Long Beach Unified School District

1. Long Beach Unified School District Budget Update Including Impact of Adoption of 2010-2011 State Budget Presented at Board of Education Workshop November 9, 2010 Prepared by the Business Office

2. Timelines Budget revisions are on-going.

3. Initial Thoughts The State budget is based on political assumptions, not sound economic assumptions The intense gridlock led to a gimmick-driven result by all sides - meaning no real budget at all. The fight over school funding has simply been delayed, not resolved. The overall level of school cuts proposed earlier did not get worse and in fact provided a slight increase in dollars for school districts.

4. Economic Outlook • Economists are now referring to the era of the “Great Recession” to characterize what has been the longest and deepest recession in the post-Depression era • Largest job losses ever recorded in CA are highest in the nation • Impacts every source of revenue for California government at the state and local levels. • Personal income largest driver

5. The Economy • The economy is the key to financial recovery for the state as a whole and for public agencies • Unemployment is key and remains higher than the rest of the nation • Predictions of an early recovery in the spring of 2010 proved to be overly optimistic

6. National Economic Outlook • Many economic indicators remain weak • U.S. unemployment is at 9.6%, and it spiked at 10.1% • Gross Domestic Product (GDP) has slipped • Housing remains sluggish • Economists say the recession is over, which doesn’t translate to meaningful recovery until 2012-13 • The keys to recovery • Improvement in the construction industry • Improvement in employment

7. 2008 2009 2010 U. S. Economic Outlook Gross Domestic Product (GDP) Source: U.S. Bureau of Economic Analysis, August 2010; Note: Advance estimate for the 3rd quarter 2010 is 2.0%

8. California Economy • California’s economy remains weak • The state unemployment rate is 12.4%, among the highest in the country • Home sales slowed in August, down 2.7% from July and down 14.0% from August 2009 • Home foreclosures made up more than one-third of the existing homes sold in August • UCLA forecasts some improvement in 2011 • Employment will rise 1.90% after three years of decline • Personal income is expected to increase 3.70% • But the unemployment rate will remain high at 11.0% in 2011

9. California’s Spending Lags the Nation

10. California’s Spending Lags the Nation

11. Forecast U. S. Employment ___________ Forecast Source: UCLA Anderson Forecast, September 2010

12. Forecast California Employment ____________ Forecast

13. California’s Unemployment Rate vs. Other Hard-hit States Highest State Unemployment Rate, September 2010 14.4% 14.4% National Average is 9.6% 13.0% 12.4% 11.9% 11.5% Source: U.S. Bureau of Labor Statistics, October 2010

14. The State Budget Gap “Closing” the $19.3 Billion Gap - October 2010 • $7.8 billion of expenditure–related solutions (including ongoing and temporary cost or service reductions) • $5.4 billion of new federal funding • $3.3 billion of revenue actions (including $1.4 billion in higher assumed baseline state revenues consistent with our May 2010 state revenue forecast) • $2.7 billion of largely one–time loans, transfers, and funding shifts • Governor vetoes $963 million to boost the Legislature’s reserve of $375 million to $1.3 billion Source: Department of Finance and LAO

15. Budget Act Expenditure Solutions Dollars in Billions $ 3.100 - Reduce Proposition 98 costs $ .260 - Vetoes to CDE - Stage III Child Care, ASAM $ 1.600 - Reflect savings in state employee payroll, benefits $ .800 - Reduce budget for prison medical care $ .300 - Achieve IHSS savings through various actions $ .569 - Vetoes to HHS – Including Student Mental Health Services $ .200 - Defer or suspend local government mandates $ .200 - Reflect reductions in adult prison population $ .200 - Offset UC and CSU General Fund costs with federal economic stimulus funding $ .200 - Require managed care enrollment for certain Medi–Cal recipients $ .336 - Adjust other spending and Vetoes to Non-Agency Depts. (net reduction) _______________________________________________________________ $7.765 billion - Total Expenditure Related Solutions

16. Budget Act Revenue Solutions Dollars in Billions $ 1.4 - Adopt LAO’s May 2010 revenue forecast $ 1.2 - Suspend for two years the ability of businesses to deduct net operating losses $ .9 - Score additional revenues from previously authorized sale leaseback of state office buildings * $ -.1 - Adopt other compliance actions and reductions in business taxes (net reduction) ________________________________________________ $3.3 billion - Total Revenue Related Solutions * The State announced sale agreement 2 days after budget was signed for a total of $2.3 billion, with General Fund benefit of $200 million above projection.

17. State General Fund Revenues Source: 2010-11 May Revision, page 56; Budget Conference Committee Report, October 6, 2010

18. Budget Act Federal Funding Solutions $ 4.1 billion - Assumes enhanced federal funding and/or additional cost flexibility $ 1.3 billion - Score savings from recent congressional action to extend Federal Medical Assistance Percentage (FMAP) support ______________________________________________________ $ 5.4 billion - Total Federal Solutions (Most of this requires an act of Congress)

19. Budget Act Loans, Transfers & Shifts Dollars in Billions $ 1.3 - Borrow from special funds $ .5 - Extend repayment due dates of existing loans from the General Fund to special funds $ .4 - Fund courts from previously authorized shift from redevelopment agencies $ .2 - Use hospital fees to support Medi–Cal children’s coverage $ .2 - Transfer special fund monies to the General Fund $ .1 - Use Student Loan Operating Fund monies for Cal Grant costs $ .1 - Adopt other funding shifts _______________________________________________________________ $ 2.7 billion - Total Loans, Transfers & Shifts

20. Risks to the State Budget • Higher revenues: Assumes the Legislative Analyst’s Office’s $1.4 billion higher revenue estimate, on top of the 5.7% revenue increase projected in the May Revision • July and August revenues are tracking the May Revision forecast, not exceeding it • Federal funds: $5 billion are assumed, which would offset General Fund expenditures, $1.6 billion more than the May Revision • Expenditure cuts: $7.5 billion are assumed • However, one-third of the fiscal year has already elapsed without these reductions • The economy: Assumes personal income growth of 3.2% in 2010 and 4.5% in 2011 • UCLA forecasts weaker growth: 1.9% in 2010 and 3.7% in 2011

21. Once Again “The vast majority of the new budget problem we have identified for 2009-10 can be attributed to the state’s inability to implement several major solutions in the July 2009 budget plan…” - Mac Taylor, Legislative Analyst November 2009

22. The State Budget For Education • What are the provisions of the new State Budget? • Much improved from the May Revision • Reverses 3.85% cut and negative cost-of-living adjustment (COLA) • Restores child care cuts • No supplanting with Federal Jobs Bill funding • Still, there are concerns: • Will there be mid-year cuts? • Loss of Tier III and class-size reduction (CSR) flexibility will cut into the gains • Longer term, we need real Budget reform • We need more dollars, and a more stable source of funding • We are still at the bottom of the ranking in education spending

23. Proposition 98 • Proposition 98 was designed to establish a constitutional minimum funding guarantee for K-14 education • Over the years, Proposition 98 has been subject to manipulation • In 2009-10, the Legislature and the Governor recaptured a $1.6 billion “overappropriation” of the 2008-09 minimum guarantee after the fiscal year had closed • The Governor’s May Revision for 2010-11 had proposed to rebench the guarantee downward by $1.45 billion related to his proposal to eliminate child care • The Legislature rejected the child care cut

24. Proposition 98 • For 2010-11, the Legislature suspended Prop 98, establishing the minimum funding level at $49.7 billion • The minimum funding level without suspension would have been close to $54 billion, a loss of $4.3 billion • Impact to LBUSD — about $50 million • Outstanding Maintenance Factor at the end of FY 2010-2011 is estimated to be $9.5 billion

25. Major Changes from May Revision to the Final State Adopted Budget Note: Mid-Year cut for FY 2010-2011 is uncertain at this time.

26. Revenue Limit Note 1: Net Funded COLA is the change in the funded revenue limit from the prior year Note 2: For 2010-2011, the negative COLA was eliminated through a lower deficit factor

27. 2010-2011 Revenue Limit Per ADA Note: LBUSD is receiving $1,139.41 less per ADA, or $92 million due to state deficits

28. 2010-2011 Cash Deferral of State Apportionment Based on State Adopted Budget—LBUSD

29. Cash Deferrals of 2010-11 State Apportionment Impact to LBUSD Amount deferred within FY 2010-2011 = $ 149,467,888 * Amount deferred to FY 2011-2012 = $ 118,756,843

30. Estimates of New One-Time Funding—LBUSD • Federal Jobs Bill — $14 million • Cash received in Oct. 2010 • Use of funds must be related to school sites & support • Must be spent by Sept. 2012 • State Mandated Costs — $4 million • Cash receipt is expected in FY 2010-2011 • Use of funds is entirely unrestricted • No deadline for spending

31. 3 Different Funding Scenarios • Worst • Assumes State Budget gains are rescinded • Assumes COLA of 0% in 2011-12 and 1.9% in 2012-13 • Better • Assumes the reduced deficit factor is one-time for 2010-11 • Assumes COLA of 0% in 2011-12 and 1.9% in 2012-13 • Best • Assumes the reduced deficit factor is on-going for 3 years • Assumes COLA of 0% in 2011-12 and 1.9% in 2012-13

32. Worst Case Scenario

33. Worst Case Scenario – Includes Non-Rep and CSEA Unit A

34. Better Case Scenario

35. Better Case Scenario – Includes Non-Rep and CSEA Unit A

36. Best Case Scenario

37. Best Case Scenario – Includes Non-Rep and CSEA Unit A

38. Summary of Board-Adopted Budget Reductions

39. Proposed Staff Recommendation for Reductions—November 9, 2010 * The contribution estimate for FY 2011-12 is $267,546 for a half-year implementation. A full-year estimate is $535,092.

40. Potential Savings Ideas • Close small schools • Freeze certificated and classified hiring • Consider staffing calendar changes, such as from 12- to 10-month • Evaluate programs and services • Continue to implement procedures related to efficiencies and effectiveness

41. November 2010 Election Results • Governor — Jerry Brown • Superintendent of Public Instruction — Tom Torlakson • Proposition 22 — Passed — Prohibits the state from delaying the distribution of tax revenues for transportation, redevelopment, or local government projects and services. It also prohibits redirection of redevelopment property revenues and temporarily shifting property taxes from cities, counties, and special districts to schools

42. November 2010 Election Results • Proposition 25 — Passed — Reduces votes needed to pass the State Budget from two-thirds to simple majority • Proposition 26 — Passed — Reclassifies certain fees and charges as taxes and therefore, increases the vote threshold for the Legislature to pass them from simple majority to two-thirds • Proposition 24 — Failed — Repeals 3 business tax provisions. This means that the state will not be getting the estimated $1.3 billion increase from increased business taxes, about half of which would have gone to K-14 education

43. The Value of Education —Unemployment Rate by Levels of Highest Education All Education Levels — 9.6% High School Completed, No College No High School Diploma Some College, No Degree Bachelor’s or Higher Degree Source: U.S. Department of Labor, Bureau of Labor Statistics, Current Population Survey – September 2010

44. The Value of Education —Earnings • Education, especially K-12, is critical to the economic success of individuals and our state as a whole • Personal income accounts for more than half of state General Fund revenues • Educational attainment affects earnings Source: U.S. Census, Education Attainment in the United States, 2009

45. Our Mission To support the personal and intellectual success of every student, every day

46. Thank You • School Services of California • School Innovations & Advocacy (SI&A) • Most of all, • Susan Ginder and Fiscal Services team • Chief Business and Financial Officer, Kim Stallings • Superintendent, Christopher Steinhauser • Board of Education From Betty Ng, Financial Services Officer