Transcript Communicating Bad News

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
• Budget Certifications and Their Impact
• Collective Bargaining
• Question & Answers
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???
What’s The Status?
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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
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?
As Goes California, So Goes….
• The recession is deep and may be of long duration
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Credit
Unemployment
The Feds
Housing
Depression?
($1.0)
($10.0)
State Budget Deficit Grows
Despite Mid-Year Reductions
July
2007
November
2007
January
2008
($6.1)
February
2008
May
2008
December
2008
($9.8)
($14.5)
($16.0)
($20.0)
($17.2)
($24.3)
($30.0)
($40.0)
($41.6)
($50.0)
Source: Department of Finance and Legislative Analyst’s Office
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%)
Governor’s Budget Proposals $5.44 billion in K-12
Core Revenue Reductions
Current Year 2008-09
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Eliminates .68% COLA on Revenue Limits
• $247 million ($41 per student)
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Reduces Revenue Limits by 4.5%
• $1.6 billion ($270 per student)
Governor’s Budget Proposals $5.44 billion in K-12
Core Revenue Reductions
Budget Year 2009-10
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Eliminates 5.02% Statutory COLA on Revenue Limits
• $2.5 billion ($400 per student)
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Reduces Revenue Limits by 2.5%
• $1.1 billion ($180 per student)
Governor’s Budget Proposals
Additional Reductions
Current Year 2008-09
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$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
Governor’s Budget Proposals
Additional Reductions
Current Year 2009-10
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$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
Governor’s Budget Proposals
Local Flexibility
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Allows school districts to transfer prior-year categorical ending fund
balances to the general fund unrestricted
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Allows districts to transfer state categoricals to general fund unrestricted
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Eliminates the deferred maintenance match
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Reduces Routine Restricted Maintenance from 3% to 1%
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Reduces the Reserve for Economic Uncertainty by 50%
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Would allow districts to reduce the length of the school year by up to 5 days
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)
1998-991
2009-102
% Increase
$57
$97.7
71%
K-14 (Prop. 98) Expenditures
$35.2
$55.9
59%
Non K-14 (General Fund) Expenditures
$32.8
$62.53
91%
General Fund Revenues
1Legislative
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
K-14 Education Spending and the Budget Shortfall
Comparison of Major General Fund Expenditure Areas
1998-99 through 2009-10
(Dollars in Billions)
1998-991
2009-102
% Increase
K-14 (Prop. 98) Expenditures
$35.2
$55.9
59%
Health & Human Services
$15.3
$30.0
96%
Business, Transportation & Housing
$0.4
$2.3
475%
Corrections
$4.4
$9.6
119%
Resources
$1.0
$1.92
92%
General Fund Revenues
$57
$97.7
71%
1Legislative
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)
2Departemnt
What Can Districts Do Now in Anticipation of an
Uncertain Fiscal Environment
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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!
What Can Districts Do Now in Anticipation of an
Uncertain Fiscal Environment
You Must Do These Things Now
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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
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!
The Basics of AB 1200/2756
What 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
The Basics of AB 1200/2756
What 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
How Do Districts Assess What They Can Afford in the
Collective Bargaining Process?
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Big Picture
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Estimate Next Year’s Income or Lack Of
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Plan Next Year’s Expense
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Enrollment (ADA)
Revenue Limit and deficits
Lottery
Special Purpose Funds
Local Income
Special Education
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?
How Do Districts Assess What They Can Afford in the
Collective Bargaining Process?
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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%
How Do Districts Assess What They Can Afford in the
Collective Bargaining Process?
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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%)
More Collective Bargaining
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There will be no new money in 2009-10 and probably beyond (total RL
deficit 16.161%--SSC Dartboard)
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Categorical flexibility will be volatile—consider as one-time money
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Costs for health benefits will continue to rise
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Shortened school year??
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Salary rollbacks?
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
Questions?