1	Governor’s Proposals for 2008-09 Midyear Budget Cuts and the 2009-10 State Budget (an abridged version) January 30, 2009 Revision Presented by the Superintendent’s Action Team – SAT Janis Duran, Interim Superintendent Cathy Kawaguchi, Asst. Supt. Chief Academic Officer Sean Goldman, Asst. Supt. Human Resources & Support Services Glenston Thompson, Asst. Supt. Business & Fiscal Services
2	STATE OF FISCAL EMERGENCY The State of California is experiencing the worst FISCAL CRISIS in many years. The down turn in the national and state economies has led to substantial decline in state revenues across the country. California has had the most precipitous decline in state revenues compared to other states. THIS TRANSLATES INTO A HUGE REVENUE SHORTFALL WHICH INEVITABLY, WILL LEAD TO SIGNIFICANT BUDGET REDUCTIONS ACROSS ALL STATE AGENCIES. PUBLIC EDUCATION RECEIVES THE LARGEST SHARE OF STATE REVENUES. AT THIS TIME, CALIFORNIA IS STRUGGLING WITH MANAGING A MEGA DEFICIT AS A RESULT OF DECLINING REVENUES. The steep decline in revenue forecast has led the Governor to declare a FISCAL STATE OF EMERGENCY underscoring the dire state of California’s troubled economy.
3	THE MAGNITUDE OF THE PROBLEM The size of the problem HAS changed OVER time. The growing State DEFICIT presents a punishing load to carry. November 2008 deficit was forecasted to be $27.8 billion. At that time public education was expected to absorb $2.5 billion in budget reduction as a result of this deficit projection. January’s 2009 deficit was recently forecasted at $41.7 billion. The amount to be absorbed by public education will be $6.3 billion in reductions. The Governor’s proposed Budget for 2008-09 midyear and 2009-10 is his attempt to stop the bleeding and downward spiral with a quick budget resolution without program or mandate reforms The Governor has publicly shared his views on reforms many times before as a goal – timing is everything
4	California Education is in a State of Crisis - Is There Any Way Out of this Mess? In the short term, the state can implement more one-time and temporary solutions on the revenue side along with deep cuts in expenditures; however, Lack of consensus, leadership, and a sense of urgency has resulted in paralysis One thing that needs to be done right now is to reduce the two-thirds vote for a parcel tax SCA 6 (Simitian) would do that (Proposed new legislation) Now is the time for the Legislature to pass this bill and give the voters a choice Over time, we need to provide a more stable, higher-level funding source for schools
5	General Fund Revenue Collapse estimated to be $31.0 billion in two years - 2008/09-2009/10
6	2008-09 Proposed Cuts – Governor’s Major Proposals
7	Actions OSD will take in response to the Mid Year 2008-2009 Budget Reductions Eliminate the 0.68% COLA (OSD DID NOT FACTOR THIS 0.68% COLA INTO ITS BUDGET AND FIRST INTERIM) Reduce the revenue limit by 4.50% (OSD HAS RECALCULATED ITS REVENUE LIMIT AND RESTATED THIS NUMBER TO REFLECT A LOSS OF $3.7 million in revenues) This loss in revenue combined with other revenue reductions amounts to a total reduction in General Fund Revenue of $4.9 million in Mid Year Set aside unallocated state categorical funds (OSD is in the process of finalizing its unallocated categorical and beginning balances to determine the potential mitigating impact that this may have)
8	Governor’s Approach to 2009-10 Budget IN LIGHT OF: a growing DEFICIT problem – $28 billion to $40 billion in just two months THE GOVERNOR HAS PROPOSED: Across-the-board cuts in all areas of government, but by far the heaviest cuts are to education
9	Governor’s Approach to 2009-10 Budget – THE $3.9 million IMPACT ON OSD’s BUDGET The 0.68% COLA included in the adopted Budget for 2008-09 is eliminated and additional amounts to be cut from Proposition 98 in the current year are detailed later in this presentation The overall reduction to Proposition 98 proposed for 2008-09 is about $6.3 billion For 2009-10, the Governor’s proposals include: COLA is declared at 5.02%, but not funded Categorical and other flexibility is proposed to help school agencies deal with the loss of funding THE IMPACT OF THE GOVERNOR’S STATE 2009-2010 BUDGET PROPOSAL WILL RESULT IN OSD REDUCING ITS BUDGET FOR 2009-2010 BY $3.9 MILLION.
10	California’s “Other” Problem - The State’s Cash Crisis The state, like school districts, has high and low cash points In a typical year, the state borrows just as districts do when they issue Tax Revenue Anticipation Notes (TRANs) But the condition of the financial markets makes it more difficult for borrowers of all types Especially a state that has a $40 billion budget shortfall, chronic deficit spending, an emergency in the current year, and the second lowest credit rating in the nation So, the reason the state is running out of cash is not because it does not have a Budget this year (2008-2009), but because: It is spending cash much faster than revenues are collected It anticipates that it will not be able to borrow OSD has been a good steward of its financial resources. The district does not expect to have a liquidity problem in the short term.
11	Actions Taken by OSD Now – Involve Your Stakeholders OSD developed a Communication Plan in response to this CRISIS to inform Board, staff, and community members so that they know: What may come down from the state How that will impact your local agency – financially and operationally What your agency is doing to prepare What they can do to help The budget advisory committee - BAC has been reconvened to play a critical role, i.e. Broad stakeholder representation Expectation to provide input and to communicate out to the Board, Supt., etc Other forums School site council meetings Staff meetings Board meetings Community meetings
12	Other OSD Actions to Take Now – Bolster Reserves and Cash Increase reserves and cash levels wherever possible OSD will borrow from our other funds, the Ventura County Office of Education, or the Ventura County Treasurer if necessary. AT THIS TIME OSD HAS NO PLANS TO BORROW FROM OUTSIDE AGENCIES. Accelerate collection of revenues wherever possible Examination of expenditure process on hiring and spending Include all funds: categorical programs, capital funds, other funds Exclude those funding sources that are “use it or lose it” or have limited carryover Additional review of personnel and purchasing transactions Early action is key – every dollar not spent improves reserves and cash FEDERAL FUNDS ARE NOT PART OF THESE RESTRICTIONS
13	OSD Action ITEMS include – Implementing Budget Savings Identify reductions that can be made now Examine vacant positions Additional review process for personnel changes Changes in hours worked, days worked, or status Additional review process for expenditures Is this Mission critical? What will be the impact on classrooms? Can this spending decision be postponed? Take full advantage of categorical flexibility in current law Charge full direct and indirect costs to all programs as allowed in current law Identify which reductions can be made permanent
14	OSD Actions in Response to Budget Cuts – Preparing for Staffing Reductions IN RESPONSE TO THE 2009-2010 BUDGET CUTS OSD WILL: Prepare for worst-case scenario Prepare timeline and process for certificated, classified and administrative layoffs during 2009-2010 Prepare stakeholders Prepare seniority lists Post them for employee review, verification, and questions Implement each stage as necessary Until the facts and circumstances warrant a change in direction or scope ALL THESE FUNCTIONS WILL BE CARRIED OUT BY THE HUMAN RESOURCES DEPARTMENT
15	Flexibility and Opportunities in both FY 2008-09 & 2009-10 The Governor proposes to offer broad budget and program flexibility in both 2008-09 and 2009-10 Ability to transfer state categorical funding, including special funds (e.g., adult education and child nutrition), to the unrestricted General Fund Lifting of statutory requirements for most categorical programs Example: Eliminating 20:1 K-3 Class-Size Reduction caps Allow for prior-year restricted balances to be transferred to unrestricted General Fund Cut budget reserve requirements in half Eliminate Deferred Maintenance match requirement Reduce routine restricted maintenance set-aside requirement from 3% to 1%
16	Flexibility and Opportunity In addition, the Governor proposes providing permanent categorical flexibility Proposal calls for rolling virtually all state categorical funding into one block grant Excluded programs include Quality Education Investment Act (QEIA), After School Education & Safety Program (ASES), and other limited-term grants Mechanics similar to AB 825 block grants
17	Flexibility Cautions While the flexibility proposed by the Governor is broad, keep in mind that not all programs are included Exempted programs include: Federally funded Those requiring voter approval to change – e.g., ASES, Proposition 20 Legal settlements – QEIA, Williams Also, let’s not mistake the Governor’s proposal for categorical program reform Some temporary provisions It does not tackle adequacy or equity of funding
18	Closing Thoughts We always view the Governor’s January Proposal as a beginning point Nothing is in law; no legislative votes have been cast But OSD must prepare its Second Interim and multiyear projections as required by law, using the Governor’s Proposal as a base Our recent experience teaches us that things can change rapidly OSD is working on a fallback plan despite portentous layoffs In this year OSD plans to engage all stakeholders in solutions Our next statutory checkpoint is the May Revision – unless there are midyear cuts from the special session We will continue to keep you informed and be at your service