SYLVAN UNION SCHOOL DISTRICT

Themes for the 2018-19 Governor’s Budget © 2018 School Services of California, Inc. Student achievement rises to the highest priority and tests the Local Control Funding Formula (LCFF)/Local Control and Accountability Plan (LCAP) model Federal policy and slow growth put pressure on programs for California Major political and legislative challenges in an election year portend changes in the balance of power in Sacramento Local agencies feel the pressure of local control and stagnant resource projections The legacy of Governor Jerry Brown – the long and winding road

Student Achievement Is Paramount © 2018 School Services of California, Inc. After more than five years of the LCFF/LCAP model, it is time to see if the achievement gap is being closed Are there clear signs that the needle is moving in a positive direction? Five years isn’t long enough to fully evaluate a system this large and complex, but there is enough performance data to allow both supporters and critics to voice opinions The focus is now shifting to accountability California School Dashboard “Technical assistance” Bottom line – the true test of the LCFF/LCAP model is found in the performance of students, and it is now time to begin the analysis and reporting of overall results

Federal Policy and National Economics © 2018 School Services of California, Inc. Federal policy toward California is a train wreck California is a “donor state,” meaning we give the federal government more than we get back, and that imbalance will become worse under the new Trump Tax Reform The top 1% of California’s taxpayers pay half the state income tax; federal deductibility of that expense for these high income taxpayers means the federal government has been offsetting about 50% of the cost – that goes away Also, many taxpayers in California pay far more than $10,000 in state and local taxes; unless the increased standard deduction applies, they will pay more federal tax Federal immigration and healthcare policies are driving up costs for California The hope is that tax reform will result in more business and economic activity and therefore higher tax revenues to replace those lost directly as a result of reform – that remains to be proven The burden for handling these issues falls squarely on the state and creates pressure on budgets and priorities

Local Control Challenges School Boards © 2018 School Services of California, Inc. We are strong believers in local control During good times, boards and superintendents have the resources to do a lot of spectacular things During the slowdowns that invariably follow, program cuts are even more painful – you are not cutting the state’s program – you are cutting your program! Also, at full implementation of the LCFF, proportionality calculations become important and could also dictate changes in local priorities

Local Control Challenges School Boards © 2018 School Services of California, Inc. The LCAP is meant to be the teller of truth – with local control comes responsibility for outcomes “Technical assistance” is available to local educational agencies (LEA) that need help; use it if you need it Remember, the LCAP is a self-renewing document A cycle – including assessments of need, responses to those needs, evaluation of results, and modification of the plan – occurs with every LCAP adoption In the end, we are confident that local districts will take the correct actions; however, we think it will sometimes be a more difficult challenge

Proposition 98 © 2018 School Services of California, Inc. With the enactment of Proposition 98 in 1988, voters amended the State Constitution to set a minimum funding level for K-12 education and community colleges Both state General Fund and local property tax revenues apply toward meeting the Proposition 98 minimum guarantee The minimum guarantee is determined by one of three tests that depend upon several inputs, including changes in K-12 attendance, per capita personal income, and per capita General Fund revenue Test 1: share of General Fund revenues Test 2: changes in per capita personal income Test 3: per capita General Fund revenue growth, plus 0.5% The 2018-19 guarantee is based on Test 3, the change in per capita General Fund revenues plus 0.5%, and the change in K-12 average daily attendance (ADA)

Proposition 98 $78.3 billion $320 million $75.2 billion 2018-19 © 2018 School Services of California, Inc. 2018-19 $78.3 billion Funding is based on Test 3 (per capita General Fund revenues, plus 0.5%, and change in ADA) $320 million 2017-18 – Payment of $1.12 billion 2018-19 – Creation of $92 million (due to Test 3) Maintenance Factor 2017-18 $75.2 billion Up approximately $700 million from 2017-18 Budget Act

Proposition 98 © 2018 School Services of California, Inc.

Proposition 98 and the Major K-12 Proposals © 2018 School Services of California, Inc. $2.9 billion Fully fund LCFF $1.8 billion One-time discretionary funding The Governor’s Budget proposal includes: $212 million Strong Workforce Program to establish a K-12 specific component $167.2 million Child Care and State Preschool to expand inclusive care and education settings for children up to 5 years old $100 million Teacher Workforce to increase and retain special education teachers

Proposition 98 and the Major K-12 Proposals © 2018 School Services of California, Inc. County offices of education (COEs) to facilitate the improvement of school districts identified as being in need of differentiated assistance $59.2 million Special Education Local Plan Areas to work with COEs to provide LEAs with technical assistance to improve student outcomes as part of the statewide system of support $10 million $6.5 million California Collaborative for Educational Excellence COEs for cost-of-living adjustment (COLA) and ADA changes $6.2 million

One-Time vs. Ongoing Revenues © 2018 School Services of California, Inc. Because actual revenue collections have outperformed this Administration’s conservative revenue projections, the state has experienced significant one-time revenues since 2014-15 These one-time allocations total $5.7 billion for K-12 education through the current year The Governor’s Budget proposes an additional $1.8 billion in one-time funds for 2018-19 These funds offset LEAs’ outstanding mandate claims Under Proposition 98, the new ongoing component of funding is $3.1 billion in 2018-19 These new funds, coupled with the release of almost $900 million in 2017-18 one-time funds results in about $4 billion in ongoing revenue in the budget year Thus, the Governor’s practice of conservative budgeting has resulted in substantial gains in one-time funding followed by a boost in ongoing revenues in the following year And if Proposition 98 revenue growth flattens, the release of one-time funds from the prior year will automatically cushion the effect of the revenue contraction

What’s Not in the Education Budget? © 2018 School Services of California, Inc. Compared to past proposed Budgets, the Administration was more proactive this year in proposing new investments that were typically agreed to after negotiations with the Legislature That said, the 2018-19 Budget proposal provides no funding for the following critical items: Increasing the LCFF base grant target to reach the funding level of the top ten states The growing local obligations for the California State Teachers’ Retirement System (CalSTRS) and the California Public Employees’ Retirement System (CalPERS) unfunded liability Home-to-School Transportation programs Increasing and equalizing Assembly Bill 602 base funding rates for special education

The Proposition 98 Reserve © 2018 School Services of California, Inc. Proposition 2 established a state reserve specifically to protect against cuts to Proposition 98 Contributions to the Proposition 98 reserve occur only if four conditions are met If these conditions are met, a hard cap on district reserves is imposed in the following year Deposit is made into the Proposition 98 reserve when capital gains exceed 8% of General Fund revenues Met: Capital gains revenues account for 9.8% of tax revenues in 2018-19 Proposition 98 is sufficient for enrollment growth and statutory COLA Met: ADA decline of 0.29% and statutory COLA of 2.51% fully funded The Proposition 98 maintenance factor is fully repaid Met: The maintenance factor has been fully repaid Proposition 98 is funded based on Test 1 Not met: Funding based on Test 3 in 2018-19

Amendments to District Reserve Cap © 2018 School Services of California, Inc. Proposition 2 SB 751 Senate Bill (SB) 751 (Chapter 674/2017) was signed into law by Governor Brown in October 2017 which made changes to Proposition 2 According to the Governor’s Budget, the district reserve cap will not be triggered in 2018-19 Imposed in any fiscal year immediately after a fiscal year in which a transfer is made into the Public School System Stabilization Account (PSSSA) Imposed in a fiscal year immediately after a fiscal year in which funds in the PSSSA equal or exceed 3% of the Proposition 98 funding for school districts for that fiscal year Requires the State Superintendent of Public Instruction to notify districts and COEs when these conditions are met and when they are no longer met Applies to a combined assigned and unassigned ending fund balance based on the size of the district Applies to a combined assigned or unassigned ending balance, in the General Fund (01) and the Special Reserve Fund for Other Than Capital Outlay (17), of 10% of those funds for all districts Exempts basic aid districts and districts with fewer than 2,501 ADA Technical amendment needed so that the application of the 10% cap is implemented as intended

2018-19 Local Control Funding Formula © 2018 School Services of California, Inc. The Budget proposes nearly $3 billion for full implementation of the LCFF Two years ahead of the intended 2020-2021 implementation date New funding is estimated to completely close the gap between 2017-18 funding levels and LCFF full implementation The LCFF base grant targets are adjusted for an estimated 2.51% COLA in 2018-19 2018-19 LCFF growth provides an average increase in per-pupil funding of an estimated $550 per ADA, or 5.8% Individual results will vary

2018-19 LCFF Target Funding Factors © 2018 School Services of California, Inc. The K-12 COLA is 2.51% for 2018-19 and is applied to the LCFF base grants for each grade span Grade Span 2017-18 Base Grant Per ADA 2.51% COLA 2018-19 Base Grant Per ADA K-3 $7,193 $181 $7,374 4-6 $7,301 $183 $7,484 7-8 $7,518 $189 $7,707 9-12 $8,712 $219 $8,931

2018-19 LCFF Target Funding Factors © 2018 School Services of California, Inc. Two grade span adjustments (GSAs) are applied as percentage increases against the adjusted base grant, also receiving the benefit of a 2.51% COLA in 2018-19 Grade K-3 – 10.4% increase for smaller average class sizes Grades 9-12 – 2.6% increase in recognition of the costs of Career Technical Education (CTE) coursework Grade Span 2018-19 Base Grant Per ADA GSA 2018-19 Adjusted Base Grant K-3 $7,374 $767 $8,141 4-6 $7,484 - 7-8 $7,707 9-12 $8,931 $232 $9,163

2018-19 LCFF Target Funding Factors © 2018 School Services of California, Inc. Supplemental and concentration (S/C) grants are calculated based on the percentage of an LEA’s enrolled students who are English learners (EL), free and reduced-price meal program eligible, or foster youth – the unduplicated pupil percentage (UPP) Grade Span 2018-19 Adjusted Grants Per ADA 20% Supplemental Grant – Total UPP 50% Concentration Grant – UPP Above 55% K-3 $8,141 $1,628 $4,071 4-6 $7,484 $1,497 $3,742 7-8 $7,707 $1,541 $3,854 9-12 $9,163 $1,833 $4,582

What Does the LCFF Mean for Sylvan Union School District? © 2018 School Services of California, Inc. Sylvan Union School District – 2018-19 2018-19 LCFF Per ADA Funding Projected 2018-19 ADA Projected 2018-19 LCFF Total Revenue $8,764.04 7,783.78 (w/ SCOE) $68,217,376 Discretionary Funds – ONE TIME Total $295 (one-time) X 2017-18 P-2 ADA = $2,295,312

CalPERS Board Approves Reduction in Investment Return Assumption © 2018 School Services of California, Inc. On December 19, 2017, the CalPERS Board approved a 0.25% reduction in its investment return assumption, from 7.25% to 7.00% for the June 30, 2018, valuations Contribution rates will be impacted as follows: State and schools in 2018-19 Public agencies in 2019-20

CalPERS Rate Increases © 2018 School Services of California, Inc. The employer contribution to CalPERS is proposed to increase to 18.1% in 2018-19, up from 15.531% in 2017-18 “Classic” members continue to pay 7.0% New members pay 6.0%, which may fluctuate from year to year based on the Public Employees’ Pension Reform Act (PEPRA) requirement to pay half the normal cost rate Estimates of the resulting future contribution rate increases for school employers, which reflect the reduction in the investment return rate, are as follows: Actual Projected 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 15.531% 18.1% 20.8% 23.8% 25.2% 26.1%

CalSTRS Rate Increases © 2018 School Services of California, Inc. Employer rates are increasing to 16.28% in 2018-19, up from 14.43% in 2017-18 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 contribution rate CalSTRS Rates Year Employer Pre-PEPRA Employees Post-PEPRA 2017-18 14.43% 10.25% 9.205% 2018-19 16.28% 2019-20 18.13% 2020-21 19.10%

Next Steps State level Budget committee hearings © 2018 School Services of California, Inc. State level Budget committee hearings Next update – May Revision Local level Second Interim Report due by March 19 for school districts, March 15 for charter schools

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