Continued decline in enrollment will mean a tighter budget next year, LBUSD says

Long Beach Unified officials see some dark clouds on the horizon for the school district’s budget, according to the first interim financial report of the 2021-22 school year presented to the Board of Education on Wednesday.

Continued declines in enrollment, as well as a drop in attendance rates, are causing the district to project a loss of $54.3 million in revenue for the next school year, with ongoing challenges to come, according to Renee Arkus, the LBUSD’s executive director of fiscal services.

The district had expected some choppy waters in the current school year, but federal relief money, as well as a better-than-expected state budget, allayed those concerns. In the 2022-23 school year, however, the LBUSD expects its general fund revenues to drop by $54.3 million, to $729.8 million. The biggest causes for the drop are challenging numbers around enrollment and attendance.

Screenshot from LBUSD board meeting financial presentation on Dec. 15, 2021.

“We’ve been experiencing a 2% decline annually in enrollment, but last year was over 3%, and this year is 2.65%,” Arkus said. “We are still experiencing large enrollment drops.”

The district’s enrollment numbers have been slowly but steadily decreasing for a decade, with housing costs the most frequently cited cause. As costs rise, it’s harder for young families to purchase houses or afford rent in the city, lowering the number of school-aged children. This year’s enrollment is listed as 67,422, and the district projects a drop to 65,736 students next year.

The other challenging number is the attendance rate. The state did not count districts’ attendance rates as a funding factor last year due to COVID-19, but it has reinstated that part of its formula this year as campuses reopened. The LBUSD, like many districts statewide, has a lower attendance rate this year.

Screenshot from LBUSD board meeting financial presentation on Dec. 15, 2021.

“On average our district has been very good, with a 95-96% attendance rate,” said Arkus. “The impact of the pandemic is upon us, and we’re seeing much lower attendance this year.”

The current attendance number of 91.81% presents a budgetary challenge, as well as an educational one. Arkus said each percentage point in attendance represents about $7 million.

“That’s why we have hope that we can increase those numbers,” she said.

As revenue is dropping, the district is also anticipating rising costs over the next three years. Those increases are due to “expiration of one-time funds, increased health benefit costs, and increased retirement system contribution,” said Arkus. “We expect that some COVID-related expenses are likely to continue.”

With no additional stimulus or relief money on the horizon, those continued costs will have to be borne by the district’s general fund revenues.

Despite the warning signs in the district’s projected budget over the next three years, there’s still plenty of cushion. Former LBUSD Superintendent Chris Steinhauser began socking away money for a rainy day following the 2008 recession and subsequent LBUSD layoffs. He vowed not to let layoffs happen again.

That unrestricted reserve fund has ballooned to over $300 million this year under current Superintendent Jill Baker, and it has been a much-needed security blanket for administrators during the uncertainty of the COVID-19 budget world. That blanket will likely need to turn into a shelter over the next three years, as Arkus’ presentation shows the district tapping into the fund to the tune of $200 million over the next three years, bringing the balance down to $140 million in the 2024-25 school year.

Seeing that slide raised the concern of School Board President Juan Benitez.

“The bottom line for me is that the slide that shows where we end up with our ending balance in 24-25, that puts us below our ending balance five years ago in 16-17,” said Benitez. “Considerably below, almost $20 million below.”

Still, the Board was comfortable enough with the district’s finances and its long-term stability to unanimously pass a certification that will be sent to the state saying that the Board has confidence the district can fulfill its financial obligations over the next three years. But the budget still has a long way to go before being finalized. The governor will unveil his 2022-23 budget in mid-January, and the district will present its second interim report to the Board in March.

“We will be vigilant on what our financial projections look like next year,” said Benitez.

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