Public Education’s Point of Reference for MakingEducated DecisionsSince 1975

State Budget and School District ImpactState Budget and School District Impact

Presented byPresented by

Sierra Sands Unified School DistrictJanuary 21, 2010

Ron BennettPresident and CEO

2U.S. Economic OutlookU.S. Economic Outlook

The broader national economy may be turning the corner

The rate of job loss has slowed considerably

Job growth, although likely weak, may occur by the end of the year

Home sales are rising

The stock market is up 60% from its March 2009 low

Third quarter U.S. gross domesticproduct (GDP) increased 2.2%,the best showing since therecession began

3U.S. Economic OutlookU.S. Economic Outlook

U.S. GDP (Percent Change)

2.2%

-0.7%

-6.4%

-5.4%

-2.7%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter

2008 2009Source: U.S. Bureau of Economic Analysis, November and December 2009

4California’s EconomyCalifornia’s Economy

While there are signs of recovery, the California economy will suffer from high unemployment

The state’s unemployment rate is 12.3%, compared to 10% for the U.S. as a whole

Other factors that will impair the recovery include:

Very weak construction and manufacturing sectors

Continuing drought

Political gridlock in Sacramento

Public schools typically see improvements 18 months after recovery begins

5Employment Trends – December 2007 to Employment Trends – December 2007 to November 2009November 2009

Source: California Employment Development Department

-9.0%

-4.7%

-6.6%

-9.6%

-3.0%San

Francisco

Sacramento

Los Angeles

San Diego

OrangeCounty

Metropolitan Areas Industrial Sectors (Jobs in Thousands)

-28

-70

-118

-206

-283 Construction

Manufacturing

Financial Service

Leisure & Hospitality

Government

6State Budget DevelopmentsState Budget Developments

On January 8, 2010, the Governor acknowledged a Budget deficit of $6.3 billion for the current year

Current-year revenue collections are short about $2 billion

Numerous Budget assumptions are at risk

Sale of the State Compensation Insurance Fund

Budgeted savings in the Department of Corrections

Lawsuits pending on Governor’s vetoes, redevelopment agency (RDA) shift, social services cuts, and state worker furloughs

7General Fund Revenues Falling ShortGeneral Fund Revenues Falling Short

5.3 5.3

12.912.1

5.1 5.25.8 5.6

9.48.6

$0

$2

$4

$6

$8

$10

$12

$14

May June July August September

General Fund Revenues($ amounts in billions)

Projected

Actual

2008-09 2009-10

8State Budget DevelopmentsState Budget Developments

The 2010-11 Budget has a built-in shortfall of an additional $13.3 billion, even if all of the current-year assumptions were realized

One-time solutions fall away in 2010-11

Caseload growth continues, regardless of revenue situation

Statutory increases will reemerge for some areas of government

9Governor’s Budget ProposalsGovernor’s Budget Proposals

As part of the Governor’s Budget Proposals for 2010-11, the Governor proposes for the current year:

No midyear cuts to local school district budgets

A sweep of unspent K-3 CSR (class-size reduction) funds to be taken at state, not district, level

And for 2010-11:

A cut of $1.5 billion to K-12 targeted to “administrative expenses”

Application of a negative cost-of-living adjustment (COLA) of -.38% to the revenue limit

10Revenue ReductionsRevenue Reductions

The total direct reductions to be applied for Sierra Sands USD are:

Deduction of negative COLA, -$24 per ADA ongoing

Deduction of proposed 2010-11 revenue limit, -$201 per ADA ongoing

Total loss of revenue from Governor’s proposals, $225 per ADA ongoing (more than $1.3 million ongoing loss for Sierra Sands USD)

The bottom line:

The state can only spend what it collects in revenues and borrowed funds

If conditions deteriorate further, pressure will mount for midyear cuts during 2010-11

Per-ADA Revenue VolatilityPer-ADA Revenue Volatility

Per-ADA Revenue Change

-15%

-10%

-5%

0%

5%

10%

15%

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Year

Incr

ease

to th

eB

ase

Rev

enue

Lim

it Pe

r AD

A

Average

2010 © School Services of California, Inc.

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12What Should Districts Do – Start EarlyWhat Should Districts Do – Start Early

How early should you start developing the annual district budget?

Early enough to determine staffing needs

If reducing staff due to declining enrollment or other needs to balance the budget, will there need to be layoffs?

March 15 for certificated staff; 45 days for classified

Will natural attrition be sufficient and in the right positions?

Will there need to be early efforts to recruit quality staff?

Hard-to-fill staffing areas

Growing or steady enrollments

13What Should Districts Do – Start EarlyWhat Should Districts Do – Start Early

How early should you start developing the annual district budget?

Early enough to take action on budget reductions

Waiting several months or a year will cause budget problems to multiply

And be more difficult to resolve

One dollar cut in the current year:

Adds one dollar to the ending balance

Saves two dollars by the end of the next year

Saves three dollars by the end of the next year, and so on

14What Should Districts Do – Start EarlyWhat Should Districts Do – Start Early

How early should you start developing the annual district budget?

Early enough to allow adequate opportunity for input, review, and revision by constituents

Budget managers, including categorical programs

Budget Committee

Board of Education

Others

All in order to meet state deadlines

Establish budget timelines in a Board-approved budget calendar

15Early Retirement IncentivesEarly Retirement Incentives

Why consider an early retirement incentive program?

To accelerate retirement rates above normal attrition

To reorganize staffing and programs

To reduce staffing and provide ongoing savings

Typically not cost beneficial for classified staff if offered separately

Can be if in conjunction with certificated staff within private provider- or district-sponsored program

16Early Retirement IncentivesEarly Retirement Incentives

Districts making staffing reductions may consider this as an option

One retiree from the top of the salary schedule can save one or two jobs for the lowest paid teachers

If savings are required on top of this, establish a minimum number of retirees for the program to be a “go”

What If Districts Need to Borrow FromWhat If Districts Need to Borrow FromThe State? – Avoid ItThe State? – Avoid It

What happens when a district can’t meet its financial obligations?

AB 1200 and AB 2756

Progressive Intervention

County Department of Education

Fiscal Crisis and Management Assistance Team (FCMAT)

Loss of Local Control

Fiscal Advisor (stay and rescind power)

State Trustee (loan is <200% of required reserves)

State Administrator (loan is >200% of required reserves)

Stays until loan is repaid

Replaces Board and Superintendent

Costs more (expensive services and loss of ADA)

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Voter-Approved Option for DistrictsVoter-Approved Option for Districts

Parcel Taxes (Qualified Special Taxes)

Alternative source of school district revenue

Typically levied as a flat rate per parcel

May contain exemptions or reduced rates for senior citizens

Must be approved by at least two-thirds of those voting on the measure

Typically assessed for five, seven, or ten years

May include inflation adjustments

Voters must approve extension when tax expires

No restrictions on use

Board may target specific needs in ballot language

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19The Goal for Tough-Time BudgetsThe Goal for Tough-Time Budgets

When managing budgets in tough times, the overarching goals should be to:

Minimize impact on programs and students

Maximize progress toward district goals

Keep all stakeholders informed of the budgetary impact of current challenges and district decisions

Have as broad a based buy in to budget reductions as is realistic

Keep the district financially healthy and prepared for the future . . . this too shall pass and we will see better days!

Public Education’s Point of Reference for MakingEducated DecisionsSince 1975

Thank youThank you