MUSD's Financial Situation Continues to Deteriorate as Board Prepares to Approve 2024-25 Budget

Steep decline in projected revenues will continue to deplete school district reserves over next few years; school bond measure likely headed to November ballot; busy week ahead at City Hall

The Martinez United School District anticipates spending roughly $4.2 million more than it will take in during the 2024-25 school year, continuing a structural budget deficit that is significantly depleting its reserves.

The school board is expected to approve the budget at Monday night’s meeting, following a presentation June 10 by Chief Business Official Andy Cannon that offered some snippets of good news (enrollment is stabilizing after years of steep declines) amid an overall concerning picture of the district’s finances.

The district’s deficit spending is being driven by a steep decline in anticipated revenues, resulting from state funding, local property taxes and the federal government, along with relatively flat spending in which significant budget cuts have been largely offset by significant pay increases granted in recent years to address the cost-of-living challenges facing district employees and the need to recruit and retain quality educators.

“That deficit spending, we will need to address as we move forward with budgets over the next few years,” Cannon told the board on June 10, adding that it is “easily the greatest challenge that we see to the district’s financial position.”

Cannon also noted that the district is largely at the mercy of events at the state Capitol, with a multi-billion dollar statewide deficit “looming over everything happening in California.”

A state budget deal was announced Saturday morning by Gov. Gavin Newsom that softened cuts to school funding. Cal Matters, a nonprofit statewide news website, reported:

The budget deal shrinks a proposed cut to schools funding, following a tense negotiation with education groups during which teachers unions ran a television advertising campaign criticizing Newsom. About $5.5 billion will be delayed until future years.

For MUSD, the bottom line is that the board will be passing a 2024-25 budget in which the district anticipates meeting all of its financial obligations for both that year and the two succeeding school years.

But it won’t be easy.

Of most concern, district projections show that its heretofore healthy unrestricted reserve fund will barely meet the 3% state requirement by the 2026-27 school year, reflecting a $9.7 million decrease in district reserves over the next two years. That compares to an anticipated reserve level of 8.4% in 2024-25.

In addition to funding recent increases in employee pay totaling 25 percentage points over the past three years, MUSD is having to devote significant sums to pay for unfunded special education services that it is required by law to provide. Meanwhile, district revenues have declined by 7.9% stemming from decreases in state funding through the Local Control Funding Formula (LCFF), expiring federal funds and “a conservative estimate of local funds resulting from facility rentals and medical reimbursements.”

In all, the district anticipates spending $62.4 million in 2024-25 while taking in $58.2 million, resulting in a structural deficit of $4.2 million.

Cannon’s budget presentation for Monday’s meeting notes that while the rate of deficit spending in the district is declining, it won’t be sufficient to balance the budget, and that future budget cuts will be needed in staffing, supplies and materials and services to maintain a minimum reserve balance.

The 2024-25 budget presentation can be viewed at the following link:

https://simbli.eboardsolutions.com/Meetings/Attachment.aspx?S=36030321&AID=824326&MID=30983

School bond measure likely headed to November ballot

After narrowly failing to secure voter passage in 2022 of a new bond measure to fund district construction and infrastructure projects, the MUSD board is gearing up to take another shot at the ballot in November. A proposed measure that will be discussed at Monday’s meeting would authorize $90 million in bonds to “modernize/construct classrooms and school facilities; make health, safety and security improvements; construct career/technical education classrooms; and renovate facilities at Martinez junior and senior high schools.” If passed as proposed, the bond would cost district property owners approximately $38.42 per $100,000 in assessed valuation (this would be on top of the two other bond measures, passed in 2010 and 2016, that district property owners are currently funding). That rate would be expected to continue through fiscal year 2058-59.

In 2022, Measure K fell about 2.5 percentage points short of the 55% required for passage, despite over $52,000 in campaign contributions supporting it (mostly from business and labor interests that stood to benefit directly from its passage).

Monday’s board meeting begins at 6:30 p.m. at the district office, 921 Susana St. The agenda can be viewed at the following link:

https://simbli.eboardsolutions.com/SB_Meetings/ViewMeeting.aspx?S=36030321&MID=30983

What’s on tap at City Hall this week

This will be a busy week at City Hall, with several meetings scheduled. Here’s a rundown.

On Tuesday, the Planning Commission’s agenda includes a public hearing to consider recommending that the City Council approve amendments to the Growth Management Element of the General Plan. The proposed amendments consist of the following:

• Adding reference to the existing county half-cent transactions and use tax

• Adding the requirement for a Transportation Impact Report/Traffic Impact Study for any project estimated to generate more than 100 net new peak-hour regional trips, pursuant to Measure J (the county’s transaction and use tax passed in 2004).

• Adding a definition for Regional Transportation Planning Committee

• Referencing the Routes of Regional Significance

• Expanding the definition of Action Plan

• Modifying the goals, policies, and implementation measures for consistency with the General Plan 2035

On Wednesday, the City Council will hold a study session at 5:30 p.m. to discuss the city’s latest efforts to spur the creation of affordable housing, including a proposal to offer incentives, including fee waivers, for developers to consolidate lots to facilitate the building of such housing.

According to a staff report for the meeting, the average parcel size of undeveloped or vacant land in Martinez is 0.49 acres, below the 0.5-acre minimum that the California Department of Housing and Community Development considers suitable for the creation of lower-income, multi-unit housing. Only 22% of such land in the city measures at least 0.5 acres.

“Development trends indicate that lot consolidation is an increasingly widespread and important tool for facilitating residential development,” the staff report reads, noting that Concord so far is the only city in Contra Costa County to have implemented a lot-consolidation program.

The study session also will explore a process known as “project phasing,” which permits a developer to break a largescale development project into smaller, more manageable stages. “This approach allows for the gradual completion of the project, reducing financial risk and allowing for adjustments based on market conditions and community feedback,” according to the staff report.

The main item of note for the regular City Council meeting following the study session will be a fiscal year 2024-25 mid-cycle budget report. As is the case with the school district, the city is facing serious financial headwinds as it struggles to generate sufficient revenues to meet spending obligations. According to the city staff report on the budget:

The city is facing more pronounced financial challenges than in recent cycles. While revenues are anticipated to be higher than in FY 2023-24, there continues to be a softening of consumer spending, further reductions in cannabis sales, and lower-than-anticipated charges for services, which are requiring budget cuts across city departments.

The report also notes the need for the city to rebuild its reserve fund after transferring $2.8 million from it in recent years to fund various projects and needs, primarily at the marina.

City projections show general fund tax revenues increasing by about $466,000 in 2024-25, with increases in property tax revenues largely offsetting the decline in sales and use taxes.

Agendas for the previously discussed meetings, including how to attend on Zoom, can be found at the following link:

https://www.cityofmartinez.org/government/meetings-and-agendas