1. Governor’s Proposal for the 2009-10 State Budget and K-12 Education Ron Bennett, President & CEO John Gray, Vice President Robert Miyashiro, Vice President Sheila Vickers, Vice President Maureen Evans, Associate Vice President Michele Huntoon, Associate Vice President Jannelle Kubinec, Associate Vice President

2. State General Fund Revenue Collapse Three-year shortfall totals $31.3 billion 1 SSC

3. Governor’s State Revenue Proposals Revenue Increase (In Millions) Proposal2008-092009-10 Temporary 1.5¢ Increase in Sales Tax$2,350$7,114 Broaden Sales Tax Base2721,154 “Nickel-per-drink” Beverage Excise Tax244585 9.9% Oil Severance Tax358855 Reduce Dependent Exemption Credit Equal to the Personal Exemption Credit –1,440 Increase Vehicle Registration Fees92359 Shift Tribal Gaming Revenues from Transportation to General Fund101 Special Fund Transfers and Loans29894 2 SSC

4. State General Fund Budget Summary 3 SSC (Dollars in Millions) 2008-092009-10 Prior-Year Balance$2,375$1,079 Revenues and Transfers$91,117$97,708 Total Resources$93,492$98,787 Total Expenditures$92,413$95,524 Fund Balance$1,079$3,263 Budget Reserve: Reserve for Encumbrance$1,079 Reserve for Economic Uncertainties$0$2,184 Budget Stabilization Account–$0 Total Available Reserve–$2,184 Summary assumes enactment of all of the Governor’s Budget proposals 2008-09 fiscal year relies on $13.9 billion in midyear cuts and $12.7 billion in new revenues An estimated $5 billion in revenue anticipation warrants (RAWs) would be sold in July 2009 but not repaid until 2010-11 Source: 2008-09 Governor’s Budget, p. 9

5. State Securitization of the Lottery Securitization of the California Lottery continues to be a key Budget- balancing technique Lottery revenues, which have been declining, are assumed to double, with the increase used to service long-term debt The impact on education: Short term: Lottery revenues would no longer go to public education Beginning in 2009-10, they would be capped at 2008-09 levels and replaced with General Fund dollars, increased by the COLA each year Proposition 98 would be re-based to make the proposal neutral Long term: Education no longer shares in growth in Lottery revenues, which would be pledged to bondholders Must be approved by voters 4 SSC

6. The State Controller’s Office (SCO) apportioned $30.52 per ADA (unrestricted) for the first quarter of 2008-09 $5.92 per ADA lower than the first quarter of 2007-08 Although the Lottery Commission has not officially reduced the 2008-09 projections at this time, we have reduced the per-ADA projections on our Dartboard by 10% based on information released on current Lottery sales The updated 2008-09 allocations based on the reduction are: $109.50 per annual ADA unrestricted $11.50 per annual ADA for Proposition 20 E-26 State Lottery: 2008-09 5 SSC

7. $121 per ADA (est.) E-28 Funding per Annual ADA State Lottery: Funding $121 per ADA (proj.) 6 SSC

8. Revenue Limit Cuts, Cost of living Adjustment (COLA) Governor’s Budget Proposal for: 2008-09 reduces budgeted COLA of 0.68%, eliminating the entire 5.66% statutory COLA 2009-10 provides a zero funded COLA, eliminating the projected statutory COLA of 5.02% through the deficit Governor’s Budget made further cuts to revenue limit funding $1.6 billion in 2008-09 is equal to a cut of 4.565% $1.1 billion in 2009-10 is equal to a reduction of 2.515% 7 SSC

9. 2009-10 K-12 Revenue Limits 8 SSC Base Revenue Limit per ADA (A) Deficit Factor (B) Funded Base Revenue Limit (C) = (A) x (B) 1.2008-09 Base Revenue Limit $6,106.14.90315* $5,514.76 2.2009-10 Base Revenue Limit $6,415.14.83839 $5,378.39 3.Dollar Change (Line 2, Column C, minus Line 1, Column C) -$136.37 4.Percentage Change (Line 3 divided by Line 1, Column C, converted to a percentage)-2.47% *.90315 deficit factor = 90.315% funding, or a 9.685% deficit

10. 2009 SSC School District and COE Financial Projection Dartboard Factor2008-092009-102010-112011-122012-132013-14 Statutory COLA (use for K-12 and COE Revenue Limit) 5.66%5.02%0.50%2.00%2.50%3.00% K-12 Revenue Limit Deficit9.685%16.161% Net Revenue Limit Change-4.57%-2.52%0.50%2.00%2.50%3.00% Special Education COLA (on state and local share only) 0.00% 0.50%2.00%2.50%3.00% State Categorical COLA (including adult education and ROC/P) 0.00% 0.50%2.00%2.50%3.00% California CPI2.9%1.7%2.7%2.9%3.1%3.2% California Lottery Base$ 109.50 Prop 20$ 11.50 Interest Rate for Ten-Year Treasuries3.33%3.55%4.44%4.80%4.90%5.00% 9 SSC See SSC’s Dartboard at end of this section

11. 2008-09 Proposed Cuts – Governor’s and Legislature’s Major Proposals Provision Governor’s January Proposal Legislative Proposal (SBX1 4, vetoed) Revenue Limit Eliminate 0.68% COLA; reduce further by 4.50% Eliminate 0.68% COLA Categorical Program Eliminations High Priority Schools Grant Program, Math and Reading Professional Development Program, Deferred Maintenance, Instructional Materials, Professional Development Block Grant, others Categorical Program Reductions Minor changesMany programs 10 SSC

12. 2008-09 Proposed Flexibility – Governor’s and Legislature’s Major Proposals Provision Governor’s January Proposal Legislative Proposal (SBX1 4, vetoed) Prior-Year Categorical Balances Transfer (with limitations) Transfer (with limitations) Current-Year Categorical Allocations Transfer (no dollar limitation) after public hearing Limit Mega-Item transfer for Home-to-School Transportation to “in” only Routine Restricted Maintenance Set-Aside Reduce from 3% to 1% Reduce from 3% to 1% Deferred Maintenance Match Requirement Eliminate Reserve for Economic Uncertainties Reduce by half for 2008-09 and 2009-10 – 11 SSC

13. Actions to Take Now – Update Your 08/09 Budget In your local agency budget for 2008/09: Eliminate the 0.68% COLA Reduce the revenue limit by 4.50% Set aside unallocated state categorical funds 12 SSC

14. Flexibility and Opportunity The Governor proposes to offer broad budget and program flexibility in both 2008-09 and 2009-10 Ability to transfer state categorical funding, including special funds (e.g., adult education and child nutrition), to the unrestricted General Fund Lifting of statutory requirements for most categorical programs Example: Eliminating 20:1 K-3 Class-Size Reduction caps Allow for prior-year restricted balances to be transferred to unrestricted General Fund Cut budget reserve requirements in half Eliminate Deferred Maintenance match requirement Reduce routine restricted maintenance set-aside requirement from 3% to 1% 13 SSC

15. 2009/10: Fewer Days, Fewer Dollars The Governor has proposed cutting back the work year for state employees, as well as for schools and students As part of the Governor’s proposal for 2009/10, the state would: Permit schools to drop from a minimum of 180 days of instruction to 175 days (five fewer days) Reduce funding for revenue limits by $1.092 billion, or an additional 2.8% The Governor’s proposal reduces revenue and makes it possible to legally reduce expenditures But, ultimately, LEAs would need to renegotiate contracts to realize expenditure savings 14 SSC

16. Most States Offer at Least 180 Days A June 2008 report by the Education Commission of the States found that most states have at least a 180-day school year Colorado has the lowest number of required days at 160, and Kansas has the highest at 186 days Source: Education Commission of the States, June 2008 15 SSC

17. Negotiations – Shortened School Year The Governor proposes allowing districts to shorten the school year from 180 days to 175 days This is clearly subject to local negotiations Should you do it? For the district – YES It could save about 2.5% of the district budget Better than cutting more programs or more layoffs For the union – YES 100% of the employees earn 98% of full salary Lost jobs don’t come back; lost days do Teachers’ unit retains membership Caution: Do not use savings for salary increases – sooner or later the year will be restored to 180 days Treat savings as “one-time money” 16 SSC

18. PERS Losses and Contribution Rates Employer contribution rate is set annually in May by Public Employees’ Retirement System (PERS) Board 2009-10 employer contribution rate is estimated at 9.40%, which has decreased despite the negative 5.1% return as of June 30, 2008 PERS instead expects to use funds set aside as result of its 15-year asset smoothing method to cushion loss However, investment losses will likely translate into 2010-11 employer contribution rate increase Total PERS Fund market value losses from June 30, 2008, through October 31, 2008, have reached -22.0% Actuarial valuation of June 30, 2009 will be used to set 2010-11 rate Employer contribution rate increase could be as high as 2%-3% if there is a negative 20% investment return for 2008-09 17 SSC

19. STRS Losses and Contribution Rates Legislation would be required to change the employer contribution rate from the current 8.25% STRS has no plans, at this time, to introduce legislation to increase employer rates However, the pressure to increase rates will intensify due to: Investment returns of -3.7% for 2007-08 and -22.0% so far in the current year Need to address STRS’ unfunded actuarial liability of $18.7 billion at June 30, 2007, valuation, which will undoubtedly increase due to investment losses 18 SSC

20. Outlook for Workers’ Compensation Rates 2009 rate hikes are likely Insurance Commissioner rejected Workers' Compensation Insurance Rating Bureau’s (WCIRB) recommended rate increase of 16% WCIRB cited medical inflation as the reason for the recommendation Insurance Commissioner instead accepted 5% increase to reflect higher medical and claims adjustment costs The Commissioner has no authority to set rates, but advised insurance companies to be cautious if they adjust rates 19 SSC

21. Governor’s January Budget Proposal Impact on Alameda USD 08/09: Eliminate 0.71% COLA of $380,000; This reduction was expected and reserved for. A reduction to revenues and to reserves will be made. 08/09: Additional Reduction of 4.57% to Revenue Limit of $2.6M 09/10: Reduction of 2.5% to Revenue Limit of $1.3M For the $3.9M loss in revenues ($2.6M + $1.3M), look to the Proposed Categorical Flexibility Options and Measure H funds. 20 AUSD

22. Charter School Funding General Purpose rates are based on statewide average revenue limits* Reflect 5.02% COLA, 12.09% deficit, and other anticipated changes CDE will recalculate the General Purpose rates at each apportionment Final amounts could vary by ±$20 per ADA Categorical rates reflect the 2008-09 funding levels Estimated 2009-10 funding rates for charter schools are: 21 SSC K-34-67-89-12 General Purpose Block Grant (will vary) $5,360$5,440$5,596$6,493 Categorical Block Grant$500 Total$5,860$5,940$6,096$6,993 *Ref. Education Code Section 47633(a) Source: Department of Finance

23. NEA Charter School in Alameda Projected Fiscal Impact on AUSD For 2009/10… Assume 250 AUSD students enroll in the Nea Charter School Assume 10 less (non-charter) AUSD Teachers Projected Net Fiscal Impact on AUSD is a loss of $650,000 Look to the Proposed Categorical Flexibility Options to cover these funds 22 AUSD

24. Projected Teacher Staffing Adjustments For 2009/10… -3 full-time equivalents (FTE) for Declining Enrollment -1.8 FTE for Class-Size Reduction (CSR) 9 th Grade -3 FTE to match high school staffing to enrollment -10 FTE for NEA Charter School -17.8 FTE for the Total Teacher Reduction Additional teacher reductions may be proposed as the district further analyzes temporary/probationary teachers and class-size. 23 AUSD

25. Using Categorical Flexibility (Cat. Flex.) for the Reduction in School Funding 08/09 on-going loss of $2.6M 08/09 use 1-time carryovers for Cat. Flex., including $1M from Adult Education 09/10 on-going loss of $4.6M 09/10 use 1-time carryovers from Cat. Flex of $3.8M 09/10 use on-going amounts from Cat. Flex. Of $0.8M 10/11 and forward use on-going amounts from Cat Flex. and Measure H 24 AUSD

26. Measure H Parcel Tax For current year and next 3 years, budget includes: $4M in annual revenues $1.2M in annual expenditures $2.8M in reserve for annual expenditures 25 AUSD

27. Closing Thoughts We always view the Governor’s January Proposal as a beginning point Nothing is in law; no legislative votes have been cast But school districts prepare the Second Interim Financial Report and multiyear projections (March) using the Governor’s Proposal as a base But as we have seen over the past year – things can change rapidly Have a good fallback plan If all else fails, layoffs are your last defense – be ready to do them This is a year to engage all stakeholders in solutions – not a year to get mired in the problems Our next statutory checkpoint is the May Revision – unless there are midyear cuts from the legislative special session 26 SSC

28. AUSD Next Steps27 AUSD Over the next two months, AUSD will be reviewing the Budget on the following dates: 1/28: AUSD All Management Meeting, includes Principals 1/29: Principals Enrollment & Staffing Meeting 2/2 to 2/6: Program Managers presentations to Executive Cabinet 2/10: Board Update 2/11: First Public Budget Workshop 2/12-2/23: Budget analysis by staff 2/24: Board Update 2/25-3/9: Budget analysis by staff 3/10: Board Action on Layoff Notices 3/10: AUSD’s 2 nd Interim Financial Report 4/1: Second Public Budget Workshop