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

2008-09 FINAL MID-YEAR CUTS 2009-10 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

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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

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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

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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

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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 $106 $102 $98 $94 $90 $86 $82 $4.8

$96.1

$8.1

$92.8

$13.9

$90.4

2008-09 Budget Act 2008-09 Mid Yr Cuts 2009-10 Budget UNFUNDED FUNDED EUSD WILL HAVE LOST ABOUT $22 MILLION DUE TO TWO-YEAR DEFICIT ON REVENUE LIMITS

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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

GOVERNOR’S PROPOSED BUDGET

EUSD - 2008-09 & 2009-10 UNRESTRICTED REVENUE LIMIT $99 $96 $93 $90 $87 $84 $81 UNFUNDED FUNDED $5.2

$96.1

$90.9

$9.2

$86.9

2008-09 Budget Act 2008-09 Mid Yr Cuts 2009-10 Proposed EUSD WOULD LOSE IN EXCESS OF $14 MILLION OF REVENUE LIMIT DOLLARS OVER TWO YEARS

FINAL APPROVED BUDGET

$99 EUSD - 2008-09 & 2009-10 UNRESTRICTED REVENUE LIMIT UNFUNDED FUNDED $96 $93 $90 $87 $96.1

$3.3

$92.8

2008-09 Budget Act 2008-09 Mid Yr Cuts $5.7

$90.4

2009-10 Budget 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 $11 UNFUNDED FUNDED $9 $1.2

$1.8

$7 $9.5

$8.3

$7.7

$5 2008-09 Budget Act 2008-09 Mid Yr Cuts 2009-10 Budget EUSD WOULD LOSE ABOUT $2.8 MILLION IN STATE CATEGORICAL $$ OVER TWO YEARS

GOVERNOR'S PROPOSAL VS. FINAL BUDGET A B NOTE: DEFICIT SPENDING = USE OF RESERVES UNRESTRICTED 1/31/2009 % UNRESTRICTED 2/20/2009 BEGINNING BALANCE 21,983,419 21,983,419 % REVENUE LIMIT OTHER REVENUES $ 90,863,729 $ 13,211,587 $ 92,810,482 $ 13,297,135 TOTAL REVENUES $ 104,075,316 EXPENSES $ 102,057,445 REVENUES OVER EXPENDITURES $ 2,017,871 $ $ 106,107,617 102,115,412 $ 3,992,205 OTHER SOURCES/USES $ (7,884,224) DEFICIT SPENDING AMOUNT $ (5,866,353) ENDING BALANCE $ 16,117,066 $ (7,927,747) $ (3,935,542) 9.90% $ 18,047,877 11.10%

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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

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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 WITH THE 2011-12 SCHOOL YEAR

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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.

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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

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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

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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

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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

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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

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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

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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

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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

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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