School District Budgeting 101 April 12, 2011 Steven Lawrence, Ph.D., Superintendent Bryan Richards, Chief Financial Officer

Purpose of Meetings 1. Clearly define our funding sources 2. Clearly define how the State budget crisis has affected the district 3. Clearly define what we have already done to address the budget crisis 4. Develop next steps to address the State budget crisis

Section I--Unrestricted Funding 1. What two categories can you break school funding into and how can you spend those funds? 2. What is the Revenue Limit? 3. What does ADA stand for? 4. What are the two primary factors that have led to our significant decrease in general unrestricted funding?

School Funding Unrestricted – We sometimes refer to our unrestricted funding as our “general fund.” This is funding that can be used for any educational purpose. Restricted – We sometimes refer to restricted funds as categorical funds. Restricted funds are local, state and federal funds that have to be applied for a defined purpose of group of students.

Unrestricted & Restricted Totals

Key Parts to the District Unrestricted budget Revenue Limit Local Property Taxes State Aid Lottery Tier 3 Categoricals

Unrestricted -- The Revenue Limit Revenue Limit = Property Taxes + State Aid received as dollars per unit of Average Daily Attendance (ADA)  As property taxes rise, state aid falls and vice versa  Once 100% of property taxes cover a district’s revenue limit they become a “Basic Aid” (self funded) districts (Beverly Hills, Carmel, Palo Alto) about 130 districts statewide  Currently, our MDUSD property taxes cover approximately 60% of our revenue limit funding

Unrestricted -- The Revenue Limit Why do districts receive different Revenue Limits and is Mt. Diablo high or low?  Revenue Limit was first established in 1971 with the California Supreme Court finding around Serrano vs Priest. In 1983, Serrano II determined State had met funding obligation despite a funding variance from district to district.  In 2008/09 Mt. Diablo received $6,371 per ADA in base revenue limit was $40 less than the State-wide average of $6,411. This $40 would have generated approximately $1.3 million additional funding for the district. (Currently, we receive $5206 in base revenue limit.)

Unrestricted—Revenue Limit Funding ADA = Average Daily Attendance (one student attending school every day = 1 ADA) On average our ADA is (.95 x our enrollment) which means on any given school day 95% of our students are in attendance. Revenue Limit Funding = RL x ADA

Important Terms Legislative Analyst’s Office (LAO)  Independent group that provides budget projections and analysis of Governors’ budget proposals and adopted budgets Proposition 98  Approved by the voters in 1988 it was supposed to create a stable minimum annual funding level for K-14 school agencies and established Test 1 and 2 to determine funding level. In 1993 Prop 98 was amended to include a Test 3 for years the State revenues declined. Deficit Factor  The difference between where we are supposed be funded under Prop 98 Test 2 and where we are actually funded under Test 3. It is supposed to be repaid in years where state tax revenue grow faster than personal income.

Unrestricted--Revenue Limit per ADA

Average Daily Attendance

ADA decline Our average decline over 10 years has been 300 students per year A loss of 300 students with the current Revenue Limit of $5206 is $1.56 million This is equivalent of reducing 26 teachers per year

Unrestricted-- RL x ADA = Revenue Limit Dollars

Questions Think, pair, share 1. What two categories can you break school funding into and how can you spend those funds? 2. What is the Revenue Limit? 3. What does ADA stand for? 4. What are the two primary factors that have led to our significant decrease in general unrestricted funding?

Section II Unrestricted Funding Continued 1. What are the major funding sources that make up the unrestricted general fund revenue? 2. Has the lottery saved us? 3. What makes Tier III categoricals different from Tier I and II? 4. What percentage of the general fund unrestricted budget goes towards salary and benefits?

Other Unrestricted State Funding Sources Unrestricted Lottery  Approximately $110 per ADA for our district  Currently used 100% toward teachers’ salaries to partially offset deficits from the State

State Categoricals In 2008/09 the Legislature divided State categorical programs into three tiers.  Tier 1 Categoricals (restricted) retained their original classification and maintained their full level of funding  Tier 2 Categoricals (restricted) remained tied to their original purpose but were cut by 20%  Tier 3 Categoricals (unrestricted) These programs were cut 20% AND deemed unrestricted Board may use toward any instructional purpose after holding a public hearing under SBX3-4 (annually at budget adoption and as changes are proposed)

List of Tier 3 Categoricals Morgan Hart Grade 9 CSR Community Day School Cal-Safe Academic Support Cal-Safe Child Care & Development PE Teacher Incentive Alt Certification for Intern Teachers Nat'l Board Certified Teacher Incentive Community-Based English Tutor School Safety/Violence Prevention Arts & Music Block Grant CAHSEE Intensive Instruction Supplemental School Counseling Gifted & Talented Education Instructional Materials Realignment High-Priority Schools Grant (defunded) HP Schools:SAIT & Corr Action CA Peer Assist & Review (PAR) Staff Dev: Math&Reading (AB466) Principal Training (AB75) Specialized Secondary Supplemental AB825-Pupil Retention Block AB825-Teacher Credentialing AB825-Prof Dev Block Grant AB825-Targeted Instructional AB825-School & Library Improvement Adult Education Deferred Maintenance SBX3-4 Sweep (old one time funds)

Tier III Categoricals For each site team we have provided a spreadsheet that shows all of the Tier III funding sources:  How much we receive  How much has been swept  How much is left  What the left over funding is used for Please take a moment to review the Tier III spreadsheet with your team. On the 3x5 cards write down any questions that you have about Tier III funds

Unrestricted Local Revenue The district generates funding through interest, redevelopment agency fees, fingerprinting fees, facility use fees, etc.

Unrestricted General Fund Revenue Revenue Limit Sources $ 164,735,676 Federal Revenue 337,273 Other State Revenue 31,194,239 Other Local Revenue 2,535,869 Interfund Transfers In 1,572,413 Total Revenue 200,375,469 Less: Net Contrib. to RGF (31,393,058) Net Available Revenue $ 168,982,411

Unrestricted General Fund Expenditures Certificated Salaries $ 87,399,211* Classified Salaries 19,807,654* Employee Benefits 31,778,504* Books & Supplies 7,447,827 Services & Operating 14,860,512 Capital Outlay 112,424 Other Outgo 0 Interfund Transfers Out 3,125,484 Total Expenditures $ 164,531,616 * 84.5% of the unrestricted General Fund goes toward salary and benefits

Section II Questions Think, pair, share 1. What are the major funding sources that make up the unrestricted general fund revenue? 2. Has the lottery saved us? 3. What makes Tier III categoricals different from Tier I and II? 4. What percentage of the general fund unrestricted budget goes towards salary and benefits?

Restricted Funding

Section III Restricted Funding Questions Think, pair, share: Can you take Title I-III funds to help balance the general fund reductions? What is the concern around supplanting? What are the State Tier I and II categoricals and can we “sweep” them to fund other programs?

Restricted Funds Special Education Federal, State, Local Federal Revenue Titles I-III School Improve Grants (SIG) Other Grants State Revenue Tier 1 & 2 Categoricals Instructional Materials Lottery Other Grants Transportation Community Day School

Special Education Under the Federal Individuals with Disabilities Education Act (IDEA) we are responsible to provide a free and appropriate education in the least restrictive environment for all students. We receive Federal and State funding to meet the IDEA requirements. However, the Feds are supposed to fund 40% of our Special Education budget and they currently provide 15%. Because of this underfunded Federal mandate we have to contribute funds from our General fund.

Special Education According to the Contra Costa County Office of Education Annual Financial Reports:  In our Special Education Budget was $79,168,440 or 27.41% of our total (unrestricted +restricted) budget.  In our Special Education Budget was $83,005,828 or 29.38% of our total budget.

Restricted—Title I-III Federal funds Title I are Federal funds targeting lower socio- economic students. We receive these funds based on annual reporting using our “Free and Reduced” lunch numbers. These funds are utilized at the district level and dispersed to our elementary and middle schools that have 65% or more students on Free and Reduced lunches to serve these students educational needs. Title II funds are professional development funds that can be used district-wide Title III funds target English Learner students At the district level we use Title I-III funds along with EIA to pay for 90% of our Student Achievement and School Support Division.

Restricted -- Title I & III With Title I – III funds we have to be careful about the issue of supplanting. Supplanting occurs when you use Title I-III funds to fund personnel or programs in Title I schools and you use district funds to pay for the same personnel or programs in other schools. For example: If you had a vice principal in all middle schools could you save district funds by paying for the vice principal in Title I middle schools out of Title I?  No. However, you could add an additional vice principal using Title I funds.

Restricted--State Categoricals – Tier 1 In 2008/09 the Legislature divided State categorical programs into three tiers.  Tier 1 Categoricals retained their original classification and maintained their full level of funding State Lottery (Unrestricted and Restricted) K-3 Class Size Reduction (Unrestricted, flexibility in the application of the penalty) Special Education (Restricted) ASES – After School (Restricted) TUPE (Restricted) Child Nutrition (Other Funds) QEIA (Restricted) Economic Impact Aid (EIA)—We also have to be concerned about the supplanting issue with EIA funds.

Tiered State Categoricals – Tier 2 Tier 2 Categoricals 08/09 remained tied to their original purpose but funding was cut by 20%  Pupil testing (STAR, CAHSEE, CELDT)  ELAP – English Language Acquisition Effective this program has been folded into Economic Impact Aid (EIA)  Partnership Academies  Transportation

Transportation We are required to provide home to school transportation for students on IEPs with identified transportation needs. We also currently provide transportation for:  Students living in Bay Point and Pittsburg who attend Mt. Diablo HS  Students overflowed from their home school  Students who apply for School of Choice through the No Child Left Behind regulations (this is paid out of Title I funds).

Community Day School We are required to provide an appropriate educational opportunity for students who have been expelled by the district. This can either be through a County program or a district program. Currently, students attend either Diablo Day in Concord or Golden Gate in Martinez.

Restricted Funds continued Local restricted grants  Regional Occupation Program (ROP) – Funded by the County Office of Education (COE)  Site restricted donations for salaries or other expenses

Restricted General Fund Revenue Revenue Limit Sources $ 7,071,893 Federal Revenue37,860,149 Other State Revenue38,076,288 Other Local Revenue10,180,330 Other Sources (Bus COP) 1,326,000 Contribution from Unr.37,108,817 Total Revenue $131,623,477

Section III Questions Think, pair, share: Can you take Title I-III funds to help balance the general fund reductions? What is the concern around supplanting? What are the State Tier I and II categoricals and can we “sweep” them to fund other programs?

Other District Funds

Other Restricted Funds of the District Funds for special purposes excluded from the General Fund The other funds generally cannot pay expenses of the General Fund Special Revenue Funds  Charter School – Fund 09  Adult Education – Fund 11  Cafeteria – Fund 13  Deferred Maintenance – Fund 14 Capital Projects Funds  Building (Proceeds of local bonds for construction – Measure C) – Fund 21  Capital Facilities (a.k.a. Developer Fees) – Fund 25

Other Funds of the District (cont’d) Capital Projects Funds (continued)  County School Facilities (State Allocations for construction) – Fund 35  Capital Project for Blended Component Units (Mello-Roos Measure A) – Fund 49 Debt Service Funds  Bond Interest and Redemption (Measure C) – Fund 51  Debt Service for Blended Component Units (Mello-Roos Measure A) – Fund 52 Foundation Private-Purpose Trust Fund (Scholarship Fund) – Fund 73

Other Funds of the District It is critical to understand that the above mentioned funds can not help us with the reduction to the Revenue Limit or other unrestricted funds

How can we legally utilize Measure C funds to help with the reductions to the general funds? 1. Last October, we used Measure C funds to retire $14 million in Certificate of Participation (COP) Debt. The district was paying $1.4 million annually on the debt service out of the general funds. 2. Last September we “swept” the remainder of the Deferred Maintenance and the carry over account, while still maintaining funds through Measure C to deal with critical facility needs. 3. We are putting in a centrally controlled watering system that is estimated to save $200,000 annually on our water bill that is paid out of unrestricted funding.

Measure C help continued 4. Solar– The solar projected is estimated to save the district more than $200 million over the 30 year expected life cycle of the solar panels. 5. We have built into the contract with SunPower a 20 year maintenance and performance guarantee. 6. Solar—In the first five years between PG&E bill savings and funding received from the California Solar Initiative we estimate more than $30 million in general fund revenue savings. 7. Combined these savings have allowed us to free up $8 million in our general fund budget beginning in the 2012/13 budget cycle.

Questions Think, pair, share Can we take revenue generated in our cafeterias to help address the State budget crisis? Can we take funds from either Measure Cs or Measure A to help address the State budget crisis? Due to the State budget crisis does it make sense not to go forward with the solar project or other facility projects funded out of the Capital Projects Fund? (Why or why not?)

How has the District responded to the State budget crisis over the past three years? District Bargaining Groups and Associations:  CSEA – Teaching assistants & campus supervisors  CST—Office Support Staff  DMA & SUPV—District administrators and supervisors  M&O—Maintenance, Custodians, Technology Support, Bus Drivers, etc.  MDEA—Teachers, nurses, speech pathologist  MDSPA—Psychologists

Combined Response over 3 years Reduced CSEA by FTE (-10.16%) Reduced CST by FTE (-17.41%) Reduced M&O by FTE (-5.48%) Reduced MDEA by FTE (-12.42%) Increased MDSPA by FTE %  Note: increase due to expansion of grant program Reduced DMA & SUPV by 43.2 FTE (-15.85%) Other sweeps and non-personnel cuts $24.98M

How has the district responded? 2008 (implemented in FY 2009):  Reduced CSEA by FTE (-3.62%)  Reduced CST by 7.18 FTE (-2.44%) and lowered one position in Fiscal from Analyst to Sr. Clerk  Reduced M&O by FTE (-6.31%)  Reduced MDEA by FTE (-2.81%)  Reduced MDSPA by 2.7 FTE (-8.16%)  Reduced DMA & SUPV by 11.5 FTE (-4.22%)  Other one-time non-personnel cuts $3.7M Note: the above includes budget cuts and cuts due to declining enrollment and are net of any add-backs.

How has the district responded? 2009 (implemented in FY 2010):  Reduced CSEA by 0.8 FTE (-0.18%)  Reduced CST by FTE (-5.34%)  Reduced M&O by 1.59 FTE (-0.41%)  Reduced MDEA by FTE (-9.56%)  Increased MDSPA by 28.0 FTE +92.1% Note: due to expanding the mental health collaborative grant  Reduced DMA & SUPV by 28.5 FTE (-10.92%) Also, DMA took 3-4 furlough days (-1.64%)  Other non-personnel cuts and one time sweeps and transfers of $15.88M Note: the above includes budget cuts and cuts due to declining enrollment and are net of any add-backs.

How has the district responded? 2010 (implemented FY 2011):  Reduce CSEA by FTE (-6.61%)  Reduce CST by FTE (-10.58%) (includes work year reduction FTE adjustments)  Increase M&O by 5.01 FTE +1.30%  Reduce MDEA by 6.09 FTE (-0.36%)  Increase MDSPA by 3.2 FTE +5.48%  Reduce DMA & SUPV by 3.2 FTE (-1.38%)  $5.4M in other tier 3 sweeps and other cost reductions Note: the above includes budget cuts and cuts due to declining enrollment and are net of any add-backs through first interim.

What has the District done to address the State budget crisis Please review the spreadsheets that have been provided for each school team that identify the actual positions and programs that have been reduced over the past three years.

The ongoing issues Board adopted cuts requiring negotiation:  1.64% (3 days) cut of work year for 2009/10 and 2010/11 DMA in 2009/10; DMA, MDEA and CSEA in 2010/11  3.83% (7-9 days) cut of work year for 2011/12 – 2012/13  Limit health care costs to 2010 rates Implemented for DMA and CSEA. MDEA already has a cap.  Eliminate vacation buyouts  Proration of health benefits for part-time employees DMA and CSEA members hired after April 1, Based on seven hour work day with a minimum of four hours a day Over the last three years we have received more than $20 million in additional one-time Federal dollars. We do not anticipate any Federal help this year.

Compounding rate increases

MDUSD Benefit Costs

Besides cutting what can be done? Get local legislatures to sign a resolution that they will not suspend Prop 98 Work to get a revenue enhancement on the November ballot  Historically districts have only utilized parcel taxes to generate additional revenue. The challenge is the 66.67% vote necessary to pass a parcel tax.  City of Santa Monica passed a sales tax in November that Richmond is modeling a June sales tax after.  The polling over the past two years and the Measure C passage rate indicates an approximate 60% support rate for revenue enhancements.

Back to State Budget Crisis Issues Under the Governor’s January Budget proposal we would have been reduced by $18 per ADA or $587,000 (plus we would have had to budget for decreasing enrollment) At the Second Interim in March we were instructed by the County Office of Education to budget for a $350 reduction in ADA which assumed that Prop 98 would remain in place even if the tax extensions did not go through. This would be equivalent to an $11.3 million annual reduction. Now we are being told that a total reductions budget could result in a $850 reduction in ADA which would be $27.4 million reduction (a total deficit of 32.47%).  This reduction to the revenue limit would be the equivalent of closing school at the end of April.

Next Steps Questions What are the main ideas that you got out of this presentation? Could you make this presentation at your site? If not, what additional information/clarification do we need to provide you? In order to start developing ideas around revenue enhancements and/or reductions what additional information/data do you need?

Thank you for your attention!