What to Cut When You Can’t Cut Anymore: The Board’s

Role in Balancing the BudgetPresented by

Maureen EvansAssociate Vice PresidentSchool Services of California, Inc.

Ron BennettPresident and CEO

School Services of California, Inc.

Celia JaffeBoard President

Huntington Beach CSD

Penny RanftleBoard MemberPoway USD

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Overview

Current climate

Comparative data

Board’s role – revenue and expense

Use of budget advisory committees

School closure(s)

Long-range financial planning goal

Current ClimateCurrent Climate

4

The Economy

Powerful economies do great things, and they generate a lot of tax revenue In past years, revenue growth was estimated at 4% to 6%

annually In 2000, it was more than 20%!

And now, it is dropping like a rock – flat revenues would be a plus

Past revenue growth allowed: The state to avoid cuts to any major expenditure areas Full funding of statutory and formula-driven increases Increases in important areas, including education An on-time budget

Yes, high revenue growth is a good thing! But, it is now also a thing of the past – way past

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The Economy

In 2007-08, the choice between raising revenues or making a reduction in spending did not have to be made

The outlook for 2008-09 – and beyond – is a bit more clouded

Revenue projections are much weaker – high year-to-year growth is simply not sustainable over the longer term

The Budget assumed 2008-09 state revenues increase only slightly

Reflects that much of the jump in revenues in 2005-06 and 2006-07 is assumed to be one time

But revenues are coming in well below forecasts

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K-12 Revenue Limits – An Overview

Look at the “Revenue Limit Roller Coaster” January’s Governor’s Budget proposed a 10% cut to

education Flexibility in spending was promised

By the May Revision, the cut was reduced Revenue limits were maintained from 2007-08 Categoricals were to be cut by 6.5%

By the September Budget Enactment, education was flat funded A tiny COLA, 0.68% was provided Flexibility was not included in the Budget

Just one month later, the Governor announced the Special Session to deal with declining revenues

What should we plan for given all these changes?

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Structural Budget Shortfall Remains

The Legislative Analyst predicts major budget problems ahead

The state cannot “grow its way” out of this problem

Even with minor revenue growth, the budget gap swells

The message for us is – the status quo may be as good as it gets for a while

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Governor Calls Special Session

Purpose of the Special Session – to reduce the budget deficit

The Governor proposes to do this: By cutting expenditures

$2 billion to $4 billion for education for this year, 2008-09

0.68% COLA would be “unfunded”

Additional cut to revenue limit of about $300 per average daily attendance (ADA)

By adding revenues

Largest source is proposed 1.5% sales tax increase

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Proposition 98 Projections

Proposition 98 simply isn’t growing fast enough to provide a COLA

Proposition 111 allows the state to short education during bad times

Most of the 5.66% COLA for 2008-09 has already been deficited

The Governor’s proposal would take back the remaining 0.68%

We recommend districts also plan for a zero COLA for 2009-10

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Proposition 98 Projections

By 2009-10, the absence of two COLAs would cause the deficit to be more than 10% – we would get only 90¢ on the dollar

We forecast that if that happens, about 500 districts go “Qualified” or “Negative” financially

We will fight for the COLAs but need a plan to live without them

Comparative DataComparative Data

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How Do You Know If You’veCut Everything?

Use of comparative data to find area of opportunity Compare to similar-type district

Unified

Elementary

High Compare to similar-size districts Compare to districts with similar revenues Compare to districts with similar enrollment patterns

Examine numbers and types of employees

Examine expenditure patterns

Examine class size

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How Is Your District Different?Why?

Compare your district revenues and expenditures to the correct district type

2006-07

Revenue Area

Unified High Elementary Your District$ Per ADA

% of Total

$ Per ADA

% of Total

$ Per ADA

% of Total

$ Per ADA

% of Total

Revenue Limit $5,907.76 62.86% $6,945.82 69.90% $5,706.90 63.54%Federal 758.13 8.07% 557.56 5.61% 713.83 7.95%Other State 2,212.45 23.54% 1,733.22 17.44% 1,841.09 20.50%

Other Local 520.12 5.53% 700.42 7.05% 720.10 8.02%

Subtotal $9,398.46 100% $9,937.02 100% $8,981.92 100%

Source: 2006-07 State-Certified Reports: J-90, CBEDS, SACS

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2006-07

Expenditure Area

Unified High Elementary Your District

$ Per ADA % of Total $ Per ADA % of Total $ Per ADA % of Total $ Per ADA % of Total

CertificatedNon-Mgmt. Salaries $3,937.12 43.98% $3,869.51 41.42% $3,745.70 43.99%

ClassifiedNon-Mgmt. Salaries 1,235.87 13.81% 1,363.22 14.59% 1,123.00 13.19%

ManagementSalaries 498.00 5.56% 492.56 5.27% 487.91 5.73%

Employee Benefits 1,682.39 18.51% 1,711.40 17.74% 1,534.61 17.71%

Books & Supplies 478.25 5.34% 508.25 5.44% 468.11 5.50%

Services and Other Operating Exp. 893.18 9.98% 873.66 9.35% 817.36 9.60%

Capital Outlay 57.26 0.64% 69.14 0.74% 50.79 0.60%

Other Outgo 170.22 1.90% 453.89 4.86% 286.88 3.37%

Total Expenditures $8,952.29 100% $9,341.63 100% $8,514.36 100%

How Is Your District Different? Why?

Source: 2006-07 State-Certified Reports: J-90, CBEDS, SACS

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Class Sizes/Staffing

Many districts have increased or may be considering increasing class sizes but be aware of constraints Class-Size Reduction incentives Legal limits Contractual limits

Grade Level Target Actual

Contract Limit Statewide*

Maximums per Education CodeSections 41376 and 41378

K-3 19.7

Kindergarten – average class size not to exceed 31 students; no class larger than 33 students and grades 1-3 average class size not to exceed 30 students; no classes larger than 32

4-8 27.5

Grades 4 through 8 – current fiscal-year average number of pupils per teacher not to exceed the greater of the statewide average number of pupils per teacher in 1964 (29.9) or the district’s average number of pupils per teacher in 1964

9-12 27.7 No limit

*Source: 2006-07 State-Certified CADIE

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Where Can I Find Comparative Data?

SSC offers state-certified comparable data for comparison and analysis

Other resources for comparative data:

www.cde.ca.gov/ds/sd/cb/dataquest.asp

www.ed-data.k12.ca.us

The Board’s Role – Revenue and Expense

The Board’s Role – Revenue and Expense

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You Have LimitedFlexibility in Revenues

Revenue areas that can be influenced by the district – examples: Revenue limits

Special emphasis on ADA tracking and improvement Federal revenues

Application for programs and grants Application for impact aid (PL-874)

Other state revenues Application for special programs Application for programs and grants Application for mandated costs

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You Have LimitedFlexibility in Revenues

Other local revenues and financing sources Interest income Voted parcel taxes (operating funds) Maintenance assessment districts District property disposal and lease income Community foundations and grants Developer fees (capital facilities) Voted bonds (capital facilities) Fees for transportation, food services, or athletic

competitions

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You Have Dramatic Flexibility in Allocating Expenditures

Expenditures areas that you control Organization of administrative staff

Assistant superintendents, directors, principals, and assistant principals

Compensation of district staff

Salary level and methodology of compensation

Benefit support and types offered Range of programs offered

Gifted and Talented Education (GATE), Economic Impact Aid (EIA), Peer Assistance and Review (PAR)

Preschool, community schools, opportunity schools

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You Have Dramatic Flexibility in Allocating Expenditures

Design of categorical programs

Flexibility for delivery is very significant Class size for instructional programs

Class size by grade levels and programs

Continuation of low-enrolled programs Curriculum and instructional methods

Course offerings and program emphasis Staffing levels for support programs

Health, psychological, counseling, etc. Level and type of support services

Custodial, maintenance, and transportation

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You Have Dramatic Flexibility in Allocating Expenditures

Type and location of facilities

Number, size, location, and grade level configuration Community support programs

Use of facilities – when, where, costs

Recreational services and offerings

Conclusion Determination of expenditures is local and historical – not

state controlled Districts are revenue dependent and relatively expenditure

independent

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Achieving Proportional Reductions

Good planning is necessary to achieve balanced, proportional reductions

Don’t allow “sacred cows”

Arbitrarily protecting one program necessitates even greater cuts in others

Use comparative analysis to see how much stable districts of comparable size spend on each major object and try to get to that level

Don’t try to take all the cuts in just a few areas; spread the impact

Use of BudgetAdvisory Committees

Use of BudgetAdvisory Committees

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Budget Advisory Committees

Budget Advisory Committees can be helpful Community buy-in Additional resources and ideas Political insulation Publicity agents for successes

Budget Advisory Committee, however, require: Strong, timely, committed staff resources Good leadership/strong chairperson Concrete, focused, short-term goals and projects Membership balance – avoid organization dominance

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Budget Advisory Committees

Use the budget committee to assist in budget reduction analyses

Use short-focused areas: “Prioritize these six expenditure augmentation proposals” “Identify three district services, totaling an expenditure of

$500,000, that should be discontinued” “Analyze one service area and identify how the service

could be provided less expensively” “Develop a booklet that explains the district’s fiscal issues

to others” “Identify one program area that has the highest measured

accomplishment for the least expense” Do not leave the task open-ended; provide direction and focus Always make a Budget Advisory Committee “advisory”

School Closure(s)School Closure(s)

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Political Consideration inClosing Schools

Closing a school is never popular, but may be necessary You cannot please everyone – expect to hear from the

opposition But you can follow a process that avoids the appearance of

being arbitrary or making a purely political decision Establish and follow objective criteria

Maximum savings Enrollment trends Size Proximity to other locations Condition and type of facility Access, traffic, and safety Performance

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Political Consideration inClosing Schools

Timing – avoid holding discussions before school board elections or when a bond or parcel tax is to appear on the ballot

Allow time for meaningful hearings

Involve the community in planning

Long-Range Financial Planning Goal

Long-Range Financial Planning Goal

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Long-Range Financial Planning

Multiyear projections – your guide to sound finance

Sometimes your first long-term goal is to survive the short term

The multiyear projection needs to “work”

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Failure to Consider the Multiyear Impact of Budget Decisions

AB 1200/AB 2756 requires districts to consider the budget impact of the current year and two subsequent years

Multiyear planning does not rely on a crystal ball – it is the mathematical consequences of the actions of today

Most major budget failures can be traced to specific events and decisions

The county office of education should intervene if your multiyear projections are less than positive

We recommend you do a “sensitivity analysis” on your projections What happens if COLA assumptions go up or down? What if ADA changes?

Failure to look to the future may ensure that your own “future” ends

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Failure to Follow Through on Budget Decisions

Difficult budgets require difficult decisions Those decisions are hard to make and sometimes the

Board takes considerable public punishment for making them

But once those decisions have been made, they must be implemented – but often they are not Positions are not cut Expenditures are not reduced

Failure to follow through, no matter how good the excuse, requires that the Board and superintendent readdresses the budget

Bad news does not get better with age – if the cuts can’t be made, develop a new plan early

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Your End Goal –“The Bottom Line”

Focus on critical issues in your district

Recognize current problems that must be addressed immediately with the understanding that “we” (Board, staff, and community) share in the good and difficult times

Thank you