EUSD BUDGET UPDATE

THE SEVENTEEN-MONTH 2008-09, 2009-10 BUDGET BILL

2008-09 FINAL MID-YEAR CUTS2009-10 BUDGET PROPOSAL AND PRELIMINARY IMPACTS ON EUSD

2-26-09

THE SEVENTEEN-MONTH SOLUTION• AFTER MONTHS OF PROCRASTINATION, POLITICAL POSTURING, PARTISANSHIP, AND HIGH DRAMA, THE LEGISLATURE FINALLY PASSED A SERIES OF BILLS AIMED AT CLOSING THE STATE’S UNPRECEDENTED $42 BILLION BUDGET CRISIS– STATE SENATORS WERE “LOCKED DOWN” A RECORD 45+ HOURS BEFORE THE FINAL REQUIRED VOTE WAS CAST

– GOVERNOR SCHWARZENEGGER SIGNED THE BILLS LAST FRIDAY, FEBRUARY 20, 2009

– IT WAS A BUDGET BATTLE OF EPIC PROPORTION WHICH WILL PRODUCE POLITICAL FALLOUT

THE SEVENTEEN-MONTH SOLUTION• IN THE GIVE AND TAKE OF THE BUDGET DEAL, ALL PARTIES GOT SOME OF THE ELEMENTS THEY FOUGHT FOR:– THE GOVERNOR GOT THE SPENDING CAP HE WANTED (SUBJECT TO VOTER APPROVAL), AND THE EASING OF SOME RULES THAT HE FELT WOULD HELP SPEED ECONOMIC RECOVERY

– LEGISLATIVE REPUBLICANS ACHIEVED SOME SELECTED CORPORATE TAX BREAKS, A SPENDING CAP, AND THE ABILITY TO UTILIZE FUNDS FROM PROPOSITIONS 10 AND 63 (ALSO SUBJECT TO VOTER APPROVAL)

THE SEVENTEEN-MONTH SOLUTION

– LEGISLATIVE DEMOCRATS WON NEW SOURCES OF TAX REVENUES, MINIMIZED THE CUTS TO SOCIAL SERVICES, AND HELPED PROTECT CERTAIN EMPLOYEE RIGHTS AND BENEFITS

• ALL PARTIES ALSO MADE SACRIFICES – AND WILL SUFFER SOME POLITICAL REPERCUSSIONS– THE GOVERNOR’S CREDIBILITY HAS TAKEN A “HIT” AS HE TOOK BACK HIS PLEDGE OF NO NEW TAXES, AND HIS PROMISE NOT TO RAISE THE VEHICLE LISCENCE FEE

THE SEVENTEEN-MONTH SOLUTION• LEGISLATIVE REPUBLICANS DIDN’T GET AS HARD A SPENDING CAP AS THEY WANTED, NOR CERTAIN WAGE AND MEAL-BREAK RULE CHANGES SOUGHT BY BUSINESS INTERESTS

• THOSE MEMBERS WHO VOTED FOR NEW TAXES MAY HAVE JEOPARDIZED THEIR POLITICAL CAREERS

• LEGISLATIVE DEMOCRATS ALLOWED BALLOT MEASURES TO REDIRECT PROP 10 AND 63 $$

• THOSE MEMBERS WHO VOTED TO APPROVE CUTS TO LABOR AND EDUCATION MAY HAVE JEOPARDIZED THEIR POLITICAL CAREERS

THE SEVENTEEN-MONTH SOLUTION• THIS BUDGET SOLUTION MAY BE THE MOST COMPLEX IN CALIFORNIA HISTORY

• IT’S PREDICATED ON PASSAGE OF FIVE PROPOSITIONS IN A SPECIAL ELECTION SCHEDULED FOR MAY 19, 2009

• SOLUTIONS INCLUDE:– $15 BILLION IN SPENDING REDUCTIONS– $12.5 BILLION IN NEW TAX REVENUES– $5.4 BILLION IN BORROWING –LOTTERY– $7.9 BILLION IN FEDERAL STIMULUS

THE SEVENTEEN-MONTH SOLUTION

• NEW TAX REVENUES INCLUDE:– 1¢ SALES TAX (APRIL 1, 2009)– VEHICLE LISCENSE FEE GOES UP TO 1.15% OF VEHICLE’S VALUE

– STATE INCOME TAX RATES ARE INCREASED– DEPENDENT TAX CREDIT IS REDUCED

• NEW TAXES ARE TEMPORARY, AND TIED DIRECTLY TO PASSAGE OR FAILURE OF THE BUDGET STABILIZATION PROPOSAL

• RECEIPT OF OVER $10 BILLION IN FEDERAL STIMULUS FUNDING WOULD TRIGGER CHANGES

THE SEVENTEEN-MONTH SOLUTION• PROPOSITION 1A: STATE FINANCE – SPENDING CAP

• PROPOSITION 1B: EDUCATION FINANCE – PROVIDES FOR A “MAINTENANCE FACTOR”- TYPE OF SETTLEMENT - $9.3 BILLION – 2011-12

• PROPOSITION 1C: CALIFORNIA STATE LOTTERY• PROPOSITION 1D: DIVERTS PROPOSITION 10 FUNDING OF $340 MILLION ONE TIME

• PROPOSITION 1E: MENTAL HEALTH SERVICES ACT - DIVERTS PROPOSITION 63 FUNDING TO BE USED FOR EARLY DIAGNOSIS AND TREATMENT PROGRAMS FOR MENTAL HEALTH

PROPOSITION 1A – STATE FINANCE• PROP 1A – SPENDING CAP – SEEKS TO STABILIZE THE BUDGET BY INCREASING THE SIZE OF THE RAINY DAY FUND

• UNANTICIPATED REVENUES BASED ON A 10-YEAR FORMULA – DEPOSITED INTO FUND – PORTION TO BE SAVED FOR ECONOMIC DOWNTURNS – PORTION AVAILABLE FOR USE:– FIRST CALL ON RAINY DAY FUNDS WOULD BE TO SATISFY PROPOSITION 98 OBLIGATIONS

• PROP 1A WOULD ALSO ESTABLISH SUPPLEMENTAL EDUCATION PAYMENT ACCOUNT – IF PROPOSITION 1B PASSES!

PROPOSITION 1B – EDUCATION FINANCE• PROPOSITION 1B WAS PUT ON THE BALLOT TO SOLVE THE PROPOSITION 98 MAINTENANCE FACTOR ISSUE – SPEAKER KAREN BASS

• STARTING IN 2011-12 ANNUAL PAYMENTS WOULD BE MADE TO K-14 EDUCATION IN LIEU OF A MAINTENANCE FACTOR REPAYMENT – FUNDING WOULD BE COLLECTED VIA THE MECHANISM SET UP IN PROPOSITION 1A

– PAYMENTS COULD BE USED FOR CLASSROOM INSTRUCTION, TEXTBOOKS, AND OTHER EDUCATIONAL PROGRAMS

– ALLOCATED PER DISTRICT ADA– PROBABLY PAID OUT OVER FIVE YEARS

THE EDUCATION BUDGET• THE MAGNITUDE OF THE TWO-YEAR LOSS TO THE PROPOSITION 98 GUARANTEE IS UNCHANGED FROM THE GOVERNOR’S PROPOSAL - $8.6 BILLION

THE REDUCTION INCLUDES:– $2.3 BILLION IN PROGRAM CUTS– $3.2 BILLION IN APPORTIONMENT DEFERRALS– $1.1 BILLION RECHARACTERIZED AS “SETTLE-UP”

– $618 MILLION SWAP WITH THE STATE’S PUBLIC TRANSPORTATION ACCOUNT

• 57% OF ALL STATE REDUCTIONS ARE BORNE BY EDUCATION

EUSD - 2008-09 & 2009-10 UNRESTRICTED REVENUE LIMIT

TWO-YEAR LOSS DUE TO DEFICITS

$96.1$92.8 $90.4

$8.1$4.8 $13.9

$82

$86

$90

$94

$98

$102

$106

2008-09Budget Act

2008-09 Mid-Yr Cuts

2009-10Budget

REVENUE LIMIT (millions)

UNFUNDED

FUNDED

EUSD WILL HAVE LOST ABOUT $22 MILLION DUE TO TWO-YEAR DEFICIT ON REVENUE LIMITS

THE EDUCATION BUDGET• THE PRIMARY DIFFERENCE BETWEEN THE PROPOSED AND FINAL BUDGETS IS THE NATURE OF THE CUTS– A COMPROMISE WAS REACHED BETWEEN THE GOVERNOR’S APPROACH AND THAT OF THE LEGISLATIVE DEMOCRATS - 50/50 SPLIT

– UNRESTRICTED REVENUE LIMITS ARE STILL REDUCED – BUT A LITTLE LESS THEN ORIGINALLY PROPOSED – 2009-10 DEFICIT IS 13.094% INSTEAD OF 16.161%

– MOST STATE CATEGORICAL PROGRAMS ARE REDUCED 15.4% IN 2008-09, AND ANOTHER 4.9% IN 2009-10

EUSD - 2008-09 & 2009-10 UNRESTRICTED REVENUE LIMIT

$96.1

$90.9$86.9

$5.2$9.2

$81

$84

$87

$90

$93

$96

$99

2008-09Budget Act

2008-09 Mid-Yr Cuts

2009-10Proposed

REVENUE LIMIT (millions)

UNFUNDED

FUNDED

EUSD WOULD LOSE IN EXCESS OF $14 MILLION OF REVENUE LIMIT DOLLARS OVER TWO YEARS

GOVERNOR’S PROPOSED BUDGET

FINAL APPROVED BUDGET

EUSD - 2008-09 & 2009-10 UNRESTRICTED REVENUE LIMIT

$96.1

$92.8$90.4

$3.3$5.7

$87

$90

$93

$96

$99

2008-09Budget Act

2008-09 Mid-Yr Cuts

2009-10Budget

REVENUE LIMIT (millions)

UNFUNDED

FUNDED

EUSD WILL LOSE IN EXCESS OF $9 MILLION OF REVENUE LIMIT DOLLARS OVER TWO YEARS - COMBINED LOSS OF $754/ADA

FINAL APPROVED BUDGET

EUSD - 2008-09 & 2009-10 STATE CATEGORICAL LOSS

$9.5$8.3

$7.7

$1.2 $1.8

$5

$7

$9

$11

2008-09Budget Act

2008-09 Mid-Yr Cuts

2009-10BudgetSTATE CATEGORICALS

(mill.)

UNFUNDED

FUNDED

EUSD WOULD LOSE ABOUT $2.8 MILLION IN STATE CATEGORICAL $$ OVER TWO YEARS

A BNOTE: DEFICIT SPENDING = UNRESTRICTED UNRESTRICTED USE OF RESERVES 1/31/2009 % 2/20/2009 %

BEGINNING BALANCE 21,983,419 21,983,419

REVENUE LIMIT 90,863,729$ 92,810,482$ OTHER REVENUES 13,211,587$ 13,297,135$

TOTAL REVENUES 104,075,316$ 106,107,617$

EXPENSES 102,057,445$ 102,115,412$

REVENUES OVEREXPENDITURES 2,017,871$ 3,992,205$

OTHER SOURCES/USES (7,884,224)$ (7,927,747)$

DEFICIT SPENDING AMOUNT (5,866,353)$ (3,935,542)$

ENDING BALANCE 16,117,066$ 9.90% 18,047,877$ 11.10%

GOVERNOR'S PROPOSAL VS. FINAL BUDGET

FLEXIBILITY – 2008-09 – 2012-13

• TO HELP DISTRICTS SURVIVE THE BUDGET CRISIS, THE GOVERNOR AND LEGISLATURE HAVE PROVIDED SEVERAL OPTIONS FOR FLEXIBILITY WITHIN PROGRAMS

• CATEGORICAL PROGRAMS ARE ARRANGED IN THREE TIERS– TIER I – PROGRAMS THAT MAINTAIN FUNDING LEVELS AND ALL REGULATIONS (NO FLEXIBILITY)

– TIER II – PROGRAMS THAT ARE REDUCTED AND MAINTAIN ALL REGULATIONS (NO FLEXIBILITY)

– TIER III – PROGRAMS THAT RECEIVE REDUCTIONS AND HAVE FLEXIBILITY (5 YEARS)

FLEXIBILITY – 2008-09 – 2012-13• TIER 1 PROGRAMS (UNTOUCHABLES):– QUALITY EDUCATION INVESTMENT ACT (QEIA)

– HOME-TO-SCHOOL TRANSPORTATION– K-3 CLASS SIZE REDUCTION– PROP 49 – AFTER SCHOOL PRGMS (ASES)

– ECONOMIC IMPACT AID (EIA)– SPECIAL EDUCATION– CHILD DEVELOPMENT– CHILD NUTRITION

TIER 1 – CLASS SIZE REDUCTION

• CLASS SIZE PROGRAM MAINTAINS SAME LEVEL OF FUNDING (2007-08 LEVEL, LESS 2008-09 MID-YEAR SWEEP OF $46 MIL)

• SIGNIFICANTLY CHANGES THE PENALTIES FOR CLASSES IN EXCESS OF 20.44:1

– PENALTIES RANGE FROM 5% TO 30% ON A SLIDING SCALE, DEPENDING ON AVERAGE CLASS SIZE

– CURRENT INCENTIVE FUNDING RULES STILL IN FORCE – FUNDING IS BASED ON 20 STUDENTS/CLASS

TIER 1 – CLASS SIZE REDUCTION

• IN ORDER TO QUALIFY FOR THE REDUCED PENALTIES, DISTRICTS MUST BE PARTICIPATING IN THE CSR PROGRAM AS OF DECEMBER 10, 2008

• DISTRICTS MAY EXCEED 20.44:1 CLASS SIZE AVERAGES – BUT IT WILL

COST SOME FUNDING $$

• FLEXIBILITY WILL END WITHTHE 2011-12 SCHOOL YEAR

TIER II – FUNDING REDUCTIONS – BUT NO FLEXIBILITY

• ALL TIER II AND TIER III PROGRAMS LOSE 15.4% FUNDING IN 2008-09, AND ANOTHER 4.9% IN 2009-10– ENGLISH LANGUAGE ACQUISITION PRG– K-12 HIGH SPEED NETWORK– STAR TESTING– CHARTER SCHOOL FACILITY GRANTS

• 2009-10 FUNDING TO BE DETERMINED BY THE PERCENTAGE OF FUNDING RECEIVED IN 2008-09 - THUS, IMPLICATIONS FOR PROGRAMS THAT ARE ATTENDANCE-BASED – IE. CDS, SUPP HRL.

TIER III – FUNDING CUTS AND FULL FLEXIBILITY FOR FIVE YEARS• MOST OTHER STATE CATEGORICAL PROGRAMS ARE IN TIER III, INCLUDING:– TARGETED INSTR IMPRV BLOCK GRANT (TIIG)

– INSTRUCTIONAL MATERIALS– SCHOOL AND LIBRARY IMPROVEMENT BLOCK GRANT (SIP), SCHOOL SAFETY BLK GRANT

– PEER ASSISTANCE REVIEW, BTSA– MATH AND READING PROFESSIONAL DEVELOPMENT, SECONDARY SCH COUNSELING

– SUPPLEMENTAL INSTRUCTION (ATS)

• HIGH PRIORITY SCHOOLS GRANT PROGRAM IS ELIMINATED FOR 2009-10

TIER III CATEGORICAL PROGRAMS

• FLEXIBILITY IS DEFINED AS ‘ANY EDUCATIONAL PURPOSE’

• DISTRICTS THAT USE PROVISIONS WILL BE DEEMED TO BE IN COMPLIANCE WITH PROGRAM AND FUNDING REQUIREMENTS CONTAINED IN STATUTORY, REGULATORY AND PROVISIONAL LANGUAGE

• FLEXIBILITY INCLUDES THE ABILITY OF DISTRICTS TO TRANSFER FUNDS INTO THE UNRESTRICTED GENERAL FUND

• FLEXIBILITY DECISIONS MUST BE DISCUSSED AND APPROVED AT A PUBLIC MEETING OF THE BOARD OF EDUCATION

INSTRUCTIONAL MATERIALS – TIER III• SUSPENDS FOR 2008-09 AND 2009-10 THE REQUIREMENT TO PURCHASE NEWLY ADOPTED MATERIALS – THROUGH JULY 1, 2010

• FUNDING LEVEL IS REDUCED FROM $69 TO ABOUT $56/STUDENT

• COUNTY OFFICES ARE TEMPORARILY RELIEVED OF THE DUTY TO CONFIRM PURCHASES OF THESE MATERIALS DURING SITE VISITATIONS (WILLIAMS SETTLEMENT)

• IF DISTRICTS PURCHASE MATERIALS WITH ANY OTHER STATE FUNDS, ALL REGULAR LAWS STILL APPLY

• SUFFICIENCY HEARING FOR STANDARDS-ALIGNED MATERIALS MUST STILL BE HELD

OTHER FLEXIBILITY OPTIONS

• CATEGORICAL RESTRICTED BALANCES AS OF JUNE 30, 2008 MAY BE TRANSFERRED TO UNRESTRICTED FUND ON A ONE-TIME BASIS

• DISTRICT RESERVE REQUIREMENTS REMAIN THE SAME – CURRENT LAW IN EFFECT

• ROUTINE RESTRICTED MAINTENANCE (RRM) MAY BE REDUCED FROM 3% TO AS LOW AS

1% - FIVE YEARS – DEFERRED MAINTENANCE MATCH IS OPTIONAL – LEAs WILL RECEIVE STATE MATCH FOR FIVE YEARS – 65% OF 2008-09 AMOUNT

SPECIAL EDUCATION FOR 2009-10

• ONLY PROGRAM THAT PROVIDES A SMALL FUNDING INCREASE – ABOUT $10.92 PER ADA

• BUDGET DOES NOT INCLUDE THE $65 MILLION AGREED TO BY THE STATE FOR THE SPECIAL EDUCATION BEHAVIOR INTERVENTION SETTLEMENT MANDATE

• GROWTH IS FUNDED FOR 2009-10• FEDERAL STIMULUS BILL EXPECTED TO PROVIDE MUCH-NEEDED IDEA FUNDING

STATE MANDATES• DESPITE A RECENT COURT RULING, THE STATE BUDGET FUNDS EDUCATIONAL MANDATES AT $1000 EACH – CLEARLY IN VIOLATION OF SAN DIEGO SUPERIOR COURT DECISION

• MANDATED ACTIVITIES HAVE NOT BEEN SUSPENDED OR REPEALED

• FINAL BUDGET BILL DOES NOT EVEN FUND THE THREE MANDATES THE GOVERNOR PROPOSED

• LEGISLATIVE FLOOR REPORTS IMPLY THAT THIS MATTER WILL BE TAKEN UP BEFORE THE MAY REVISE

PAYMENT DEFERRALS• STATE’S CASH FLOW PROBLEM WILL DIRECTLY IMPACT EVERY LEA - $3.2 BILLION OF ADDITONAL DEFERRALS ADDED IN 2008-09

• WHEN ADDED TO THE EXISTING DEFERRALS, IT TOTALS $7.41 BILLION OF CASH PAYMENTS THAT WILL ARRIVE AT A LATER DATE

• JUNE APPORTIONMENT AND DEFERRED CATEGORICAL FUNDING WILL NOT ARRIVE UNTIL JULY 31, 2009, AFTER IT’S NEEDED FOR PAYROLL

• JULY AND AUGUST APPORTIONMENT ARE POSTPONED UNTIL OCTOBER 2009

• NEW PROPOSED DEFERRALS ARE ONGOING

FEDERAL FISCAL STIMULUS BILL

• THE STATE STABILIZATION FUND CONTAINED IN AAAR (HR 1) IS DESIGNED TO HELP BACKFILL STATE EDUCATION BUDGET CUTS– CALIFORNIA WILL RECEIVE ABOUT $6 BILLION

– GOVERNORS ARE REQUIRED TO USE AT LEAST 81.8% TO BRING STATE CUTS TO EDUCATION UP TO FY08 OR FY09 LEVELS, WHICH EVER IS GREATER

– MONEY IS SUPPOSED TO ARRIVE IN STATES BY MARCH 2009

– STILL UNCERTAINTY ABOUT WHEN/HOW MUCH OF THIS FUNDING WILL REACH LEAs

FEDERAL FISCAL STIMULUS BILL

• MAINTENANCE-OF-EFFORT:– STATES MAY COUNT STABILIZATION ALLOTMENT TOWARD THEIR MAINTENANCE –OF-EFFORT (MOE)

– LOCAL DISTRICTS MAY NEED TO REQUEST APPROVAL TO USE STATE STABILIZATION ALLOCATION FOR THEIR OWN MOE

• SPECIAL EDUCATION IDEA FUNDING WILL INCREASE FROM 17.2% TO 26.3% OF THE ANNUAL COST OF EDUCATING STUDENTS WITH DISABILITIES – SHORT TERM ONLY

• TITLE 1 FUNDING WILL NEARLY DOUBLE – SHORT TERM ONLY

WHAT’S NEXT• WITH THE GOVERNOR’S SIGNATURE SECURED LESS THAN A WEEK AGO, THE DISTRICT IS STILL EVALUATING THE BUDGET INFORMATION, WHICH IS CHANGING EVERY DAY

• REVENUE PROJECTIONS ARE BEING REVISED NOW THAT A FINAL BUDGET HAS BEEN ADOPTED

• NEW CATEGORICAL FLEXIBILITY OPTIONS HAVE OFFERED HELP, BUT ALSO ADDED COMPLEXITY TO THE BUDGETING PROCESS

• CABINET IS STILL EVALUATING BUDGET PRIORITIES AND DETERMINING THE LEVEL OF NECESSARY REDUCTIONS