Schools feeling the chill of housing slump

ENCINITAS —- Officials from the Encinitas and Cardiff elementary school districts are feeling the chill of a cooling housing market.

ENCINITAS —- Officials from the Encinitas and Cardiff elementary school districts are feeling the chill of a cooling housing market.

That’s because the two districts receive most of their income directly from local property taxes.

Most of the state’s 1,000 public school districts build their budgets from state payments based upon daily student attendance.

That’s how Cardiff School District and Encinitas Union School District were funded until 2003 and 2005, respectively, when property tax receipts started to exceed those of per-pupil payments from Sacramento.

The tipping of the financial scales transformed Encinitas and Cardiff into so-called “basic aid” school districts.

Schools in Del Mar, Solana Beach and Rancho Santa Fe also are basic aid districts.

In a brisk housing market, basic aid status can mean flush school coffers. Flagging home sales can have the opposite effect.

When property sells, it is reassessed for tax purposes based on the purchase price at the time. Reassessments —- especially of property bought years ago and subject to the impacts of Proposition 13 —- fatten tax collections and, in effect, revenue for basic aid schools.

“Because property values have not been rising at the same rate they were, we should not assume there will be a continuing pattern of increased revenue,” said Lean King, superintendent of the nine-school, 5,600-student Encinitas district.

In June, the county’s Department of Auditor and Controller estimated the district would receive $30.1 million for fiscal year 2006-07. By February, however, revised figures showed receipts would total $29.7 million, said Abdollah Saadat, chief financial officer for the district. That’s $400,000 or a 1.3 percent decrease.

Fortunately, Saadat said, the district had budgeted its income to be $500,000 less than the auditor had estimated.

“We’re using caution, caution, caution,” King said of the waning property tax income. “Will it affect us? Yes it will, and we will have to adjust accordingly.”

One safeguard, King said, is to continue to assume receiving less money than the county office estimates.

Another protection, which is commonplace among basic aid districts, is to increase the sum of money held in reserves. Officials from both the Encinitas and Cardiff districts say their reserve funds will total 8 percent of expected income for the fiscal year. State law requires a minimum of 4 percent.

“Since we are very new to these (basic aid) waters right now,” Saadat said, “we basically budget very conservatively, assuming almost 2 percent less than their revenue projections, in case there is any bad news.”

Tax collections will continue through early April; the fiscal year ends June 30.

“Anything can happen,” Saadat said.

‘Watch your budgets’

The San Diego County Office of Education, which advises school administrators on financial matters, is telling officials from basic aid districts to watch their budgets and especially their tax revenues closely, said Lora Duzyk, the county’s assistant superintendent of business services.

“I don’t see such a sharp decline in the market that it’s going to cause anybody a whole lot of problems in the near term,” Duzyk said, “but if your property taxes are not growing at a sufficient rate to fund new students, then you can run into a problem.”

The Cardiff district runs two schools serving 730 students with a $6.5 million budget. Of that, $4.5 million is expected to come directly from property taxes, said Superintendent Vince Jewell, citing a January report.

“Back in October, we thought that amount would be $4.6 million,” he said. “These are moving numbers”

While property tax revenue is less than expected, the district should still receive an overall increase in comparison to the prior year’s income, Jewell said.

Revenue increases, however, are tempered by hikes in the cost of living, utilities and other costs, Jewell said.

“The truth is, basic aid districts don’t have control of how much money comes in,” said Terry Anderson, legislative director of School Services of California, a Sacramento-based firm that advises and provides lobbying for school districts.

“What they do have control over is how much they hold in reserves,” she said.

Anderson noted, and Jewell agreed, that the reassessment of property as it changes hands has partially counterbalanced the slide in home prices and new-home sales.

Be prepared

Regardless, officials from basic aid districts in Solana Beach and Rancho Santa Fe say there is no substitute for preparing for slumps in revenue.

“Basic aid districts really need to realize that in the good times, it’s wonderful —- but in the bad times, you have to prepare,” said Sandy Benson, chief fiscal officer in Solana Beach. “That’s why we have a 14 percent reserve.”

Administrators say a sudden spike in enrollment could strain budgets because a fixed amount of money would need to serve more students.

Encinitas, Cardiff and Solana Beach officials say their enrollment has been steady in recent years.

Waning property taxes could peel $70,000 from Rancho Santa Fe School District’s $8.6 million budget, said Superintendent Lindy Delaney.

Reserves can absorb that loss, but it will be painful nonetheless, she said.

“Of course, we don’t want to lose any of our revenue,” Delaney said. “We feel like we try to provide an outstanding educational program and use every penny wisely.”