Shortfall in tax revenue forces school district cuts

PALO ALTO — Teachers will not get negotiated bonuses and the Palo Alto Unified School District might tap into its reserves as administrators struggle to explain a drop in projected property tax revenue growth that resulted in a $5.2 million budget shortfall.

School board trustees hope to get answers at a meeting this week to how district administrators’ projections could be so far off from actual assessment data released this month by the Santa Clara County Assessor’s Office.

Trustees also will give direction on how the budget should be amended. At least one trustee has suggested cutting administrators’ raises and not teachers’.

The study session is scheduled for 4 to 6 p.m. on Wednesday at the district office, 25 Churchill Ave.

This will be the first time trustees are meeting on this matter. Officials are not expected to amend the budget to resolve the shortfall until after August, when revenue information is available from the county Controller’s Office.

Property tax revenue growth will be slightly lower than 5.34 percent after the controller factors in tax refunds, school district Chief Business Officer Cathy Mak said in a memo earlier this month.

Concerns over the school district’s budget gap arose from updated propertytax revenue numbers this month that show revenue will be about 3 percent lower than the school district projected.

Property assessment data shows only a 5.34 percent growth in July versus the 8.67 percent projected.

The number was 8.62 percent in June, so the July number is a “surprise,” Mak said.

The district’s finance office depended on June figures in proposing the budget for the upcoming school year. June figures provided a “reasonable basis for estimates in past years,” and for the last three years, the July numbers have been higher than June numbers for the district and countywide, Mak said.

Mak said the drop in assessment growth is primarily because of a large exemption of $1.1 billion this year from the expansion of Stanford Hospital.

The good news is the district is expected to have overall gains in property tax revenue this year compared to 2015-16, with an assessment roll of about $35 billion versus about $33 billion.

Superintendent Glenn “Max” McGee said that officials are concerned, but the district is not in an “emergency crisis” situation.

“The projections were lower than we thought, and it does have an impact and we do have to make some adjustments this year,” McGee said. “But we have that safety valve in the contract language, which was wise to include. We can manage this. We’ll look at an assortment of solutions.”

District staff is working to understand what happened so that such a projection discrepancy does not happen in the future, McGee said.

“We’re trying to figure out how we missed our projection so much,” McGee said. “It’s uncharacteristic.”

School board trustees will consider a proposal by McGee and Mak on how to make up the shortfall without making program cuts by relying on:

$375,000 left over from n last year’s budget set aside to hire teachers;

$919,000 that would n have transferred into reserves;

$1.2 million from reserves; n

$1.2 million in bond n funds allocated for computer updates.

The shortfall is curbed from $5.2 million to $3.7 million because the district’s negotiated deal with teachers includes a stipulation that bonuses will not be paid if property tax growth is 1.5 percent short of projections.

Mak projected property tax growth of 8.67 percent in the next school year, 7.83 percent for 2017-18 and 5 percent after.

School board Trustee Ken Dauber has said Mak’s estimates are too optimistic. The district, Dauber said, made itself fiscally vulnerable by adopting a budget and teachers’ contract too dependent on the projections.

Dauber was concerned during the teacher contract discussions that the raises were too high (trustees approved a 5 percent raise retroactive to July 1, 2015; a 4 percent raise for the 2016-17 school year; and a 3 percent raise for 2017-18). He instead proposed raises of 3 percent each year, which he estimated would save the district $4 million and prevent today’s budget shortfall.