Oakland Unified School DistrictOakland Unified School District Fiscal Recovery Fiscal Recovery

PlanPlan

Presentation toPresentation toBoard of EducationBoard of EducationJanuary 29, 2003January 29, 2003

Fiscal Recovery Fiscal Recovery RequirementsRequirements

►Elimination of On-Going Deficit Elimination of On-Going Deficit SpendingSpending

►Repayment of the aggregate negative Repayment of the aggregate negative fund balances for 2001-02 and 2002-fund balances for 2001-02 and 2002-0303

Essential Components of a Essential Components of a Fiscal Recovery PlanFiscal Recovery Plan

Elimination of On-Going Deficit Spending Elimination of On-Going Deficit Spending (referred to as Structural Deficit)(referred to as Structural Deficit)

Expenditures must be equal or less than Expenditures must be equal or less than revenues for 2003-04 and thereafterrevenues for 2003-04 and thereafter

State revenue reduction in 2003-04 State revenue reduction in 2003-04 requires expenditure reductionsrequires expenditure reductions

Declining enrollment results in an annual Declining enrollment results in an annual reduction in revenues and requires a reduction in revenues and requires a corresponding reduction in expenditures corresponding reduction in expenditures

Essential Components of a Essential Components of a Fiscal Recovery PlanFiscal Recovery Plan

Repayment of aggregate negative fund Repayment of aggregate negative fund balances for 2001-02 and 2002-03balances for 2001-02 and 2002-03

A one-time event, if deficit spending A one-time event, if deficit spending curtailedcurtailed

One-time loan repaid over multiple years, One-time loan repaid over multiple years, cost of repayment of the loan must be cost of repayment of the loan must be included in annual expendituresincluded in annual expenditures

Causes of Structural DeficitCauses of Structural DeficitExpenditures increase at a faster rate Expenditures increase at a faster rate

than revenuesthan revenues Recent annual State COLA to OUSD Recent annual State COLA to OUSD

offset by declining enrollment offset by declining enrollment ►2000-012000-01 3.17% COLA3.17% COLA►2001-022001-02 3.87% COLA3.87% COLA►2002-032002-03 2.00% COLA (Gov mid-year -2.00% COLA (Gov mid-year -

2.18%)2.18%)►2003-042003-04 0.00% COLA ( Projected)0.00% COLA ( Projected)

Causes of Structural DeficitCauses of Structural DeficitExpenditures increase at a faster Expenditures increase at a faster

rate than revenuesrate than revenues Declining EnrollmentDeclining Enrollment

►Revenue Limit ADA declining Revenue Limit ADA declining annually, State COLA offset by annually, State COLA offset by declining ADAdeclining ADA

►Rate of enrollment decline Rate of enrollment decline accelerated beginning 2000-01accelerated beginning 2000-01

►Large annual increases in Charter Large annual increases in Charter School ADA a further reduction in School ADA a further reduction in Revenue Limit fundsRevenue Limit funds

Causes of Structural DeficitCauses of Structural DeficitExpenditures increase at a faster rate Expenditures increase at a faster rate

than revenuesthan revenues Compensation increases in 2000-01 and Compensation increases in 2000-01 and

2001-02 greater than State COLA increases2001-02 greater than State COLA increases►1% increase in General Fund COLA does not fund 1% increase in General Fund COLA does not fund

1% compensation increase1% compensation increase► If 1% COLA applied to all state funds it would If 1% COLA applied to all state funds it would

total $3.6 million, however:total $3.6 million, however: Not all state funds receive COLA increasesNot all state funds receive COLA increases Frequently categoricals receive less COLAFrequently categoricals receive less COLA

►Cost of 1% compensation increase = $3.9 Cost of 1% compensation increase = $3.9 millionmillion

►The amount to fund a 1% compensation The amount to fund a 1% compensation increase grows annualyincrease grows annualy

Causes of Structural DeficitCauses of Structural DeficitExpenditures increase at a faster Expenditures increase at a faster

rate than revenuesrate than revenues Unrestricted General Fund Costs of Unrestricted General Fund Costs of

Benefits are in addition to Benefits are in addition to compensation enhancements and compensation enhancements and have increased annually:have increased annually:►1999-001999-00 $39,496.851 $39,496.851►2000-012000-01 9% 9% $43,128.587 $43,128.587►2001-022001-02 22% 22% $52,678,888 $52,678,888►2002-032002-03 TBA TBA

Causes of Structural DeficitCauses of Structural DeficitUnrestricted Revenues & expenditures Unrestricted Revenues & expenditures

from 1999-00 to 2002-03from 1999-00 to 2002-03

230

260

290

320

1999/ 00 2000/ 01 2001/ 02 2002/ 03

ExpensesRevenues

a

YEAR

IN

MiLLIONS

a

Unrestricted Revenues & Expenditures from Unrestricted Revenues & Expenditures from 1999-00 to 2002-031999-00 to 2002-03

YearYear Unrestricted Revenues Unrestricted Revenues Unrestricted Unrestricted ExpensesExpenses1999/00 1999/00 $236,981,077$236,981,077 $239,578,687 $239,578,6872000/01 2000/01 $263,588,763$263,588,763 $260,054,347 $260,054,3472001/02 2001/02 $269,334,196*$269,334,196* $308,759,432* $308,759,432*2002/03 2002/03 TBATBA TBA TBA

Source: Actuals & *Unaudited actualsSource: Actuals & *Unaudited actuals

Causes of Structural DeficitCauses of Structural Deficit

Causes of Structural DeficitCauses of Structural Deficit Enrollment (No SDC)Enrollment (No SDC)

YearYear K-5K-5 6-86-8 9-129-12 Total Total 1999-001999-00 28,69628,696 11,17711,177 11,370 51,24311,370 51,2432000-012000-01 28,40428,404 11,49311,493 11,003 50,90011,003 50,9002001-022001-02 27,90827,908 11,74111,741 10,684 50,33310,684 50,3332002-032002-03 26,70326,703 10,63110,631 10,797 48,22210,797 48,2222003-04*2003-04* 25,50225,502 10,63610,636 10,925 47,14310,925 47,143

*Preliminary estimate for 2003-04*Preliminary estimate for 2003-04

Causes of Structural DeficitCauses of Structural Deficit

25000

26000

27000

28000

29000

30000

1999-00 2000-01 2001-02 2002-03 2003-04*

K-5th

YEAR

#

STUDENTS

Enrollment (No SDC)Enrollment (No SDC)

*Preliminary estimate for 2003-04*Preliminary estimate for 2003-04

Causes of Structural DeficitCauses of Structural Deficit

47000

48000

49000

50000

51000

52000

1999-00 2000-01 2001-02 2002-03 2003-04*

Total K-12

YEAR

#

STUDENTS

Enrollment (No SDC)Enrollment (No SDC)

*Preliminary estimate for 2003-04*Preliminary estimate for 2003-04

Causes of Structural DeficitCauses of Structural DeficitP-2 ADAP-2 ADAYearYear K-6 K-6 7-8 7-8 9-12 9-12 Total Total

1999-001999-00 31,52031,520 6,5606,560 10,247 10,247 48,327 48,3272000-012000-01 30,86530,865 6,8396,839 9,8669,866 47,570 47,5702001-022001-02 30,08030,080 6,3516,351 9,935 46,3669,935 46,3662002-03*2002-03* 28,00028,000 6,4726,472 9,972 44,4449,972 44,444

*Estimated based on P1 less historical ADA decline by P2.*Estimated based on P1 less historical ADA decline by P2.Note: Figures do not include SDC or Adult Education ADANote: Figures do not include SDC or Adult Education ADA

44000

45000

46000

47000

48000

49000

1999-00 2000-01 2001-02 2002-03*

Total K-12

YEAR

#

STUDENTS

P-2 ADAP-2 ADACauses of Structural DeficitCauses of Structural Deficit

*Estimated based on P1 less historical ADA decline by P2*Estimated based on P1 less historical ADA decline by P2

Correction of Structural Correction of Structural DeficitDeficit

Reduce structural deficit in fiscal year Reduce structural deficit in fiscal year 2002-032002-03

Sustain cuts and adjustments made in Sustain cuts and adjustments made in the first half of 2002-03the first half of 2002-03

Additional cuts of on-going Additional cuts of on-going expenditures carry forward to 2003-04expenditures carry forward to 2003-04

Maintain hiring freeze, travel and Maintain hiring freeze, travel and conference restrictions, limit conference restrictions, limit substitutes and continue other cost substitutes and continue other cost cutting actionscutting actions

Correction of Structural Correction of Structural DeficitDeficit

Adopt a balanced budget for 2003-Adopt a balanced budget for 2003-04 and thereafter04 and thereafter

Adopt budget cuts, cost avoidances Adopt budget cuts, cost avoidances and adjustmentsand adjustments

Balance expenditures to anticipated Balance expenditures to anticipated revenuesrevenues

Focus on cuts that are on-goingFocus on cuts that are on-going

Why is a loan necessary?Why is a loan necessary?►A loan or financing provides cash that A loan or financing provides cash that

the District needs to meet on-going the District needs to meet on-going expendituresexpenditures

►The Structural Deficit in 2001-02 and The Structural Deficit in 2001-02 and 2002-03 causes a shortage of cash in 2002-03 causes a shortage of cash in the current yearthe current year

►The loan provides cash to improve the The loan provides cash to improve the District’s cash balance and becomes a District’s cash balance and becomes a liability in the District’s Fund Balanceliability in the District’s Fund Balance

Why are Fund Balance and Why are Fund Balance and Cash Flow not the same?Cash Flow not the same?

Fund Balance - An accounting and Fund Balance - An accounting and auditing term that uses total assets auditing term that uses total assets

and liabilities to calculate a resultant and liabilities to calculate a resultant Fund Balance.Fund Balance.

At the closing of Fiscal year 2001-02, the At the closing of Fiscal year 2001-02, the District’s Fund Balance for the District’s Fund Balance for the Unrestricted General Fund was a negative Unrestricted General Fund was a negative $32 million$32 million

Why are Fund Balance and Why are Fund Balance and Cash Flow not the same?Cash Flow not the same?

Cash Balance– Represents the cash on hand in the Cash Balance– Represents the cash on hand in the County Treasury that is available to pay invoices County Treasury that is available to pay invoices

and make transfersand make transfers

The District’s Cash Balance varies greatly each month The District’s Cash Balance varies greatly each month due to the irregular receipt of tax revenues from the due to the irregular receipt of tax revenues from the County.County.

An adequate Cash Balance is required each month to An adequate Cash Balance is required each month to make monthly payrolls.make monthly payrolls.

A TRAN is used to temporarily supplement a district’s A TRAN is used to temporarily supplement a district’s Cash Balance due to the irregular receipt of property Cash Balance due to the irregular receipt of property taxes, but the liability is not seen in the cash balances, taxes, but the liability is not seen in the cash balances, until the TRAN is repaid. When the funds are received, until the TRAN is repaid. When the funds are received, a liability is booked in the Fund Balance.a liability is booked in the Fund Balance.

Elimination of Negative Fund Elimination of Negative Fund Balance (Unrestricted General Balance (Unrestricted General

Fund)Fund)Negative Unrestricted Fund Balance Negative Unrestricted Fund Balance equal to total deficit of 2001-02 and equal to total deficit of 2001-02 and

2002-032002-03

2001-02 Negative Balance = $32 2001-02 Negative Balance = $32 MillionMillion

2002-03 Negative Balance = TBA 2002-03 Negative Balance = TBA Total Negative Balance = ???Total Negative Balance = ???

Elimination of Negative Fund Elimination of Negative Fund Balance (Unrestricted General Balance (Unrestricted General

Fund)Fund)Elimination of the Total Negative Balance Elimination of the Total Negative Balance

requires an infusion of one time fundsrequires an infusion of one time funds New revenuesNew revenues Expenditures in 2003-04 are less than Expenditures in 2003-04 are less than

revenuesrevenues Combination of the aboveCombination of the above New Debt (loan and/or financing) must be New Debt (loan and/or financing) must be

repaid, include as liability to the Fund Balance repaid, include as liability to the Fund Balance and payable in annual installments as an and payable in annual installments as an operational expenditure. operational expenditure.

A loan or financing does not correct a A loan or financing does not correct a Negative Fund Balance until the loan is repaid.Negative Fund Balance until the loan is repaid.

Implication for Board ActionsImplication for Board ActionsReversal of On-going Deficit SpendingReversal of On-going Deficit Spending

If the Goal is a balanced budget in 2003-04:If the Goal is a balanced budget in 2003-04:►Range of cuts TBA- includes elimination of 2002-Range of cuts TBA- includes elimination of 2002-

03 Structural Deficit and 2003-04 projected 03 Structural Deficit and 2003-04 projected shortfall shortfall

►Cuts of on-going expenditures in 2002-03 will Cuts of on-going expenditures in 2002-03 will carry-forward to 2003-04carry-forward to 2003-04

►Only 8% of the District’s budget in non-salary and Only 8% of the District’s budget in non-salary and benefits. benefits.

►2003-04 cuts must include reduction in personnel 2003-04 cuts must include reduction in personnel costs to achieve a balanced budget.costs to achieve a balanced budget.

Implication for Board ActionsImplication for Board ActionsReturn to Fiscal StabilityReturn to Fiscal Stability

Cuts required for a balanced budget in Cuts required for a balanced budget in 2003-04 2003-04

Determine size of loan to correct Determine size of loan to correct negative cash balance in 2003negative cash balance in 2003

Secure loan before June 30, 2003 Secure loan before June 30, 2003 dependent on cash flow balancedependent on cash flow balance

Must repay Alameda County by mid-April Must repay Alameda County by mid-April 20032003

Repay interfund loan from the General Repay interfund loan from the General Obligation Bond Fund by June 30, 2003Obligation Bond Fund by June 30, 2003

Next StepsNext Steps►FCMAT prepared 2002-03 Budget FCMAT prepared 2002-03 Budget

Presented by the District at the Finance and Presented by the District at the Finance and Human Resources Committee (Committee of Human Resources Committee (Committee of the Whole) the week of February 3-7the Whole) the week of February 3-7

►Community Input on Recovery PlanCommunity Input on Recovery Plan Public Hearing and Board Study Session Public Hearing and Board Study Session

Saturday February 8 and February 22Saturday February 8 and February 22 Regular Board Meeting February 12 and 26Regular Board Meeting February 12 and 26