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EUSD BUDGET UPDATE THE SEVENTEEN-MONTH 2008-09, 2009-10 BUDGET BILL

EUSD BUDGET UPDATE THE SEVENTEEN-MONTH 2008-09, 2009-10 BUDGET BILL. 2008-09 FINAL MID-YEAR CUTS 2009-10 BUDGET PROPOSAL AND PRELIMINARY IMPACTS ON EUSD 2-26-09. THE SEVENTEEN-MONTH SOLUTION.

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EUSD BUDGET UPDATE THE SEVENTEEN-MONTH 2008-09, 2009-10 BUDGET BILL

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  1. EUSD BUDGET UPDATETHE SEVENTEEN-MONTH 2008-09, 2009-10 BUDGET BILL 2008-09 FINAL MID-YEAR CUTS 2009-10 BUDGET PROPOSAL AND PRELIMINARY IMPACTS ON EUSD 2-26-09

  2. THE SEVENTEEN-MONTH SOLUTION • AFTER MONTHS OF PROCRASTINATION, POLITICAL POSTURING, PARTISANSHIP, AND HIGH DRAMA, THE LEGISLATURE FINALLY PASSED A SERIES OF BILLS AIMED AT CLOSING THE STATE’S UNPRECEDENTED $42 BILLION BUDGET CRISIS • STATE SENATORS WERE “LOCKED DOWN” A RECORD 45+ HOURS BEFORE THE FINAL REQUIRED VOTE WAS CAST • GOVERNOR SCHWARZENEGGER SIGNED THE BILLS LAST FRIDAY, FEBRUARY 20, 2009 • IT WAS A BUDGET BATTLE OF EPIC PROPORTION WHICH WILL PRODUCE POLITICAL FALLOUT

  3. THE SEVENTEEN-MONTH SOLUTION • IN THE GIVE AND TAKE OF THE BUDGET DEAL, ALL PARTIES GOT SOME OF THE ELEMENTS THEY FOUGHT FOR: • THE GOVERNOR GOT THE SPENDING CAP HE WANTED (SUBJECT TO VOTER APPROVAL), AND THE EASING OF SOME RULES THAT HE FELT WOULD HELP SPEED ECONOMIC RECOVERY • LEGISLATIVE REPUBLICANS ACHIEVED SOME SELECTED CORPORATE TAX BREAKS, A SPENDING CAP, AND THE ABILITY TO UTILIZE FUNDS FROM PROPOSITIONS 10 AND 63 (ALSO SUBJECT TO VOTER APPROVAL)

  4. THE SEVENTEEN-MONTH SOLUTION • LEGISLATIVE DEMOCRATS WON NEW SOURCES OF TAX REVENUES, MINIMIZED THE CUTS TO SOCIAL SERVICES, AND HELPED PROTECT CERTAIN EMPLOYEE RIGHTS AND BENEFITS • ALL PARTIES ALSO MADE SACRIFICES – AND WILL SUFFER SOME POLITICAL REPERCUSSIONS • THE GOVERNOR’S CREDIBILITY HAS TAKEN A “HIT” AS HE TOOK BACK HIS PLEDGE OF NO NEW TAXES, AND HIS PROMISE NOT TO RAISE THE VEHICLE LISCENCE FEE

  5. THE SEVENTEEN-MONTH SOLUTION • LEGISLATIVE REPUBLICANS DIDN’T GET AS HARD A SPENDING CAP AS THEY WANTED, NOR CERTAIN WAGE AND MEAL-BREAK RULE CHANGES SOUGHT BY BUSINESS INTERESTS • THOSE MEMBERS WHO VOTED FOR NEW TAXES MAY HAVE JEOPARDIZED THEIR POLITICAL CAREERS • LEGISLATIVE DEMOCRATS ALLOWED BALLOT MEASURES TO REDIRECT PROP 10 AND 63 $$ • THOSE MEMBERS WHO VOTED TO APPROVE CUTS TO LABOR AND EDUCATION MAY HAVE JEOPARDIZED THEIR POLITICAL CAREERS

  6. THE SEVENTEEN-MONTH SOLUTION • THIS BUDGET SOLUTION MAY BE THE MOST COMPLEX IN CALIFORNIA HISTORY • IT’S PREDICATED ON PASSAGE OF FIVE PROPOSITIONS IN A SPECIAL ELECTION SCHEDULED FOR MAY 19, 2009 • SOLUTIONS INCLUDE: • $15 BILLION IN SPENDING REDUCTIONS • $12.5 BILLION IN NEW TAX REVENUES • $5.4 BILLION IN BORROWING –LOTTERY • $7.9 BILLION IN FEDERAL STIMULUS

  7. THE SEVENTEEN-MONTH SOLUTION • NEW TAX REVENUES INCLUDE: • 1¢ SALES TAX (APRIL 1, 2009) • VEHICLE LISCENSE FEE GOES UP TO 1.15% OF VEHICLE’S VALUE • STATE INCOME TAX RATES ARE INCREASED • DEPENDENT TAX CREDIT IS REDUCED • NEW TAXES ARE TEMPORARY, AND TIED DIRECTLY TO PASSAGE OR FAILURE OF THE BUDGET STABILIZATION PROPOSAL • RECEIPT OF OVER $10 BILLION IN FEDERAL STIMULUS FUNDING WOULD TRIGGER CHANGES

  8. THE SEVENTEEN-MONTH SOLUTION • PROPOSITION 1A: STATE FINANCE – SPENDING CAP • PROPOSITION 1B: EDUCATION FINANCE – PROVIDES FOR A “MAINTENANCE FACTOR”- TYPE OF SETTLEMENT - $9.3 BILLION – 2011-12 • PROPOSITION 1C: CALIFORNIA STATE LOTTERY • PROPOSITION 1D: DIVERTS PROPOSITION 10 FUNDING OF $340 MILLION ONE TIME • PROPOSITION 1E: MENTAL HEALTH SERVICES ACT - DIVERTS PROPOSITION 63 FUNDING TO BE USED FOR EARLY DIAGNOSIS AND TREATMENT PROGRAMS FOR MENTAL HEALTH

  9. PROPOSITION 1A – STATE FINANCE • PROP 1A – SPENDING CAP – SEEKS TO STABILIZE THE BUDGET BY INCREASING THE SIZE OF THE RAINY DAY FUND • UNANTICIPATED REVENUES BASED ON A 10-YEAR FORMULA – DEPOSITED INTO FUND – PORTION TO BE SAVED FOR ECONOMIC DOWNTURNS – PORTION AVAILABLE FOR USE: • FIRST CALL ON RAINY DAY FUNDS WOULD BE TO SATISFY PROPOSITION 98 OBLIGATIONS • PROP 1A WOULD ALSO ESTABLISH SUPPLEMENTAL EDUCATION PAYMENT ACCOUNT – IF PROPOSITION 1B PASSES!

  10. PROPOSITION 1B – EDUCATION FINANCE • PROPOSITION 1B WAS PUT ON THE BALLOT TO SOLVE THE PROPOSITION 98 MAINTENANCE FACTOR ISSUE – SPEAKER KAREN BASS • STARTING IN 2011-12 ANNUAL PAYMENTS WOULD BE MADE TO K-14 EDUCATION IN LIEU OF A MAINTENANCE FACTOR REPAYMENT • FUNDING WOULD BE COLLECTED VIA THE MECHANISM SET UP IN PROPOSITION 1A • PAYMENTS COULD BE USED FOR CLASSROOM INSTRUCTION, TEXTBOOKS, AND OTHER EDUCATIONAL PROGRAMS • ALLOCATED PER DISTRICT ADA • PROBABLY PAID OUT OVER FIVE YEARS

  11. THE EDUCATION BUDGET • THE MAGNITUDE OF THE TWO-YEAR LOSS TO THE PROPOSITION 98 GUARANTEE IS UNCHANGED FROM THE GOVERNOR’S PROPOSAL - $8.6 BILLION THE REDUCTION INCLUDES: • $2.3 BILLION IN PROGRAM CUTS • $3.2 BILLION IN APPORTIONMENT DEFERRALS • $1.1 BILLION RECHARACTERIZED AS “SETTLE-UP” • $618 MILLION SWAP WITH THE STATE’S PUBLIC TRANSPORTATION ACCOUNT • 57% OF ALL STATE REDUCTIONS ARE BORNE BY EDUCATION

  12. THE EDUCATION BUDGET • THE PRIMARY DIFFERENCE BETWEEN THE PROPOSED AND FINAL BUDGETS IS THE NATURE OF THE CUTS • A COMPROMISE WAS REACHED BETWEEN THE GOVERNOR’S APPROACH AND THAT OF THE LEGISLATIVE DEMOCRATS - 50/50 SPLIT • UNRESTRICTED REVENUE LIMITS ARE STILL REDUCED – BUT A LITTLE LESS THEN ORIGINALLY PROPOSED – 2009-10 DEFICIT IS 13.094% INSTEAD OF 16.161% • MOST STATE CATEGORICAL PROGRAMS ARE REDUCED 15.4% IN 2008-09, AND ANOTHER 4.9% IN 2009-10

  13. GOVERNOR’S PROPOSED BUDGET

  14. FINAL APPROVED BUDGET

  15. FINAL APPROVED BUDGET

  16. FLEXIBILITY – 2008-09 – 2012-13 • TO HELP DISTRICTS SURVIVE THE BUDGET CRISIS, THE GOVERNOR AND LEGISLATURE HAVE PROVIDED SEVERAL OPTIONS FOR FLEXIBILITY WITHIN PROGRAMS • CATEGORICAL PROGRAMS ARE ARRANGED IN THREE TIERS • TIER I – PROGRAMS THAT MAINTAIN FUNDING LEVELS AND ALL REGULATIONS (NO FLEXIBILITY) • TIER II – PROGRAMS THAT ARE REDUCTED AND MAINTAIN ALL REGULATIONS (NO FLEXIBILITY) • TIER III – PROGRAMS THAT RECEIVE REDUCTIONS AND HAVE FLEXIBILITY (5 YEARS)

  17. FLEXIBILITY – 2008-09 – 2012-13 • TIER 1 PROGRAMS (UNTOUCHABLES): • QUALITY EDUCATION INVESTMENT ACT (QEIA) • HOME-TO-SCHOOL TRANSPORTATION • K-3 CLASS SIZE REDUCTION • PROP 49 – AFTER SCHOOL PRGMS (ASES) • ECONOMIC IMPACT AID (EIA) • SPECIAL EDUCATION • CHILD DEVELOPMENT • CHILD NUTRITION

  18. TIER 1 – CLASS SIZE REDUCTION • CLASS SIZE PROGRAM MAINTAINS SAME LEVEL OF FUNDING (2007-08 LEVEL, LESS 2008-09 MID-YEAR SWEEP OF $46 MIL) • SIGNIFICANTLY CHANGES THE PENALTIES FOR CLASSES IN EXCESS OF 20.44:1 • PENALTIES RANGE FROM 5% TO 30% ON A SLIDING SCALE, DEPENDING ON AVERAGE CLASS SIZE • CURRENT INCENTIVE FUNDING RULES STILL IN FORCE – FUNDING IS BASED ON 20 STUDENTS/CLASS

  19. TIER 1 – CLASS SIZE REDUCTION • IN ORDER TO QUALIFY FOR THE REDUCED PENALTIES, DISTRICTS MUST BE PARTICIPATING IN THE CSR PROGRAM AS OF DECEMBER 10, 2008 • DISTRICTS MAY EXCEED 20.44:1 CLASS SIZE AVERAGES – BUT IT WILL COST SOME FUNDING $$ • FLEXIBILITY WILL END WITH THE 2011-12 SCHOOL YEAR

  20. TIER II – FUNDING REDUCTIONS – BUT NO FLEXIBILITY • ALL TIER II AND TIER III PROGRAMS LOSE 15.4% FUNDING IN 2008-09, AND ANOTHER 4.9% IN 2009-10 • ENGLISH LANGUAGE ACQUISITION PRG • K-12 HIGH SPEED NETWORK • STAR TESTING • CHARTER SCHOOL FACILITY GRANTS • 2009-10 FUNDING TO BE DETERMINED BY THE PERCENTAGE OF FUNDING RECEIVED IN 2008-09 - THUS, IMPLICATIONS FOR PROGRAMS THAT ARE ATTENDANCE-BASED – IE. CDS, SUPP HRL.

  21. TIER III – FUNDING CUTS AND FULL FLEXIBILITY FOR FIVE YEARS • MOST OTHER STATE CATEGORICAL PROGRAMS ARE IN TIER III, INCLUDING: • TARGETED INSTR IMPRV BLOCK GRANT (TIIG) • INSTRUCTIONAL MATERIALS • SCHOOL AND LIBRARY IMPROVEMENT BLOCK GRANT (SIP), SCHOOL SAFETY BLK GRANT • PEER ASSISTANCE REVIEW, BTSA • MATH AND READING PROFESSIONAL DEVELOPMENT, SECONDARY SCH COUNSELING • SUPPLEMENTAL INSTRUCTION (ATS) • HIGH PRIORITY SCHOOLS GRANT PROGRAM IS ELIMINATED FOR 2009-10

  22. TIER III CATEGORICAL PROGRAMS • FLEXIBILITY IS DEFINED AS ‘ANY EDUCATIONAL PURPOSE’ • DISTRICTS THAT USE PROVISIONS WILL BE DEEMED TO BE IN COMPLIANCE WITH PROGRAM AND FUNDING REQUIREMENTS CONTAINED IN STATUTORY, REGULATORY AND PROVISIONAL LANGUAGE • FLEXIBILITY INCLUDES THE ABILITY OF DISTRICTS TO TRANSFER FUNDS INTO THE UNRESTRICTED GENERAL FUND • FLEXIBILITY DECISIONS MUST BE DISCUSSED AND APPROVED AT A PUBLIC MEETING OF THE BOARD OF EDUCATION

  23. INSTRUCTIONAL MATERIALS – TIER III • SUSPENDS FOR 2008-09 AND 2009-10 THE REQUIREMENT TO PURCHASE NEWLY ADOPTED MATERIALS – THROUGH JULY 1, 2010 • FUNDING LEVEL IS REDUCED FROM $69 TO ABOUT $56/STUDENT • COUNTY OFFICES ARE TEMPORARILY RELIEVED OF THE DUTY TO CONFIRM PURCHASES OF THESE MATERIALS DURING SITE VISITATIONS (WILLIAMS SETTLEMENT) • IF DISTRICTS PURCHASE MATERIALS WITH ANY OTHER STATE FUNDS, ALL REGULAR LAWS STILL APPLY • SUFFICIENCY HEARING FOR STANDARDS-ALIGNED MATERIALS MUST STILL BE HELD

  24. OTHER FLEXIBILITY OPTIONS • CATEGORICAL RESTRICTED BALANCES AS OF JUNE 30, 2008 MAY BE TRANSFERRED TO UNRESTRICTED FUND ON A ONE-TIME BASIS • DISTRICT RESERVE REQUIREMENTS REMAIN THE SAME – CURRENT LAW IN EFFECT • ROUTINE RESTRICTED MAINTENANCE (RRM) MAY BE REDUCED FROM 3% TO AS LOW AS 1% - FIVE YEARS – DEFERRED MAINTENANCE MATCH IS OPTIONAL – LEAs WILL RECEIVE STATE MATCH FOR FIVE YEARS – 65% OF 2008-09 AMOUNT

  25. SPECIAL EDUCATION FOR 2009-10 • ONLY PROGRAM THAT PROVIDES A SMALL FUNDING INCREASE – ABOUT $10.92 PER ADA • BUDGET DOES NOT INCLUDE THE $65 MILLION AGREED TO BY THE STATE FOR THE SPECIAL EDUCATION BEHAVIOR INTERVENTION SETTLEMENT MANDATE • GROWTH IS FUNDED FOR 2009-10 • FEDERAL STIMULUS BILL EXPECTED TO PROVIDE MUCH-NEEDED IDEA FUNDING

  26. STATE MANDATES • DESPITE A RECENT COURT RULING, THE STATE BUDGET FUNDS EDUCATIONAL MANDATES AT $1000 EACH – CLEARLY IN VIOLATION OF SAN DIEGO SUPERIOR COURT DECISION • MANDATED ACTIVITIES HAVE NOT BEEN SUSPENDED OR REPEALED • FINAL BUDGET BILL DOES NOT EVEN FUND THE THREE MANDATES THE GOVERNOR PROPOSED • LEGISLATIVE FLOOR REPORTS IMPLY THAT THIS MATTER WILL BE TAKEN UP BEFORE THE MAY REVISE

  27. PAYMENT DEFERRALS • STATE’S CASH FLOW PROBLEM WILL DIRECTLY IMPACT EVERY LEA - $3.2 BILLION OF ADDITONAL DEFERRALS ADDED IN 2008-09 • WHEN ADDED TO THE EXISTING DEFERRALS, IT TOTALS $7.41 BILLION OF CASH PAYMENTS THAT WILL ARRIVE AT A LATER DATE • JUNE APPORTIONMENT AND DEFERRED CATEGORICAL FUNDING WILL NOT ARRIVE UNTIL JULY 31, 2009, AFTER IT’S NEEDED FOR PAYROLL • JULY AND AUGUST APPORTIONMENT ARE POSTPONED UNTIL OCTOBER 2009 • NEW PROPOSED DEFERRALS ARE ONGOING

  28. FEDERAL FISCAL STIMULUS BILL • THE STATE STABILIZATION FUND CONTAINED IN AAAR (HR 1) IS DESIGNED TO HELP BACKFILL STATE EDUCATION BUDGET CUTS • CALIFORNIA WILL RECEIVE ABOUT $6 BILLION • GOVERNORS ARE REQUIRED TO USE AT LEAST 81.8% TO BRING STATE CUTS TO EDUCATION UP TO FY08 OR FY09 LEVELS, WHICH EVER IS GREATER • MONEY IS SUPPOSED TO ARRIVE IN STATES BY MARCH 2009 • STILL UNCERTAINTY ABOUT WHEN/HOW MUCH OF THIS FUNDING WILL REACH LEAs

  29. FEDERAL FISCAL STIMULUS BILL • MAINTENANCE-OF-EFFORT: • STATES MAY COUNT STABILIZATION ALLOTMENT TOWARD THEIR MAINTENANCE –OF-EFFORT (MOE) • LOCAL DISTRICTS MAY NEED TO REQUEST APPROVAL TO USE STATE STABILIZATION ALLOCATION FOR THEIR OWN MOE • SPECIAL EDUCATION IDEA FUNDING WILL INCREASE FROM 17.2% TO 26.3% OF THE ANNUAL COST OF EDUCATING STUDENTS WITH DISABILITIES – SHORT TERM ONLY • TITLE 1 FUNDING WILL NEARLY DOUBLE – SHORT TERM ONLY

  30. WHAT’S NEXT • WITH THE GOVERNOR’S SIGNATURE SECURED LESS THAN A WEEK AGO, THE DISTRICT IS STILL EVALUATING THE BUDGET INFORMATION, WHICH IS CHANGING EVERY DAY • REVENUE PROJECTIONS ARE BEING REVISED NOW THAT A FINAL BUDGET HAS BEEN ADOPTED • NEW CATEGORICAL FLEXIBILITY OPTIONS HAVE OFFERED HELP, BUT ALSO ADDED COMPLEXITY TO THE BUDGETING PROCESS • CABINET IS STILL EVALUATING BUDGET PRIORITIES AND DETERMINING THE LEVEL OF NECESSARY REDUCTIONS

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