Annual Budget Proposal2008-09

Annual Budget Proposal2008-09

Chief Business OfficialTim Zearley

Chief Business OfficialTim Zearley

Is This a Good State Budget?Is This a Good State Budget?

If we had started the year with a January Budget that proposed no COLA and a 6.5% cut to categorical programs, we would say that was a terrible Budget

But given the sad state of the economy and the proposals made in January, we now appreciate that this Budget proposal could have been much worse

So is this a good budget for education? In a word, No.

● It will cause California to fall further behind other states

● It does not provide adequate funding consistent with expectations for student performance

But given the circumstances, we recognize that:

● It could have been much worse

● It took a lot of joint effort by all facets of the education community to achieve the support of the Governor for the improvements in the May Revision

May Revision FeaturesMay Revision Features

No suspension of Proposition 98

The May Revision withdraws the January proposal to suspend Proposition 98 in 2008-09 by $4 billion, which would have provided only $55.7 billion of the $59.7 billion Proposition 98 guarantee

Special education gains; deferred maintenance losses

Cost-of-living adjustment (COLA) is up, but so is the deficit factor

Lottery proposal stretches out resolution of the Budget problem

January vs. May ProposalsJanuary vs. May Proposals

January Budget May Revision

Proposition 98 Suspend guarantee and cut funding $4 billion to $55.7 billion

Fully fund revised guarantee at $56.8 billion

COLA 4.94% not funded 5.66% not funded

Deficit Factor No COLA and 2.4% year-over-year cut to revenue limits, yielding a 6.99% deficit factor

No COLA; year-over-year cuts to revenue limits and special education withdrawn, yielding a deficit factor of 5.357%

Mandates No reimbursement No reimbursement

Categorical Programs

No COLA or growth funding and 6.5% year-over-year cut

No COLA or growth funding and 6.5% year-over-year cut

State Lottery ProposalState Lottery Proposal

Governor proposes borrowing $15 billion from Wall Street against future increased profits from State Lottery

● $10 billion of funding would go for a reserve to use during fiscal crisis

● $5.1 billion would be used for the 2008-09 Budget

● $1.2 billion currently for education continues, but is at risk

● Lottery revenue for up to 32 years would go to investors to repay loan

Requires voter approval-most likely in November 2008

Stand-By Sales TaxStand-By Sales Tax

The Governor’s May Revision acknowledges the risks surrounding the Lottery proposal

● Voters may reject it

● It may be challenged in court

● Wall Street may not embrace it

As a back-up plan, the Governor proposes a 1¢ increase in the sales tax, which would yield about $6 billion annually

● The Department of Finance would determine whether the sales tax trigger is pulled, based on balances available in the RSF

Revenue Limits – COLA and DeficitsRevenue Limits – COLA and Deficits

The statutory COLA is 5.66% with a deficit of 5.357%, eliminating the proposed 2.4% reduction proposed in January

The following includes the increases to the base revenue limit that are funded at zero:

District TypeStatutory

COLA Undeficited

Funded COLA

All Elementary Districts $315 -0-

All High School Districts $379 -0-

All Unified Districts $329 -0-

Revenue Limit Deficit FactorRevenue Limit Deficit Factor

8.14

0%

11.0

10%

10.1

20%

8.80

1%

8.80

1%

8.80

1%

6.99

6%

0.00

0%

0.00

0%

0.00

0% 3.00

2%

2.14

3% 0.89

2%

0.00

0%

0.00

0%

5.37

0%

0.000%

2.000%

4.000%

6.000%

8.000%

10.000%

12.000%

1993

-9419

94-95

1995

-9619

96-97

1997

-9819

98-99

1999

-0020

00-01

2001

-0220

02-03

2003

-0420

04-05

2005

-0620

06-07

2007

-0820

08-09

Categorical Programs Categorical Programs

January proposed cuts are restored for revenue limits and special education, but other categorical programs are not so fortunate

May Revision continues to include, on average, 6.5% reduction to most state categorical programs with no COLA

A few exceptions:

● High Priority Schools Grant Program – $400 per student at eligible schools

● After School Education and Safety Grants – same rate and maximums as approved in grant award letter

● Quality Education Investment Act – rates according to settlement agreement

● Federal programs are unaffected by state cuts, but expect some reductions

Categorical Programs Categorical Programs

It is important to note that, included among the programs to be cut, there are many that may primarily support staff

● Economic Impact Aid

● Physical Education Teacher Incentive Grants

● K-3 and Morgan-Hart Class-Size Reduction

● Home-to-School Transportation

● AB 825 Block Grants

Flexibility OptionsFlexibility Options

Many of the options are similar to those available in 2003-04, but a few are new or modified:

● Reduce set-aside requirements

Designated for Economic Uncertainties

Routine Restricted Maintenance Account

● Eliminate Deferred Maintenance match*

● Redirect categorical funds to unrestricted general fund

● Increase categorical flexibility

Mega-Item

AB 825 Block Grants*

*New or modified for 2008-09

Flexibility Options – Reducing ReservesFlexibility Options – Reducing Reserves

Option to reduce minimum required amount Designated for Economic Uncertainties by one-half

Reserve Requirement

ADA 2007-08* 2008-09 (proposed)

0-300The greater of 5%, or

$53,000The greater of 2.5%, or

$26,500

301-1,000The greater of 4%, or

$53,000The greater of 2%, or

$26,500

1,001 – 30,000 3% 1.5%

30,001 – 400,000 2% 1%

400,001 and over 1% 0.5%

*SACS Criteria & Standards

Flexibility Options – Reducing ReservesFlexibility Options – Reducing Reserves

Keep in mind that the flexibility is short term, and, once it ends, the reserve must be replenished

● Since it only applies for 2008-09 and 2009-10, multiyear projections must show how funds will be restored by 2010-11

A 3% reserve is approximately enough to pay for one payroll period – a relatively small cushion by any measure

Flexibility – Deferred MaintenanceFlexibility – Deferred Maintenance

The May Revision significantly reduces funding of Deferred Maintenance in 2008-09

● Decreases funding by $222.6 million

Only $39.6 million remains to fund hardship projects

● Because of no state contribution for regular deferred maintenance projects, LEAs have flexibility

No local match requirement for 2008-09

Flexibility – Routine Restricted Maintenance Account (RRMA)Flexibility – Routine Restricted Maintenance Account (RRMA)

Districts’ required set-aside for Routine Restricted Maintenance Account in 2008-09 is lowered from 3% to 2%

● Exercising the flexibility option may provide relief for some districts

● May require more classified staff layoffs or reductions

Application of flexibility to county offices of education may be somewhat different because of differences in existing rules

● Stay tuned for updates once legislation is available for analysis

Flexibility Options – Redirect Categorical FundingFlexibility Options – Redirect Categorical Funding

Similar to 2003-04, the May Revision proposes to allow school agencies to redirect funding from categorical programs to the unrestricted General Fund

● However, this is on top of proposed categorical program reductions, so districts will need to weigh tradeoffs between maintaining categorically funded activities and increasing discretionary funding

Two types of flexibility in this area are proposed:

● Redirect restricted carryover balances to the unrestricted General Fund

● Redirect a portion of 2008-09 restricted resources to add up to 2% to funding available for revenue limit purposes

Will have clarification once legislation is available for analysis

Flexibility Options – Redirect Categorical FundingFlexibility Options – Redirect Categorical Funding

Allows redirection of an unlimited amount of restricted General Fund and Cafeteria Fund balances as of June 30, 2008, to the unrestricted General Fund

● This includes all funds unless otherwise excluded by law:

Funds committed for capital outlay, bonds, or sinking funds

Federal funds

Balances in specific programs, including High Priority Schools Grant, Targeted Instructional Improvement Grant, Economic Impact Aid, Instructional Materials, and Special Education

● Note that districts participating in federal food programs may have limited flexibility to move funds from the Cafeteria Fund

Is This a Balanced Proposal?Is This a Balanced Proposal?

These new proposals have received a hostile reception in the Legislature

● Democrats are sharply critical of the additional cuts to health and social services programs

● Republicans are strongly opposed to the sales tax increase

This is a budget beneath a governor of this great state. It’s telling our citizens: This is it. Our best years are behind us. Under this plan, schools will lay off teachers and increase class sizes, and we will abandon children and the elderly. It’s shameful.” (May 15, 2008)

– President pro tem Don Perata

“I applaud the Governor for fully funding education at the minimum guarantee. However, the time for borrowing and questionable budget schemes is long behind us. Let me be clear – Assembly Republicans will not support tax increases, period.” (May 15, 2008)

– Assembly Republican LeaderMike Villines

Historical CBEDS EnrollmentHistorical CBEDS Enrollment

2615

2585 2592

25342551

2601

2575

2635

2691

2734

2685 26942679 2676

26932693

2400

2450

2500

2550

2600

2650

2700

2750

Enro

llmen

t

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Year

Enrollment and AttendanceEnrollment and Attendance

Enrollment versus ADA

2691

2734

26852694

2679 2676

2693 2693

25432555

2545 2544 2544 2538 2540 2540

2,500

2,550

2,600

2,650

2,700

2,750

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Enrollment

ADA

94.5%93.5%

94.8%

94.4%

95.0%

94.8%

94.3%

94.3%

The district loses approximately $46/day for each student absent

0% COLA for 2008-09 5.66% COLA not funded = -$840,000 loss in revenue limit funding

-6.5% Reduction to most state funded categorical programs -$75,000 loss in unrestricted state funds -$200,000 loss in restricted state funds

Federal programs unaffected by state budget cuts

Combined General Fund RevenuesCombined General Fund Revenues

13,214,925 13,034,913 13,517,463 13,931,87515,000,834 15,320,316 15,424,662

1,837,263 2,541,480 2,264,2342,473,276

2,353,559 2,243,586 2,075,0954,583,121 4,334,226 4,626,897

4,478,204

5,994,157 5,402,979 5,052,137330,979 317,971

448,644333,270

424,434 816,620270,350

2002-03 2003-04 2004-05 2005-06 2006-07 *2007-08 *2008-09

Revenue Limit Federal Revenue State Revenue Local Revenue

*projected

It takes people to teach people 84% of district’s budget – 296 general fund positions

143 teaching/teaching support positions 19 certificated unrepresented positions 118 classified support positions 16 classified unrepresented positions

Combined General Fund ExpendituresCombined General Fund Expenditures

9,344,621 9,460,938 9,883,569 9,704,499 10,606,764 10,730,969 10,740,950

3,457,280 3,368,0703,699,337 3,799,568

4,316,156 4,251,099 4,086,405

3,767,080 3,877,0074,489,749 4,489,266

4,559,051 4,532,217 4,398,5301,579,602 1,521,372

1,599,251 1,832,800

1,976,363 1,995,730 1,699,3281,833,457 1,858,556

1,623,422 1,649,836

1,834,199 2,547,3251,956,533

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000

22,000,000

24,000,000

2002-03 2003-04 2004-05 2005-06 2006-07 *2007-08 *2008-09

Certificated Classified Benefits Services Books & Supplies*projected

2008-09 projected deficit spending -$165,199 Potential for $1 million more in cuts and revenue limit deficit

Budget shows the district’s commitment to students and staff 3.5% On-going increase to salary and benefits to all staff Built in 2.5% increase for step and column adjustments Increase in fuel and energy costs Maintains reserve percentage Fund district’s full portion of Deferred Maintenance and Restricted Maintenance

Adopted General Fund HistoryAdopted General Fund History

20,199,328 20,396,572

22,314,462

22,987,443

22,822,24423,000,494

21,830,845

21,264,331

21,017,16120,228,59019,966,288

19,670,447

22,652,181

21,527,355

21,585,947

19,234,784

17,000,000

18,000,000

19,000,000

20,000,000

21,000,000

22,000,000

23,000,000

24,000,000

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Revenues

Expenditures

2008-09 budget is balanced with reserves and spending cuts No teachers were laid off Eliminated 8 classified positions and 1 Certificated Management position

State’s fiscal crisis leaves districts in limbo School year will start without knowing exactly what our revenue will be from the

state

General Fund Ending Balance HistoryGeneral Fund Ending Balance History

520,216 577,044 605,980 611,897 647,578 652,144 707,081 738,773 689,623

2,143,856

2,435,388 2,344,8472,007,177

1,545,014

1,158,592 1,094,072 1,006,026889,977

760,227

673,432 673,432

836,438

701,549

561,908785,921

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 *2007-08 *2008-09

Total Fund B

ala

nce

Revolving Fund Inventory Economic Uncertainties General Reserve Designated

*projected

Do we have adequate reserves? YesAre we deficit spending? Yes If so, is it planned? YesIt is a budget. Are our estimates

reasonable? YesCan we sustain in MYP? YesIf so, then you can confidently approve this

budget.

Approve the Budget?Approve the Budget?