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Presentation To Board Of School Trustees 2.10.11 V2
 

Presentation To Board Of School Trustees 2.10.11 V2

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  • Introduction by Mr. Jones ??Handoff to JWGoing to to give you the What, Why, How and When of our financial situation for next yearIt’s VERY preliminary and is based on what we have gleaned from the Governor’s proposed budget for the 2011-2013 bienniumAs many of you know, this budget can and likely will change significantly as it goes through the Legislative process.
  • What is the bottom line?We project a shortfall of between $250 million and $275 million for next yearThis means we would spend $870 less per student next year than we will spend this yearWe believe this is a worst-case estimate, and can hope that it improvesIn addition, several major federal programs will sunset in the next 2 years…namely Stimulus (ARRA) funds and EduJobs Funds- in total, as many as 939 positions will need to be cut from Federal Funds alone
  • Why do we have to keep cutting?Quite simply because we have what I refer to as a structural defict. Revenues have been going down, while expenditures continue to increase.We have not chosen to increase expenditures, as you know we have actually made significant cuts. Expenditures naturally grow each year by $40 to $60 million just to cover contractually-bargained salary/benefit changes.Yes, we cut, the shortfall would be much greater if we hadn’t.But, without salary/benefit concessions, our expenditures will generally go up $40 to $60 million each year just to cover step increases, educational increments, and (at least lately) retirement (PERS) rate increases.We have covered the shortfalls in 2010 and 2011 with a combination of one-time transfers (like those mandated previously from capital funds) and fund balance from prior year efficiencies.There is, as Mr. Jones says, no more slack in the rope.
  • We have already cut a lot, of which you are painfully aware…here is just a partial list dating back to 2007…our last ‘good’ year of funding.In total, we cut $375 million and over 1,700 positionsWhile we had to cut a significant number of positions, we were able thru good planning, employee attrition, and the hard work of HR to have fairly minimal layoffs. And none in the teacher ranks.Just for reference, please note that during this same time, enrollment increased by 2.4% and we increased the number of schools by 8%
  • You’ve likely heard a lot about the district’s capital funds. There are 2 possible buckets, bond proceeds and the mandated debt service reserve.The first bucket is the remaining proceeds from prior bond sales that are being spent on active and approved construction and renovation projects. There is NO current proposal to tap those funds, largely due to significant IRS and bondholder covenant issues that would have to be addressed. Those funds are being used as we speak on a number of major renovation projects either underway or soon to be contracted for.There are SERIOUS federal tax issues with using these funds for operationsNow to the Debt Service Reserve…getting really geeky nowState law requires that we keep 1 year of debt service in the bank, all part of the very-well-thought-out 1998 capital program. While this money looks to be simply idle funds, we actually project we will need to draw it down completely over the next 5-7 years…to cover debt service on existing bonds used to fund school construction.Basically just as the 1998 capital plan was designed to work.
  • What does taking our debt service reserve mean?In approximately 3 years, the voter-approved ‘rollover’ tax rate for debt service will need to increase to cover debt service costs (our mortgage)We may need to restructure our bonds outstanding, basically pushing payments out 10 to 20 years when property tax revenue will be sufficient to cover itThis restructuring would be what we call ‘non-economic,’ meaning it will cost more in interest payments over the life of the bondsWe HAVE refinanced bonds numerous times during the 1998 program, achieving savings of $300 million, but have NEVER done a restructuring that cost us more moneyAnother significant challenge with taking this one-time money to offset what the state would normally provide (by ‘guarantee’) is that it will not recurMeaning that something will have to fill in this revenue hole in 2014 or a like amount of additional cuts will need to be madeIt’s not a prudent financial strategy, doesn’t solve the overall structural deficit we face…but may be necessary given the state’s overall financial situation- State law would need to change
  • Here is a simple summary of why we are projecting a shortfall for next year (2012)Please note that, even with the $150 million proposed transfer from debt service reserves, we project at $250 - $275 million shortfall…the shortfall would be that much more without those funds.Please note that this assumes that NO new revenue is brought to bear on the problem…examples…Room tax =$35 millionNOT sunsetting the temporary increase in LSST ($2.25 to $2.60) = $80 million
  • To put it in context, these are 4 possible ways we could close the gapIt is likely that what we will have to do will be a combination of these, plus other reductions. In other words, these are presented as mutually exclusive options when, in fact, the actual solutions could well be parts of all of these optionsSome of these, as you likely know, require bargaining…which is under wayThe one thing we can do, without concurrence, is cut positions. If we had to make up this total shortfall with staff reductions, it would be in the neighborhood of 3,800 RIFs
  • We are REQUIRED to do certain things, namely adopt a budget and follow the contractually mandated RIF process.Our other partners in this process, the Legislature may go into special sessionand Employee Groups are not under similar required timelines.We MAY know state funding before June (not likely)…and we MAY have some or all concessions from negotiations before the Legislature completes it’s work.State law requires that we MUST present a balanced budget, likely before either of these will be known.Thus we must build a tentative budget based on what are likely worst-case numbers, but will certainly be working hard to limit the effect on staffing and pay.
  • To that, and in closing, we are…Planning for the worst, to ensure we have a legally-mandated balanced budgetWorking for the best, thru negotiations and significant influence with the LegislatureAnd by pulling together as a team to ensure every student in CCSD receives the best-possible education.Should you have questions, suggestions, or comments…I will hang around after the meeting to talk with you. Also, feel free to send ideas or questions to me by email if you prefer.

Presentation To Board Of School Trustees 2.10.11 V2 Presentation To Board Of School Trustees 2.10.11 V2 Presentation Transcript

  • Preliminary
    2012
    FY
    Budget
    Forecast
    February 10, 2011
    1
  • What are we talking about?
    Shortfall in state/local funding
    $250 to $275 million
    or at least $870 per student
    Loss of Federal Funds
    939 positions
    ARRA (Title I, IDEA), EduJobs
    2
  • Why is this happening?
    Shortfall
    It’s called a Structural Deficit
    3
  • What has already been cut?
    Since 2007
    • 20% of central office staff
    • Block schedule & AVID funding
    • School staffing – 3%
    • Class size increase: Grades 1-3 (by 2)
    • Administrative staffing
    • Textbook/supply budgets
    A total of $375 million has been cutand 1,734 positions eliminated
    4
  • What about the Capital Funds?
    State is proposing to take a total of $300 million from CCSD’sDebt Service Reserve
    Bond Proceeds
    Debt ServiceReserve
    Used to pay for
    constructionand other capitalimprovements
    State mandated reserve needed to payprincipal & intereston bonds
    Significant Federal tax issues with using for operations, among other issues
    Would require increase in property tax rate and/or non-economic bond refinancing
    5
  • What would happen?
    If $300 million is taken from Debt Svc. Reserve
    Current projections are that revenues will not be sufficient over the next 7 years to cover debt servicecosts.Thus, allof theexistingreserveis neededjust tomeetexistingcosts.
    1
    6
  • What would happen?
    If $300 million is taken from Debt Svc. Reserve
    With $300 million taken from the reserve, CCSD would no longer be able to pay all required principalandinterestpaymentsstartingin 2013.
    2
    Assumes only existing bonds (no new bonds)
    7
  • What would happen?
    If $300 million is taken from Debt Svc. Reserve
    To ensure that adequate funds are available to cover debt service costs, the debt service tax rate (currently $0.5534 per $100 of assessed value) would need to increase to whatever rate necessary to generate revenue sufficient to meet debt service obligations.
    3
    This is provided for, specifically, in law. And, CCSD’s debt service property tax rate has priority over other non-voter-approved local tax rates under the county-wide cap of $3.64 per $100 of value.
    8
  • What would happen?
    If $300 million is taken from Debt Svc. Reserve
    As an alternative to increasing the property tax rate, the district could do a non-economic restructuring of its bonds, to push principal payments out an additional 10 years, when adequate property tax revenues would be sufficient.
    4
    There are significant problems with doing this:
    • Interest rates would be higher than existing bonds
    • The market for these restructured bonds may be very limited
    • Would need to pay interest for more years
    • Would reduce future construction capacity
    • Would likely adversely impact the district’s bond rating
    • Would be out of compliance with Board’s Debt Management Policy (which requires all refinancing of bonds achieve a minimum 3 percent net present value savings)
    9
  • What are other issues?
    If $300 million is taken from Debt Svc. Reserve
    • State law would need to be changed to allow this
    • $150 million per year of the state’s ‘guaranteed’ funding is coming from CCSD’s capital funds
    • This is a one-time, stop-gap measure that will leave a big financial ‘hole” to fill in the next biennium
    • This goes against promises made to voters in 1998
    10
  • What about the revenue estimates?
    …used to calculate the debt service impact
    Conservative revenue assumptions were used to develop these estimates
    …as is consistent with district practices when issuing bonds and validated when seeking approval thruthe County Debt Management Commission,the Oversight Panel for School Facilities,and the Board of School Trustees
    The biggest revenue source (at least 76%) is property tax, which is projected todecline by 10.5% next year
    …and without legislative changes, will be abated (limited) in its growth when property values begin growing again
    11
  • Why are we short $250-$275 million?
    State Funds - $196 million
    Debt Service Funds + $150 million
    Loss of room tax - $35 million
    Property tax decrease - $48 million
    Fund balance used up - $62 million
    Employee Contractual provisions - $68 million(step, increments, PERS)
    NOTE: This assumes no new revenue sources are identified
    12
  • How bad is it?
    $ 250-275 million =
    14 more students per class
    or 33 less days in the year
    or 16% cut in pay/benefits
    or 95% of central office
    A reduction of as many as 3,800 positions
    Note: These are notrecommendations, rather they are meant to quantify the magnitude of the projected shortfall
    13
  • When will we know?
    Tentative budget must be adopted in April & the final budget in May
    Reduction-in-force processmust beginin April
    State funding will likely not be known until June
    Negotiated agreements roll forward until bargained
    14
  • Our Strategy ?
    Plan for theWorst
    Work for theBest
    Participate as a Team
    15