Lake Oswego School District could face a $1.66 million shortfall in the 2017-18 fiscal year, with a projected increase in retirement benefits and other personnel costs offsetting an anticipated 5.8 percent increase in state funding.
The LOSD's proposed General Fund budget for 2017-18, which was reviewed by the district's Legal Budget Committee on May 3, shows a spike in expenses that is largely due to hikes in personnel costs. Contributions to the Public Employees Retirement System (PERS) are expected to jump by an additional $2 million per year, and district employee unions are negotiating new contracts this year.
In addition, the LOSD is budgeting $1.25 million for new curriculum, mainly for science.
But revenues also are expected to rise, with steady growth in property values generating more revenue through the local option levy. A financial decision to issue debt at lower interest rates has also helped to pad the district's reserve fund, and no cuts or layoffs are planned.
"We have the good fortune that we have some reserves, and we are cautiously optimistic the state will improve on their initial statewide K-12 funding allocation," said Stuart Ketzler, the LOSD's executive director of finance.
Still, total projected revenue in the proposed LOSD budget for 2017-18 is only about $74.8 million, while expenditures from the General Fund are estimated at $76.46 million.
The biggest projected expense for the LOSD is the increase in PERS rates, which take effect on July 1. In the 2017-18 fiscal year, the district expects its retirement contributions to jump from $7.5 million in 2016-17 to $9.8 million.
Meanwhile, contracts with the teachers and classified staff unions are expected to be finalized in June. Negotiations are still underway, but the 2017-18 budget is predicated upon a 2 percent cost-of-living increase in salaries and wages, as well as some step increases. Overall, salaries are projected to increase from $36.9 million in 2016-17 to $38.2 million in 2017-18; health benefit costs also will jump, from $11.5 million in the current fiscal year to $12.04 million in the coming year.
Other major expenses in the proposed budget include $1.25 million for new textbooks and $250,000 in related technology costs. The district must replace some textbooks and upgrade its tech because of Next Generation Science Standards adopted by the Oregon State Board of Education in 2014. Those standards will be implemented beginning in 2017-18.
Unpaid furlough days, which were eliminated from district budgets at the outset of 2015-16 after being used to cut costs for several years, will not return in 2017-18.
One piece of good news is the proposed $7.8 billion state fund for schools, a 5.8 percent increase for the 2017-19 biennium, Ketzler said, or 2.85 percent per year. LOSD's allocation amounts to about $63.5 million for the General Fund for the next fiscal year, up from $62.6 million in 2016-17.
"It's not as dismal of a prediction as it's been in recent years," School Board Chair Sarah Howell told The Review.
School Board member John Wallin said it's not enought of a rise in school funding.
"It's an increase but because of increased costs it's below current spending levels," Wallin said.
Ketzler agreed, adding that the LOSD will fare better in 2017-18 "especially relative to other districts." For example, Portland Public Schools, the Beaverton School District and the Reynolds School District all are anticipating layoffs to help cover increasing costs. The LOSD is not.
Despite the $1.66 million budget gap, local officials say they will be able to avoid layoffs or cuts by tapping into a $13.6 million reserve fund that has been bolstered by careful financial planning.
"We're keeping things afloat due to good financial management," Ketzler said.
In 2002-03, the district took advantage of an arbitrage a strategy to sell bonds — or "issue debt" — which helped to offset some anticipated PERS costs, saving $4.4 million the last six years alone.
"We issued debt at a lower rate than PERS uses to calculate employer contribution rates," he explained.
Another key to revenue increases is the local option levy, which is projected to bring in $9.9 million next fiscal year thanks to increasing property values in the district. That's close to $4 million more than in 2012-13 or 2013-14, when property tax revenues stood at about $5.9 million. It continues a trend, as that figure was $9.55 million in 2016-17.
The district also is counting on an estimated $1.5 million from the Lake Oswego Schools Foundation in 2017-18 to help support teachers' salaries. About 80 percent of General Fund expenses will be allocated to people, LOSD Superintendent Heather Beck said.
"Education is all about people," Beck told The Review. "The greatest percentage of our resources is dedicated to staffing our schools and classrooms."
The overall budget
Officials caution that the overall proposed budget for 2017-18 may make it look like the district has a lot more money in its pocket than it really does. At this point, the proposed budget sits at $310.4 million because it assumes the passage of Measure 3-515, a $187 million bond package on the May 16 ballot that would pay for seismic upgrades and address deferred maintenance at local schools.
The bond would also fund the replacement of Lakeridge Junior High and the district pool, in addition to security and technology upgrades and more. If you don't count the bond, officials said, the proposed budget is actually $123.4 million — much closer to the 2016-17 budget of $106.3 million.
Howell said that the extra dollars for maintenance included in the bond measure are crucial to the district because the LOSD deferred maintenance for many years in favor of programs and personnel. The problem predates the recession, she said, and goes back as far as Measure 5 in 1990, when the amount of property tax revenue schools could use was capped.
Howell said the effects can be seen everywhere, but particularly in deferred maintenance. In 1990, for example, the district had 68 full-time-equivalent positions in maintenance, custodial and work crews. Now there are 37 FTEs in those areas. Howell said that's why the bond is so crucial.
"We don't have the dollars to address 27 years of maintenance," she said.
Howell and her fellow School Board members will vote on a final budget in June.