The budget "surplus" and what should be done with it

There was some unexpected good news when OUSD released the 2018-19 unaudited budget actuals - the District had a lot more money at the end of the year than expected! Although it would be much better if the District was more accurate at predicting its spending - so that the money could have been spent last year on helping kids - this is better than what happened a couple of years ago, when the district under-budgeted, and then had to make desperate last-minute cuts, at one point dipping into its insurance fund to pay for operating expenses.

Some people exaggerated how much money was left over - I saw mentions of a "$21 million surplus" - and said the District should reverse all of the school consolidations because there are no budget problems after all. That's not true - I'll explain why - but this news should make us re-examine some of our assumptions about this year's budget.

First of all, last year was last year and this year is this year. That is to say, the extra money is there because the District's spending projections were slightly off for last year in a number of different areas. But budgeting is a year-by-year process. If you spent less on food last month than was in your budget, that could mean your budget for food is more than it should be, or it could just be a fluke and you should still allocate the same amount for next month. And the extra money from last year can't be used for ongoing expenses, because it is a bad budget practice to use one-time savings for recurring costs.

Secondly, over the next few years there are lots of reasons to budget conservatively. The top three are (a) salary costs are going up, as they should, thanks to the new teacher contract won by the strike, and similar raises for other school employees; (b) pension costs are going up as mandated by the state of Calif. to meet our commitments to retired educators; and (c) we've had many years of economic growth and the good times might not last, at which point we might see education cuts at the state level. Some have said we should just fight like heck for Schools and Communities First (a 2020 ballot measure that would increase funding statewide for education, giving OUSD an estimated $50 milllion per year) or similar funding increases from the state. I'm definitely all in for fighting for that measure, but I'm not willing to bet my student's future on it winning. I was a teacher when Oakland was under state control, and I really don't want to see that happen again, so we need to budget using the money we have, not money we hope we will get if we're lucky.

Thirdly, the left over funds are a lot smaller than they look, because much of the money is restricted, meaning it is grant money or taxes designated for specific purposes, and in most cases it showed up in last year's budget actuals because that is when the funds were received by the district, but in fact they are designated to be spent this year. So these particular funds are specified to be carried over and spent this year, not surplus. For example, there is a $5.7 million grant from Salesforce that was received at the end of last year but is to be spent this year. Also, there are $10.5 million in Measure N funds that have been set aside by the citizen commission that oversees the spending of those parcel tax dollars for contingencies, coaching, and school-site carryover accounts.

However, when all is said and done, there is enough money that was left unspent to meet the Board's 3% goal for the reserve, and still have about $8.4 million unappropriated (the staff presentation said $5.5m, but they unilaterally increased the 3% goal to 3.5%). Yes, that is less than 1.5% of the District's budget, but it's still a lot of money to have left over at the end of the year. Given that school sites are facing difficult cuts to their discretionary funds this year, it makes sense to take a hard look at this year's budget and see if the lessons learned from last year can allow us to shift the numbers a bit, and give some much-needed relief to the school sites. The school site cuts amounted to "only" $3 million, but when you are a principal trying to hire a part-time reading intervention specialist, a few thousand dollars could be all you need.

Some have pointed to a clause in the resolution approving the budget last year, that said if more money ended up becoming available, it should go to reduce the cuts to school site discretionary funds. Technically, this is not a case of more money becoming available, because it is about adjusting our estimates of what was spent last year, not more money coming in for this year. However, the spirit of the clause is that any slack found in the budget should go to reversing the cuts at the school sites, and that is what the school board should do now that we have discovered that our budget is slightly overstating expenses.

Given the budget crisis of a couple of years ago, and all the turnover in the District's budget office, it is good news that we are once again in the black and are rebuilding the District's reserve, which will be essential in the case of economic uncertainty or emergency. However, let's hope the new leadership on the operations side of the District can improve the transparency and accuracy of the budgeting process, so that the District's resources can go as quickly as possible towards helping our students, and we can leave these days of seesawing from crisis to surplus behind.


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