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The Storm

The Storm. It’s Here—How It Looks and What To Do Inland Personnel Council Meeting January 30, 2009. Joel Montero Chief Executive Officer Fiscal Crisis and Management Assistance Team. Overview. Looking Back To Look Forward The Current Status How To Survive the Short and Long Term

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The Storm

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  1. The Storm It’s Here—How It Looks and What To Do Inland Personnel Council Meeting January 30, 2009 • Joel Montero • Chief Executive Officer • Fiscal Crisis and Management Assistance Team

  2. Overview • Looking Back To Look Forward • The Current Status • How To Survive the Short and Long Term • Budget Certifications and Their Impact • Collective Bargaining • Question & Answers

  3. Beginning with Basic Economics • The National Economy and Budget • Lack of Consumer Confidence • A Correction in the Housing Market • Construction and Unemployment • Proposition 93 and CA Politics • Is it Revenue or Expense? • The Perfect Storm???

  4. What’s The Status? • There is a economic crisis • Our state has a structural deficit that is growing • Unemployment is at 9+% and growing • Housing continues to correct • The Legislature is in emergency session • Education is going to be dramatically impacted

  5. Inquiring Minds Seem to Want to Know • Will there be a Depression? • Is the Stock Market at the bottom? • When will Recovery begin? • What about Mid-Year Reductions? • Will there be COLAs—ever again? • What’s next?

  6. As Goes California, So Goes…. • The recession is deep and may be of long duration • Credit • Unemployment • The Feds • Housing • Depression?

  7. State Budget Deficit Grows Despite Mid-Year Reductions ($1.0) July 2007 November January 2008 February May 2008 December 2008 2007 2008 ($6.1) ($10.0) ($9.8) ($14.5) ($16.0) ($17.2) ($20.0) ($24.3) ($30.0) ($40.0) ($41.6) ($50.0) Source: Department of Finance and Legislative Analyst’s Office

  8. Governor’s Budget Proposals $41.8 Billion in Solutions • Expenditure Reductions - $17.4 billion (42%) • K-14 Education - $7.7 billion (44% of all cuts) • New Taxes and Fees - $14.3 billion (34%) • Borrowing - $10 billion (24%)

  9. Governor’s Budget Proposals $5.44 billion in K-12 Core Revenue Reductions Current Year 2008-09 • Eliminates .68% COLA on Revenue Limits • $247 million ($41 per student) • Reduces Revenue Limits by 4.5% • $1.6 billion ($270 per student)

  10. Governor’s Budget Proposals $5.44 billion in K-12 Core Revenue Reductions Budget Year 2009-10 • Eliminates 5.02% Statutory COLA on Revenue Limits • $2.5 billion ($400 per student) • Reduces Revenue Limits by 2.5% • $1.1 billion ($180 per student)

  11. Governor’s Budget ProposalsAdditional Reductions Current Year 2008-09 • $4.3 billion reduction of Proposition 98 spending level • $2.8 billion deferral of February apportionment (cash) to July 2009 • $1.1 billion in settle up dollars used to backfill costs • $618.7 million in Public Transportation Accounts funds to fund home to school transportation

  12. Governor’s Budget ProposalsAdditional Reductions Current Year 2009-10 • $152.7 million decrease to revenue limit due to declining enrollment • Elimination of High Priority School Grants ($114.2 million in savings) • Suspension of National Board Certification Incentives for new teachers ($1 million in savings) • Suspension of all K-12 mandates with three exceptions: • Interdistrict and intradistrict transfers • California High School Exit Exam • State Special Schools • $398.5 million PTA funds for home to school transportation

  13. Governor’s Budget ProposalsLocal Flexibility • Allows school districts to transfer prior-year categorical ending fund balances to the general fund unrestricted • Allows districts to transfer state categoricals to general fund unrestricted • Eliminates the deferred maintenance match • Reduces Routine Restricted Maintenance from 3% to 1% • Reduces the Reserve for Economic Uncertainty by 50% • Would allow districts to reduce the length of the school year by up to 5 days

  14. K-14 Education Spending and the Budget Shortfall Comparison of State General Fund Revenue and Expenditure Increases to Increases in K-14 (Prop. 98) Guarantee1998-99 Through 2009-10 1Legislative Analyst’s Office. State spending Plan: 1998-99. October 1998, Page 4, Revenues & Expenditures; p. 26 Proposition 98 2Departemnt of Finance. Overview of the Governor’s Budget: 2009-10. January 2009 (assumed all proposed budget solutions) 3 Adjusted for Local Property Tax Transfers per VLF Transfer and Triple Flip (LAO, Jan. 2009 est.)

  15. K-14 Education Spending and the Budget Shortfall Comparison of Major General Fund Expenditure Areas1998-99 through 2009-10 1Legislative Analyst’s Office. State spending Plan: 1998-99. October 1998, Page 4, Revenues & Expenditures; p. 26 Proposition 98 2Departemnt of Finance. Overview of the Governor’s Budget: 2009-10. January 2009 (assumed all proposed budget solutions)

  16. What Can Districts Do Now in Anticipation of an Uncertain Fiscal Environment • Plan—Current plus Two Years + • Review your Assumptions regarding Interest Income • Spend Restricted Dollars First and Conserve Cash • Stay Current With Enrollment and Staffing • Build Reserves/Fund Balance If Possible • Be Careful About Debt including OPEB Bonds • Manage Cash • Forego Big/Expensive Budget Decision Where Possible Remember, This Is a Multi-Year Issue!

  17. What Can Districts Do Now in Anticipation of an Uncertain Fiscal Environment You Must Do These Things Now • Eliminate the .68% COLA in the current year • Reduce the Revenue Limit by 4.5% • Set aside unallocated state categorical funds • Prepare for the worst case scenario re: RIF • Freeze expenditures conserve cash

  18. What Can Districts Do Now in Anticipation of an Uncertain Cash Environment • Have a system in place to analyze and monitor cash flow—all funds • Report cash flow status and projection to the board on a regular basis • Conserve cash when possible—all funds • Build Reserves/Fund Balance—all funds • Consider creating spending plans to manage available cash • Consider options for dry period financing (borrowing) • Don’t run out!

  19. The Basics of AB 1200/2756What does this mean to you? • County Office Review at a Minimum of Three Specific Data Collection Points • Budget Approval • First and Second Interim Reporting • Positive, Qualified and Negative Certifications • COE Must Assess Solvency for the Current Plus One or Two Years • Disclosures

  20. The Basics of AB 1200/2756What does this mean to you? • Possible Actions Under a Qualified Certification (Budget) • Fiscal Expert Assignment • Budget Analysis and New Financial Projections • Approval of New Debt Issuance • Longer Period of Review for Collective Bargaining Agreements • Encumber all Contracts and Other Obligations • Withhold Compensation from Superintendent and Governing Board

  21. How Do Districts Assess What They Can Afford in the Collective Bargaining Process? • Big Picture • Estimate Next Year’s Income or Lack Of • Enrollment (ADA) • Revenue Limit and deficits • Lottery • Special Purpose Funds • Local Income • Special Education • Plan Next Year’s Expense • Actual Salary of Each Employee • Actual Benefit Cost of Each Employee • New Programs • Assumptions re: utilities, insurance, capital and equipment, etc. • Legal Costs • What’s is the Balance?

  22. How Do Districts Assess What They Can Afford in the Collective Bargaining Process? • The More Granular View (typical year) • COLA 5.00%?? • Deficit Factor (0%?) • Total Net Impact 5.00% • Step and Column (~1.5%) • Health and Welfare (1.5%??) • Enrollment Adjustment (0%) • Other Fiscal Impacts (0%) • Total Available (absent change) 2%

  23. How Do Districts Assess What They Can Afford in the Collective Bargaining Process? • The More Granular View—2008-09 • COLA 5.66% • Deficit Factor (9.865%) • Total Net Impact (4.57%) • Step and Column (~1.5%) • Health and Welfare (1.5%??) • Enrollment Adjustment (?%) • Other Fiscal Impacts (?%) • Total Available (absent change) (7.57%)

  24. More Collective Bargaining • There will be no new money in 2009-10 and probably beyond (total RL deficit 16.161%--SSC Dartboard) • Categorical flexibility will be volatile—consider as one-time money • Costs for health benefits will continue to rise • Shortened school year?? • Salary rollbacks?

  25. Summary • The fiscal situation for the state has deteriorated since last year • Recession-yes, Depression-hopefully not • The state’s deficit is growing exponentially for lack of action • Education growth for a 10 year period is less than other parts of the budget • Governor/Legislature proposals for solution have much in common • LEA planning is more critical than ever • AB 1200 will indicate growing problems through the certification process • Collective bargaining will be challenging

  26. Questions?

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