Redmond SD 2J finance director warns of another multimillion-dollar budget gap as PERS costs rise

Kathy Steinert, the district''s finance lead, told Redmond School District's budget committee that the district is planning for a $3.7 million gap for the 2025-26 fiscal year driven largely by a projected PERS rate increase and higher payroll costs.

Steinert said the district cut $3.5 million from last year's budget, including elimination of 14 full-time positions that saved about $1.4 million, but that the coming biennium presents new pressures: an unknown state school fund allocation, increased compensation and operating costs, and a PERS rate increase that she described as one of the few known facts affecting the budget.

The state forecast and federal funding risks

Steinert began by describing the uncertain state funding picture: the district is preparing on the basis of the governor's proposed budget and the most recent forecasts but said the legislature will probably not finalize the state school fund allocation until the May forecast. She summarized features of the governor's proposal the district used for planning: a proposed state school fund level of about $11.359 billion and a broad increase in education funding the governor estimates as 10.5% overall. Steinert also said recent changes in how the state calculates current service level and compensation are improving the starting point for school funding but that federal policy changes or economic shifts could alter final allocations.

Enrollment and program trends

Steinert reported that Redmond's enrollment is still below pre-pandemic levels overall but rose by about 1% for 2024-25. She noted structural shifts: middle school enrollment remains the most depressed relative to 2019 levels while RSD Flex, the district's online program, has grown (RSD Flex high-school enrollment rose from 71 in 2022-23 to 166 as of Feb. 1, per Steinert), and that growth in RSD Flex has partially reduced in-district enrollment at Redmond and Ridgeview high schools. The district's demographer projects modest elementary and middle-school growth over the next five years but near-term forecasts are essentially flat.

Staffing, salaries and operating costs

Steinert noted the district increased average teacher pay substantially in recent years (9.5% in 2023-24 and 7.6% in 2024-25) and reported cumulative increases since 2019 of roughly 36% at the top of the schedule and about 38% for average teacher salary; she said roughly 40% of teachers have reached the maximum step. Those salary gains, along with step increases and vacancy effects, raised payroll and benefits costs dramatically.

PERS, bonds and the side account

Steinert detailed how PERS (the Oregon Public Employees Retirement System) asset returns and prior district decisions affect upcoming rates. She said the actuarial valuation as of Dec. 31, 2023, showed investment returns below assumptions and that school districts generally will face an average base employer-rate increase of about 1.5 percentage points, while districts with side accounts (from prior PERS bond proceeds) are seeing larger increases because those side accounts have been drawn down. For Redmond SD she projected a 6.5 percentage-point increase in PERS employer rates applied to payroll and estimated the dollar impact of that increase at about $3.5 million.

Steinert explained the district issued PERS bonds in 2004 and 2021 to create side accounts that produced rate credits, which have saved money overall (Piper Sandler estimated the district saved about $18.2 million between 2004 and 2023), but she warned those side accounts are drawing down faster than expected and may be exhausted before the last bond debt service is due in 2028. That timing creates a future operating pressure because the district expects a final $2.1 million debt-service payment on those bonds in 2028 that cannot be offset by a side-account credit once the account is exhausted.

Grants, mandates and federal risk

Steinert reviewed the district's grant profile and a new ODE "integrated guidance" application due April 30. She said the Student Investment Account (SIA) and High School Success allocations are projected to increase while early literacy funding will drop year to year because some 2023-24 early literacy funds arrived midyear.

She flagged federal grant risk: a Washington, D.C., lobbyist told district leaders that House proposals could reduce or level-fund several federal programs. Steinert said the House proposal at the time could cut Title I by roughly $3.8 billion nationally (about a 21% reduction at the federal level) and eliminate Title II in the House proposal; she cautioned that those scenarios would reduce Redmond's Title I/II funding (the district's federal grants total roughly $4.3 million and support about 24 positions) and could force local reductions.

Special education pressures and state advocacy

Steinert highlighted two state-level advocacy priorities: raising the cap on how many students may receive a double weight in the ADM formula (currently capped at 11% of district ADM) and fully funding the High Cost Disability Grant. She said Redmond currently has 13.5% of students on IEPs (individualized education programs) and requested that the state increase the double-weight cap toward 15%; advocates estimate about $400 million in additional state investment would be required to raise the cap statewide. Separately, Steinert said the district's high-cost students (those with costs above $30,000) increased from 17 to a projected 53 students in the period she tracked, and that the district received only about $8,100 from the High Cost Disability Grant for the 2022-23 year despite nearly $2.0 million in excess costs for those students.

The preliminary bottom line and next steps

Using current assumptions (including a 2.5% planning COLA and the governor's proposed starting point), Steinert presented a preliminary budget deficit of about $3.7 million for 2025-26, and she estimated that approximately $3.5 million of that gap is driven by the PERS increase. She described a possible two-thirds reduction of the deficit if the state raises the special-education double-weight cap for about 150 additional students and if the state applies $170 million from a School District Unfunded Liability Fund to lower statewide PERS increases.

Steinert told the committee the district will continue bargaining with labor groups this spring, will prepare a balanced budget for board adoption, and will return with updated ODE estimates and the district's next forecast. She urged the committee and community to treat the numbers as provisional until the state finalizes key forecasts and legislative decisions.

Ending

Steinert closed by reminding the committee that many variables remain unknown (state allocations, final bargaining outcomes, federal grants) and asked members to submit questions by email; she said the committee will reconvene April 23 to continue the budget process.