RE: Local Control Accountability Plan and Adopted Budget Fiscal Year A. LOCAL CONTROL ACCOUNTABILITY PLAN

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1 Carrie DuBois President, Governing Board Sequoia Union High School District 48 James Avenue Redwood City, CA RE: Local Control Accountability Plan and Adopted Budget Fiscal Year Dear Ms. DuBois: The San Mateo County Office of Education (SMCOE) has completed its review of the District s Local Control Accountability Plan (LCAP) and Adopted Budget for the fiscal year pursuant to Education Codes and A. LOCAL CONTROL ACCOUNTABILITY PLAN The County Superintendent is required to approve the district s LCAP if the following criteria have been met: The LCAP adheres to the template adopted by the State Board of Education (EC 52064). The budget includes expenditures sufficient to implement the specific actions and strategies included in the LCAP. The LCAP adheres to the expenditure requirements for funds apportioned on the basis of the number and concentration of unduplicated pupils (EC and ) The San Mateo County Superintendent of Schools has approved your Local Control Accountability Plan (LCAP) for the school year, pursuant to Education Code (EC) Section (d). California Education Code requires the County Superintendent to review and approve the LCAP prior to the approval of the LEA s adopted budget per EC Section 1622(b)(1)(C). Your board-approved LCAP has been posted on our SMCOE website. B. ADOPTED BUDGET In accordance with Education Code Section 42127, the County Superintendent of Schools has examined the Adopted Budget of Sequoia Union High School District (the District) for fiscal year to determine if it complies with the Criteria and Standards adopted by the State

2 Page 2 Board of Education, allows the District to meet its financial obligations during the fiscal year and is consistent with a financial plan that will allow the District to meet its multi-year financial commitments. The County Superintendent of Schools is also required to determine whether the Adopted Budget includes the expenditures necessary to implement the LCAP or annual update to the LCAP. On the basis of our review and analysis, the Budget adopted by the Governing Board on June 28, 2017 meets the specified criteria and includes sufficient funds to support and implement the actions and services included in the Local Control Accountability Plan (LCAP) for the budget year. The San Mateo County Office of Education approves the Sequoia Union High School District s Adopted Budget with the following comments: FINDINGS/COMMENTS: General Fund Budget Summary The Adopted Budget shows an operating deficit in the General Fund of $982,000. There is a projected increase in total General Fund revenues of $2 million in comparison to the anticipated revenues. The increase is primarily due to a projected 7% increase in property tax revenues which offsets a $4.7 million reduction in Federal, State, and Local revenues. The budget reductions in Federal, State, and Local revenues are due to the elimination of carryover dollars and awards not yet granted. General Fund expenditures increased by approximately $3.8 million compared to estimated expenditures. This increase is largely due a $5.7 million increase personnel costs offset by a $1.9 million reduction in the non-personnel costs. Below is a comparison of revenue and expenditure budgets in the General Fund for fiscal years and : General Fund Unrestricted/Restricted Estimated Actuals Adopted Budget A. Anticipated Revenues $144,712,983 $146,684,022 B. Proposed Expenditures 142,542, ,342,503 C. Excess (Deficiency) of Expenditures over Revenues 2,170, ,519 D. Other Sources/Uses and Transfers (2,259,806) (1,323,166) E. Total Increase (Decrease) in General Fund (89,460) (981,647) F. Ending Balance Unrestricted/Restricted $14,702,328 $13,720,681 G. Ending Balance Unrestricted only $12,839,065 $12,357,418

3 Page 3 The $12.4 million unrestricted ending Fund Balance includes $3.4 million assigned for program improvements and the new East Menlo Park campus. This leaves the total available reserve in the General Fund for fiscal year at $8.9 million or 6.01% of the total General Fund expenditures. Reserves in Excess of Minimum Education Code 42127(a)(2)(B) requires the governing board of a school provide, for public review and discussion at a public hearing, any amount in excess of the State-recommended minimum reserve for economic uncertainties. This includes the combined assigned and unassigned ending fund balances in the General Fund (Fund 01) and Special Reserve Fund (Fund 17). The District is required to provide a statement of reasons to substantiate the need for the reserve in excess of the State-recommended level. The District held a public hearing on June 14, 2017 and has provided the public an opportunity to review and discuss the components and reasons for the reserves. The projected available reserve for fiscal year is 6.01%; which is above the minimum 3% State-recommended reserve level for the size of the District. Fund 17 has a zero balance, therefore the excess reserve amount is $7.8 million in Fund 01. Cash Flow The District submitted cash flow projections for and showing negative ending cash balances in August, September, October, and November for both fiscal years. The largest projected ending negative cash balances are $11.7 million in September 2017 and $13.5 million in September The beginning cash balance for July 2017 is also $8.5 million lower than the actual June 30, 2017 ending cash balance. Therefore the actual projected ending negative cash balances in September may be closer to $3.2 to $5 million. As a Basic Aid district, local property taxes are the main source of revenues. Property taxes distributions usually occur in the months of December, April, and June. The District has a $16.5 million TRAN (Tax and Revenue Anticipation Note) to smooth out its cash flow. The County Superintendent urges the District to continue to implement best practices and regularly monitor its cash position to ensure that the District meets its payroll and other monthly obligations on a timely basis. Multi-Year Projections (MYP) The multi-year projection is one of the most important tools in determining the District s financial position. In order to make multi-year projections, school districts rely on a variety of assumptions and sources of information available at the time of report preparation. The MYP incorporate the following key assumptions:

4 Page 4 Revenues: There is an estimated 7.5% per year increase in secured property taxes for , with a 5% increase per year projected for and Average daily attendance (ADA) is projected to increase by about 125 per year. Because the District is a Basic Aid district, this only impacts any one-time per ADA funding the District may receive. Federal revenues are flat funded until actual awards become known. State revenues do not include Prop 98 one-time discretionary funding in the current year. (The $147 per ADA funding for fiscal year was not included in the State budget until its June adoption. The District projects 8,333 funded ADA in ) The projection includes $42 per ADA one-time funding which is eliminated in the fiscal year projection. Local revenues remain flat until actual donations are known. Two new charter schools (Design Tech, authorized by the San Mateo Union High School District, and Oxford Day Academy, authorized by the San Mateo County Office of Education) will be located within the District boundaries in The impact on the District s in-lieu property taxes is not fully reflected in this adopted budget. The District will analyze this impact and revise the budget appropriately in the First Interim reporting period. Expenditures: The salaries and benefits budget includes step and column adjustment increases of 1%. Negotiations are settled with all bargaining units through June 30, The budget includes a 4% increase to the prior year salary schedules. No increases (other than 1% step and column adjustments) are budgeted in fiscal years or The District budgeted an increase of an additional three full time equivalent (FTE) staff in and due to anticipated increases in enrollment. Increases in employer pension contributions for CalSTRS and CalPERS are budgeted, as follows: Employer Contributions CalSTRS % % % CalPERS % % % Non-Personnel budget assumptions include the following: o The books and supplies budget increased by $800,000 in fiscal year o Expenditures funded by local donations were removed. o The transfer to deferred maintenance was reduced by $855,000. The chart below shows the reserve levels and projected ending balance in the Unrestricted General Fund for the budget year and subsequent two fiscal years:

5 Page 5 Unrestricted General Fund Estimated Beginning Balance $12,839,065 $12,357,418 $12,373,926 Revenues & Other Financing Sources 108,781, ,666, ,413,223 Expenditures & Other Financing Uses 109,262, ,650, ,450,112 Net increase (Decrease) (481,647) 16, ,111 Projected General Fund Ending Balance $12,357,418 $12,373,926 $13,337,037 Available Reserves Percentage Per MYP 6.01% 8.13% 8.56% It is crucial for the District to continually monitor and eliminate any projected operating deficits in the General Fund in order to maintain healthy reserve levels Local Control Accountability Plan (LCAP) The District is reminded to continue to maintain sufficient funds in its budget for the current and subsequent two fiscal years to support all actions and services included in the District s LCAP for through fiscal years. Salary Negotiations The District settled negotiations with all bargaining units through June The resulting 4% increase to the prior year salary schedule was included in the budget. In accordance with Government Code and Assembly Bill 2756, the District must provide the County Office of Education with an analysis of cost and impact on the operating budget of the proposed salary settlement. The District is also required to submit the following documents reflecting the financial impact: 1) Disclosure of Collective Bargaining Agreement ten (10) days before the Governing Board takes action on any tentative collective bargaining agreement (requires the signatures of the Superintendent and the Chief Business Official). 2) Multi-year spreadsheet (reflecting the current and two subsequent fiscal years). 3) Budget revisions (if necessary, must be posted to the financial system prior to processing a salary settlement on the payroll system). The County Superintendent encourages school districts to be cautious in their negotiations and to conduct thorough pre-settlement analysis of any proposed collective bargaining agreement to protect from cost increases beyond the scope of bargaining.

6 Page 6 CHARTER SCHOOL The District is the authorizing agency for three (3) charter schools: Everest Public High School (Everest), Summit Preparatory Charter High School (Summit) and East Palo Alto Academy Charter School (EPAA). As the authorizing agency, the District maintains fiscal oversight responsibilities, particularly in the key area of accounting, attendance reporting, budgeting, and payroll. The financial activity for EPAA in included in Fund 09 of the District s financial records. The charts below shows the reserve levels and projected ending balance in the General Fund for the budget year and subsequent two fiscal years for Everest and Summit: Everest Public High School General Fund Unrestricted/Restricted Estimated Beginning Balance $1,515,685 $1,642,919 $1,717,850 Revenues & Other Financing Sources 4,650,408 4,452,227 4,633,138 Expenditures & Other Financing Uses 4,523,174 4,377,296 4,573,771 Net increase (Decrease) 127,234 74,931 59,367 Projected General Fund Ending Balance $1,642,919 $1,717,850 $1,777,217 Available Reserves Percentage 36.30% 39.20% 38.80% Summit Preparatory Charter High School General Fund Unrestricted/Restricted Estimated Beginning Balance $2,916,581 $2,933,988 $2,960,808 Revenues & Other Financing Sources 4,552,117 4,338,534 4,490,770 Expenditures & Other Financing Uses 4,534,710 4,311,714 4,458,717 Net increase (Decrease) 17,407 26,820 32,053 Projected General Fund Ending Balance $2,933,988 $2,960,808 $2,992,861 Available Reserves Percentage 64.70% 68.00% 67.00% The District needs to carefully review the charter school LCAPs for through and monitor its budget to ensure that sufficient funds are maintained to support all goals, actions, and services included in the LCAP. Should any circumstances arise related to the charter school that would negatively impact the financial condition of the District, please notify the County Office of Education as soon as possible.

7 Page 7 Other Funds The District maintains positive balances for all funds. Below is a summary of revenues, expenditures, and fund balances for other District funds shown in the Adopted Budget reports: District Funds Estimated Beginning Balance Revenues Expenditures Other Sources (Uses) Projected Ending Balance 09 Charter Schools 86,958 4,324,356 4,479, , , Adult Education 427,872 2,460,261 2,232,633 45, , Cafeteria 290,349 2,370,000 3,163, , , Deferred Maintenance 3,464,943 35,000 1,600, ,000 2,199, Special Reserve Postemployment Benefits 6,997,428 60, ,057, Building 87,086, ,000 60,573,890 2,547,509 27,112, Capital Facilities 4,122,851 1,535,000 2,217, ,440, County School Facilities 1,768,096 15,000 1,197, , Special Reserve Capital Projects 4,160, , , ,979,995 The Charter Schools Fund (Fund 09) has an increased transfer in from the General Fund due to increased enrollment. Budgeted State and Local revenues decreased by $319,000 compared to anticipated revenues as these revenues are budgeted as received or awarded. Budgeted expenditures decreased by $284,000 compared to estimated expenditures. The Cafeteria Fund (Fund 13) has an increased transfer in from the General Fund of $20,000 in the current and subsequent two fiscal years to cover projected operating deficits. Budgeted Deferred Maintenance (Fund 14) expenditures decreased by $2.4 million compared to estimated expenditures. The Building Fund (Fund 21) budgeted expenditures of $60.6 million are $23.2 million less than the estimated expenditure due to the completion of various Capital Outlay projects. There are no other significant changes in the District s other funds compared to the Estimated Actuals.

8 Page 8 GENERAL COMMENTS: Public Disclosure of Voter and Non-Voter-Approved Debt Districts are reminded to review the requirements for public disclosure of voter and nonvoter-approved debt. Voter-approved debts include General Obligation Bonds and Capital Appreciation Bonds. Nonvoter-approved debts include Certificates of Participation (COPs), Tax Revenue Anticipation Notes (TRANs), Bond Anticipation Notes (BANs), revenue bonds, or any other debt instruments not requiring voter approval. In accordance with AB2197, Education Code Sections 17150, and , thirty days prior to the District Governing Board s approval, all districts, regardless of certification status, are required to submit to the County Superintendent of Schools and the County Auditor the following information (as applicable): 1) Repayment schedule for debt obligation. 2) Evidence of the district s ability to repay the obligation. 3) Disclosure of General Obligation Bonds (GOBs) and Capital Appreciation Bond (CABs) Refinancing. The County Superintendent of Schools and the County Auditor may comment publicly within 15 days of receipt of the information. The 30-day advance notice will require careful planning by the school district in order to comply with the disclosure requirements. The use of debt proceeds is detailed under Education Code , which prohibits school districts from using the proceeds from specific debt instruments for general operating purposes. Fiscal Distress Notification In compliance with Assembly Bill 2756, districts are required to submit to the County Superintendent of Schools any study, report, evaluation or audit that was commissioned by the district, the Superintendent of Public Instruction or State control agencies that shows evidence of fiscal distress under the Standards and Criteria adopted in Section 33127, or any report on the school district by the County Office, Fiscal Crisis and Management Assistance Team or any regional team created pursuant to subdivision (1) of Section The County Superintendent is required, in turn, to consider the findings of such report(s) in the analysis of the district s financial status (Reference: Education Code Section ). BUDGET RECOMMENDATIONS: The Enacted State Budget increased K-12 education funding over the 2016 Budget Act level. However, a significant portion of the increase is dedicated to one-time funding. The

9 Page 9 Governor cautioned that the trend of increasing revenues would not continue indefinitely and urged districts to maintain fiscal prudence. He noted that a modest recession would result in large decreases in state revenues and that proposed changes to the Affordable Care Act could have a significant negative impact on California. It is critical to plan the use of district resources wisely and effectively. Although Basic Aid districts have the advantage of the additional funding provided from excess taxes, it is important to continue to maintain adequate reserves for economic uncertainties and to cover escalating costs of operations. Enclosed is a summary of the District s financial profile. Also enclosed is a historical spreadsheet that shows actual and estimated General Fund revenues, expenditures, and fund balances from fiscal year through The District may find this document useful in analyzing fiscal trends; the most critical information is reflected on Lines C, E, and F2 of the spreadsheet. We want to express our appreciation to the Board and district staff for the work that went into the development of this year s LCAP and Budget. The County Superintendent and staff will continue to provide technical and coaching assistance in the monitoring and development of the District s budget and LCAP. Please do not hesitate to contact us if you have any questions regarding our technical assistance and/or review process. Sincerely, Denise Porterfield Deputy Superintendent, Business Services dporterfield@smcoe.org Enclosures Gary Waddell, Ed.D. Deputy Superintendent, Instructional Services gwaddell@smcoe.org c: Dr. Mary E. Streshly, Superintendent, Sequoia Union HSD Enrique Navas, Assistant Superintendent, Administrative Services, Sequoia Union HSD Anne Campbell, Superintendent of Schools, SMCOE Denise Porterfield, Deputy Superintendent, Business Services, SMCOE Gary Waddell, Deputy Superintendent, Instructional Services, SMCOE Priscilla Aquino-Dichoso, Administrator, District Business Services, SMCOE Liz Wolfe, Administrator, Learning Analytics & Continuous Improvement Services, SMCOE