Of Mice and Men

1
Of Mice and Men

• Budget Crisis
• 2008/2009 and 2009/2010

-A Work In Progress Nate Howard, Board
President Wayne Brown, Superintendent Dawn D.
Riccoboni, Chief Business Official
2
How Did the State Get Into This Mess?

• It all started with Proposition 13
• Proposition 13 limited the states ability to
  raise revenue from the most stable source
  property taxes
• Made the state dependent on much more volatile
  sales and income taxes
• Shifted control and accountability from local to
  state
• Term limits contribute to lack of accountability
  and lack of experience in the Legislature
• Created a predictable situation overspending in
  good years and Budget crises in bad years you
  can depend on it
• Exacerbated by unusually volatile national,
  international, and state-level economic
  developments

3
How Long Will It Last and How Deep Will It Go?

• Short-term, our concern is the recession
• Worldwide credit crisis
• Unemployment kills sales and income taxes, as
  well as economic and social opportunity
• Education and all other public services face
  greater demands with dramatically lower resources
• Probably at least two, and more likely three,
  years before recovery
• In the meantime, with less revenue, California
  continues to spend more and provide more services
  than other states

4
What Is the Long-Term Prognosis?

• Long term, we still have a state funding system
  that will continue to provide a rollercoaster
  ride
• Neither the Governor, the Legislature, nor
  thevoters alone can fix it
• Prospects for a long-term solution hinge on a
  willingness to put everything, including
  Proposition 13, on the table that is not likely
  to happen anytime soon
• Real reform would also set new priorities for
  spending
• Despite the rhetoric, California places a lower
  priority on education than other states
• California has had less success in controlling
  other costs, such as for prisons and welfare,
  than other states

5
We Now Have a Severe Crisis in Education

• Within three years of the passage of Proposition
  13, education spending in California dropped from
  the top five to the bottom ten in the nation
  and it has stayed there
• We have created an unreasonable expectation the
  nations highest standards for student
  achievement and one of the lowest funding levels
• We dont think it is a coincidence that the
  wealth gap between the older generations and the
  younger generations has increased as our
  commitment to education has decreased
• The middle class has clearly gotten smaller in
  California
• The number of socioeconomically disadvantaged
  residents has increased
• We think an unwillingness to provide a
  world-class education has hurt Californias
  ability to compete in the world economy

6
Is There Any Way Out of This Mess?

• Short term, it will be done with more one-time
  and temporary solutions on the revenue side and
  deep cuts in expenditures
• Lack of consensus, leadership, and a sense of
  urgency result in paralysis
• The state is really eating the seed corn
• An accurate description of the states past plans
  for economic health is we are going to wait for
  a good year
• One thing that needs to be done right now is to
  reduce the two-thirds vote for a parcel tax
• SCA 6 (Simitian) would do that
• Now is the time for the Legislature to pass this
  bill and give the voters a choice
• Over time, we need to provide a more stable,
  higher-level funding source for schools

7
Is There Any Way Out of This Mess?

• Long term, it really depends on the voters
• Will they continue to accept the results the
  current system produces?
• Will they demand real change and be willing to
  pay for it?
• Under current law, Proposition 98 guarantees that
  sooner or later education will have a recovery
  year but when?
• But for this year, the die is cast
• Education will take at least its share of cuts,
  and
• We will share in the misery index level of the
  state

8
Will the Recession Become a Depression

• After months of denial, all reliable economic
  forecasters now show that both California and the
  nation are mired in recession
• Recognition was sudden, broad-based, and
  undeniable
• The recession has had dramatic a effect on all of
  our major business institutions worldwide!
• The banking industry is unrecognizable from 12
  months ago
• Automobile stocks, and others, trade at 10 of
  former values
• Unemployment sucks the life out of the recovery
  and delays it
• Will we move from recession to depression?
• We need high levels of economic stimulus right
  now
• Particularly capital spending is needed to get
  the economy moving
• Easy credit helped get us into this mess, but it
  is also an instrument to get us out but it is a
  very short-term fix
• We dont think the U.S. moves to a depression,
  but we are on the brink and the new
  Administration in Washington will need to act
  quickly

9
Economic Stimulus Is Needed

• Now is the time for the federal government to
  spend! Capital spending
• Creates jobs
• Lowers overall project costs by taking advantage
  of the lower costs offered in the stagnant
  economy
• Avoids higher costs later
• Increased economic activity has a spending
  multiplier effect
• Of a dollar in wages paid to a worker, 90 gets
  spent
• Some of it goes to the grocer, who in turn spends
  90
• The grocers supplier in turn spends 90
• Generally, 1 in new wages produces 5-7 in
  total economic activity
• We tax economic activity!
• Both sales and income tax grow from economic
  activity
• So does capital expenditure, which in turn
  creates even more jobs
• Cutting our way out of the problem strangles
  families and the economy

10
Economic Crisis - California

• The new two-year budget shortfall is estimated
  to be 41.6 billion.
• Governors Proposed January Budget proposes
  raising 24.3 Billion in new revenue over a
  two-year period
• Sales tax increase of 1.5 cents (for 3 years)
• Sales tax expanded to appliances, furniture, auto
  repair, golf, vet svcs, Disneyland and sporting
  events.
• Oil severance tax
• Increased alcohol tax
• Reduction of dependent exemption credit
• Increase in vehicle registration and drivers
  license fees
• 2/3 votes needed by Legislature on all of these
  revenue proposals.
• Information is changing ..on a daily, weekly
  basis.

11
Governors Proposed January Budget Highlights for
the Mid-Year Cuts to 2008/09

• Across-the-board cuts in all areas of government,
  but by far the heaviest cuts are to Education.
• Impact to District
• Elimination of .68 COLA 117,590
• Further reduction of K-12 RLS (4.57)
  786,591
• Total Revenue Limit Sources Reduction
  904,182
• Equates to a reduction of roughly 293 per ADA.
• Other Categorical reductions, impact to our
  District unknown at this time.
• Cash payments delayed/deferred.

12
Governors Proposed January Budget Highlights for
the Mid-Year Cuts to 2008/09 (cont)

• To mitigate effects of mid-year 2008/09 cuts,
  Governor proposes flexibility in the use of State
  funds, as follows
• Utilize categoricals for any purpose after local
  public hearings.
• Reduce RRMA from 3 to 1.
• Eliminate the K-12 Deferred Maintenance match.
• Reduce the State-required level of Unrestricted
  General Fund reserves (Designated for Economic
  Uncertainties) from 3 to 1.5.

13
Governors Proposed January Budget Highlights for
2009/10

• No COLA with further reductions to BRL.
• Net Funded BRL for 2009/10 estimated with a
  deficit factor of 16.161.
• Combined impact to our District projected to
  roughly equal 1,553,658
• Governor proposes that districts be allowed to
  reduce the school year by 5 days from 180 to 175
  days.

Difference includes decrease in 44 Funded ADA
when compared to Funded ADA at 2008/09 First
Interim Revenue Limit.
14
District Goals and Objectives

• Maintain Fiscal Solvency.
• Prioritize programs within budgetary confines.
• Minimize impact to students.
• Minimize impact to employees.

15
Further Discussion of Governors January 2009
Proposal Continued - Ideas/Thoughts/Potential
Recommendations Good, Bad,
Indifferent

• Reduction of Reserves (Designated for Economic
  Uncertainties) from 3 to 1.5 (roughly)
  400,000
• (Divided by 3 years 133,333)
• Not best business practice but is as positive and
  as supportive an action that can be taken to
  assist the transition of our programs.
• RRMA reduced from 3 to lower percentage
  200,000
• Furloughs for 2009/10
• Reduction to Staff Development Funding
• Reduction to Revenue Limit Sources
• Closing a site(s) 398,000
• Savings in utilities, administration, support
  staff, custodial, maintenance, water/sewer,
  copier lease payments, phones, and other
  associated site costs savings projected for a
  site with less than 300 enrolled.

16
Continued Discussion of Governors January 2009
Proposal Furloughs (Idea 1)

• Decrease school days from 180 to 175 with a
  Furlough of 9 days to all staff (must be
  ratified by all Unions and Employee groups)
• Daily Rate 99,686
• 9 Days 897,174

Teacher work days would be reduced from 185 to
176 5 School Days, 2 Staff Dev Days, 2
Conference Days.
17
Continued Discussion of Governors January 2009
Proposal Furloughs (Idea 2)

• School days remain at 180 days with a Furlough
  of 4 days to all staff (must be ratified by all
  Unions and Employee groups)
• Daily rate 99,686
• 4 Days 398,744

Teacher work days would be reduced from 185 to
181 2 Staff Dev Days and 2 Conference Days.
18
Class Size Reduction K-3

• If CSR program were completely eliminated
• Revenue loss would roughly equal 1,436,987
• Decrease in FTE of approximately 26 would equal a
  cost savings of roughly 1,681,628.
• Net savings to District would approximately equal
  244,641.
• If CSR program given flexibility to ratio of 251
  vs 201, potential savings of roughly 350,000
  (depending on limitations of flexibility) with
  a decrease in FTE of 14.
• CSR total revenue minus a potential penalty
  minus average cost of lowest seniority x 14 FTE.
• UPDATE CTA (Californias Teachers Association)
  is lobbying against any changes to CSR
  flexibility as well as any other changes to CSR.

Savings noted here does not include the savings
associated with closing 26 rooms, utilities,
custodial costs, operational costs, nor support
costs. These savings would be in addition to the
244,641.
19
Additional Concerns

• Carryover from prior year utilized to fund
  current year positions and on-going program
  costs
• 1,682,283 (Equates to a decrease in available
  resources for 2009/10).
• Mid-year cuts WILL occur in 2008/09 but very
  limited places to cut given how deep we are into
  this year.
• Cuts to budget not made in 2008/09 will need to
  be doubled in 2009/10 (the 1 not cut in 2008/09
  will result in the necessity to cut 2 in
  2009/10).
• Declining Enrollment projected to be 44 ADA which
  roughly equates to 227,875.
• Two year decrease in RL 2008/09 and 2009/10
  2,457,840 (08/09 at 904,182 and 09/10 at
  1,553,658 which includes loss of 44 ADA plus
  carryover of 1,682,283) 4,140,123.
• Grand total costs to cut 4,140,123

2009/10 Projected Net Funded Base Revenue Limit
5,178.98 times 44 ADA.
20
Federal Bailout??? / State dollars

• A potential Federal bailout would have little
  relative impact on our district as we receive
  very little relative Federal dollars.
• Categorical State funded every site has
  differing amounts of these dollars given their
  population types and enrollment numbers.

21
In the Interim

• Hiring done only with full Cabinet approval.
• Purchases limited to safety and essentials.
• Professional Staff Development (conference and
  travel) restricted.

22
Summary Major Objectives

• Grand total costs to cut 4,140,123
• Obvious reduction strategies
• RRMA - 200,000
• Reserves (3 to 1.5) - 133,333
• Deferred Maint contrib. - 126,000
• Sub-total 459,333
• Remainder to be cut 3,680,790

23
"The best-laid plans of mice and men/often go
awry,"

• John Steinbeck quotes Robert Burns (25 January
  1759 21 July 1796).

24
Recap of Big Ticket Items from Governors
January Proposal and other ideas

• Idea Potential Savings
• 9 day furlough 897,174
• 4 day furlough 398,744
• Site closure (1) 398,000
• Site closure (2) 796,000
• Eliminate CSR 244,641
• ( Savings noted here does not include the
  savings associated with closing 26 rooms,
  utilities, custodial costs, operational costs,
  nor support costs. These savings would be in
  addition to the 244,641).
• Flexibile CSR Unknown

25
Wayne Brown (January 13, 2009)

• We will provide the very best education to our
  students within the resources available to us.
  We WILL make it work.