Transcript Governor’s Proposal for the 2009-10 State Budget and K-12 Education

Governor’s Proposal for the
2009-10 State Budget and K-12 Education
Ron Bennett, President & CEO
John Gray, Vice President
Robert Miyashiro, Vice President
Sheila Vickers, Vice President
Maureen Evans, Associate Vice President
Michele Huntoon, Associate Vice President
Jannelle Kubinec, Associate Vice President
1
State General Fund Revenue Collapse
SSC
Three-year shortfall totals $31.3 billion
Baseline Revenue Projections 1
(In Billions)
2008-09 Budget Act
2009-10 Governor's Budget
$105.0
$100.0
$103.0 $102.6
$102.6
$102.6
$95.0
$90.0
$87.5
$85.0
$86.3
$80.0
$75.0
1
2007-08
Excludes new tax proposals
Source: 2009-10 Governor's Budget
2008-09
2009-10
2
Governor’s State Revenue Proposals
SSC
Revenue Increase
(In Millions)
Proposal
2008-09
2009-10
$2,350
$7,114
Broaden Sales Tax Base
272
1,154
“Nickel-per-drink” Beverage Excise Tax
244
585
9.9% Oil Severance Tax
358
855
–
1,440
92
359
Shift Tribal Gaming Revenues from Transportation to General Fund
101
101
Special Fund Transfers and Loans
298
94
Temporary 1.5¢ Increase in Sales Tax
Reduce Dependent Exemption Credit Equal to the Personal
Exemption Credit
Increase Vehicle Registration Fees
State General Fund Budget Summary
(Dollars in Millions)
2008-09
2009-10
$2,375
$1,079
Revenues and Transfers
$91,117
$97,708
Total Resources
$93,492
$98,787
Total Expenditures
$92,413
$95,524
$1,079
$3,263
$1,079
$1,079
$0
$2,184
Budget Stabilization Account
–
$0
Total Available Reserve
–
$2,184
Prior-Year Balance
Fund Balance
Budget Reserve:
Reserve for Encumbrance
Reserve for Economic
Uncertainties
Source: 2008-09 Governor’s Budget, p. 9
3
SSC
Summary assumes
enactment of all of the
Governor’s Budget
proposals
2008-09 fiscal year relies
on $13.9 billion in
midyear cuts and
$12.7 billion in new
revenues
An estimated $5 billion in
revenue anticipation
warrants (RAWs) would
be sold in July 2009 but
not repaid until 2010-11
State Securitization of the Lottery
4
SSC
Securitization of the California Lottery continues to be a key Budgetbalancing technique
Lottery revenues, which have been declining, are assumed to double, with the
increase used to service long-term debt
The impact on education:
Short term: Lottery revenues would no longer go to public education
Beginning in 2009-10, they would be capped at 2008-09 levels and
replaced with General Fund dollars, increased by the COLA each
year
Proposition 98 would be re-based to make the proposal neutral
Long term: Education no longer shares in growth in Lottery revenues,
which would be pledged to bondholders
Must be approved by voters
State Lottery: 2008-09
5
E-26
SSC
The State Controller’s Office (SCO) apportioned $30.52 per ADA (unrestricted)
for the first quarter of 2008-09
$5.92 per ADA lower than the first quarter of 2007-08
Although the Lottery Commission has not officially reduced the 2008-09
projections at this time, we have reduced the per-ADA projections on our
Dartboard by 10% based on information released on current Lottery sales
The updated 2008-09 allocations based on the reduction are:
$109.50 per annual ADA unrestricted
$11.50 per annual ADA for Proposition 20
Unrestricted
$140
09-10
Proposition 20
$121 per ADA (est.)
$121 per ADA (proj.)
$200
08-09
07-08
06-07
05-06
04-05
03-04
02-03
01-02
00-01
99-00
98-99
97-98
$160
96-97
$180
95-96
94-95
93-94
92-93
91-92
90-91
89-90
88-89
87-88
86-87
State Lottery: Funding
6
E-28
SSC
Funding per Annual ADA
$120
$100
$80
$60
$40
$20
$0
Revenue Limit Cuts,
Cost of living Adjustment (COLA)
7
SSC
Governor’s Budget Proposal for:
2008-09 reduces budgeted COLA of 0.68%, eliminating the entire 5.66%
statutory COLA
2009-10 provides a zero funded COLA, eliminating the projected statutory
COLA of 5.02% through the deficit
Governor’s Budget made further cuts to revenue limit funding
$1.6 billion in 2008-09 is equal to a cut of 4.565%
$1.1 billion in 2009-10 is equal to a reduction of 2.515%
8
2009-10 K-12 Revenue Limits
Base Revenue
Limit per ADA
(A)
1. 2008-09 Base Revenue Limit
SSC
Deficit Factor
(B)
Funded Base
Revenue Limit
(C) = (A) x (B)
$6,106.14
.90315*
$5,514.76
$6,415.14
.83839
$5,378.39
2. 2009-10 Base Revenue Limit
3. Dollar Change (Line 2, Column C, minus Line 1, Column C)
-$136.37
4. Percentage Change (Line 3 divided by Line 1, Column C, converted
to a percentage)
-2.47%
*.90315 deficit factor = 90.315% funding, or a 9.685% deficit
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2009 SSC School District and COE Financial
Projection Dartboard
Factor
SSC
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Statutory COLA (use for K-12 and COE
Revenue Limit)
5.66%
K-12 Revenue Limit Deficit
9.685% 16.161% 16.161% 16.161% 16.161% 16.161%
Net Revenue Limit Change
5.02%
0.50%
2.00%
2.50%
3.00%
-4.57% -2.52% 0.50% 2.00% 2.50% 3.00%
Special Education COLA (on state and local
share only)
0.00%
0.00%
0.50%
2.00%
2.50%
3.00%
State Categorical COLA (including adult
education and ROC/P)
0.00%
0.00%
0.50%
2.00%
2.50%
3.00%
California CPI
2.9%
1.7%
2.7%
2.9%
3.1%
3.2%
Base $ 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
3.55%
4.44%
4.80%
4.90%
5.00%
California Lottery
Interest Rate for Ten-Year Treasuries
3.33%
See SSC’s Dartboard at end of this section
10
2008-09 Proposed Cuts – Governor’s and
Legislature’s Major Proposals
Provision
Revenue Limit
Governor’s January
Proposal
Legislative Proposal
(SBX1 4, vetoed)
Eliminate 0.68% COLA;
reduce further by 4.50%
Eliminate 0.68% COLA
High Priority Schools Grant
Program, Math and Reading
Professional Development
Program, Deferred
Maintenance, Instructional
Materials, Professional
Development Block Grant,
others
Categorical Program
Eliminations
Categorical Program
Reductions
SSC
Minor changes
Many programs
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2008-09 Proposed Flexibility – Governor’s and
Legislature’s Major Proposals
SSC
Governor’s January
Proposal
Legislative Proposal
(SBX1 4, vetoed)
Transfer
(with limitations)
Transfer
(with limitations)
Transfer (no dollar
limitation) after
public hearing
Limit Mega-Item transfer
for Home-to-School
Transportation to “in” only
Routine Restricted
Maintenance Set-Aside
Reduce from
3% to 1%
Reduce from
3% to 1%
Deferred Maintenance
Match Requirement
Eliminate
Eliminate
Reserve for Economic
Uncertainties
Reduce by half for
2008-09 and 2009-10
–
Provision
Prior-Year Categorical
Balances
Current-Year Categorical
Allocations
Actions to Take Now – Update Your 08/09 Budget
In your local agency budget for 2008/09:
Eliminate the 0.68% COLA
Reduce the revenue limit by 4.50%
Set aside unallocated state categorical funds
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SSC
Flexibility and Opportunity
13
SSC
The Governor proposes to offer broad budget and program flexibility in both
2008-09 and 2009-10
Ability to transfer state categorical funding, including special funds
(e.g., adult education and child nutrition), to the unrestricted General
Fund
Lifting of statutory requirements for most categorical programs
Example: Eliminating 20:1 K-3 Class-Size Reduction caps
Allow for prior-year restricted balances to be transferred to unrestricted
General Fund
Cut budget reserve requirements in half
Eliminate Deferred Maintenance match requirement
Reduce routine restricted maintenance set-aside requirement from 3%
to 1%
2009/10: Fewer Days, Fewer Dollars
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SSC
The Governor has proposed cutting back the work year for state employees,
as well as for schools and students
As part of the Governor’s proposal for 2009/10, the state would:
Permit schools to drop from a minimum of 180 days of instruction to 175
days (five fewer days)
Reduce funding for revenue limits by $1.092 billion, or an additional 2.8%
The Governor’s proposal reduces revenue and makes it possible to legally
reduce expenditures
But, ultimately, LEAs would need to renegotiate contracts to realize
expenditure savings
15
Most States Offer at Least 180 Days
SSC
A June 2008 report by the Education Commission of the States found that most
states have at least a 180-day school year
30
25
20
15
10
5
0
Less than
180 Days
180 Days
More than
180 Days
No
Requirement
Colorado has the lowest number of required days at 160, and Kansas has the highest
at 186 days
Source: Education Commission of the States, June 2008
Negotiations – Shortened School Year
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SSC
The Governor proposes allowing districts to shorten the school year from
180 days to 175 days
This is clearly subject to local negotiations
Should you do it?
For the district – YES
It could save about 2.5% of the district budget
Better than cutting more programs or more layoffs
For the union – YES
100% of the employees earn 98% of full salary
Lost jobs don’t come back; lost days do
Teachers’ unit retains membership
Caution: Do not use savings for salary increases – sooner or later the year
will be restored to 180 days
Treat savings as “one-time money”
PERS Losses and Contribution Rates
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SSC
Employer contribution rate is set annually in May by Public Employees’
Retirement System (PERS) Board
2009-10 employer contribution rate is estimated at 9.40%, which has
decreased despite the negative 5.1% return as of June 30, 2008
PERS instead expects to use funds set aside as result of its 15-year asset
smoothing method to cushion loss
However, investment losses will likely translate into 2010-11 employer
contribution rate increase
Total PERS Fund market value losses from June 30, 2008, through
October 31, 2008, have reached -22.0%
Actuarial valuation of June 30, 2009 will be used to set 2010-11 rate
Employer contribution rate increase could be as high as 2%-3% if
there is a negative 20% investment return for 2008-09
STRS Losses and Contribution Rates
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SSC
Legislation would be required to change the employer contribution rate from
the current 8.25%
STRS has no plans, at this time, to introduce legislation to increase
employer rates
However, the pressure to increase rates will intensify due to:
Investment returns of -3.7% for 2007-08 and -22.0% so far in the
current year
Need to address STRS’ unfunded actuarial liability of $18.7 billion at
June 30, 2007, valuation, which will undoubtedly increase due to
investment losses
Outlook for Workers’ Compensation Rates
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SSC
2009 rate hikes are likely
Insurance Commissioner rejected Workers' Compensation Insurance
Rating Bureau’s (WCIRB) recommended rate increase of 16%
WCIRB cited medical inflation as the reason for the recommendation
Insurance Commissioner instead accepted 5% increase to reflect higher
medical and claims adjustment costs
The Commissioner has no authority to set rates, but advised insurance
companies to be cautious if they adjust rates
Governor’s January Budget Proposal
Impact on Alameda USD
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AUSD
08/09: Eliminate 0.71% COLA of $380,000; This reduction was expected and
reserved for. A reduction to revenues and to reserves will be made.
08/09: Additional Reduction of 4.57% to Revenue Limit of $2.6M
09/10: Reduction of 2.5% to Revenue Limit of $1.3M
For the $3.9M loss in revenues ($2.6M + $1.3M), look to the Proposed
Categorical Flexibility Options and Measure H funds.
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Charter School Funding
SSC
General Purpose rates are based on statewide average revenue limits*
Reflect 5.02% COLA, 12.09% deficit, and other anticipated changes
CDE will recalculate the General Purpose rates at each apportionment
Final amounts could vary by ±$20 per ADA
Categorical rates reflect the 2008-09 funding levels
Estimated 2009-10 funding rates for charter schools are:
K-3
General Purpose Block
Grant (will vary)
Categorical Block Grant
Total
Source: Department of Finance
*Ref. Education Code Section 47633(a)
4-6
7-8
9-12
$5,360
$5,440
$5,596
$6,493
$500
$500
$500
$500
$5,860
$5,940
$6,096
$6,993
NEA Charter School in Alameda
Projected Fiscal Impact on AUSD
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AUSD
For 2009/10…
Assume 250 AUSD students enroll in the Nea Charter School
Assume 10 less (non-charter) AUSD Teachers
Projected Net Fiscal Impact on AUSD is a loss of $650,000
Look to the Proposed Categorical Flexibility Options to cover these funds
Projected Teacher Staffing Adjustments
For 2009/10…
-3 full-time equivalents (FTE) for Declining Enrollment
-1.8 FTE for Class-Size Reduction (CSR) 9th Grade
-3 FTE to match high school staffing to enrollment
-10 FTE for NEA Charter School
-17.8 FTE for the Total Teacher Reduction
Additional teacher reductions may be proposed as the district further
analyzes temporary/probationary teachers and class-size.
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AUSD
Using Categorical Flexibility (Cat. Flex.)
for the Reduction in School Funding
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AUSD
08/09 on-going loss of $2.6M
08/09 use 1-time carryovers for Cat. Flex., including $1M from Adult
Education
09/10 on-going loss of $4.6M
09/10 use 1-time carryovers from Cat. Flex of $3.8M
09/10 use on-going amounts from Cat. Flex. Of $0.8M
10/11 and forward use on-going amounts from Cat Flex. and Measure H
Measure H Parcel Tax
For current year and next 3 years, budget includes:
$4M in annual revenues
$1.2M in annual expenditures
$2.8M in reserve for annual expenditures
25
AUSD
Closing Thoughts
26
SSC
We always view the Governor’s January Proposal as a beginning point
Nothing is in law; no legislative votes have been cast
But school districts prepare the Second Interim Financial Report and
multiyear projections (March) using the Governor’s Proposal as a base
But as we have seen over the past year – things can change rapidly
Have a good fallback plan
If all else fails, layoffs are your last defense – be ready to do them
This is a year to engage all stakeholders in solutions – not a year to get mired
in the problems
Our next statutory checkpoint is the May Revision – unless there are midyear
cuts from the legislative special session
AUSD Next Steps
27
AUSD
Over the next two months, AUSD will be reviewing the Budget on the
following dates:
1/28: AUSD All Management Meeting, includes Principals
1/29: Principals Enrollment & Staffing Meeting
2/2 to 2/6: Program Managers presentations to Executive Cabinet
2/10: Board Update
2/11: First Public Budget Workshop
2/12-2/23: Budget analysis by staff
2/24: Board Update
2/25-3/9: Budget analysis by staff
3/10: Board Action on Layoff Notices
3/10: AUSD’s 2nd Interim Financial Report
4/1: Second Public Budget Workshop