El Segundo Unified School District Special Budget Meeting Part I School Services Information January 24, 2011

Transcription

1 El Segundo Unified School District Special Budget Meeting Part I School Services Information January 24, 2011

2 Overview of the State Budget and the State Economy 2011 School Services of California, Inc.

3 Federal Deficit $500 $0 -$500 -$1,000 Federal Deficit (In Billions) Federal deficits soar during the recession, reaching $1.4 trillion in 2009 UCLA forecasts deficits averaging $1 trillion over the decade For comparison, -$1,500 California s total personal income in 2009 was $1.6 trillion -$2, Source: Office of Management and Budget; UCLA December School Services of California, Inc. 1

4 California s Economic Outlook California s economy was hit hard during the recession Subprime loans and the collapse of housing led the downturn The state s 12.4% unemployment rate is the third highest in the nation Since the employment peak, the state has lost 1.3 million jobs Construction employment was hit hardest UCLA says the state is well positioned for the recovery UCLA identifies education, health care, exports, and technology as leading the way Regional differences: Coastal cities will thrive, while the Inland Empire and Central Valley will struggle The Governor s Budget, however, expects the labor market to be a continuing challenge Payroll employment is not projected to reach prerecession levels until 2016, eight years from the beginning of the recession School Services of California, Inc.

5 California s Unemployment Rate 15.0% Highest and Lowest State Unemployment Rates 11.6% 12.0% 12.4% 12.4% 14.3% 10.0% National Average 9.4% 5.0% 45% 46% 5.4% 5.7% 3.8% 4.5% 4.6% 00% 0.0% Lowest Rates Highest Rates Source: Bureau of Labor Statistics, December School Services of California, Inc. 3

6 Recovery Takes a Long Time The Economic Cycle Stabilization December 2007 Spring School Services of California, Inc. 4

7 Prior-Year Budget Solutions Ongoing state expenditures have been funded with one-time revenue from: $17.4 billion in federal stimulus funds $8.3 billion in higher taxes $6.5 billion from accelerated tax collections $2.1 billion from redevelopment agencies $1.7 billion in accounting changes from Medi-Cal and state payroll Solutions that make future deficits worse: $14.6 billion in Economic Recovery Bonds $7.6 billion from securitization of tobacco lawsuit settlement $5.5 5 billion in loans from special funds and local governments $2.4 billion from sale of state buildings and mandate deferrals 2011 School Services of California, Inc. 5

8 The Budget Gap $30.0 $25.0 $20.0 $15.0 $10.0 $26.7 billion $6.9 billion Failed Solutions $14.6 billion One-Time Solutions Assumed Federal funds $3.6 Budgeted, but not realized savings $1.7 Proposition 22 savings $1.6 Sunset of Temporary Taxes $7.2 Expiration of Federal stimulus $4.0 Other-one-time solutions $3.4 $5.0 $0.0 Source: Governor s Budget, p.4 $5.2 billion Revenue decline $3.1 Baseline Workload increase $2.1 Adjustment 2011 School Services of California, Inc. 6

9 What s Proposed for the Rest of the Budget? Governor Brown proposes $12.5 billion in cuts, which come primarily from other areas of the State Budget Major reductions include: $1.7 billion by limiting Medi-Cal services and requiring beneficiaries to share in costs $1.5 billion by establishing time limits and reducing California Work Opportunity and Responsibility to Kids (CalWORKs) grants $1 billion in reductions to University of California (UC) and California State University (CSU) $750 million from the Department of Developmental Services 2011 School Services of California, Inc. 7

10 What s Proposed for the Rest of the Budget? $750 million in childcare savings $486 million by reducing hours for In-Home Supportive Services (IHSS) $308 million in reduced take-home pay for state employees without contracts $300 million (net) from community colleges It appears that other major savings come from one-time savings and borrowing 2011 School Services of California, Inc. 8

11 What s Proposed for the Rest of the Budget Realignment The Governor s Proposed Budget calls for a shift of government services to the local level Custody and care of juvenile offenders and low-level adult felons Court security CAL FIRE, fire and emergency response activities Foster care and child welfare services Adult protective services Mental health services, including AB 3632 Transfer of responsibilities would be accompanied by dedicated revenues 1% sales tax and 0.5% vehicle license fee (VLF) which have been in effect since 2009 Would continue for an additional five years Subject to voter approval at the June special election 2011 School Services of California, Inc. 9

12 Realignment and Education The Governor s realignment proposals could affect LEAs in several ways: Proposition 98 The proposed level of funding assumes that voters agree to extend temporary tax measures Absent such action, the Proposition 98 guarantee would drop along with revenues Tax revenues from the 1 sales tax and 0.5% from the VLF would be dedicated to a special fund Programs Results in a reduction to General Fund revenues used for determining the Proposition 98 minimum guarantee Structure and funding for child care and mental health is changed to allow for increased local control 2011 School Services of California, Inc. 10

13 What s Proposed for Redevelopment? B-19 Governor Brown proposes to phase out redevelopment agencies beginning in No new obligations; however, existing obligations will be honored Freed-up funds will provide General Fund relief In future years, funds will be available for local government, including schools Estimated to be $900 million by Similar amount for education Proposes constitutional amendment to allow 55% voter approval for limited local tax increases and bonding against local revenues for development projects 2011 School Services of California, Inc. 11

14 Where Do Local Property Taxes Go? B-20 The Governor proposes restructuring the flow of local property tax funding away from redevelopment agencies (RDA) to other local entities Counties 25% Counties K-14 21% K-14 Education Shift Education 37% 42% Cities 18% Special Districts 8% RDA Funding Redevelopment Agencies 12% Cities 28% Special Districts 9% The Governor estimates that RDAs will divert $5 billion in property tax revenue from other agencies in allocated in proportionate shares to remaining local agencies 2011 School Services of California, Inc. 12

15 Bumpy Road for Redevelopment Shifts B-21 A change in the state s approach to redevelopment funds could yield significant gains for many LEAs However, there are many practical and political barriers that such a proposal must overcome: Timing the Governor expects funds to be available as early as , but most RDA projects are capital projects for which there are decades of outstanding payments Equity by county the amount of property taxes that go toward redevelopment varies dramatically throughout the state Equity for LEAs the proposal calls for the funding to be shared on an equal amount per student within each county, but inter-county disparities will be significant Boundaries RDA funds are within county boundaries, but some LEAs cross county lines 2011 School Services of California, Inc. 13

16 Budget Contingency Plan The Governor s Budget assumes that the temporary taxes are extended by the voters for five more years The Budget also proposes that additional reductions be made in the event that the tax extensions are not approved This leaves schools in a position of needing at least two plans Option 1 flat funding continues the funding level contained in the enacted td Budget Bd for into Option 2 a $2 billion reduction in funding results in a loss of about $330 per ADA for the average district Districts will need to plan for both eventualities until the fate of the tax extensions is determined Additionally, economic changes between now and enactment t of the Budget could also cause a revision, up or down 2011 School Services of California, Inc. 14

17 The Governor s Proposals for So, how does the Governor propose to dig the state out of this economic quagmire? Cuts lots of them But with the acknowledgement that education has already taken more than its fair share of cuts Realignment To restore local control of service delivery and save the state money Continuation of taxes Temporary taxes would be extended by five years Basically the Governor has two plans: If the taxes are extended, the cuts are as budgeted in January Education would be flat funded for If the taxes are not extended, an estimated additional $9 billion in cuts would be needed, including large cuts to education 15

18 Proposition 98 and The Education Budget Because of suspension, Proposition 98 is not a factor in , except for marking the maintenance factor For , there is no proposal to suspend Proposition 98 But if the temporary taxes are not extended, Proposition 98 drops by $2.3 billion And the Governor indicates he expects education to take that hit Additionally, another $6 billion in solutions would need to be found With extension of taxes education is flat-funded for No midyear cuts are proposed, so we keep the funding level in the enacted Budget through Mandates are funded to the tune of $89 million The maintenance factor, to be collected in some future good year, continues to grow 16

19 California s Economic Outlook California s economy was hit hard during the recession Subprime loans and the collapse of housing led the downturn The state s 12.4% unemployment rate is the third highest in the nation Since the employment peak, the state has lost 1.3 million jobs Construction employment was hit hardest UCLA says the state is well positioned for the recovery UCLA identifies education, health care, exports, and technology as leading the way Regional differences: Coastal cities will thrive, while the Inland Empire and Central Valley will struggle The Governor s Budget, however, expects the labor market to be a continuing challenge Payroll employment is not projected to reach prerecession levels until 2016, eight years from the beginning of the recession 17

20 Risks to the Budget Proposal Flat funding for K-12 education is dependent upon voters approving the extension of the current temporary taxes The Legislature must place this proposal on the ballot, requiring two- thirds vote in each house Two Republicans in each house must agree will be a tough sell! Voters may turn this down even if it gets on the ballot Legislature must approve shifting special funds (Proposition 63 for mental health and Proposition 10 for First 5 Program) Two-thirds vote is required The Legislature must approve the local government realignment proposal and place the tax extension proposals on the ballot to pay for realignment 18

21 Risks to the Budget Proposal Court challenges could thwart full implementation of the program reductions and fund shifts Last November, voters protected local government funding by adopting Proposition 22 This measure is at odds with the Governor s Proposal for redevelopment funds and transportation bonds The economic recovery could stall and revenues could underperform the forecast Problems in Europe could threaten California s export market Massive federal deficits could rekindle inflation A trade war with China could weaken exports and spur inflation The recovery rate could simply be slower than expected 19

22 Budget Contingency Plan The Governor s Budget assumes that the temporary taxes are extended by the voters for five more years The Budget also proposes that additional reductions be made in the event that the tax extensions are not approved This leaves schools in a position of needing at least two plans Option 1 flat funding continues the funding level contained in the enacted td Budget Bd for into Option 2 a $2 billion reduction in funding results in a loss of about $330 per ADA for the average district Districts will need to plan for both eventualities until the fate of the tax extensions is determined Additionally, economic changes between now and enactment t of the Budget could also cause a revision, up or down 20

23 What Does it Mean to be Protected? The Governor featured protecting education as a major theme He acknowledged that education had taken the brunt of past cuts Protection isn t perfect, but it does mean: No midyear cuts to school agencies for Minor additional reductions for , if the tax extensions pass But it also means that we will have to fight for funding if the tax extensions do not pass We think, in light of past cuts, education should be protected whether the taxes pass or not So, while there is room for improvement, the protection offered is better than we have had during the past three years as long as the taxes pass 2011 School Services of California, Inc. 21

24 Projected vs. Actual Funding Per ADA $6,500 Average Unified District $6,411 $6,386 $6,493 $5,821 $6,150 Loss of costof-living adjustment (COLA) Dollars Per ADA $5,500 $5,821 $, $5,668 Loss of baseline dollars Projected Statutory COLA Flat Funding Actual Funding If Election Fails $4,981 $5,239 $5,220 $4,890 $4, School Services of California, Inc. 22

25 California s Education Spending Lags the Nation $600 California s K-12 Spending Per Student Lags Behind That of the Rest of the U.S. More Than at Any Time in 40 Years r Student Minus Spending of U.S. ( Dollars) ia s Spending Pe udent in the Rest Californi Per Stu $200 -$200 -$600 -$1,000 -$1,400 -$1,800 -$2,200 -$2,600 -$3,000 National Average -$2,580 per student * and estimated. Note: Rest of U.S. excludes the District of Columbia Source: National Education Association 2011 School Services of California, Inc. 23

26 Management Interest With approximately 90% of a district s unrestricted revenues dedicated to employee compensation, management has an interest in reducing personnel expenditures Layoffs Concessions from employees Compensation (e.g., salary reduction, increase in health and welfare contributions) Working Conditions (e.g., class size, preparation time) Management will want some assurances if things get worse and they could if the temporary tax extension initiative fails In the end, it is management and the board that must ensure the fiscal solvency of the district 2011 School Services of California, Inc. 24

27 Union Interest The rising cost of health care has effectively reduced the take home pay of most employees Class sizes are already near the top for teacher-to-student ratios, and the staffing ratios of counselors, librarians, and school nurses in our schools is near the bottom Many employee groups have made concessions and may be asked to make them again Employees will want changes in working conditions and/or workload in exchange for reductions in compensation Furloughs result in a reduction in pay and a commensurate reduction in workload but furloughs may not be enough The union will want some assurance that salary concessions and working conditions will be restored when revenues improve 2011 School Services of California, Inc. 25

28 K-12 Education Took Biggest Cuts General Fund Expenditures by Major Program Area Dollars in Billions % Change to K-12 Education $42.5 $35.5 $34.6 $36.3 <14.5%> Higher Education $11.8 $11.7 $10.6 $11.6 <1.4%> Health and Human Services $29.7 $30.9 $25.0 $27.0 <9.3%> Corrections and Rehabilitation $10.2 $10.3 $8.2 $9.3 <9.0%> Natural Resources $1.9 $2.0 $1.9 $ % Source: Governor s Budget Summary 26

29 Apportionment Deferrals Apportionment deferrals for LEAs have become the solution to the state s cash flow problem Existing Month From Month To Dollar Amount February 2012 July 2012 $2.6 billion* April 2012 July 2012 $420 million April 2012 August 2012 $679 million May 2012 July 2012 $800 million May 2012 August 2012 $1 billion June 2012 July 2012 $2 billion New???? $2.1 billion Total $9.6 billion 2011 School Services of California, Inc. 27

30 California s Spending Lags the Nation California s Schools Lag Behind Other States on a Number of Measures California Rank California Rest of U.S. K-12 Spending Per Student ( )* 44 $8,826 $11,372 K-12 Spending as a Percentage of Personal Income ( )* 09)* % 4.25% Number of K-12 Students Per Teacher ( )* Number of K-12 Students t Per Administrator ( ) Number of K-12 Students Per Guidance Counselor ( ) Number of K-12 Students Per Librarian ( ) , * and data are estimated and data are estimated. Note: California Rank and Rest of U.S. exclude the District of Columbia. Spending per student and number of students per teacher are based on Average Daily Attendance (ADA). Number of students per administrator, guidance counselor, and librarian are based on statewide enrollment. Source: National Education Association, National Center for Education Statistics, and U.S. Bureau of Economic Analysis 28

31 Planning Ahead The Governor s Budget Proposal provides flat funding for education LEAs must be prepared to make adjustments to the budget based on: Local factors Declining enrollment Reserve e levels els State factors Economy Election outcome We recommend using the current State Budget Proposal, SSC Dartboard, and local assumptions as budgets are developed for next fiscal year It will be important to have contingency plans in place, as change is inevitable Plan A current proposal Plan B improvements to proposal what will be restored? Plan C reductions to proposal what will be cut? Plan D? 29

32 Revenue Limits The Governor s Budget proposes the following for revenue limits: For : No change to the enacted Budget Act levels For : 12 Full funding for an estimated 0.22% increase in ADA No funding increase for the estimated 1.67% statutory COLA % deficit factor, which eliminates the statutory tor COLA The actual statutory COLA is dependent on data published by the U.S. Department of Commerce in April 2011 and will be updated in the May Revision 2011 School Services of California, Inc. 30

33 What Does a $2.2 Billion Cut Look Like For a Typical District? $5,300 $5,200 $5,239 $5,220 $5,100 $5,000 $4,981 $4,968 $4,900 $4,890 $4,800 $4, Budget Act, One-Time $253 Reduction May Revision Ongoing g3.85% Reduction and -0.39% COLA Budget Act, Restores 3.85% Reduction and -0.39% COLA Governor s Budget, Taxes Extended Governor s Budget, No Tax Extended Note: All calculations are based on the average unified funded revenue limit in each of the years referenced 2011 School Services of California, Inc. 31

34 Reserves The Governor s Proposal continues the authorization for districts to reduce their minimum budget reserve for economic uncertainties to one-third of the normal requirement Should an LEA consider this option? Answer: No! Maintaining the minimum level of reserves is not adequate to protect LEAs from negative surprises Having a healthy reserve has never been more important Relying on reserves alone to solve a structural budget imbalance is not the answer Reserves are one-time dollars and are not all cash During serious and uncertain economic times, reserve levels should be higher not lower 2011 School Services of California, Inc. 32

35 Local Agency Reserves Question: What should the target percentage be? Answer: It depends on the following factors: Higher if: Declining enrollment Fast growth Deficit spending Inconsistent between years Potential audit or legal costs Smaller district Basic aid State t Budget volatility Lower if: Ending balance is consistent between years ADA doesn t change much The community doesn t change much Carryover categoricalsare under control Employee contract obligations are covered Funding sources are stable 2011 School Services of California, Inc. 33

36 Next Steps Balanced budget must be adopted by district prior to June 30, 2011 State Budget will most likely not be in place by then Developing the budget requires: Clarifying assumptions How much revenue? How will expenditures change? Once the State Budget is adopted, the district makes adjustments to its budget within 45 days 34

37 Questions?