2013-14 Second Interim Report, Concurring with District’s Positive Certification
____________, 2014
__________________, Superintendent
_______________________ School District
[Street and number]
[City], CA [Zip]
__________________, Board President
_______________________ School District
[Street and number]
[City], CA [Zip]
Subject: 2013-14 Second Interim Report — Concurring with the District’s Positive Certification
Dear _____________ and _______________:
Our office has completed its review of the _____________ School District’s Second Interim Budget
Report for 2013-14 in compliance with the provisions of Education Code 42131(a)(2). The code requires
the county superintendent to approve or disapprove Interim Report certifications after:
Examining the report to determine whether it complies with the standards and criteria
established pursuant to Section 33127.
Determining whether the second interim budget will allow the district to meet its financial
obligations during the current fiscal year and is consistent with a financial plan that will enable
the district to satisfy its multiyear financial commitments.
Based on our review, the board’s POSITIVE certification of the second interim budget report has been
approved.
State and National Economic Influences for ______________ School District
Our fiscal oversight role includes carefully monitoring the economy, its impact on state and federal
revenues, and how these might affect [county name] school districts and students. This year is the first
year of funding under the Local Control Funding Formula (LCFF). This fact and an improved economy
mean more funding for many school districts but not all. No two districts are alike. Also on the watch list
are unknowns regarding pending implementation costs associated with the Affordable Health Care Act.
This letter highlights these areas and others under watch for _____________ School District.
2014-15 Governor’s Budget Proposal
On January 9th, the governor released his 2014-15 budget proposal. Under the governor’s budget, K-12
revenues are projected to increase by $4.8 billion. Much of this increase, plus other one-time money, is
directed toward paying the debt owed to schools. In fact, the governor proposes to eliminate deferrals
completely in 2014-15.
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2013-14 Second Interim Report, Concurring with District’s Positive Certification
Another significant area within the governor’s budget is a clear commitment to funding more of the LCFF.
The governor’s budget increases the amount of gap funding, thereby bringing districts closer to their
LCFF targets.
Local Control Accountability Plans (LCAP) for _________________ School District
The most significant area under watch for all districts is the impact of the spending regulations adopted by
the State Board of Education. The spending regulations give direction for calculating the amount each
school district will need to direct toward increasing or improving services for English learners, low income,
and foster youth students. Through each district’s LCAP, districts will need to demonstrate how this will
occur. A key component of the LCAP development process requires engagement from teachers,
students, parents and the community. Once approved by the governing board, the LCAP and supporting
annual budget must be approved by the county superintendent.
The district’s first interim budget and multiyear projection was based on gap funding percentages of
16.49% in 2014-15 and 18.69% in 2015-16. The governor’s proposal provided updated gap funding
percentages for the subsequent years of 28.05% and 33.95%, respectively. The increase in gap funding
reflects the improving economy as well as the fact that the current budget dedicates Proposition 98 funds
to paying off deferrals. These ongoing funds become available to the state’s budget for schools once the
deferrals are paid.
Basic Aid
For ____________ School District, the LCFF does not generate revenue beyond the minimum state aid
for former categorical funding as reduced for the fair share reduction. Nonetheless, current estimates
indicate that the LCFF entitlement is growing at a faster pace than property taxes per ADA and that the
district will become state-funded in the 2014-15 school year.
Special paragraph for Rurals
The state budget adoption amended the law related to necessary small school funding, requiring all
schools that use this block grant funding to meet distance eligibility requirements. Under the new law,
resident students attending an extremely small school (five resident students) would have to travel 10
miles or more from their homes to attend an alternate public school. A school serving 15 resident
students or more has a distance requirement of five miles. It appears the district will lose eligibility for the
necessary small school funding allowance under this new law; however, the passage of SB97 in August
2013 introduced a hold harmless provision guaranteeing minimum state aid equal to the allowance
received in 2012-13.
FEDERAL SEQUESTRATION CUTS
Federal sequestration cuts refer to the automatic spending reduction triggered in the federal budget for
fiscal year 2013. As a result of sequestration, districts were advised to plan for a 5.2% reduction in federal
funding for the 2013-14 school year. The federal government has since taken action to restore most of
the funding for education for fiscal year 2014. As a result, districts should expect increases of at least 4%
above fiscal year 2013 sequestration levels when planning for the 2014-15 school year. For years
subsequent to 2014-15, it would be prudent to plan for possible additional reductions in federal funding
until congress resolves the federal deficit issues that led to sequestration.
Student Attendance
We note that the district’s second interim budget is based on an increase in average daily attendance
(ADA) of ___% or ___% over the prior year, (with an assumption that ADA will continue to increase over
the multiyear projection. We note that the multiyear projection shows an increase in teaching staff to
accommodate the increased number of students). The district has been experiencing steady growth in
ADA over the last few years as shown in the chart below.
ADA growth combined with depressed growth rates in property taxes propelled the district out of basic aid
status in 2012-13. The district’s second interim budget shows an increase of _____ ADA over the prior
year, confirming the district’s state-funded status. Shifting to state funding means the district will now fully
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2013-14 Second Interim Report, Concurring with District’s Positive Certification
benefit from growth in the LCFF. This change affects the district’s cash flow pattern, which the district has
been managing carefully.
ADA growth combined with depressed growth rates in property taxes will propel the district out of basic
aid status in the current fiscal year
Property Tax Trends
The district’s second interim budget assumes property taxes will grow by I% in 2013-14. Although growth
in property taxes is finally picking up after the severe downturn in the housing market, the increase in the
base tax roll is limited to the lesser of 2% or the California Consumer Price Index (CCPI) inflation rate. In
2014-15 the base tax increase is therefore limited to the CCPI rate of less than ½% rather than the usual
2%. As a result, the district’s estimates of ___% increase in 2014-15 and ___$ in 2015-16 may need to be
revised.
Property Tax Growth Rate
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011
2011-12
2012-13
OPERATING DEFICITS
The district’s budgeted ending fund balance in the unrestricted general fund multiyear projection has
increased by ____$< million since first interim. Although the district’s budgetary position has improved,
the district’s second interim budget projects operating deficits in the unrestricted general fund of $____
million for 2013-14, $____ million for 2014-15 and $____ million for 2015-16. The cumulative impact of
this projected deficit spending is a ___% decline in fund balance or a loss of $____ million, leaving the
district with reserves of $____ million at June 30, 2016. Although some deficit spending may be a result of
one-time costs from prior year funding sources, ongoing structural deficits threaten a school district's
future educational programs. Districts that wait too long to address and correct structural deficits are
forced to make dramatic corrections all at once. In contrast, carefully planned and phased-in structural
corrections lessen the impact on children.
Salary Settlements
School districts are in the people business. On average, California school districts spend 90% of
unrestricted dollars on salary-related costs. Salaries and benefits currently make up R% of the district’s
unrestricted expenditures.
We note that the district settled negotiations with all bargaining units. We thank the district for the timely
submission of the disclosure of collective bargaining agreement and multiyear projection 10 working days
prior to the board’s approval. Absent ongoing revenue increases, permanent increases to the district’s
salary schedules decrease the percentage of the district’s budget available for all non-personnel costs.
Cash Flow
The district’s cash flow statement indicates that the district has insufficient cash in certain months of the
year to meet operating expenditures, necessitating cash borrowing from ________ County through an
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2013-14 Second Interim Report, Concurring with District’s Positive Certification
approved tax anticipation note (TAN). The district is advised to maintain reserve levels far higher than the
state-required minimums.
Retiree Health Benefits
The district provides health benefits to retired employees (OPEB) that have met certain eligibility
requirements. The district funds these benefits with the annual budget appropriation, paying as the
expenditures come due. The district’s projected OPEB cost for 2013-14 is approximately $_____ and the
entire liability is $_______. This measurement is based on the district’s actuarial study dated [Month,
Year]. (The district is required to renew the actuarial study on a triennial basis, with the next study due for
the period ending [Month, Day, Year].) (We commend the district for establishing a special reserve in the
amount of $_____ to begin funding the OPEB liability.)
Reserves
The district maintains the state-required minimum reserve for economic uncertainty of ___$ in the current
and two subsequent years. In addition, we note that the board has taken action to increase the reserve
for economic uncertainty by ___% for a total reserve of ___% (which is maintained across all three years
of the multiyear projection). All school districts, whether state aid or community funded, are advised to
establish additional reserves to provide a buffer against [cash flow deferrals and] future uncertainties.
Such a buffer allows the district to better ensure a consistent program offering for students.
Conclusion
We thank ___________for the timely submission of the second interim budget document. If you have any
questions, please do not hesitate to contact me at ___________________.
We appreciate your dedication and service to the children of _______________ County. Due to your
good fiscal stewardship, the children of _______________ County will continue to experience quality
education now and in the future.
Sincerely,
__________________
County Superintendent
___________________
Assistant Superintendent/Business Services
cc: District
____________, Chief Business Official
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