Balanced Budget Frequently Asked Questions (FAQ)

Q: Is Fremont USD the only district doing budget reductions due to deficit spending?

We are not alone in this predicament. Districts across California are experiencing the same challenge. Deficit spending is rampant across the state, largely due to the expiration of millions of dollars in COVID relief funding, declining enrollment, and increasing costs for personnel. The difference between FUSD and many other districts is that many laid off staff and reduced spending last year. In 2023-24, districts pursued significant reductions from San Francisco to San Diego to Sonoma to balance their budgets. FUSD was able to delay reductions for one more year due to its robust “fund balance,” or reserves. However, that fund balance is running out. This year, FUSD finds itself at the proverbial “fiscal cliff” and must make thoughtful decisions around cuts, just as districts across the states have or will do soon.

Q: What’s the difference between Unrestricted and Restricted funds?

Knowing the difference between “unrestricted” and “restricted” is critical to understanding school district budgeting.

Of FUSD’s approximately $500M budget, around $300M (or 60%) is “unrestricted.” Local property taxes and state guarantees largely fund the unrestricted portion of the budget. It is ongoing and is unlimited in its use. 85% of FUSD’s unrestricted budget pays for “staff,” which includes staff salaries, retirement, and benefits. Unrestricted funds are also used for day-to-day operations, such as classroom supplies, water, electricity, etc. The unrestricted budget should be balanced annually without any deficit spending.

The 40% of FUSD’s budget (around $200M) that is not “unrestricted” is considered “restricted.” These funds may also pay for “staff,” but unlike unrestricted funds, restricted funds must be used for a specific purpose. Some restricted funds are “one-time” resources (meaning once the money is used, there is no more), while some are ongoing. A lot of money provided to schools during the pandemic was restricted funds expiring this year—most of those funds paid for additional staff.

Restricted funds are usually smaller, self-contained revenue buckets. Examples include a portion of Special Education spending, Title I (federal dollars used for low-income families), and McKinney Vento (for students experiencing housing insecurity). Most expenses paid from restricted funds are fully covered by their funding source; the most notable exception is Special Education, which requires a significant contribution from the District’s unrestricted budget. Deficit spending is okay for restricted funds, as districts often try to spend down one-time dollars before expiration.

Q: Why do I keep hearing that FUSD has a “structural deficit” of $20-30 million?

Due to the unique circumstances of the pandemic and the state and federal government’s focus on supporting schools during those unprecedented times, the government chose to hold district funding “harmless” until the impacts of the pandemic were largely behind us. This means that although FUSD–and districts across the state–were experiencing significant enrollment decline, the state agreed to continue to fund school districts as though their enrollment was the same as it was BEFORE the pandemic. This was important because districts like Fremont are funded based on the number of students enrolled and attending school. The fewer students enrolled, the less funding. The “hold harmless” funding levels allowed FUSD to keep higher staff levels despite losing about 2,500 students. This is true for all districts. However, the “hold harmless” funding efforts ended this past year. This is why most districts have recently been reducing and continue to reduce staff.

In addition to declining enrollment, FUSD’s only parcel tax, considered an unrestricted funding source, is expiring. While we hope to return to the community for a new parcel tax, the dire facility needs and the respective ballot measure (Measure M) took precedence. It will likely be two more years before FUSD can return to the community to consider a parcel tax.

Lastly, costs are increasing, which is impacting our unrestricted budget. Rising costs of Special Education with little to no increase in support from the federal government, rising pension costs (which are set by the State), and fulfilling our obligation to provide our hard-working staff with a livable wage all contribute to increasing demands on the unrestricted budget.

These three impacts have resulted in the $20-$30 million structural deficit of the district’s “unrestricted” budget. We have been using “savings” or “reserve funds” to get us through, but we must find savings of $20-$30 million annually, starting with next year’s budget, to STOP the deficit spending and balance our unrestricted budget.

Q: Is the $20-$30 million structural deficit the only reduction FUSD needs to plan for?

Unfortunately, NO. In addition to the structural deficit on the unrestricted side of the budget, there are also one-time, mostly pandemic-related, restricted funds that expire at the end of this school year. These funds have paid mainly for additional counseling staff and other support services.

Added to the end of these funds is the potential impact of the expiring parcel tax. While not a “structural deficit” yet, the expiration of these one-time funds requires eliminating, reducing, or reassigning (within the budget) the program and staff currently funded by the expiring funds, should the Board decide to keep the programs and staffing paid for by the parcel tax. This results in a further increase in the reductions required to balance the budget.

FUSD anticipates approximately $9 million in additional cuts due to the expiration of one-time funding, bringing total reductions closer to $38 million before the 2025-26 school year.

These calculations do not include ongoing negotiations with our bargaining units. There is potentially a settlement for all staff that would include a one-time 3.5% payment and ongoing dental benefits for employees only (not family members). These costs would increase the need for reductions to a minimum of $24 million to sustain our 3% reserves to $37 million to balance our Unrestricted budget. After including the approximate cost of $9 million in additional cuts due to the expiration of one-time funding, the total reduction target is closer to $46 million.

Q: I have heard that FUSD has $100 million in reserves. Is that true, and why don’t we use that to reduce the impact of reductions?

It is not true that FUSD has $100 million in reserves. The state requires all school districts in CA to keep the equivalent of 2% of their expenditures in reserves as an “emergency fund.” In school finance, there is an expression one often hears: “Cash is king.” To be able to address an unforeseen fiscal emergency–which does happen–districts are required to maintain that 2% reserve. Most auditors will admit that 2% is nowhere near enough; 2% wouldn’t even cover a month of payroll for the District. Most experts recommend reserves that are much higher than 2%. As a result, FUSD has a local Board policy that requires a reserve of 3%, just slightly above the state requirement. In addition to the required percentage, the state and county require that the district budget ensure that the 2% (3% in FUSD) can be maintained for three years for the budget to be fully approved by the state and county, also referred to as a “positive certification.”

In recent years, FUSD reserves have been significant, at one point totaling around $100 million. About $50 million of those reserves were “restricted” and could only be used for the purposes dictated by the state. A large portion of that money was one-time pandemic response money that districts were directed to “hold” and spend over multiple years to cover the costs of the additional staff needed during the pandemic and the return to school following the pandemic.

Of the reserves from the unrestricted side of the budget, FUSD has spent and is currently spending the reserves to stave off staff and program reductions as long as possible. However, we have arrived at a point where, without reductions, FUSD cannot meet the 3% reserves for the next three budget cycles required by state and local board policy.

Q: What are FUSD’s reserve percentages over the years if the proposed cuts aren’t made?

FUSD has a 9.9% reserve for 2024-25. Without cuts, that reserve decreases to 4.5% in 2025-26. By 2026-27, FUSD reserves will be negative -2.7% without any reductions. This, by definition, would make FUSD “insolvent” (or “bankrupt,” by state standards) and result in the county and state taking over the FUSD Board’s fiduciary decisions.

These percentages do not include ongoing negotiations with our bargaining units. After considering the cost of a potential negotiated settlement with all staff (3.5% one-time pay and employee only dental benefits), the reserves would drop to 6.6% in 2024-25, 1.3% in 2025-26 and -5.5% in 2026-27 without any reductions.

FUSD has the opportunity now to use a “scalpel” to make the reductions that make the most sense to us, rather than waiting for the Alameda County Office of Education and the State of California to reduce our budget with an “ax.”

 

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IMPORTANT NOTE: This Balanced Budget Frequently Asked Questions (FAQ) document is regularly updated and expanded. Should you find outdated or inaccurate information OR if there are additional questions you feel the District should address, please email fusdweb@fusdk12.net. FUSD strives to provide the most accurate, fact-based information to its community.