Second Interim Financial Report An update on our District’s financial status as of January 31, 2017

State Budget (as edited from First Interim) Overall, the state’s 2017-18 budget outlook is positive. The LAO estimates the LCFF target to be 99% 96% funded in 2017-18. The LAO is estimating the state’s General Fund will end 2016-17 with $11.5B $6.76B in total reserves. Statewide, new building permits for housing continue to increase albeit at a slower pace. However, locally it is still slow and getting slower.

State Budget (cont.) Although COLA increased from 1.11% to 1.48%, Gap funding decreased from 73.99% to 23.67% (just enough to add COLA to the Target Funding Level). The impact is a loss of $4.6M in revenue for 2017-18. Fiscal Crisis & Management Assistance Team (FCMAT) is cautioning districts to implement cost containment strategies now.

Second Interim Financial Report There are several changes from the 2016-17 First Interim to the Second Interim Report: Over $2.3M in additional revenue not included in the First Interim: LCFF increases of $545K due to an increase in the GAP and the Unduplicated Count, Increase of over $1.1M for the Career Technical Education Incentive Grant, Increase of $179K in lottery revenue Increase of $200K in interest revenues Increase of $276K in various grants and SELPA

Second Interim Financial Report (cont.) A $.9M decrease in expenditures: This was due mostly to decreases in salaries and benefits of $1.1M, which were decreases for vacancies partially offset by new positions and the increase in the sub rate. LCAP spending increased $427K due to additional LCAP revenues, Utilities decreased $460K Transportation decreased $207K An increase of $440K for new Grant spending

Second Interim Financial Report (cont.) In the current year, a small amount ($677K) of deficit spending is projected on the Unrestricted portion of the budget. The Restricted portion has a $4.3M deficit due to anticipated spend down of carryover balances. 2017-18 currently reflects deficit spending of $6.7M (all funds). This is partly a result of spending down categorical carryover and the increases to the employer contribution rates for STRS and PERS, as well as the addition of OVHS and increase in Routine Restricted Maintenance.

Second Interim Financial Report (cont.) Due to the volatility of the LCFF model, the District has maintained our modest increases in our Reserve for Economic Uncertainty. 2016-17 = 4.25% 2017-18 = 4.25% 2018-19 = 4.25% *Total rate is slightly below, as SELPA has elected to maintain their contribution rate at 3.0%, which creates a lower blended rate. The required minimum is 3.0%.

Second Interim Financial Report (cont.) Routine and Restricted Maintenance (“RRM”) Current law requires a minimum contribution equal to the contribution made in 2014-15 to be contributed in the 2015-16 and 2016-17 years, and 2% of General Fund expenditures for 2017-18 and 2018-19. Current Budget has approximately 1.6% for RRM. With the passage of Prop 51, the District must increase RRM to 3% for 2017-18 and beyond to access the state bond funds ($3.1M).

Second Interim Financial Report (cont.) Deferred Maintenance Under LCFF there are no matching Deferred Maintenance Funds. Districts must now budget funds from the LCFF funds. Prior to LCFF, Districts would budget .5% and the State would match (1% total). This Interim Report reflects a 1.5% ($3.8M) budget for 2016-17 through 2018-19 for additional M&O and Facilities expenses, as identified in the LCAP.

Second Interim Financial Report (cont.) The District’s COPs Debt Service Burden: $5.56M in 2016-17 $5.55M in 2017-18 $5.55M in 2018-19 The first $1.3M is coming from Redevelopment revenue and the remaining is coming from the Unrestricted General Fund. This may be offset by Developer Fee collections.

STRS Rate Increases Employee Paid Year District Classic New State   Employee Paid Year District Classic New State Increase to District Annual Contribution from 2013-14* Year over year Increase 2016-17 12.58% 10.25% 9.21% 6.33% $ 4,170,043 $ 1,721,709 2017-18 14.43% $5,949,593 $ 1,779,550 2018-19 16.28% $7,788,488 $ 1,838,895 2019-20 18.13% $9,688,264 $ 1,899,776 2020-21 19.10% $10,852,387 $ 1,164,123 2021-22 20.10% $12,080,169 $ 1,227,782 *Based on salaries paid with an annual 1.76% step and column increase.

PERS Rate Increases   Year District Increase to District Annual Contribution from 2013-14 Year over year Increase 2016-17 13.89% $783,322 $ 391,999 2017-18 15.80% $1,353,213 $ 569,891 2018-19 18.70% $2,208,118 $ 854,904 2019-20 21.60% $3,092,446 $ 884,329 2020-21 24.90% $4,118,445 $ 1,025,999 2021-22 26.40% $4,668,851 $ 550,406 2022-23 27.40% $5,092,433 $ 423,582 2023-24 28.20% $5,470,042 $ 377,609 “Classic” members continue to pay 7.0% (paid by the District) New members pay 6.0%, which may fluctuate from year-to-year based on the PEPRA requirement to pay half the normal cost rate

Budget Summary 2016-17 Projected 2017-18 Projected 2018-19 Projected   2016-17 Projected 2017-18 Projected 2018-19 Projected (in millions) Unrestricted Restricted Combined BFB $39.02 $8.92 $47.94 $38.34 $4.57 $42.91 $32.28 $3.90 $36.18 Rev $182.07 $67.47 $249.54 $176.29 $68.80 $245.09 $182.86 $68.38 $251.24 Exp $182.75 $71.82 $254.57 $182.35 $69.47 $251.82 $193.24 $69.38 $262.62 Change ($0.68) ($4.35) ($5.03) ($6.06) ($0.67) ($6.73) ($10.38) ($1.00) ($11.38) EFB $21.90 $2.90 $24.80 Res. For Ec. Uncert. $10.62 - $10.50 $10.96 Unapprop. $22.44 $16.39 $5.46

Second Interim Financial Report (cont.) Fund 12 – Child Development The Pre-school program requires a contribution from the LCAP for a little over $347K. Fund 13 – Cafeteria Special Revenue This fund is projected to decrease by $1M during 2016-17 as part of our state approved spending plan. This fund is projected to have a healthy EFB of just over $3.4M.

Second Interim Financial Report (cont.) Fund 17 – Special Reserve for Other Than Capital Outlay Projects: The Second Interim projects a balance of $3.9M remaining in this Fund at yearend. Future transfers will be budgeted as construction on Orange Vista High School continues.

Second Interim Financial Report (cont.) Fund 25 - Developer Fees: As of this Report, the District has received almost $1.7M in Developer Fees in 2016-17. Staff anticipates this to grow slightly. The District typically does not budget receiving or expending these funds annually, as this income is cyclical and tied to the economy.

Second Interim Financial Report (cont.) Fund 21 – Building Fund Budget shows $26.61M being spent in 2016-17, with an ending balance of $8.26M. Fund 35 – County School Facilities No additional revenue anticipated for 2016-17, with the exception of interest earned. Ending Fund balance projected to be $1.2M.

Second Interim Financial Report (cont.) Fund 40 – Special Reserve Fund for Capital Projects This Fund is used to account for monies pulled from surplus CFD Funds and is used for capital projects. The Beginning Fund Balance of this fund was $4.3M and is being spent on OVHS. Fund 71 – Retiree Benefits (Irrevocable Trust) Contributions are continuing at a rate of 0.85% of payroll. Balance is projected to be $6.6M at year end.

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