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Butte County Office of Education Don McNelis, Superintendent Management Group Meeting Chico, California September 10, 2009 Joel Montero, FCMAT Talking Points The Economic Maelstrom The States Budgets and Local Impacts Proceeding With CautionGetting to There Cash Proposition 98 Whats Likely Beginning with Basic Economics How Did We Get Here? The National Economy and Budget Lack of Consumer Confidence A Correction in the Housing Market Construction and Unemployment Education and Proposition 98 The Latest from Sacramento: What School Leaders Need to Know State General Fund Revenue and Expenditure Trends $ in billions Source: Department of Finance Includes $10 billion of temporary tax revenue State Budget Deficit Explodes ($6.1) ($14.5) ($24.3) ($70.0) ($50.0) ($30.0) ($10.0) ($5.0) ($1.0) July 2007 Jan. 2008 Source: Department of Finance and Legislative Analysts Office Feb. 2009 ($41.6) July 2009 ($67.0) ($60.0) Sept. 2008 $ in billions $60 Billion in Solutions February ($35.8 billion) $14.9 billion in Reductions $ 8.4 billion (56%) from K-14 Education $12.5 billion in Temporary Taxes $8 billion in Federal Stimulus Funds $400 million in borrowing $60 Billion in Solutions July ($24.2 billion) $16.1 billion in Reductions $6.6 billion (40%) from K-14 Education $1.0 billion in Fund Shifts $3.5 billion in revenue accelerations $2.2 billion in borrowing $1.4 billion in state employee payment shifts February/July Budget Corrections $ 9.15 Billion in K-12 Spending Cuts 2008-09 Budget Year $2.15 billion mid-year ongoing cut to categoricals and core revenue (February 2009) $375 per ADA $1.6 billion one-time per ADA cut to core revenues (July 2009) $ 260 per ADA February/July Budget Corrections $ 9.15 Billion in K-12 Spending Cuts 2009-10 Budget Year $702 million ongoing cut to categoricals and core revenue (February 2009) $130 per ADA $2.1 billion ongoing cut to core revenues (July, 2009) $ 370 per ADA $450 million one-time cut to core revenue of QEIA districts (July, 2009) $430 per ADA Budget Corrections Include K-12 “Flexibility” Categorical Program Flexibility Ending Fund Balance Sweeps Rule Suspension on 42 “Tier III” Categorical Programs Option to Reduce Instructional Year (5 days) CAHSEE Exemption for Special Ed Students Suspension of Routine Restricted Maintenance Budget Reserves What Should Districts Do Now in Order to Get From Here to There Establish the core program for All studentsMission 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 dont 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 every time your assumptions change This is a multi-year problem. Create a solvency plan that will get you to 2011-12. What Can Districts Do Now in Anticipation of an Uncertain Cash Environment Have a system in place to analyze and monitor cash flowall funds Report cash flow status and projection to the board on a regular basis Conserve cash when possibleall funds Build Reserves/Fund Balanceall funds Consider creating spending plans to manage available cash Consider options for dry period financing (borrowing) Should county offices loan districts money? Dont run out! 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 2004-05 Through 2009-10 (Dollars in Billions) 2004-0512009-102% Increase General Fund Revenues$77.3$89.515.8% K-14 (Prop. 98) Expenditures4 $47.0$50.47.2% Non K-14 (General Fund) Expenditures$50.23$56.2311.9% 1Legislative Analysts Office. State spending Plan: 2004-05, September 2004 2Governors Budget Summary, July 2009 (includes all proposed budget solutions) 3 Adjusted for $6.626 billion in Local Property Tax Transfers per VLF Transfer, Triple Flip and RDA shift (LAO, July 2009 est.) 4 Includes Local Property Taxes and General Fund Spending 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) 1998-9912009-102% Increase General Fund Revenues$57$89.557% K-14 (Prop. 98) Expenditures4 $35.2$50.443.2% Non K-14 (General Fund) Expenditures$32.8$56.2371% 1Legislative Analysts Office. State spending Plan: 1998-99. October 1998, Page 4, Revenues p. 26 Proposition 98 2Departemnt of Finance. Governors Budget Summary, July 2009 (includes all proposed budget solutions) 3 Adjusted for $6.626 billion in Local Property Tax Transfers per VLF Transfer, Triple Flip and RDA shift (LAO, July 2009 est.) 4 Includes Local Property Taxes and General Fund Spending Comparison of Major General Fund Expenditure Areas 1998-99 through 2009-10 (Dollars in Billions) 1998-9912009-102% Increase K-14 (Prop. 98) Expenditures3$35.2$50.443.2% Health p. 26 Proposition 98 2Departemnt of Finance. Governors Budget Summary, July 2009 (includes all proposed budget solutions) 3Includes Local Property Taxes and General Fund Spending Actions Taken to “Lower” Proposition 98 Base by $20.858 Billion 2002-2010 2001-02 $2.2 Billion Total $583 Million (Mid-Year Reductions)February 2002 (High Priority School Grants, Teaching as A Priority Block Grants, Certificated Staff Performance Awards, Energy Grants, 9th Grade CSR, Cal-Safe) $503 Million (Prior-Year Reversions)June 2002 Backfill of Adult Education Reductions $1.124 Billion (Categorical Deferrals)June 2002 2002-03 $2.61 Billion Total $1.3 Billion (June Apportionment Deferral) March 2003 $460 Million (K-12 Funding Reductions) May 2003 $734 Million (K-12 Prior-Year Reversions to Backfill Cuts)June 2003 2003-04 $1.468 Billion $1.048 Billion (Prior-Year Reversions to fund Deferral)June 2004 $341 Million (Prior-Year Reversions to Fund TIG GrantsJune 2004 and Child Care) $127 Million (New Federal IDEA Funds to backfill June 2004 reduced State Special Education contribution) Source: State Spending Plans (2002-03, 2003,04, 2004-05, 2007-08 and 2008-09), Legislative Analysts Office Actions Taken to “Lower” Proposition 98 Base by $20.858 Billion 2002-2010 2007-08 $507 Million $211 Million in Current-Year ReversionsFebruary 2008 $295.4 Million in Prior-Year ReversionsFebruary 2008 2008-09 $ 9.513 Billion $2.3 Billion (RL/Categorical Reduction and COLA rescission)February 2009 $3.244 Billion (February RL/CSR/CC and February 2009 June Apportionment Deferrals) $1.1 Billion (Use of Prior-Year Prop. 98 “Settle-Up”)February 2009 $619 million (Home-to-School Funding Swap)February 2009 $150 million (prior-year reversions and child care cuts)February 2009 $2.1 billion (Revenue Limits: unallocated categoricals and QEIA) 2009-10 $4.56 Billion $2.1 billion (K-12 Revenue Limits)July 2009 $.580 million (Community Colleges)July 2009 $80 million (Basic Aid District “Fair Share” Cut to Categoricals)July 2009 $1.8 billion (April and May RL/CC Apportionment Deferrals) July 2009 Source: State Spending Plans (2002-03, 2003,04, 2004-05, 2007-08 and 2008-09), Legislative Analysts Office 2009-10 Governors Budget Final Considerations Budget Risks Remain to the Downside $7-8 billion shortfall persists 2009-10 revenue estimates “very soft” Mid-year budget cuts almost certain Fiscal Crisis and Increased “Flexibility” Underscore Importance of School Leaders Resource scarcity requires difficult choices Building