growing budget deficit.

“Today, our schools are stronger and offer a rich array of academics, arts, and athletics,” McDonald said in his message to parents, teachers and students. “PUSD has risen, and this has been possible because of your willingness to contribute your talent, creativity, and dedication.”