Sources: School Services of California, Inc., KCSOS, Dave Walrath, and Michael Hulsizer

Sources: School Services of California, Inc., KCSOS, Dave Walrath, and Michael Hulsizer

Overview National Economy California s Economy and the State Budget Governor s Proposal for Education Funding Budget Challenges Potential Impact on KHSD Budget Timeline Questions

Overview of the National Economy

U.S. GDP Continues Steady Growth At 3.2%, the U.S. experienced the highest growth rate in GDP* since the first quarter of 2015 Per the December 2017 UCLA Anderson Forecast: 3% pace of growth is expected to continue through at least the second quarter of 2018 The forecast anticipates a rate of below 1.5% in 2019 *Gross Domestic Product

Stock Market Continues to Soar All three major indices reached all-time highs the first week in January, with the Dow surpassing 25,000 for the first time Source: Tradingeconomics.com Dow Jones

Federal Reserve Raises Federal Funds Rate Federal Reserve raised rates several times in 2017 and is anticipated to continue raising rates in 2018 0 Source: Tradingeconomics.com Federal Reserve

Overview of California s Economy and the State Budget

Unemployment Gap Continues to Close 228,000 jobs added to U.S. in November 2017 13.0% California and U.S. Unemployment Rates Seasonally Adjusted Data Unemployment Rate (%) 11.0% 9.0% 7.0% 5.0% 3.0% November 2010 November 2011 November 2012 November 2013 November 2014 November 2015 November 2016 4.60% 4.10% November 2017 California U.S. Source: Employment Development Department and Bureau of Labor Statistics

Big Three Revenues Personal Income Tax, Sales and Use Tax, and Corporation Tax $140.0 $135.0 $130.0 $126.8 $126.8 $131.0 (in billions) $133.0 $133.0 $135.2 $138.5 $138.6 $125.0 $120.0 $115.0 $122.1 LAO, November 2017 (Growth Scenario) LAO, November 2017 (Recession Scenario) $110.0 2018-19 Governor's State Budget $105.0 $100.0 2017-18 2018-19 2019-20

New Tax Plan Impacts on California Critics of the tax plan argue that it hits some California taxpayers particularly hard The $10,000 limitation on the deduction of state and local taxes will raise the amount of federal taxes paid by Californians Kevin de León, the Senate President pro Tempore, has said that the average state taxpayer takes deductions totaling $22,000 California home prices are among the highest in the nation Limiting the principal amount of the loan upon which the interest deduction can be taken will raise federal tax payments for many

Rainy Day Fund But perhaps the most notable investment in the rest of the budget, is the Governor s proposed $3.5 billion supplemental deposit into the state s Rainy Day fund above the $1.5 billion that is required by law bringing the total Rainy Day Fund to $13.5 billion in 2018-19 (the maximum allowed by the constitution) $13.5 billion Source: Governor s Budget Summary 2018-19

Cap on District Reserves Proposition 2 established a state reserve specifically to protect against cuts to Proposition 98 The Proposition 98 maintenance factor is fully repaid Proposition 98 is funded based on Test 1 Proposition 98 is sufficient for enrollment growth and statutory COLA Deposit is made into the Proposition 98 reserve when capital gains exceed 8% of General Fund revenues Met: The maintenance factor has been fully repaid Not met: Funding based on Test 3 in 2018-19 Met: ADA decline of 0.29% and statutory COLA of 2.51% fully funded Met: Capital gains revenues account for 9.8% of tax revenues in 2018-19 If these conditions are met, a hard cap on district reserves is imposed in the following year

Governor s Proposal for Education Funding

Proposition 98 Education Funding Proposition 98 Funding Over Time 2008-09 to 2018-19 $80.0 $78.3 (in billions) $75.0 $70.0 $65.0 $60.0 $58.0 $58.9 $67.1 $69.1 $71.4 $75.2 $55.0 $50.0 $49.2 $51.7 $49.7 $47.3 $45.0 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

Proposition 98 and the Major K-12 Proposals Fully fund LCFF The Governor s Budget proposal includes: One-time discretionary funding Strong Workforce Program to establish a K-12 specific component Child Care and State Preschool to expand inclusive care and education settings for children up to 5 years old Teacher Workforce to increase and retain special education teachers

What s Not in the Education Budget? The 2018-19 Budget proposal provides no funding for the following critical items: Increasing the LCFF base grant target to reach the funding level of the top ten states The growing local obligations for the California State Teachers Retirement System (CalSTRS) and the California Public Employees Retirement System (CalPERS) unfunded liability Home-to-School Transportation programs Increasing and equalizing base funding rates for special education

2018-19 Local Control Funding Formula The Budget proposes nearly $3 billion for full implementation of the LCFF Two years ahead of the intended 2020-2021 implementation date 2018-19 LCFF growth provides an average increase of an estimated $550 per ADA, or 5.8% With concerns about the direct services provided to the students that generate LCFF dollars, the Governor s Budget proposes: LEAs will be required to show how their budget expenditures align with the strategies detailed in their LCAPs The calculations and total amount of supplemental and concentration funding provided to each LEA under the LCFF will be reported on a single website

Impact on Multi-year Projections Under the revised projections, the steep increase happens in 2018-19 and the remainder of the years are COLA only

One-Time Discretionary Funds The Governor s Budget proposes $1.8 billion in one-time discretionary funds for school districts, COEs, and charter schools in 2018-19 This equates to approximately $295 per ADA Expenditure of these funds is determined by the local governing board and can be used for any one-time purpose Like prior years, these funds will offset LEAs outstanding mandate reimbursement claims on a dollar-for-dollar basis According to the DOF, less than $1 billion in claims will remain outstanding at the end of the current year

Career Technical Education The 2017-18 State Budget included the last apportionment for the Career Technical Education Incentive Grant (CTEIG) program, phasing in local matching funds while reducing state funds The 2018-19 Governor s Budget does not propose continued funding for the CTEIG program but the Legislature is interested in finding an ongoing state funding source CTEIG Program 2015-16 $400 million 1:1 State/Local Match 2016-17 $300 million 1:1.5 State/Local Match 2017-18 $200 million 1:2 State/Local Match

Career Technical Education Legislation AB 1743 (O Donnell, D-Long Beach; McCarty, D-Sacramento) would reauthorize the CTEIG program for three additional years Funded at $500 million annually with a 1:1 match requirement Removes language giving funding priority to new programs

Teacher Workforce Acknowledging the disproportionately severe shortage in special education teachers, coupled with the pervasive and persistently low performance of students with special needs, the Budget proposes a total of $100 million in one-time Proposition 98 funding to create two programs Teacher Residency Grant Program $50 million To support locally sponsored, one-year intensive mentored and clinical teacher preparation programs Local Solutions Grant Program $50 million One-time competitive grants to develop and implement new, or expand current, local solutions to address the need for special education teachers

Budget Challenges

Special Education Special Education LCFF Base Funding and LEA Priorities Special Education costs increase as overall funding declines and student needs increase No mechanism in place to increase funding based on student needs General Fund contributions nearing 60% of total cost-squeezing all other educational goals

Historic Percentage Change in Enrollment vs. Growth in SWDs 3.00% 2.50% Historic Percent Change in Enrollment and Students with Disabilities (SWDs) 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2.71% 2.00% 2.29% 1.50% 1.00% 0.50% 0.40% 1.09% 1.29% 1.45% 1.80% 0.00% -0.50% 0.30% -0.18% 0.06% 0.10% 0.16% -0.02% -0.14% 0.02% -1.00% -1.50% -0.96% Percent Change in Enrollment Percent Change in Students with Disabilities

CalSTRS and CalPERS Employer contribution rate for CalSTRS is proposed to increase to 16.28% in 18-19, up from 14.43% in 17-18. Employer 8.25% 2014 15 2015 16 2016 17 2017 18 2018 19 2019 20 2020-21 9.5% 11.10% 12.70% 14.43% 16.28% 18.13% 19.10% KHSD Cost $14.2 M $17.1 M $21.4 M $26.7 M $31.7 M $37.0 M $40.9 M Cumulative $1.9 M $6.7 M $15.8 M $30.2 M $49.6 M $74.3 M $103 M Employer contribution rate for CalPERS is proposed to increase to 18.10% in 18-19, up from 15.53% in 17-18. Employer 11.442% 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 11.77% 11.85% 13.89% 15.53% 18.10% 20.80% 23.8% KHSD Cost $7.7 M $8.5 M $10.9 M $13.3 M $16.9 M $21.2 M $26.6 M Cumulative $0.9 M $2.5 M $6.5 M $12.9 M $22.9 M $37.3 M $56.9 M

School Facilities The 2018-19 State Budget: Proposes to authorize a total of $640 million in Proposition 51 bond authority Local Measures Since 2012 Type of Election Passed Dollars Failed Dollars General Obligation Bonds (2/3) 9 $494.8 Million 5 $458.5 million General Obligation Bonds (55%)* 500 $60.1 Billion 69 $5.8 Billion Parcel Taxes (majority of elections were renewals) 100 22 Proposition 51 provides $9 billion

Per-ADA Revenues Growth in Revenues and Expenditures $600 $549 $500 $400 $300 $200 $100 $- $235 SC Growth Base Growth LCFF Growth Revenues $430 Special Education Contributio SC Growth $435 Special Education Contribution? Special Education Contributio Step & Column Step & Column Step & Column SC Growth Base Growth PERS Increase PERS Increase PERS Increase Base Growth STRS Increase STRS Increase STRS Increase Expenditures LCFF Growth Revenues Expenditures $236 LCFF Growth Revenues $441 Expenditures $281 SC Growth Base Growth LCFF Growth Revenues 2017-18 2018-19 2019-20 2020-21 $367 Special Education Contribution? Step & Column PERS Increase STRS Increase Expenditures

Potential Impact on KHSD Budget

What Does the Governor s Proposal Mean for KHSD Change in Revenues 2018 2019 Revenues $ 438,000,000 2017 2018 Revenues $ 401,000,000 Net Increase $ 37,000,000 Division of Revenues One Time Revenues Ongoing Revenues $11,000,000 $26,000,000

Proposed Use of 2018 2019 On-Going Funds Projected Increases in Supplies, Services, Etc Utilities change net of Solar Savings LCAP (First Interim estimated new spending) 2018 2019 Ongoing Funds Required/Committed $ 0.25 M Staffing due to Growth $ 1.68 M $ 1.40 M Step and Column Changes $ 2.50 M Swimming Pool $ 0.50 M STRS Increases $ 3.30 M New LCAP Target (spend not already estimated at first interim) $26,000,000 $ 9.00 M PERS Increases $ 1.40 M Other Expenses $ 0.05 M H & W Increases $ 2.00 M Other Benefits $ 1.85 M Total $ 11.20 M Total $ 12.73 M Balance Remaining $2,070,000

Proposed Use of 2018 2019 Discretionary Funds 2018 2019 One Time Funds = $ 11,000,000 Vehicle Replacement Plan (Buses) $ 1,000,000 Portables $ 1,600,000 Textbooks $ 3,400,000 Pension Stabilization $ 5,000,000 Other Total Budgeted One Time Expenses $ 11,000,000

General Fund Expenditures

Timeline

Enacting the State Budget While the State Budget process is complicated and covers six months, here s the abbreviated edition of the process between January and the May Revision January 10 February Early Spring Governor introduces State Budget proposal Budget bill introduced in both houses shortly thereafter Budget trailer bills are released, providing critical details to the January proposal Budget subcommittees examine Governor s and legislative proposals Some policy decisions made; most funding decisions delayed until the May Revision

Questions?