Board of Trustees and Superintendent. FROM : Patsy Thomas, Chief Accountant. BOARD MEETING DATE: December 14, 2011

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1 TO: Board of Trustees and Superintendent FROM : Patsy Thomas, Chief Accountant BOARD MEETING DATE: December 14, 2011 AGENDA ITEM: First Interim Report, Fiscal Year Education Code sections and 42131, as amended by AB 1200, require each district superintendent to prepare and submit interim financial reports to the governing board so the governing board can certify to the County Superintendent of Schools, the State Controller, and the State Superintendent of Public Instruction whether or not the school district is able to meet its financial obligations for the remainder of the fiscal year. The Board can certify, in staff s opinion, that the district is able to meet its current year financial obligations and will end the year with a positive fund balance. Copies of the First Interim Financial Reports are available for public inspection at the district office st Interim Responds to Education Trailer Bill, AB 114 On June 30, 2011, Governor Brown signed the State Budget Act, SB87, Chapter 33, Statues of 2011 and the Education Trailer Bill, AB 114, Chapter 43, Statues of The AB 114 enacted trigger language that automatically implements reductions to K-12 education if state revenue forecasts of $88.5 billion are not met. The following is a formula for calculating the reductions implemented by the trigger language. If revenues for the year are estimated to be less than $1 billion below the forecast ($87.5 billion), then no changes are required. If revenues fall between $1 billion ($87.5 billion) and $2 billion (86.5 billion) lower, than a series of additional cuts are triggered. If revenues fall more than $2 billion ($86.5 billion or less), then the state will impose additional cuts to public education of up to $1.9 billion: a 4% reduction to revenue limits and $248 million cut to school transportation. 1

2 The Legislative Analyst Office (LAO) revised the revenue forecast and the budget is estimated to be $3.7 billion short. This would trigger midyear reductions. The LAO forecast is $3.7 billion below the budget estimate, so the calculated revenue limit reduction could not exceed 3.4%. In addition, funding for k-14 education cannot decline below the Proposition 98 minimum funding guarantee. The LAO estimates that the minimum guarantee will further mitigate K-12 revenue limit trigger reductions, limiting the amount of the cut to about $1.1 billion. This translates to a 2.9% cut to K-12 revenue limits or $216 per pupil for the average high school district. The district responded quickly to the state budget crises by maximizing the financial benefit of state and federal emergency funds and opportunities, cutting costs, and prudently using reserves that have been built over the years to deal with lean financial times. Federal American Recovery and Reinvestment Act of 2009 (ARRA) State Fiscal Stabilization Funds (SFSF) provided $10.8 million of direct aid to our district since Reallocating and sweeping state funds as allowed by State Senate Bill SBX3-4 has helped to close the $74.5 funding gap by $15.1 million. We have reduced all salary schedules by a total of 6.25% in three steps implemented over a two and a half year period. This saved $2.2 million in and $7.2 million a year from forward. Total certificated, classified and management salary savings resulting from salary schedule adjustments since the onset of the budget crises through the end of the budget year will total $16.6 million. I. Major Conclusions The major conclusions to be drawn from this report are as follows: The First Interim report for the fiscal year indicates that the district will end the year with a positive ending balance as required by state law, and it is recommended that the Board of Trustees certify to that effect. The undesignated fund balance has decreased by $250,368. This is due to the State Budget included provisions that would trigger midyear reductions if revenue didn t reach the optimistic levels upon which the State Budget was based. The trigger cut is estimated to be $219 per ADA which equates to $3,242,656. The beginning balance increased $4,957,756 due to the actual ending fund balance being more favorable than the conservative amount originally budgeted. For example, the budget assumed that every budget expenditure line item, including salaries, will be completely spent. Changes in revenues, expenditures, encroachment, reserve for economic uncertainties together net to an unfavorable $1,573,838 change (see table on page 5). 2

3 The current OUHSD General Fund budget includes $3,966,968 in Adult Education expenditures with money. Adult Education funding and other categorical funding was eliminated to allow the state to increase unrestricted general fund revenues to help offset the % state school deficit. This state deficit reduced OUHSD revenue limit income by $22,141,155 this year. II. The First Period Interim Report Methodology and Impact Modifications included are: inclusion of unrestricted carry forward amounts and adjustments to reflect the previous fiscal year financial closing process. The following schedule displays the change in projected balances, revenues and expenditures from the adopted budget. Summary of Balances, Revenue and Expenditures Beginning Balance $ 18,626,966 $ 23,584,722 $ 4,957,756 Revenues 100,084, ,255, ,142 Other Financing Sources 25,464 25, ,110, ,280, ,142 Expenditures 96,330,726 92,973,493 (3,357,233) Transfers Out 1,457,029 5,335,275 3,878,246 Encroachment 12,528,254 13,751,221 1,222, ,316, ,059,989 1,743,980 Excess/(Deficit) (10,205,630) (11,779,468) (1,573,838) Ending Balance 8,421,336 11,805,254 3,383,918 Reserves & Designated Balances 5,408,888 9,043,174 3,634,286 Undesignated Balance $ 3,012,448 $ 2,762,080 $ (250,368) 3

4 III. Forecast Ending Balance Historically, actual year-end ending balances are more favorable than those forecasted during the fiscal year. While there is no assurance that the district will realize a higher ending balance as the year progresses, it is a possibility because of the district s conservative approach to budget development. The components of the Ending Balance, as reflected in the schedule below, include a reserve for economic uncertainties, reserves for warehouse stores inventory and revolving funds, reserves unit share formula amounts, other designations and undesignated balances. Not included are restricted balances related to categorical programs, special education and continuation high school. The District budgets restricted programs to use all revenues and prior year carry forwards in the current budget year thru the next two years. Since the Adopted Budget, the ending balance has increased by $4,957,756 and the undesignated balance has decreased by $250,368. The schedule on page 5 details the changes that affect the unobligated fund balance. ` Components of the Ending Balance Beginning Balance $ 18,626,966 $ 23,584,722 $ 4,957,756 Operating Surplus (Deficit) (10,205,630) (11,779,468) (1,573,838) Ending Balance 8,421,336 11,805,254 3,383,918 3% Reserve 4,071,327 4,303, ,057 Reserve for Certificated BU Reserve for Classified BU & Other Revolving Cash Fund and Stores 180, , ,573 Health, Vision, Dental Ins Surplus 757,561 (757,564) Workers Compensation Surplus 400,000 (400,000) AB 114 $219/ADA 3,242,656 3,242,656 Total Reserves and Designations 5,408,888 9,043,174 3,634,286 Undesignated Balance 3,012,448 2,762,080 (250,368) Ending Balance $ 8,421,336 $ 11,805,254 $ 3,383,918 4

5 The schedule below displays changes to the undesignated fund balance. Unrestricted GF Changes Adopted Budget to 1st Interim UNRESTRICTED GENERAL FUND UNDESIGNATED FUND BALANCE AT Adopted Budget 3,012,448 Items Contributing to the increase in Undesignated Fund Balance of 2,300,173 Closing changes in the projected beginning balance at the adoption 4,957,756 Net increase in Revenue Limit Source 106,699 Increase in Other Local Revenue Adult Ed Interest, Fees and Misc. Revenue 63,443 Net Change in Certificated Salaries 2,579,911 Net Change in Benefits 894,024 Net Change in Other Services/Operating Expenditures 87,993 Net Change in Indirect Cost Transfer 217,344 TOTAL INCREASE (+) 8,907,170 Items Contributing to the Decrease in Undesignated Fund Balance of 2,300,173 Net Change in Classified Salaries (17,436) Net Change in Supply Expenditures (311,110) Net change in Capital Outlay (93,493) Net Change in Transfers Out Food Service (3,878,246) Net Support to Restricted Fund (Encroachment) (1,222,967) Net Change in the amount of the reserved: Stores (159,573) Change in Designated for Economic Uncertainties (232,057) Net Change in Other Designation: AB114 "Trigger" $219 per ADA (3,242,656) TOTAL DECREASE (-) (9,157,538) Undesignated Fund Balance at First Interim (=) 2,762,080 5

6 IV. Forecast Income The total revenues are forecast to increase by $170,142 due to the following changes: Revenue Limit: The net increase of $106,699 in revenue limit funding is mainly due to the increase of in estimated P-2 ADA over adopted. Other Local Revenues: The net increase of $62,228 is donations and ROP revenue being reported in the general fund. The following schedule displays revenue source. Revenues Summary of Revenue Revenue Limit Sources $ 84,768,589 $ 84,875,288 $ 106,699 Federal Revenues 407, ,621 - Other State Revenues 12,474,487 12,475,702 1,215 Other Local Revenues 2,434,218 2,496,446 62, ,084, ,255, ,142 Transfers In 25,464 25,464 - Other Sources Total Revenues $ 100,110,379 $ 100,280,521 $ 170,142 Revenue Limit Sources 84.66% Unrestricted GF Revenue 1st Interim (excluding Transfers In & Other Sources) Other Local Revenues 2.49% Other State Revenues 12.44% Federal Revenues 0.41% 6

7 V. Forecast Expenditures The total expenditures are forecast to be $928,905 more than the adopted budget due to the following major changes: Certificated salaries are forecast to decrease by $2,579,911, mainly due to the reallocation of salaries to the Education Jobs Fund which is one-time restricted funds. Miscellaneous changes of $199,885 in staffing from the adopted budget to projected budget. Classified personnel are estimated to increase by $17,436 is due to miscellaneous budget transfers. The projected decrease by $894,024 in employee benefits is due to the 12% increase in medical benefits and corresponds to the estimated decrease in salaries. The increase in Books and Supplies of $311,110 is due to the $5 per CBEDS for student instructional materials which totaled $77,650 and $139,297 in Adult Education Cal Works supplies. The net difference of $94,163 is the total of other miscellaneous budget transfers. The projected decrease in Other Services and Operating Expenditures of $87,993 is the net of miscellaneous budget transfers. The projected increase in Capital Outlay in the amount of $93,493 is due $40,000 for a marquee at Rio Mesa High School, $38,366 shade structure at Frontier Continuation High School and $23,750 for the retrofit of the snack bar/press box at Camarillo High School. The net difference ($8,623) is the total of other miscellaneous budget transfers. The Other Outgo-Transfers of Indirect increase in the amount of $217,344 is due to budgeting of the carryover and updated allocations from the categorical programs. The transfer out increase in the amount of $3,878,246 is due to CDE/USDA repayment for the Cafeteria Fund in the amount of $3,591,982 and the VCSSFA investigation in the amount of $497,363. The net difference ($211,099) is the total of savings in the operating costs from food service. Categorical programs are budgeted and perpetually monitored to balance revenues to expenditures. Categorical programs are not included on this schedule. 7

8 The schedule below shows expenditures by type. Summary of Expenditures Expenditures Certificated Salaries $ 50,785,091 $ 48,205,180 $ (2,579,911) Classified Salaries 11,603,485 11,620,921 17,436 Employee Benefits 26,205,364 25,311,340 (894,024) 88,593,940 85,137,441 (3,456,499) Books and Supplies 1,681,000 1,992, ,110 Services, Other Operating Expenses 6,602,491 6,514,498 (87,993) Capital Outlay 162, ,115 93,493 Other Outgo (Excluding Support) 1,344,923 1,344,923 - Direct Support/Indirect Costs (2,054,250) (2,271,594) (217,344) 96,330,726 92,973,493 (3,357,233) Transfers-out 1,457,029 5,335,275 3,878,246 Encroachment 12,528,254 13,751,221 1,222,967 Total Expenditures $ 110,316,009 $ 112,059,989 $ 1,743,980 Unrestricted GF Expenditures 1st Interim (excluding Transfers Out, Other Uses, & Encroachment) Certificated Salaries 52% Classified Salaries 13% Supplies, Services, & Other 8% Employee Benefits 27% 8

9 VI. Contributions to Restricted Programs The following table shows support to restricted programs. Summary Unrestricted Support to Restricted Programs Support to Restricted Programs Continuation HS $ 1,143,134 $ 1,124,992 $ (18,142) Special Ed 7,401,108 8,347, ,821 Transportation 1,177,770 1,472, ,288 Routine Restricted Maintenance 2,806,242 2,806,242 0 Total Support $ 12,528,254 $ 13,751,221 $ 1,222,967 VII. Multi-Year Projection In our opinion, economic uncertainties in California and the world should cause users to minimize reliance on any multi-year projections (MYP). 9