Second Interim Budget Highlights2008-09

We Now Have a Severe Crisis in Education

Within three years of the passage of Proposition 13, education spending in California dropped from the top five to last in the nation

We have created an unreasonable expectation – the nation’s highest standards for student achievement and one of the lowest funding levels

Proposition 98, the 1988 voter-approved constitutional amendment, was intended to provide a stable and growing source of funding for K-14 education

In recent years, it has done neither

In 2004-05, the Governor and the Legislature suspended the guarantee by $2 billion

When the current-year Budget was enacted, Proposition 98 was manipulated to provide flat funding from 2007-08

Now we have seen a collapse of the guarantee as state tax revenues have collapsed

Revenue Limit Cuts

Governor’s Budget Agreement:

2008-09 Statutory Revenue Limit $6,193.18

2008-09 First Interim Revenue Limit $5,861.41 – 5.357% deficit

2008-09 Second Interim Revenue Limit $5,707.39 – 7.844% deficit

Loss of $154.02/pupil or ($436,692)

2009-10 Statutory Revenue Limit $6,502.18

2009-10 Revenue Limit $5,650.78 – 13.094% deficit

Loss of ($697,440) in 2009-10 including declining enrollment

Tier II & Tier III State Categorical Cuts

Governor’s Budget Agreement 15.4% reduction:

CBET $4,768

English Language Acquisition Program $5,482

School Safety & Violence Prevention $7,798

Arts & Music Block Grant $7,430

Ag Voc Ed $4,995

Supplemental Counseling $13,860

GATE $3,287

Instructional Materials $25,936

Professional Development Block Grant $19,279

Targeted Instructional Improvement Block Grant $12,064

School & Library Improvement Program $42,514

Tier II & Tier III State Categorical Cuts Continued

Governor’s Budget Agreement 4.5% reduction in 2009-10:

Additional reduction of $46,550 in 2009-10

2 year loss of $193,963 in State revenue for categorical programs

The budget eliminates funding for the High Priority Schools Grant Program one year before the scheduled end of the grant period

Resulting in a $114 million cut

Affecting 408 schools in 170 school districts

$199,200 loss for our district

What a Difference Between First and Second Interim

First SecondInterim Interim

12/18/2008 3/19/2009 Difference

Revenue Limit Sources 15,424,662 14,987,970 (436,692) Federal Revenue 2,078,442 2,078,442 - State Revenue 5,219,076 5,071,663 (147,413) Local Revenue 270,350 328,686 58,336

Total Revenue 22,992,530 22,466,761 (525,769)

Certificated Salaries 10,697,188 10,677,909 (19,279) Classified Salaries 4,082,680 3,968,997 (113,683) Employee Benefits 4,373,543 4,322,499 (51,044) Books and Supplies 2,273,614 2,173,743 (99,871) Services 1,775,668 1,775,151 (517) Capital Outlay 23,169 18,174 (4,995) Other Outgo 60,000 60,000 - Support/Ind. Cost (82,536) (82,536) -

Total Expenditures 23,203,326 22,913,937 (289,389) `

Transfers Out (111,345) (111,345) -

Net increase in Fund Balance (322,141) (558,521) (236,380)

Beginning Balance, July 1 1,590,529 1,590,529 -

Projected Ending Balance 1,268,388 1,032,008 (236,380)

Flexibility and Opportunity

The Budget offers fiscal and program flexibility through 2011-12

Ability to transfer state categorical funding to the unrestricted General Fund for Tier III programs

Can eliminate Tier III programs and continue to receive funding

Will need an exit strategy when flexibility goes away in 2012-13

Eliminate Deferred Maintenance match requirement

Reduce routine restricted maintenance set-aside requirement from 3% to 1%

While the flexibility is welcomed, keep in mind that not all programs are included

Exempted programs include:

Federally funded programs

Tier I & Tier II State Programs

Flexibility and Opportunity

The Untouchables – Tier I and II

Economic Impact Aid – No Cut and No Flexibility

Special Education – No Cut and No Flexibility

K-3 CSR – No Cut and No Flexibility

Child Nutrition – No Cut & No Flexibility

Agricultural Vocational Education – Cut & No Flexibility

English Language Acquistion Program – Cut & No Flexibility

Must hold a Public Hearing informing public before we utilize flexibility transfers

2009 School Services Financial Projection Dartboard

Factor 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Statutory COLA (use for K-12 and COE Revenue Limit)

5.66% 5.02% 0.70% 2.30% 2.50% 3.00%

K-12 Revenue Limit Deficit7.844%

13.094% 13.094% 13.094% 13.094% 13.094%

Special Education COLA (on state and local share only)

0.00% 0.00% 0.70% 2.30% 2.50% 3.00%

State Categorical COLA (including adult education and ROC/P)

-15.38% -4.46% .70% 2.30% 2.50% 3.00%

California CPI 1.9% .8% 1.90% 2.30% 2.80% 3.20%

California LotteryBase $ 109.50 $ 109.50 $ 109.50 $ 109.50 $ 109.50 $ 109.50

Prop 20 $ 11.50 $ 11.50 $ 11.50 $ 11.50 $ 11.50 $ 11.50

Interest Rate for Ten-Year Treasuries 2.90% 3.00% 3.40% 3.90% 4.30% 4.50%

The State’s Cash Crisis Is Now Our Cash Crisis

The state, like school districts, has high and low cash points

In a typical year, the state borrows just as districts do when they issue Tax Revenue Anticipation Notes (TRANs)

But the condition of the financial markets makes it more difficult for borrowers of all types

Especially a state that has a $40 billion shortfall, chronic deficit spending, an emergency in the current year, and the second lowest credit rating in the nation

So, the reason the state is running out of cash is not because it does not have a Budget, but because:

It is spending cash much faster than revenues are coming in

It anticipates that it will not be able to borrow

Apportionment Cash Flow

Tough economic times push the state's cash flow issues to schools

February apportionment & CSR deferred to July

March apportionment reduced by 9/12ths of the deficit to catch up

June apportionment deferred to July

July apportionment deferred to October

August apportionment deferred to October

What Is Next?

Third Interim in May

Will have more accurate ending balance estimates from hiring & spending freeze

Will identify available balances to be transferred from Tier III programs to the General Fund

Will hold a public hearing to notify of the use of flexibility

Special election on May 19th