1. Financial Survival in Small School Districts in California A Significant Challenge Now and In the Future Small School Districts’ Association Summer Conference July 10, 2009 Joel Montero, FCMAT

2. Talking Points The Economic Maelstrom The Signs of Fiscal Stress AB 1200 Issues for Small School Districts Proceeding With Caution ARRA, Flexibility, and Reserves

3. Beginning with Basic Economics The National Economy and Budget Lack of Consumer Confidence A Correction in the Housing Market Construction and Unemployment 2008-09 and Proposition 98 The Small School District Dilemma

4. 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) 1998-99 1 2009-10 2 % Increase General Fund Revenues$57$92.2262% K-14 (Prop. 98) Expenditures (local property tax + GF) $35.2$51.145% Non K-14 (General Fund) Expenditures$32.8$56.04 3 71% 1 Legislative Analyst’s Office. State spending Plan: 1998-99. October 1998, Page 4, Revenues & Expenditures; p. 26 Proposition 98 2 Departemnt of Finance. Overview of the Governor’s Budget: 2009-10. January 2009 (assumed all proposed budget solutions) 3 Adjusted for Local Property Tax Transfers per VLF Transfer and Triple Flip (LAO, Jan. 2009 est.)

5. Signs of Fiscal Stress Overly aggressive estimates of enrollment, attendance and ADA Failure to monitor and revise for budget assumptions Loss of control of staffing levels and costs Underestimating automatic cost growth centers Use of one-time money for ongoing expenses

6. Signs of Fiscal Stress Bad decisions in collective bargaining Failure to consider multi-year impact of budget decisions Failure to follow through on budget reductions or recovery plans Chronic, unplanned deficit spending Inadequate reserves Kicking fiscal problems into subsequent years

7. AB 1200 Issues for Small School Districts Budget Adoption 2009-10 The May Revise and Budget Revisions Qualified and Negative Certifications at 1 st Interim The Watch List Emergency Apportionments

9. What Should Districts Do Now in Order to Get From Here to There Establish the core program for All students—Mission 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

10. 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)

11. What Should Districts Do Now in Order to Get From Here to There Negotiate with care and don’t 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 everytime your assumptions change This is a multi-year problem. Create a solvency plan that will get you to 2011-12.

12. How Do You Know Where to Reduce? Use comparative data to find areas of opportunity Ed Data Site, School Services, Data Quest (CDE) Look at prior year budgets and do trend analysis Stay focused on multi-year projections Follow the revenue or lack thereof Stay on top of enrollment projections Every consideration must be on the table Examine numbers and types of employees Examine expenditure patterns Examine class size

13. What Can Districts Do Now in Anticipation of an Uncertain Cash Environment Have a system in place to analyze and monitor cash flow—all funds Report cash flow status and projection to the board on a regular basis Conserve cash when possible—all funds Build Reserves/Fund Balance—all funds Consider creating spending plans to manage available cash Consider options for dry period financing (borrowing) Don’t run out!

14. What’s Likely? Additional reductions/corrections in 2009-10? Additional cash deferrals? Receipt of stimulus (ARRA) dollars? Additional categorical program impacts? Proposition 98 Suspension?

15. Categorical Flexibility Tier III dollars may be transferred for “any educational purpose” Tier III funds are simply now unrestricted and will not appear on the CAT form (unless there is a beginning balance that could not be swept) In 2009-10 we recommend transferring into their own unrestricted resource and track via Goal and Function (local designations) 2007-08 is the base year for most ADA generated programs No growth is allowed in CSR Conference Committee Recommendations

16. ARRA Federal Funds Notes…. Title I and IDEA ARRA dollars are restricted to current program funding requirements The use of these funds will be audited based on your expenditure level--$300,000+ Type A, $100,000+ Type B The Federal Stabilization dollars are accounted for in a restricted resource code (3200). They are basically unrestricted in their use but cannot be spent on: Maintenance Stadiums, athletic facilities or other facilities with admission charges Purchases or upgrades to vehicles Improvement of “non-educational” admin and operations facilities Construction of non-Field Act buildings

17. ARRA Federal Funds Notes…. Stabilization money can be used to offset state cuts in both restricted and unrestricted categories. IDEA funds can be used to reduce local contributions as long as MOE requirements are met and programs are in compliance You can spend ARRA funds for 2008-09 Title I and IDEA expenditures All ARRA funds must be spent by September 30, 2011

18. Other Thoughts Use the SSC Dartboard for budget development If you are on the basic aid cusp, carefully review your RL projections Charter School Block Grant rates have been adjusted and are available. Charter School Categorical Block Grant is expected to be reduced to $404 in 2009-10 across all grade levels RIF at August 15 th if you have to Remember that Reserve for Economic Uncertainty is a minimum Err on the side of being conservative

19. Summary The fiscal situation for the state has deteriorated since Feb. 2009 and could continue to deteriorate this year The state’s deficit will continue to grow Education growth for a 10 year period is less than other parts of the budget We have an 17 month budget but revenue projections are volatile ARRA dollars will play some role in district finances LEA planning is more critical than ever Charter schools are also affected Cash is King Collective bargaining will be challenging It is a multi-year issue