The Big Costs Driving San Diego Unified's Looming Shortfall

This story was originally published by the Voice of San Diego and can be found here.

San Diego Unified expects to have to cut $41 million for the 2019-2020 school year. Some of the growing costs, like health care, are largely outside the district’s control. But one major cost was very much within the district’s control: extra employee raises.

Grappling with multimillion-dollar budget cuts has become the norm for San Diego Unified School in recent years, and the next two years will be no different.

The district expects to have to cut $41 million for the 2019-2020 school year.

But chief business officer Greg Ottinger told the board of trustees in June that because the amount the district must cut is the same average amount the district’s operating costs are rising annually, that’s evidence the district is being a good steward of public money.

“With these numbers being consistent, that would signal the fiscal responsibility and not overspending. It’s simply us keeping pace with the increased costs that we are facing,” Ottinger told the board June 19.

Ottinger singled out five areas of growing costs that are largely outside the district’s control: “These are pensions, utilities, special education, health and welfare, and then again, step and column raises for our employees,” that are guaranteed by contracts, he said.

Some of those expenses are also putting financial pressure on other California school districts, despite increased state revenue in recent years.

What Ottinger left out of the discussion was a major cost very much within the district’s control – one officials were warned would darken its financial outlook: extra employee raises.

Here’s what we know about the factors contributing to the district’s deficit.

Built-In Raises: From 2019 to 2021, district spending on step and column raises – raises built into contracts that guarantee increases when an employee hits a certain longevity or education benchmark – is expected to increase by an average of $12.8 million annually, according to the district’s adopted 2018-19 budget.

Health and Welfare: San Diego Unified covers 100 percent of employees’ health and welfare benefits. From 2019 to 2021, district spending on those benefits is expected to increase by an average of $8.4 million annually, according to the district’s budget.

Pensions (STRS and PERS): Numbers provided by the district in January show total district spending on pensions will rise an average of nearly $16 million a year from fiscal year 2016 to 2020, reaching nearly $153.6 million.

Utilities: District officials project utility costs will increase by $100,000 annually from fiscal year 2019 to 2021, rising gradually from $26.1 million to $26.3 million.

Special Education: Special education costs are expected to grow an average of $13.6 million annually from fiscal year 2019 to 2021, rising from $213.1 million to $240.3 million, district estimates provided to VOSD show. But Ottinger told the board those increases are mainly attributable to rising employee costs for pay and benefits, not program costs.

Add up all five line items and you get an average of $50.8 million in new costs each year, with pensions as the highest contributor at $16 million per year. But because employee compensation increases are already accounted for in the other line items, the special education expense should be subtracted to avoid double-counting.

That brings us to $37.2 million in new district costs each year on average.

School board members were told they had to close a $34 million budget shortfall in January for the 2018-19 school year. Instead, to limit layoffs to a few dozen, the district leaned on one-time funds to cut just $8.5 million.

Shortly thereafter, school officials negotiating with the district’s labor unions eyed more raises.

The prospect attracted concerns from the San Diego County Office of Education, which noted any increase in ongoing expenses – like salaries – would require cuts somewhere else in the budget. The warning wasn’t heeded.

In April and May, the school board approved across-the-board raises totaling 2 percent for all employees, plus another 1 percent payout.

The cost of those raises will average nearly $21 million annually from fiscal year 2019 to 2021, according to the district’s 2019 budget. That’s more than pensions, or any other cost Ottinger flagged.

Ottinger did not respond to multiple inquiries about the omission, but district spokeswoman Maureen Magee responded in an email.

“There are costs associated with recruiting and retaining qualified staff in the district,” Magee wrote. “The goal is to be transparent with the SDUSD community with updated information as it is available from local, state and federal agencies.”

Here’s how all the rising expenses compare, with the caveat that the special education total is largely accounted for in the other categories.