Second Interim Budget Highlights

We Now Have a Severe Crisis in Education Within three years of the passage of Proposition 13, education spending in California dropped from the top five to last in the nation We have created an unreasonable expectation – the nation’s highest standards for student achievement and one of the lowest funding levels Proposition 98, the 1988 voter-approved constitutional amendment, was intended to provide a stable and growing source of funding for K-14 education In recent years, it has done neither In , the Governor and the Legislature suspended the guarantee by $2 billion When the current-year Budget was enacted, Proposition 98 was manipulated to provide flat funding from Now we have seen a collapse of the guarantee as state tax revenues have collapsed

Revenue Limit Cuts Governor’s Budget Agreement: Statutory Revenue Limit $6, First Interim Revenue Limit $5, – 5.357% deficit Second Interim Revenue Limit $5, – 7.844% deficit Loss of $154.02/pupil or ($436,692) Statutory Revenue Limit $6, Revenue Limit $5, – % deficit Loss of ($697,440) in including declining enrollment

Tier II & Tier III State Categorical Cuts Governor’s Budget Agreement 15.4% reduction: CBET $4,768 English Language Acquisition Program $5,482 School Safety & Violence Prevention $7,798 Arts & Music Block Grant $7,430 Ag Voc Ed $4,995 Supplemental Counseling $13,860 GATE $3,287 Instructional Materials $25,936 Professional Development Block Grant $19,279 Targeted Instructional Improvement Block Grant $12,064 School & Library Improvement Program $42,514

Tier II & Tier III State Categorical Cuts Continued Governor’s Budget Agreement 4.5% reduction in : Additional reduction of $46,550 in year loss of $193,963 in State revenue for categorical programs The budget eliminates funding for the High Priority Schools Grant Program one year before the scheduled end of the grant period Resulting in a $114 million cut Affecting 408 schools in 170 school districts $199,200 loss for our district

What a Difference Between First and Second Interim

Flexibility and Opportunity The Budget offers fiscal and program flexibility through Ability to transfer state categorical funding to the unrestricted General Fund for Tier III programs Can eliminate Tier III programs and continue to receive funding Will need an exit strategy when flexibility goes away in Eliminate Deferred Maintenance match requirement Reduce routine restricted maintenance set-aside requirement from 3% to 1% While the flexibility is welcomed, keep in mind that not all programs are included Exempted programs include: Federally funded programs Tier I & Tier II State Programs

Flexibility and Opportunity The Untouchables – Tier I and II Economic Impact Aid – No Cut and No Flexibility Special Education – No Cut and No Flexibility K-3 CSR – No Cut and No Flexibility Child Nutrition – No Cut & No Flexibility Agricultural Vocational Education – Cut & No Flexibility English Language Acquistion Program – Cut & No Flexibility Must hold a Public Hearing informing public before we utilize flexibility transfers

2009 School Services Financial Projection Dartboard Factor Statutory COLA (use for K-12 and COE Revenue Limit) 5.66%5.02%0.70%2.30%2.50%3.00% K-12 Revenue Limit Deficit7.844%13.094% Special Education COLA (on state and local share only) 0.00% 0.70%2.30%2.50%3.00% State Categorical COLA (including adult education and ROC/P) %-4.46%.70%2.30%2.50%3.00% California CPI1.9%.8%1.90%2.30%2.80%3.20% California Lottery Base$ Prop 20$ Interest Rate for Ten-Year Treasuries2.90%3.00%3.40%3.90%4.30%4.50%

The State’s Cash Crisis Is Now Our Cash Crisis The state, like school districts, has high and low cash points In a typical year, the state borrows just as districts do when they issue Tax Revenue Anticipation Notes (TRANs) But the condition of the financial markets makes it more difficult for borrowers of all types Especially a state that has a $40 billion shortfall, chronic deficit spending, an emergency in the current year, and the second lowest credit rating in the nation So, the reason the state is running out of cash is not because it does not have a Budget, but because: It is spending cash much faster than revenues are coming in It anticipates that it will not be able to borrow

Apportionment Cash Flow Tough economic times push the state's cash flow issues to schools February apportionment & CSR deferred to July March apportionment reduced by 9/12ths of the deficit to catch up June apportionment deferred to July July apportionment deferred to October August apportionment deferred to October

What Is Next? Third Interim in May Will have more accurate ending balance estimates from hiring & spending freeze Will identify available balances to be transferred from Tier III programs to the General Fund Will hold a public hearing to notify of the use of flexibility Special election on May 19th