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Adopted Budget 2016/17

Menlo Park City School District June 7, 2016 Board Meeting

Agenda

¡  Executive Summary

¡  2016/17 Budget

¡  Multi-year revenue breakdown and assumptions

¡  Multi-year expenditure breakdown and assumption

¡  Reserve Levels

¡  Options and Next Steps

¡  QA and Discussion

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Executive Summary

¡  The 2016/17 Multi year budget meets the required reserve levels per Board policy, however: ¡  Does not include negotiated compensation increases ¡  Includes secured property tax growth projections ¡  2016/17: 6.25% (based on County roll tracker dated 5/27) ¡  2017/18: 5.0% ¡  2018/19: 3.0%

¡  STRS and PERS increased employer rates add almost $560,000 to ongoing benefits costs in 2016/17; another ~$540,000 projected for 2017/18, and rates will continue to increase through 2020/21

Executive Summary

¡  Loss of $1.6M in parcel tax revenue starting 2017/18 with the sunset of Measure C (2010)

¡ With the loss of Parcel Tax Measure A and C (2016), there will be a loss of approximately $5.8M in ongoing revenue by 2020/21

¡  Financial challenges at a time of continued enrollment increases ¡  Current enrollment is ~2940 ¡  ~80 Additional students in 2016/17 ¡  Projected enrollment of 3150 by 2020/21

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Executive Summary

¡  Starting in 2017/18 the operating budget deficit is about $2.3M ¡  The operating deficit will grow each by about $500,000 a year based

on the current expenditure plan and is not sustainable

¡  The 2016/17 Budget includes ongoing expenditure reductions of approximately $900,000 from the 2015/16 Second Interim Budget

¡  Further significant reductions will be required in 2017/18 and beyond to achieve a balanced budget

¡  Identifying further reductions or additional revenues will require community, staff, and Board of Trustees engagement

2016/17 Revenue Budget Summary

¡  State Revenue Includes: ¡  $1.9M State STRS on behalf payments ¡  $768,800 one-time State funding ¡  Ongoing State funding less than 6% after

adjusting for on behalf payments and one-time funds

¡  Property Tax ¡  Secured Property Tax Growth at 6.25% ¡  Secured Property Tax Accounts for 57% of all

ongoing revenues

¡  MPAEF ¡  $3,600,000

REVENUES: 2016/17 LCFF (Property Tax/State Aid) $29,843,857 Federal Revenue 620,779 Other State Revenue 3,339,561 Other Local Revenue 11,537,255

Total Revenues $45,341,452

Local Property

Tax*, 59%

SELPA, 3%

State Aid, 4%

State & Federal Funding,

9%

Parcel Taxes, 15%

MPAEF, 8%

Other Local,

2%

Operating Revenue: $45,341,452 *Property Tax reduced for Deferred Maintenance transfer

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Multi Year Revenue Overview

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LCFF Sources §  Property Tax §  SELPA Property Tax §  Minimum State Aid + Tinsley §  Education Protection Account §  Deferred Maintenance Transfer out

Other State §  Mandated Cost §  Lottery §  State STRS on Behalf §  One-time Funding

Other Local §  Parcel Tax §  MPAEF §  Grants, Transportation, Facility

Cost Recovery, and other

REVENUES: 2015/16 2016/17 2017/18 2018/19 LCFF $28,323,074 $29,843,857 $31,121,076 $31,926,045 Federal Revenue 691,287 620,779 630,779 640,7799 Other State Revenue 4,090,671 3,339,561 2,727,297 2,682,533 Other Local Revenue 11,292,922 11,537,255 10,042,684 10,177,196

Total Revenues $44,397,954 $45,341,452 $44,521,836 $45,426,553

Multi Year Revenue - LCFF

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REVENUES: 2015/16 2016/17 2017/18 2018/19 LCFF $28,323,074 $29,843,857 $31,121,076 $31,926,045 Federal Revenue 691,287 620,779 630,779 640,779 Other State Revenue 4,090,671 3,339,561 2,727,297 2,682,533 Other Local Revenue 11,292,922 11,537,255 10,042,684 10,177,196

Total Revenues $44,397,954 $45,341,452 $44,521,836 $45,426,553

LCFF Sources 2015/16 2016/17 2017/18 2018/19 Secured Property Tax* $24,008,368 6.25% 5% 3% SELPA Property Tax $1,400,716 0% 1.5% 1.5% Non-Secured/Other Property Tax** $1,722,413 0% 0% 0% State Aid: District Min. & Tinsley $1,236,887 2.4% 0% 0% Education Protection Account $579,690 0% 0% 0% Deferred Maintenance (out) ($625,000) 3% 3% 3%

*Secured Property Tax accounts for 85% of our LCFF funds. The District’s has used an estimate of 6.25% for the 2016/17 secured property tax growth rate based on the County role tracker. Future year estimates are more conservative. Expenditure projections do not include compensation increases in this budget model. The District is reevaluating its modeling of property tax growth and expenditures. **Non-Secured/Other Property Taxes are too volatile to predict.

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Multi Year Revenue – Other State

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Other State Revenues 2015/16 2016/17 2017/18 2018/19 Mandated Cost $82,395 $79,700 $79,700 $79,700 Lottery $525,000 $514,040 $514,040 $514,040 State STRS on Behalf* $1,525,359 $1,932,021 $1,994,057 $2,043,793 One-time Funds** $1,913,453 $768,800 $94,500 0

*The State STRS on behalf is both a revenue and expenditure for accounting purposes only. This new accounting was required in the 2014/15 unaudited actuals for the first time per GASB 68. **One time State funding is tied to the State’s fiscal status and obligation to pay the unfunded mandate reimbursements which were suspended during the Great Recession. The Governor’s 2016/17 budget indicated approximately $237 per student for 2016/17 discretionary spending. We should not expect large one money beyond 2016/17. The Prop. 39 Energy Grant continues through 2017/18.

REVENUES: 2015/16 2016/17 2017/18 2018/19 LCFF $28,323,074 $29,843,857 $31,121,076 $31,926,045 Federal Revenue 691,287 620,779 630,779 640,779 Other State Revenue 4,090,671 3,339,561 2,727,297 2,682,533 Other Local Revenue 11,292,922 11,537,255 10,042,684 10,177,196

Total Revenues $44,397,954 $45,341,452 $44,521,836 $45,426,553

Multi Year Revenue – Other Local

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Other Local Revenue 2015/16 2016/17 2017/18 2018/19 Parcel Tax (CPI Growth)* $6,694,312 $6,875,056 $5,380,485 $5,514,997 MPAEF $3,600,000 $3,600,000 $3,600,000 $3,600,000 Grants, Transportation, Facility Cost Recovery, and other $998,610 $1,062,199 $1,062,199 $1,062,199

Parcel Tax growth for 2017/17 at 2.7% per April 2016 CPI and 2.5% for remaining out years. Measure C sunsets in 2016/17 which is a reduction of approximately $1,600,000 or a decrease of 23% in parcel tax revenues in 2017/18.

REVENUES: 2015/16 2016/17 2017/18 2018/19 LCFF $28,323,074 $29,843,857 $31,121,076 $31,926,045 Federal Revenue 691,287 620,779 630,779 640,779 Other State Revenue 4,090,671 3,339,561 2,727,297 2,682,533 Other Local Revenue 11,292,922 11,537,255 10,042,684 10,177,196

Total Revenues $44,397,954 $45,341,452 $44,521,836 $45,426,553

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Parcel Tax Breakdown Funding Provides for: ¡  Measure A (2000)

¡  Classroom teachers ¡  Music teachers ¡  PE teachers ¡  Art teachers ¡  Technology Department

¡  Measure A (2003) ¡  Classroom Teachers

¡  Measure B (2003) ¡  Reading teachers ¡  3 added days to teacher work

calendar for professional development

¡  Site funding ¡  Curriculum funding

¡  Measure C (2010) ¡  Classroom Teachers

Measure A (2000),

$3,467,214

Measure B (2003),

$765,188

Measure A (2003),

$1,016,852

Measure C (2010),

$1,625,802

Funding is gone in 2017/18

2016/17 Budget Summary

Certificated Salaries

53%

Classified Salaries

14%

Employee Benefits

22%

Books & Supplies

3%

Services & Operating

Expenditures 7%

Other Outgo

1%

Operating Expenditure: $45,396,340

¡  Salaries and Benefits ¡  Includes $1.9M State STRS on behalf

payments ¡  Includes reductions of approx. $345,000 ¡  Does not include any negotiated

compensation increases ¡  Accounts for 89% of expenditures

¡  Other Non-Personnel Costs ¡  Includes reductions of approx. $410,000

EXPENDITURES: 2016/17 Certificated Salaries $23,989,615 Classified Salaries 6,149,310 Employee Benefits 10,215,444 Books & Supplies 1,403,766

Operating Expenses 3,321,155

Cap Outlay & Other Outgo 317,050 Total Expenditures $45,396,340

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Multi Year Expenditures - Salaries

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EXPENDITURES: 2015/16 2016/17 2017/18 2018/19 Certificated Salaries $23,235,224 $23,989,615 $24,234,409 $24,613,063 Classified Salaries 5,735,217 6,149,310 6,299,302 6,385,239 Employee Benefits 8,656,252 10,215,444 11,131,613 12,099,061 Books & Supplies 1,730,014 1,403,766 1,419,366 1,435,466

Operating Expenses 3,803,956 3,321,155 3,421,155 3,471,655

Cap Outlay & Other Outgo 531,710 317,050 317,050 317,050 Total Expenditures $43,692,373 $45,396,340 $46,822,895 $48,321,534

Salaries: §  Salaries and Benefits account for 89% of total expenditures §  Additional 11.24 FTE for 2016/17 §  Additional 2 FTE for growth in 2017/18 and 2018/19 §  Step increase which is about 1.25% /certificated and 1.35% /classified for positioned salaries, plus

certificated column movement increases. §  Annual salary cost savings for three certificated retirements and two resignations §  The projected expenditures do not include negotiated compensation increases

Multi Year Expenditures - Benefits

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Benefits: §  Additional benefit costs related to new employees (Pension, Statutory, and H+W) §  H+W increase of 7% for 2016/17-2018/19 based on historical increases and past practice of

maintaining single coverage for full time employees §  STRS rate increase of 1.85% annually and PERS rate increase of 1.6-2% annually raises the

District’s annual pension contribution by more than $500,000 per year from 2016/17 to 2018/19. STRS rate increases are scheduled to continue to 2020/21.

§  Includes the State’s STRS on behalf payments at ~$1.5M in 2015/16 and ~$1.9M in 2016/17 (This is a new accounting standard as of the close of 2014/15.)

EXPENDITURES: 2015/16 2016/17 2017/18 2018/19 Certificated Salaries $23,235,224 $23,989,615 $24,234,409 $24,613,063 Classified Salaries 5,735,217 6,149,310 6,299,302 6,385,239 Employee Benefits 8,656,252 10,215,444 11,131,613 12,099,061 Books & Supplies 1,730,014 1,403,766 1,419,366 1,435,466

Operating Expenses 3,803,956 3,321,155 3,421,155 3,471,655

Cap Outlay & Other Outgo 531,710 317,050 317,050 317,050 Total Expenditures $43,692,373 $45,396,340 $46,822,895 $48,321,534

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CalSTRS 2014 Funding Plan (AB 1469) ¡  Signed into law as part of the 2014/15 State budget ¡  Increases contributions to fully fund STRS benefits in 32 years

¡  Employee and State contributions phased in by 2016/17 ¡  Employer contributions phased in by 2020/21

¡  Rates had not previously been increased in over 40 years

8%

8.25%

3%

2013/14 Funding Model

Member Contribution Employer Contribution

State Contribution

10.25%

19.1%

6%

2020/21 Funding Model (2% at 60 Members)

Member Contribution Employer Contribution

State Contribution

State STRS On Behalf Payments

=19.25% =35.35%

District STRS and PERS Contribution Increases

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

PERS Costs (Classified)

STRS Costs (Certificated)

2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 STRS Employer Rate, per AB 1469 8.88% 10.73% 12.58% 14.43% 16.28% 18.13% 19.10% Amount of Increase (from prior rate of 8.25%) 0.63% 2.48% 4.33% 6.18% 8.03% 9.88% 10.85%

Additional STRS Cost from Increased Rate $141,900 $571,900 $1,012,700 $1,454,300 $1,899,500 $2,348,400 $2,585,700

Projected PERS Employer Rate* 11.77% 11.85% 13.89% 15.50% 17.10% 18.60% 20.00% Amount of Increase (from prior rate of 11.44%) 0.33% 0.41% 2.45% 4.06% 5.66% 7.16% 8.56%

Additional PERS Cost from Increased Rate 15,800 19,700 138,400 234,500 331,200 423,000 510,000

Total Additional Cost (STRS/PERS Combined) $157,700 $591,600 $1,151,100 $1,688,800 $2,230,700 $2,771,400 $3,095,700

*PERS employer rate projections per School Services of California recommendation through 2019/20

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Multi Year Expenditures – Non-Personnel

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Book & Supplies, Operating Cost, and Other: §  One-time expenditures from 2015/16 removed in 2016/17 §  Increases related to new school and enrollment starting in 2016/17 §  Modest increases in outgoing years

EXPENDITURES: 2015/16 2016/17 2017/18 2018/19 Certificated Salaries $23,235,224 $23,989,615 $24,234,409 $24,613,063 Classified Salaries 5,735,217 6,149,310 6,299,302 6,385,239 Employee Benefits 8,656,252 10,215,444 11,131,613 12,099,061 Books & Supplies 1,730,014 1,403,766 1,419,366 1,435,466 Operating Expenses 3,803,956 3,321,155 3,421,155 3,471,655 Cap Outlay & Other Outgo 531,710 317,050 317,050 317,050

Total Expenditures $43,692,373 $45,396,340 $46,822,895 $48,321,534

Multi Year Budget

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2015/16 2016/17 2017/18 2018/19 Total Revenues $44,397,954 $45,341,452 $44,521,836 $45,426,553

Total Expenditures $43,692,373 $45,396,340 $46,822,895 $48,321,534

NET OPERATING SURPLUS/(DEFICIT) $705,581 $(54,888) $(2,301,059) $(2,894,981)

Transfers (Fund 17) & Contributions + $1,238,722 +$1,697,568 + $1,385,648 +$427,250

Increase/(Decrease) Fund Balance $1,944,303 $1,642,680 $(915,411) $(2,467,731)

Beginning Fund Balance + 9,186,853 +11,131,156 +12,773,836 +$11,858,425

Ending Fund Balance (Restricted & Unrestricted

$11,131,156 $12,773,836 $11,858,425 $9,390,694

Restricted End Fund Balance -$1,418,035 -$1,392,722 -$1,392,722 -$1,392,722 Assigned Unrestricted Balance -$2,090,610 -$1,869,909 -$1,846,909 - $1,858,909 Reserve for Economic Uncertainty $7,622,511 $9,511,909 $8,618,794 $6,139,063 Percent of Economic Uncertainty 17.4% 21.0% 18.4% 12.7% Fund 17 Ending Balance +$3,790,268 +$2,132,700 +$777,052 +$374,802 Percent of Reserves with Fund 17 26.1% 25.7% 20.1% 13.5%

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Reserve Levels for 2016/17 Adopted Budget Multi Year Projections

17.4%

21.0% 18.4%

12.7%

30.9% 29.8%

24.0%

17.3%

2015-16 2016-17 2017-18 2018-19

Fund 17 Fund Bal (Curr Coord & Parcel Taxes) Fund 01 Unrestricted Assigned Fund Balances

Reserve for Economic Uncertainties 3% Minimum Required by State

Does not include compensation increases other than step and column movement.

Going forward

¡  Implement Budget Reductions for 2016/17 of approximately $900,000 ¡  Reductions to be reviewed in next slide ¡  To be reevaluated during medium to long range planning

¡  Update Budget Development Modeling to Incorporate: ¡  10 year property tax growth rate ¡  Compensation increases approximating CPI/historical averages

¡ Develop a process that involves and engages the community, staff, and Board to discuss multi year expenditure reductions and/or additional revenues to close $5.8M gap

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Immediate Budget Reductions in 2016/17 Budget (compared to Second Interim projection)

Reductions Cost Savings (amounts rounded)

Salary Savings from not hiring some positions for next year $320,000

Technology budget $90,000

Instructional material $85,000

Annual set aside for book adoptions $100,000

Student service budget $100,000

Maintenance Budget (unrestricted) $70,000

Reduced General Fund contribution to RRM per flexibility allowed by the State through 2019/20

$75,000

Contracted services, non-essential overtime, and stipends $65,000

4% Utilities Reductions, Net Opening of Upper Campus $22,000

TOTAL SAVINGS $927,000

Next Steps ¡ Staff to Develop: ¡ New budgeting model ¡  Six year budget plan through 2021/22 that meets Board policy

on reserves ¡ Options for potential cost reductions ¡ Options for potential additional revenues

¡ Develop process and seek input from staff and community on proposed budget reductions and revenues

¡  Incorporate proposed budget revision into the First Interim Budget in December 13, 2016 ?

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Questions and Discussion

Appendix 1 2016/17 Assignments for Future Expenditures

Assigned Balances (from Unrestricted): Description Amount

1.5% Prop Tax & Genentech Reserve

For property tax reassessments $425,000

Instr Materials & Unrestr Lottery For purchase of books and materials for new ELA & Science Standard 821,045

Foundation & Site Grants Tech coaches & carryover 25,864

Tech Reserve for New School Will be spent for new school in 2016/17 300,000

Strategic Directions Set aside for SD planning and seed monies 198,000

Facilities/Transportation Set aside or bus and furniture replacements from wear and tear 100,000

Total Assigned Balances $1,869,909