Governor’s Budget Proposal for K-12 Education Presentation to the Board of Education January 27, 2009

State Fiscal Crisis The widespread national economic downturn and the dire current state fiscal crisis are substantially impacting the ability of the State of California to sustain K-12 funding levels. The Governor’s budget proposal for contains substantial reductions to educational funding for the current year ( ) and significant cuts to revenue for and the next two fiscal years.

REVIEW OF ADOPTED BUDGET PLAN AND RESTORATIONS Review of Major Items from October 28 th Board Presentation

Adopted Budget Planned Cuts, Reallocations and Funding Changes The District assumed that there would be no cost of living increase to Revenue Limit for That represented a loss of approximately $1,000,000 in unrestricted revenue for The following changes were made to achieve a balanced budget: Elimination of General Fund Conference Budget - $26,000 Reduce Advertising Budget by $10,000 Moved Encroachment from Counselors to Safety Grant - $33,000

Adopted Budget Planned Cuts, Reallocations and Funding Changes (cont’d)_ Reallocated Reading Specialists to Site Funds, reduced allocation for EL Aides at elementary - $72,300 Elementary PE/Music teachers reprioritized from Educational Foundation – reduction of aides – $93,500 Transfer Drama and Screenwriting at High School to Arts Ongoing Grant Funds – $36,000 Eliminated Transfer to Fund 20.0 for ARC - $102,142 Used Title II funding to support class sizes - $49,000

Adopted Budget Planned Cuts, Reallocations and Funding Changes (cont’d) Eliminated Electrician position - $77,300 Eliminated 4 th /5 th Grade Aide support - $51,000 Reduce District Driver hours to $6,400 ASB Bookkeeper salary absorbed by ASB - $53,000 Reduction to School Business Certificated Days - $41,500 Restructure of District Office staff for HR/Fiscal Services - $62,000

Adopted Budget Planned Cuts, Reallocations and Funding Changes (cont’d) Eliminate sections/Increase Class size ratios at High School - $141,000 Transfer Crossing Guard Cost to City of El Segundo - $40,000 Reduction of consultant cost - $20,000 Reduction of transfer to Routine Restricted Maintenance - $40,000 Total Changes from to : $954,142

Summary of Changes and Restorations October 28 th Board Presentation Overview Increased Revenue$665,610 –.6668% COLA to Revenue Limit –Elimination of 6.5% deficit to Categorical –City of El Segundo one-time $150,000 Restored expenditures$479,425 –Restore 50% of Upper grade aides –Add cost of Crossing guards for Sept and Oct –Increase contribution to Maintenance to 3% of expenditures –Restore Site funds for Reading Specialists –Restore full allocation of School Business Days –Restore $10,000 of Title II budget for staff development –Cover benefit increases and step and column

Uncertainties - 10/28/08 Board Presentation The adoption of the State budget represented the third latest budget in the history of the State and still had gapping holes in the structure –State Budget Structural Defect Current Revenue Limit Deficit – $(979,436) Mid Year Deficit/Cuts for ? –Release of Proposal by Governor in January, 2009 –Assumption of no COLA – Deficit grows to??? –3.50% COLA

GOVERNOR’S PROPOSAL FOR Midyear Cuts Deferrals of Revenue Limit

Governor’s Proposal Mid-Year Reductions No Cost of Living Adjustment (COLA) –Elimination of.6668% COLA $(139,290) Application of 4.5% additional deficit $(895,300) Additional Loss of Revenue Limit $(1,034,590) Add 4.710% Deficit at Adoption $(979,436) Total Cost of Revenue Limit Deficits $(2,014,026)

Deferrals of Revenue The Governor proposes to defer payment of revenue limit for February to July, 2009 Revenue Limit makes up nearly 70% of total income February apportionment is largest payment of revenue limit – approximately 13% - 15% of total revenue limit – This will be an impact to cash flow of $1,804,568 for ESUSD In addition to the June apportionment that was moved during the budget crisis and the Class Size Reduction funds that have been bumped into July starting this year, if the Governor’s proposal is adopted, over $3,300,000 in revenue will now be deferred to July. Deferrals affect cash flow and interest earnings District must borrow to have sufficient cash to cover expenses but loans must be repaid by end of fiscal year on June 30 th Reserves are critical to cover cash needs

Schedule of Reserve Accounts FUNDRESERVE AMOUNT 7/1/08 General Fund – Unrestricted – Fund 01.0$2,481,488 Reserve for Non-Capital Expenditures - Fund 17.0$555,197 Reserve for Post Employment Benefits – Fund 20.0$1,402,387 Total Reserves Available for General Fund Cash Flow and Expenditure$4,439,072 Add for Cash Flow Only: General Fund – Restricted – Fund 01.0$1,144,651 Deferred Maintenance – Fund 14.0$949,274 Bond Fund – Fund 21.0$378,903 Developers’ Fees – Fund 25.0$458,424 County Facilities – Fund 35.0$2,528,728 Total Reserves Available for General Fund Cash Flow but must be repaid by June 30th $9.899,052

Flexibility for Understanding the extreme hardship of making cuts mid- year, the Governor’s Proposal allows school districts to use restricted funds (categorical) for their general fund expenses in the current year. The District has identified approximately $300,000 in one-time funds that could be transferred to backfill the shortfall in revenue in But this solution offers no relief in

Federal Government to the Rescue Even if the Federal Government is able to send funds from the economic stimulus package to California, 2% of our total income or less than $500,000 is derived from federal funds. These funds are very limited in flexibility since they are part of the NCLB legislation and are not part of the Governor’s proposal for flexibility. In addition, if these are not permanent changes to the funding levels for these resources, this is a one-year “fix,”and not a multi-year solution to our ongoing fiscal crisis.

General Fund Revenue – 2nd Interim June 30, 2009

GOVERNOR’S PROPOSAL FOR No COLA, Further Reduction of Revenue Limit, Shorten School Year to 175 days, CSR Flexibility

Revenue Limit Continuation of mid-year cut to revenue limit – Loss of COLA plus additional 4.5% = 9.685% Cost of Living Adjustment for is offset by deficit to eliminate it % Further Reduction of the revenue limit by 2.5% Total deficit grows to % Loss in Revenue Limit funding is $(3,455,700)

Instructional School Year Proposal The Governor proposes to eliminate the requirement for the 180 day instructional calendar to 175 days of instruction to offset the additional 2.5% in revenue limit deficit. Reducing the school year by 5 days would reduce District costs – but the bargaining contracts require that our employees be paid for all 180 days of instruction unless negotiated with the employee bargaining unit. The District cannot unilaterally cut the work year and pay to teachers and staff.

Class Size Reduction Flexibility To backfill shortfall in revenue limit, the Governor proposes to allow Districts to staff classrooms at higher student to teacher ratios without financial penalty. This proposal would assume that the Class Size Reduction funds would be structured into a block grant and added to a District’s revenue limit. The District would have the flexibility to allocate the resources based on the priorities set at the local level.

Declining Enrollment The District is currently benefitting financially from declining enrollment. District is paid on previous year’s ADA but only has to staff on current year’s enrollment levels. But the District’s enrollment levels out in

El Segundo USD Historical Data for P2 ADA

Revenue Limit - Summary Revenue Limit per ADA$ 6, Proposed Deficit of %$(1,103.05) Net Amount per ADA$ 5, Revenue Limit per ADA$ 5, Percentage Increase in ADA 1.8% Average Cost per FTE for Teacher$ 62, Average Cost per FTE for Teacher$ 72,875 Percentage Increase in Cost per Teacher 16.4% We will be building a budget with revenue levels and costs

Total Shortfall for The District’s expenditures will exceed revenues by $2,500,000

Next Steps Although we may not know the final result of the state’s fiscal crisis and the state’s budget until late fall, all school districts are required to adopt a balanced budget for the next school year by June 30, –State Budget will most likely not be in place by then –LACOE will require we use assumptions in the May revise if that is the latest data and proposal As you can see, building the district budget based on assumptions that have yet to be validated is a very challenging process. Developing the budget requires: –Clarifying assumptions How much revenue? What flexibility options will be acted upon? How will expenditures change Preparing for the worse case scenario

Summary The Legislature now needs to act on the Governor’s proposal. Absent action on their part, the District will adopt their budget based on the assumptions in the May Revise from the Governor. In all likelihood, we will not have a state adopted budget until the start of the school year. Although this budget process is not new to school districts, the magnitude of the reductions caused by the national and state fiscal crisis is new. The adoption of a balanced budget for is going to take a combination of strategies and changes to the way that our schools and staffing levels are currently structured.

Impact on ESUSD With the current proposal by the Governor: Must reduce budget by $1,000,000 Must reduce budget by $2,500,000 Developing the budget will take community, parents, educators, students, staff, and all stakeholders working together creatively and realistically to continue to prepare our students for the challenges of the 21 st century