1. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Presented by Ron Bennett Chief Executive Officer Ron Bennett Chief Executive Officer CSBA Orientation for New Trustees Preparation for the First 100 Days Finance: What You Need to Know Now

2. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Getting Through the First 100 Days What you need to do Get sworn in and celebrate Get sworn at when you: Adopt the First Interim Report in December Plan for budget cuts in January Issue layoff notices in February Adopt the Second Interim Report in March Prepare for collective bargaining now What you need to know Becoming informed Setting direction Establishing the structure Ensuring accountability Community leadership © 2015 School Services of California, Inc. 1

3. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Ensure Accountability Review COE letter Analyze year-end report and audit Approve and use interim reports to monitor budget status Review cash flow and trend analysis Set Direction Review district goals and vision Approve budget objectives/directions Approve budget process (advisory committee) Confirm budget assumptions Review multiyear projections Establish Structure Establish budget priorities Approve budget development calendar Select auditor Adopt budget Approve regular budget revisions Budget adequate business office support Create Supportive Environment Ensure staff has resources and internal structure to support budget Communicate to staff Provide Community Leadership Throughout Communicate budget with stakeholders Advocate for school funding at local, state, and federal level The BOARD needs to come prepared by... Becoming informed on key financial issues at district, local, state, and federal level The BOARD needs to come prepared by... Becoming informed on key financial issues at district, local, state, and federal level 12 3 6 9 10 Action Plans Progress Reports Actual Results Intended Results Operations The Board’s Responsibilities in Finance 2

4. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Notes

5. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Becoming Informed

6. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center The Basics of School Finance Historical context Court cases and ballot measures The fundamentals of Proposition 98 Key funding issues Fiscal accountability The state school budget in context Board’s role in school district finance 5 © 2015 School Services of California, Inc.

7. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Before Serrano Education funding a local concern – majority of property tax revenues went to local educational agencies (LEAs) LEAs set tax rate without local vote Sacramento had little say – other than various policies and programs Local school districts determined their financing and programs California was among the top five states in per-student spending – and student achievement 6 © 2015 School Services of California, Inc.

8. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Serrano v. Priest Public education is a “fundamental interest” for California Students in low-socioeconomic districts were denied an equal opportunity for quality education The system in place violated the State Constitution’s “Equal Protection” clause 7 © 2015 School Services of California, Inc.

9. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Revenue Limits Established Responding to court decision, state passes Senate Bill (SB) 90 (Chapter 1406/1972) – the LEA “revenue limit” is born All districts to have a revenue limit – a limit on state aid and property tax per average daily attendance (ADA) based on district’s 1972-73 state aid and local property tax revenues (per ADA) Remaining discrepancies result in further court action in 1974 – Serrano II upheld by State Supreme Court in 1976 – gives rise to the decades long effort to achieve equalization among districts 8 © 2015 School Services of California, Inc.

10. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Proposition 13 Passed in 1978, it cut property taxes to no more than 1% of assessed value Tax rate only changes when property is reassessed at time of sale except for a maximum 2% inflation adjusted annually State given authority over all state and property tax revenue distribution – knocks out 60% of property tax revenues for LEAs K-12 becomes absolutely dependent upon Sacramento 9 © 2015 School Services of California, Inc.

11. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Proposition 13 Impact on Schools Districts can no longer make up for prior-year shortfalls with higher property taxes LEAs have limited abilities to raise local revenues Proposition 13 put in place a two-thirds-vote threshold for “special purpose” taxes – for example a parcel tax Sacramento stepped in to “protect” schools and fund the system Major K-12 decision making shifted from locals to Sacramento 10 © 2015 School Services of California, Inc.

12. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Proposition 13 Impact on Schools Pre-Proposition 13, California generally ranked near the top in spending for schools In 1979-80 (one year after Proposition 13), we ranked 44 th in the nation* California now spends, on average, $2,900 less per student on K-12 than the national average – up from $700 six years ago The Great Recession hit California schools hard We may still be last in the nation, as we were two years ago The Governor plans an eight-year recovery, it will be a long time before we start to catch up *Conrad Jamison (1981), before and after Proposition 13 11 © 2015 School Services of California, Inc.

13. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Genesis of Proposition 98 Sustained decline in funding during late 1980s fuels frustration among K-12 community In 1987, Gann Limit required state to give back $1.1 billion in tax refunds while K-12 continued to decline Demands of noneducation programs increase – prisons, welfare, health care, etc. California Teachers Association (CTA) leads education community in development and passage of Proposition 98 Designed to be a floor for education funding 12 © 2015 School Services of California, Inc.

14. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Proposition 98 – Has It Worked? Not very well The downside – can sometimes act as a ceiling Gives lawmakers easy out to say they “fully fund” education, but only meet minimum guarantee Has been easily manipulated to lower the funding provided to schools Other policy areas have secured better protections The bottom line is that the state has used many mechanisms to avoid its obligation to schools during bad times Proposition 98 is still a major factor in school funding 13 © 2015 School Services of California, Inc.

15. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Federal Funding Less than 10% of total school funding Most federal funding goes to Title I, No Child Left Behind (NCLB) and special education programs (Individuals with Disabilities Education Act [IDEA]) NCLB major factor in federal accountability NCLB forcing major changes to K-12 programs and operations NCLB has not been fully funded Nor has special education – the federal government does not meet 40% IDEA promise 14 © 2015 School Services of California, Inc.

16. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center The Legacy of Past Budget Cuts © 2015 School Services of California, Inc. 15

17. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center The Local Control Funding Formula Provides differentiated funding based upon socioeconomic factors Sets a recovery goal for each district to be reached by 2021 Eliminates 40 programs and provides flexible funding to local boards A base grant is provided for each student; the 2021 goal is the same for all students in any given grade level A supplemental grant equal to 20% of the base grant is provided for each English learner Free and reduced-price meal eligible student Foster child If a district has more than 55% of its students eligible for supplemental grants, a concentration grant equal to 50% of the base grant is provided for each student above the 55% level The difference between a district’s current funding level and its 2021 goal is made up by funding a portion of the “gap” each year for eight years © 2015 School Services of California, Inc. 16

18. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Differential Risks – An Example *June 2015 DOF gap closure percentage for 2015-16 © 2015 School Services of California, Inc. 17

19. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Setting Direction

20. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center The Local Control Accountability Plan Under the Local Control Funding Formula (LCFF), the district’s most important policy document is the Local Control Accountability Plan (LCAP) It is a policy document that reflects the vision and priorities of the district It is an operational guide for decisions and actions It defines an expectation for students Community involvement is a statutory requirement Consultation with employees, the organizations that represent them, and pupils Review and comment by parent groups and the general public The LCAP maps a path to improved student achievement 19 © 2015 School Services of California, Inc.

21. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Board Involvement in the LCAP There has never been a better opportunity for the board to exercise local control and leadership The LCAP replaces state direction on more than 40 programs – the board makes the plan and adopts it after public hearings The LCAP must address eight specific areas – all are familiar The community has the statutory right and responsibility to be involved The LCAP must be adopted prior to the district budget, at the same meeting The LCAP must be in place for 2014-15 and subsequent years Schedule study sessions for broad audiences Involve the community Consult with bargaining units and start drafting the plan The law places a heavy burden on the superintendent for development of the plan – but the board is responsible for adoption and execution of the LCAP © 2015 School Services of California, Inc. 20

22. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center The Significance of the School District Budget The district budget must be consistent with the LCAP The county office of education (COE) will approve both the LCAP and the budget The two documents must be parallel and mutually supportive The budget implements the vision and priorities of the district, it is: An operational guide for decisions and actions A proposed plan for revenues and expenditures A financial plan to maintain the financial health of the district A communications device to share with the community 21 © 2015 School Services of California, Inc.

23. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Budget Assumptions The budget is built based upon assumptions about revenues and expenditures Revenue growth Scheduled salary improvements Enrollment growth or decline Financial reserves Fringe benefit amounts Utility costs Program augmentations The LCAP will guide many of the assumptions 22 © 2015 School Services of California, Inc.

24. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Other Key Funding Issues LCFF funding level Declining or growing enrollment Class sizes California State Lottery Mandate funding State economic condition 23 © 2015 School Services of California, Inc.

25. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Other Funds Make a Complete Budget Cafeteria – restricted Building – construction State school building – state bond money Developer fee Redevelopment money Bond monies Adult Education – restricted Early Childhood Education Self insurance Deferred maintenance – restricted Special reserve – restricted School bus replacement – restricted Special funds © 2015 School Services of California, Inc. 24

26. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Final Budget: What Should the Board Look For? Is it balanced? Are there adequate reserves? Are priorities funded? Is it comprehensive? Is it simple to grasp? Are there other funds? Are salary adjustments included? 25 © 2015 School Services of California, Inc.

27. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Establishing the Structure

28. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center The Board’s Responsibilities in Establishing the Structure Set budget priorities based on the LCAP Adopt a budget development process that ensures the budget reflects and reinforces district goals and priorities as expressed in the LCAP Adopt the budget Monitor and support implementation of the budget and LCAP Approve all interim reports Review and monitor the budget Revise the LCAP annually Communicate with and be accountable to the community about district finances and progress towards its goals in the LCAP 27 © 2015 School Services of California, Inc.

29. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Four Concurrent Budget Cycles Closing the past budget Managing the current-year budget Developing the budget for the next year Planning and goal setting that is reflected in the budget in two years 28 © 2015 School Services of California, Inc.

30. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center AUGUST AND NOVEMBER Close, define actuals, determine the ending balance AUGUST AND NOVEMBER Close, define actuals, determine the ending balance JULY – DECEMBER Audit and review JULY – DECEMBER Audit and review DECEMBER Receive audit; evaluate management letters DECEMBER Receive audit; evaluate management letters JANUARY – FEBRUARY Follow-up on management letters JANUARY – FEBRUARY Follow-up on management letters AUGUST – SEPTEMBER Amend and revise AUGUST – SEPTEMBER Amend and revise DECEMBER – JANUARY Amend, measure, and report 1st Interim Report DECEMBER – JANUARY Amend, measure, and report 1st Interim Report FEBRUARY – APRIL Amend, measure, and report 2nd Interim Report FEBRUARY – APRIL Amend, measure, and report 2nd Interim Report JULY Adopt, analyze JULY Adopt, analyze JULY – SEPTEMBER Amend, measure, and analyze JULY – SEPTEMBER Amend, measure, and analyze DECEMBER – JANUARY Project revenues and expenses DECEMBER – JANUARY Project revenues and expenses FEBRUARY – MARCH Conclude staffing level, study, include others FEBRUARY – MARCH Conclude staffing level, study, include others APRIL – JUNE Study, include others, balance, conclude, adopt APRIL – JUNE Study, include others, balance, conclude, adopt AUGUST AND NOVEMBER Identify goals for next year – Try the “new idea” AUGUST AND NOVEMBER Identify goals for next year – Try the “new idea” Budget Management Requires Concurrent Tasks For This Year: Monitor For Next Year: Developing the Budget Budget Calendar For Last Year: Close and Audit 29 © 2015 School Services of California, Inc.

31. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Ensuring Accountability

32. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Oversight Provisions The board has a very significant approval responsibility LCAP development and approval Budget approval, adoption, revision, and monitoring Interim report certifications The COE has primary responsibility for fiscal oversight of the district Can approve or disapprove the budget and the LCAP Can lower certification on interim reports Can, in extreme cases, overrule decisions of the board Assembly Bill (AB) 1200 and AB 2756 force COEs to step in if the district gets into financial trouble 31 © 2015 School Services of California, Inc.

33. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Monitoring the Budget The board must monitor the budget after adoption by: Approving all budget revisions Monitoring financial systems and compliance Certifying financial reports, such as the interim reports Doing due diligence by ensuring the budget is discussed in public and appropriate questions are asked Reviewing the audit and other reports Complying with requests from the COE and other oversight agencies The board has ultimate responsibility for the fiscal health of the district 32 © 2015 School Services of California, Inc.

34. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Fiscal Oversight – AB 1200 and AB 2756 In 1992, AB 1200 enacted in response to multiple LEA bankruptcies (Richmond Unified School District [USD] for instance) AB 1200 intended to be an early warning system for school district fiscal health – a way to avoid costly state bailouts and takeovers COEs administer fiscal oversight and fiscal assistance on behalf of state for LEAs in county State Superintendent of Public Instruction (SPI) ultimately responsible for fiscal health of LEAs and oversees any state takeovers of LEAs 33 © 2015 School Services of California, Inc.

35. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center AB 1200 Certification Process Districts must submit their adopted budgets and updated financial information to COEs for review several times per year – budget adoption, first, second, and sometimes a third interim report Districts’ budgets are approved or disapproved and interim reports are self- certified by the board as: Positive – the district shows it can meet its obligations for the current and two subsequent years Qualified – the district may not be able to meet its fiscal obligations over next three years; this is a budget certification Negative – the district will not meet its fiscal and cash obligations over the next two years; this is a cash certification It is very important that the board maintain a positive certification; the COE can lower the certification if necessary 34 © 2015 School Services of California, Inc.

36. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center AB 1200 – Has It Worked? Yes, for the most part – LEA budgeting process has improved, fewer surprises But it is not foolproof – districts can and still do become insolvent Neither Oakland USD nor Vallejo USD were negatively certified under AB 1200 prior to receiving emergency loans from the state Bad information and delayed intervention on the part of LEAs and COEs can still be a factor 35 © 2015 School Services of California, Inc.

37. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center The Audit Board’s report on the effectiveness of financial operations Controls Fiscal health – prior year Historical document Findings and recommendations Only glimpses of the future 36 © 2015 School Services of California, Inc.

38. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Reviewing the Audit Read the opinion letter and Management Discussion and Analysis (MD&A) in the front of the audit Look at the management letter at the back Read the findings and recommendations in the management section Compare with prior-year report Are things getting fixed? 37 © 2015 School Services of California, Inc.

39. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Community Leadership

40. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Communicating the Budget The LCAP will become the most effective communication tool The budget development process is another opportunity Budget document organization and readability are important Information delivery Publications Activities Media activities Internet activities Leadership opportunities 39 © 2015 School Services of California, Inc.

41. annual education conference and trade show December 3-5, 2015 | San Diego Convention Center Thank you