Old Adobe becomes 1st Petaluma school district in over a decade to see budget shortfall

Old Adobe Union School District is anticipating a budget shortfall for the 2022-23 school year and that’s expected to continue for the next two years, according to school officials, making it the only district in Petaluma to fall short in over a decade.

On March 17, the district entered qualified status, which means its expenditures exceed its funding, with the California Department of Education. Increasing salaries and declining enrollment were among the factors that contributed to the district’s budget problems, according to a district report.

The district’s general fund budget for the 2022-23 school year increased more than $4 million from last year, but its expenditures continue to grow at an unsustainable pace.

According to financial reports, the district’s expenses last year surpassed its funding by over $2,320,000, and is budgeted to go over again this year by roughly $663,000. Recent reporting by the Argus-Courier detailed the district’s allocation of more than $500,000 in salaries to five different superintendents since the beginning of the year.

Local education agencies are required to file two reports in each fiscal year that detail their financial health, the first of which is due Dec.15 and the second is due March 17. The reports include a certification of whether or not the district will be able to meet its financial obligations, classified as positive, qualified or negative status. A qualified status means a district will not meet its financial obligations for the current fiscal year or in the two that follow.

According to the district’s March 17 report, the Sonoma County Office of Education accepted its first interim report’s positive certification with “grave concerns.” The district’s budget and multiyear projections were reviewed weekly with the county.

The second interim report, submitted March 17, is what placed the district, which is comprised of six elementary schools with around 2,000 students and roughly 250 employees, into qualified status.

A 17% salary increase that resulted in part from the collective bargaining agreement between the district and Chapter 646 of the California School Employees Association were reported to “far exceed increases in the districts’s main revenue sources.”

According to the district’s general fund report, the estimated salary and benefit expenses for the 2021-22 school year were over $22 million, when they were budgeted to be roughly $1,560,000 less.

Enrollment and average daily attendance in the district was already down 7.3%, from 1,810, in the 2019-20 school year, and is projected to drop another 5.3% for the current school year.

Daily attendance affects a budget as schools don’t receive funding for students on days they are absent.

According to the Education Data Partnership, as of the 2020-21 school year, the district was receiving $14,475 per pupil — 97% of the statewide average for elementary schools.

If the funding per pupil remains the same for the 2022-23 school year, the district would receive $1,389,600 less in funding than it did two years ago.

According to the district’s March 17 report, contributions and transfers to various programs like special education and the cafeteria fund are projected to go up 19% by the 2023-24 school year, increasing spending by over $770,000.

The district reported it would use reserves to offset the deficit as a one-time source. The district is required to have a minimum of 3% of its general fund reserved.

Because the district plans to use reserves to offset its shortfall, it projects an 88% decrease in reserves by the end of the 2023-24 school year, which will put it below the 3% requirement.

“The projected reserve is fragile and could quickly be reduced or eliminated by changes including declining enrollment, lower attendance, state aid calculations, inflationary pressures, or any other significant economic uncertainty,” the district wrote in its March 17 report.

In a report issued May 26, the district suggested its budget was improving, but “financial stress is still present, and deficit spending is significant over the current and two subsequent years.”

The updated reserve projections in the report still predict a 15% drop, but that would keep the district above the minimum requirement.

It was again noted “the projected reserve is fragile” and could quickly take a negative turn because of further declining enrollment, inflationary pressures or any other significant economic shift.

According to the third interim report, the district will continue to work with the Sonoma County Office of Education to create and implement a fiscal recovery plan that will maintain financial stability within the district.

In an Aug. 11 school board meeting, Kurt Walker, the district’s chief business official, submitted a revised report for the 2022-23 school year that showed a projected $5,500,00 increase in funding, but that wouldn’t guarantee a fix to the district’s issues.

“These sources include a mix of funds which are more restrictive in nature and have specific allowable uses. The impact the funds will have on the District’s financial health and budget certification will depend on its ability to be creative, collaborative, and fiscally-responsible while providing services for our students,“ Walker wrote in the executive summary of his report.

Contact staff writer Rebecca Wolff at rebecca.wolff@sonomanews.com.