Keenan Blog

Headwinds From Every Direction

July 13, 2021

Every direction they turn, California’s municipalities and public schools face severe headwinds regarding their budgets. These forces stifle new programs that require funding from the same pool of funds that support all the existing programs. New programs are needed in our schools to keep up with the growth of technology in the classrooms. New services need to be funded for our local cities and counties as they work to provide equitable access to public programs, address the growing homelessness epidemic, and deal with so many other challenges. To top it all off, federal and state pressure towards schools and local governments is never-ending, requesting improvements from classrooms to infrastructure repair. And all of that without adding enough funding for existing budgets, let alone new programs and services.

There is just not enough money. Or is there?

California cities saw that tax revenues remained fairly stable during the COVID-19 pandemic, and while schools incurred more costs in some budgeted areas, other costs decreased to help balance the budget. Then there was new one-time funding from things like the CARES Act. So how do you leverage one-time funding to sustain long-term new costs?

First, you have to look at the largest budget issue that both municipalities and schools face in California; the problem of unfunded liabilities. California’s public agencies facing severe economic challenges is nothing new. In October 2019 the California State Auditor’s Office attempted to shine a spotlight on this through their high-risk dashboard, citing that specifically there were 18 of California’s 471 cities facing extreme financial risks, attributing the bulk of this to pensions and other post-employment benefit (OPEB) liabilities (comprised of retiree health care costs).

 

Put plainly, unfunded liabilities such as OPEB consume a significant portion of the annual budget for our schools and public agencies. This is when one-time funding can help the most. Schools and other public agencies experiencing a large surplus this year should look to pay off debt, including OPEB liabilities.

The smartest (and unfortunately least-used) solution for easing budget burdens from OPEB costs is to contribute to a fund dedicated to paying future retiree benefits. Keenan’s Futuris program has helped dozens of school districts and public agencies throughout the state pre-fund their OPEB, freeing up significant budget dollars for critical existing and new programs for those districts.

Keenan’s Futuris program is maintained by world-class professionals from Benefit Trust Company and Morgan Stanley, including access to six different investment portfolios that have met or exceeded their targeted rates of return consistently (as opposed to other pre-funding options in the marketplace). And finally, this puts the control back at the local level. Instead of waiting for the state to come up with a cure-all solution, this is a solution that can be realized now, and controlled at the local level.

If you represent a school or public agency that doesn’t have enough funds to meet all of your budget needs… let’s talk.

 

About Gail Beal
Gail Beal is a Senior Vice President who is primarily responsible for sales of Keenan Financial Services’ products. Gail manages Keenan’s FuturisSM Investment Trust for GASB compliance, as well the Pension Stabilization Trust.