4J leaders admit forecasting mistakes, plan to use $16.4 million in one-time funds to plug gap

A previous version of this story incorrectly spelled union president Jamie Myers’ last name.

Eugene School District 4J announced at its Wednesday, April 8, budget committee meeting that it will use various sources of district savings to cover the additional $16.4 million budget shortfall discovered in mid-March.

The discrepancy amounts to 5.5% of 4J’s projected 2026-27 general fund budget, and, according to 4J’s finance staff, was a result of forecasting and assumption errors for current and future fiscal years.

Matt Brown, the finance director for 4J, and associate director Bob Blyth said mistakes boiled down to inaccurate assumptions of vacancy savings, new unemployment costs, rising pension expenses and a lack of precision in tracking the true cost savings of each of the 269 positions the district is cutting.

The $16.4 million deficit is on top of the $27.7 million the district is already chopping off its current spending, mainly through staff reductions, making the district’s true deficit about $44 million.

Superintendent Miriam Mickelson said 4J announced the projection discrepancy when leaders first started seeing it in March, wanting to be as transparent as possible with the public. She knows, however, damage has been done.

“I acknowledge that it diminishes the trust in our process and the numbers that we present,” Mickelson said. “I felt all sorts of big emotions, especially since, as a district, we were being very thoughtful and mindful with the phased reductions.”

The district’s use of one-time funds will mean it again spends more than it receives, a trend in 4J’s recent budget history after COVID-19 relief funding stopped.

Underestimated costs, overestimated savings

Brown and Blyth walked budget committee members through the forecasting challenges they encountered and mistakes in the budget planning. The main culprits the finance directors named were:

• An illusion of vacancy savings: Brown said he created a new model to project vacancy savings based on the past few years of budget history. But he did not factor in how the use of COVID-relief dollars on salaries and benefits inflated the vacancy savings the forecasting model showed.

• Rising unemployment costs: Brown said unemployment costs for employers are expected to rise this year, and the cost of new unemployment laws have only recently become apparent.

• The end of the PERS side account: The district is also grappling with new expenses related to the Public Employees Retirement System, known as PERS. In 2004, 4J opened a PERS side account, issuing bonds and investing the revenue in a state-run account. The interest from these investments went to paying the district’s pension contributions and paying interest on the bonds, saving 4J about $25 million. Much like other PERS investments, the investments have underperformed and districts have used up the money earlier than expected. Now 4J and other districts are facing the reality of no investment revenue to pay for pension costs and lingering interest payments to bond holders.

• Use of averages in estimating employee costs: Blyth spoke about how he learned that his method of using compensation averages to estimate employee costs, a common accounting practice, is not viable when modeling cost-savings of a reduction of 269 employees. This is mainly due to state law and union contract language that commonly makes the lowest-paid employees the first to be cut, creating smaller cost savings for districts.

Mickelson said Brown and Blyth have conferred with budget directors at Beaverton School District and Portland Public Schools to compare assumptions, projections and outside variables the other districts use to make 4J’s forecasting better.

Board member Jenny Jonak asked when the budget committee would receive a more concrete breakdown of how much of the $16.4 million discrepancy originated from each forecasting error. Mickelson said more details will be shared at the next budget meeting April 22.

Position control

Another reason district leaders gave for the budgeting oversight was 4J’s weak “position control,” the tracking of the cost and revenue sources of each employee.

Mickelson, who started as 4J superintendent in July, said she knew coming into the district that position control was “a weakness” of 4J, but did not know the extent of the issue until this spring, when forecasts were drastically off. She said she directed administrators to manually go through each employee, line by line, to make sure they know the exact cost and funding source of each employee.

“I’m not able to guarantee that it is a foolproof method at this point, there might still need to be some tweaking, but it is my expectation that HR and finance will coordinate, communicate and collaborate every month moving forward or more frequently as needed,” Mickelson said.

She said the district’s high superintendent turnover during the past six years was partly to blame for the district’s issue with position control. Mickelson is the fifth superintendent in six years.

Brown said with more than 2,000 employees in 4J, midyear changes to staffing decided at the school level can go untracked in 4J’s current system. But he’s hopeful this will change with new software 4J will begin using that tracks position control better than the district’s current software.

‘Righting the ship’

The district will use three main sources of money to fill the $16.4 million budget gap in its general fund: 

1. $2.9 million from the district’s sale of the downtown Wells Fargo building (which was deemed too expensive to renovate)
2. $3.5 million from the district’s beginning fund balance, the district’s reserves
3. $10 million transferred from the district’s facilities maintenance fund, a pot of savings the district reserves for big maintenance projects including gym floor refinishing, parking lot repairs and heating system improvements.

Several board and budget committee members raised alarms about using one-time funds to fill the gap, but Mickelson said the district could not cut more staff this year on top of the 269 positions. Cutting more staff would impose more large structural changes, such as changes to the high school schedule, which she does not want to do.

Mickelson said while there were forecasting oversights this year, the district’s outspending of their resources is not new. It’s an issue she inherited, and she is trying to make adjustments as gradually as possible.

“What we’re doing is we’re righting the ship that has been heading this way for years,” Mickelson said.

Blyth said 4J used to budget very conservatively, which left room for error. But the district has changed its practices in recent years, which gives less room for error. Having COVID-19 relief money, however, created a cushion during that time of budgeting practice adjustment that the district no longer has. Using COVID money for ongoing staffing expenses also created a level of services the district can no longer sustain.

While other large Oregon districts, including Salem-Keizer and Portland Public Schools, have made repeated large cuts of $20 million to $70 million in the past two years as COVID-19 money dwindled, Brown pointed out, 4J made their first cut last year of $15.8 million.

“This is new to 4J, because we’ve utilized our fund balance over the last couple years to help continue the services that we were providing our students,”  Brown said.

Jamie Myers, 4J’s teachers union president, told Lookout Eugene-Springfield in an interview after the meeting that licensed staff whose positions will be affected have been notified, but the staff don’t know yet what the impact will be. An elementary music teacher could be assigned to multiple schools, for example, instead of completely cut. Her members won’t receive layoff notices until May 1. She was critical of the district’s forecasting errors in her speech to the budget committee:

“This news has been alarming for our members, leaving them with numerous questions,” Myers said. “While some of those questions have been addressed tonight, this committee has the responsibility to demand clarity and details. How could this have been missed?”