Governor s Proposals for the State Budget and K-12 Education

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1 2010 School Services of California, Inc. Governor s Proposals for the State Budget and K-12 Education Presented by Song Chin-Bendib Assistant Superintendent, Business Services Regular Board Meeting January 26, 2010

2 1 State and National Economics The economic crisis is not over for California Unemployment is key and still very high Income and sales taxes tend to lag during a recovery Tourism is still down, people in other states are not traveling Real estate and construction are still the pits Property taxes have several downward pressures The new federal healthcare proposals are a wildcard for business and employment The one-time federal funds appear to be a thing of the past Bottom line: The state hasn t recovered The one-time dollars are gone and we have more budget cuts promises to be the toughest year of the recession The good news: The recovery is in sight We should benefit in the outyears

3 Proposition 98 and the Education Budget 2 Highlights of the Education Budget Flat funding under Proposition 98 in $1.5 billion in cuts targeted to district administration Personnel and administrative reforms Suspension of almost all education mandates Negative cost-of-living adjustment (COLA) produces no new funding Deficit factor remains at record level Proposition 98 is still owed major sums $11.2 billion from past deficits More than $1 billion for unfunded mandates Don t plan to collect this year Race to the Top (RTTT) is also a factor

4 3 Personnel and Administrative Reforms Layoff Statutes The Administration has proposed eliminating the March 15 date for issuing preliminary certificated layoff notices (E.C ) School districts would have 60 days after the State Budget is adopted or amended to issue notices Whether or not the 2% revenue limit threshold contained in the current summer layoff provision (E.C ) would apply to the amended Budget as proposed by the Administration is anyone s guess

5 4 Personnel and Administrative Reforms Seniority Rules Other reforms that protect classroom spending and decrease regulations standing between our children and a higher quality education include changes to seniority and dismissal laws The proposal characterizes seniority rules as: Disproportionately impacting the lowest-performing schools and those in low-income neighborhoods Forcing the retention and rehire of ineffective teachers Disrupting efforts to improve student achievement The proposal offers school districts flexibility to lay off, assign, reassign, transfer, and rehire teachers based on skill and subject matter needs Transfer and reassignment polices are mandatory subjects of bargaining under Government Code (a) Any changes in seniority rules would not supersede local collective bargaining agreements in the areas of transfer and reassignment

6 5 General Fund Budget Summary (Dollars in Millions) Prior-Year Balance -$5,855 -$3,863 Revenues and Transfers 88,084 89,322 Total Resources 82,229 85,459 Total Expenditures 86,092 82,901 Fund Balance -$3,863 $2,558 Budget Reserve: Reserve for Encumbrance 1,537 1,537 Reserve for Economic Uncertainties -5,400 1,021 Budget Stabilization Account 0 0 Total Available Reserve -$5,400 $1,021 The reserve is just 1.1% of revenues and transfers The state ends the current year with a negative fund balance of $3.9 billion Expenditures drop 3.7% in Revenues and transfers increase only 1.4% next year Source: State Budget

7 6 The Budget Gap Problems and Solutions (in billions) $19.9 $19.9 $1.0 Build Reserve $0.6 Fund Shifts $2.3 Lost Budget Solutions $1.4 Caseload Growth $6.9 Operating Shortfall in Budget Act Revision $3.4 Revenue Decline $4.9 Adverse Court Decisions Reason for Shortfall $3.9 Alternative Funds $6.9 Federal Funds $8.5 Expenditure Reductions Proposed Solutions

8 7 Budget Contingency Plan The Governor s Budget assumes that the federal government will increase reimbursements to the state by $6.9 billion The Budget also proposes trigger reductions and revenues if the federal government does not provide the $6.9 billion Trigger reductions include: Elimination of CalWORKs Reduce Medi-Cal eligibility Eliminate the In-Home Support Services (IHSS) program Eliminate the Healthy Families program Trigger revenues include: Extend suspension of net operating loss carryover Delay business tax credits Extend the reduction of the dependent care

9 8 What Does It Mean to Be Protected? The Governor featured protecting education as a major theme does that mean no cuts? No! But it does mean: No midyear cuts to school agencies for Lower-than-proportional reductions for Education makes up about half the Budget, but takes about a fourth of the cuts But it also means that we will have to fight again for the right to receive a Maintenance Factor for these cuts And it means we will need to convince the Governor to reverse his plan to target the cuts almost entirely toward administration So, while there is room for improvement, the protection offered is the best we have had in the past three years

10 9 What s Proposed for the Rest of the Budget? Health and Human Services takes a significant hit expenditures are reduced by $2.4 billion from the revised Budget E.g. Medi-Cal cost containment by limiting services and increasing copayments and premiums Department of Corrections and Rehabilitation funding reductions of $1.2 billion State employee compensation is reduced by $1.6 billion 5% increase in salary savings from a workforce cap 5% across-the-board salary reduction 5% increase in employees retirement contributions Funding for higher education is increased by $225 million

11 10 What s Proposed for the Rest of the Budget? Further reductions to noneducation programs will automatically kick in if $6.9 billion in federal funds are not realized This sets up the same dynamic as the current-year Budget where proposed cuts and presumed savings did not materialize and/or were dismissed by the Legislature Without these savings, and absent anticipated federal funds, there will be increased pressure to increase cuts to education Maintenance Of Effort Much has been made of the protection that the federal maintenance-of-effort (MOE) requirement under the American Recovery and Reinvestment Act (ARRA) provides to K-16 education Based on the Governor s Budget, the proposed level of spending: Meets MOE in , but just barely Fails to meet MOE in by approximately $540 million But the DOF expects the state to be eligible for a waiver

12 11 Projected vs. Actual Funding Per ADA Average Unified District $7,000 $6,150 $6,411 $6,387 $6,000 $5,821 Loss of COLA Dollars Per ADA $5,000 $5,821 $5,668 $4,981 $5,014 Loss of baseline dollars $4,000 Projected Statutory COLA Flat Funding Actual Funding

13 Budget Year Adjustments Revenue Limit COLA fiscal year no further cuts proposed fiscal year fully-funded COLA; however, the COLA is -0.38% This is looking like another unusual year for calculations The funded rates for : District Type All Elementary Districts All High School Districts All Unified Districts Statutory COLA <0.38%> <$23> <$28> <$24>

14 Revenue Limit Deficit Factors 8.140% % % 8.801% 8.801% 8.801% 6.996% 0.000% 0.000% 0.000% 3.002% 2.143% 0.892% 0.000% 0.000% 7.844% % % 0.000% 2.000% 4.000% 6.000% 8.000% % % % % % %

15 14 Administrative Cuts and Efficiencies The Governor proposes cutting a total of $1.5 billion targeted as noninstructional, or administrative costs at school districts and COEs $1.2 billion ongoing reduction to revenue limit funded targeted at school district central administration and $300 million attributable to eliminating barriers related to contracting out for services This would apply to all districts, regardless of the current level of administrative spending or cuts made prior to Monitoring would occur through review of reported Standardized Account Code Structure (SACS) data The Governor has yet to share the specifics of the proposal, but if the cut were to apply based on current revenue limit rates per ADA, it would be as follows: Elementary High School Unified $191 $231 $201

16 15 Categorical Program Funding The statutory COLA adjustment of -0.38% for is applied to most state categorical programs, including the Tier III categorical programs The Proposed Budget also includes adjustments in funding for statewide growth of -0.60% (originally adopted at -0.52%) in and % for Categorical flexibility continues with no expansion or changes School calendars may continue to be reduced by five days through K-3 Class-Size Reduction (CSR) flexibility continues through Restricted ending balances as of June 30, 2008, may be swept through Tier III categorical funding can continue to be used with flexibility

17 16 Federal Funding Update There are now three categories of federal funding that are in play from the perspective of the State Budget Base grants the amount of ongoing funding provided for programs such as Titles I, II, III, IV, and special education ARRA this includes a combination of entitlements (e.g., Title I and IDEA) and competitive grants (e.g., RTTT) Other federal funding this includes California s fair share and possibly additional federal stimulus funding The Governor has included only the recognition of federal base grant funding in the proposed Budget, but has certainly put energy behind ensuring that California is in the best possible position for the other types of funding

18 17 Approximately 20% of districts reported work-year reductions for certificated, classified, and management in For , approximately one-third of districts expect to make, or would like to make, some level of work-year reduction It appears that, for those making certificated work-year reductions, there is an attempt to preserve instructional days, but these too are expected to decrease: 181 # Instructional Days Changes to Instructional and Contract Days Elementary High Unified District Type (proj.)

19 18 Routine Restricted Maintenance Account (RRMA) Prior to flexibility in the Budget, LEAs in the Senate Bill 50 SFP were required to set aside 3% of total general fund expenditures for the Routine Restricted Maintenance Account (RRMA) These requirements were suspended beginning with the fiscal year and continues through Although LEAs do not have the requirement to make the RRMA contribution, there still is the legal obligation to keep facilities in good repair LEAs may not be able to fully exercise this flexibility because the majority of expenses in RRMA are for classified salaries and benefits

20 19 Principal Apportionment Schedule Month E.C (a)(2), (3), and (4) after SBX Proposed Apportionment Schedule Adjusted for Deferrals Apportionment Schedule SSC Planning Recommendation July 5.00% 5.00% 5.00% August 5.00% 5.00% 5.00% September 9.00% 9.00% 9.00% October 9.00% 9.00% 9.00% November 9.00% 9.00% 9.00% December 9.00% 9.00% 9.00% January 9.00% 9.00% 9.00% February 9.00% 0.50% 0.50% March 9.00% 9.00% 9.00% April 9.00% 9.00% 6.00% May 9.00% 9.00% 4.50% June 9.00% 0.00% 0.00% July 17.50% 17.50% August Total Principal Apportionment % % 7.50% %

21 20 Employer contribution rates are set by the PERS Board each May, but PERS has provided estimates for the next several years: Fiscal Year Employer Contribution Rate % (actual) % (estimated) % (estimated) % (estimated) % (estimated) PERS Update As the employer contribution rate increases, the PERS Reduction from the revenue limit decreases correspondingly Once the employer contribution rate exceeds, 13.02%, current law specifies that the state would increase state aid to fund the difference But laws can always be changed!

22 21 Recovery Takes a Long Time The Economic Cycle Recession Recovery Stabilization December 2007 Spring 2010 Forecast 2015

23 22 Practical Information and Recommendations We ve updated and expanded our survival guide, Doing More With Less Use the tips and advice to help organize your options While the focus is on getting through another bad year, don t forget: Now is a good time to make progress on your capital construction programs Opportunities for efficiencies The new version of Doing More With Less may give you some ideas There isn t enough money for business as usual reducing costs will undoubtedly reduce program quality and options You can t save everything, so get your priorities in order Now is not the time to leave the Board, parents, public, unions, and other stakeholders out of the information loop Use our Board-ready presentation to help get the word out There never will be a better opportunity for business people to step up and help lead the district through the continuing economic crisis

24 23 Current-Year Issues Second Interim certifications will require difficult multiyear projections Use the revised School Services of California, Inc., (SSC) Dartboard Remember: Qualified means you can t balance the budget Negative means you expect to run out of cash

25 24 Surviving Today and Beyond The objective is to achieve fiscal and cash solvency but what s the difference? If reserves get too low: Outside intervention from your COE, the Fiscal Crisis & Management Assistance Team (FCMAT), or other experts is needed Possibly with some loss of local control until fiscal solvency is restored If you run out of cash and can t pay back local borrowing: Outside intervention comes from the state, with the state taking over control of all district operations If this happens, it typically takes longer and costs more to become solvent again an outcome that is not good for anyone, especially students The economic outlook does not improve for several years The key is to survive the short term to get to the better days ahead

26 25 Surviving Today and Beyond LEAs significantly have more control over expenditures than revenues But revenues must be protected Most revenues are driven by student counts Maximize enrollment Maximize attendance seat time of students Maximize and audit-proof attendance reporting Problem areas are: Tracking absences Meeting instructional time requirements Maintaining documentation for independent study and kindergarten retentions

27 26 Surviving Today and Beyond Continue filing claims for reimbursement State mandates not suspended, Medi-Cal Administrative Activities (MAA), etc. Consider charging fees in the areas allowable by law Home-to-school transportation, facility use fees, etc. Sell surplus property/equipment Proceeds from real property can be used for any operational purpose until January 1, 2012 Consider voter-approved measures, such as a parcel tax Maximize use of revenue sources involved in current flexibility options Sweep the June 30, 2008, eligible categorical program balances by the end of Transfer Tier III categorical program entitlements through Plan K-3 class sizes with incentive funding flexibility in mind

28 27 It all comes down to priorities Surviving Today and Beyond What programs and services are the most mission critical? Stakeholders need to be involved as soon as you believe that there is a budget or cash problem What is the impact of state funding cuts on the local budget? What are the other factors affecting your budget and cash? What is the size of the problem that has to be solved and by when? Develop a plan to get to a list of budget cuts that preserve the highest priority programs Act now even though this Budget won t be a done deal for many months Legal timelines require that you act long before that And the size of the problem only grows with the passage of time

28 Process for Budget Adoption The Governor has called a Special Session of the Legislature to enact current-year savings The Legislature must act on the proposal within 45 days by February 22 The

29 28 Process for Budget Adoption The Governor has called a Special Session of the Legislature to enact current-year savings The Legislature must act on the proposal within 45 days by February 22 The proposed Budget assumes changes take effect March 1 The past few State Budgets have been created mostly behind closed doors by the Big 5 the Governor and legislative leaders Assembly Speaker-elect Perez told members of the Assembly when he was elected Speaker, The Big 5 negotiations will be the ending point, not the start. I will present your budget to the Big 5, not present the Big 5 s budget to you. The California Constitution requires the Budget to be passed by midnight on June 15 Stranger things have been known to happen

Report on the Governor s May Revision To the Proposed 2012/13 State Budget May 29, 2012

Report on the Governor s May Revision To the Proposed 2012/13 State Budget May 29, 2012 Presenter Julie A. Chapin, Associate Superintendent, Business Services Themes for the May Revision It s all about