Transcript Communicating Bad News

Financial Survival in Small School Districts
in California
A Significant Challenge Now and In the Future
Small School Districts’ Association
Summer Conference
July 10, 2009
Joel Montero, FCMAT
Talking Points
• The Economic Maelstrom
• The Signs of Fiscal Stress
• AB 1200 Issues for Small School Districts
• Proceeding With Caution
• ARRA, Flexibility, and Reserves
Beginning with Basic Economics
• The National Economy and Budget
• Lack of Consumer Confidence
• A Correction in the Housing Market
• Construction and Unemployment
• 2008-09 and Proposition 98
• The Small School District Dilemma
K-14 Education Spending and the Budget Shortfall
Comparison of State General Fund Revenue and Expenditure Increases to Increases in K-14 (Prop. 98) Guarantee
1998-99 Through 2009-10
(Dollars in Billions)
General Fund Revenues
K-14 (Prop. 98) Expenditures
(local property tax + GF)
Non K-14 (General Fund) Expenditures
1Legislative
1998-991
2009-102
% Increase
$57
$92.22
62%
$35.2
$51.1
45%
$32.8
$56.043
71%
Analyst’s Office. State spending Plan: 1998-99. October 1998, Page 4, Revenues & Expenditures; p. 26 Proposition 98
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.)
2Departemnt
Signs of Fiscal Stress
• Overly aggressive estimates of enrollment, attendance and
ADA
• Failure to monitor and revise for budget assumptions
• Loss of control of staffing levels and costs
• Underestimating automatic cost growth centers
• Use of one-time money for ongoing expenses
Signs of Fiscal Stress
• Bad decisions in collective bargaining
• Failure to consider multi-year impact of budget decisions
• Failure to follow through on budget reductions or recovery
plans
• Chronic, unplanned deficit spending
• Inadequate reserves
• Kicking fiscal problems into subsequent years
AB 1200 Issues for Small School Districts
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Budget Adoption 2009-10
The May Revise and Budget Revisions
Qualified and Negative Certifications at 1st Interim
The Watch List
Emergency Apportionments
What Should Districts Do Now in Order to Get From
Here to There
• Establish the core program for All students—Mission
Critical
• Staff to contract to support the core program. RIF
• Review classified staffing in the same manner as above
• Maintain as strong a cash position as is organizationally
possible
• Determine if you have any funding latitude remaining
• Continue to update cash flow projections for current + 1
subsequent years
What Should Districts Do Now in Order to Get From
Here to There
• Plan for the use of ARRA dollars strategically and try not to
spend them on things that eat.
• If you do spend ARRA dollars on things that eat, try to
spread the use of the money out over multiple years.
• Be prepared to take on the costs for ARRA expenditures
when the money runs out or prepare to make additional
cuts
• Leverage any other dollars you have to free up money in
the general fund (RDA, Developer Fees, etc)
What Should Districts Do Now in Order to Get From
Here to There
• Negotiate with care and don’t settle without first
determining the affordability of CB agreements in the
context of your list of core programs
• Do not kick problems into next year. Bad news will not
improve with age.
• Create a solid and accurate multi-year projection and
update it everytime your assumptions change
• This is a multi-year problem. Create a solvency plan that
will get you to 2011-12.
How Do You Know Where to Reduce?
• Use comparative data to find areas of opportunity
• Ed Data Site, School Services, Data Quest (CDE)
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•
•
•
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Look at prior year budgets and do trend analysis
Stay focused on multi-year projections
Follow the revenue or lack thereof
Stay on top of enrollment projections
Every consideration must be on the table
• Examine numbers and types of employees
• Examine expenditure patterns
• Examine class size
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!
What’s Likely?
• Additional reductions/corrections in 2009-10?
• Additional cash deferrals?
• Receipt of stimulus (ARRA) dollars?
• Additional categorical program impacts?
• Proposition 98 Suspension?
Categorical Flexibility
•
Tier III dollars may be transferred for “any educational purpose”
•
Tier III funds are simply now unrestricted and will not appear on the CAT
form (unless there is a beginning balance that could not be swept)
•
In 2009-10 we recommend transferring into their own unrestricted resource
and track via Goal and Function (local designations)
•
2007-08 is the base year for most ADA generated programs
•
No growth is allowed in CSR
•
Conference Committee Recommendations
ARRA Federal Funds
Notes….
• Title I and IDEA ARRA dollars are restricted to current program
funding requirements
• The use of these funds will be audited based on your
expenditure level--$300,000+ Type A, $100,000+ Type B
• The Federal Stabilization dollars are accounted for in a
restricted resource code (3200). They are basically
unrestricted in their use but cannot be spent on:
• Maintenance
• Stadiums, athletic facilities or other facilities with admission
charges
• Purchases or upgrades to vehicles
• Improvement of “non-educational” admin and operations facilities
• Construction of non-Field Act buildings
ARRA Federal Funds
Notes….
• Stabilization money can be used to offset state cuts in both
restricted and unrestricted categories.
• IDEA funds can be used to reduce local contributions as long
as MOE requirements are met and programs are in compliance
• You can spend ARRA funds for 2008-09 Title I and IDEA
expenditures
• All ARRA funds must be spent by September 30, 2011
Other Thoughts
• Use the SSC Dartboard for budget development
• If you are on the basic aid cusp, carefully review your RL
projections
• Charter School Block Grant rates have been adjusted and are
available. Charter School Categorical Block Grant is expected
to be reduced to $404 in 2009-10 across all grade levels
• RIF at August 15th if you have to
• Remember that Reserve for Economic Uncertainty is a
minimum
• Err on the side of being conservative
Summary
• The fiscal situation for the state has deteriorated since Feb.
2009 and could continue to deteriorate this year
• The state’s deficit will continue to grow
• Education growth for a 10 year period is less than other parts
of the budget
• We have an 17 month budget but revenue projections are
volatile
• ARRA dollars will play some role in district finances
• LEA planning is more critical than ever
• Charter schools are also affected
• Cash is King
• Collective bargaining will be challenging
• It is a multi-year issue