SAN DIEGO COMMUNITY COLLEGE DISTRICT

1. SAN DIEGO COMMUNITYCOLLEGE DISTRICT 2010-2011 Adopted Budget August 19, 2010

2. Total District Budget Grand Total 2010-2011 Adopted Budget: $ 656,512,462

3. Adopted Budget Assumptions • No COLA in 2010-11 • A net continuous revenue increase of $2.35 million (FTES Growth) • No additional revenue reductions to General Apportionment or Categoricals, including no negative COLA • Funded growth FTES can be achieved through funding campuses at the same FTEF levels in 2010-11 as was funded in 2009-10 • Total Categorical backfill from GFU will be limited to $1.26 million • Funded apportionment FTES for credit and noncredit combined will be at 2.12% Growth, or a total of 41,890 FTES • PERS contribution rate increase will be from 9.709% to 10.707%, at a total increase in cost of $758,539 (10.2%) • Projected STRS increase is from 8.25% to 9.25% at a cost of $897,364 (12.1%)

4. Major adjustments to Tentative Budget • Unemployment (State) rate adjustment from .30% to .72% = 240% increase = $726,855 • Unemployment Local Experience Tax increase from $95,000 to $220,000, or an increase of$125,000 • A statewide deficit factor was applied to 2009-10 revenue due to a 5-year adjustment in local property taxes, which was the result of improper reporting by Redevelopment Agencies and the Community College System =$232,877 (47.5% / 52.5% split) • A general statewide apportionment deficit factor was also applied to 2009-10 revenue due to the State revenue shortfall = $215,101 • Categorical backfill from GFU reduced by $310,000 • Lottery revenue increased by $266,500 • Part-time faculty compensation increased by $353,379 (assumes no $10 million reduction) • Ending balance increased by $3,178,650

5. Total District Budget All Funds

6. General Fund Unrestricted

7. GFU Revenue & Resources $2.2M Continuous $3.2M One-Time

8. Reserves and Beginning Balance

9. Reserves Insurance Reserve:See next slide for details Cash Flow Reserve:6.8% of General Fund Budget (Up $3.2 million from 09-10) Retiree Health Benefits Trust:Will cover retiree health benefit costs (Market value up $2.02 million above 09-10) Beginning Balance:Beginning balance for General Fund Unrestricted. (Up $3 million from 09-10) Capital Projects Reserves:For projects other than Proposition S & N.

10. Insurance Reserves Breakdown Annual Insurance $ 1.3 million Premium Total: $ 10,701,564

11. Reliance on One-Time Funding (Structural Budget Gap)

12. Reliance on One- Time Funding General Fund Unrestricted Only In years when the District is receiving both COLA and Growth revenue, it was recommended that the reliance on one-time funds be no greater than 2% of projected total GFU, or approximately $4 million. However, with zero COLA, low Growth revenue, 50% law compliance challenges, deficit factors, shrinking set-asides, and additional funds required to fund continuous Prop S & N costs, etc., it is recommended that the reliance on one-time funds be reduced to no greater than 1% of total GFU, or approximately $2.2 million.

13. Reserves and Set Asides Set Aside for Position changes (interim assignments, reclassifications, etc)100,000 Set Aside to fill vacant Academic positions (6.0 FTE) 778,363 Set Aside to fill behind # 001696 (AFT-OT 100% Release)56,806 Set Aside to fill vacant Classified positions (35.5FTE) 1,851,132 Set Aside to fill vacant IT positions 3.0 FTE 203,940 Set Aside for Employee Health Benefits through 12/31/2011 2,300,877 Set Aside for future Prop S and Prop N projects 3,826,676 Total$9,117,794 • Projected Projected • Budget Expenses Expenses • Item 2010-112010-112011-12 • RAF Health Benefits through 12/21/2011 $2,300,877 $1,533,918 $766,959 • Prop S & N Continuous Cost 3,826,676 1,204,251 2,081,074 • Staff 2,990,2412,786,301 203,940 • Totals $9,117,794 $5,524,470 $3,051,973 Projected Ending Balance $3,593,324 $541,351

14. Beginning Balance Change from Year Beginning BalancePrevious Year 2007-2008 $ 16,698,713 - 2008-2009 $ 15,496,954 (1,201,759) 2009-2010 $ 14,160,184 (1,336,770) 2010-2011 $ 17,338,834 3,178,650 2010-11 Summary Beginning Balance 07/01/0914,160,184 Transfers of non-instructional expenses to restricted 4,880,725 funds to be in compliance with 50% law (spent restricted reserves) Budget transfer to increase cash flow reserve to 6.8% (8% is final goal) (3,200,000) Budget transfer for ARRA and Categorical backfill (1,980,725) Budget savings from campuses 1,613,288 Districtwide savings from SERP, retirements, defunded positions 1,865,362 and delays, reorganizations, and operating costs ___________ 7. Beginning balance 2010-11 $17,338,834

15. Use of Beginning Balance (One-Time Funds) Beginning Balance $ 17,338,834 • To Balance GFU ContinuousOperatingBudget (Expenses overRevenue) 5,842,979 • Prior YearEncumbrances216,267 • Campus Carryforward One-Time Ending Balance Fund 962,812 • Districtwide Advertising 100,000 Recycle Account Carryforward 52,395 Parcel Tax Feasibility Study 150,000 Carry forward Various Bargaining Unit Balances 695,806 Collective Bargaining Legal Reserve 150,000 Carry forward unused balance for Election Expense 95,000 Total One-Time $17,338,834 * Reserve for Economic Uncertainty/Additional Class Sections (2010-2011 & 2011-2012)9,073,575 * Although the District is generating unfunded FTES, additional class sections need to be offered in 2010-2011 and 2011-12 to be in compliance with the 50% law.

16. Budget Challenges

17. Impact of Annual Inflation • Analysis Based on: • 3-4 year cost averaging to determine inflation rates • Only included items with inflation costs of $50kor greater CategoryAnnual Inflation Cost Employee Class & Step salary schedule advances $1,938,088 STRS & PERS employer contributions (PERS @.998%/ STRS @ 1.0%) 1,655,903 Retiree Health Benefits 53,577 Legal fees, expenses, and collective bargaining 335,297 Merchant, banking fees, and credit card fees 74,664 Local unemployment experience tax 89,788 Utility expenses (excluding increases due to S & N) 144,265 Total Minimum Projected Annual Inflation Costs 2011-12$4,291,582 *Based on 2009-10 P-2 (06-17-10): $ 4,291,582, = 2.26% COLA $ 4,291,582 = 2.47% Growth FTES * Apportionment Revenue = $190,190,972 Growth Base Revenue = $173,583,245

18. Value of Future Budget Challenges Value in Equivalent Equivalent % ItemCurrent Dollars% in COLAin Growth FTES *Inflation $ 4,291,582 2.26% 2.47% Reliance on One-Time Funds (1) $ 5,842,979 3.07% 3.37% Prop S & N Continuous Costs (2) $ 3,707,7141.95%2.14% Total Required From Future Funding $ 13,842,2757.28%7.98% * Inflation cost is only for 2010-2011 and does not cover future years. In years when the District is receiving both COLA and Growth revenue, it was recommended that the reliance on one-time funds be no greater than 2% of projected total GFU, or approximately $4 million. However, with zero COLA, low Growth revenue, 50% law compliance challenges, deficit factors, shrinking set-asides, and additional funds required to fund continuous Prop S & N costs, etc., it is recommended that the reliance on one-time funds be reduced to no greater than 1% of total GFU, or approximately $2.2 million. There are sufficient funds in the reserves and set-asides to cover at least the next 2 to 3 years of Prop S & N continuous costs. However, all of these are non-instructional costs and will negatively impact compliance with 50% law in the future.

19. 50 % Law

20. Fifty Percent Law Background The Law, which dates back to 1959, was created presumably to ensure that non-instructional functions do not negatively impact the number of class section offerings. Education Code section 84362, commonly known as the Fifty Percent Law, requires each community college district to spend at least half of its “current expense of education” each fiscal year for salaries and benefits of classroom instructors and instructional aides. Current Expense of Education (often referred to as “the denominator”) includes the unrestricted general fund expenditures of a community college district. Excluded from the current expense of education are expenditures for student transportation, food services, community services, lease agreements for plant and equipment, retiree related expenses, and other costs specified in law and regulations. Amounts expended from State Lottery are also excluded. Salaries of Classroom Instructors and Instructional Aides (often described as “the numerator”) are described in the California Community Colleges Budget and Accounting Manual as follows: Expenditures for the full or prorated portions of salaries of all employees in contract or regular faculty (teaching) positions; and Expenditure for the full and prorated portions of salaries paid to employees who are assigned by governing board designated the basic title of “Instructional aide” or any other title which denotes that the employees’ duties include instructional tasks.

21. IN THE SIMPLEST TERMS , THE 50% LAW IS CALCULATED BY DIVIDING INSTRUCTIONAL SALARIES AND BENEFITS BY TOTAL EXPENSES. THIS CAN BE DISPLAYED AS: Instructional Salaries and Benefits Expense Total Expenses (Current Expense of Education) Counts Toward Does Not Count Outside the 50% Calculation 50% Goal Toward 50% Goal (Exclusions) Salary and Benefit Costs of: Deans and other administrators Board of Trustees Admissions and records staff Business Services staff Human Resources staff College Police Computer technical support staff Operating Costs: Insurance Legal Audit Fees Travel and Conference expenses Materials and supplies Replacement equipment Professional Services Technology Salary and Benefit Costs of: Classroom Faculty Instructional Aides and Instructional Service Agreements Costs funded by Categorical Programs Building and equipment leases New equipment Community Services & Economic Dev. Civic Center Child Development Centers Costs funded by Lottery funds Student Transportation Cafeteria & Bookstore operations (ABSO) Retiree related expenses Military Programs (Contracts) Counselors (faculty) Librarians (faculty) Faculty Coordinators Faculty directors (such as EOPS) Release time for department chairs ESU’s for department chairs Non-classroom faculty assignments Nurses Facilities and maintenance staff Utilities

22. What are the major causes of the 50% Law Compliance Issues? • 1. Loss of Lottery Revenue - $263,704 • This moved expenses from the “exclusion” category to “non-instructional” expenses • 2. Prop S & N Continuous Costs to date - $2,623,237 • All Prop S & N Continuous Costs are non-instructional • 3. Workload Reduction - $6,589,820 • This reduction of 1,833 funded FTES (3.768%), or $6.6M in apportionment revenue (3.34%), is a 100% reduction in instructional costs as it resulted in class section reductions • 4. Categorical Backfill from GFU (2010-2011) - $1,260,000 • These backfill costs are all non-instructional expenses • 5. Classroom Faculty Savings from 2009-2010 SERP - $538,978 • This reflects the savings due to reducing the funding level from contract to adjunct These five (5) items alone negatively impacted the 50% law by $11.28 million.

23. SDCCD 50% Law History in SDCCD Amount Transferred Amount above out of GFU to Year Percent Requirementbe in ComplianceComments 2000-01 51.71 % $ 2,326,930 0 2001-02 50.79 % $ 1,130,549 0 2002-03 50.10 % $ 152,562 0 2003-04 50.44 % $ 621,821 0 2004-05 50.73 % $ 1,111,352 0 2005-06 51.05 % $ 1,746,181 0 2006-07 51.13 % $ 2,110,253 0 2007-08 51.50 % $ 2,939,573 0 2008-09 50.03 % $ 49,556 $ 500,000 Move expenses to GFR and used reserves 2009-10 50.00 % $ 92,115 $4,880,725 Move expenses to GFR and used reserves

24. Impact of $29M in cuts over past 3 years ? • $ 4.2 M inflation • Revenue Reductions • Deficit factors Restricted reserves used in order to be in compliance 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 In millions Fiscal Year

25. Recommendations

26. Recommendations Legislative actions • Support proposals to modify 50% law 2. Support legislation to exclude Prop 39 (bond measures) continuous expenses from 50% law • 3. Support legislation to expand the use of AB 1290 redevelopment revenue to include utilities, salaries, and benefits 4. Encourage “smoothing” of any STRS and PERS increases over a minimum of four (4) years

27. Recommendations Local actions • 5. Continue hiring freeze and fill only critical positions, primarily through internal transfers and promotions 6. Reorganize and consolidate support services where possible • 7. Place the highest priority on reducing “non-instructional” expenses as defined by the 50% law • 8. Reduce $1.26 million in Categorical backfill from GFU as quickly as possible as these are all non-instructional expenses

28. Recommendations • Local actions (cont.) • 9. The information related to the reliance on one-time funds (structural gap) suggests that in order to reduce the gap to a maximum of 1% of the GFU budget (approx $2.2m), $3.7 million in continuous reductions need to be implemented by July 1, 2011. The data related to compliance with the 50% law suggests the need to reduce “non-instructional” costs by $5.5 million, or increase “instructional expenses”, or a combination of both. • Recommendation: Use one-time funds to add additional class sections during 2010-11 & 2011-12, and decrease non-instructional costs. Combined total should equal a minimum of $5.5 million. • 10. Start preparing for 2011-12 as soon as possible: • 10.1 Determine if COLA and Growth revenue will cover the $4.2 million in inflationary costs (evaluate) • 10.2 Rebalance non-instructional and instructional costs by $5.5 million (evaluate/ action item) • 10.3 Continue to evaluate funding plan for Prop S & N continuous costs and monitor impact on 50% law (evaluate annually)