Morongo Unified School District 2016-17 Preliminary Budget Board Workshop June 14, 2016

Governor’s May Revision

January Budget vs. May Revision Item January Budget May Revision LCFF Gap Funding 49.08% or $2.8 billion 54.84% or $2.9 billion Proposition 98 Minimum Funding Guarantee 2014-15 2015-16 2016-17 $66.7 billion $69.2 billion $71.6 billion $67.2 billion $69.1 billion $71.9 billion 2016-17 COLA 0.47% 0.00% One-Time Discretionary Funds for 2016-17 $1.2 billion $214 per ADA $1.4 billion $237 per ADA 1

SSC Financial Dartboard Factor 2015-16 2016-17 2017-18 2018-19 Statutory COLA 1.02% 0% 1.11% 2.42% LCFF Factors SSC LCFF Gap Funding Percentage 52.20% 54.84% 19.30% 34.25% Department of Finance (DOF) LCFF Gap Funding Percentage 73.96% 41.22% Factors for All Scenarios California Consumer Price Index 2.02% 2.15% 2.26% 2.49% Ten-year Treasuries 1.98% 2.05% 2.43% 2.58% CalPERS 11.847% 13.888% 15.50% 17.10% CalSTRS 10.73% 12.58% 14.43% 16.28% 2

CalSTRS Rate Increases Employer rates are increasing to 12.58% in 2016-17, up from 10.73% in 2015-16 No specific funds are provided for this cost increase Under current law, once the statutory rates are achieved, CalSTRS will have the authority to marginally increase or decrease the employer and state contribution rate Year Employer Pre-PEPRA* Employees Post- PEPRA* 2015-16 10.73% 9.20% 8.56% 2016-17 12.58% 10.25% 9.205% 2017-18 14.43% 2018-19 16.28% 2019-20 18.13% 2020-21 19.10% 3

CalPERS Rate Increases The employer contribution to CalPERS was expected to increase to 13.05% in 2016-17 from 11.847% in 2015-16 The actual employer contribution rate for 2016-17 is higher than anticipated, at 13.888% Fortunately, out-year estimated contribution rates have been lowered since they were last released in 2014 Actual Estimated 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 11.847% 13.888% 15.50% 17.10%* 18.60%* 19.80%* *CalPERS-provided estimates, April 2016 4

Preparing for the Slowdown The May Revision projects that the Local Control Funding Formula (LCFF) will be 95.7% implemented in 2016-17 At full implementation the supercharged increases are over, all local educational agencies (LEAs) just get a cost-of-living adjustment (COLA) The Department of Finance (DOF) projections assume: Proposition 30 is allowed to expire Very low COLAs for the next few years Much lower growth in Proposition 98 If a recession occurs and Proposition 30 is not extended, state revenues could drop below prior-year levels, and cuts to education could be on the table again Now is the time to start preparing for slower growth 5

Negotiations and Increased Employee Costs Automatic cost increases for step and column, health and welfare benefits, and pension costs will leave little to nothing for pay raises in 2016-17 For the average LEA, costs increase approximately as follows (as a percentage of salary): Step and column 1.2% Health and welfare 1.1% CalSTRS/CalPERS 1.85% Total increase in costs average about 4.15% Basically, the first 4% of new revenues is already committed to employees At full implementation of the LCFF, all LEAs receive only COLA, averaging around 2% for the foreseeable future Unless funding increases beyond state projections (e.g., extension of the temporary taxes), many LEAs will be making budget cuts soon Most school districts are declining in enrollment and that makes the problem even worse 6

MUSD 2016-17 Preliminary Budget

2016-17 MUSD Budget Assumptions In establishing the budget for the 2016-17 school year, certain assumptions were made. The following budget assumptions were used: Enrollment has been estimated at 8,210 and ADA (Average Daily Attendance) is projected at 7,666. The District has a history of declining enrollment. Enrollment is estimated to decline by 120 students in the 2016-17 school year. A 0% COLA (Cost of Living Adjustment) The Budget reflects a Cost of Living Adjustment (COLA) of 0%, which means there were no changes made to the grade span base calculation and each of the grade span calculations in the Local Control Funding Formula for the 2016-17 fiscal year. Since the COLA is 0%, there is no increase in funding for Special Education and Child Nutrition Programs. One time Mandated Claim funding is being reserved in the Assigned Fund Balance. These funds were calculated using the Governors May Revise. Last year these funds were reduced from the Governors May Revise funding numbers to the Governors Adopted Budget funding numbers. After final funding numbers are issued the District will budget these funds to continue the implementation of the Common Core State Standards (CCSS) and other District priorities. 8

2016-17 MUSD Budget Assumptions - Continued Local Control Accountability Plan (LCAP) identified expenditures are included. Increased STRS (1.85% increase) and PERS (2.04% increase) in retirement contributions are included. It is estimated that increased contributions to employee retirement accounts will consume 25% of new funds coming into the District in future years. The funding for ROP programs is being reduced to zero over the next two years. $519,734 has been budgeted in the LCAP to maintain the ROP Program. The projected increase cost of utilities is included. Solar savings has been budgeted resulting in a reduction of electricity costs. The $100,000 payment for the District’s portion of the Sewer Project is included starting in the 2017-18 school year. 9

2016-17 MUSD Budget Assumptions - Continued Transportation costs have been increased by $1Million to reflect the new contract with Student Transportation of America. The new contract will provide new busses with air conditioning for the 2016-17 school year. An increase in the cost of the telephone bill is included, as ERATE funding is being reduced for telephone services for the next two years. Routine Repair and Maintenance account has been increased to 3% of district expenditures as required. The 2015-16 Estimated Actuals and the 2016-17 Budget reflects salary increases even though the District has not settled negotiations with bargaining units for 2015-16 or 2016-17. 10

2016-17 MUSD Budget Assumptions - Continued 11

California Basic Educational Data System (CBEDS)=Enrollment Average Daily Attendance ADA) History & Projection   P-2 ADA CBEDS ADA Inc/Dec CBEDS Inc/Dec 2010-11 8,571 9,233 (300) (312) 2011-12 8,266 8,854 (305) (379) 2012-13 8,007 8,596 (259) (258) 2013-14 8,015 8,506 8 (90) 2014-15 7,741 8,236 (274) (270) 2015-16 7,778 8,330 38 94 2016-17 7,666 8,210 (113) (120) 2017-18 7,553 8,090 2018-19 7,440 7,970 2019-20 7,327 7,850 Average 7,930 6,786 (154.38) (169.50) *Numbers in parenthesis () are negative numbers 12

8923 * The District has experienced a loss of 1,269 Average Daily Attendance (ADA) from 2008-09 to present. This equates to losing the entire number of students currently attending YVHS. 13

Additional Revenue and Expenses Additional LCFF Funds Projections: STRS & PERS additional Expenses: 2015-16 $7,876,530 2016-17 $4,021,477 2017-18 $1,814,683 2018-19 $ 109,328 One Time Funds : 2015-16 Mandated Cost $ 4,106,790 Educator Effectiveness $683,621 2016-17 Mandated Cost $1,857,665 * Use for 1 time expenditures: One Time Benefits contribution, Textbooks, IT Infrastructure, Music Equipment, Deferred Maintenance, etc. 2015-16 $ 737,000 2016-17 $ 1,018,742 2017-18 $ 971,437 2018-19 $ 997,744 Other annual increase in Expenses: Step and Column Salary increase Utilities/fuel/contracts Transportation increase Telephone – ERATE reduction in funding Other unforeseen increases 14

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Revenues – Changes from Estimated Actuals to 2016-17 Budget LCFF shows a increase of $4,021,475 due to an increase in the Local Control Funding Formula (LCFF) GAP funding calculation. Federal Revenues show a decrease of -$1,804,357. This represents the net decrease of various federal programs; Federal Impact Aid, Special Education and Title Grants. Other State Revenues show a decrease of -$3,822,072 due to a decrease in one time prior year Mandated Claim funds and one time California Clean Energy Jobs Act funds. Other Local Revenues show a decrease of -$667,036. This is the result of a decrease in ROP Funds and all other local revenue. 17

Expenses – Changes from Estimated Actuals to 2016-17 Budget *Numbers in parenthesis () are negative numbers   18

Expenditures Salaries and Benefits: The changes to Certificated Salaries, Classified Salaries and Benefits are due to budget realignment based on projected expenditures. Including: Step and Column increase, increase in Health and Welfare Benefits Cost, Increase in STRS and PERS costs. Projected Salary and Benefit increases are included. The District is still in negotiations with bargaining units for 2015-16 and 2016-17. Books and Supplies: The Books and Supplies accounts (4000s) show decreases due to budget realignment based on projected expenditures. One time expenses have been removed including textbooks and other purchases made with one time funds. Services and Other Operating Expenses: The Services and Other Operating Expenses accounts (5000s) show an increase due to budget realignment based on projected expenditures and increased transportation costs. 19

Expenditures Continued Capital Outlay shows a decrease due to reduction in capital outlay projects.   Other Outgo, and Direct Support/Indirect Costs show a decrease due to reduction in indirect costs due to a reduction in restricted categorical funds. Total Expenditures are currently projected to be an increase of $422,975 over the estimated actual expenditures for 2015-16. 20

Revenues - Restricted and Unrestricted

Revenues Unrestricted 22

Expenditures - Restricted and Unrestricted 23

Expenditures Unrestricted 24

Expenditures/ Transfer Out Other Funds Recap Fund Recaps: 2016-17 Description Fund Balance Revenue/ Transfer In Expenditures/ Transfer Out General Fund 1 15,263,057 88,960,037 91,040,690 13,182,404 Cafeteria Fund 13 76,160 3,860,264 Deferred Maintenance Fund 14 96,837 Bond Fund 21 567,694 Capital Facilities Fund 25 6,439,305 498,678 6,618,066 319,917 County School Facilities Fund 35 141,061 531 141,592 Bond Int. & Redemption Fund 51 2,317,232 1,855,376 1,936,931 2,235,676 Self Insurance Fund 67 814,831 1,921 816,752 Total $25,716,176 $95,176,807 $104,120,482 $16,772,501 25

Multi Year Projection 26 22

Multi-Year Projections – Unrestricted & Restricted Combined 27

Multi-Year Projection Recap   2015-2016 2016-2017 ESTIMATED ACTUALS PROJECTED BUDGET Unrestricted Restricted Combined Beginning Fund Balance 12,719,003 1,839,739 14,558,742 12,378,693 2,884,363 15,263,056 Revenues 76,374,677 14,857,351 91,232,028 77,561,478 11,398,559 88,960,037 Expenditures 76,714,987 13,812,727 90,527,714 78,707,797 12,332,893 91,040,690 Operating Deficit (Structural) (340,310) 1,044,624 704,314 (1,146,319) (934,334) (2,080,653) Projected Ending Fund Balance 11,232,374 1,950,029 13,182,403 Required Reserves @ 3% 2,715,831 2,731,221 Nonspendable & Assigned 2,618,656 5,503,019 2,712,532 4,662,561 Projected Balance Available 7,044,206 5,788,621 -To apply to deficit Fiscal Years 2017-18 and 2018-19 28

Multi-Year Projection Recap   2017-2018 2018-2019 PROJECTED Unrestricted Restricted Combined Beginning Fund Balance 11,232,374 1,950,029 13,182,403 9,383,524 1,172,936 10,556,460 Revenues 77,518,496 11,398,559 88,917,055 77,627,824 89,026,383 Expenditures 79,367,346 12,175,652 91,542,998 81,357,693 12,167,206 93,524,899 Operating Deficit (Structural) (1,848,850) (777,093) (2,625,943) (3,729,869) (768,647) (4,498,516) Projected Ending Fund Balance 5,653,655 404,289 6,057,944 Required Reserves @ 3% 2,746,290 2,805,757 Nonspendable & Assigned 2,712,532 3,885,468 3,116,821 Projected Balance Available 3,924,702 135,366 -To apply to deficit Fiscal Years 2017-18 and 2018-19 29

Components of Ending Fund Balance General Fund Components of Ending Fund Balance (all one-time resources): 2016-17 2017-18 2018-19 Revolving Cash 35,000 Stores- Warehouse 50,000 Designated for Econ Uncertainties (3%) 2,731,221 2,746,290 2,805,747 Assigned & Restricted 4,577,562 3,800,469 3,031,822 Undesignated 5,788,621 3,924,699 135,373 Total $13,182,404 $10,556,460 $6,057,944 30

Unrestricted Assigned Fund Balance 31

Fund Balance Projections 32

Balances in Excess of Minimum Reserve Requirements Ed Code 42127(a)(2)(B) - Fund Balances in Excess of 3% Minimum Reserve Requirement District: Morongo USD Adopted Budget CDS #: 56-67777 2016-17 Budget Attachment Balances in Excess of Minimum Reserve Requirements Reasons for Assigned and Unassigned Ending Fund Balances in Excess of Minimum Recommended Reserves Education Code Section 42127(a)(2)(B) requires a statement of the reasons that substantiates the need for assigned and unassigned ending fund balances in excess of the minimum reserve standard for economic uncertainties for each fiscal year identified in the budget. Combined Assigned and Unassigned/unappropriated Fund Balances   Form Fund 2016-17 Budget Objects 9780/9789/9790 01 General Fund/County School Service Fund $13,182,413.80 Form 01 17 Special Reserve Fund for Other Than Capital Outlay Projects $0.00 Form 17 Total Assigned and Unassigned Ending Fund Balances District Standard Reserve Level 3% Form 01CS Line 10B-4 Less District Minimum Reserve for Economic Uncertainties $2,731,221.00 Form 01CS Line 10B-7 Remaining Balance to Substantiate Need $10,451,192.80 Reasons for Fund Balances in Excess of Minimum Reserve for Economic Uncertainties Description of Need $35,000.00 Revolving cash $50,000.00 Stores $145,886.00 Health and Welfare Reserve (MTA) $1,857,665.00 Mandated Cost one time funds 2016-17 - H&W, Deferred Maintenance and other District Priorities $240,471.00 Lottery Funds - salaries Campus Security, Noon Supes $383,510.00 Deferred Maintenance $1,950,030.00 Committed Restricted Funds $5,788,630.80 Additional Reserve for future liabilities and unfunded liabilities - STRS/ PERS, Deferred Maintenance, Textbooks, Transportation. Reduce Deficit Spending. Total of Substantiated Needs 33

Unrestricted Deficit Spending History 34

Budget Issues History of declining enrollment History of deficit spending $1M increase in transportation costs Reduction in Federal Impact Aid Future Textbook Adoptions ELA $2.1 Million Small schools and small class sizes– enrollment Employee salary increases Increases in Health and Welfare Benefits- (Cap) Yucca Valley Sewer System Charter Schools Deferred maintenance costs Technology Costs 35

General Fund – Deficit Spending In future years the District must get expenditures in line with revenue to assure the fiscal solvency of the Morongo Unified School District. Fiscally this means that the 2015-16 Beginning Fund Balance plus the Negative Net for 2015-16 has moved forward to become the reduced Beginning Fund Balance of the 2016-17 fiscal year. The process of reducing the Districts Fund Balance will also occur for the 2017-18 and 2018-19 school years.    36

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