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Del Norte Unified School District’s assistant superintendent of business warned trustees to brace for budget deficits for the next two fiscal years.

With increased costs associated with the California State Teachers Retirement and the Public Employee Retirement systems and a 1 percent increase in staff salaries, the district’s projected expenditures are greater than its revenues, Assistant Superintendent of Business Jeff Napier told trustees Thursday.

The district is projecting a $450,000 deficit in 2019-2020 and a $375,000 deficit the following year, Napier said. DNUSD will dip into its reserves to pay the bills this year and next year, he said.

“The third year out, we’re possibly really decreasing our reserves,” Napier said. “We need to meet early in the fall and start looking at what a fiscal plan could be for the district in case things go south or things are working out the way we want it — what are our priorities? What are the things we absolutely will do? What are the things we would look at for cuts?”

Four DNUSD trustees approved the budget Thursday. Board president and District 3 representative Frank Magarino was absent.

The district’s total revenues for 2019-20 are projected to be about $44.4 million, roughly $400,000 less than revenues for 2018-19, Napier said. This includes an increase in Local Control Funding Formula monies of about $1.2 million to $1.25 million, he said.

The Local Control Funding Formula allocates extra funds to school districts based on its percentage of foster students, homeless students, low-income students and English language learners. Each year the district is required to show how those dollars will benefit high-needs students in its annual Local Control Accountability Plan.

Other state funding to the district is expected to increase by $1.1 million, Napier said. But due to decreasing enrollment and cuts in other sources of state dollars, DNUSD will receive less money for the 2019-2020 fiscal year, he said.

Currently 3,415 students are enrolled in DNUSD schools, according to Napier’s budget report. Next year’s projected enrollment is 3,388 students. Projected enrollment for 2020-21 is 3,401, according to Napier’s budget report.

The ending fund balance for the 2019-2020 fiscal year is projected to be $4.5 million, about 9.8 percent of the district’s total revenues, he said. California school districts are required to have a reserve of 3 percent their total revenues. The average school district has a reserve of about 17 percent, Napier said.

Napier also noted that even without a 1 percent increase in compensation, employee costs are increasing annually as classified and certificated staff move across the salary schedule.

If the school board had approved the 5 percent raise certificated staff had initially requested, Napier said, the state would have given the district a negative certification on its first interim financial report.

The state assigns a negative report to school districts that are unable to meet their financial obligations for the current or following fiscal years, according to the California Department of Education.

Meanwhile, Napier said the state budget, which Governor Gavin Newsom signed Thursday, was expected to allocate more money to K12 districts for special education. However, district officials don’t know how much that extra special education funding allocation will be and if it can only be used to increase special education services, Napier said.

“There’s a thing called MOE, which stands for maintenance of effort,” he said. “And one of the things with special education maintenance of effort is whatever we spent this year we have to spend at least that much next year.”

DNUSD’s special education budget is about $7.2 million with about $5 million coming from the district’s general fund. If the extra special education dollars don’t count toward the district’s maintenance of effort requirement, Napier said the $5 million general fund money could be used for other things.

Newsom signed the $214.8 billion California budget on Thursday. This includes $147.8 billion in the state’s general fund and creates the largest reserve in its history, according to a press release from Newsom’s office.

The budget includes allocating $5,000 more per K12 student than eight years ago and invests $90 million to address the state’s teacher shortage and $43.8 million for teacher training and resources. California’s budget also provides a 19.3 percent increase in special education funding, according to the governor’s office.