Nick Kato

Question:

What is your perspective on the current deficit spending pattern of CUSD?

Answer:

As a former Senior Partner and CPA at a global accounting firm, I am excited to bring my financial expertise to the CUSD School Board to help the community better understand the financial state of our schools and to find creative solutions to our current budgetary deficits. From my perspective, the funding problems facing the schools are dire. It is imperative that we find meaningful and sustainable ways to minimize the current deficits so we can continue to provide our students with the quality education we all hope to provide to the children in our community.

It may come as a surprise to some that CUSD’s current operating budget is in a multi-million dollar deficit. Many people assume that CUSD’s affiliation with the City of Coronado (“the City”) would provide the schools with an abundance of resources. However, the City and CUSD have distinct funding sources and operate independently. Therefore, while the City has ample reserves and operating cash flow, CUSD currently operates at a significant loss each year. Moreover, CUSD’s operating reserves are forecasted to be depleted in less than 5 years. This means that if we do not come up with alternative solutions soon, our schools will be forced to make severe budgetary cuts or may be taken over by the State of California.

How did we get here? To understand our current funding deficits, we must first understand our funding source. Currently, CUSD is funded through the Local Control Funding Formula (LCFF). Under LCFF, school districts are allocated funds based on a variety of factors including the demographics of the student population. As a result, CUSD receives substantially less funding than neighboring school districts, even though Coronado residents pay significantly higher amounts in property taxes than residents in the other school districts. The good news is that by 2027 (potentially sooner), certain financial obligations will be repaid to the State of California, which will allow us to switch our funding formula to Basic Aid. Under the Basic Aid program, CUSD’s funding will be based on a percentage of the property taxes paid by the residents of Coronado. The current estimate is that by switching from LCFF to Basic Aid CUSD can expect an additional $10 million a year in funding.

What does this all mean? It means that we need to find ways to increase funding and minimize expenses as we bridge our finances to Basic Aid. However, from my perspective, we also need to have a plan to right size the budget in the long-term, if legislative changes are enacted making the Basic Aid program unavailable in the future.

What can we do to fix this? Although teacher compensation represents 83%+ of the current budget, the teachers at CUSD, on average, make less than neighboring school districts. The remaining 17% of the budget may have some areas that could be improved on. However, the tweaks will not be significant enough to balance the multi-million-dollar annual operating deficit.

Having had dozens of discussions with CUSD Board members and members of the School Administration to brainstorm about these specific challenges, one idea is to partner with the City to find ways to accelerate payments from the City to CUSD to help bridge the School’s finances to Basic Aid. For example, the City currently pays CUSD approximately $370,000 a year to allow residents of Coronado to use some of the CUSD facilities. What if we could get the City to agree to pay CUSD $1M a year for the next five years, and a substantially reduced amount for the next 15 years? Economically the City would be in the same place over the 20 year period, but CUSD would have access to the cash when it needed it most!

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