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30 th Annual School Finance and Management Conference 2008-09. The Economics of Government Services. IV. California provides more services to more people at a higher cost than other states – except in two areas – K-12 education and transportation

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30 th Annual School Finance and Management Conference 2008-09

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the economics of government services
The Economics of Government Services


  • California provides more services to more people at a higher cost than other states – except in two areas – K-12 education and transportation
  • Transportation is catching up – Proposition 42 and federal funding actions have bolstered California’s commitment to transportation systems
  • Education is falling further behind
    • In an essentially flat education budget, while costs are growing and other states are increasing funding guarantees, we fall further behind
    • But expectations for our children continue to grow
    • And 41st place, or worse, will not improve our Program Improvement (PI) schools and districts
  • There is no will to tax more or spend less, so the problem gets worse
  • More people, more services, stagnant revenues – how do we break the cycle?
the political landscape
The Political Landscape


  • We argue that California does not have a Budget problem – it has a political structural deficit that leads to bankrupt fiscal policy and causes repetitive Budget problems
    • During good years, we overspend and make long-term commitments
    • During bad years, we use stop-gap measures and borrowing to get through a year at a time until we get another good year
  • Education costs do not add to the Budget problem – they rise proportionately to new revenues
    • But failure to educate California’s children handicaps and impedes all future economic growth
  • No new revenue + increased costs = yet another Budget crisis
  • The Budget problem is a subset of the political problem, and they get solved together or neither gets solved
the long and short of budget solutions
The Long and Short of Budget Solutions


  • In the short term, the Budget is balanced by:
    • Budget cuts
    • Closing tax loopholes
    • Using one-time dollars and solutions
    • Slowing cash flow to schools to reduce borrowing costs
  • Longer-term issues are addressed by:
    • A plan for securitizing Lottery revenues
    • Enhancing the Budget Stabilization Fund
  • The real hope for long-term stability is that we have all good years –starting soon
californians view of the economy today
Californians’ View of the Economy – Today

There has been a significant deterioration in Californians’ assessment of the economy

According to a July 2008 Field Poll:

Among registered voters, 86% say we’re in “bad times,” while only 8% believe we’re in “good times”

In December 2007, 52% felt the state’s economy was in “bad times”

This is the gloomiest assessment since the recession of the early 1990s

In 1992, the “bad times” sentiment reached 93%


californians view of the economy today1
Californians’ View of the Economy - Today


Source: Field Poll, July 25, 2008

californians view of the economy the outlook
Californians’ View of the Economy – The Outlook

Economists often warn of the self-fulfilling nature of consumer sentiment

A pessimistic outlook of the economy often leads to reduced consumer and business spending, which in turn reduces total demand

Slack demand raises inventories, which leads to production cutbacks and layoffs

The current Field Poll results are the worst since 1990, when 48% of those surveyed expected the economy to get worse

In July 2008, 43% believe things will get worse, while 19% expect improvement

In 1990, 48% believed things would get worse, while 10% anticipated improvement


state employment
State Employment

The state’s unemployment rate is now 7.7%, up from 4.8% just a year and a half ago

Job losses continue in the construction, manufacturing, and financial services sectors

Education and health services have experienced some growth

The U.S. unemployment rate is now 6.1%

In June, the U.S. unemployment rate was 5.5% and UCLA forecasters warned that a rate above 6% could signal recession


state employment2
State Employment

Has California turned the corner on job losses?

As the economy improves, the unemployment rate will rise as discouraged job seekers reenter the labor market in search of employment

Unfortunately, the state continues to shed jobs

California has lost more than 100,000 jobs since December 2006

The bottom line: The economy is still in a slump, which may yet turn into a recession


2008 09 k 12 revenue limits
2008-09 K-12 Revenue Limits


Caution: Impact of deficit depends on district-specific revenue limit


5.66% Inflation Increase

.68% Gain for Average District

2007-08 Funded Revenue Limit*

2008-09 Funded Revenue Limit

2008-09 Computed Base Revenue Limit

2008-09 Base Revenue Limit After Deficit

2007-08 Base Revenue Limit

statewide ada
Statewide ADA


  • Statewide ADA continues to decline
    • Decline in 2007-08 was 0.52%
    • The projected decline in 2008-09 is also 0.52%

Charter school ADA continues the momentum upward, projecting growth by more than 10% in 2008-09

negotiations 2008 09
Negotiations – 2008-09

RBJUHSD Estimates 2008-09


expectations in negotiations
Expectations in Negotiations

Developing conditions

This year’s COLA is tiny and next year is likely to be no better

This year’s categorical cuts were reversed, but may very well be proposed again in January

There is a definite possibility for midyear cuts in 2008-09, and we think the Governor may again propose big cuts for 2009-10

Neither party can count on new revenues


expectations in negotiations1
Expectations in Negotiations


  • Look to the future
    • Deficit factors to Proposition 98 must be made up eventually
    • Don’t look to the bad years for compensation increases, look to the coming good years
    • The deficit factor could reach 10% or more by 2009-10, plan to commit to use future deficit reduction dollars to catch up on compensation
second period interim reporting history
88% of the LEAs managed to file positive certifications

But the number of school agencies reporting qualified and negative status has jumped significantly since 2006-07

Second-Period Interim Reporting History


declining enrollment
Declining Enrollment


  • Recent calculations* show that 53% of districts are declining in ADA
    • Averaging a .56% decline last year
    • Comprising just over 60% of the state’s ADA
  • The special financial challenges are well publicized
    • But can be more challenging if the decline is not as significant as projected
      • The revenue for declining enrollment districts is based upon prior-year ADA, with some exceptions – charter schools
        • So there is no additional revenue to pay for additional teachers to serve the additional students

*Calculations based on the 2007-08 Second Principal Apportionment

looking to the future1
Looking to the Future


  • There are many more challenges ahead of us
  • Few of the Budget “solutions” this year provide any ongoing help
  • In addition to education and transportation, California still has to deal with health care and many more important issues
  • It looks like Proposition 98 is going nowhere fast
  • Mandate reform is still on the agenda, but way down the list
  • And the politics that got us here haven’t changed much
the structural budget gap
The Structural Budget Gap


  • Nothing that was done in this year’s Budget will help avoid serious cuts in next year’s Budget
  • The Lottery securitization plan is a long way from being a done deal
  • Over the past several years, all of the one-time solutions have been used up – and yet the structural deficit remains
  • We see 2009-10 as being more difficult than 2008-09
    • Revenues will remain relatively flat
    • Expenditures continue their inexorable march upward
    • Borrowing will be difficult and expensive
    • There will be political fallout from this year
  • In the past, we have had structural problems year after year until we have gotten lucky and the economy has turned around
in other words
In Other Words . . .

In 2009, we will find ourselves in exactly the same place unless:

Economy improves

Agreement is reached on Budget reforms

Public trust in state policymakers is restored

Cost of services is acknowledged along with the will to pay for them


california continues to fall behind
California Continues to Fall Behind


  • In 2008-09, California is spending approximately $1,055 per pupil less than the national average
    • In less than 40 years, we’ve fallen from near the top to near the bottom of the states when it comes to spending per pupil
    • Passage of Proposition 98 in 1988 has not stopped that slide
    • And, the 2008-09 Budget will widen the distancebetween California and other states
      • Reversing gains made in recent years
california continues to fall behind1
California Continues to Fall Behind


Source: National Center for Education Statistics, 2008; Bureau of Labor Statistics 2008 CPI Inflation Calculator

our response
Our Response
  • Please continue to identify areas of cost savings
  • Continue to be frugal with supplies, copies, consumables, etc.
  • We are working to shore up enrollment and our budget
    • Charter school, grant funded programs
our response1
Our Response
  • Reduction in travel by 50%
    • All departments will work to identify 50% cuts to travel from last year
    • Some travel is funded through categoricals and is required by the terms of the funding source
    • Those identified cuts will be turned in and used as a reference as the year progresses
  • Be prepared for additional cuts mid-year
our response2
Our Response
  • This current budget crisis is expected to continue for the foreseeable future
    • At least 3 years, by some estimates
    • Variables include the national economy, state economy, and the state’s willingness to fundamentally restructure the budgeting policy and process
thank you for all you do
  • I remain fundamentally optimistic about the ability of schools to continue providing high quality education in the face of financial difficulty
    • Schools have weathered these storms before
    • I have complete faith in your ability to do it again