BOARD OF EDUCATION Attachment: Action 22. PALO ALTO UNIFIED SCHOOL DISTRICT Date:

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1 BOARD OF EDUCATION Attachment: Action 22 PALO ALTO UNIFIED SCHOOL DISTRICT Date: TO: FROM: Glenn Max McGee, Superintendent Cathy Mak, Chief Business Officer SUBJECT: Proposed PAUSD Budget for ; Resolution , Year End Budget Transfer Authorization; Resolution , Budget Transfer of Funds for the Fiscal Year ; Resolution , Interfund Borrowing Fiscal Year ; This item was discussed by the Board of Education at its meeting of June 9, The changes to the item are shown in italics. Below are changes from the June 9 report: $6.1 million designated for New Schools Funds (page 7) $442,456 reduction in Expenditures from the Mandated Cost Revenues (page 10) State forms and related criteria and standards are complete and District is in compliance. (pages 24-27) STRATEGIC PLAN INITIATIVE Budget Trends and Infrastructure RECOMMENDATIONS This item was discussed at the June 9, 2015, regular meeting. It is recommended that the Board of Education: 1. Adopt the budget as presented. 2. Adopt, as a separate action, the budget for Fund , the Property Fund, as presented. (This separate approval is required by Board of Education policy.) 3. Approve the Resolution for Budget Transfer Authority for as presented. 4. Approve the Resolution for Budget Transfer Authority for as presented. 5. Approve the Resolution for Interfund Borrowing for as presented. INTRODUCTION The Education Code requires that school districts adopt a budget for by July 1, At this time, key state and local budget information is still unknown. We will not have changes to the state budget, property tax revenue, enrollment, and employee health benefit rates increases until well past the July 1 deadline. This budget, however, is based on the best estimates that are currently available. SUMMARY State Budget and Economic Outlook The state s economic outlook remains strong in 2015, with job growth better than anticipated and the unemployment rate falling both at the national and state levels. With a strong economy, the 1

2 Governor s May Revision included substantial increases to the education budget. The Governor proposed $6.1 billion to further Local Control Funding Formula (LCFF), and $3.5 billion in discretionary, one-time funds proposed for the implementation of Common Core State Standards (CCSS). While PAUSD will not receive any additional ongoing revenue from the LCFF, PAUSD will be eligible for the one-time funds. The estimate for PAUSD is $7.2 million. This revenue will be reserved for textbook adoptions and one-time projects. On the local front, property tax growth continues to grow at a healthy level. In , the latest growth estimate is a 7.47% increase over last year. Staff is using the rate increases from the City of Palo Alto of 5.24% for and 5.36% to 5.51% per year for the out years. We are anticipating enrollment growth for and hence additional staffing is budgeted. The voters have approved an annual tax of $758 per parcel per year (Measure A) for six years from to replacing the previous 2010 tax measure. The new parcel generates an additional $2.3 million per year. While the budget situation for continues to improve by the recent positive property tax data, the District still needs to be cautious as economy is cyclical, and we do not know when the next downturn will hit. The significant increase of 14.3% of LCFF funding to state funded districts may have potential challenge to labor contract negotiations next year. Program Augmentations Below are program augmentations included in this budget. $2,336,941 was approved by the Board on the April 21, 2015, meeting. Since then, the voters of Palo Alto have approved a parcel tax measure replacing the previous one. The new measure brings in additional revenue of $2,300,000. $619,925 of the $2,336,941 program augmentations will be funded from the new tax measure. The second table below shows the additional expenditures proposed to be funded by the new additional revenues. Program Augmentations - Board Approved 4/21/15 FTE Amount Elementary School Staffing Increase 4.9 $ 600,000 Secondary School Staffing Increase ,864 Middle School Administrative Support ,156 Health Technicians * ,332 High School Administrative Support - reclass PT Dean to FT Assistant Principal ,905 High School Classified Staffing ,253 Advance Authentic Research Coordinator * ,862 Bus Driver * ,920 EL/Bilingual TOSA * ,811 Student Services Secretary ,902 Licensed Mental Helath Therapists * ,000 High School Graduation Cost 30,000 Spectra Art Supplies 28,000 Professional Development Spectra Art 3,936 Music Instrument Repair 7,000 TOTAL: 2,336,941 Parcel Tax (619,925) * Include in Parcel Tax Budget General Fund $ 1,717,016 2

3 Parcel Tax Additional Expenditures Tax Measure FTE Strategic Plan Initiatives Amount Health and Wellness Mental Health Support Therapist * 2.0 B1, B3 $ 250,000 Nurse - 8 hours for elementary (certificated) 1.0 B2 127,450 Heath Technicians - middle school * 0.75 B2 100,332 Psychologist or social worker 1.0 B3 136,000 Mindfulness Coach 0.5 B3 63,725 Student Services (parent outreach, counseling, crisis intervention, interns, wellness screening) B1, B2, B3 223,850 SubTotal for Health and Wellness 901,357 Academics ** Equity Administrator 1.0 A2, A3 $ 142,862 K-2 Reading Support -instructional aides A2, A3 130,341 Bus Driver * 1.0 A3 66,920 Intervention Specialist/ TOSA (K-5) 1.0 A1, A2, A3 127,450 Expand Summer School A3 300,000 Comprehensive academic diagnostics (K-2) A3, E2, A3 50,000 EL/Bilingual TOSA * 0.5 A1, A3 59,811 Equity Training E2, C3, A3 45,600 Middle School Math Intervention classes 1.2 B1 152,940 Sub Total for Academics 1,075,924 S.T.E.A.M. Advanced Authentic Research Coordinator * 1.0 A1, E2, E3, E4 $ 142,862 AAR Teacher Liason (1 period at Gunn and Paly) 0.4 A1, E2, E3, E4 50,980 Research Program Supplies A1, E2, E3, E4 10,000 Computer science curriculum - middle school 1.0 E4 127,450 Sub Total for S.T.E.A.M. 331,292 Total New Expenditures $ 2,308,573 * approved on 4/21/ Additional Resource Allocations ** This area addresses the recommendations from the Minority Achievement and Talent Development Advisory (MATD) committee. Reserve Cap (pp. 21) Starting with the budget adoption, school districts are required to provide a statement that substantiates the need for the excess reserve. For PAUSD the reserve level is 3%, $6.2 million of the total general fund expenditures. The table shows the amount over 3% and the reasons for the excess. The district has a 10% reserve policy. Most of the other reasons are for budget reserves at the schools and unspent funds from categorical programs and previously approved one-time projects. New on the list is designation for a one-time cost for potential new schools. The estimated startup costs are $1.6 million for a new elementary school and $4.5 million for a new middle school. The remaining excess is placed in the designation to mitigate future budget cuts. What does this budget include? Personnel o Estimated increases for step and column movement on current salary schedules o Current health benefit rates are used for July 1, 2015, through June 2016; any cost increases beyond December 2015 are not included o Additional staffing to accommodate enrollment growth based on current formulas o Additional program augmentation of $1.7 million o Additional Parcel Tax program expenses of $2.3 million o Increase in CALSTRS and CALPERS employer s contribution rates 3

4 Other o Estimated increase for utilities o Estimated increase for non-public school and residential placement costs for special education o Routine Maintenance Fund based upon 3.0% of General Fund expenditures What is not included in this budget? Increases to current salary schedules Increases in health benefit costs beyond December 2015 Impact of final adopted State Budget The revenue assumptions in this budget are based on an increase of 5.24% in property taxes (secured, unsecured, homeowners exemption, and PAUSD share of county-wide roll corrections), the state s hold harmless categorical funding of $2.5 million, and a $2.3 million increase in parcel taxes. Latest estimates are used for federal programs. The budget adopted by the Board in June, while technically the official budget of the District, will be modified during the budget year as follows: September 2015 Budget Update What we will know then: Actual Property Tax Revenue for Ending Balance for State Budget for First County Update on Property Tax Collections October 2015 November 2015 Budget Study Session First Interim Financial Report What we will know then: Adjustments to PAUSD budget based on actual enrollment and staffing for Second County Update on Property Tax Collections Revenue and expenditures from July 1, 2015 to October 31, 2015 Budget adjustments through October 31, 2015 February 2016 Second Interim Financial Report and Budget Study Session What we will know then: Third County Update on Property Tax Collections Revenue and expenditures from July 1, 2015 to January 31, 2016 Budget adjustments through January 31, 2016 Budget allocation for

5 LOCAL REVENUE Local revenue consists of property taxes, parcel taxes, lease income, interest income, donations, reimbursements, and transfers from other funds. Property tax revenue accounts for about 70% of the General Fund budget. Based on the latest estimate received from the Santa Clara County Controller-Treasurer s office, property tax revenue for the current year is projected to increase 7.47% over For , the County Assessor s office has yet to post Proposition 8 assessment adjustments or any reserve the County needs to hold back in July for refunds. Allowing for Proposition 8 adjustments, a county-wide reserve, and the volatility of the unsecured roll, staff is using the property growth rate from the City of Palo Alto of 5.24% in the property tax revenue assumption for The County Controller-Treasurer will provide their first estimate of the property tax revenue in August. The property tax revenue assumption will be revised based on that estimate. The parcel tax is funded at a level of $758 per parcel for the period from July 1, 2015, through June 30, 2021, with an annual escalation adjustment of 2% per year. Total budget for is $14.7 million. Lease income from the four District owned properties leased to tenants is projected at $8.0 million based upon current leases. Funding from Palo Alto Partners in Education (PAPiE), $5.3 million for , is received by PAUSD each year for distribution to the schools for needed programs and staff. A complete list of local revenue is displayed on page 18. STATE REVENUE As a Community Funded school district, PAUSD now receives only about 7.8% (excluding the one-time discretionary Common Core funds of $7.2 million) of its General Fund revenue from the state. Local Control Funding Formula (LCFF) State Aid Effective , the State has rolled over 40 categorical programs and the traditional revenue limit into a new distribution model called the Local Control Funding formula. For community funded districts, the LCFF State Aid is the same amount hold harmless districts received back in For PAUSD, the amount is $2.5 million which is composed of $9.9 million of state categorical programs less the $7.4 million State fair share reduction. While the proposed state budget provides additional $6.1 billion for the implementation of LCFF, there is no increase in funding to PAUSD due to this hold harmless provision. The significant increase of 14.3% of LCFF funding to state funded districts may have a potential challenge to labor contract negotiations next year. 5

6 FEDERAL REVENUE The federal funding is projected to be flat funding. It is important to note the federal government uses a fiscal year beginning on October 1 and ending on September 30. Also, we will not know the exact funding amounts until the fall. This is why most federal programs have a high carryover as schools and managers plan and spend with what is certain. EXPENDITURES The bulk of the District s expenditures, 82%, are in employee salaries and benefits. The remaining 18% of the budget funds are contracted services, supplies and materials, capital outlay, and other expenses. Unified school districts are required by law to spend at least 55% of total expenditures on classroom related expenses including teachers and teacher aides. The District maintains a percentage well over 60%. OUTLINE OF BUDGET DOCUMENT This budget represents the PAUSD financial plan for the coming year, based on the financial information available at this time. As further information is received, the budget will be revised to reflect changes in projected income and expenditures. The remainder of this document is divided into the following sections: I. Financial Status for There have been changes from the financial status reported at Second Interim. II. III. IV. Budget for The projections for the budget have changed since the Second Interim Financial Report because of updated financial information. This section outlines assumptions and presents the Superintendent s recommended budget for Five-Year Financial Model. The five-year financial model is the focal point of prudent budget decision making. Having a full understanding of the long-term implications of decisions is a prerequisite to sound financial management. The model shows the assumptions used. These assumptions will change over time, and this model will be updated regularly. Capital Funds. The budgets for capital funds for and a full five-year model for Fund (Deferred Maintenance), Fund (Property Fund), Fund (Building Projects Fund), Fund (Strong Schools Bond), Fund (Planned Maintenance), and Fund (Capital Facilities) are included in the District budget package. As is required by Board policy, the Board of Education is requested to adopt the budget for Fund as a separate action. V. All Other Funds. Adult School, Child Development, Cafeteria, Basic Aid Reserve, Self-Insured Dental, Workers Compensation, and Retiree Benefits are separate funds. All of these funds are projected to be in a satisfactory financial position for VI. Certification, State Forms, and Criteria and Standards. The state forms and the related criteria and standards are in the process of being completed. These forms will be presented at the next meeting. This budget complies with state criteria and standards. 6

7 VII. Resolution for Budget Transfer Authority for This is a routine resolution adopted by the school district to facilitate the activities at the close of the fiscal year. VIII. Resolution for Budget Transfer Authority for This is a resolution adopted by the school district to facilitate the payment of obligations in fiscal year IX. Resolution for Interfund Borrowing for A resolution required by the County Office of Education to allow checks to be issued in funds which temporarily have negative cash balances. I. FINANCIAL STATUS FOR (pp.18-19) The Board s last full discussion on the status of the budget was at the time of the Second Interim Financial Report. The status of the budget is important because it determines the ending fund balance (which is the beginning fund balance). Also, the budget establishes a baseline for the budget. This section reports on the changes that have taken place since the Second Interim Report. The table on pages shows the comparison between the District s general fund financials at Second Interim (Column A) and the current estimated actuals (Column B). The difference between the two columns is shown as Column C. Fund Balance and Basic Aid Reserve Policy There have been revenue and expenditure changes since the Second Interim Financial Report. The unrestricted undesignated Fund Balance is estimated at $242,274, a decrease of $6,838,562 from the Second Interim. This decrease is due to transfer to the basic aid reserve policy of $1.3 million coupled with an increase of property tax revenues of $509,856. Also, based on discussion at the June 9 meeting, staff is reserving $6,089,000 to the New Schools Funds. Revenue 1. State Aid (Decrease of $12,658). Slight decrease of Education Protection Account revenue due to decrease of ADA at P-2 attendance reporting. 2. Property Taxes (Increase of $509,856). Property tax revenue comes from three sources: the secured roll revenue, unsecured roll, and homeowners exemption. The increase is primarily from the unsecured roll revenue. The final figures will not be known until July, after the school year is over. When the final figures are received, the District's financials will be adjusted accordingly. 3. Transfer of in-lieu Property Taxes (Decrease of $20,468). Amount transferred to charter schools for Palo Alto resident students. 4. Mandated Cost (Decrease of $16,310). Reduction due to decrease in estimated ADA. 7

8 Expenditures 5. Personnel Budgets (Decrease of $998,811). Personnel budgets show a decrease of $998,811 which reflects budget savings, contract settlement costs, and approximately $900,000 in budget realignments to the supplies and materials category. 6. Supplies and Materials and other Operating Expenses and Services (Increase of $1,043,815). The increase is from budget realignments from the personnel budgets above as well as increases in the local income budgets, offset by savings of $140,000 in the legal services budget. 7. Transfer to Fund 17 (Increase of $1,320,326). Transfer of funds to Fund 17 to comply with Board Policy Reserve. II. GENERAL FUND BUDGET FOR (pp.18-19) The estimated actuals are the baseline numbers for the budget. This section reports on assumptions related to revenue and expenditures made to create the budget from the estimated actuals. The table on pages shows the comparison between the District s estimated actuals for (Column D) and the budget for (Column E). The difference between the two columns is shown in Column F. The following are details on the changes and assumptions that are the basis of the budget. Revenue Property Taxes ($144,075,513, Increase of $7,173,657). Property tax revenue comes from three sources: the secured roll, the unsecured roll, and homeowners exemption/subventions (HOX). For the budget, the secured taxes ($133.2 million), unsecured taxes ($10.2 million), and homeowner s exemptions ($756,095) have been increased by 5.24% over the estimated revenue. Parcel Tax ($14,669,244, Increase of $2.3 million). The residents of Palo Alto passed the Measure A Parcel Tax in May 2015 for six years with an increase to $758 per parcel and with an annual escalation of 2% per year through Lease Revenue ($9,182,733, Decrease of $976,167). The District leases four of its properties to outside organizations. The Cubberley site is leased to the City of Palo Alto, along with portable buildings at several elementary schools for daycare for $5.5 million. The Fremont Hills site is leased to the Pinewood School for $1.4 million and the Garland site is leased to the Stratford School for $877,651. The District also leases the newly acquired 525 San Antonio site for $133,127 in a short term lease with the Athena Academy and receives 25% of all rental revenues generated by the sites to cover the cost of rental. Lease revenues are projected based upon signed leases for the four leased sites and historical trends at the site level. 8

9 Special Education, including Mental Health ($8,951,577, Decrease of $38,829). Special education revenues are from these sources: County Office SELPA ($3.2 million), federal ($2.3 million), and state and local property taxes ($3.4 million). The projection for the District s special education revenue is provided by the local special education local plan area (SELPA). Other State Revenue ($18,917,290, Increase of $7,885,570). Other state revenue includes State Aid ($5.2 million), Education Protection Account ($2.4 million), lottery revenue ($2.1 million), Proposition 39 Clean Energy ($435,966), Mandated Block Grant ($442,456), one time discretionary funds ($7.2 million), Special Education Workability ($64,075), and Adult Education ($1.0 million). All state revenue is based on funding letters received by the state or projected based upon rates provided by School Services of California (SSC). The increase is primarily due to the one-time common core discretionary funds of $7.2 million and a $463,000 increase in State aid for the Voluntary Transfer program. Other Federal Income ($1,040,899, Decrease of $326,847). Other federal income consists primarily of No Child Left Behind (NCLB) revenue for professional development, low income and English leaner students ($596,041), and a grant from the Department of Rehabilitation ($407,432). Projections are based upon current awards and information from SSC regarding federal funding. This decrease results from the carryover balances being removed. Palo Alto Partners in Education (PAPiE) ($5,300,000, Increase of $300,000). The District has been given a commitment of $5.3 million for the school year from PAPiE which is allocated to schools for target areas reflecting school district needs and priorities deemed most impactful by principals and parents as revealed in annual meetings, surveys, and focus groups. The increase represents the additional generosity of the community through their tireless efforts. Other Local Revenue ($5,015,789, Decrease of $727,389). Other local revenue is primarily funds received at the site level, including PTA donations, athletic boosters, site rentals, and departmental income. These revenues are budgeted based on historical levels, although the funds are not available to spend until they are collected by the sites. The reduction is due to a decrease in ROP revenue of $189,742. In addition, school donations are adjusted throughout the year as actual donations are received. Interfund Transfers in ($101,000, Increase of $9,000). Interfund transfers of $21,000 is the transfer from the Capital Facilities Fund. $80,000 is from the Retirees Benefits Fund. EXPENDITURES Certificated Salaries ($97,664,373, Increase of $5,132,488). Certificated salaries include classroom teachers, counselors, psychologists, administrators, and other certificated staff. The salary budget increases current staffing, projected increases in staffing due enrollment growth, projected cost of additional step/column increases, and additional staffing allocations. The increase is due an increase of about 37 FTE positions, an extra work day on the teacher s contract ($480,000), expanding the summer program ($300,000), and an offset by a one-time 0.5% bonus in

10 Classified Salaries ($32,281,808, Increase of $1,051,631). Classified salaries include classroom aides, secretaries, custodians, bus drivers, maintenance workers, food service employees, and all other non-certificated staff. The projected cost of additional step increases, as well as an increase of 2 mental health therapists, 2 custodians due to increasing square footage at facilities, an increase in hours and reclassification for middle school health technicians, an increase in administrative staff, coupled with a decrease of special education aides. The increase is offset by a one-time 0.5% bonus in Benefit Costs ($39,513,291, Increase of $3,625,346). Benefits include statutory, retirement, and health and welfare costs. Statutory costs include Medicare (1.45%), Social Security (6.2% for classified employees only), unemployment insurance (0.05%), and worker s compensation (2.4635%, up from 2.209% in ). Retirement benefits include STRS (10.73%, up from 8.88% in for certificated employees) and PERS (11.847%, up from % in for classified employees). Health and welfare benefits are based on a contractual $13,070 per FTE contribution from the District. The increase is in direct correlation with the increase in salaries and primarily due to the increase in CALSTRS ($1.6 million), CALPERS ($190,706), workers compensation rate ($547,993), and an increase of health and welfare benefits to additional staffing. Supplies and Materials ($16,856,857, Increase of $6,983,490). Supplies and materials include textbooks, library books, instructions materials, other classroom supplies, technology purchases (computers, tablet devices, printers, etc), furniture, and other non-instructional materials. The growth is due to an increase in one-time common core discretionary funds of $7.2 million reserved for textbook adoption and one-time projects. This budget category is changed from the June 9 proposed budget by $442,456. The Mandated Block Grant revenue of $442,456 was budgeted as categorical revenue with the corresponding expenditures by error. We are reducing the expenditures to reflect the revenues as unrestricted. Other Operating Expenses and Services ($18,670,889, Decrease of $1,645,051). Other operating expenses and services include services, rentals, leases, maintenance contracts, travel, insurance, utilities, legal, and other operating expenditures. Utilities ($3.6 million), special education non-public schools ($3.0 million), and mental health residential placements ($1.5 million) are the three largest expenditures in this area. Capital Outlay ($355,500, Decrease of $1,500). Capital outlay includes vehicle and large technology purchases, including servers. Interfund Charges ($116,837, Increase of $20,681). Interfund charges include all indirect charges charged to the various funds. Interfund Transfers Out ($1,505,700, decrease of $870,326). Interfund transfers out is the transfer to the Adult Education Fund of $1.0 million and to the Deferred Maintenance Fund of $450,000. III. FIVE-YEAR FINANCIAL MODEL (p. 20) Staff has prepared a five-year model of projected revenue and expenses, extending through the year

11 This model is dependent on the assumptions used and the variables available in the model. The assumptions will change as time passes and the District continues to reassess the assumptions in the current model. While the model provides for additional teachers and site allocation funds for enrollment growth, it does not provide for any percentage driven increases in numbers of support staff. It also does not provide for increases in employee salaries and contributions to employee benefit costs. The revenue projections are a function of individual projections of local, state, and federal revenue sources. Revenue Projections Enrollment. The District is using the December 2014 enrollment projection. The moderate projection is used for this projection. Voluntary Transfer Program Revenue. The District receives 70% of the sending district s LCFF base grant amount for voluntary transfer students. COLA adjustments have been applied to this revenue stream. The source of these COLA estimates is School Services of California (SSC). Property Taxes. This item includes revenue from the secured roll, unsecured roll, and homeowners exemptions. Absent additional information, this budget model uses a property tax growth rate from the City of Palo Alto which ranges from 5.36% to 5.51% for to These projections will be revisited as additional information is received. Parcel Tax. Measure A passed in May 2015 for six years with an increase to $758 per parcel with an annual escalation of 2% per year through Special Education Revenue. The projected increases are based on COLA adjustments. The source of these COLA estimates is School Services of California (SSC). Lottery Income. An increase in lottery income has been projected due to enrollment growth and estimated changes in the rate. The source of these rate estimates is School Services of California (SSC). Increases in Lease Income. The leases at Garland and Fremont Hills have a minimum increase of 3% annually. The lease with the City of Palo Alto has a 3% adjustment annually. The source of these estimates is School Services of California (SSC). The Garland lease expires on June 30, 2016, and therefore, the rental income for the Garland site has been removed for Expenditure Projections Additional Classroom Teachers for Enrollment Growth. Based on moderate projections of enrollment growth at the elementary, middle, and high schools, a calculation has been made of the number of additional teachers required. Additional Special Education Teachers and Aides. The District needs to plan for the additional special education teachers and aides anticipated as enrollment increases. Certificated Step/Column and Attrition/Retirement Savings. This estimate has been revised with updated data from Human Resources. 11

12 Classified Step/Column and Attrition/Retirement Savings. This estimate has been revised with updated data from Human Resources. Health Benefit Costs. The health benefit costs are based on the rates effective January 1, 2015, through December 31, No increase is included in the model after December STRS Rate. The employer STRS rate continues to increase by1.65% per year until it reaches 19.1% by We have included this increase in the projections. PERS Rate. There is a potential CalPERS rate increases each year. The rate projections are: (12.6%), (15%), (16.6%), (18.2%), and (19.9%) We have included the increases in the projections. Workers Compensation Costs. The rate for is estimated at % of overall salary, and future budget estimates will be updated when new data is available from our provider. Routine Maintenance. The transfer to Routine Maintenance is 3% for the out years. Increase in School Discretionary Budgets. This category has been increased to correspond to the projected enrollment increase. It has been adjusted to reflect the District s allocation for the startup costs of each new elementary classroom. Increase in Utilities Expense. It is projected the costs will increase by 5% each year. Increase in Special Education Non-Public School Tuition and Transportation Costs. It is projected the costs of these line items will increase by 5% each year. Additional Maintenance Costs. The increase shown each year reflects the increase in the routine maintenance budget as a result of an increase in the overall general fund budget. Costs for the 13 th Elementary School. This projection assumes implementation costs for the thirteenth elementary school will begin in The estimated cost for the planning is about $210,000 from the general fund. This model assumes the new school will be open in , and the estimated ongoing operating cost for this will be about $1.5 million. This assumption can change pending a board decision in the fall. Costs for the Potential 4th Middle School. This projection does not include the costs of opening the fourth middle school. The estimated ongoing operating cost for a middle school is $4.5 million. This assumption can change pending board decision in the fall. Surpluses shown on line 38. Based on the revenue and enrollment assumptions listed above, surpluses are projected in the multi-year projection. Surpluses are shown on this line as available for program enhancements and employee compensation. 12

13 IV. CAPITAL FUNDS (p. 22) Capital funds are funds whose uses are restricted to capital purposes. It is useful to devote budget attention to these funds and to think of them as a group. This is true because, as capital projects and tasks are identified, it is often the case there are options within the group for funding and trade-offs or combinations of funds can accomplish the purpose while remaining within the legal requirements of the funds. The following is a listing of Palo Alto Unified School District s capital funds, a description of permitted uses, a current status report, a discussion of recommended uses, and a financial model. Fund , Deferred Maintenance Fund This fund records the revenue and expenditures from the state deferred maintenance apportionment and District-matching contribution. Formerly, there was a state match on a capped amount of local revenue deposited in the fund. This is no longer the case. The state income has now, in accordance with state flexibility allowance, been directed to the General Fund. The following table shows a projected five-year model for this fund. Fund , Deferred Maintenance Fund Beginning Balance $1,125,288 $680,577 $233,639 $234,691 $235,747 Income Transfer from Other Fund $450,000 $450,000 $450,000 $450,000 $450,000 Interest 0.47% $5,289 $3,063 $1,051 $1,056 $1,061 Total Income $455,289 $453,063 $451,051 $451,056 $451,061 Expense Deferred Maintenance Projects $900,000 $900,000 $450,000 $450,000 $450,000 Total Expense $900,000 $900,000 $450,000 $450,000 $450,000 Ending Balance $680,577 $233,639 $234,691 $235,747 $236,808 Fund , Property Fund This fund records the revenue and expenditures resulting from sale of real property or lease-with-option-to-purchase real property. The projected balance of this fund as of June 30, 2016, is $1,851,105. Expenditures in the Property Fund are restricted to capital outlay. The following table shows a projected five-year model for this fund. 13

14 Fund , Property Fund Beginning Balance $1,809,205 $1,851,105 $1,893,202 $1,935,498 $1,977,990 Income Childcare Portables 121, , , , ,101 Interest 0.47% 8,503 8,700 8,898 9,097 9,297 Total Other local Income 129, , , , ,398 Expense Equipment 87,704 87,704 87,704 87,704 87,704 Total Expense 87,704 87,704 87,704 87,705 87,704 Ending Balance $1,851,105 $1,893,202 $1,935,498 $1,977,990 $2,020,684 Fund , Building Projects Fund The beginning fund balance for this fund is $3,350,241, almost all of that total came from State matching grants received in No commitments have been made for this funding, and no additional budgeted expenditures have been proposed for The following table shows a projected five-year model for this fund. Fund , Building Projects Fund Beginning Balance 3,350,241 3,365,987 3,381,807 3,397,702 3,413,671 Income Interest 0.47% 15,746 15,820 15,894 15,969 16,044 Total Other local Income 15,746 15,820 15,894 15,969 16,044 Expense Capital Outlay Total Expense Ending Balance 3,365,987 3,381,807 3,397,702 3,413,671 3,429,715 Fund , Measure A Strong Schools Bond This fund records the revenue and expenditures resulting from the $378 million bond issue approved by the voters on June 3, These funds are available for repairs, improvements, and renovations of and additions to school buildings and grounds including classrooms, science and other laboratories, libraries, safety and seismic upgrades, roofs, plumbing, sewer, lighting, and electrical and mechanical systems. Including interest income, the State Career Technical Education grant, and the funding for bond issuing costs, the current anticipated revenue for this program is $390,047,530 as adopted by the Board and modified with Board approved amendments. 14

15 Fund /6, Planned Maintenance Fund The amount of $17,000,000 in General Obligation Bonds authorized by the voters in 1995 was issued in July 2000 to fund planned maintenance over a period of years. As of the end of , the estimated balance in this fund is close to $0. The Strong Schools Bond provided for a continuation of the planned maintenance program. In , an additional amount of $17,758,557 was appropriated from the Measure A Strong Schools Bond and was approved for continuation over a period years. The projected balance of this fund as of June 30, 2016, is $11,407,060. Fund , Planned Maintenance Fund (Strong Schools Bond) Beginning Balance 13,803,247 11,407,060 9,334,945 7,249,828 5,151,552 Income Interest 0.47% 64,875 53,613 43,874 34,074 24,212 Total Other local Income 64,875 53,613 43,874 34,074 24,212 Expense Salary and Benefits 105, , , , ,811 Planned Maintenance Work 2,355,500 2,017,000 2,017,000 2,017,000 2,017,000 Total Expense 2,461,062 2,125,729 2,128,991 2,132,350 2,135,811 Ending Balance 11,407,060 9,334,945 7,249,828 5,151,552 3,039,953 Fund , Capital Facilities Fund This fund records the revenue and expenditures resulting from the collection of fees levied on residential and commercial development. These fees are currently at $3.36 per square foot for residential development and $0.54 for commercial development. Fund , School Capital Facilities Fund Beginning Balance $4,016,219 $4,495,887 $4,977,762 $5,461,901 $5,948,316 Income Facilities Impact Fees $700,000 $700,000 $700,000 $700,000 $700,000 Interest 0.47% $18,924 $21,131 $23,395 $25,671 $27,957 Total Income $718,924 $721,131 $723,395 $725,671 $727,957 Expense Modular Classrooms (Lease) $218,256 $218,256 $218,256 $218,256 $218,256 Administrative 3% of fees $21,000 $21,000 $21,000 $21,000 $21,000 Total Expense $239,256 $239,256 $239,256 $239,256 $239,256 Ending Balance $4,495,887 $4,977,762 $5,461,901 $5,948,316 $6,437,017 V. ALL OTHER FUNDS (p. 23) Fund , Adult School Fund. Adult Education is primarily supported by state revenue, student fees for classes not supported by the state, and very limited categorical funds. The program is not projected to encroach on the General Fund. 15

16 Fund , Child Development Fund. This program is supported by state revenue and parent fees. Child care services are provided by Palo Alto Community Child Care (PACCC) as a sub-contractor to the District. The program is not projected to encroach on the General Fund. Fund , Cafeteria Fund. The District receives federal and state funds for the Cafeteria Program and also receives revenue from food sales. There is no contribution from the General Fund as the program is now self-sufficient. Fund , Special Reserve Fund. With the highly volatile nature of Community Funded districts and the constant threat from the State to redistribute property tax collections in excess of the revenue limit entitlements, Community Funded districts must maintain a higher level of reserve. The targeted reserve amount is equal to 10% of general fund budgeted expenditures. The June 30, 2015, ending fund balance is projected to be $14,375,748. Fund , Retiree Benefits Fund. The Retiree Benefits Fund has been shifted from Fund 710 to Fund 200 in compliance with GASB 54, Fund Balance Reporting and Governmental Fund Type Definitions, as the funds are not in an irrevocable trust. This fund was established in June 2006 to prepare for the compliance with GASB 45 and the funding of retiree benefits. GASB 45 requires public agencies to report costs and obligations for post-employment benefits. New employees hired after July 1, 2009, are not entitled to this benefit. With this change, the retiree benefit liability will cease over time. The District plans to spend down the balance in this fund over 30 years. The fund is estimated to have a balance of $2,273,464 by June 30, Fund , Self-Insurance, Dental Fund. The District is self-insured for its dental insurance program. The income source is premiums paid by the District on behalf of employees, and expenditures are for claims incurred. VI. CERTIFICATION, STATE FORM AND CRITERIA AND STANDARDS (pp 24-29) The District is in full compliance with cash balance, fund balance, and reserve requirements. VII. RESOLUTION FOR BUDGET TRANSFER AUTHORITY IN (p. 30) Each year, it is necessary to transfer budgets from one account to another in order to properly close the books for the fiscal year and to comply with the statutory requirement that no major budget category can be overspent when bills are paid. This activity takes place in the summer and on a short timeline. Routinely, this Board of Education, like other boards in the State, adopts a resolution delegating the authority to the Chief Business Officer to make these transfers. The attached resolution will continue the practice. 16

17 VIII. RESOLUTION FOR BUDGET TRANSFER AUTHORITY IN (p. 31) Staff requests the Board of Education also extend this delegation of budget transfer authority to the Chief Business Officer in Fiscal Year A separate resolution for is attached. IX. RESOLUTION FOR INTERFUND BORROWING (p. 32) Beginning in , the County Office of Education added a requirement for districts related to interfund borrowing. In the past, if an individual fund was temporarily negative, the County Office of Education would still issue accounts payable and payroll checks as long as the district had sufficient money in its combined funds. Now, the County Office of Education is requiring an Interfund Borrowing resolution in order for them to issue checks out of a temporarily negative fund. In order to fulfill this requirement, we have presented a resolution for Interfund Borrowing for review and approval. 17

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