OCEANSIDE — MiraCosta College, a North County community college district, faces various budget pressures as it proceeds into FY 2020-21, though a healthy fund balance and favorable borrowing conditions may lend resilience.
The district’s annual primary operating budget, which the elected board of trustees unanimously adopted Oct. 15, weighs in at $137 million. That’s on par with the City of Oceanside’s General Fund budget and double the City of Encinitas’ General Fund operating budget.
MiraCosta’s budget, a 6% increase on actual expenditures last year, takes into account slowing property tax revenue growth, rising pension and healthcare costs, and COVID-related deferrals of state funds, administrators say.
The district, which runs four campuses serving a total enrollment of over 20,000 students, derives the lion’s share of its funding from property taxes — this year, about 86%, according to an Oct. 8 budget meeting.
Administrators portend that revenue stream’s annual growth rate could halve in coming years, down from 5.9% in FY 2019-20 to 3% in FY 2024-25.
Growing employer contribution rates to the California Public Employees’ Retirement System, CalPERS, will put “tremendous pressure on rising costs of salaries and benefits,” according to the district’s budget document.
Between CalPERS and the California State Teachers’ Retirement System, CalSTRS, staff see MiraCosta’s pension costs rising 40%, from about $12 million presently to $17 million by FY 2024-25.
Healthcare costs are also growing, especially due to COVID-19. MiraCosta budgeted a 9% increase in premiums this year, and then another 15% next year.
“We would have seen a 30% increase in Kaiser rates this year, but they’re capped at 15%,” V.P. of Administrative Services Tim Flood told trustees Oct. 8.
While not literally prohibiting increases of 15% or more, federal regulations require that insurers publicly justify certain increases of such magnitude. If a state review finds a rate hike “unreasonable” and the insurer refuses to lower it, the insurer must notify health plan members of the finding, according to California’s Department of Managed Health Care.
MiraCosta administrators assume annual rate increases will return to a more normal 4% by FY 2023-24.
To help balance its budget, COVID having gutted revenues, the state deferred certain funding for community colleges.
“We’re not optimistic about recouping our money” in the next two years, Superintendent Sunita Cooke told trustees.
Pre-COVID-19, state funds comprised 7% of MiraCosta’s primary operating revenues.
Overall, administrators expect budget shortfalls totaling roughly $7 million over the next three years, which they’ll plug by drawing down the General Fund balance.
MiraCosta ended FY 2019-20 with a fund balance equal to 25% of expenditures. A few years of deficits will reduce that proportion to 17% by FY 2024-25, closer to the trustee’s target of 15%.
Institutions generally aim to maintain some positive balance as a financial reserve and, relatedly, to boost their credit ratings.
The district maintains AAA ratings from Moody’s and S&P.
In September the district issued $255 million in capital improvement bonds — the second tranche of $455 million taxpayers approved in 2016 as Measure MM — at a $28 million premium. That is, investors paid more than the college bonds’ face value because they offered a higher interest rate than prevailing rates in the market.
The premium effectively reduces debt service from $368 million to $340 million over 25 years, for a true interest rate of 2.11%.
The bonds will fund a slew of new facilities and upgrades — for example, new student service and administrative buildings, new parking lots and a new chemistry and biotech building.