San Leandro Unified School District
California School Finance and
Management Conference 2013-14
Board Meeting
August 13, 2013
Presented By
Song Chin-Bendib
Associate Superintendent, Business & Operations
Themes for the Budget – 2013-2014
This is going to be a good year for schools!
Passage of Proposition 30 ensures no cuts to education
The State Budget is legitimately balanced for the first time since 2002
The structural deficit has been eliminated for the duration of Proposition 30
New tax rates on highest-income earners – married tax payers at $500,000 or
above beginning in 2012 through 2018 (7 years)
Increases state’s sales tax rate by one-quarter cent beginning this year
through 2016 (4 years)
Common Core Standards (CCSS) have been adopted
Local Control Funding Formula (LCFF) is the cornerstone of the Governor’s
budget
The Governor is on a roll
He has stabilized the state’s budget
He enjoys a two-thirds majority in the Legislature
He has the support of the voters
2
The National Economy
Pluses:
The U.S. economy is continuing its “slow-jam” recovery
Historically low interest rates; housing recovery well underway
Optimism is building as personal consumption rates improve
Challenges:
Recovery is fragile
While imports have increased, driven primarily by consumer spending,
exports have slowed:
Recessions in Europe and Japan
Slower growth in China
First quarter Gross Domestic Product (GDP) growth revised downward from
2.4% to 1.8%
Federal sequestration in both 2012-13 and particularly in 2013-14 has reduced
spending and investment
Higher payroll and income taxes and Affordable Care Act (ACA) have left many
3
consumers uncertain about the future
The California Economy
California has followed an uneven path to economic recover
Median home prices have increased 22.5% last year
Unemployment rate is expected to fall to 8.1% (1% higher than the 2014
projected U.S. rate)
Strong Revenue performance in May and June 2013
Bifurcated path of the state economy
The inland regions are characterized by continuing high unemployment
and ailing housing markets
The coastal regions enjoy relatively low unemployment, improving
housing markets, and higher average incomes
4
Budget Risks Are Few in 2013-2014
Compared to prior years, the proposed 2013-14 State Budget faces considerably less
risk
Unlike the 2012-13 spending plan, it is not dependent upon voter approval of a
major tax initiative
Unlike the 2011-12 State Budget, it is not dependent upon an unrealistic revenue
projection
The plan does not rely on an infusion of federal funds to maintain programs
E.g. Federal Stimulus money; Jobs Bill
Yet, the Governor’s May Revision (ultimately became the final 2013-14 State Budget
Act) lowered the revenue outlook for 2013-14 by $1.3 billion because of expected drag
that federal budget policy would have on the economy
Sequestration cuts would reduce federal spending
Higher tax rates for high –income earners and expiration of the federal payroll tax
holiday would depress consumer spending
The LAO’s revenues were forecast to exceed the May Revision by $3.2 billion
Note: Thus far, May and June state revenues exceeded forecast
5
Is the Administration and Department of
Finance’s Forecast Reasonable?
In order to assess the risks of the DOF’s revenue forecast, not just for 2013-14
but through 2016-17, School Services of California, Inc., (SSC) commissioned
Capitol Matrix Consulting (CMC) to perform an independent analysis of the
DOF forecast
Brad Williams, a partner with CMC, served as the LAO’s senior economist
for 12 years and was recognized by the Wall Street Journal as the most
accurate California forecaster of the 1990s
The SSC/CMC analysis finds that the DOF forecast is reasonable, with greater
upside potential than downside risks
We assume that:
The U.S. expansion will continue at a moderate pace for several years
California personal income will rise from 3.4% in 2013-14 to an annual
average pace of 5.5% through 2016-17
Payroll jobs will grow at an annual average rate of about 2.2%
6
Confidence Intervals and the Forecasts
Source: General Fund Revenues and Proposition 98 Forecast, CMC, July 2013
7
Conclusions About the DOF Forecast
Based on the independent analysis conducted by CMC, the DOF forecast is
reasonable and falls within the +/- 1 SD confidence interval
There is more upside potential that actual revenues exceed the
Administration’s forecast than downside risks that revenues will fall short
The Administration’s General Fund revenue forecast, therefore, provides a
reasonable basis to project Proposition 98 revenues
The Proposition 98 projections, therefore, provide a reasonable basis to
project revenues available to fund the LCFF
Revenues available to fund the LCFF allow districts to estimate revenues
for purposes of their multiyear budget projections
8
Proposition 98 Forecast
9
Proposition 98
Proposition 98 sets the minimum funding level for K-12 education and
community colleges
Adopted by state voters in 1988, this is a constitutional guarantee
The measure specifies only the minimum funding level, it does NOT
determine what programs will be funded
The State Budget implemented several changes from the May Revision
State Budget Act
May Revision
1
$2.1 B LCFF in 2013-2014
Was $1.9 B
2
$1.25 B for one-time costs of CCSS
Was $1 B
3
$250 M for CTE pathways Grant Program
4
$217 M K-12 Mandate Block Grant (MBG)
Was $267 M
5
$1.6 B for deferral buybacks in 2012-2013 and $242 M for 2013-2014
Down by $658 M
10
Proposition 98 and LCFF
Proposition 98:
It is important to remember that Proposition 98 establishes the minimum
funding level for K-14 education
The Legislature and the Governor decide on an annual basis at what level
to fund the various education programs
Local Control Funding Formula (LCFF): 8-year implementation phase until 202021
The LCFF is the model by which state funds are allocated to school districts,
charter schools, and county offices of education (COEs)
Unlike revenue limits and Tier III categorical programs, there are no state
statues that specify an annual appropriation to support the LCFF
This makes multiyear planning very difficult
A district’s annual LCFF entitlement will be determined by “any available
appropriations” (Education Code Section [E.C.] 42238.03[b][3]
11
Proposition 98 and LCFF
continued…
The eight-year (2013-14 to 2020-21) implementation phase is not set in
statute and can be longer or shorter than eight years, depending upon the
annual LCFF appropriation
The different demographic composition of student populations will result
in vastly different revenues (significant revenue volatility will be imposed
on districts with high proportions of students eligible for
supplemental/concentration grants)
The statutory COLA no longer determines out-year funding increases
(individual districts are not guaranteed a funding increase equivalent to
the COLA adjustment)
12
Differential Risks Under the LCFF
School districts will face vastly different levels of risk during the
implementation phase of the LCFF
School districts experiencing significant annual funding gains can face
major declines as well
While the statutory COLA is forecast to average 2.3% between 2013-14
and 2016-17, some districts could see gains under the LCFF of 6% to
8% annually
Multiyear contracts that assume high annual increases in LCFF revenues
could fall out of balance when/if state LCFF appropriations fall
In 6 years over the last 20, the state either provided no increase to fund the
statutory COLA or cut funding levels due to downturns in the economy and
revenues
It is simply a matter of time when the next downturn occurs
13
Differential Risks – An Example
14
Conclusions About Multiyear Budgeting
Because of the differential risks under the LCFF, all school districts, but
especially high-funded districts, will have to make prudent out-year revenue
assumptions
There is no longer a statewide standard for expected revenue growth in
the form of an expected inflationary adjustment
Each district will have to carefully assess its demographic projections
The total projected ADA
The demographic composition of the ADA, i.e., low-income students,
English learners, and foster youth
State Budget priorities can change from year to year with no guarantee that
LCFF growth will be provided or that the LCFF will be fully funded
The statutory protection of annual COLAs is eliminated
Local conditions and budget decisions will be more important than ever in
maintaining each district’s solvency
15
LCFF
The Governor’s policy goals to reform the state’s school finance when he unveiled
the Weighted Student Formula in January 2012, the precursor to the LCFF
Increase transparency and reduce complexity
Reduce administrative burden
Improve funding equity across school districts
Improve local accountability
To attain these goals, the LCFF
Eliminates revenue limits and almost all categorical programs, except those
established by state initiative, federal statutes, or court orders or settlements
Establishes base grants for four grade spans
Establishes supplemental & concentration grants to provide supplemental
services to low income and English learner students
In general, a school district is better off under the LCFF if:
Its base year funding is below the statewide average
The proportion of students qualifying for supplement/concentration grants is
above the statewide average
16
The state provides a significant amount for LCFF growth in a given year
Elements of the Formula
Base grant targets:
K-3 CSR: add-ons equal to 10.4% of base grant
24-student average must be reached at full implementation of the LCFF
(planned for 2020-21)
During the intervening years, districts are to meet intermediate targets
A district’s failure to meet the target at one school site would result in the
loss of all K-3 CSR funds districtwide
CTE: 2.6% for grades -12
20% supplemental grant
50% concentration grant (for eligible students exceeding 55% of enrollment)
17
LCFF – K-3 CSR and CTE Adjustments
Factors
K-3
4-6
7-8
9-12
Base grants – 2013-14
$6,952
$7,056
$7,266
$8,419
Adjustment percentage
10.4% CSR
-
-
2.6% CTE
$723
-
-
$219
Adjusted grant per ADA
$7,675
$7,056
$7,266
$8,638
20% supplemental grant
$1,535
$1,411
$1,453
$1,728
50% concentration grant
(for eligible students
exceeding 55% of
enrollment)
$3,838
$3,528
$3,633
$4,319
Adjustment amount
18
Common Core State Standards (CCSS)
CCSS is a nationwide initiative to establish a single set of standards for K-12
education in English language arts and mathematics to ensure college and
career readiness
The State Budget provides $1.25 billion in one-time funds from 2012-13 for the
implementation
Funds will be allocated based on prior-year enrollment
Estimated to be about $200 per student (about $1.7 M for SLUSD)
Funds will be apportioned in July 2013 (50%) and August 2013 (50%)
LEAs can encumber funds any time during the 2013-14 and 2014-15 school
years
Funds can be spent on:
1. Professional development
For teachers, administrators, and paraprofessional educators or
other classified employees involved in the direct instruction of
pupils that is aligned to the CCSS academic content standards
19
Common Core State Standards (CCSS)
continued…
2. Instructional and supplemental instructional materials
3. Technology
Integration of the content standards through technology-based
instruction for the purposes of improving the academic
performance of pupils including but not limited to: the
administration of computer-based assessments and providing
internet connectivity to support computer-based assessments
Develop and adopt an expenditure plan detailing how the funds shall be
spent; a public hearing must be held on the plan
On or before July 1, 2015, a detailed expenditure report to CDE
20
Other Programs
Special Education
The Governor vetoed a $30 million augmentation for special education
equalization:
The veto message noted that implementing special education would reduce
available funds to implement the LCFF and pay off deferrals in the out years
Several changes to AB 602 funding formula
Adult Education
Adult Education is an important program that has been jerked all over the planet!
It is part of the LCFF
Allowed school districts to continue existing education programs for two years
The Enacted State Budget is far more prescriptive, requiring LEAs maintain the
same level of Adult Education expenditure in 2013-14 and 2014-15 as were
expended in 2012-13
$30 million in 2013-14 for two-year planning and implementation grants
Regional Occupation Centers/Programs
It is part of the LCFF
21
Balances, Reserves, and Planning
The LCFF revenue model leads to an entirely new way of thinking about
revenues, reserves, balances, and planning for the future
Gone are the anchors of the past: base revenue limit, deficit factor,
current-year COLA, etc.
They are replaced with a “commitment” by the state to make a
contribution to “closing the gap” each year
But there is no statutory calculation for how much the state will
contribute – and no obligation to fund any certain amount
This has huge implications for districts
Many districts will need to maintain much larger reserves
Much of the “new money” will still be tied to expenditures for specific
programs
22
There is No Such Thing as a Good Budget
That Does Not Have an Adequate Reserve!
Good budgets have good reserves; but how much is really needed?
Under revenue limits, the State Board of Education (SBE) set reserve
levels as a percentage of expenditures based on district size – that won’t
work anymore
Some districts will have much more risk and volatility than similar-sized
districts – they may need ten times the amount of the state’s
recommended reserves
All state-recommended reserve levels will now be too low
23
Volatility Increases Reserve Requirements
Under the old rules, all districts could plan for similar changes in revenue
limits – not so under the LCFF
Every district has its own starting point and its own unique goal
Some districts will project very large increases and others very modest
increases
And while the percentage contributed by the state toward the goal is said
to be consistent, the actual dollar differences are huge
A good year, with a very high percentage contribution, will drive expenditures
higher
But what happens when times are not so good and there is no increase or
even another cut?
By the way – this just in – there will be another recession!
Districts will need a larger buffer to provide time to make ongoing budget
adjustments
24
Things to Do
Get your 2013-14 budget squared away
Update your projections using the SSC Dartboard, the SSC Simulator, and
your own MYP
Budget for the CCSS one-time revenues, and start planning smart
expenditures
Bring stakeholders along; help them to understand the new system
Get ready for negotiations
Be prepared to spend time training on both sides of the table
Create clear, concise, and transparent displays of financial information
Both parties need to spend a lot of time listening and developing trust
Get out into the school communities
The Local Control Accountability Plan (LCAP) requires community
involvement
25
Start those processes now
Things to Do
Review your cash flow
The decisions on deferrals for 2012-13 came too late, but we should see
the results of continued buy downs and less need for borrowing
Plan for implementation of CCSS
Two-year period for use of one-time funds
Technology, instructional materials, and professional development all
need to be addressed
Plan a balanced recovery for your district; deal with:
Structural budget deficits
Higher need for reserves
Restoration of compensation and positions
Don’t try to do it all at once, but get started
Re-think instructional delivery at your lowest performing schools
You will have more money for that purpose
But remember, you have an obligation to all students!
26
Appendix
The Local Control Accountability Plan
(LCAP) Then and Now
LCAP
May Revision . . .
• Local goals focused on improved
student outcomes
• Goals aligned with annual spending
plan
• Adopted every five years and updated
annually
Enacted State Budget . . .
• Annual goals and specific actions based
on state priority areas for the district and
each school in the district
• Description of expenditures implementing
specific actions
• Adopted every three years and updated
annually
28
Oversight Responsibilities Then and Now
County and State Superintendent
Oversight
May Revision. . .
• Technical assistance
• Approval and disapproval of local plans
• Review data on eligible student counts
• Stay and rescind actions of a local governing
board
Enacted State Budget . . .
• Technical assistance
• Approval and disapproval of local plans based on adherence to SBE-adopted template and
sufficiency of funds allocated for implementation of Local Control Accountability Plan
(LCAP)
• COE approval of plans and posting of plans for each district and each school in each
district or a link to each plan on the COE website
• Stay and rescind authority granted solely to Superintendent of Public Instruction (SPI)
upon approval of the SBE
29
State Requirements Then and Now
State Requirements
May Revision . . .
• Performance expectations
• Expenditure requirements
• Proportionality rule
• MOE requirement until full implementation
of LCFF
Enacted State Budget . . .
• State priority areas explicitly stated
• SBE will update standards and criteria for local budget adoption and make changes to
API based on the LCFF
• Proportionality rule less rigid allowing for schoolwide and districtwide expenditures
subject to regulations to be adopted by the SBE
• No mention of an MOE requirement
30
What Do I Have to Do and When Do I Have
to Do It?
On or before July 1, 2014, and every three years thereafter, LEAs must adopt
the LCAP using the template adopted by the SBE
The LCAP must include a description of the following:
Annual Goals
Based on state priorities for all students and “numerically significant
subgroups”
Numerically significant: defined as 30 students with valid test
scores at the school or school district – with the following
exceptions
Foster youth – 15 or more students
Schools or districts with 11 to 99 students – defined by the
superintendent with approval of the SBE
31
What Do I Have to Do and When Do I Have
to Do It?
Specific Actions
What steps the LEA will take to accomplish the annual goals
Districtwide actions and actions by school site
Description of Expenditures
For each fiscal year of the plan, list and describe expenditures
implementing specific actions included in the LCAP
List and describe expenditures serving “unduplicated” students and
students re-designated as fluent English proficient
32
Adopting and Updating the LCAP
Changes from the May Revision:
2
1
Consultation with:
• District
Assistance and
Intervention
Team
• Teachers
• Principals
• School
personnel
• Pupils
Present for review and
comment to:
• Parent advisory
committee
• English learner
parent advisory
committee
• The superintendent
must respond in
writing to comments
received
3
4
Adoption of the plan:
• Adopted
Opportunity for public
concurrent with
input:
the LEA’s budget
• Notice of the
• Submitted to
opportunity to
COE for approval
submit written
• Posted on
comment
district website
• Public hearing
• COE posts LCAP
• The superintendent
for each
must respond in
district/school or
writing to
a link to the
comments received
LCAP
33