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45 Day Budget Revisions

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Presented July 27, 2011

Presented July 27, 2011

Published in: Education, Business
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  • 1. CUSD Budget RevisionDevin Vodicka, Ed.D.Assistant SuperintendentBusiness ServicesJuly 27, 2011
  • 2. A Tale of Two Budgets Pros It was on time It provides flat funding for education, at least temporarily About $80 billion of the $86 billion spending plan is real money Cons It underfunds Proposition 98 without suspension It dictates detailed budget terms to the local school boards “Trigger” could result in midyear cuts It strips county offices of education (COEs) of fiscal oversight It gives the unions a stronger position in negotiations It creates more debt to schools – both cash and budget authority
  • 3. A Tale of Two Budgets On the nonfinancial side, this Budget is a train wreck The level of intrusion into local fiscal decisions is heretofore unheard of Dictates revenue, staffing, and program levels Prohibits budgeting for a known potential loss Setting aside any measure of COE oversight at this point in the economic cycle invites future, deeper problems Throws the multiyear projections aside Dictates certification levels Dictates factors to be excluded from COE review Flexibility in staffing is constrained Program and staffing levels specified are not clear The “second lay-off window” is closed None of these things save any money at the state level – but districts will pay a price
  • 4. Risks to the State Budget The state and national economies could experience an unforeseeable event, which could disrupt markets and slow or halt economic growth A natural disaster, political conflict, an oil supply reduction, or a foreign debt default would likely slow growth Lawsuits could unravel the expenditure reductions and funding shifts adopted by the Legislature Savings in state programs may not materialize as budgeted, resulting in current-year operating deficiencies Federal budget reductions could increase the state’s fiscal burden to maintain the major safety net programs, such as Medi-Cal, CalWORKs*, and SSI/SSP*** California Work Opportunity and Responsibility to Kids** Supplement Security Income/State Supplementary Payment
  • 5. Structural Budget Deficit © 2011 School Services of California, Inc. (In Billions) $0.0 -$5.0 -$10.0 2011-12 Governors Budget -$15.0 2011-12 May Revision 2011-12 Budget Act -$20.0 -$25.0 -$30.0 2011-12 2012-13 2013-14 2014-15Source: 2011-12 May Revision, p. 2; 2011-12 State Budget Summary, p. 5
  • 6. Major Changes from May Revision to theFinal State Budget May Revision: Proposes $2.5 billion to “pay down” Proposition 98 deferrals Final Budget: Defers approximately $2.1 billion of payments to schools May Revision: Counts on $9.6 billion in temporary taxes Final Budget: Assumes $4 billion more in General Fund revenues above May forecast May Revision: Funds Proposition 98 at the minimum, without suspension Final Budget: Takes away $2.1 billion from K-12 education through a sales tax shift and reallocates those funds to other areas of the Budget without suspension
  • 7. Major Changes from May Revision to theFinal State Budget May Revision: Did not include “trigger cuts” to education, just the threat of additional cuts State Budget: Puts K-12 education at risk of losing $1.9 billion by triggering a cut if revenues fall short of projections May Revision: Contains no language that restricts local budgeting practices and fiscal oversight safeguards State Budget: Places several requirements on the funding level school agencies must budget and staffing levels that must be met in 2011-12, and suspends various AB 1200 provisions May Revision: Contains no additional flexibility provisions Final Budget: Allows automatic reductions in the school year if triggered cuts are made – however, would still be subject to collective bargaining
  • 8. Trigger Reduction Exposure The 2011-12 Budget Act provides for an automatic reduction to state appropriations, including funding for schools, if state revenues fall short of projections The K-12 reductions are directed at revenue limits ($1.5 billion) and Home-to-School Transportation ($248 million) School districts, however, are prohibited from budgeting for these reductions The level of the reduction is linked to the amount of the shortfall in the State Budget revenues and could range from zero to 4% of the undeficited revenue limit If the full revenue limit reduction is implemented, the average maximum cut would be about $260 per ADA for unified school districts Approximately $2.7 million for CUSD
  • 9. Base Revenue Limit after Deficit Factor $7,000 $6,535 $6,535 Apply the 2011-12 deficit of $6,000 $1,291 19.754% to the undeficited base $5,000 Funded Base revenue limit Revenue $4,000 LimitExample for Average $3,000Unified District $5,244Funded revenue limit $2,000= $6,535 x (1 - 0.19754)= $6,535 x 0.80246 $1,000= $5,244 $0 2011-12 Base Revenue Limit 2011-12 Base Revenue Limit Before Deficit After Deficit
  • 10. 2011-12 Budget Act Funding vs. 2-112010-11 Funding for Average Unified District © 2011 School Services of California, Inc. The 2011-12 Budget Act $7,000 $6,535 $6,392 does not fund the 2.24% 19.754% $6,000 17.963% statutory COLA ($143 for $1,148 Deficit $1,291 Deficit unified districts) for $5,000 2011-12 $5,244 $5,244 Funded Funded The funded base revenue $4,000 Base Base Revenue Revenue limit is flat between Limit Limit $3,000 2010-11 and 2011-12 $2,000 $1,000 $0 2010-11 Actual 2011-12 Budget Act
  • 11. Funding Per ADA – Actual vs. Statutory Level 2-12 © 2011 School Services of California, Inc. Average Unified District $6,700 $6,535 $6,411 $6,392 $6,150 Loss of COLA $5,821Dollars Per ADA $5,700 $5,821 Loss of $5,668 baseline dollars Projected Statutory COLA $5,244 $5,244 Flat Funding Actual Funding $4,981 $4,700 2007-08 2008-09 2009-10 2010-11 2011-12
  • 12. Budgeting for Cuts from Trigger Language Prohibited Districts are prohibited from assuming that midyear cuts will occur Both in: Revenue assumptions and Expenditure projections At this time, there are no guidelines about reporting, enforcement, or penalties if a district does not comply with these requirements Our advice: Make the revenue and expenditure changes, if necessary Continue to project and plan for the out-years using the SSC Dartboard and factors unique to your district Above all, follow the law
  • 13. When Will We Know If There is to be a Cut? AB 121 (Chapter 41/2011) defines the timeline that would trigger midyear reductions Not later than December 15, the Director of Finance shall forecast the General Fund revenues for 2011-12 The Director of Finance’s revenue forecast will be compared to the LAO’s November 2011 General Fund forecast Based on these two forecasts, the Director of Finance will use whichever forecast is higher The higher revenue forecast will determine if a midyear reduction to education will be made Based on this timeline, realistically, the first time LEAs will be able to incorporate midyear cuts into their budget, if necessary, will be as of the Second Interim reporting period
  • 14. How Can a District Protect Itself? In this political climate, it is very difficult to figure out what’s going to happen next Districts’ hands are tied for the current year; however, prudent planning and continuing best practices for fiscal solvency should continue Maintain a strong cash position Be ready to borrow Know the best options for borrowing Continue the use of MYPs for the two subsequent fiscal years Update assumptions based on local factors Communicating with stakeholders about the current-year budget and MYPs will be key in managing fiscal solvency
  • 15. Health Benefit Update Insurance Committee Meeting July 18, 2011 Kaiser +17% Blue Shield +32.4% Projected annual plan cost increase from $10,551,209 to $13,589,081 Additional $3,037,873 in expenses annually (plans run January to December) Employees cover 25% of cost increases; CUSD covers 75% Potential impact to CUSD of approximately $1.1 million in FY 2011-12 Negotiations with providers is ongoing Benefit plan modifications still an option Benefits will require careful attention due to limited funds to absorb cost increases Absent additional revenues, midyear budget cuts may be required simply to cover additional expenses Combined impact of potential midyear revenue cuts and midyear benefit cost increases create uncertainty
  • 16. District Budget Overview – Based on 2011-12Adopted Budget 2011-12 2011-12 Net Adopted Adjusted Change Budget Budget Beginning Fund Balance (Est.) $13,515,702 $13,515,702 $0 Revenues: Revenue Limit $61,003,372 $60,972,708 ($30,664) Federal $2,668,700 $2,668,700 $0 State $356,152 $3,889,692 $3,533,540 Other Local $3,584,480 $3,614,480 $30,000 Expenditures $77,967,012 $81,374,780 $3,407,768 Other Financing Sources $0 $0 $0 + / - Revenues to Expenses ($10,354,308) ($10,229,200) $125,108 Ending Fund Balance $3,161,394 $3,286,502 $125,108
  • 17. Next Steps Now that the state budget is adopted the District needs to make budget adjustments within 45 days By Monday, August 15, 2011 Continue Labor Negotiations, including focus on benefit plans Prepare contingency language for midyear cuts Prepare contingency language for FY 2012-13 Monitor state cash flow Implement cost control measures such as reviewing vacancies
  • 18. Questions

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