Ocean View School District 2011-2012 State Budget Update

August 9, 2011

Ocean View School District 2011-2012 State Budget Update

August 9, 2011

William C. Young Assistant Superintendent Business ServicesWilliam C. Young Assistant Superintendent Business Services

A Tale of Two Budgets

We see this Budget (AB114) as having financial and nonfinancial implicationsOn the financial side, the state did the best it could to close the Budget gap with no bipartisan supportA difficult task, but it was accomplished

A few months ago, we were budgeting big cuts and being threatened with bigger ones, but since that time:

State revenues have grown and are projected to grow furtherProposition 98 has grown by more than $3 billionMore teachers and other staff have been cutCosts continue to increase

At the May Revision workshop, we advised districts to budget for flat state funding

We are grateful that the state continued its commitment to that goalWe still believe the state should guarantee that funding without the potential of midyear cuts

© 2011 School Services of California, Inc.

A Tale of Two Budgets

On the nonfinancial side, this Budget is a train wreckThe level of intrusion into local fiscal decisions is heretofore unheard of

Dictates revenue, staffing, and program levelsProhibits budgeting for a known potential loss

Setting aside any measure of COE oversight at this point in the economic cycle invites future, deeper problems

Throws the multiyear projections asideDictates certification levelsDictates factors to be excluded from COE review

Flexibility in staffing is constrainedProgram and staffing levels specified are not clearThe “second lay-off window” is closed

None of these things save any money at the state level – but districts will pay a price

© 2011 School Services of California, Inc.

The state and national economies could experience an unforeseeable event, which could disrupt markets and slow or halt economic growth

A natural disaster, political conflict, an oil supply reduction, or a foreign debt default would likely slow growth

Lawsuits could unravel the expenditure reductions and funding shifts adopted by the Legislature

Savings in state programs may not materialize as budgeted, resulting in current-year operating deficiencies

Federal budget reductions could increase the state’s fiscal burden to maintain the major safety net programs, such as Medi-Cal, CalWORKs*, and SSI/SSP**

© 2011 School Services of California, Inc.

Risks to the State Budget

* California Work Opportunity and Responsibility to Kids** Supplement Security Income/State Supplementary Payment

Structural Budget Deficit

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Source: 2011-12 May Revision, p. 2; 2011-12 State Budget Summary, p. 5

Major Changes from May Revision to theFinal State Budget

May Revision: Proposes $2.5 billion to “pay down” Proposition 98 deferrals

Final Budget: Defers approximately $2.1 billion of payments to schools

May Revision: Counts on $9.6 billion in temporary taxes

Final Budget: Assumes $4 billion more in General Fund revenues above May forecast

May Revision: Funds Proposition 98 at the minimum, without suspension

Final Budget: Takes away $2.1 billion from K-12 education through a sales tax shift and reallocates those funds to other areas of the Budget without suspension

© 2011 School Services of California, Inc.

Major Changes from May Revision to theFinal State Budget

May Revision: Did not include “trigger cuts” to education, just the threat of additional cuts

State Budget: Puts K-12 education at risk of losing $1.9 billion by triggering a cut if revenues fall short of projections

May Revision: Contains no language that restricts local budgeting practices and fiscal oversight safeguards

State Budget: Places several requirements on the funding level school agencies must budget and staffing levels that must be met in 2011-12, and suspends various AB 1200 provisions

May Revision: Contains no additional flexibility provisions

Final Budget: Allows automatic reductions in the school year if triggered cuts are made – however, would still be subject to collective bargaining

© 2011 School Services of California, Inc.

Trigger Reductions

By December 15, 2011, the Director of Finance is required to determine whether revenues are coming in as forecast or are falling short

Uses the higher of either the LAO’s November 2011 forecast or the Department of Finance’s December forecast

If the revenues are not as strong as expected, automatic spending reductions are triggered in the following order as of January 1, 2012:

Less than $1 billion below forecast – no changes are required

Between $1 billion and $2 billion below forecast

$23 million across-the-board cut to child care

$30 million reduction to community colleges, accompanied by a $10 increase to student enrollment fees

Reductions to other state-funded programs, including higher education, totaling $548 million

© 2011 School Services of California, Inc.

Trigger Reductions

More than $2 billion below forecast, all previous cuts are implemented, plus . . .

Up to 4% reduction to revenue limits – $1.5 billion

4% if revenues fall $4 billion or more; proportionately less if revenue loss is $2 billion to $4 billion

$248 million cut to school transportation

$72 million reduction to community colleges

If revenues fall short by more than $2 billion, authorizes reduction in the 2011-12 school year of up to seven days, in addition to the five days authorized by current law

Goes into effect on February 1, 2012

A shorter school year is subject to collective bargaining and must be implemented by the end of the school year in order to capture the savings

© 2011 School Services of California, Inc.

The 2011-12 Budget Act provides for an automatic reduction to state appropriations, including funding for schools, if state revenues fall short of projections

The K-12 reductions are directed at revenue limits ($1.5 billion) and Home-to-School Transportation ($248 million)School districts, however, are prohibited from budgeting for these reductionsThe level of the reduction is linked to the amount of the shortfall in the State Budget revenues and could range from zero to 4% of the undeficited revenue limit

If the full revenue limit reduction is implemented, the average maximum cut would be about

$260 per ADA for unified school districts$300 per ADA for high school districts$250 per ADA for elementary school districts (~$618,000 for OVSD)

© 2011 School Services of California, Inc.

Trigger Reduction Exposure

A Survival Guide for 2011-12

Operation of school agencies will be as complicated as ever

AB 114 (Chapter 43/2011) dictates how school boards will budget revenues and expenses

It also dictates program and staffing levels

Further, it prohibits districts from budgeting for any potential midyear cut as a result of slower than planned revenue growth

And AB 1200 oversight is dramatically reduced

Decision making will be more difficult because of uncertainty

District finances will be much riskier as a result of loss of local control

The long-term implications are substantial

© 2011 School Services of California, Inc.© 2011 School Services of California, Inc.

The Gutting of AB 1200

AB 114 suspends majority of fiscal oversight for 2011-12

For the 2011-12 fiscal year, the County Superintendent shall not:

Require a school district to project a lower level of revenue per unit of ADA than it received in 2010-11 as a condition of budget approval

Require the school district to demonstrate that it is able to meet its financial obligations for the two subsequent years

AB 114 directs school districts how to budget for 2011-12

For the 2011-12 fiscal year, the school district shall:

Project the same level of revenue per ADA as it received in 2010-11 and shall maintain staffing and program levels commensurate with that level

School districts are not required to demonstrate the ability to meet financial obligations for the two subsequent fiscal years

© 2011 School Services of California, Inc.

For 2011-12, school districts and COEs are required to project the same level of revenue per ADA as they received in 2010-11

The Governor’s signing message was helpful by adding some specificity

Only applies to “state” revenues received on a per-ADA basis

Excludes federal and local revenues

If you adopted your budget based on our recommendations at the May Revision, you have already met this requirement

The Gutting of AB 1200

© 2011 School Services of California, Inc.

AB 114 requires school districts and COEs to maintain staffing and program levels commensurate with flat state funding

If you adopted your budget based on our recommendations at the May Revision with flat funding, you may have already met this requirement

You are allowed to include inflation (i.e., step and column costs, increased health and welfare benefits, etc.) in meeting this requirement

You are allowed to count the loss of federal funds, loss of revenues due to declining enrollment, etc., in meeting this requirement

The Gutting of AB 1200

© 2011 School Services of California, Inc.

Funding Per ADA – Actual vs. Statutory Level

© 2011 School Services of California, Inc.

2-12

In this political climate, it is very difficult to figure out what’s going to happen next

Districts’ hands are tied for the current year; however, prudent planning and continuing best practices for fiscal solvency should continue

Maintain a strong cash position

Be ready to borrow

Know the best options for borrowing

Continue the use of MYPs for the two subsequent fiscal years

Update assumptions based on local factors

Communicating with stakeholders about the current-year budget and MYPs will be key in managing fiscal solvency

© 2011 School Services of California, Inc.

How Can a District Protect Itself?

Next Steps

Manage cash flow

Continue Multi-Year projections

Make revenue adjustments needed

Make expenditure adjustments needed

Develop mid-year cut scenarios

Continue strategic budget planning and operations

All of these actions will ensure Ocean View School District remains fiscally solvent

© 2011 School Services of California, Inc.

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