What is it? What does it mean for my district? Daniel Lunghofer Supervisor, School District/ESD Accounting December 4,

Background  In 2011, to end the battle over the debt ceiling, the Budget Control Act of 2011 was passed by Congress.  $917 billion in cuts over ten years.  Creation of Joint Select Committee on Deficit Reduction. 2

Background  Supercommittee met to try and find cuts.  5 public hearings, number of closed-door sessions.  Committee announced impasse on November 21,  Triggered the mechanism of sequestration.  $1.2 trillion in cuts over nine years. 3

What is Sequestration?  (Dictionary) To remove or separate into solitude or retirement.  (Law) To remove (property) temporarily from the possession of the owner; seize and hold, as the property and income of a debtor, until legal claims are settled.  For our purposes, it is the lowering of budgetary authority at the federal level for federal programs, making that money unavailable for states to use. 4

DISCLAIMERS  There are two important caveats that must be made when talking about sequestration.  It may not come to pass.  The magnitude of the cuts needed may differ greatly from what is shown here.  This is an attempt to estimate the impact of sequestration using currently-known knowledge. 5

Sequestration Process  Annual deductions to the budgetary authority for federal programs are needed to meet the required cut amount.  First Federal Fiscal Year that is affected is FFY 13.  FFY 13 runs October 1, 2012 through September 30,  Takes effect January 2, 2013, unless Congress meets certain requirements in the law. 6

Sequestration Process (Cont.)  Annual decreases to federal spending are needed to achieve $1.2 trillion total.  Office of Management and Budget (OMB) projects a non-defense function cut of $ billion for FFY 13.  OMB Report projects 8.2% cut to most education-related programs.  Full report available at mb/assets/legislative_reports/stareport.pdf mb/assets/legislative_reports/stareport.pdf 7

How Much Money is at Risk?  Current estimate for FFY 13 money for Washington in elementary and secondary programs (just from ED) is $604,892,138.  8.2% of that amount is $49,601,155.  If we look at non-ARRA Federal money from 2010–11 F-196 data, 8.2% is $69,112,065. 8

Do I Lose Money This Year?  Generally, no. Well, maybe.  Most federal programs are front-funded: the majority of funds districts are receiving this school year (2012–13) were front-funded from FFY 12.  Most federal programs are exempted from cuts this school year.  Impact Aid is the main notable exception. 9

Are all Federal Revenues Affected?  The best answer we have is “yes.”  Any grants or similar funding should be expected to take a cut.  Unclear of impact to food service commodities, but federal meal reimbursement most likely affected.  Others:  Medicaid Administrative Match.  Bond interest subsidy payments (BABs, certain QSCBs). 10

Selected Programs ProgramFFY 13 Estimate Sequester Amount Title I, Part A$213,452,776($17,503,128) Impact Aid$42,689,923($3,500,574) IDEA (Special Ed) $220,953,404($18,118,179) Title II, Part A$29,684,552($2,434,133) 11

Other Considerations  A state-level cut of 8.2% does not necessarily mean that your district’s cut will be 8.2%.  Funds will be allocated in accordance with established funding formulas.  Cuts will be equitable, but may not be equal.  Sequestration affects funding amounts. It DOES NOT affect program requirements.  The 8.2% cut is only for FFY 13. There are eight more FFYs to go. 12

Example: Title I, Part A  The information contained on the next few slides is a projection of the potential cut impact to Title I, Part A.  Poverty counts were kept constant into the next year.  Assumption is that Washington’s share of national Title I pot does not change.  Cuts are done to the total for each grant source within Title I.  SUBJECT TO CHANGE UPON RELEASE OF ALLOCATIONS FROM DEPARTMENT OF EDUCATION. FOR DEMONSTRATION PURPOSES ONLY!!! 13

Example: Title I, Part A (Cont.) A cut of 8.2% statewide could mean the following gross cuts: *Common cut is ~7.25%. Cut Range# of Districts No cut %0 2.5%-5.0%39 (all 5.0%) %102* % % %35 15%) Over 15%0 14

Example: Title I, Part A (Cont.)  OSPI is required to withhold 4% of state amount for School Improvement.  Hold-harmless provisions normally protect districts.  Combination of 8.2% cut in state allocation plus 4% required reservation is too much for hold-harmless.  May require withholding below hold-harmless provision. 15

Example: Title I, Part A (Cont.) If we withhold School Improvement beyond hold- harmless, the following are the changes in final net allocations: Greatest cut: % Cut Range# of districts 0% % % % % % %7 More than 15%34 16

Federal Bond Interest Subsidy Payments  Under ARRA, districts could issue bonds, the interest on which would be at least partially subsidized by Federal government.  BABs.  QZABs and QSCBs after March 18,  Subsidy was not automatic.  Per analysis by Foster Pepper LLC, interest subsidies face a 7.6% cut.  You still have to make the full interest payment; just the subsidy is reduced. 17

Other Impacts  A portion of a district’s levy base is the amount of Federal funds received.  Fewer Federal dollars = smaller levy base = smaller levy amount.  May also affect LEA.  Impact felt:  Impact Aid: 2014 Levy base.  Other Federal funding: 2015 Levy base (slight decrease in 2014). 18

District-level Impacts  Currently, OSPI does not have any district- level impact estimates.  If you are interested in estimating the impact for your district for budget and planning, assume 8.2% in cuts for your district from any Federal revenue (5XXX or 6XXX revenue code).  As information becomes available, OSPI may provide updates. 19

20