Update: September 7, 2023
As we continue to monitor the Huntington Beach City School District’s (HBCSD) possible transition to a community-funded revenue model, we want to provide our community with currently known information.
State revenues have historically funded HBCSD, but in recent years, we have been monitoring our status as local property taxes will likely outpace State funding in upcoming years.
About 10% of the 1,000 California school districts are funded primarily through local property taxes, also known as “community-funded” or “basic aid” districts.
The State calculates annual allocations for school districts using the Local Control Funding Formula (LCFF). Local property taxes are counted first, and if local property taxes are less than the LCFF funding target, the State provides the difference to meet the district's funding target. However, with community-funded districts, local property tax revenues are enough to cover the district's funding target. These districts keep their local property tax revenues for education purposes. Also worth noting, community-funded districts still receive some money from the State–about $120 per student–the minimum funding required by the State Constitution.
Typically, community-funded districts have relatively higher property tax bases. Still, it is important to note that districts determine their property tax revenue well into the fiscal year, and future projections are volatile. Community-funded districts usually maintain a reserve level higher than 3%, and HBCSD Board policy requires an additional 4% of annual expenditures to ensure financial stability and meet its obligations.
According to the revenue projections for June 2023, the District may shift to a community-funded status during the 2023-24 fiscal year. However, it's important to note that the gap between the projected local taxes and State funding is quite narrow. As a result, reductions in estimated property taxes could potentially revert the funding model back to state-funded.
Our transition status remains fluid, and we will update revenue projections in November to incorporate actual enrollment, attendance, the Orange County Auditor-Controller property tax estimates, and other factors that affect the funding calculation to determine if we transition to community-funded status in 2023-24 or 2024-25.
We will continue to update you as we move forward. Please review our User-Friendly Budget (September 2023 Edition) and visit our webpage for more information. Thank you for your ongoing support, and we look forward to continuing to serve our community.
There are two ways California school districts are funded: community-funded and state-funded. Huntington Beach City School District is a state-funded district. However, in recent years we have been monitoring the potential transition to community-funded status. Below are some of the frequently asked questions (FAQs) you might find helpful.
What does community-funded mean?
A community-funded district, also known as a basic-aid district, receives most of its funding from local property taxes because local property tax revenues exceed the State's guaranteed funding under the Local Control Funding Formula (LCFF) calculation.
Community-funded districts are allowed to retain all of their allotted property tax revenue, and State contributions to a community-funded district's budget are minimal.
Is the District in community-funded status this year?
Our transition status remains fluid and we will update revenue projections in November to incorporate the Orange County Auditor-Controller property tax estimates, actual enrollment, attendance, and other factors that affect the LCFF funding calculation to determine if we transition to community-funded status in 2023-24 or 2024-25. Given that property tax revenues for this year are near the state-funded allocation, we will continuously update our calculations throughout the year as we receive information on tax collections from the Auditor-Controller.
Why didn’t we become community-funded in past years as anticipated?
The transition to community-funded status for our district did not occur as anticipated in the past years due to the impact of the COVID-19 pandemic. The State implemented a hold harmless provision, ensuring that districts received funding based on the 2019-2020 average daily attendance despite enrollment declines. As a result, our district's revenues for the 2020-2021 and 2021-2022 school years were different from the significant decline in enrollment that we had originally anticipated before the pandemic. Additionally, the State budget allocated extra funds last year and changed the funding calculation method to consider the prior three years of attendance, further postponing the transition.
Can we move in and out of basic aid and if yes, what would that look like?
Yes, it is possible for school districts to move in and out of basic-aid status, and this transition depends on several key factors, such as property tax growth, enrollment variances, and state funding allocation changes. Moving in and out of basic aid status can create financial uncertainty for the district, making it challenging to predict revenues and operational cash flow.
Will declining enrollment matter once we become basic aid?
Declining enrollment may not impact the LCFF (Local Control Funding Formula) revenues. Still, it will have implications for other funding from federal and state sources, such as special education, Title I, lottery funds, and other grants. Enrollment plays a crucial role in determining staffing formulas, and facilities needs, and it is used to adjust expenditures. Additionally, enrollment will matter if the District moves in and out of basic aid status, as enrollment affects how the District is funded. Basic Aid relies on property tax revenue, and state-funded relies on student attendance for funding.
Does COLA (Cost of Living Adjustment) impact community-funded districts?
COLA does not affect the LCFF revenues of community-funded districts since their funding comes from local property taxes, not from state funds. However, COLA applies to other state funding received by the District, such as Special Education, Child Nutrition, State Preschool, and Mandated Block Grant.
What are the key considerations that community-funded districts look for when projecting future funding?
Community-funded local property tax projections depend upon economic conditions, local assessed values, and tax rates. Cash flow is more volatile due to the dependency on two large tax deposits, occurring in December and April. In contrast, state-funded districts rely on monthly cash deposits from the state.
Why do community-funded districts need higher reserves if they receive more than the state allocation?
While community-funded districts typically have relatively higher property tax bases, districts only know their estimated property tax revenue well into the fiscal year, and future year projections are subject to volatility. This is why community-funded districts usually maintain a reserve level higher than the state-required minimum of 3%.
What is the plan to increase our reserves to prepare us for community-funded status?
In 2021, the Board approved a 4% reserve in addition to the state-required minimum of 3%, bringing our reserve to 7%. As funds become available and while considering funding to the current board priorities, staff has the opportunity to propose a plan for board consideration regarding the gradual addition of reserves. One option is to raise the reserves on a percentage basis, for example, from the current level of 7% to 10 or 15% in subsequent years. Another option, used by some community-funded districts, is to maintain in reserves the difference between local property tax funding and state-guaranteed funding.
Upon receiving property tax estimates for 2023-24 from the Orange County Auditor-Controller in November, staff will have additional data to evaluate and present alternatives for increasing reserves.
Are community-funded districts required to develop LCAPs (Local Control and Accountability Plans)?
Yes, community-funded districts operate in the same manner as state-funded districts and must adhere to the same state requirements. The only distinction is that the primary source of LCFF revenues is from property taxes.
What are the financial reporting requirements and how do they differ from traditional school funding information?
Community-funded districts follow the same budget and financial cycle as state-funded districts. Below is an illustration of the financial reporting requirements and timeline.