Transcript Cash flow and Debt Concerns

Cash Flow & Debt Concerns
of California School Districts
in 2012-13
Prepared and
Presented by:
Alameda County
Office of Education
Jeff Potter,
Executive Director,
District Business
& Advisory
Services
Spencer Mead,
Director,
District Advisory
Services
September 25, 2012
Today’s Discussion

The Cash Crisis for California School Districts
 Current school district funding model
 Impact of state budget crisis on school districts
 Elimination of RDAs in 2011-12

The Debt Crisis for California Schools, the State, and Beyond
 The global debt crisis
 The debt tipping point
 School district borrowing - and the emergence of extreme
borrowing techniques
Education in California

California served 6.3 million K-12 students in 2010-11 with 261K teachers
 Total K-12 schools statewide - 10,340
 Pupil/teacher ratio of 24.12 (national average = 15.97)
Source: National Center for Education Statistics (nces.ed.gov), 2011

Ranked 35th nationwide in per pupil spending in 2010
 Ranked 23rd before recession
 Education spending grew just 2% from 2007 to 2010, compared to national
average of 10%
 California spent $9,375 per pupil in 2010 – 12% below the national
average
Source: U.S. Census Bureau

Fourth highest average teacher salary in U.S. ($67,871)
Source: National Center for Education Statistics

Student achievement ranked below the national average in 2011 on all standard
assessment exams (reading, writing, math, & science)
Source: National Center for Education Statistics
Cash Concerns
California School District Funding
• Primary funding model known as the “revenue limit”.




A mix of property taxes and state aid for most districts.
The revenue limit is typically two-thirds of a district’s General Fund revenue.
Each district has a different revenue limit calculation, based on the district type
(elementary, high or unified), size, historical spending patterns, and a multitude
of other variables, which together make for a complicated and lengthy formula.
A district’s individual base revenue limit is multiplied by the district’s average
daily attendance (ADA) to determine it’s total revenue limit funding each year.
• Other “regular” funding will typically come from the following sources:



Other state revenue used to fund various programs within the district (known
as “categoricals”).
Federal revenue
Local revenue (interest income, donations, etc.). Does not include property
taxes, which are part of the revenue limit calculation.
Revenue Limit Funding
• Imagine a bucket

Revenues raised through local property taxes are first dumped
into the district’s bucket.

If the bucket is not filled, the state tops it off with state tax
revenues (state aid).
Reported on J-29
Basic Aid Funding
• If the bucket is completely filled by local property tax revenues, the state has no
need to "top off" the bucket. If the bucket overflows with local property taxes, the
district gets to keep the overage.
• Districts whose buckets are completely filled by local property taxes are called
“excess tax districts” (or "basic aid districts").
• There are typically less than 100 districts categorized as “basic aid” each year (out
of a total of 1,131 districts). Because property tax revenues fluctuate each year,
some districts are basic aid one year but not the next.
Reported on J-29
Basic Aid Funding
Additional Information
•
In the past, the state also gave districts with high property tax revenues an
additional $120 per ADA (or $2,400 per district-whichever was greater).
The California Constitution says that the state should contribute this
additional money to fulfill its constitutional guarantee to provide all public
schools with "basic aid." However, because of budget constraints in
2002-03, lawmakers decided to eliminate the $120, saying that the state met
its constitutional obligation to these districts with other state funding from
categorical programs.
•
At the time of the second principal apportionment (which is made in June),
the California Department of Education officially certifies which districts
are basic aid for the school year that is ending.
Revenue Limit Deficit
•
•
The California state budget crisis has resulted in a revenue limit funding
reduction to schools of over 20%. Additional cuts (“triggers”) may occur if
Governor Brown’s tax initiative fails in November (Prop 30).
“Basic aid” districts don’t receive revenue limit state aid; they are cut
through other state revenue sources (known as “categoricals”).
K-12 Revenue Limit – Oakland USD
Base revenue
limit per ADA
Source: School Services of California, Inc.
State Apportionment Deferrals
• State aid is received by schools throughout the year.


Amount of state aid varies depending on each district’s revenue limit calculation.
Total state aid is “apportioned” to districts on a “5-5-9” schedule (5% in July &
August, 9% in September through June).
• First state aid deferral to schools occurred in June 2003.


Deferred from June 30th to the first week in July.
Purpose was to assist state budget by reflecting one less payment to schools in
2002-03 fiscal year.
• Nearly 10 years later, there are now numerous deferrals.



Eight inter-year deferrals from 2012-13 to 2013-14, totaling $7.2 billion.
(Ed Code 14041.5, 14041.6)
Five intra-year deferrals within 2012-13, totaling $3.5 billion (AB 103).
Monthly deferrals in 2012-13 in accordance with the Education Protection Account
(EPA), per the Governor’s November tax initiative, totaling nearly $7 billion.
Deferral Impact on District Cash Flow
• Impact to each district varies depending on the amount of state
aid in their revenue limit calculation.
• Intra-year and cross-year borrowing has become far more
prevalent, and the loans are a much larger percentage of total
district revenue.
• Borrowing options include:

TRANs
 for property taxes paid in December & April
 for intra-year and cross-year state deferrals


Borrowing from County Treasurer
Interfund borrowing by the district (self-funded borrowing)
Cash vs. Ending Fund Balance
$60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
$10,000,000
$0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Oakland Unified - Cash in County Treasury
Oakland Unified - Ending Fund Balance
ACOE District Business & Advisory Services
Summary of Alameda County School District Actuals for 2011/12
General Fund information only
District
Alameda USD
Ending Fund
Bal. - 6/30/12
2011/12
Revenue *
2011/12
Expenditures *
Actual
Ending Cash
Surplus / (Deficit) Bal. - 6/30/12 ***
Borrowing
at 6/30/12
Borrowing Type
at 6/30/12
16,200,087
88,034,638
86,783,002
1,251,637
1,640,024
2,200,000 Interfund
7,355,818
35,696,027
34,747,404
948,623
1,456,951
940,000 Interfund
Berkeley USD
17,464,066
117,174,767
115,001,199
2,173,569
10,201,875
Castro Valley USD
16,822,954
69,130,604
69,587,893
(457,289)
2,286,724
4,000,000 Interfund
Dublin USD
3,748,813
55,247,670
56,462,051
(1,214,381)
2,318,418
6,000,000 Interfund
Emery USD
2,972,812
10,471,492
10,826,708
(355,216)
1,454,588
Fremont USD
36,061,588
251,408,244
254,741,021
(3,332,777)
3,086,382
11,000,000 Interfund
Hayward USD
22,362,330
183,467,997
184,666,081
(1,198,084)
3,154,990
5,775,000 Interfund
Livermore USD
11,361,854
99,978,779
103,426,564
(3,447,785)
1,852,400
5,500,000 Interfund
201,895
413,305
427,582
(14,277)
127,868
New Haven USD
5,591,554
100,053,108
99,607,613
445,495
5,848,152
Newark USD
7,586,124
53,264,319
50,627,000
2,637,319
1,395,087
Oakland USD
45,253,260
420,100,334
410,893,009
9,207,325
9,251,111
Piedmont USD
4,858,736
30,510,668
30,079,373
431,296
1,981,308
15,435,669
123,080,561
120,236,722
2,843,839
San Leandro USD
8,234,341
67,550,105
68,001,644
San Lorenzo USD
16,541,832
88,439,662
86,400,926
891,541
2,229,551
1,984,197
Albany USD
Mountain House ESD
Pleasanton USD
Sunol Glen USD
Notes:
* Revenues include Other Transfers In; Expenditures include Other Transfers Out.
** Includes any available reserves in Fund 17.
*** Cash balances inclusive of all borrowing at 6/30/12.
(451,539)
(7,075,474)
None
None
None
23,400,000 Interfund; TRAN
3,000,000 Interfund
45,000,000 TRAN
1,200,000 Interfund
None
2,999,369
8,000,000 TRAN
2,038,737
1,594,748
8,800,000 Interfund
245,353
587,471
None
ACOE District Business & Advisory Services
Summary of Alameda County School District Adopted Budgets for 2012/13
General Fund information only.
District
Alameda USD
Ending Fund
Bal. - 6/30/12
2012/13
Revenue *
2012/13
Projected
Ending Cash
Expenditures * Surplus / (Deficit) Bal. - 6/30/12 ***
Borrowing
at 6/30/12
Borrowing Type Borrowing
at 6/30/12
in 2012/13?
Anticipated Borrowing
Type in 2012/13
16,200,087
79,054,383
86,794,577
(7,740,194)
1,640,024
2,200,000 Interfund
Yes
7,355,818
32,830,848
34,421,674
(1,590,826)
1,456,951
940,000 Interfund
No
Berkeley USD
17,464,066
113,339,637
117,126,633
(3,786,996)
10,201,875
Castro Valley USD
16,822,954
64,065,420
68,811,975
(4,746,555)
2,286,724
4,000,000 Interfund
No
Dublin USD
3,748,813
59,321,908
59,304,659
17,249
2,318,418
6,000,000 Interfund
No
Emery USD
2,972,812
9,210,717
10,016,419
(805,702)
1,454,588
Fremont USD
36,061,588
218,921,618
238,701,521
(19,779,903)
3,086,382
11,000,000 Interfund
Yes
Hayward USD
22,362,330
178,312,917
184,969,236
(6,656,319)
3,154,990
5,775,000 Interfund
No
Livermore USD
11,361,854
95,169,156
100,047,347
(4,878,191)
1,852,400
5,500,000 Interfund
Yes
201,895
339,564
416,811
(77,247)
127,868
New Haven USD
5,591,554
95,262,571
95,941,833
(679,262)
5,848,152
Newark USD
7,586,124
51,716,245
53,750,762
(2,034,517)
1,395,087
Oakland USD
45,253,260
401,620,373
398,077,912
3,542,461
9,251,111
Piedmont USD
4,858,736
28,796,950
30,454,130
(1,657,180)
1,981,308
15,435,669
111,757,290
113,495,687
(1,738,397)
(7,075,474)
None
Yes
TRAN
San Leandro USD
8,234,341
65,541,268
67,854,244
(2,312,976)
2,999,369
None
Yes
Interfund; TRAN
San Lorenzo USD
16,541,832
84,707,599
86,080,300
(1,372,701)
1,594,748
Yes
Interfund
891,541
2,024,250
2,057,269
(33,019)
587,471
Albany USD
Mountain House ESD
Pleasanton USD
Sunol Glen USD
Notes:
* Revenues include Other Transfers In; Expenditures include Other Transfers Out.
** Includes any available reserves in Fund 17.
*** Cash balances inclusive of all borrowing at 6/30/12.
None
None
None
23,400,000 Interfund; TRAN
3,000,000 Interfund
45,000,000 TRAN
1,200,000 Interfund
8,800,000 Interfund
None
Interfund
No
No
TRAN
Interfund; TRAN
No
Yes
Interfund; TRAN; Treasurer
Yes
Interfund
Yes
TRAN
No
No
Impact of Prop 30 on Deferrals
• Prop 30 is the Governor’s tax initiative – the Schools and Local Public
Safety Protection Act.
 Increase in state sales tax from 7.25% to 7.50%
 Resulting increase in revenue - estimates vary from $9 billion (Governor)
to $6.8 billion (LAO)
 If approved by the voters in November 2012, $2.24 billion in cross-year
deferrals will be paid down.
 If the initiative fails, cross-year deferrals will remain unchanged from
2011-12 fiscal year levels. In addition, mid-year trigger cut reductions of
$2.6 billion will be implemented (approx. $441 per ADA statewide).
• Competing initiative Prop 38 – The “Molly Munger Initiative”



Increase in income tax for most Californians
Results in increased revenue to schools of $10 billion
No impact on state deferrals
Impact on Schools of ABX1 26 –
The Elimination of Redevelopment Agencies (RDAs)
• LEAs (Local Educational Agencies) and other affected taxing entities
previously received only one type of identified revenue from RDAs—
pass-throughs. In most counties, generally paid via warrant from RDAs.
• Under ABX1 26, LEAs and non-LEAs now receive THREE types of
identified revenues from (former) RDAs:
1. Pass-throughs
2. Additional property taxes from Residual Distributions
3. Additional distributions of Other Revenues
Typically by electronic funds transfer from the County Auditor-Controller.
•
All distributions are supposed to be based on post-ERAF percentage
shares of property taxes within each RDA Project
Impact on Schools of ABX1 26 –
The Elimination of Redevelopment Agencies (RDAs)
The California Department of Finance previously
estimated LEA share of residual distributions and
other revenues for FY 2011-12 at $1.037 billion
statewide, including:
• $887 million for K-12 Districts
• $ 3 million for County Offices of Education
• $147 million for Community College Districts
Impact on Schools of ABX1 26 –
The Elimination of Redevelopment Agencies (RDAs)
Actual LEA shares of residual distributions and other revenues in
FY 2011-12 were much lower than DOF estimates, due in part to the
following:
• First distribution from RPTTF on May 16, 2012 was zero, since over
50% of tax increment was already allocated to RDAs before they were
dissolved on Feb. 1, 2012.
• Former RDA debt service and enforceable obligations were much greater
than DOF expected.
• Other revenues were smaller than DOF expected, and will require
additional time to be liquidated and distributed.
Impact on Schools of ABX1 26 –
The Elimination of Redevelopment Agencies (RDAs)
For Alameda County schools, the impact is shown below:
Local Educational Agency
Alameda City Unified
Albany City Unified
Berkeley Unified
Castro Valley Unified
Dublin Unified
Emery Unified
Fremont Unified
Hayward Unified
Livermore Valley Joint Unified
Mountain House Elementary
New Haven Unified
Newark Unified
Oakland Unified
Piedmont City Unified
Pleasanton Unified
San Leandro Unified
San Lorenzo Unified
Sunol Glen Unified
ALAMEDA COUNTY TOTAL
Department of Finance Amount Actually
February 2012
Received Per the
Estimate of RDA Net 2011-12 J-29B Tax
Tax Increment LEAs
Report (Cash
(i.e., Cash Projected)
Received)
3,171,863
199,961
12,361
503,259
79,370
169,807
161,992
272,172
7,723,249
513,072
4,362,387
4,094,245
2,680,350
845,996
1,035,106
285,902
1,426
4,779,612
216,612
178,305
5,199
21,387,652
5,379,401
90,785
576,016
4,815,228
318,182
171,692
906,652
12,212
52,131,082
12,818,985
Difference
(3,171,863)
(187,600)
(423,889)
(7,815)
(272,172)
(7,210,177)
(268,142)
(1,834,354)
(749,204)
(1,426)
(4,563,000)
(173,106)
(16,008,251)
(90,785)
(576,016)
(4,497,046)
734,960
(12,212)
(39,312,097)
Percent
Received vs.
Projected
0%
6%
16%
95%
0%
7%
94%
32%
28%
0%
5%
3%
25%
0%
0%
7%
528%
0%
25%
Debt Concerns
Why discuss debt?
• Debt affects us in many ways and at many levels.
• As individuals, we are familiar with debt on a personal level.

Whether it’s a mortgage, car note, credit cards or a payday loan,
we understand that borrowing allows us to afford things we
otherwise couldn’t.
• However, we know that too much debt can be harmful.

It could lead to annoying or threatening creditor phone calls,
poor credit ratings, increased interest rates on future borrowing,
default, lawsuits, bankruptcy, depression, and fraudulent
behavior.
Why discuss debt?
• At the local government level, state level, national level and
international level debt can also be helpful because it allows us the same
borrowing power. But, too much debt at these levels has the same
kind of devastating effects.
•
For instance, there has been a lot of talk about the European debt crisis.
The primary countries involved (Portugal, Italy, Ireland, Greece, and
Spain) have had to undergo strict scrutiny from their lenders and had
to take measures to reduce their expenditures or restructure their
obligations in order to avoid defaulting on their debt.
•
This overwhelming debt threatens to ruin the European Union and
harm the Euro. American banks fear that a collapse of the European
banks could negatively affect them and the U.S., which could in turn
affect California and local governments.
Why discuss debt?
• Closer to home, the U.S. government has seen its National Debt
increase to over $16 trillion. Many believe that this level of debt
is unsustainable.
• At the state level we are familiar with the deficit issues that
California is facing. We understand how the state has manipulated
the cash flowing to local governments.
• However, to understand the magnitude of the debt, refer to the
State Treasurer’s Debt Affordability Report (issued October 2011).
www.treasurer.ca.gov/publications/2011dar.pdf
Why do we care about too much debt at the
international level, national level, or state level?
International and National Levels
•
At the international and national levels, countries might choose to liquidate debt
in ways that could have negative fiscal impacts on its citizens and local
governments.
•
The working paper called Liquidation of Government Debt (Issued in April
2011, http://www.imf.org/external/np/seminars/eng/2011/res2/pdf/crbs.pdf)
discusses ways that sovereign nations have historically liquidated overwhelming
debt.
•
Three ways that have negative impacts to individuals and local governments
are:
 Financial repression,
 Austerity measures, and
 Default/Restructuring of debt.
Why do we care about too much debt at the
international level, national level, or state level?
•
Financial repression can cause hidden or stealth inflation. This could lead
to reduced purchasing power. As organizations have to spend more on goods
and services, it may also lead to layoffs and higher unemployment.
•
Austerity measures can have a ripple effect to citizens and local
governments also. Reduced expenditures could result in loss of jobs not
only at the central government level, but also at the local level. This could
result in higher unemployment, and less money spent on social programs and
infrastructure projects.
•
Default/Restructuring of debt, may lead to devaluation of the currency, which
drastically reduces purchasing power. This could result in inflation, higher
unemployment, and less money spent on social programs and infrastructure
projects.
Why do we care about too much debt at the
international level, national level, or state level?
State Level
At the state level, too much debt can lead to default/restructuring of
debt or austerity measures. This could result in job loss, higher
unemployment, and less money spent on social programs and
infrastructure projects.
Local Level
At the local level, we see bankruptcy, default/restructuring of debt or
austerity measures. This could also lead to job loss, higher
unemployment, and less money spent on social programs and
infrastructure projects.
When is there too much debt?
Economists look at states' and nations' debt-to-GDP ratios to
determine the level at which debt starts to cause growing problems.
A debt-to-GDP ratio of 90% is where many economists agree the
negative consequences of debt become serious. At this level,
residents will see more and more of their tax dollars used for interest
payments rather than the state services they rely on, and economic
growth is likely to slow down.
See the article “State’s Finances Threaten Whole Country”
By Emily Washington, Updated 7/30/2012
Emily Washington is associate director of state outreach at George Mason University's Mercatus
Center.
When is there too much debt?
Ranking
of
Deepest
in Debt
1
2
3
4
5
6
7
8
9
10
Country
Japan
Greece
United States
Italy
Portugal
Ireland
Belgium
France
United Kingdom
Germany
2010-11 Estimate of
Gross Domestic
Product (GDP)
5,880,000,000,000
303,000,000,000
12,800,000,000,000
2,200,000,000,000
239,000,000,000
217,000,000,000
514,000,000,000
2,760,000,000,000
2,400,000,000,000
3,560,000,000,000
Ratio of
Debt to GDP
Total Debt
13,700,000,000,000
232.99%
489,000,000,000
161.39%
15,130,000,000,000
118.20%
2,540,000,000,000
115.45%
257,000,000,000
107.53%
225,000,000,000
103.69%
479,000,000,000
93.19%
2,260,000,000,000
81.88%
1,900,000,000,000
2,790,000,000,000
79.17%
78.37%
See the article – “10 Countries Deepest in Debt,” by 24/7 Wall St. - Michael Sauter, Charles Stockdale,
Ashley Allen - February 14, 2012
When is there too much debt?
When is there too much debt?
Buffett’s Exit From Muni-Bonds Signals Trouble Ahead for Local Govts
By Morgan Korn, Daily Ticker – 8/21/2012
Warren Buffett's Berkshire Hathaway ended its five-year bullish bet on the
municipal bond market. Buffett's move may very well signal his fear that more
cash-strapped cities, states and municipalities will default on their debt. Local
authorities have been making severe budget cuts (affecting both personnel and
services) over the past two years to stave off bankruptcy but many are still short
on funds. There have been six Chapter 9 municipal bankruptcy filings this year,
compared to 13 in 2011. Muni bankruptcies have totaled 268 since 1980,
according to Reuters, with cities, villages and counties accounting for 49 of the
filings. Nebraska, California and Texas have the highest number of bankruptcy
filings. Stockton, Calif., became the largest U.S. city to ever declare bankruptcy
when city officials were unable to reach a deal with creditors, and San
Bernardino, Calif., filed its bankruptcy paperwork on Aug. 1, making it the third
California city, after Mammoth Lakes, to seek bankruptcy protection.
How Should We Measure Whether There Is
Too Much Debt?
The Deceptive Debt Ratio
By Erik Voohrees - June 8, 2010
The statistic normally used to measure debt is the "Debt to GDP"
ratio, referring to the amount of debt versus the nation's sum total
of transactions. However, debt is not serviced from a portion of
the economy's activity as a whole; it is serviced from tax
revenues. As such, the ability to repay debt should be measured
based on tax revenues, not on the GDP. "Debt to Tax Revenue"
is a much better statistic for examining government debt.
Estimates of Debt to Tax Revenue Ratios for Various Government Entities
Outstanding Debt
(Includes
GOS, COPS, Ratio of Debt to
2012-13 Budget Tax
Revenue
BANS, Leases & Other)1
Revenue
District
New Haven Unified
19,349,902
251,830,665
1301.46%
Emery Unified
6,065,956
56,918,990
938.34%
San Leandro Unified
26,303,914
171,838,080
653.28%
Dublin Unified
36,528,045
204,657,507
560.28%
Hayward Unified
39,323,374
215,293,485
547.49%
Oakland Unified
151,262,668
782,131,384
517.07%
San Lorenzo Unified
21,322,811
92,185,000
432.33%
Castro Valley Unified
20,496,700
84,273,297
411.16%
Piedmont City Unified
21,397,290
85,293,229
398.62%
Newark Unified
19,542,386
71,279,635
364.74%
Berkeley Unified
79,027,885
238,409,222
301.68%
Albany City Unified
16,366,765
43,067,979
263.14%
Alameda City Unified
39,162,231
98,031,382
250.32%
Fremont Unified
93,611,481
204,716,061
218.69%
Livermore Valley Joint Unified
49,170,637
106,528,613
216.65%
Pleasanton Unified
63,319,604
110,479,273
174.48%
Sunol Glen Unified
1,201,626
2,087,363
173.71%
Mountain House Elementary
107,265
0.00%
California
United States
95,900,000,000
141,450,000,000
147.50%
2,902,000,000,000
15,974,157,349,782
550.45%
13,700,000,000,000
489,000,000,000
2,540,000,000,000
225,000,000,000
257,000,000,000
479,000,000,000
2,790,000,000,000
1,900,000,000,000
2,260,000,000,000
761.11%
369.34%
264.56%
239.77%
236.65%
217.14%
199.57%
194.67%
183.89%
Information for Countries Below Relates to 2011
Japan
1,800,000,000,000
Greece
132,400,000,000
Italy
960,100,000,000
Ireland
93,840,000,000
Portugal
108,600,000,000
Belgium
220,600,000,000
Germany
1,398,000,000,000
United Kingdom
976,000,000,000
France
1,229,000,000,000
Does not include short term debt (i.e., TRANS, county borrowing, or interfund borrowing).
Questions?
Contact Info:
Jeff Potter
(510) 670-4277, [email protected]
Spencer Mead
(510) 670-4195, [email protected]