30th Annual School Finance and Management Conference 200809

1
30th AnnualSchool Finance andManagement
Conference 2008-09
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The Economics of Government Services
IV

• California provides more services to more people
  at a higher cost than other states except in
  two areas K-12 education and transportation
• Transportation is catching up Proposition 42
  and federal funding actions have bolstered
  Californias commitment to transportation systems
• Education is falling further behind
• In an essentially flat education budget, while
  costs are growing and other states are increasing
  funding guarantees, we fall further behind
• But expectations for our children continue to
  grow
• And 41st place, or worse, will not improve our
  Program Improvement (PI) schools and districts
• There is no will to tax more or spend less, so
  the problem gets worse
• More people, more services, stagnant revenues
  how do we break the cycle?

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The Political Landscape
V

• We argue that California does not have a Budget
  problem it has a political structural deficit
  that leads to bankrupt fiscal policy and causes
  repetitive Budget problems
• During good years, we overspend and make
  long-term commitments
• During bad years, we use stop-gap measures and
  borrowing to get through a year at a time until
  we get another good year
• Education costs do not add to the Budget problem
  they rise proportionately to new revenues
• But failure to educate Californias children
  handicaps and impedes all future economic growth
• No new revenue increased costs yet another
  Budget crisis
• The Budget problem is a subset of the political
  problem, and they get solved together or neither
  gets solved

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The Long and Short of Budget Solutions
VII

• In the short term, the Budget is balanced by
• Budget cuts
• Closing tax loopholes
• Using one-time dollars and solutions
• Slowing cash flow to schools to reduce borrowing
  costs
• Longer-term issues are addressed by
• A plan for securitizing Lottery revenues
• Enhancing the Budget Stabilization Fund
• The real hope for long-term stability is that we
  have all good years starting soon

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The State Budget and Economic Environment
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Californians View of the Economy Today
A-5

• There has been a significant deterioration in
  Californians assessment of the economy
• According to a July 2008 Field Poll
• Among registered voters, 86 say were in bad
  times, while only 8 believe were in good
  times
• In December 2007, 52 felt the states economy
  was in bad times
• This is the gloomiest assessment since the
  recession of the early 1990s
• In 1992, the bad times sentiment reached 93

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Californians View of the Economy - Today
A-6
Source Field Poll, July 25, 2008
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Californians View of the Economy The Outlook
A-7

• Economists often warn of the self-fulfilling
  nature of consumer sentiment
• A pessimistic outlook of the economy often leads
  to reduced consumer and business spending, which
  in turn reduces total demand
• Slack demand raises inventories, which leads to
  production cutbacks and layoffs
• The current Field Poll results are the worst
  since 1990, when 48 of those surveyed expected
  the economy to get worse
• In July 2008, 43 believe things will get worse,
  while 19 expect improvement
• In 1990, 48 believed things would get worse,
  while 10 anticipated improvement

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State Employment
A-9

• The states unemployment rate is now 7.7, up
  from 4.8 just a year and a half ago
• Job losses continue in the construction,
  manufacturing, and financial services sectors
• Education and health services have experienced
  some growth
• The U.S. unemployment rate is now 6.1
• In June, the U.S. unemployment rate was 5.5 and
  UCLA forecasters warned that a rate above 6
  could signal recession

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State Employment
A-10
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State Employment
A-11

• Has California turned the corner on job losses?
• As the economy improves, the unemployment rate
  will rise as discouraged job seekers reenter the
  labor market in search of employment
• Unfortunately, the state continues to shed jobs
• California has lost more than 100,000 jobs since
  December 2006
• The bottom line The economy is still in a slump,
  which may yet turn into a recession

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The Education Budget
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2008-09 K-12 Revenue Limits
B-8
5.66 Inflation Increase
4.713Deficit
.68 Gain for Average District
2007-08 Funded Revenue Limit
2008-09 Funded Revenue Limit
2008-09 Computed Base Revenue Limit
2008-09 Base Revenue Limit After Deficit
2007-08 Base Revenue Limit

• Caution Impact of deficit depends on
  district-specific revenue limit

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Revenue Limit Deficit Factor
B-11
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Statewide ADA
B-13

• Statewide ADA continues to decline
• Decline in 2007-08 was 0.52
• The projected decline in 2008-09 is also 0.52

Charter school ADA continues the momentum upward,
projecting growth by more than 10 in 2008-09
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Management of School Agency Finances
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2008 SSC School District and COEFinancial
Projection Dartboard
C-3
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Negotiations 2008-09
F-6

• RBJUHSD Estimates 2008-09

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Expectations in Negotiations
C-6

• Developing conditions
• This years COLA is tiny and next year is likely
  to be no better
• This years categorical cuts were reversed, but
  may very well be proposed again in January
• There is a definite possibility for midyear cuts
  in 2008-09, and we think the Governor may again
  propose big cuts for 2009-10
• Neither party can count on new revenues

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Expectations in Negotiations
C-7

• Look to the future
• Deficit factors to Proposition 98 must be made up
  eventually
• Dont look to the bad years for compensation
  increases, look to the coming good years
• The deficit factor could reach 10 or more by
  2009-10, plan to commit to use future deficit
  reduction dollars to catch up on compensation

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Second-Period Interim Reporting History
C-19

• 88 of the LEAs managed to file positive
  certifications
• But the number of school agencies reporting
  qualified and negative status has jumped
  significantly since 2006-07

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Declining Enrollment
C-28

• Recent calculations show that 53 of districts
  are declining in ADA
• Averaging a .56 decline last year
• Comprising just over 60 of the states ADA
• The special financial challenges are well
  publicized
• But can be more challenging if the decline is not
  as significant as projected
• The revenue for declining enrollment districts is
  based upon prior-year ADA, with some exceptions
  charter schools
• So there is no additional revenue to pay for
  additional teachers to serve the additional
  students

Calculations based on the 2007-08 Second
Principal Apportionment
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Looking to the Future
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Looking to the Future
D-1

• There are many more challenges ahead of us
• Few of the Budget solutions this year provide
  any ongoing help
• In addition to education and transportation,
  California still has to deal with health care and
  many more important issues
• It looks like Proposition 98 is going nowhere
  fast
• Mandate reform is still on the agenda, but way
  down the list
• And the politics that got us here havent
  changed much

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The Structural Budget Gap
D-3

• Nothing that was done in this years Budget will
  help avoid serious cuts in next years Budget
• The Lottery securitization plan is a long way
  from being a done deal
• Over the past several years, all of the one-time
  solutions have been used up and yet the
  structural deficit remains
• We see 2009-10 as being more difficult than
  2008-09
• Revenues will remain relatively flat
• Expenditures continue their inexorable march
  upward
• Borrowing will be difficult and expensive
• There will be political fallout from this year
• In the past, we have had structural problems year
  after year until we have gotten lucky and the
  economy has turned around

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In Other Words . . .
D-12

• In 2009, we will find ourselves in exactly the
  same place unless
• Economy improves
• Agreement is reached on Budget reforms
• Public trust in state policymakers is restored
• Cost of services is acknowledged along with the
  will to pay for them

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Final Thoughts
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California Continues to Fall Behind
E-1

• In 2008-09, California is spending approximately
  1,055 per pupil less than the national average
• In less than 40 years, weve fallen from near the
  top to near the bottom of the states when it
  comes to spending per pupil
• Passage of Proposition 98 in 1988 has not stopped
  that slide
• And, the 2008-09 Budget will widen the
  distancebetween California and other states
• Reversing gains made in recent years

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California Continues to Fall Behind
E-2
Source National Center for Education Statistics,
2008 Bureau of Labor Statistics 2008 CPI
Inflation Calculator
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Thanks you
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Our Response

• Please continue to identify areas of cost savings
• Continue to be frugal with supplies, copies,
  consumables, etc.
• We are working to shore up enrollment and our
  budget
• Charter school, grant funded programs

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Our Response

• Reduction in travel by 50
• All departments will work to identify 50 cuts to
  travel from last year
• Some travel is funded through categoricals and is
  required by the terms of the funding source
• Those identified cuts will be turned in and used
  as a reference as the year progresses
• Be prepared for additional cuts mid-year

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Our Response

• This current budget crisis is expected to
  continue for the foreseeable future
• At least 3 years, by some estimates
• Variables include the national economy, state
  economy, and the states willingness to
  fundamentally restructure the budgeting policy
  and process

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THANK YOU FOR ALL YOU DO!

• I remain fundamentally optimistic about the
  ability of schools to continue providing high
  quality education in the face of financial
  difficulty
• Schools have weathered these storms before
• I have complete faith in your ability to do it
  again