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Despite speculation about bold moves—in a far-left direction, even for this blue state—Gov. Gavin Newsom and legislative Democrats actually landed a budget Thursday that’s surgical about new taxing and spending while still keeping promises to help poor Californians and working families.

Under the $214.8 billion spending plan, the state inched closer to universal health coverage, expanding Medi-Cal to all low-income young adults regardless of immigration status. State lawmakers also charted a course to increase tax credits to the working poor and boost subsidies to middle-income Californians to buy health coverage. There were significant investments in early education and housing, while a portion of the surplus was diverted to pay down pension liabilities.

While Democrats began the year with a surplus of ideas for taxing Californians, only a few strategic levies survived the negotiation process, specifically a fine on individuals who don’t have health insurance under a state mandate. There’s even a little tax relief: Parents, for instance, will get a temporary tax exemption on diapers.

One hitch? The devil is in the details, some which have yet to be worked out. Though Democrats met their deadline for a balanced spending plan, most of the underlying policy to enact the budget wasn’t hashed out—and may not be for weeks. Call it a learning curve: This was the new governor’s first time negotiating with seasoned legislative leaders who know how to count votes. Look for more action in coming trailer bills.

Here’s what you need to know about California’s new budget—including maybe, just maybe, the first steps toward the establishment of a four-year college in the Coachella Valley.

Yes to Health Care for Undocumented Young Adults

The Legislature agreed to the governor’s plan to expand Medi-Cal, the state’s Medicaid program for low-income people, to young adults ages 19-25. It’s a step toward offering free health care to all undocumented adults since the state already makes Medi-Cal available to children regardless of immigration status.

The Senate had proposed going further by offering Medi-Cal to undocumented seniors 65 and older. However, none of the leaders backed offering health care to all low-income immigrants.

The state expects an estimated 90,000 young adults could gain coverage when the benefit begins next year. Already, 76,000 have registered for a limited version of Medi-Cal that covers emergency services and prenatal care available to low-income people regardless of immigration status. The price tag for this expansion? About $98 million a year.

It’s worth noting the state also affirmed its commitment to restoring optional Medi-Cal benefits. During the recession, coverage for audiology, optical, podiatry, speech therapy and incontinence creams had been taken away.

Obamacare Lives: A $695 State Mandate to Carry Health Coverage

Starting next year, California will join New Jersey, Vermont and the District of Columbia in requiring residents carry health coverage or face a $695 state penalty—a fine that will go up each year with inflation.

The state individual mandate aims to replace the federal one that Republicans repealed in their effort to dismantle the Affordable Care Act. The administration says California needs to act, because without a mandate, the number of Californians without coverage—10.4 percent in 2016—will go back up. Separately, a study conducted by the University of California estimated the uninsurance rate will rise to 12.9% by 2023, or 4.4 million people, without state action.

Money raised from the penalties, about $450 million over three years, will be used to give bigger subsidies to those who purchase private insurance through the state’s health coverage exchange, Covered California.

Newsom and lawmakers hope to expand assistance to 190,000 middle-income Californians making between $48,000 to $72,000 a year, according to Health Access California, a health advocacy group.

Fear of Recall = Not Many New Taxes

The budget includes a plan to impose a fee—that still needs to be voted on—of no more than 80 cents a month on each telephone line to help digitize the state’s 911 system, which is still analog. The next-generation system would improve call delivery, better location data and incoming text capability.

Other than that and the health-care mandate, lawmakers opted against most of the new taxes proposed early in the session. In fact, California parents and women will get a sales tax exemption on diapers and menstrual products (though only for two years).

Notably rejected, given the state’s current $21.5 billion surplus, was Newsom’s push for a 95-cent tax on most residential water bills to fund-clean-drinking water initiatives in the Central Valley. Instead, the Legislature worked out a deal to clean up toxic water by diverting money generated from big polluters under the state’s cap-and-trade program.

Some environmental groups questioned using clean air money to pay for drinking water, but supporters reasoned that water is being contaminated with arsenic and other toxic chemicals from the heavy use of fertilizers, so it makes sense to draw the $100 million for cleanup from the agriculture industry’s portion of the greenhouse gas fund.

One issue that won’t be resolved this week is whether California will conform its tax code to match federal changes made by Republicans in 2017. Newsom is relying on the projected $1.7 billion increase in net revenue from that to expand the state’s earned income tax credit, the centerpiece of his anti-poverty agenda.

Assembly Democrats in swing districts are skittish about limiting deductions and losses that can be claimed by some businesses. They know the fate of former Sen. Josh Newman, who was recalled from his Orange County seat after voting to raise California’s gas tax. Tax conformity requires a two-thirds vote in the Legislature to pass, so the pressure is on.

Paying Debt and Rainy-Day Saving

Lawmakers embraced the governor’s proposal to use some of the surplus to make extra pension payments, a step Newsom says is necessary to tame the state’s $256 billion retirement liability for state workers and teachers.

The Legislature approved supplemental payments of $3 billion to the California Public Employees’ Retirement System and $1.1 billion to the California State Teachers’ Retirement System for the state’s portion of unfunded liability.

To relieve school districts across the state, the Legislature will contribute a total of $3.15 billion toward paying down their liabilities and reducing their payroll contribution rates. One difference is where it will go.

Previously, Newsom had all the extra payments going to the teachers' pension fund—a reaction, in part, to teachers strikes that erupted as he took office. Now a portion of that money will be doled out to CalPERS. The change was made in recognition that while teachers are members of CalSTRS, many other school employees from janitors to bus drivers belong in the state’s other public-employee pension fund.

Besides paying down California’s “wall of debt,” as former Gov. Jerry Brown called it, the state is shoring up for a downturn—or in Newsom-speak, “building budget resiliency.” The new budget carries a roughly $20 billion reserve from several rainy-day funds. This amount, while hefty, would be easily wiped away in a downturn. According to the Legislative Analyst’s Office, the state would need as much as $40 billion to cover the budget in a moderate recession.

Big Spending on Housing

With new commitments topping $2 billion, the budget represents the most important action the governor has taken so far on housing and homelessness. The lion’s share will target the state’s homeless population, including $650 million in grants for cities and counties to build and maintain emergency shelters, and $100 million for wrap-around care for the state’s most vulnerable residents. Another $500 million will go toward quintupling the size of the state’s affordable housing financing fund, plus hundreds of millions earmarked for cities to update their often outdated housing plans.

While lawmakers and Newsom have agreed to cut big checks, it’s not clear who’ll get the money, and with what strings attached. Big-city mayors and lawmakers want homelessness grants directed towards the state’s largest 13 cities, while Newsom wants to spread out the money to include counties.

Newsom also wants to deny transportation funds to cities not building enough housing. As of Thursday, lawmakers were still negotiating a scaled-back version of the proposal. Another Newsom proposal that speeds construction of homeless shelters by sidestepping environmental laws also remains unresolved.

Lending a Hand to Working Families

Expanding California’s earned income tax credit has quickly become one of Newsom’s signature anti-poverty programs, because it gives a cost-of-living refund to low-income working families. Lawmakers are poised to triple the program from $400 million to $1.2 billion to provide a $1,000 refund for families with children under 6 and expand income eligibility from $24,950 to $30,000.

Anti-poverty advocates had wanted Newsom to include undocumented workers who file with individual taxpayer identification numbers instead of Social Security numbers. That proposal did not make the final version of the budget. Still, the administration estimates the current expansion will increase the number of beneficiaries from 2 million to 3 million households.

The budget also will make it easier for low-income families with children to qualify for assistance, increasing the CalWORKs asset limit to $10,000 and the motor vehicle exemption to $25,000—changes that will allow people to save and hang on to cars that can get them to work.

And parents of all incomes will get a longer paid family leave to care for new babies—eight weeks, up from the current six weeks, starting in July of next year. The goal will be to boost the benefit to 90 percent of most wages, up from the current maximum of 70 percent.

The K-14 Kids Did All Right

As required by law, the lion’s share of the budget goes to public schools, with nearly $102 billion in state money to be pumped into California classrooms and community colleges, plus another $389 million in a special reserve fund for schools. Though the figure is an all-time high, California is still viewed as lagging in per-pupil spending, in part because of the high cost of living.

Democrats are also demanding more stringent oversight of charter schools, which can operate like private schools, tend to be non-union and have proliferated in big cities such as Oakland and Los Angeles. Newsom proposed prohibiting charter schools from blocking or disenrolling special-education students who require more support for disabilities. Lawmakers readily embraced that change.

The budget includes $300 million to build more kindergarten classrooms in an effort to boost full-day kindergarten programs. Newsom had initially proposed $750 million but that was reduced after a study found most part-day kindergarten programs are in wealthier communities.

After-school programs will get a $50 million boost over the $600 million or so the state is currently spending. The money will help cover the cost of minimum wage increases enacted during Brown’s tenure.

So Did the Little Ones

In emphasizing early education, Newsom and lawmakers agreed to expand day care and preschool slots by the thousands while investing in training for child care providers.

Newsom gets $50 million in seed money to start child savings accounts for college and post-secondary education. He initially asked that all of it go toward pilot projects with First 5 California and local governments, but the Legislature is designating $25 million to that. The other $25 million will create a state program with the Scholarshare program in the Treasurer’s Office.

More Free College and Help for Student Parents

Newsom and legislators delivered on a $45 million promise to fund a second year of tuition-free community college for first-time, full-time students at campuses participating in the state’s College Promise program.

Other big winners include students with children, who will be eligible to receive grants of up to $6,000 to help cover their families’ living expenses. The budget boosts by about 15,000 the number of competitive Cal Grants—a significant jump, but far less than the 400,000 qualified students who applied for the state scholarships last year and didn’t receive them.

The University of California and California State University systems will receive money to increase enrollment, and waive tuition during the summer to help low-income students graduate faster. Lawmakers also set aside funds for campuses to combat hunger and homelessness, strengthen veterans resource centers, and provide more mental health counseling. A center at the University of California San Francisco is getting a $3.5 million earmark for dyslexia screening and early intervention.

Backers of the state’s controversial new online community college fended off an effort to slash the college’s funding, clearing the way to enroll its first class this fall. And CSU will get $4 million to study five possible locations for a new campus: Stockton, Chula Vista, San Mateo, Concord and Palm Desert.

Lots for Police Training; a Little for Police Records

Reflecting the Legislature’s focus this year on reducing police shootings, the budget includes $20 million to train police officers on de-escalation tactics, and how and when to use force. Outside the budget, bills to set a tougher standard for police to use deadly force and require more officer training are advancing through the Legislature, reflecting a compromise between civil rights advocates and law enforcement groups.

Attorney General Xavier Becerra’s office will get $155,000 to implement the new state law he’d been resisting: making law-enforcement misconduct records public. Becerra will also have to report to the Legislature on how many requests his office processes, and how much time is spent on that. A judge ruled in May that Becerra must produce the records; previously he had said he would not release them until the courts clarified whether he had to.

Powering Down to Cope With Wildfires

Besides beefing up the state’s firefighting capability and disaster preparedness, California will add powering down to its to-do list for coping with climate change-driven wildfires.

The budget doles out $75 million to state and local agencies whenever investor-owned utilities decide to shut off electricity during red flag weather warnings. One note: The Assembly added language to track how the money is used.

CALmatters reporters Matt Levin, Felicia Mello and Laurel Rosenhall contributed to this report. CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Politics

What would you do with a $21.4 billion windfall?

That’s essentially the question California is confronting amid record surplus projections during Gov. Gavin Newsom’s first year in office.

On one hand, the former San Francisco mayor showcased his progressive agenda by setting ambitious goals for universal preschool, expanding health coverage for undocumented immigrants, and proposing the nation’s most-generous paid family leave program.

On the other, Newsom made the case that he’s still being fiscally conservative by projecting a modest growth rate of 3.2 percent, socking billions more into the state’s rainy day fund, and paying down debt and public-employee retirement liabilities.

“I think, arguably, it’s even more conservative in that respect than previous administrations,” Newsom said of his overall $209 billion state budget.

The governor’s finance department broke the $21.4 billion surplus into three buckets: roughly $3 billion for ongoing spending, $8.5 billion in one-time spending, and $10 billion to build what Newsom is calling “budget resiliency.”

The initial $3 billion bucket would be used to expand ongoing services for the poor, particularly the in-home supportive services program and CalWORKS for working parents. A portion of that would be used to boost higher education to stave off a tuition hike in the state's university systems, and fund a second year of free community college.

The second bucket of $8.5 billion would be targeted toward Newsom’s ambitious push for affordable housing and to confront California’s homeless epidemic; to lay the groundwork for extending full-day kindergarten to all Californians by providing money to build or retrofit classrooms; and to provide school districts much-needed relief by contributing an extra $3 billion toward the districts’ teacher pension payments.

With the remaining $10 billion surplus, Newsom wants to pay off debts, which he says would help the state weather a potential economic downturn. Specifically, he would finish paying off Brown’s so-called $28 billion Wall of Debt that had accumulated from years of internal borrowing; undo a 9-year-old accounting trick that pushed the June state payroll into July so it looked like the state was spending less; set aside $2.3 billion for operating reserves; and most significantly, make an extra $3 billion contribution to the state’s main pension fund.

So how did California wind up with an extra surplus? Essentially, the sales and income taxes passed during Gov. Jerry Brown’s tenure coincided with an economic recovery. One week after Newsom won the election, the Legislative Analyst’s Office announced that state finances were in remarkably good shape, with a $14.8 billion expected surplus for the fiscal year that begins July 1.

Newsom and his finance director, Keely Bosler, say there are two reasons the surplus grew by $6.6 billion. One comes from positive balances state accounts carried over from past years, and the other is that the Newsom administration is choosing to project less growth in Medi-Cal, the state’s Medicaid program for the poor.

“We’re projecting more modest growth in the Medi-Cal budget, which makes sense, because we’ve seen this big ramp-up on the expansion of the (Affordable Care Act), and it’s beginning to level off,” Newsom said. “That affords us the opportunity to make these historic investments, and pay down debt and unfunded liabilities.”

Bosley, who also served under the Brown administration, said she was hesitant to modify assumptions about Medi-Cal caseloads and costs, but ultimately felt it remains adequate. That’s because the state has seen the number of uninsured Californians drop as the state aggressively signed people up for private insurance plans offered through Covered California while also expanding Medi-Cal coverage for the poor.

On Monday, the legislative analyst weighed in with its assessment of Newsom’s budget and commended him for paying down debt, a move it called prudent. The analyst, however, now projects the state will have a $20.6 billion surplus, nearly $1 billion less than the governor’s figure, and included a word of caution.

“The governor’s budget proposal reflects a budget situation that is even better than our estimates,” the analyst wrote. “Largely as a result of lower-than-expected spending in health and human services programs, we estimate the administration had nearly $20.6 billion in available discretionary resources to allocate. That said, recent financial market volatility poses some downside risk for revenues.”

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Politics

California’s public schools have enjoyed a remarkable restoration of funding since the bone-deep cuts they endured during the recession—but many are now facing a grave financial threat as they struggle to protect pensions crucial for teachers’ retirement.

Over the next three years, schools may need to use well more than half of all the new money they’re projected to receive to cover their growing pension obligations, leaving little extra for classrooms, state Department of Finance and Legislative Analyst’s Office estimates show. This is true even though the California State Teachers’ Retirement System just beat its investment goals for the second straight year.

Some districts are predicting deficits, and many districts are bracing for what’s to come by cutting programs, reducing staff or drawing down their reserves—even though per-pupil funding is at its highest level in three decades, and voters recently extended a tax hike on the rich to help pay for schools.

At the same time, some districts are grappling with how to simultaneously afford raises for teachers who have threatened to strike. The situation could become even bleaker if California’s economy doesn’t keep growing.

If there’s another recession—which economists say is increasingly likely, given the record length of the expansion under way now—the higher pension payments scheduled could push some districts deeper into the red, Legislative Analyst’s Office data indicates.

“Many districts’ budgets would be upside down with expenses growing faster than revenues,” said Michael Fine, CEO of the Fiscal Crisis and Management Assistance Team, the state agency responsible for overseeing schools with financial problems.

School systems that saved money over the last few years will be able to use it to buy time, Fine said, but those reserves “won’t eliminate the impact or make that problem go away.” Tackling it will likely require new sources of revenue or an array of cuts.

“Building maintenance could suffer; grounds care could suffer; class size could suffer; instructional coaches could suffer; athletic programs could suffer; technology could suffer; intervention programs could suffer,” Fine said.

The problems stem from the state Legislature’s reticence to mandate steeper payments into the California State Teachers’ Retirement System. The system was badly underfunded and careening toward collapse four years ago when school districts, teachers and the state all agreed to pay more to reduce its unfunded liability, which now stands at $107 billion

Districts took on the greatest share of those new costs, agreeing to increase payments from 8 percent of their payroll in 2013 to 19 percent by 2020.

No matter how burdensome the larger and larger pension payments may be, actuaries say they’re necessary to protect teachers’ hard-earned retirement and prevent the system from running out of money. Teachers don’t get Social Security, and unlike firefighters or police officers, most retirees earn modest pensions of about $55,000 a year.

The Brown administration has directed an additional $20 billion to the state’s public schools since 2013 and says districts have had plenty of time to plan for the pension payments ahead. But many school leaders and advocates want the state to invest even more, especially since California still ranks near the bottom in per-pupil spending compared to other states.

“Knowing that these liabilities were growing, we provided districts with the resources they needed to plan accordingly,” said H.D. Palmer, a spokesman for the state Department of Finance.

Meanwhile, the state’s largest teachers union is downplaying the problem and encouraging its members to bargain for raises. California’s teachers may be among the nation’s most generously paid, but they say the money doesn’t go very far, because the state’s cost of living is so high.

School officials are left with a Gordian knot of politically charged problems, forced to make escalating payments into the pension fund while trying to elevate disadvantaged students’ sagging classroom performance, which remains among the country’s worst despite the state’s big investment in their learning through a policy championed by Brown.

“We need to graduate more kids and close academic achievement gaps, but we can’t move the needle when costs are rising like this,” said Dennis Meyers, executive director of the California School Boards Association, who stressed that his group is not seeking to reduce teachers’ retirement benefits.

“We simply need more revenue, and we’re out here waving the white flag, looking for relief.”

Each of California’s school districts is bound to tackle these challenges differently, so CALmatters visited three of them whose circumstances are emblematic of what others across the state are experiencing. During those visits, we spoke with the people working to solve the problem.

Fremont Unified devotes a greater share of its budget to salary than any other district in the state—69 percent. (The three Coachella Valley school districts devote either 55 or 56 percent. See the percentage devoted to salaries at each of California’s school districts here.) So when the largest pension payments are phased in, Fremont will be hit especially hard. That means the district’s budget could face cuts even as enrollment in the Bay Area school system grows.

Sacramento City Unified knew that larger pension payments were coming and saved money to prepare for them. Then the local teachers union criticized the district for hoarding cash and threatened to strike. Now the contested funds are being used to finance a raise that teachers say is long overdue—and that the county superintendent believes the district can’t afford.

In Los Angeles, growing demand for charter schools and a dwindling birth rate has led to declining enrollment in the district’s own schools, which means pension payments will rise even as the district’s state funding shrinks. School officials recently predicted that a quarter-billion-dollar budget deficit was just two years away.


Raul Parungao’s distinctive grin and his cheery demeanor belie his concern about Fremont Unified’s finances.

Situated between Oakland and San Jose in the pricey Bay Area, the school system pays its employees more than most. That makes it a desirable place to work, but also means it will be hit especially hard when the largest payments required under Brown’s pension plan are phased in.

“There’s this sense in the community that we’re flush with cash, but I try to remind people about the other half of the story,” said Parungao, the district’s chief business officer.

Even though revenue is rising because enrollment is growing, the district must hire and pay more employees to serve them. And over the next three years, while Fremont predicts its revenue will grow by $26 million, a 7 percent bump, it also expects its employee pension and health care costs to climb by $14 million, a 23 percent surge.

“Here’s the bottom line: the extra revenue we expect to get from the state won’t be enough to keep pace with our pension contributions,” Parungao said. “The problem hasn’t exploded big yet, but it will. It’s only a matter of time. I haven’t met another chief business official who isn’t concerned about this.”

Meanwhile, Fremont’s teachers just won a small raise after months of protracted negotiations.

The current pay scale is competitive, with veterans making $114,000 a year, but leaders of the local union say about half of the teachers still don’t make enough to live in the district and must commute from up to an hour away.

But no matter how tough it may be for the district to afford this 1 percent pay hike, teachers deserve one, said Victoria Birbeck, the union’s president

“The series of small raises we’ve received haven’t covered cost of living,” she said. “Besides, the district has known about the governor’s plan for a few years now. There should have been better planning.”

Parungao said planning isn’t the problem. The district stretched to offer teachers a raise last year and even had to shift its budget by millions of dollars to accommodate that 2 percent increase, which came after a 13 percent bump over the prior three years. Plans to upgrade students’ textbooks and computers were postponed, and class size for kindergarten, first- and second-grade students increased slightly.

Given the district’s rising pension and other fixed costs, the new agreement’s $7 million price tag will be tough to accommodate. Still, Michele Berke, one of the district’s board members, acknowledged that for many teachers, $1 spent on pensions isn’t as good as $1 spent on salary.

“As we negotiate with the union, STRS is the elephant in the room,” she said in an interview before the deal was finalized, referring to the acronym for the California State Teachers’ Retirement System. “We’re paying toward your future, but those payments don’t help put food on the dinner table.”

Sacramento Mayor Darrell Steinberg only worked with a few key players one weekend last fall when he helped broker a deal to avert a citywide teacher strike, and former school board president Jay Hansen was one of them.

Hansen had tried for months to negotiate the terms of a pay increase for the city’s 3,000 teachers, but the district and leaders of the local teachers union were far apart, and neither side would budge. An acrimonious relationship between the two camps was partly to blame for the impasse.

“It’s like the Hatfields and the McCoys,” Hansen said. “No one remembers why they can’t get along.”

At issue during the talks was the $81 million sitting in Sacramento City Unified’s savings account, a sum the district had built up over several years with spoils from California’s booming economy.

The union said the money should go toward class-size reduction and raises for teachers that would make the district a more attractive place to work. Sacramento educators are paid less than their peers in nearby districts, but they also receive more generous lifetime health benefits, records show. The district said it had saved the money to help cover rising pension and employee health care costs in the lean budget years ahead.

In the end, Steinberg helped craft an agreement that gives Sacramento teachers an 11 percent raise over three years. But just a few weeks after Steinberg announced the deal during a celebratory news conference on the steps of City Hall, Sacramento County Superintendent Dave Gordon delivered some bad news: The district can’t afford it.

“Based on the review of the public disclosure and the multi-year projections provided by the district, our office has concerns over the district’s ability to afford this compensation package and maintain ongoing fiscal solvency,” Gordon wrote in a December letter to the district.

The district’s own budget offers proof of Gordon’s concerns.

Over the next three years, the school system anticipates its revenue will grow by $6 million, a 1 percent increase, while its pension and health care costs grow by more than $18 million, an 11 percent increase. A popular summer program for struggling students has already been eliminated to save money

A second letter Gordon sent in January further underscores his concerns. He called the district’s plan to use one-time money to help cover the cost of the new contract a “poor business practice” that “only perpetuates the district’s ongoing structural deficit.”

“The pension contributions are putting a strain on everyone’s budgets,” Gordon said in an interview.

Even though Hansen had been the union’s adversary during months of stalled contract talks, he defended the district’s decision to offer teachers a raise, calling it “the right thing to do” despite the school system’s escalating pension and health care costs. “We did it anyway,” he added.

Steinberg echoed Hansen’s perspective.

“A strike would have been calamitous for everybody,” he said. And Sacramento isn’t the only place in California where teachers are thinking about a show of force: At least half a dozen other local unions fighting for higher wages have held labor actions in recent months.

In an interview with CALmatters that union leaders cut short after refusing to answer some questions, Executive Director John Borsos rejected any suggestion that the district won’t be able to afford the contract it recently signed or that it ever claimed to have needed the money stockpiled in its savings account to cover rising pension costs.

“They have more than enough to cover the pension increases,” Borsos said. “And they didn’t make that argument at the bargaining table.”


Gov. Jerry Brown promised his 2014 funding plan would shore up California’s teacher-pension system, but at least one young Los Angeles teacher, Josh Brown, says he’s not counting on it. The Oliver Wendell Holmes Middle School special educator is so worried about the system’s solvency that he has an alternative retirement plan: using a portion of his salary to invest in the stock market.

“I’m a fifth-year teacher. I’m 30 years old, and I’m paying into a pension system that may or may not be around when I retire,” he said. “If I were 65 years old and retiring soon, I would feel differently. Right now, I feel frustrated and worried.”

The largest payments required under the plan will be tough for many districts to manage, but they’re going to be especially vexing for large urban districts like Los Angeles Unified, which lost 100,000 students in the last decade and expects to shed more. (Here's the toll of that under-enrollment, school by school.) That’s a problem, because California’s schools are funded on a per-pupil basis, and fewer students means less money.

In Los Angeles, the swift enrollment decline is due to a dwindling birthrate and growing demand for charter schools, which are publicly funded but independently run, meaning their budgets are separate from that of the district.

Over the next three years, the district anticipates its employee pension and health-care costs will climb $90 million, a 5 percent increase, while its revenue dips about $270 million, a 4 percent decline. The result is a $258 million budget deficit in 2020 that the district can no longer paper over, push off or ignore.

“We’re going to have to tighten our belts to save our schools,” said Nick Melvoin, a board member whose stark views on district finances have been criticized by skeptical local union leaders and fellow board members. “We’re in a death spiral.”

The district plans to tackle the deficit with a one-time $105 million bailout from the state and central-office staff reductions. But observers says officials will soon need to consider some painful measures it has so far been able to avoid, like boosting high school class sizes or closing schools with dwindling numbers of students.

At least 55 schools across the district are under-enrolled by a quarter, and 10 of those are half-empty, a CALmatters analysis of building capacity and enrollment data shows.

“Our costs are rising, and as a result, there are hard choices and trade-offs to make each time we look at the budget,” said Scott Price, the district’s chief financial officer.

Parent Paul Robak fears that if the district doesn’t tackle its budget problems soon, it could be taken over by the state. At a recent board meeting, he urged the members to reject a health-care spending plan that would further squeeze the budget. The members listened and thanked him for testifying before approving the agreement.

“It’s as if the board members are prancing down the lane and covering their ears, pretending nothing’s wrong,” said Robak, who has been active on the district’s parent councils for a decade. “Everyone will lose if we fail to act.”

Board member Kelly Gonez also acknowledged the district’s budget woes and the pressure of rising pension and health care costs, but said officials should be trying to ease the pain by finding new sources of revenue, not by making cuts. All but one other board member declined to comment.

Even as a fiscal crisis looms, Los Angeles teachers are negotiating for a raise.

“Everyone who works in the district comes to work with an expectation they’re going to be treated fairly. They need to be treated fairly,” Austin Beutner, a former investment banker and the district’s new superintendent, told the Los Angeles Times. “How we strike that balance remains to be seen.”

United Teachers Los Angeles President Alex Caputo-Pearl declined CALmatters’ request for an interview. However, at a Pepperdine University event held before the state bailout was announced, he pledged to keep pushing for more money and predicted that the state would come through.

“If we take it off the table,” Caputo-Pearl said, “then we are acknowledging that the public district system is going to go off a fiscal cliff, which (is something) I’m not willing to acknowledge.”


Flooded with calls from anxious school officials, Sen. Anthony Portantino of La Cañada Flintridge and several other Democrats pushed earlier this year for a fix that would boost districts’ funding by $1 billion a year. In the end, Portantino convinced Brown to include about half as much in the state budget he signed a few weeks ago.

He insisted that the money be “flexible,” meaning districts may use it to cover rising pension costs or for anything else. But California’s schools are still underfunded compared to other states, and to better fulfill their responsibility to students and taxpayers, that must change, he said.

“In a few months, we’ll have a new governor with a new set of priorities,” Portantino said. “Is there more to do? Absolutely.”

CalSTRS’ first official report on the impact of districts’ growing pension obligations is due to the Legislature in the middle of next year, when school budgets will likely be squeezed the most.

In the meantime, Fine hopes a recession doesn’t strike soon and that districts can manage their budgets without needing to make cuts or send out pink slips. He was a deputy superintendent in Riverside during the Great Recession and remembers how painful it was to carry out round after round of layoffs.

“We lost one of the best counselors and some very bright teachers. I had to layoff someone who years earlier had taught my young children how to swim,” Fine said. “I remember their faces.”

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Local Issues