ESCONDIDO UNION SCHOOL DISTRICT

GOVERNOR’S BUDGET PROPOSAL AND IMPACTS ON

EUSD

FEBRUARY 11, 2010

U.S. ECONOMIC OUTLOOK

THE RATE OF JOB LOSS HAS SLOWED SINCE THE RECESSION BEGAN, THE U.S.

HAS LOST 7.6 MILLION JOBS

IN MANY STATES, HOME SALES HAVE BOTTOMED OUT, AND ARE ON THE RISECONSUMER SPENDING WAS UP 2.8% IN THE THIRD QUARTER OF 2009 – AND GDP WAS UP 2.2 % THE STOCK MARKET HAS RECOVERED ABOUT 60% FROM ITS MARCH 2009 LOW

U.S. ECONOMIC OUTLOOK

-2.7%

-5.4%-6.4%

-0.7%

2.2%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

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

U.S. GDP (Percent Change)

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

THE ECONOMIC CRISIS IS NOT OVER IN CALIFORNIA

2010-11 AND 2011-12 WILL BE THE TOUGHEST YEARS OF THE RECESSION

UNEMPLOYMENT WILL BE KEY, AND IT REMAINS HIGH – 12.4% IN CALIFORNIA COMPARED TO THE NATIONAL AVERAGE OF ABOUT 10.0%

THE RECOVERY WILL BE SLOW – IT WILL TAKE SEVERAL YEARS TO ATTAIN 2007-08 LEVELS OF FUNDING AGAIN

Employment Trends – December 2007 to November 2009

-9.0%

-4.7%

-6.6%

-9.6%

-3.0%San

Francisco

Sacramento

LosAngeles

San Diego

OrangeCounty

Metropolitan AreasSource: California Employment Development Department

-206

-118

-70

-28

-283

Government

Financial Service

Leisure & Hospitality

Industrial Sectors (Jobs in Thousands)

Manufacturing

Construction

RECOVERY TAKES A LONG TIME

The Economic Cycle

Stabilization

December2007

Spring2010

2015

Recession Recovery

Forecast

THE ECONOMIC CRISIS IS NOT OVER IN CALIFORNIA

WHILE A RECOVERY IS IN SIGHT, STATE REVENUES HAVE CONTINUED TO CONTRACTINCOME AND SALES TAX COLLECTIONS LAG IN A RECOVERY – DOWNWARD PRESSURE ON PROPERTY TAXES TOOREAL ESTATE, CONSTRUCTION, AND TOURISM ARE ALL DOWN SIGNIFICANTLY IN DECEMBER 2009, CALIFORNIA LOST 38,800

JOBS, OR 46% OF THE 85,000 JOBS LOST ACROSS THE COUNTRY

FEDERAL FUNDS WON’T BE AVAILABLE FOR A LARGE BAILOUT SUCH AS RECEIVED IN 2009

THE STATE BUDGET

CALIFORNIA’S MOST RECENT BUDGET GAP IS ABOUT 19.9 BILLION – OVER EIGHTEEN MONTHS- $6.9 ATTRIBUTED TO 2009-10, AND $12.3 PROJECTED FOR 2010-11THE GOVERNOR AGAIN PROPOSES A COMBINATION OF BUDGET SOLUTIONS – FUNDING SHIFTS, SPENDING CUTS, AND FEDERAL BACKFILL CALIFORNIA RECEIVES 78 CENTS PER 1 DOLLAR

OF FEDERAL TAXES PAID – A “FAIRNESS ISSUE”

EVERY SEGMENT OF GOVERNMENT IS SEVERELY AFFECTED

THE STATE BUDGET GAPTHE LEGISLATIVE ANALYST’S OFFICE (LAO) STATES THAT THE 2009-10 BUDGET PROBLEM IS LARGELY DUE TO 2009 BUDGET SOLUTIONS THAT FAILED TO MATERIALIZE: $2.4 BILLION – COURT DECISION THAT DENIED USE OF

EXCESS GASOLINE TAXES AND TRANSPORTATION ACCOUNT FUNDS

$1.1 BILLION – FEDERAL DEPARTMENT OF CORRECTIONS RECEIVER NOT BUDGETED FOR

$972 MILLION – NO DEPT. CORRECTIONS SAVINGS $1 BILLION – NO SALE OF STATE COMPENSATION

INSURANCE FUND $1.1 BILLION IN FEDERAL FLEXIBILITY FOR MEDI-CAL

DID NOT OCCUR

THE STATE BUDGET GAP

Problems and Solutions (in billions)

Reason for Shortfall Proposed Solutions

$19.9 $19.9

$1.0 Build Reserve

$2.3 Lost Budget Solutions $3.9 Alternative Funds

$0.6 Fund Shifts

$1.4 Caseload Growth

$6.9 Operating Shortfall in 2009-10

Budget Act

$3.4 Revenue Decline

$4.9 Adverse Court Decisions

$6.9 Federal Funds

$8.5 Expenditure Reductions

THE STATE BUDGET GAP

THE GOVERNOR PROPOSES SHIFTING FUNDING SOURCES FOR VARIOUS PROGRAMS – REVISITING PROPOSALS SIMILAR TO THOSE ALREADY REJECTED BY VOTERS IN MAY 2009- PROPOSES TO USED $1 BILLION OF

COMBINED FUNDS FROM PROPOSITION 10 (EARLY CHILDHOOD DEVELOPMENT), AND PROPOSITION 63 (MENTAL HEALTH FUNDS)

WOULD REQUIRE VOTER APPROVAL – SCHEDULED FOR JUNE 2010 ELECTION?

THE STATE BUDGET GAP

THE GOVERNOR PROPOSES TO ELIMINATE THE SALES TAX ON GASOLINE, AND SUBSTITUTE IT WITH AN EXCISE TAX THAT WOULD NOT FLOW THROUGH THE STATE’S GENERAL FUND PROPOSED TO PROVIDE MORE FLEXIBILITY

TO TRANSPORTATION FUNDING – AND WOULD SAVE STATE MONEY ON ROADS

NEGATIVELY AFFECTS THE FUNDING BASE UPON WHICH PROPOSITION 98 IS CALCULATED

THE STATE BUDGET GAP

HEALTH AND HUMAN SERVICES PROGRAMS ARE HIT VERY HARD $2.4 BILLION WITH FEDERAL MONEY – MUCH

HIGHER WITHOUT FEDERAL AIDSTATE EMPLOYEE REDUCTIONS - $1.6 BILLION – INCLUDES SALARY ROLLBACKS AND HIGHER EMPLOYEE RETIREMENT CONTRIBUIONSDEPARTMENT OF CORRECTIONS - $1.2 BILLIONPROPOSITION 98 - $2.4 BILLION - $.9 BILLION IN 2009-10 SWEEPS, AND $1.5 BILLION IN 2010-11 REDUCTIONS

THE STATE BUDGET GAPTHE GOVERNOR IS CALLING ON THE FEDERAL GOVERNMENT TO INCREASE FEDERAL REIMBURSEMENTS TO CALIFORNIA BY $6.9 BILLION – MAJOR RISK TO THIS BUDGET PLAN!IF THIS DOESN’T HAPPEN A CONTINGENCY PLAN WILL BE TRIGGERED: ADDITIONAL CUTS TO HEALTH AND HUMAN

SERVICES PROGRAMS – CALWORKS, MEDI-CAL

ADDITIONAL REVENUES - WOULD POSTPONE SOME BUSINESS TAX CREDITS AND EXTEND REDUCTION OF DEPENDENT CARE CREDIT

THE 2010-11 EDUCATION BUDGET

JUST HOW PROTECTED ARE WE?

THE 2010-11 EDUCATION BUDGET

THE GOVERNOR HAS MADE A POINT TO “PROTECT EDUCATION” – AND HE HAS TO THE EXTENT THAT: NO DISTRICT-LEVEL MID-YEAR CUTS FOR 2009-

10 NO 2010-11 PROPOSITION 98 SUSPENSION (NONE

NEEDED) UNLIKE 2009-10, WHEN EDUCATION TOOK MORE

THAN ITS PROPORTIONATE SHARE OF THE REDUCTIONS, IN 2010-11, THE PROPOSED CUTS ARE LESS THAN OUR PROPORTIONATE SHARE

THE 2010-11 EDUCATION BUDGET

BECAUSE THIS WILL AGAIN BE A “TEST 1” YEAR (41.2%) FOR CALCULATING THE PROPOSITION 98 GUARANTEE, NO MAINTENANCE FACTOR IS ASSUMED BY THE ADMINISTRATION$11.2 BILLION IN MAINTENANCE FACTOR (FOR 2008-09 AND 2009-10) WAS NEGOTIATED DURING LAST YEAR’S BUDGET PROCESS AND WILL BE REPAID “SOMEDAY” REPAYMENT DELAYED UNTIL 2011-12? $1.3 BILLION COUNTED AGAINST FUNDING

RECEIVED IN 2008-09, WIPES OUT 2007-08 ADDITIONAL MAINTENANCE FACTOR

THE 2010-11 EDUCATION BUDGET

FLAT FUNDING UNDER PROPOSITION 98 – AFTER DROPPING MORE THAN 14% SINCE 2008-09, PROPOSITION 98 FUNDING HAS STABILIZED

BUT, THE MINIMUM GUARANTEE IS NOT ENOUGH TO RESTORE THE 2009-10 “ONE TIME” REDUCTION OF $1.5 BILLION ($252.83/STUDENT)

INSTEAD, REVENUE LIMITS WILL BE SUBJECT TO AN ONGOING REDUCTION OF $1.5 BILLION, STARTING IN 2010-11

PROPOSITION 98

$58.1

$49.1 $49.0

$50.4 $49.9 $50.0

$44.0

$46.0

$48.0

$50.0

$52.0

$54.0

$56.0

$58.0

$60.0

Proposition 98 Guarantee(In Billions)

2008-09 Budget Act

2009-10 Budget Revision

2010-11 Governor's Budget

2008-09 2009-10 2010-11

THE 2010-11 EDUCATION BUDGET

THE GOVERNOR’ $1.5 BILLION DECREASE TO PROPOSITION 98 IS TARGETED TO DISTRICT AND COUNTY OFFICE NONINSTRUCTIONAL, OR ADMINISTRATIVE COSTS $1.2 BILLION TARGETED AT SCHOOL DISTRICT

ADMINISTRATION $300 MILLION WOULD BE ATTRIBUTABLE TO

ELIMINATING BARRIERS TO CONTRACTING OUT FOR SERVICES

WOULD APPLY TO ALL ENTITIES, REGARDLESS OF THE REDUCTIONS ALREADY MADE IN THE PAST FEW YEARS – BASE YEAR 2008-09?

2010-11 EDUCATION BUDGET

THE GOVERNOR PROPOSES TO MAKE SEVERAL CHANGES TO PERSONNEL LAWS RELATED TO CERTIFICATED EMPLOYEES: ADMINISTRATION PROPOSES ELIMINATING THE

MARCH 15 LAYOFF NOTIFICATION DATE – AND CHANGING IT TO 60 DAYS AFTER THE STATE BUDGET IS ADOPTED OR REVISED

PROPOSES TO CHANGE THE SENIORITY RULES – LAYOFF, REHIRE, AND ASSIGN BASED ON NEED, SKILLS, RATHER THAN SENIORITY

CHANGE WOULD NOT SUPERSEDE COLLECTIVE BARGAINING AGREEMENTS IN PLACE

2010-11 EDUCATION BUDGET

CURRENT EDUCATION CODE PROVIDES REHIRE AND SUBSTITUTE RIGHTS TO LAID OFF TEACHERSUNDER SOME CIRCUMSTANCES, LAID OFF TEACHERS GET PRIORITY FOR SUB POSITIONS, AND RECEIVE PER DIEM RATE OF PAYGOVERNOR PROPOSES TO ELIMINATE THESE REGULATIONS – THOUGH IT’S NOT CLEAR IF THAT MEANS ELIMINATING JUST THE RIGHT TO PER DIEM PAY, OR IF IT INCLUDES THE PRIORITY FOR SUBSTITUTE JOBS TOO!

THE 2010-11 EDUCATION BUDGET- REVENUE LIMITS

SMALL NEGATIVE COST-OF-LIVING ADJUSTMENT (-.38% , OR ABOUT -$23/ADA) – DROP OF ABOUT $200 MILLION STATEWIDEHIGH DEFICIT FACTOR OF 18.355% STILL APPLIESTHE ONGOING $1.5 BILLION CUT WILL TRANSLATE TO ANOTHER REVENUE LIMIT REDUCTION – ABOUT $191/ADA FOR ELEMENTARY DISTRICTSTHE DISTRICT IS ANTICIPATING CONTINUED DECLINING ENROLLMENT

Revenue Limit Deficit Factors

8.140%

11.010%10.120%

8.801%8.801%8.801%

6.996%

0.000%0.000%0.000%

3.002%2.143%

0.892%0.000%0.000%

7.844%

18.355%18.355%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

1993-941994-951995-961996-971997-981998-991999-002000-012001-022002-032003-042004-052005-062006-072007-082008-092009-102010-11

SEVEN-YEAR HISTORY OF EUSD REVENUE LIMIT

4,745

4,9475,294

5,850

6,1006,077

4,727

5,391

4,6434,903

5,534

4,7704,200

4,600

5,000

5,400

5,800

6,200

04-05 05-06 06-07 07-08 08-09 09-10 10-11

Dollars Per ADA

WithoutDeficit

WithDeficit

216

16

581

273

101

323

39

258

0

200

400

600

STUDENTS LOST

03-0404-0505-0606-0707-0808-09

EST 09-107-Yr Ave

SEVEN-YEAR HISTORY OF EUSD DECLINING ENROLLMENT

FISCAL YEAR 2007-08 2008-09 2009-10 * 2010-11 *

BASE REVENUE LIMIT 5,534$ 5,850$ 6,100$ 6,077$

ADA 17,661.60 17,599.00 17,336.54 17,124.08

ADJ. REV. LIMIT BEFORE DEFICIT 98,081,604$ 103,572,829$ 106,378,563$ 104,426,063$

DEFICIT FACTOR 0.00% 7.844% 18.553% 18.553%

FUNDING LOST DUE TO DEFICIT -$ 8,103,481$ 19,477,618$ 19,167,404$

FUNDED BASE REVENUE LIMIT 5,534$ 5,391$ 4,727$ 4,770$

ONE-TIME LOSS N/A N/A 4,443,487$ N/A

ONGOING CUT N/A N/A N/A 3,311,279$

FINAL ADJ. REVENUE LIMIT

FUNDING 98,107,564$ 95,469,328$ 82,457,459$ 82,209,803$

FOUR-YEAR HISTORY OF EUSD DISTRICT REVENUE LIMIT

** Estimated 1-27-10 (Ongoing for 2010-11: $191/Average Daily Attendance-ADA)

THE 2010-11 EDUCATION BUDGET

NO NEW PROGRAMSCATEGORICAL FLEXIBILITY CONTINUESSTILL ALLOWS FOR A REDUCTION IN SCHOOL YEAR BY FIVE DAYSFUNDING FOR ROUTINE MAINTENANCE MAY STILL BE REDUCED – BUT YOU MUST MAINTAIN CLEAN AND SAFE FACILITIESDEFERRED MAINTENANCE IS FLEXIBLEQUALITY EDUCATION INVESTMENT ACT (QEIA) PROGRAM IS ONGOING (YR 4)

2010-11 CATEGORICAL PROGRAMS

CATEGORICAL PROGAMS WILL BE REDUCED BY THE –038% COLA

CLASS SIZE REDUCTION FLEXIBILITY AND REDUCED PENALTIES REMAIN IN PLACE

NO NEW CATEGORICAL PROGRAMS ARE PROPOSED

FLAT LOTTERY FUNDING IS PROJECTED $110/ADA FOR UNRESTRICTED LOTTERY $13/ADA FOR RESTRICTED, PROP 20

LOTTERY

2010-11 SPECIAL EDUCATION

SPECIAL EDUCATION WILL ALSO TAKE THE NEGATIVE COLA “HIT” OF -.38%FEDERAL ONGOING SPECIAL EDUCATION IS DUE TO LOSE $1.1 BILLION – GOVERNOR TRYING TO GET RESTORED$634 MILLION ONE-TIME ARRA MONEY IS GONETHE SE BEHAVIOR INTERVENTION PLANS (BIP) MANDATE SETTLEMENT – GOVERNOR ATTEMPTING TO SETTLE – WOULD ADD $10.92/ADA TO SE FUNDING BASE – REQUIRES LEGISLATIVE ACTION

2010-11 - MANDATESAT THE END OF 2008-09, THE “MANDATE CREDIT CARD” WAS $1 BILLIONRECENT COURT RULING DETERMINED DEFERRAL OF MANDATE REIMBURSEMENTS TO SCHOOLS IS UNCONSTITUTIONALDUE TO THIS RULING, THE ADMINISTRATION PROPOSES ALL BUT THREE MANDATES BE SUSPENDEDLAO HAS RECOMMENDED A COMPLETE OVERHAUL OF THE STATE’S MANDATE SYSTEM, AND REPEAL OF ALL BUT THE MOST CRITICAL MANDATES

FEDERAL MAINTENANCE OF EFFORT (MOE)

AS A CONDITION OF RECEIVING (ARRA) FEDERAL STIMULUS MONIES, THE STATE AGREED TO HOLD K-16 FUNDING LEVELS AT 2006-07 LEVELS, BUT: THE ADMINISTRATION HAS REVISED THE

STATE’S APPLICATION THAT WILL ALLOW REDUCTIONS TAKEN IN 2008-09 AND 2009-10 TO MEET MOE REQUIREMENTS

BASED ON CURRENT MOE REQUIRMENTS, THE 2010-11 BUDGET FAILS THE TEST BY $540 MILLION – BUT, STATE IS CONFIDENT IT CAN GET REQUIREMENTS WAIVED

2010-11 FEDERAL FUNDINGGOVERNOR’S BUDGET INCLUDES ONLY FEDERAL BASE GRANTS – MOST PROGRAMS AT 2009 FUNDING LEVELSPENDING BILL HR 3288 INCLUDES FUNDING FOR PRESIDENT’S NEW INITIATIVES – CALIFORNIA’S SHARE NOT BUILT INTO THE BUDGET PROPOSAL: $400 MILLION FOR TEACHER INCENTIVES $250 MILLION FOR NEW STRUGGLING

STUDENT LITERACY INITIATIVE $40 MILLION TO SUPPORT NEW CHARTER

SCHOOLS

2010-11 FEDERAL FUNDING

ALL FEDERAL STIMULUS MONIES RECEIVED BY THE STATE HAVE BEEN DISTRIBUTED EXCEPTION IS THE POTENTIAL FOR ANOTHER

SMALL DISTRIBUTION OF STATE FISCAL STABILIZATION (SFSF) FUNDING LATER IN 2009-10

AMOUNT WILL BE UNDER 10% OF WHAT WAS ALREADY RECEIVED – WE SHOULD EXPECT NO MORE THAN $600,000

REMAINING STIMULUS MONEY WILL BE IN THE FORM OF COMPETITIVE GRANTS – RACE TO THE TOP, SCHOOL IMPROVEMENT GRANTS, INVESTING IN INNOVATION

TOTAL ALLOCATION

AMOUNT SPENT IN

2009-10 **

ANTICIPATED CARRYOVER

TO 2010-11 **

STATE FISCAL STABILIZATION

FUNDING (SFSF) $6,041,639 $5,500,000 $541,639

FINAL 10% SFSF $600,000

TITLE I, PART B, ARRA $2,276,053 $1,576,053 $700,000

SPECIAL EDUCATION, IDEA ARRA $4,179,574 $2,379,574 $1,800,000

TOTAL ARRA $12,497,266 $9,455,627 $3,641,639

** INDICATED ESTIMATE AS OF 2-10-10

SUMMARY OF EUSD AMERICAN RECOVERY AND REINVESTMENT ACT(ARRA) FUNDING

PRELIMINARY EUSD BUDGET REDUCTIONS

BUDGET REDUCTIONS WILL BE NECESSARY IN 2010-11EXHAUSTION OF ONE-TIME FEDERAL DOLLARS (FUNDING “CLIFF’) IS CRITICAL TO OUR CURRENT POSITIONTHE DISTRICT’S CONTINUED DECLINING ENROLLMENT MEANS THAT WE CAN NOT “GROW” OUR WAY OUT OF THE PROBLEMSINCE THE ECONOMY IS CLEARLY NOT RECOVERYING QUICKLY, WE NEED TO POSITION THE DISTRICT FOR A LONG HARD CLIMB BACK

PRELIMINARY EUSD BUDGET REDUCTIONS

THE DISTRICT IS PROPOSING A PRELIMINARY REDUCTION AMOUNT OF ABOUT $13.5 MILLIONGIVEN THE SIGNIFICANT RISKS TO THE BUDGET, THIS AMOUNT COULD GO HIGHERWHILE WE’RE HOPEFUL THIS WILL NOT BE THE CASE, WE ESTIMATE THAT A “WORST CASE” STATE SCENARIO COULD REQUIRE REDUCTIONS AS HIGH AS $17 MILLION

Revenue Reductions:Federal Stimulus Funding (ARRA): State Fiscal Stabilization Funding (SFSF) ($6,041,639) Title I ARRA ($2,276,053) Special Education IDEA ARRA ($4,179,574) McKinney Vento Homeless ARRA ($84,306) Less estimated ARRA carryover $3,071,639 Net ARRA Reduction ("Funding Cliff") ($9,509,933) Federal Title I, Reading First ($1,001,876)Total Federal Revenue Reduction ($10,511,809)

EUSD - ESTIMATED PRELIMINARY REDUCTIONS NEEDED

State Revenues: Revenue Limit ($191/Student) ($250,000) Other completed programs ($323,377) Estimated Negative COLA state programs ($543,474)

Local Revenues: Lower estimated interest earned ($200,000) New Redevelopment Funds (includes C/O) $1,553,000

Total Initial Revenue Reductions ($10,275,660)

Anticipated Cost increases Step/Column - eligible employees ($1,950,000) Restore 2.5% Restricted Maintenance ($500,000) Worker's Compensation Rate Increase ($250,000) Normal increase - General Fund support ($300,000) Normal increase - fixed - utilities, etc. ($300,000)

Preliminary Total of Reductions Needed ($13,575,660)

 

Preliminary Total of Reductions Needed ($13,575,660)

Additional Risks to Budget: Revenue Limit Cut ($250 vs. $191/student); ($1,019,846) Governor's Federal Revenue plan falls short, and Proposition 98 is reduced further:Example: Federal government provides only$4.5 billion of the requested $6.9 billion - thiscould reduce Proposition 98 guarantee by $960million - or about $163 per student ($2,836,169)

Estimated upper range of reductions needed if Proposition 98 is reduced further ($17,431,675)

NOTE: School Services of California estimates that if the federal government does not provide all $6.9 billion, the riskto education may range from $175 - $300 per student.

Estimated Potential Savings

Per single work day reduction - all employees - (Unrestricted and Restricted General Fund only) * $497,792

Freeze employee step/column * $1,950,000

1% Rollback of all Salary Schedules - all employees - (Unrestricted and Restricted General Fund only) * $995,101

K-3 Class Size Reduction Program to 30:1 - Net of Revenue Reduction $2,500,000

POSSIBLE BUDGET SOLUTIONS THAT COULD BE CONSIDERED

* Note that if the K-3 Class Size Reduction Program were to be reduced to 30:1, the work year reduction and rollback of salary schedules, and step/column would be affected