State Budget and School District Impact

1. State Budget and School District Impact Presented by

2. 1 U.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 and the fourth quartershows even more improvement

3. 2 U.S. Economic Outlook

4. 3 California�s Economy While there are signs of recovery, the California economy will suffer from high unemployment The state�s unemployment rate is 12.5%, compared to 10% for the U.S. as a whole � and it has not gone down 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

5. 4 Employment Trends � December 2007 toNovember 2009

6. 5 State 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

7. 6 State 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 and increase the state�s budget problem The state is not meeting its federal guarantee to maintain education spending above the 2005-06 level

8. 7 Governor�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 class-size reduction (CSR) 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

9. 8 Revenue Reductions The total direct reductions to be applied for Victor Valley UHSD are: Deduction of negative COLA, -$24 per ADA ongoing Deduction of proposed 2010-11 revenue limit, -$231 per ADA ongoing Total loss of revenue from Governor�s proposals, $255 per ADA ongoing (more than $2.5 million ongoing loss for Victor Valley UHSD) 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

10. 9 Per-ADA Revenue Volatility

11. 10 What 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

12. 11 What 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

13. 12 What 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

14. 13 What If Districts Need to Borrow FromThe 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)

15. 14 Voter-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

16. 15 The 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 a broad-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!

17. The Victor Valley UHSD Study

18. 17 Study Purpose and Approach Purpose of the budget review was to review and assess: The accuracy and validity of budget assumptions Including revenue and expenditure projections, enrollment and ADA projections and fund balances Evaluate the District�s current financial condition The budget review is not an audit It is a process that allows for a fair and independent analysis of current District finances It is based upon District-provided data and a set of assumptions regarding future revenues, expenses, and enrollment

19. 18 Study Purpose and Approach Approach Interviews with the Superintendent, Business Services staff, Human Resources staff, Principals and Bargaining Unit representatives Review of financial documents and reports Comparative analysis of revenue, expenditure and staffing ratios Review of budget assumptions Review of processes and procedures

20. 19 Comparative Analysis Advantages General Obligation Bond was passed by the community The District is continuing to grow Lean staffing ratios Total employee compensation, salary and benefits, is competitive Retirement incentive was offered and accepted by bargaining units This initiative reduces the need for layoffs and saves money Especially if retiree positions are not replaced

21. 20 Comparative Analysis Disadvantages Your District is located in California � that is a problem! You are a high school district with higher costs than unified or elementary districts Base revenue limit is lower than the average high school district Costs for employee benefits are high Large number of teachers at the beginning of the salary schedule Step and column increases will continue on the natural The salary schedule is competitive, but the cost of maintaining it will increase as junior teachers mature

22. 21 What We Found Budget development and communication continue to be challenging A pattern of deficit spending will need to be reversed Reserves are adequate for next year, but they will be exhausted The District has made appropriate budget assumptions Budget reductions need to be made now Most of the budget cuts will need to be made to personnel costs First, fewer people, and if things get worse compensation reductions The District will need a fiscal recovery plan in order to maintain a �positive� budget certification

23. 22 Budget Communication and Development The Budget is the single most important policy document that the Board exercises control over and should be a reflection of the goals of the priorities of the District The District should increase its budget awareness with key stakeholders; moving from a centralized budgeting approach to a collaborative model Site and program managers should be supported in making informed budgeting decisions that align with the Districtwide goals

24. 23 Budget Communication and Development The District has a good start towards this recommendation by Adding the Internal Auditor Position support This position has been able to provide support to site and program mangers in the areas of budget development and resource allocation The District should expand on the type of budget information that is provided to stakeholders Budget information should be in a format that is easily understood and provide a clear nexus to the District�s goals and priorities

25. 24 Deficit Spending The District is deficit spending in all three years of the multiyear projection (MYP) Actions taken early can prevent more significant cuts from having to be made in a later year Once the reductions are adopted, the District will need to continue to be diligent in implementing and monitoring reductions

26. 25 Financial Condition There are sufficient reserves to cover the deficit spending in 2009-10 Revenue and expenditure solutions are needed for the out years of the MYP and at a minimum are: $5.9 million for 2010-11 $6.5 million for 2011-12 In order to allow the District to maintain the full level of its 3% state-required Reserve for Economic Uncertainties in all years of the MYP absent any further intervention

27. 26 Cuts Must be Considered Although it is very difficult to consider cuts, the magnitude of the revenue reductions necessitate significant expenditure reductions 84% of the District�s unrestricted General Fund expenditures is salary and benefits This means that 84% of cuts will be to personnel

28. 27 Fiscal Recovery Planning We recommend that the District develop a fiscal recovery plan that will accomplish the following: Aligning expenditures with revenue Eliminate the reliance on the one-time resources such as the Special Reserve for Capital Outlay Fund (Fund 40) Maintain the state mandated reserve level

29. 28 Conclusion Times will continue to be very tough for at least another year or two Victor Valley UHSD is in better shape than many districts Enrollment growth continues to help Conservative budget decisions preserved reserves longer Corrective actions are planned early The District is taking the correct actions to maintain its fiscal solvency But even so, we may not have heard the last of the bad news and there will continue to be budget pressure

30. Thank you