Governors Proposal for the 200910 State Budget and K12 Education

1
Governors Proposal for the2009-10 State Budget
and K-12 Education

• Ron Bennett, President CEO
• John Gray, Vice President
• Robert Miyashiro, Vice President
• Sheila Vickers, Vice President
• Maureen Evans, Associate Vice President
• Michele Huntoon, Associate Vice President
• Jannelle Kubinec, Associate Vice President

2
State General Fund Revenue Collapse
1 SSC

• Three-year shortfall totals 31.3 billion

3
Governors State Revenue Proposals
2 SSC
4
State General Fund Budget Summary
3 SSC

• Summary assumes enactment of all of the
  Governors Budget proposals
• 2008-09 fiscal year relies on 13.9 billion in
  midyear cuts and 12.7 billion in new revenues
• An estimated 5 billion in revenue anticipation
  warrants (RAWs) would be sold in July 2009 but
  not repaid until 2010-11

Source 2008-09 Governors Budget, p. 9
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State Securitization of the Lottery
4 SSC

• Securitization of the California Lottery
  continues to be a key Budget-balancing technique
• Lottery revenues, which have been declining, are
  assumed to double, with the increase used to
  service long-term debt
• The impact on education
• Short term Lottery revenues would no longer go
  to public education
• Beginning in 2009-10, they would be capped at
  2008-09 levels and replaced with General Fund
  dollars, increased by the COLA each year
• Proposition 98 would be re-based to make the
  proposal neutral
• Long term Education no longer shares in growth
  in Lottery revenues, which would be pledged to
  bondholders
• Must be approved by voters

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State Lottery 2008-09
E-26
5 SSC

• The State Controllers Office (SCO) apportioned
  30.52 per ADA (unrestricted) for the first
  quarter of 2008-09
• 5.92 per ADA lower than the first quarter of
  2007-08
• Although the Lottery Commission has not
  officially reduced the 2008-09 projections at
  this time, we have reduced the per-ADA
  projections on our Dartboard by 10 based on
  information released on current Lottery sales
• The updated 2008-09 allocations based on the
  reduction are
• 109.50 per annual ADA unrestricted
• 11.50 per annual ADA for Proposition 20

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State Lottery Funding
E-28
6 SSC
Funding per Annual ADA
121 per ADA (est.)
121 per ADA (proj.)
8
Revenue Limit Cuts,Cost of living Adjustment
(COLA)
7 SSC

• Governors Budget Proposal for
• 2008-09 reduces budgeted COLA of 0.68,
  eliminating the entire 5.66 statutory COLA
• 2009-10 provides a zero funded COLA, eliminating
  the projected statutory COLA of 5.02 through the
  deficit
• Governors Budget made further cuts to revenue
  limit funding
• 1.6 billion in 2008-09 is equal to a cut of
  4.565
• 1.1 billion in 2009-10 is equal to a reduction
  of 2.515

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2009-10 K-12 Revenue Limits
8 SSC
10
2009 SSC School District and COE Financial
Projection Dartboard
9 SSC
See SSCs Dartboard at end of this section
11
2008-09 Proposed Cuts Governors and
Legislatures Major Proposals
10 SSC
12
2008-09 Proposed Flexibility Governors and
Legislatures Major Proposals
11 SSC
13
Actions to Take Now Update Your 08/09 Budget
12 SSC

• In your local agency budget for 2008/09
• Eliminate the 0.68 COLA
• Reduce the revenue limit by 4.50
• Set aside unallocated state categorical funds

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Flexibility and Opportunity
13 SSC

• The Governor proposes to offer broad budget and
  program flexibility in both 2008-09 and 2009-10
• Ability to transfer state categorical funding,
  including special funds (e.g., adult education
  and child nutrition), to the unrestricted General
  Fund
• Lifting of statutory requirements for most
  categorical programs
• Example Eliminating 201 K-3 Class-Size
  Reduction caps
• Allow for prior-year restricted balances to be
  transferred to unrestricted General Fund
• Cut budget reserve requirements in half
• Eliminate Deferred Maintenance match requirement
• Reduce routine restricted maintenance set-aside
  requirement from 3 to 1

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2009/10 Fewer Days, Fewer Dollars
14 SSC

• The Governor has proposed cutting back the work
  year for state employees, as well as for schools
  and students
• As part of the Governors proposal for 2009/10,
  the state would
• Permit schools to drop from a minimum of 180 days
  of instruction to 175 days (five fewer days)
• Reduce funding for revenue limits by 1.092
  billion, or an additional 2.8
• The Governors proposal reduces revenue and makes
  it possible to legally reduce expenditures
• But, ultimately, LEAs would need to renegotiate
  contracts to realize expenditure savings

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Most States Offer at Least 180 Days
15 SSC

• A June 2008 report by the Education Commission of
  the States found that most states have at least a
  180-day school year
• Colorado has the lowest number of required days
  at 160, and Kansas has the highest at 186 days

Source Education Commission of the States, June
2008
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Negotiations Shortened School Year
16 SSC

• The Governor proposes allowing districts to
  shorten the school year from 180 days to 175
  days
• This is clearly subject to local negotiations
• Should you do it?
• For the district YES
• It could save about 2.5 of the district budget
• Better than cutting more programs or more layoffs
• For the union YES
• 100 of the employees earn 98 of full salary
• Lost jobs dont come back lost days do
• Teachers unit retains membership
• Caution Do not use savings for salary increases
  sooner or later the year will be restored to
  180 days
• Treat savings as one-time money

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PERS Losses and Contribution Rates
17 SSC

• Employer contribution rate is set annually in May
  by Public Employees Retirement System (PERS)
  Board
• 2009-10 employer contribution rate is estimated
  at 9.40, which has decreased despite the
  negative 5.1 return as of June 30, 2008
• PERS instead expects to use funds set aside as
  result of its 15-year asset smoothing method to
  cushion loss
• However, investment losses will likely translate
  into 2010-11 employer contribution rate increase
• Total PERS Fund market value losses from June 30,
  2008, through October 31, 2008, have reached
  -22.0
• Actuarial valuation of June 30, 2009 will be used
  to set 2010-11 rate
• Employer contribution rate increase could be as
  high as 2-3 if there is a negative 20
  investment return for 2008-09

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STRS Losses and Contribution Rates
18 SSC

• Legislation would be required to change the
  employer contribution rate from the current 8.25
• STRS has no plans, at this time, to introduce
  legislation to increase employer rates
• However, the pressure to increase rates will
  intensify due to
• Investment returns of -3.7 for 2007-08 and
  -22.0 so far in the current year
• Need to address STRS unfunded actuarial
  liability of 18.7 billion at June 30, 2007,
  valuation, which will undoubtedly increase due to
  investment losses

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Outlook for Workers Compensation Rates
19 SSC

• 2009 rate hikes are likely
• Insurance Commissioner rejected Workers'
  Compensation Insurance Rating Bureaus (WCIRB)
  recommended rate increase of 16
• WCIRB cited medical inflation as the reason for
  the recommendation
• Insurance Commissioner instead accepted 5
  increase to reflect higher medical and claims
  adjustment costs
• The Commissioner has no authority to set rates,
  but advised insurance companies to be cautious if
  they adjust rates

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Governors January Budget ProposalImpact on
Alameda USD
20 AUSD

• 08/09 Eliminate 0.71 COLA of 380,000 This
  reduction was expected and reserved for. A
  reduction to revenues and to reserves will be
  made.
• 08/09 Additional Reduction of 4.57 to Revenue
  Limit of 2.6M
• 09/10 Reduction of 2.5 to Revenue Limit of
  1.3M
• For the 3.9M loss in revenues (2.6M 1.3M),
  look to the Proposed Categorical Flexibility
  Options and Measure H funds.

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Charter School Funding
21 SSC

• General Purpose rates are based on statewide
  average revenue limits
• Reflect 5.02 COLA, 12.09 deficit, and other
  anticipated changes
• CDE will recalculate the General Purpose rates at
  each apportionment
• Final amounts could vary by 20 per ADA
• Categorical rates reflect the 2008-09 funding
  levels
• Estimated 2009-10 funding rates for charter
  schools are

Source Department of Finance
Ref. Education Code Section 47633(a)
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NEA Charter School in AlamedaProjected Fiscal
Impact on AUSD
22 AUSD

• For 2009/10
• Assume 250 AUSD students enroll in the Nea
  Charter School
• Assume 10 less (non-charter) AUSD Teachers
• Projected Net Fiscal Impact on AUSD is a loss of
  650,000
• Look to the Proposed Categorical Flexibility
  Options to cover these funds

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Projected Teacher Staffing Adjustments
23 AUSD

• For 2009/10
• -3 full-time equivalents (FTE) for Declining
  Enrollment
• -1.8 FTE for Class-Size Reduction (CSR) 9th Grade
• -3 FTE to match high school staffing to
  enrollment
• -10 FTE for NEA Charter School
• -17.8 FTE for the Total Teacher Reduction
• Additional teacher reductions may be proposed as
  the district further analyzes temporary/probationa
  ry teachers and class-size.

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Using Categorical Flexibility (Cat. Flex.)for
the Reduction in School Funding
24 AUSD

• 08/09 on-going loss of 2.6M
• 08/09 use 1-time carryovers for Cat. Flex.,
  including 1M from Adult Education
• 09/10 on-going loss of 4.6M
• 09/10 use 1-time carryovers from Cat. Flex of
  3.8M
• 09/10 use on-going amounts from Cat. Flex. Of
  0.8M
• 10/11 and forward use on-going amounts from Cat
  Flex. and Measure H

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Measure H Parcel Tax
25 AUSD

• For current year and next 3 years, budget
  includes
• 4M in annual revenues
• 1.2M in annual expenditures
• 2.8M in reserve for annual expenditures

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Closing Thoughts
26 SSC

• We always view the Governors January Proposal as
  a beginning point
• Nothing is in law no legislative votes have been
  cast
• But school districts prepare the Second Interim
  Financial Report and multiyear projections
  (March) using the Governors Proposal as a base
• But as we have seen over the past year things
  can change rapidly
• Have a good fallback plan
• If all else fails, layoffs are your last defense
  be ready to do them
• This is a year to engage all stakeholders in
  solutions not a year to get mired in the
  problems
• Our next statutory checkpoint is the May Revision
  unless there are midyear cuts from the
  legislative special session

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AUSD Next Steps 27 AUSD

• Over the next two months, AUSD will be reviewing
  the Budget on the following dates
• 1/28 AUSD All Management Meeting, includes
  Principals
• 1/29 Principals Enrollment Staffing Meeting
• 2/2 to 2/6 Program Managers presentations to
  Executive Cabinet
• 2/10 Board Update
• 2/11 First Public Budget Workshop
• 2/12-2/23 Budget analysis by staff
• 2/24 Board Update
• 2/25-3/9 Budget analysis by staff
• 3/10 Board Action on Layoff Notices
• 3/10 AUSDs 2nd Interim Financial Report
• 4/1 Second Public Budget Workshop