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Budget Committee October 6, 2009

Budget Committee October 6, 2009. Jim Langstraat Chief Financial Officer 503-353-6021 langstraat@nclack.k12.or.us. Agenda. Negotiations Update. June 30, 2009 Fund Balance Update. Revenue and Expenditure Update. Tax Initiative Update. Economic and Revenue Forecast Update. PERS

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Budget Committee October 6, 2009

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  1. Budget Committee October 6, 2009 Jim Langstraat Chief Financial Officer 503-353-6021 langstraat@nclack.k12.or.us

  2. Agenda • Negotiations Update. • June 30, 2009 Fund Balance Update. • Revenue and Expenditure Update. • Tax Initiative Update. • Economic and Revenue Forecast Update. • PERS • Comments/Questions/Concerns

  3. Negotiations Update • Negotiations were not completed at the time we had to adopt and approve the 2009-10 budget. • We based the budget on frozen salaries and reducing certified payroll by $3 million, classified payroll by $1 million and administrators by $700,000. • What is the final status and did we achieve the necessary reductions?

  4. Administrative Reductions • Featured a reduction of 7.7 FTE. • Featured a salary freeze. • Called for an additional reduction of $500 in the funding available for each administrators professional growth and development. • Currently $36,897 under the amount budgeted. • Budget reduction goal achieved.

  5. Classified Reductions • Featured a salary freeze. • Called for reduction of 14 positions. • Included the reduction of two work days. • Requires the first two days of emergency leave to be unpaid. • Suspended the use of professional development funds. • Include changes in the level of transportation service. • Final position changes and adjustments still pending. • Targeted reduction will be achieved.

  6. Certified Reductions • Features a staff reduction of 77 positions. • Step movement for eligible employees. • A 1% salary increase and staff on the final step would receive an additional 2% increase. • Reduced contract by three in-service days and one teacher workday. • Final verification of staff reductions and cost analysis still pending. • Currently appears to be $100,000 short of targeted reduction.

  7. Negotiations Review • Thanks to all the bargaining units for their hard work and the concessions that have been made. • While the financial goals are close to being met the impact on the instructional and work environment is being felt. • Larger class sizes and fewer operational employees to cover more buildings and square footage.

  8. Fund Balance Update • Still pending any final audit adjustments but no significant changes are anticipated. • GAAP basis General Fund Balance at June 30, 2009 was $5,795,923. This is down nearly $1 million from the estimates we were using during the budget process. • Two main causes were tuition and health insurance. • Should not anticipate using $3.3 million of fund balance to budget 2010-11 budget as we did for 2009-10. • Recommending the elimination of the accrual which leads to non-GAAP fund balance.

  9. Tuition • Exceeded the amounts budgeted by $600,000. • Primarily for special needs students. • Some of this may be recovered through the high cost disability reimbursement but we won’t have the figures until spring. • Remains a concern for the as the 2009-10 budget is likely under budgeted for an ever increasing cost.

  10. Health Insurance • $300,000 more than anticipated in the budget process. • Accrual basis accounting means we count insurance paid through August for many of our employees. • Primary cause has been employees moving from single to family health insurance coverage when the spouse of an employee loses their job. • Under our collective bargaining agreements the District pays 90%-92% of family coverage for a full-time employee.

  11. Health Insurance • Remains a concern for 2009-10 as increased costs will remain while spouses are out of work. • Difficult to quantify and budget how much worse it could get. • Insurance rate increases for 2009-10 budgeted at 10%. • Insurance rates increase January 1, 2010. The Kaiser plan covering 560 participants is set to decrease by 3% but the North Clackamas Health Plan covering 1,363 participants is set to increase by 14.5% or 19% based on plan modifications.

  12. Health Insurance • Plan modifications may be required for comparability to OEBB. • Plan modifications subject to the collective bargaining process. • Modifications discussed include using a composite rate instead of a tiered rate and implementation of minimal deductibles

  13. Revenue Update • With a million less of fund balance and current Local Government Investment Pool interest rate of .8% we may not meet our interest projection of $500,000. • Latest State School Fund Estimates reveal that the State is utilizing $160 million (over $4.7 million for North Clackamas) to fund a portion of each district’s general fund allocations. This is a concern as this funding is a nonrenewable source that the State will have to make up at some point to continue funding K-12 education at the current level.

  14. Revenue Update • Funding level remains at $6,272 as it was during the budgeting process. This includes the transportation reimbursement ($334) and the Stimulus Funds ($229). • District enrollment at the end of September was 17,578. The 1,200 kindergartners only generate half funding revising the funded ADMr to 16,978. • The budget was built on an ADMr of 16,928. However, enrollment typically decreases over the second half of the year. It is probable that we will not meet our enrollment target and could have less funds for 2010-11.

  15. Expenditure Update • Concerns around health insurance and tuition. • The majority of staff reduction was accomplished through attrition as opposed to layoffs. • Our account for unemployment is overbudgeted and we should reallocate the overage to partially cover the shortfalls in health insurance and tuition. • No other significant changes through September 30.

  16. Tax Initiative • Tax initiatives called for increasing the corporate minimum tax and tax on individuals earning more than $125,000 or families earning more than $250,000. • Sufficient votes have been gathered to require a public vote. • Public vote is set for January 26. • Per latest Oregon School Board Association figures North Clackamas would lose $8,850,697 of funding for the biennium if the taxes are repealed.

  17. Tax Initiative • North Clackamas built the 2009-10 budget based on funding for K-12 education for the 2009-11 biennium at the $5.9 billion level instead of the $6.0 billion level. • If the taxes are upheld the District could receive an additional $1,893,638 for the 2009-10 year. • If the taxes are upheld, the agreements with the certified and classified bargaining units would call for the restoration of two days. • The estimated cost of restoring two days would be $800,000.

  18. Revenue Forecast Update • The forecast includes the increases in revenue from the tax changes adopted by the legislature. • The forecast shows State General Fund revenues at $13,436.6 million. • An increase from the May estimate of $919.1 million as the May estimate did not include the revenue from the proposed tax increases. • However, it is a decrease of $139.1 million from the 2009 close of the legislative session forecast.

  19. Revenue Forecast Update • Differing views. • Education Stability Fund has been drained to “guarantee” K-12 education funding at the $5.8 billion level for the 2009-11 biennium. During the budget building process we believed it could be $5.6 billion. • The State’s reserves stand at about $315 million as of the August forecast. • In order for K-12 education to receive funding at the $6.0 billion level for the 2009-11 biennium the State must maintain $300 million in reserves.

  20. Revenue Forecast Update • If State reserves fall below $300 million in reserves the shortage will subtract from the $200 million transfer to K-12 education. • The level of State reserves, not the implementation of the tax increases, is the trigger point for K-12 education receiving funding at the $6.0 billion level. • If the economy would continue to worsen it is possible that the tax measures could be implemented and school funding could still be reduced. • The Governor retains the ability to make budget cuts.

  21. Revenue Forecast Update • The next revenue forecast will be released in late November. • Should the tax initiatives be implemented revenues are anticipated to increase to $15,456.1 million (a 15% increase) for the 2011-13 biennium and to increase to $17,993.1 million (a 16.4% increase) for the 2013-15 biennium.

  22. PERS • Potential system-wide increase of 8.4% on July 1, 2011. • Could be higher as increases will vary widely by employer. • At current salary levels and an 8.4% increase North Clackamas would have to pay an additional $6.3 million to PERS each year. • Will provide additional information as it becomes available. Actual rate increases for 2011-13 biennium will be based on December 31, 2009 data.

  23. PERS Side Accounts • In 2002 and 2003 the District issued over $110 million in bonds for the purpose of financing the District’s unfunded actuarial liability to PERS. • PERS was requiring payment for the liability and charging 8% interest. By issuing the bonds at a lower interest rate the District saved an estimated $29.3 million in interest payments. • Bond proceeds were put in a trust account and are not under the control of the District. • Bond principal and interest is paid for by the District.

  24. PERS Side Accounts • The value of the trust account has grown and exceeds the value of the unfunded actuarial liability. • Local governments have wanted to access the funds in excess of the liability but have been opposed by PERS. • Recent legislative action has favored local governments and an opinion letter is being sought from the Internal Revenue Service. • Process of obtaining the IRS opinion will take a year. • If IRS supports using the excess funds, rules will be developed for how and when monies can be used.

  25. PERS Side Accounts • Suggested uses have included using the funds to pay for the 6% PERS pickup ($4.5 million for the General Fund) or to make the PERS bond principal and interest payments ($6.3 million for the General Fund). • New reports are supposed to come out by the end of this month which will show the balance in the trust account and the amount of the unfunded actuarial liability as of December 2008. These figures will reflect the losses in investments that PERS has experienced.

  26. PERS Side Accounts • The excess value of the investments in the side account over the unfunded actuarial liability was over $100 million per the December 2007 reports. • Even with the losses PERS has experienced the excess should still be substantial. • Again, the District currently has no access to or control over these funds.

  27. Other • Charter Schools-ODE recommendation to State Superintendent Castillo is to not provide state sponsorship for the Carver Nobel Laureate Charter School. Potential hearing in December. • Next meeting in December after the State economic and revenue forecast.

  28. Comments-Questions-Concerns • Thank you for your time, attendance, and service.

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