Milpitas Unified School District's Board of Education has approved a budget reduction plan laid out by Superintendent Karl Black that will cut jobs and programs, in response to Gov. Arnold Schwarzenegger's proposed 10 percent across-the-board state budget cuts. Though several board members expressed concern at further reductions that could follow the direct $943,000 in cuts to the 2008-09 budget, the plan passed unanimously.

The actual fiscal impact of the proposed cuts on the district for next year will be $3.5 million, but the district reallocated $2.5 million in one-time designated reserves to soften the impact. Those designated reserves came from a "variety of one-time funds," according to Black.

Roughly $900,000 came from the board's decision to forego the 1 percent annual "economic uncertainty" reserves the district usually puts away each year. The 3 percent annual reserve required by the state is to remain untouched in Black's proposed 2008-09 budget. The rest of the $2.5 million will come from lottery reserves and an optional post-retirement fund that does not impact annual retiree benefits.

The 2008-09 cuts will likely lead to the dismissal of four or five full-time employees, including an assistant principal at Milpitas High School; a middle school counselor; a secretary at the district office; and one or two full-time employees from maintenance, operations or transportation. Employees whose jobs may be eliminated were notified Saturday of the approved

cuts. They will not be officially terminated until mid-May.

"We are waiting on the (revised May budget from the state)," Black said. "Until the state signs the budget, we truly won't know the outcome. My hope is to bring back some of the recent cuts, but we have to be prepared."

The cuts also include 10 percent centralized budget cuts at all school levels, a 10 percent cut in middle school and high school athletic funding, and a 10 percent cut to the centralized budget at the district office. In addition, two vacant nurse and counselor positions will not be filled.

The cutbacks will spur elimination of the Opportunities Program for Rancho Milpitas and Thomas Russell middle schools. The program allowed students at-risk of not promoting to the next grade, to work with one instructor the entire day. Roughly half of the program's students will move on to Milpitas High next year, and Black said the remaining students will be offered similar services at the district's Community Day School. No new students will be enrolled in the program.

"The Opportunities Program is a wonderful thing to have when there's money, but right now there is no money," Black said. "These are tough times. We have been able to readjust the budget to make the cuts for next year relatively minimal. Some of the cuts will be through attrition, some from retirement and open positions that we will simply not re-fill, but we do get to save some of the general fund."

Milpitas Teachers Association President Sharon Smith said she was happy that reserves were tapped instead of eliminating teachers' jobs.

"We are very appreciative of the board for spending some of the reserve to keep the cuts to as little as possible," Smith said.

While there is relief in many corners that the cuts for next year were not deeper, the elimination of the Opportunities Program may be a harbinger of deeper cuts, according to district officials, board members and teachers. If the district faces similar, or even increased cuts next year, the impact on the 2009-10 budget could be dramatically worse, since the district will have exhausted its one-time reserves.

"We were able to contain the cuts for next year to things that are supportive to what I would call our regular academic programs," Black said. "But next year, it would really be down to the bone."

Some of the cuts the district could potentially face next year include the class-size reduction program, which caps class sizes at certain grade levels to 20 students; assistant principals at the elementary, middle and high school levels; elementary music; programs; athletics; elective programs; custodial and janitorial services; district office administration; and before- and after-school programs.

"I don't know what order any of those cuts would be made," Black said. "There is a whole process that we must go through, but the situation for next year is serious."

Both Black and Smith named the class-size reduction program as possibly the most serious possible cut for 2009-10.

"That would be devastating," Smith said. "In grades one, two and three, the classes would go from 20 students to probably 33 students per class. That has a real impact on the quality of education each child receives."

The class-size reduction would also impact ninth-grade English and math classes, according to Smith.

The district had an $11.8 million ending balance after the 2006-07 school year, but the ending balance after the proposed 2008-09 budget would drop down to just $2.7 million. While the district has succeeded in greatly reducing its expenditures over the last two budget years, their revenues are also down over that period.

Though Black said the district has looked at ways to increase revenue, he said that selling district property to generate funds -- as San Jose's East Side Union High and Oak Grove school districts have recently done -- is not currently an option.

"When you sell district property, there are rules stating that those monies can only be used for capital improvement," Black said, adding that special legislation was required for the San Jose districts to use the funds from their property sales for general expenditures. Black added that the revenue generated by the leasing of district properties could legally be used for non-facilities expenses.

According to Phuong Le, assistant superintendent of business services, the three largest district properties that do not currently house district facilities -- a warehouse and retail lots on Abbott Avenue behind Marie Callender's restaurant, and the site of the Merryhill School on Yosemite Drive -- generate nearly $1 million annually for the district building fund. The building fund, in turn, will contribute $1.65 million to the 2008-09 budget.

Furthermore, Black said that the district is currently locked in a 99-year lease for the Abbott property, and that he would be leery of the selling the Yosemite Drive property, because "the needs of the district may change, and we may need to use that property."

Both Black and Le also said that dipping into the 3 percent state-mandated economic uncertainty reserve -- which is estimated at $2.5 million for 2008-09 -- was not currently being explored because of the implications that would follow.

"Even if they allow us to take money out of the fund, they require that we pay it back the next year," Le said. "And the state then sends people down to monitor our activities to see how we are operating and how we are spending our money. So we will not use that money if we can help it."

Black said, "It really demonstrates the inequities of the system. We have 1,000 school districts, and each one has a different formula for funding."

Black discussed the fact that the Palo Alto Unified School District, which has roughly the same number of students that Milpitas has, has an annual budget nearly $60 million higher than that of Milpitas Unified.

The reason, according to Black, is that Palo Alto Unified is a "basic aid" district, which has large sources of revenue based on property and commercial real estate taxes from the more affluent city of Palo Alto.

Milpitas Unified is a "revenue limit" district, which receives approximately $6,000 per student, with state funds supplementing county tax dollars to reach that minimum amount. If local property and commercial tax dollars allocated to Milpitas Unified exceeded the roughly $6,000-per-student guaranteed by the state, the district could keep and use the extra money, as is the practice in Palo Alto.

Part of the reason Milpitas Unified has not been able to exceed the minimum amount through county tax dollars, according to Black, is because of the presence of the redevelopment agency in Milpitas, which receives some of the tax dollars that would otherwise go to the school district.

"Redevelopment has done some great things for the city; we have the new library and city hall. But some of those monies do come away from us," Black said. "I'm not saying that we would definitely become a 'basic aid' district with that additional money, but it does hurt us from becoming a 'basic aid' district."

Another possible blow to the future of the district is Schwarzenegger's proposal to possibly suspend Proposition 98, which guarantees that 40 percent of the state budget will go to public education.

"Prop. 98 was suspended back in 2002-2003, but that time (Schwarzenegger) was backed by the Education Coalition. This time he does not have their support."

The Education Coalition is a statewide collection of education associations, including the California Parent-Teacher Association and the California Teachers Association.

"I think it's just starting to hit people, and you're going to see the outrage now," Black said. "We are currently working within the political process to keep (the suspension of Proposition 98) from happening."

Black encouraged parents to call and write letters to legislators, and said that pre-written letters are available for download from the Milpitas Parent-Teacher Association Web site.

"We have to collectively let the governor and the legislators know that they should not sacrifice education. This is something the voters put in, and (Schwarzenegger) is saying 'no.'"

Budget reductions for 2008-09 year

District office

1 teacher on special assignment (employee will return to different classroom; will not be fired)

1 nurse (vacant)

.75 full-time secretary

10% cut to the centralized budget

Reduction of the Community Newsletter from three to two per year

Unspecified cuts from the conference budget for the district office and school board

Total: $302,592

Elementary schools

1 assistant principal (One assistant principal will be promoted)

10% cut to the decentralized budget

Total: $139,914

Middle schools

1 employee from Opportunities Program

1 counselor

10% cut to the decentralized budget

10% cut to the athletics department budget

Total: $161,273

High schools

1 assistant principal

1 counselor (vacant)

10% cut to the decentralized budget

10% cut to the athletics department budget

Total: $243,710

Maintenance, Operations and Transportation

1 or 2 full-time employees

10% cut to the centralized budget

Total: $85,091

IT

10% cut to the centralized budget

Total: $10,000

TOTAL EXPENDITURE REDUCTION: $942,580