1. The Governor’s Proposed State Budget, 2010-2011 Ramona Unified School District January 21, 2010

2. California’s Economy While there are signs of recovery, California’s economy will continue to suffer from high unemployment As of November 2009, CA unemployment rate is 12.3%, compared to 10.0% for U.S. as a whole As of November 2009, CA unemployment rate is 12.3%, compared to 10.0% for U.S. as a whole Department of Finance forecasts the unemployment rate to remain above 10% through 2011 Department of Finance forecasts the unemployment rate to remain above 10% through 2011 Other factors that will impair our recovery Very weak construction and manufacturing Very weak construction and manufacturing Continued drought Continued drought Political gridlock in Sacramento Political gridlock in Sacramento

3. Governor’s Proposals for 2010-2011 The State has used, and continues to use, a variety of solutions to balance the Budget New federal funds, rather than any proposed new taxes or fees New federal funds, rather than any proposed new taxes or fees Budget reductions Budget reductions Borrowing and special fund transfers Borrowing and special fund transfers “Creative proposal” “Creative proposal” School Services of California, Inc. believes the Governor will have difficulty getting his proposals through the Legislature unscathed

4. The Budget Gap SSC B-13

5. What Does It Mean to Be Protected? The Governor featured “protecting education” as a major theme.... Does that mean no cuts? No! But it does mean: No midyear cuts to school agencies for 2009-10 No midyear cuts to school agencies for 2009-10 Lower than proportional reductions for 2010-11 Lower than proportional reductions for 2010-11 Education makes up about half the Budget, but takes about a fourth of the cuts So, while there is room for improvement, the protection offered is the best we have had in the past three years SSC B-15

6. Highlights of the Education Budget Flat funding under Proposition 98 in 2010-11 $1.5 billion in cuts targeted to district adminis- trative and operational costs -- $201 per ADA Personnel and administrative reforms Suspension of almost all education mandates Negative cost-of-living adjustment (COLA) produces no new funding: -0.38%, or $24 per ADA SSC A-4

7. Highlights of the Education Budget Deficit factor remains at record level Proposition 98 is still owed major sums $11.2 billion from past deficits $11.2 billion from past deficits More than $1 billion for unfunded mandates More than $1 billion for unfunded mandates Don’t plan to collect this year Don’t plan to collect this year Race to the Top (RTTT) is also a factor

8. Budget Year Adjustments – Revenue Limit COLA 2009-10 fiscal year -- no further cuts proposed 2010-11 fiscal year -- “fully-funded” COLA; however, COLA is -0.38% This is looking like another unusual year for calculations The funded rates for 2010-11: The funded rates for 2010-11: District Type 2010-11 Statutory COLA <0.38%> All Elementary Districts <$23> All High School Districts <$28> All Unified Districts <$24> SSC C-10

9. Administrative Cuts and Efficiencies The Governor proposes cutting a total of $1.5 billion targeted as “noninstructional”, or administrative, costs at school districts and COEs $1.2 billion ongoing reduction to funded revenue limit targeted at school district central administration and $300 million attributable to eliminating barriers related to contracting out for services $1.2 billion ongoing reduction to funded revenue limit targeted at school district central administration and $300 million attributable to eliminating barriers related to contracting out for services This would apply to all districts, regardless of the current level of administrative spending or cuts made prior to 2010-11 Monitoring would occur through review of reported Standardized Account Code Structure (SACS) data The Governor has yet to share the specifics of the proposal, but if the cut were to apply based on current revenue limit rates per ADA, it would be as follows: Elementary High School Unified $191$231$201 SSC C-12

10. Funded Revenue Limit 2009-10 vs. 2010-11 SSC C-15

11. It was assumed that the one-time cut of $253 per ADA was for 2009-2010 and would be reinstated next year The one-time cut of $253 per ADA is being replaced with the negative COLA (-$24) and the $201 proposed administrative cut, totaling $225 per ADA cut So for RUSD, it is a cut of anticipated dollars, and expenditures need to be reduced to balance the effects

12. Effects of Proposals on RUSD -0.38%, or $24 per ADA, reduction of COLA to Revenue Limits $144,834 $144,834 $201 reduction of revenue limits $1,276,006 $1,276,006 -0.38% reduction to categorical programs which will need to be backfilled $120,139 $120,139 Total loss of revenues $1,540,979 $1,540,979

13. Loss of One-Time Funding School Fiscal Stabilization Funding $2,252,229 $2,252,229 ARRA IDEA Funding $815,994 $815,994 Loss of revenue due to declining enrollment $1,626,303 $1,626,303 Effects of deficit spending (estimate) $100,000 - $350,000 $100,000 - $350,000 Total loss of funding $5,044,526 $5,044,526

14. Continue Increasing Operating Costs Service the Salary Schedule (estimate) $733,610 $733,610 Health and Welfare Increases 10% increase (estimate) 10% increase (estimate) $504,734 $504,734 Total Increase of Costs $1,233,610 $1,233,610

15. Summarizing the Negative Numbers Proposed 2010-2011 reductions to revenues $1,540,979 $1,540,979 Loss of funding $4,794,526 - $5,044,526 $4,794,526 - $5,044,526 2010-2011 increased costs $1,233,610 $1,233,610 Total (estimate) $7,819,115 $7,819,115

16. The Positive News to Offset the Negative Numbers 2009-2010 projected 1 st Interim ending balance $2,376,357 $2,376,357 Early Retirement Incentive Savings $1,624,830 $1,624,830 Sale of mitigated property $600,000 $600,000 10% remaining SFSF ARRA funds $225,000 $225,000 Other budget transfers/savings $930,000 $930,000 Total dollars to offset problem $5,756,187 $5,756,187

17. Summarizing the Problem Problem $7,819,115 $7,819,115Solutions $5,756,187 $5,756,187 Continued reductions of approximately $2,000,000 $2,000,000 Numbers need to be finalized

18. Summarizing the Problem RUSD’s problem for 2010-2011 is approximately in the $2 million range The process on closing this gap begins The process on closing this gap begins The numbers need to be finalized The numbers need to be finalized Looking beyond 2010-2011, most (if not all) budget transfers and savings will be exhausted

19. Cash The State continues to be in a cash flow crisis The State runs low on cash in February and March (before April taxes) and then during the summer months Governor’s plan has been to defer payments to school districts to later months Continues to pass on the State’s cash shortages to school districts Continues to pass on the State’s cash shortages to school districts

20. RUSD Cash Flows As ending balances go lower towards the State minimum of 3%, cash flows will be of increasing concern RUSD applies for and qualifies for Tax Anticipated Revenue Notes (TRANs) to help out with cash flow concerns Concern will be year-ending cash flow balances (June), due to State deferrals of the cash With the TRANs and interfund borrowing, RUSD has maintained a positive cash flow

21. Conclusion Remember, the Governor’s proposal is not the end of the State Budget journey, but only the beginning Huge risks to the proposal with $6.9 billion in revenues from the Federal Government With the proposed reductions to the revenue limit, RUSD’s 2 nd Interim Report could be in qualified status to the State

22. Next Steps Like a year ago, strategies will be developed to address the shortfall More scrutiny of the target numbers to check for accuracy of the assumptions Monitor the budget developments at the State Keep the Governing Board and all our constituents informed

23. Credit Credit to School Services of California, Inc. for many of the slides, comments, and interpretation contained in this presentation