1. Oakland Unified School District Fiscal Recovery Plan Presentation to Board of Education January 29, 2003

2. Fiscal Recovery Requirements ► Elimination of On-Going Deficit Spending ► Repayment of the aggregate negative fund balances for 2001-02 and 2002-03

3. Essential Components of a Fiscal Recovery Plan Elimination of On-Going Deficit Spending (referred to as Structural Deficit)  Expenditures must be equal or less than revenues for 2003-04 and thereafter  State revenue reduction in 2003-04 requires expenditure reductions  Declining enrollment results in an annual reduction in revenues and requires a corresponding reduction in expenditures

4. Essential Components of a Fiscal Recovery Plan Repayment of aggregate negative fund balances for 2001-02 and 2002-03  A one-time event, if deficit spending curtailed  One-time loan repaid over multiple years, cost of repayment of the loan must be included in annual expenditures

5. Causes of Structural Deficit Expenditures increase at a faster rate than revenues  Recent annual State COLA to OUSD offset by declining enrollment ► 2000-013.17% COLA ► 2001-023.87% COLA ► 2002-032.00% COLA (Gov mid-year -2.18%) ► 2003-040.00% COLA ( Projected)

6. Causes of Structural Deficit Expenditures increase at a faster rate than revenues  Declining Enrollment ► Revenue Limit ADA declining annually, State COLA offset by declining ADA ► Rate of enrollment decline accelerated beginning 2000-01 ► Large annual increases in Charter School ADA a further reduction in Revenue Limit funds

7. Causes of Structural Deficit Expenditures increase at a faster rate than revenues  Compensation increases in 2000-01 and 2001-02 greater than State COLA increases ► 1% increase in General Fund COLA does not fund 1% compensation increase ► If 1% COLA applied to all state funds it would total $3.6 million, however:  Not all state funds receive COLA increases  Frequently categoricals receive less COLA ► Cost of 1% compensation increase = $3.9 million ► The amount to fund a 1% compensation increase grows annualy

8. Causes of Structural Deficit Expenditures increase at a faster rate than revenues  Unrestricted General Fund Costs of Benefits are in addition to compensation enhancements and have increased annually: ► 1999-00 $39,496.851 ► 2000-01 9% $43,128.587 ► 2001-02 22% $52,678,888 ► 2002-03 TBA

9. Causes of Structural Deficit Unrestricted Revenues & expenditures from 1999-00 to 2002-03 a YEAR INMiLLIONSINMiLLIONS a

10. Unrestricted Revenues & Expenditures from 1999-00 to 2002-03 YearUnrestricted Revenues Unrestricted Expenses YearUnrestricted Revenues Unrestricted Expenses 1999/00 $236,981,077 $239,578,687 2000/01 $263,588,763 $260,054,347 2001/02 $269,334,196* $308,759,432* 2002/03 TBA TBA Source: Actuals & *Unaudited actuals Causes of Structural Deficit

11. Enrollment (No SDC) Enrollment (No SDC) YearK-56-89-12 Total 1999-0028,69611,17711,370 51,243 2000-0128,40411,49311,003 50,900 2001-0227,90811,74110,684 50,333 2002-0326,70310,63110,797 48,222 2003-04*25,50210,63610,925 47,143 *Preliminary estimate for 2003-04

12. Causes of Structural Deficit YEAR #STUDENTS#STUDENTS Enrollment (No SDC) *Preliminary estimate for 2003-04

13. Causes of Structural Deficit YEAR #STUDENTS#STUDENTS Enrollment (No SDC) *Preliminary estimate for 2003-04

14. Causes of Structural Deficit P-2 ADA Year K-6 7-8 9-12 Total 1999-0031,5206,560 10,247 48,327 2000-0130,8656,8399,866 47,570 2001-0230,0806,3519,935 46,366 2002-03*28,0006,4729,972 44,444 *Estimated based on P1 less historical ADA decline by P2. Note: Figures do not include SDC or Adult Education ADA

15. YEAR #STUDENTS#STUDENTS P-2 ADA Causes of Structural Deficit *Estimated based on P1 less historical ADA decline by P2

16. Correction of Structural Deficit Reduce structural deficit in fiscal year 2002-03  Sustain cuts and adjustments made in the first half of 2002-03  Additional cuts of on-going expenditures carry forward to 2003-04  Maintain hiring freeze, travel and conference restrictions, limit substitutes and continue other cost cutting actions

17. Correction of Structural Deficit Adopt a balanced budget for 2003-04 and thereafter  Adopt budget cuts, cost avoidances and adjustments  Balance expenditures to anticipated revenues  Focus on cuts that are on-going

18. Why is a loan necessary? ► A loan or financing provides cash that the District needs to meet on-going expenditures ► The Structural Deficit in 2001-02 and 2002-03 causes a shortage of cash in the current year ► The loan provides cash to improve the District’s cash balance and becomes a liability in the District’s Fund Balance

19. Why are Fund Balance and Cash Flow not the same? Fund Balance - An accounting and auditing term that uses total assets and liabilities to calculate a resultant Fund Balance.  At the closing of Fiscal year 2001-02, the District’s Fund Balance for the Unrestricted General Fund was a negative $32 million

20. Why are Fund Balance and Cash Flow not the same? Cash Balance– Represents the cash on hand in the County Treasury that is available to pay invoices and make transfers  The District’s Cash Balance varies greatly each month due to the irregular receipt of tax revenues from the County.  An adequate Cash Balance is required each month to make monthly payrolls.  A TRAN is used to temporarily supplement a district’s Cash Balance due to the irregular receipt of property taxes, but the liability is not seen in the cash balances, until the TRAN is repaid. When the funds are received, a liability is booked in the Fund Balance.

21. Elimination of Negative Fund Balance (Unrestricted General Fund) Negative Unrestricted Fund Balance equal to total deficit of 2001-02 and 2002-03  2001-02 Negative Balance = $32 Million  2002-03 Negative Balance = TBA  Total Negative Balance = ???

22. Elimination of Negative Fund Balance (Unrestricted General Fund) Elimination of the Total Negative Balance requires an infusion of one time funds  New revenues  Expenditures in 2003-04 are less than revenues  Combination of the above  New Debt (loan and/or financing) must be repaid, include as liability to the Fund Balance and payable in annual installments as an operational expenditure.  A loan or financing does not correct a Negative Fund Balance until the loan is repaid.

23. Implication for Board Actions Reversal of On-going Deficit Spending  If the Goal is a balanced budget in 2003-04: ► Range of cuts TBA- includes elimination of 2002-03 Structural Deficit and 2003-04 projected shortfall ► Cuts of on-going expenditures in 2002-03 will carry- forward to 2003-04 ► Only 8% of the District’s budget in non-salary and benefits. ► 2003-04 cuts must include reduction in personnel costs to achieve a balanced budget.

24. Implication for Board Actions Return to Fiscal Stability  Cuts required for a balanced budget in 2003- 04  Determine size of loan to correct negative cash balance in 2003  Secure loan before June 30, 2003 dependent on cash flow balance  Must repay Alameda County by mid-April 2003  Repay interfund loan from the General Obligation Bond Fund by June 30, 2003

25. Next Steps ► FCMAT prepared 2002-03 Budget  Presented by the District at the Finance and Human Resources Committee (Committee of the Whole) the week of February 3-7 ► Community Input on Recovery Plan  Public Hearing and Board Study Session Saturday February 8 and February 22  Regular Board Meeting February 12 and 26