1. 1 www.capitoladvisors.org 1

2. 2 Workshops created and presented by: Gerry Shelton, Partner Susan Stuart, Partner Richard Gonzalez, Chief Facilities Advisor Jack O’Connell, Partner Kevin Gordon, President and Partner Abe Hajela, Partner Barrett Snider, Partner Lee Angela Reid, Senior Legislative Advocate

3. 3 www.capitoladvisors.org Adonai Mack Legislative Advocate Dave Walrath President, Murdock, Walrath & Holmes Workshops created and presented by:

4. Workshops sponsored by: Vetted among numerous energy-oriented companies by CAG on behalf of School Districts. Energy services company that has a genuine track record of work in the K-12 education space Direct representation of multiple lines of Energy Efficiency Equipment & Energy Dashboards 4 www.capitoladvisors.org

5. BUDGET ACT 2013-14 5 www.capitoladvisors.org

6. Budget Act Themes and Thoughts Balanced and conservative Focus on K-12 schools & health care Compromise bridges key political and fiscal differences It’s a transition year – LCFF, Common Core, Prop 39 Balancing local control and equity Spend wisely – restore or redirect? 6 www.capitoladvisors.org

7. How it Came Together Compromise represented strong win by Governor across the board – Legislature couldn’t assert extraordinary power – His revenue numbers – LCFF – Emphasis on poverty/ELL – solving cost issues without spending more – Prop 39 – largely the Governor’s vision Democrats – base raised, economic recovery target, tinkering on poverty/ELL formula 7 www.capitoladvisors.org

8. 2013-14 Budget Agreement $96.3 billion budget with $1.1 billion in reserve Prop 98 grows to $56.5 billion in 2012-13 and $55.3 billion in 2013-14 $2.1 billion toward LCFF implementation Governor’s LCFF model with some modifications LCFF accountability system modified since May Revision Adult Education and ROCP MOE requirement $3.9 billion buy-down of K-12 inter-year deferrals (2 years) $1.25 billion for Common Core implementation $381 million to K-12 for Prop 39 implementation $250 million for career pathway innovative grants $50 million increase in mandate block grant funding 8 www.capitoladvisors.org

9. State General Fund Revenues ( Billions of Dollars ) 9 www.capitoladvisors.org

10. State Revenues The Governor appeared to low-ball 2012-13 & 2013-14 revenues to hold back legislators Actual tax receipts through May and June suggest that LAO’s projections are more accurate Higher GF tax receipts mean a higher Prop 98 guarantee Prop 98 settle-up is used for one-time purposes in later years – this fits the Governor’s plan to pay down the “Wall of Debt” and appropriate funds without creating on-going state costs 10 www.capitoladvisors.org

11. Prop 98 Changes Over Time 11 www.capitoladvisors.org

12. Inter-Year (Cross-Year) Deferrals Deferral*Original Amount2012-13 Budget Act**Current Feb 2013 to July 2013 $ 2,000.0 $(1,468.0+532) $ 0 Mar 2013 to Aug 2013 $ 1,300.0 $ (271+1,029) $ 0 April 2013 to Aug 2013 $ 763.8 April 2013 to July 2013 $ 419.0 $ (0+29.4) $ 1153.4 April 2013 to Aug 2013 $ 678.6 April 2013 to July 2013 $ (503.0) $ 175.6 May 2013 to July 2013 $ 800.0 May 2013 to Aug 2013 $ 1,000.0 May 2013 to July 2013 $ 177.0 $ 1,177.0 June 2013 to July 2013 $ 2,500.0.. $ 2,500.0 Total Inter-Year Deferred $ 9,461.4 $ (3,655.4) $ 5,806.0 * all amounts shown in millions ** per final budget agreement 2013-14 Budget Proposal** $ 242.3 Approx. $3.5 billion remaining in Intra-Year Deferrals Balance $ 5,563.7 12 www.capitoladvisors.org

13. Governor’s Plan to Pay Down Debt 13 www.capitoladvisors.org As of end of2010-112012-132016-17 Deferrals to schools and community colleges $ 10.4 $ 6.4 $ - Economic Recovery Bonds $ 7.1 $ 5.2 $ - Loans from Special Funds $ 5.1 $ 4.6 $ 0.5 Prior year mandate claims $ 4.3 $ 4.9 $ 3.1 Prop 98 Settle-up $ 3.0 $ 2.4 $ - Borrowing from Local Gov $ 1.9 $ - Deferred Medi-cal costs $ 1.2 $ 2.0 $ 1.1 Deferral of state payroll costs $ 0.8 $ 0.7 $ - Deferred CalPERS payments $ 0.5 $ 0.4 $ - Borrowing from transportation funds $ 0.4 $ 0.3 $ - Total $ 34.7 $ 26.9 $ 4.7 (In Billions)

14. LCFF COMPROMISE 14 www.capitoladvisors.org

15. LCFF Compromise Fundamental structure of Governor’s proposal retained New: Economic Recovery Target (ERT) New: Base Grants increased New: Supplemental and Concentration Grants adjusted New: CTE/Adult Ed in transition New: Accountability modified 15 www.capitoladvisors.org

16. LCFF Entitlement Target Entitlement Target = Base Grant + Augmentations + Supplemental Grant + Concentration Grant + Add-ons Base Grant per ADA (will receive annual COLA) K-3 = $6,845 7-8 = $7,154 4-6 = $6,947 9-12 = $8,289 Augmentations – 10.4% ($711.88) for K-3 CSR and 2.6% ($215.51) for 9-12 16 www.capitoladvisors.org

17. LCFF Entitlement Target Supplemental Grant – additional 20% of Base Grant + Augmentations for each EL, low income and foster pupil (by enrollment) Concentration Grant – additional 50% of Base Grant + Augmentations for each student eligible for supplemental grant above 55% concentration threshold Add-ons – Home-to-School Transportation and Targeted Instructional Improvement Grant (TIIG) 17 www.capitoladvisors.org

18. LCFF Excluded Categoricals Special education After School Education and Safety Program State Preschool Quality Education Investment Act State Testing Program American Indian Education Centers Early Childhood Education Programs Specialized Secondary Programs California Partnership Academies Agricultural Education Incentive Program Foster Youth Programs Adults in Correctional Facilities 18 www.capitoladvisors.org

19. LCFF Base Grant Supplemental Grant Concentration Grant K – 3 CSR Augmentation 9 - 12 Augmentation Trans. Add-on Entitlement Target TIIG Add-on Hold Harmless Funding 2012-13 Revenue Limit 2012-13 “Included” Categoricals 2012-13 Trans. 2012-13 TIIG 19 www.capitoladvisors.org

20. Goal is to restore all districts to at least 2007-08 funding levels by leveling up LCFF “losers” ERT = undeficited revenue limit in 2012-13 + COLA (1.94%) for 2013-14 thru 2020-21 + categorical funding in 2012-13 w/o 20% flex reductions or “fair share” reductions A district will transition toward the greater of its LCFF Entitlement Target or ERT Most districts will have LCFF ET > ERT Economic Recovery Target 20 www.capitoladvisors.org

21. Economic Recovery Target Approx. 230 districts will have ERT>LCFF ET Approximately 96 of the 230 districts will have an ERT above the 90 th percentile (more than $14,500 per ADA) and will not be eligible to receive ERT payments 45 of those 96 districts receive necessary small school funding 130+ of the 230 districts will have an ERT below the 90 th percentile and will receive ERT payments to restore them to their ERT by 2020-21 ERT payments will be made in 8 equal, annual installments and will be in addition to any LCFF “gap” funding 21 www.capitoladvisors.org

22. Impact on Small School Districts Funded in LCFF if eligible LCFF changes eligibility rules and funding levels by ratcheting down school sizes Continues soft landing for declining enrollment - ADA is “greater of current or prior year” NSS funding increased proportional to increases in statewide average LCFF allocations Uncertainty for some small districts above the 90 th percentile with respect to Economic Recovery Target payments 22 www.capitoladvisors.org

23. County Offices of Education New oversight responsibilities – LCFF Supplemental and concentration grants different (supplemental Grant = 35%, concentration grant = 35% after 50%) Creates two-part formula based on costs for regional services and for alternative education Regional support funding: Base grant of $655,920 Additional amount of $109,320 per school district in the county Additional $40 to $70 per ADA in the county (based on a sliding scale, with less populated counties receiving a higher amount per ADA) Alternative education funding: Base rate of $11,045 per eligible pupil (pupils who are incarcerated, on probation, probation-referred, or mandatorily expelled) 23 www.capitoladvisors.org

24. Budget Act LCFF Data Runs District NameDistrict Type Average Daily Attendance 2012-13 English Learner, Low Income and Foster Youth Unduplicated Percentage 2012-13 Per Pupil Allocation 2013-14 Compromise Proposal Pre-Recession Funding (07- 08 with COLA Applied) in 2020-21 Compromise Proposal, 2020-21 Economic Recovery Payment (X=Yes) Jefferson County LMNOP Elementary ELEMENTARY4648%10,41310,92914,539 X XYZ City UnifiedUNIFIED8,89043%6,3916,6219,3179,851 DOF has produced LCFF data runs, which we are providing to you Outcomes are predicted, not guaranteed Use this for general planning purposes, but make your own assumptions and do your own calculations 24 www.capitoladvisors.org

25. CTE/ROCPs Partnership Academies, Ag Incentive Grants and Supplemental Secondary Grants pulled out ROCP funds stay in the LCFF 2-year prohibition on redirection of ROCP JPA funds 2-year MOE requirement on ROCP expenditures Grade 9-12 augmentation – restrictions (now you see them, now you don’t) $250 million career pathways funding (one- time) 25 www.capitoladvisors.org

26. Adult Education Adult Ed funding stays in the LCFF 2-year MOE requirement on Adult Ed expenditures $25 million in 2013-14 for 2-year planning and implementation grants 26 www.capitoladvisors.org

27. Grades K-3 Class Size Reduction Transition to 24:1 Identify gap between 2012-13 K-3 average class enrollment by school site and target of 24:1 Begin to close K-3 class size gap in proportion to progress toward closing LCFF entitlement gap – 2013-14 progress toward entitlement target is 11.74% Base Grant add-on is per ADA while CSR goal is based on enrollment Can locally negotiate a different ratio 27 www.capitoladvisors.org

28. LCFF Accountability Compromise between January proposal (local control) and May Revision (strict expenditure restrictions) Major decisions moved to SBE rather than Legislature Most provisions will not apply for 2013-14, but be careful Follow broad reference in trailer bill and DOF guidance – Need to plan ahead for 2014-15 – Advocacy groups mobilized to scrutinize spending decisions 28 www.capitoladvisors.org

29. Expenditure of Supplemental and Concentration Grant Funds SBE to adopt regulations by Jan 31, 2014 that: Require a school district, COE, or charter school to “increase or improve services” for grant generating students “in proportion to the increase in funds apportioned on the basis of the number and concentration” of those students Authorize use of these grant funds for school-wide or district-wide purposes in a manner that is no more restrictive than the restrictions in Title I of the federal No Child Left Behind Act of 2001 6/19/2013 29

30. Accountability – State Priorities 1)Compliance with Williams criteria – instructional materials, teacher assignments and credentials, facilities 2)Implementation of SBE adopted academic content standards, including programs and services for ELs to access the common core and ELD standards 3)Parental involvement 4)Pupil Achievement – statewide assessments, API, completion of A-G requirements, CTE sequences and AP courses, EL progress toward proficiency, college preparation (Early Assessment Program) 30 www.capitoladvisors.org

31. Accountability – State Priorities (cont.) 5)Pupil engagement – attendance, dropout and graduation rates 6)School climate – suspension and expulsion rates, etc. 7)Access, including for subgroups and special needs, to a broad course of study in specified subject areas 8)Pupil outcomes in specified subject areas 31 www.capitoladvisors.org

32. Local Control and Accountability Plans By July 1, 2014 each LEA must adopt (over 2 public hearings) a local control and accountability plan (LCAP) that describes: Annual goals, for all students and for each LCFF subgroup, for each of the specified state priorities and for any additional identified local priorities The specific actions the LEA will take to achieve those goals 32 www.capitoladvisors.org

33. Budget Aligned to LCAP For 2014-15, and each subsequent year, the LCAP must be adopted before the LEA adopts its budget The county superintendent, or SPI, shall disapprove a budget that does not include the expenditures necessary to implement the LCAP 33 www.capitoladvisors.org

34. Updated LCAPs For 2015-16, and each subsequent year, the LCAP must be updated to include: A review of LCAP goals, an assessment of progress toward the goals and the effectiveness of specific actions linked to those goals, and any changes to the goals and specific actions A listing and description of expenditures (CSAM) for that fiscal year that implement the specific actions identified in the LCAP A listing and description of expenditures that will serve students that generate supplemental and concentration grants 34 www.capitoladvisors.org

35. Evaluation and Technical Assistance SBE to adopt LCAP evaluation rubrics by October 1, 2015 that: – Assist LEAs in evaluating strengths and weaknesses and areas needing improvement – Assist county superintendents or the SPI to identify LEAs in need of technical assistance – Assist the SPI to identify LEAs for which intervention is warranted California Collaborative for Educational Excellence (CCEE) - $10 million to create the CCEE to provide technical assistance to LEAs to meet the state priorities identified in each LCAP 35 www.capitoladvisors.org

36. Oversight and Intervention LCAPs submitted to county superintendent (the SPI for COEs) for review, and shall be approved if: – LCAP adheres to SBE template, and – The budget includes expenditures sufficient to implement the specific actions identified in the LCAP If LCAP is not approved, or if the LEA requests technical assistance, the county superintendent (or SPI) may: – Assist in identifying strengths or weaknesses related to the state priorities – Assign an academic expert or team to assist in implementing effective programs and improving student outcomes – Assign the CCEE to provide advice and assistance 36 www.capitoladvisors.org

37. Oversight and Intervention The SPI is authorized to intervene if both of the following criteria are met: The LEA did not improve outcomes for three or more pupil subgroups (ethnic, socio-economically disadvantaged, ELs, special needs, foster youth) with respect to more than one state priority for three out of four years, AND The CCEE has provided assistance and submits findings of failure to implement recommendations or persistent inadequate performance 37 www.capitoladvisors.org

38. Oversight and Intervention SPI intervention may include: Modifications to the LCAP Budget revisions to improve outcomes related to the state priorities Stay and rescind any actions, other than those required by CBAs, if doing so will improve outcomes Appoint a trustee to exercise this authority 38 www.capitoladvisors.org

39. LCAP Timeline January 31, 2014 – SBE regulations on use of supplemental/concentration grant funds March 31, 2014 – SBE template for LCAPs July 1, 2014 – First LCAPs with 2014-15 budget expenditures aligned to the LCAP July 1, 2015 – First LCAP update with additional expenditure reporting October 1, 2015 – SBE evaluation rubrics 39 www.capitoladvisors.org

40. OTHER MAJOR BUDGET ISSUES 40 www.capitoladvisors.org

41. Funding for Common Core $1.25 billion in one-time funds Distributed based upon prior year enrollment (approx. $200 per pupil) Goes to school districts, COEs, charter schools May be used for professional development, instructional materials, and technology enhancement LEAs may encumber funds in 2013-14 or 2014-15 Funds subject to annual audit LEAs must: – Create plan for use of funds, describe and adopt at a public meeting – By July 1, 2015, report detailed expenditure information to CDE 41 www.capitoladvisors.org

42. Proposition 39 $2.5 billion over 5 years focused on K-14 exclusively Starting in 2013‐14 - $381 million for K‐12 CA Energy Commission (CEC)to develop guidelines, application “form,” and approve applications. CDE to distribute funding. Guidelines issues following “public input” Funds allocated 85% on a per pupil basis and 15% on the basis of the number of NSLP eligible pupils Goal to get funding out in the budget year. 42 www.capitoladvisors.org

43. Proposition 39 Multi-year project approval being considered Grantees receiving more than $1 million must spend at least 50% on projects of $250K or more Energy Conservation Assistance Account – Revolving loan program with low/no interest loans - $28M in 2013-14 – Considerations for small LEAs $15,000 minimum grant for small LEAs of 100 ADA or less $50,000 minimum grant for ADA between 101 and 1,000 $100,000 minimum grant for ADA between 1,001 and 1,999 2‐year advance on allocation available for districts with ADA 1,000 or less - August 1 st Application to CDE 43 www.capitoladvisors.org

44. Proposition 39 Energy Commission Guidance Details To Come Project Criteria Summary must: – Focus on energy efficiency & demand reduction first – Be cost-effective – Require contracts with specific project details (i.e. Energy calculations, specifications, & costs) Submit annual financial audits “Alternative energy generation projects and other innovative energy projects may be considered only if the LEA can document on their annual expenditure report that all other cost effective energy efficiency projects are already installed or have committed installation contracts.” 44 www.capitoladvisors.org

45. Proposition 39 Project Design Recommendations – Benchmarking – Sequencing of facility priority – Surveys and assessments Project Examples – Lighting Retrofits – Lighting Controls – Heating & Cooling Equipment – Heating & Cooling Controls – Water Heating – Building Envelope – Water Efficiency – Pool Equipment – Demand Response 45 www.capitoladvisors.org

46. Child Nutrition COLA on state programs funded at 1.565% ($2.438 million) Decrease in projected meals served led to “growth” funding decrease of -$1.331 million Increased federal funds to CDE: – $1.0 million to increase the frequency of compliance reviews as a result of new federal requirements – $200,000 to increase technical assistance on new federal requirements under the Healthy, Hunger-Free Kids Act of 2010 46 www.capitoladvisors.org

47. Special Education 2013-14 COLA funded at 1.565% Protects Necessary Small Special Education Local Plan Areas Does not backfill $61 million federal sequestration cut Governor vetoes $30 million for equalization Debate over re-appropriation begins Consolidates various programs 47 www.capitoladvisors.org

48. Child Care and Preschool Backfills $15.9 million in sequestration cuts ($11.1 million-General Child Development; $4.2 million- Alternative Payment programs; $.6 million-Migrant Day Care) Authorizes transfer of unused CalWORKs Stage 2 funds to Stage 3, if needed Re-appropriates $10 million in unused 2012-13 funds to establish new slots ($7 million-General Child Development; $2.6 million-Alternative Payment programs; $.4 million-Migrant Day Care) 48 www.capitoladvisors.org

49. School Facilities Changes Eliminates minimum contribution for routine restricted maintenance Eliminates state funding for deferred maintenance, makes it a local discretion with no match Allows LEAs to use proceeds from the sale of surplus property for any one-time general fund use through 2016 Makes permanent the requirement that a school district give first call on surplus property to charter schools (sale or lease) – Revises to only apply to charters with at least 80 units in- district ADA for the following fiscal year 49 www.capitoladvisors.org

50. School Facilities Program State facilities bond funds mostly exhausted OPSC no longer processing applications for eligibility, modernization, and new construction Applications are checked for appropriate state approval and indexed by date order Expect OPSC to resume processing some applications as we get closer to state bond approval 50 www.capitoladvisors.org

51. Mandates County Office of Education  $28 per K-8 ADA  $56 per 9-12 ADA  $1 per countywide ADA School District  $28 per K-8 ADA  $56 per 9-12 ADA Charter School  $14 per K-8 ADA  $42 per 9-12 ADA Block Grant increased by $50 million for inclusion of Graduation Requirements No funds for filed claim reimbursement Amends Behavioral Intervention Program to essentially define away the state mandate – CSBA remains concerned Block Grant election - August 30 51 www.capitoladvisors.org

52. Governor’s Vetoes The Governor vetoed funding for – federal funds support ($225,000) by eliminating the requirement to develop a child care preschool plan for a universal preschool program – federal funds support ($225,000) by eliminating the requirement to translate parent notifications and templates – Prop 98 support ($30,000,000) of Special Education by deleting the proposed equalization of special education funding – Prop 98 support ($5,000,000) of State Preschool by deleting some of the proposed increase in preschool slots The Governor sustained funding, but provided comments on the future of the California Collaborative for Educational Excellence, Specialized Secondary Programs, and the Agricultural Career Technical Education Incentive Program 52 www.capitoladvisors.org

53. OTHER ISSUES 2014 Policy and Budget 53 www.capitoladvisors.org

54. School Facilities Bond in 2014? Governor doesn’t support status quo, wants simplification and more local control Potential conflict with 2014 water bond Potential bond language being discussed 2014 state bond probably $5-7 billion Supported by SPI and education community 54 www.capitoladvisors.org

55. Parcel Taxes Expect discussions in early 2014 Dems control 2/3 needed to place Constitutional Amendment on ballot Lowering vote threshold from 2/3 to 55% Polling trending down Assembly working on alternative to allow school boards to levy different types of taxes 55 www.capitoladvisors.org

56. CABs Legislation AB 182 (Buchanan) moving through Senate – Limiting CABs to Ed Code and financings to 25 years with max 8% interest rate – LEAs may use Gov. Code for standard bonds with financing at 30 years (down from 40) – Requiring a 4 to 1 repayment – All CABs must be callable – Requires two public presentations, financial analysis of the CAB, rationale for it, comparison with standard bond, and info about the underwriter 56 www.capitoladvisors.org

57. Local Bond Campaign Reform AB 621 (Wagner) prohibits an LEA from entering into a financial advisory, legal advisory, underwriting, or other similar relationship with an individual or firm if that individual or firm provided, or will provide, bond campaign services to the bond campaign Would take effect January 1, 2014 Bill pending in the Senate 57 www.capitoladvisors.org

58. Cost Pressures Common Core Standards – Professional Development, Instructional Materials and Technology CalPERS Contributions CalSTRS Contributions Affordable Care Act Return to 180 Day Return to 24:1 Employee Salaries and Benefits Energy Costs 58 www.capitoladvisors.org

59. Collective Bargaining Expenditure, program and accountability rules are yet to be developed, so do not go beyond 2013-14 Maintenance of Effort requirements Make management decisions within new accountability framework Consider 2014-15 and following year obligations before finalizing agreements 59 www.capitoladvisors.org

60. The Budget Act and Trailer Bills AB 110 - Budget Bill - The 2013‐14 State Budget SB 73 - Proposition 39 implementation - Implements the California Clean Energy Jobs Act (Proposition 39) by allocating energy efficiency funds, and providing grants to K‐12 and Community Colleges AB 86 - K‐12 Education – Main education trailer bill; includes retiring deferrals, $1.25 billion for Common Core, and $250 million for CTE grants AB 97 - Local Control Funding Formula - Implements the LCFF; includes LCFF grants, LCFF transition, ERT, LCFF accountability, and MOEs for ROCPs and adult education SB 91 - Local Control Funding Formula – Enacts amendments to AB 97 60 www.capitoladvisors.org

61. Thank You We will send you this PowerPoint Please feel free to use the content as you wish Questions? Please contact Kristie Rucker at kristie@capitoladvisors.org, or (916) 557-9745 61 www.capitoladvisors.org