Stockton Unified should go into budget with 'eyes wide open', fiscal expert says

California K-12 schools “fare very well” in Gov. Gavin Newsom’s May revise to the state’s budget and Stockton Unified should think long-term when passing their upcoming spending plan, according to an education fiscal expert.

Under Newsom’s revised budget, California school districts and community colleges would receive $106.8 billion — the same sticker-price as last year and about $4 billion less than the record education budget in 2021, which included COVID-19 money.

"As we prepare for more risk and uncertainties ahead, it’s critical that we keep the state on a solid footing to protect Californians and our progress in remaking the future for our state,” Newsom said in his May Revise announcement May 12.

School districts and community colleges lose about 40 cents for every dollar the state takes away from their overall budget, said Mike Fine, CEO of the Fiscal Crisis and Management Assistance Team, a state education audit agency.

He said the governor stayed consistent with his January budget proposal promise of an 8.22% cost-of-living adjustment, or COLA, which puts money in the base grants of the Local Control Funding Formula, California’s school funding roadmap used by districts since 2013.

“The average COLA is 3-4% — getting a COLA of 8.2% is over double the norm,” Fine said. “(COLA) is the most unrestricted general fund money there is. In exchange, they’re cutting (schools) on some one-time resources they were given this year.”

That means taking back billions of dollars schools thought they already had: half of the $3.6 billion Arts, Music and Instructional Materials Block Grant, up from about a third in January, and a third of the $7.9 billion learning recovery block grant.

Fine said California schools generally fare well with these proposed changes given the uncertainty and contraction in the economy. His only criticism of the governor's May Revise was using reverting one-time funds to an ongoing commitment.

“To the tune of over $3 billion, that means that next year, the state starts the Prop. 98 budget upside down,” Fine said. “They have an ongoing commitment to the COLA, but they don’t have ongoing dollars, necessarily, to fund the COLA … that adds to the burden a year from now of state solutions.”

With the end of the billions in Elementary and Secondary Emergency Relief money and a contracting economy bordering on a potential recession, the stars are aligning for a tough fiscal year in 2024-25, Fine said.

“The state is setting a bad example in that regard,” Fine said. “We say you spend one-time money for one-time purposes. Otherwise, you end up in a bind … the state has a lot more tools available to work itself out of that bind than a local school district does.”

The San Joaquin County Office of Education has repeatedly reprimanded Stockton Unified for it’s use of one-time ESSER funds for reoccurring costs. In January, the district had 163 jobs tied to the one-time COVID relief funds.

Stockton Unified administrators still haven’t hashed out how to use their $242 million in ESSER funds. Any relief money unspent by September 2024 must be returned to the federal government.

“This is 2023; the pandemic was three years ago. You haven’t figured out in three years what your priorities are? My goodness,” Fine said. “How can you spend ESSER funds in a thoughtful way that impacts kids and potentially protects your general fund for another year?”

Fine said the Stockton Unified’s budget team should plan long term and preserve cash when they bring their budget to the board of trustees this summer — there are no shortcuts to be made, he said. Interim Chief Business Official Joann Juarez, who leads the team at Stockton Unified responsible for building the budget, has already handed in her resignation letter.

More: Stockton Unified has ‘serious’ technical budgeting concerns, deficit spending

“Every district, especially districts that are in declining enrollment — you’ve got to think more than one year,” Fine said. “(Stockon Unified) needs to go into this with their eyes wide open.”

In February, Fine’s agency released the results of an AB 139 Extraordinary Audit that found sufficient evidence that fraud has occurred at Stockton Unified; FCMAT is also midway through a fiscal health analysis of the district.

“I would certainly hope that the district has looked at itself very carefully,” Fine said. “Clearly, they had to go pull all that data for us, and they should be noticing that data, enrollment trends … (and) the LCFF calculations.”

Fine said Stockton Unified would do well by using the May Revise as their roadmap for budgeting, as the governor’s latest proposal will likely be the most conservative of the iterations to follow as the state legislature hashes out the final financial plan.

“If the legislature and the governor agree on a different approach, it would probably be not as deep of a cut,” Fine said. “The legislature values the arts and music (grant) and learning recovery (grant). Those were legislative priorities.”

The Legislative Analyst’s Office recommends the state legislature scraps Newsom’s plan lessening the cuts to the one-time grants and reducing the COLA to 5.1%.

This article originally appeared on The Record: Fiscal expert weighs in on Stockton Unified budget amidst May revise