Novato school district approves budget with ‘qualified’ status

The most recent version of the Novato Unified School District budget has been downgraded from “positive” to “qualified” status because of a projected reserves level below the mandated state minimum amount.

The state and the Marin County Office of Education require school district budget reserves, or ending fund balances, to be at least 3% of total annual general fund expenditures in order to be in a “positive” status. If a school district goes below 3% reserves in the current or any of the two years out, the budget is deemed “qualified,” signifying uncertainty about whether the district can pay its bills.

If uncorrected, a “qualified” budget can drop to “negative” status, which puts a school district at risk of takeover by the state.

Novato Unified School District trustees approved their $131.5 million spending plan on Dec. 16 after Joshua Braff, the chief financial officer, reported on the fiscal outlook.

“The 3% reserves is maintained in 2025-26 and 2026-27,” Braff said. “But it is not maintained in 2027-28.”

According to a budget spreadsheet, the reserves are at 4.6% in the current year, 3.2% in 2026-27 and -0.3% in 2027-28.

The deficit is projected to decrease over the three-year reporting period, “but not fast enough” to avoid the negative reserves balance in 2027-28, Braff said.

The district has already begun preparations for budget reductions. On Nov. 18, the trustees approved a resolution to cut $4.5 million from the 2026-27 budget. The plan, which could include layoffs, is expected to stabilize the reserves and offset deficit spending.

Braff did not release a list of specific planned reductions at the meeting. However, the district must issue any preliminary layoff warning notices, known as pink slips, by March 15 for the upcoming school year.

The district, which is funded by state per-student subsidies, receives the lowest per-student amount of all Marin school districts under what is called the local control funding formula, or LCFF. The district receives $17,682 per student compared to the state average per-student amount of $22,194, according to the district.

Braff said the LCFF amount is supplemented by an annual cost-of-living adjustment from the state. This year, the adjustment is 2.3%, he said. Next year, the state Legislative Analyst’s Office is projecting a 2.5% cost-of-living adjustment, but the district is budgeting for 3.2%, which is the amount projected by the state Department of Revenue, Braff said.

“We won’t know what’s really planned until we get the governor’s preliminary budget in January,” Braff said. “And we won’t know for sure until the actual budget is signed into law.”

Sometimes, the cost-of-living adjustment “bounces all over the place” during the year, Braff said. “Two years ago, at the beginning of the year, it was 3.9%, but it ended up being 1.07%.”

Trustee Diane Gasson asked why the state treats the cost-of-living adjustment in such an up-and-down fashion.

“It seems like the reason we and many other schools are in such a predicament is the fluctuations and unpredictability of the COLA,” Gasson said. “Is there ever a conversation at the state level about doing something differently than having to make these projections?”

Braff said the California Teachers Association union once tried to move a proposal through the Legislature to “lock in a 4% COLA,” but the plan did not pass.

While the approved budget only officially covers the first part of the current school year — or what is called the “first interim” from July 1 through Oct. 31 — and two years out, the district will also have two more budget reports due to the county before the end of the school year in June.

Normally there is just one more report — the “second interim” — but because of the district’s “qualified” status, the county is requiring the Novato district to file a “third interim” report later in the school year, Braff said.

“Will we still be in qualified status in the second interim?” trustee Deb Butler asked Braff.

Braff said it depends on the money allocated to the district under Proposition 98, the state law that requires a guaranteed set-aside amount for public schools based on the state income tax revenues.

Braff said there could be a big bump in Proposition 98 funds if there are higher state income taxes paid by the artificial intelligence sector. But even if that happens for 2026-27, there is no guarantee that it will be ongoing, he said.

“We don’t know if it’s just a one-time thing,” Braff said.

Braff said he expects to get more updates at a Jan. 20 meeting in Sacramento when the governor’s preliminary budget will be unveiled.

Another unknown is whether the district voters would be willing to approve an increase in the parcel tax, he said. The district’s parcel tax of $251 per parcel is the second-lowest of all Marin school districts, and it is the same amount it has been since 2009.

It also has no built-in annual increase, unlike many other school parcel taxes in the county.

There have been some discussions about increasing the parcel tax amount or placing a second parcel tax on the ballot. No parcel tax revenue projections, however, have been included in the budget “because they’re not guaranteed,” Braff said.

Total district enrollment has declined to fewer than 7,150 students, Braff said. He projects a 95% average daily attendance, which is the amount used by the state to calculate the local control funding formula per-student subsidies.

The Novato Unified School District serves students from transitional kindergarten through 12th grade at seven elementary schools, two middle schools and three high schools. The district also serves students at one TK-8 school, an independent study program, Novato Adult School and Hill Education Center.