Long Range Planning Model Finance and Audit Committee September 22, 2016

Long Range Planning Model Review Updated 8 Year Budget Model Plan Revenue Assumptions Expenditure Assumptions Discuss net result of assumption refinements Comments and discussion on assumptions and model

Modeling Objectives and Highlights Purpose of 8-Year Model: Determine revenue shortfall resulting from expiration of Measure C (2010) and “business as usual” operations Year 1 (2016-17) Projections vs. Adopted Budget (16-17): Revenues same, expenditures approx. $1.7M higher Key change: Negotiated compensation increases (both 15/16 and 16/17) Years 2-8: New projections based on long-term historical averages and trends Secured property tax growth: Reflects current 8-year cycle-average growth rate Key salary assumptions (1) Constant class sizes (i.e., 2 new teachers per year) (2) Salary increases: placeholder based on historical average increases Any government mandated increases in revenues or expenditures are reflected, as appropriate (e.g., PERS/STRS growth, COLA, per student growth) All other revenues and expenditures are subject to inflation (i.e., CPI) Year 5 (2020-21) shortfall: $4.9M, vs. $6.0M shortfall presented at May 10, 2016 Board Meeting following vote on Measures A and C The $4.9M shortfall includes $900K in reductions (i.e., $5.8M vs. $6.0M apples-to-apples)

Revenue Assumptions for 8-Year MYP Secured Property Tax Unsecured Prop Tax $44.6M* Property Tax ($25.8M, 58% of total) Secured Property Tax 6.1% annual growth based on current 8-year historical CAGR (2007/08 to 2015/16), reduced by 0.76% each year starting in 2020/21 (down to 3% growth in 2023/24) Resulting projected growth for 2015/16 to 2023/24 is 5.1% per annum Unsecured Property Tax 3.3% per annum, based on the average 8-year CAGR over the period 1992/93 to 2015/16 See next two slides for further detail *Total Revenue does not include Interfund Transfers

Secured Property Tax: Historical YOY Growth 8-9 Year Real Estate Cycles Secular Slowdown in Growth Rate Analysis of historical property tax revenue from 1992/93 through 2015/16 Projections based on 8-year compound annual growth rates (CAGRs), to normalize for cyclicality

Secured Property Tax: Rolling 8-Year CAGRs Easier to see long-term cycle-average trends with rolling 8-year CAGRs Growth rates have been declining since the 8-year period ending 2004-05 To reflect this decline, projections use the most recent 8-year CAGR for years 2-4 (6.1%), with gradual decreases in the growth rate beginning in year 5 (down to 3% growth in year 8)

Unsecured Property Tax: Historical YOY Growth No clear / consistent cyclicality Projections use the average 8-year CAGR for the entire historical data set (3.3%)

Revenue Assumptions for 8-Year MYP Other LCFF $44.6M Other LCFF ($2.6M, 6% of total) SELPA Increased by COLA as projected by School Services of California Minimum State Aid Held constant by law Education Protection Account Increased at flat rate of $200 per student based on enrollment growth The EPA is on the November 2016 ballot for renewal. Current funding goes away in 2018/19 Deferred Maintenance Grows at 10 year CPI average of 2.5% Note this is a revenue transfer out into Fund 14

Revenue Assumptions for 8-Year MYP Other State ($4.2M, 9% of total) Mandated Block Grants and Lottery Per student amount increased for student enrollment growth through 2020/21 State STRS on Behalf (Pass-Through) Adjusted to match staffing State Mandated Block Grant Debt Repayment No monies budgeted beyond 2016/17 Based on State fiscal health and owned debt on Mandated Block Grants Other Local ($11.5M, 26% of total) Parcel Tax Measure C not renewed Other Parcel Tax revenues grow with CPI MPAEF Grows with enrollment Other State Parcel Taxes Other Local $44.6M

8-Year Revenue Projections 8Y CAGR $55.8M 2.9% 1.0% $44.6M -0.9% -0.4% -4.6% Other Local 3.1% 1.2% Parcel Taxes 2.9% Federal Other State Other LCFF Unsecured Prop Tax 5.1% Secured Property Tax Although robust growth in secured property taxes is projected to continue, the other 46% of MPCSD’s revenues are declining on average

Expenditure Assumptions for 8-Year MYP Salaries $43.4M Salaries ($28.9M, 67% of total)* Addition of 2 teachers annually  maintains current class sizes No other staffing additions Placeholder for salary increases for all units, based on 10 year historic average Additional assumptions Ongoing retirements and resignations, similar to recent experience Ongoing compensation increases for advancing tenure and education (i.e., “Step and Column”) *Salaries for 2015/16 do not include recent one-time compensation increase which will be paid in fiscal year 2016/17.

Expenditure Assumptions for 8-Year MYP Employee Benefits Other Expenditures $43.4M Employee Benefits ($8.5M, 20% of total) Health and benefits growth of 7% annually STRS and PERS grow to 19.1% for both by 2020/21 (from 10.7% and 11.9% in 2015/16) Not included: Additional SRTS and PERS growth beyond 2020/21. STRS can increase another 1% annually up to 20.25%. PERS Board can increase or decrease rates as needed. Other Expenditures ($5.9M, 14% of total) 2016/17 budget includes $900K in reductions Grow 2016/17 budget by CPI (2.5% per annum) Includes: Books and Supplies, Other Operating Expenses, and Capital Outlay

8-Year Expenditure Projections 8Y CAGR $62.8M 4.7% 0.2% 9.0% $43.4M Other Expenditures Employee Benefits 4.1% Salaries

Model Comparison to Prior January Model 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 Total Revenue $42.3M $43.2M $43.0M $44.4M $46.0M $47.6M Total Expense 42.6M 44.6M 47.1M 49.1M 51.2M 53.6M Surplus/(Deficit) ($0.3M) ($1.5M) ($4.0M) (4.7M) ($5.2M) ($5.9M) Reserve, Economic Uncertainty $7.0M $6.9M $4.2M ($0.1M) ($5.3M) ($11.3M) September Model 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 Total Revenue $45.3M $45.0M $46.9M $49.0M $51.1M $52.8M Total Expense 47.1M 48.5M 51.0M 53.6M 56.0M 58.2M Surplus/(Deficit) ($1.7M) ($3.4M) ($4.1M) ($4.5M) ($4.9M) ($5.3M) Reserve, Economic Uncertainty $8.1M $5.9M $2.0M ($2.4M) ($7.3M) ($12.7M)

Risks and Opportunities Renewal of Proposition 30: $600,000 risk STRS/PERS growing beyond 2020/21(up to 1.2% risk) Additional One time State funding opportunity Foundation Donations Reevaluation of the $900,000 in reductions in 2016/17 Special Education

What does this mean? Operating Deficit is $5.3M by 2021/22 District Economic Uncertainty Reserves fall below 10% in 2018/19 District can not sustain current operations financially beyond 2018/19

Next Steps