Is MDUSD Again Headed for Major Financial Problems?
By Kent Caldwell
After several years of big funding increases from the State, MDUSD is now experiencing a sharp negative swing in its financial picture. Since last year, MDUSD has been projecting continuing deficits through 2019, but now, with the completion of new labor contracts, those figures are being revised to show more serious deficits in the coming years, which will erode the district’s general fund cash reserve even faster than anticipated.
Since we are being told by opponents of NUSD that MDUSD’s size and availability of supplemental funds will leave it less vulnerable to budget problems than NUSD, we should look at how MDUSD is making use of those supposed “advantages”.
MDUSD started this 2016-17 school year with an estimated $90.4 million general fund reserve, and the district’s “2016-17 Adopted Budget”, approved last summer, projected that reserve to fall to $80 million by this coming summer. Further deficits and further declines in the reserve were already projected into 2019:
|Reserve as a % of Annual Expenses||
Evidently, a lot has changed since last summer. The district’s “2016-17 First Interim Report”, released in December, was the first report to reflect the impact of labor contract negotiations completed in the second half of last year, and it shows continuing deficits of $25-30 million.
Now, the district projects the general reserve will fall to $68.5 million by this coming June – about $12 million lower than anticipated last summer. The Interim Report also now shows lower reserve balances in coming years as well – $44.2 million in June, 2018, and then a further decline to $15.8 million in June, 2019. Information from the district gives no indication what, if anything, will reverse or even stabilize this downward path, which cannot continue indefinitely.
|Reserve as a %
Bottom line, the reserve balance projected in June, 2019 is now projected to be sharply lower – two-thirds lower ($30 million) — than the estimate that MDUSD made in the budget adopted just last summer. If estimates can deteriorate that much in six months, how much confidence can residents have in the district’s 3-year projections?
MDUSD is rapidly using up its cash. But it’s also using it up a lot faster than the district thought they would, even last summer. If the latest projection holds, and the general fund balance falls to just $15.8 million by June 30, 2019, the district would have just 4.4% of estimated 2018-19 expenses, or about two weeks’ worth of expenses, in reserve.
Given the infamous volatility and timing of state funding, is it wise to operate with such a thin margin? And given the on-going deficits, what about the 2019-20 year and beyond? Once again, to put MDUSD in perspective, it helps to look at other local districts.
In stark contrast, the other two large unified school districts in the county are projecting much healthier general fund balances by June 30, 2019. San Ramon Valley Unified School District projects a balance of $51.9 million, or 15.5% of estimated expenses, and West Contra Costa Unified School District projects a balance of $48.9 million, or 13.6% of estimated expenses.
Once again, MDUSD compares poorly with other nearby districts. We have been told that because MDUSD is a large district, with lots of LCFF Supplemental funding (which is supposed to be targeted to disadvantaged students, but which MDUSD allegedly uses for general purposes), that it will be more financially sound. The list of districts below includes both large and small districts, as well as ones with lots of supplemental funding (WCCUSD) and very little (SRVUSD). No matter. MDUSD still shows the worst outlook:
With expenses exceeding revenue by $25-30 million per year through 2019, MDUSD cannot continue on this course indefinitely. The steep decline in the general fund balance over the next 3 years raises obvious questions:
Where is MDUSD headed financially?
Is MDUSD expecting to receive significantly more revenue from the State in the coming years to offset these higher costs? This would be very optimistic, considering the many problems and funding priorities that the State faces, including a $1.6 billion deficit by this summer.
Is MDUSD planning program cuts or layoffs to close these annual gaps?
When people say the size of the district, or the types of funding it has, will somehow protect it from financial troubles, remember this: the responsible districts will usually make due with the income they have; for the less responsible ones, it will never be enough.
Defenders of MDUSD have been boasting about the district’s improved fiscal management. The trend and data above should lead everyone to question that claim. For those of us who remember the steep cuts in MDUSD personnel and programs in the last recession – cuts that went far deeper than the actions taken by neighboring districts – we have to be concerned.
2016-17 Adopted Budget (see pp 24 and 143)
2016-17 First Interim Report (see pp 14, 15, 105)