1. What to Cut When You Can’t Cut Anymore: The Board’s Role in Balancing the Budget Presented by Maureen Evans Associate Vice President School Services of California, Inc. Ron Bennett President and CEO School Services of California, Inc. Celia Jaffe Board President Huntington Beach CSD Penny Ranftle Board Member Poway USD

2. 1 Overview  Current climate  Comparative data  Board’s role – revenue and expense  Use of budget advisory committees  School closure(s)  Long-range financial planning goal

3. Current Climate

4. 3 The Economy  Powerful economies do great things, and they generate a lot of tax revenue  In past years, revenue growth was estimated at 4% to 6% annually  In 2000, it was more than 20%!  And now, it is dropping like a rock – flat revenues would be a plus  Past revenue growth allowed:  The state to avoid cuts to any major expenditure areas  Full funding of statutory and formula-driven increases  Increases in important areas, including education  An on-time budget  Yes, high revenue growth is a good thing!  But, it is now also a thing of the past – way past

5. 4 The Economy  In 2007-08, the choice between raising revenues or making a reduction in spending did not have to be made  The outlook for 2008-09 – and beyond – is a bit more clouded  Revenue projections are much weaker – high year-to-year growth is simply not sustainable over the longer term  The Budget assumed 2008-09 state revenues increase only slightly  Reflects that much of the jump in revenues in 2005-06 and 2006-07 is assumed to be one time  But revenues are coming in well below forecasts

6. 5 K-12 Revenue Limits – An Overview  Look at the “Revenue Limit Roller Coaster”  January’s Governor’s Budget proposed a 10% cut to education  Flexibility in spending was promised  By the May Revision, the cut was reduced  Revenue limits were maintained from 2007-08  Categoricals were to be cut by 6.5%  By the September Budget Enactment, education was flat funded  A tiny COLA, 0.68% was provided  Flexibility was not included in the Budget  Just one month later, the Governor announced the Special Session to deal with declining revenues  What should we plan for given all these changes?

7. 6 Structural Budget Shortfall Remains  The Legislative Analyst predicts major budget problems ahead  The state cannot “grow its way” out of this problem  Even with minor revenue growth, the budget gap swells  The message for us is – the status quo may be as good as it gets for a while

8. 7 Governor Calls Special Session  Purpose of the Special Session – to reduce the budget deficit  The Governor proposes to do this:  By cutting expenditures  $2 billion to $4 billion for education for this year, 2008-09  0.68% COLA would be “unfunded”  Additional cut to revenue limit of about $300 per average daily attendance (ADA)  By adding revenues  Largest source is proposed 1.5% sales tax increase

9. 8 Proposition 98 Projections  Proposition 98 simply isn’t growing fast enough to provide a COLA  Proposition 111 allows the state to short education during bad times  Most of the 5.66% COLA for 2008-09 has already been deficited  The Governor’s proposal would take back the remaining 0.68%  We recommend districts also plan for a zero COLA for 2009-10

10. 9 Proposition 98 Projections  By 2009-10, the absence of two COLAs would cause the deficit to be more than 10% – we would get only 90¢ on the dollar  We forecast that if that happens, about 500 districts go “Qualified” or “Negative” financially  We will fight for the COLAs but need a plan to live without them

11. Comparative Data

12. 11 How Do You Know If You’ve Cut Everything?  Use of comparative data to find area of opportunity  Compare to similar-type district  Unified  Elementary  High  Compare to similar-size districts  Compare to districts with similar revenues  Compare to districts with similar enrollment patterns  Examine numbers and types of employees  Examine expenditure patterns  Examine class size

13. 12 How Is Your District Different? Why?  Compare your district revenues and expenditures to the correct district type 2006-07 Revenue Area UnifiedHighElementaryYour District $ Per ADA % of Total $ Per ADA % of Total $ Per ADA % of Total $ Per ADA % of Total Revenue Limit$5,907.7662.86%$6,945.8269.90%$5,706.9063.54% Federal758.138.07%557.565.61%713.837.95% Other State2,212.4523.54%1,733.2217.44%1,841.0920.50% Other Local520.125.53%700.427.05%720.108.02% Subtotal$9,398.46100%$9,937.02100%$8,981.92100% Source: 2006-07 State-Certified Reports: J-90, CBEDS, SACS

14. 13 2006-07 Expenditure Area UnifiedHighElementaryYour District $ Per ADA% of Total$ Per ADA% of Total$ Per ADA% of Total$ Per ADA% of Total Certificated Non-Mgmt. Salaries$3,937.1243.98%$3,869.5141.42%$3,745.7043.99% Classified Non-Mgmt. Salaries1,235.8713.81%1,363.2214.59%1,123.0013.19% Management Salaries498.005.56%492.565.27%487.915.73% Employee Benefits1,682.3918.51%1,711.4017.74%1,534.6117.71% Books & Supplies478.255.34%508.255.44%468.115.50% Services and Other Operating Exp.893.189.98%873.669.35%817.369.60% Capital Outlay57.260.64%69.140.74%50.790.60% Other Outgo170.221.90%453.894.86%286.883.37% Total Expenditures$8,952.29100%$9,341.63100%$8,514.36100% How Is Your District Different? Why? Source: 2006-07 State-Certified Reports: J-90, CBEDS, SACS

15. 14 Class Sizes/Staffing  Many districts have increased or may be considering increasing class sizes but be aware of constraints  Class-Size Reduction incentives  Legal limits  Contractual limits Grade LevelTargetActual Contract LimitStatewide* Maximums per Education Code Sections 41376 and 41378 K-319.7 Kindergarten – average class size not to exceed 31 students; no class larger than 33 students and grades 1-3 average class size not to exceed 30 students; no classes larger than 32 4-827.5 Grades 4 through 8 – current fiscal-year average number of pupils per teacher not to exceed the greater of the statewide average number of pupils per teacher in 1964 (29.9) or the district’s average number of pupils per teacher in 1964 9-1227.7 No limit *Source: 2006-07 State-Certified CADIE

16. 15 Where Can I Find Comparative Data?  SSC offers state-certified comparable data for comparison and analysis  Other resources for comparative data:  www.cde.ca.gov/ds/sd/cb/dataquest.asp  www.ed-data.k12.ca.us

17. The Board’s Role – Revenue and Expense

18. 17 You Have Limited Flexibility in Revenues  Revenue areas that can be influenced by the district – examples:  Revenue limits  Special emphasis on ADA tracking and improvement  Federal revenues  Application for programs and grants  Application for impact aid (PL-874)  Other state revenues  Application for special programs  Application for programs and grants  Application for mandated costs

19. 18 You Have Limited Flexibility in Revenues  Other local revenues and financing sources  Interest income  Voted parcel taxes (operating funds)  Maintenance assessment districts  District property disposal and lease income  Community foundations and grants  Developer fees (capital facilities)  Voted bonds (capital facilities)  Fees for transportation, food services, or athletic competitions

20. 19 You Have Dramatic Flexibility in Allocating Expenditures  Expenditures areas that you control  Organization of administrative staff  Assistant superintendents, directors, principals, and assistant principals  Compensation of district staff  Salary level and methodology of compensation  Benefit support and types offered  Range of programs offered  Gifted and Talented Education (GATE), Economic Impact Aid (EIA), Peer Assistance and Review (PAR)  Preschool, community schools, opportunity schools

21. 20 You Have Dramatic Flexibility in Allocating Expenditures  Design of categorical programs  Flexibility for delivery is very significant  Class size for instructional programs  Class size by grade levels and programs  Continuation of low-enrolled programs  Curriculum and instructional methods  Course offerings and program emphasis  Staffing levels for support programs  Health, psychological, counseling, etc.  Level and type of support services  Custodial, maintenance, and transportation

22. 21 You Have Dramatic Flexibility in Allocating Expenditures  Type and location of facilities  Number, size, location, and grade level configuration  Community support programs  Use of facilities – when, where, costs  Recreational services and offerings  Conclusion  Determination of expenditures is local and historical – not state controlled  Districts are revenue dependent and relatively expenditure independent

23. 22 Achieving Proportional Reductions  Good planning is necessary to achieve balanced, proportional reductions  Don’t allow “sacred cows”  Arbitrarily protecting one program necessitates even greater cuts in others  Use comparative analysis to see how much stable districts of comparable size spend on each major object and try to get to that level  Don’t try to take all the cuts in just a few areas; spread the impact

24. Notes

25. Use of Budget Advisory Committees

26. 25 Budget Advisory Committees  Budget Advisory Committees can be helpful  Community buy-in  Additional resources and ideas  Political insulation  Publicity agents for successes  Budget Advisory Committee, however, require:  Strong, timely, committed staff resources  Good leadership/strong chairperson  Concrete, focused, short-term goals and projects  Membership balance – avoid organization dominance

27. 26 Budget Advisory Committees  Use the budget committee to assist in budget reduction analyses  Use short-focused areas:  “Prioritize these six expenditure augmentation proposals”  “Identify three district services, totaling an expenditure of $500,000, that should be discontinued”  “Analyze one service area and identify how the service could be provided less expensively”  “Develop a booklet that explains the district’s fiscal issues to others”  “Identify one program area that has the highest measured accomplishment for the least expense”  Do not leave the task open-ended; provide direction and focus  Always make a Budget Advisory Committee “advisory”

28. Notes

29. School Closure(s)

30. 29 Political Consideration in Closing Schools  Closing a school is never popular, but may be necessary  You cannot please everyone – expect to hear from the opposition  But you can follow a process that avoids the appearance of being arbitrary or making a purely political decision  Establish and follow objective criteria  Maximum savings  Enrollment trends  Size  Proximity to other locations  Condition and type of facility  Access, traffic, and safety  Performance

31. 30 Political Consideration in Closing Schools  Timing – avoid holding discussions before school board elections or when a bond or parcel tax is to appear on the ballot  Allow time for meaningful hearings  Involve the community in planning

32. Notes

33. Long-Range Financial Planning Goal

34. 33 Long-Range Financial Planning  Multiyear projections – your guide to sound finance  Sometimes your first long-term goal is to survive the short term  The multiyear projection needs to “work”

35. 34 Failure to Consider the Multiyear Impact of Budget Decisions  AB 1200/AB 2756 requires districts to consider the budget impact of the current year and two subsequent years  Multiyear planning does not rely on a crystal ball – it is the mathematical consequences of the actions of today  Most major budget failures can be traced to specific events and decisions  The county office of education should intervene if your multiyear projections are less than positive  We recommend you do a “sensitivity analysis” on your projections  What happens if COLA assumptions go up or down?  What if ADA changes?  Failure to look to the future may ensure that your own “future” ends

36. 35 Failure to Follow Through on Budget Decisions  Difficult budgets require difficult decisions  Those decisions are hard to make and sometimes the Board takes considerable public punishment for making them  But once those decisions have been made, they must be implemented – but often they are not  Positions are not cut  Expenditures are not reduced  Failure to follow through, no matter how good the excuse, requires that the Board and superintendent readdresses the budget  Bad news does not get better with age – if the cuts can’t be made, develop a new plan early

37. 36 Your End Goal – “The Bottom Line”  Focus on critical issues in your district  Recognize current problems that must be addressed immediately with the understanding that “we” (Board, staff, and community) share in the good and difficult times

38. Thank you