Newport-Mesa schools budget expected to produce surplus
The Newport-Mesa Unified School District board adopted a budget this week that shows projected revenue higher than expenditures as the district aims to maintain at least a 4% reserve by the end of the school year.
Paul Reed, the district’s deputy superintendent and chief business official, presented the final 2016-17 spending plan Tuesday night — his last budget before he retires Dec. 30.
The plan projects $285.3 million in revenue and $280.6 million in spending. Newport-Mesa relies primarily on property taxes for revenue.
The budget adopted last September for the 2015-16 school year also showed revenue exceeding expenditures, breaking a potentially dangerous trend for the district’s finances.
In 2014-15, expenses exceeded revenue by $8.3 million; in 2013-14, expenditures were higher than revenue by $6.5 million. Trustees dipped into reserves both years to make up the difference.
But in 2015-16, “your annual revenue of $287 million was more than your annual expenditure [of $257 million],” Reed told the board Tuesday. “In other words, we did not deficit spend in 2015-16. We are conservative in how we budget.”
Before last school year, the last time the district’s revenue had exceeded its spending was 2011-12.
Reed reminded the board that the district runs on three things: enrollment and staffing, projected income flow and how much money the district has in reserve.
Reed assured trustees that those factors are holding steady at Newport-Mesa.
“If you manage those things, you’ll be fine,” Reed said. “What tends to happen is people get excited and spend too much money, then the money doesn’t show up next year.”
The reserve is the portion of revenue that is unspent. After the 2015-16 school year, Newport-Mesa was able to meet a 4.11% reserve level. Though the district is required to meet only a 3% reserve, the board’s goal has been 4%.
Last year’s reserve carries over to the current school year, and the projected revenue surplus would add to it.
But Reed noted that pension benefits, in particular, are skyrocketing.
“Your bigger problem is looking at pension benefits overall. … What’s going up is the cost of benefits,” Reed said. “Now ... 86% of your expense is going to be in [overall] compensations, and that, again, is due to the increase in benefits.”
The remaining 14% of expenses go toward non-employee costs such as books, supplies and other services and operating expenditures.
Reed also told the board that pension costs will drive future expenditure growth.
“For the next three years you’re going to see increases in STRS [State Teachers’ Retirement System] and PERS [Public Employees’ Retirement System] at about 2% a year. … That’s the big problem,” Reed said. “That’s the problem for other districts up and down the state.”
Reed’s own retirement benefits have come under public scrutiny this year after John Caldecott, the district’s former director of human resources, brought to light that the district for years has been putting money into a separate retirement fund for Reed as an incentive for him to delay his retirement.
That money is in addition to what Reed will receive in his pension.
As of April this year, the district had paid $339,346 in tax-deferred money to Reed over the past decade through the separate retirement fund and through checks payable to him as a vendor instead of through the traditional payroll system.
Reed assured the trustees Tuesday that the district’s finances will remain steady this year, assuming they don’t spend more than they take in and they maintain their reserve to deal with uncertainties.
“We draw this at the beginning of the year and keep everything consistent. … So by the time we get to the end of the year, we’re fine,” Reed said. “I feel very good about this. … With that, we can say we’re balanced.”
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Alex Chan, [email protected]
Twitter: @AlexandraChan10
