2018 19 Preliminary Budget Presentation June 25 2018

2018 -19 Preliminary Budget Presentation June 25, 2018 1

Agenda � Local Control Funding Formula (LCFF) � 2017 -18 Est. Actuals to 18 -19 Budget � Key Assumptions for Enrollment, Attendance, Revenue & Expenditures � Summary of Adopted Budget � Multi-Year Assumptions � Multi-Year Projections (MYP) � Fund Balance � Prudence and Next Steps 2

Basic Aid (HSD) vs District is entitled to a calculated Entitlement ◦ Comprised of property taxes and State Aid ◦ If Property taxes fill the bucket and overflow, the district keeps the overflow $$ and only receives a minimum amount of State Aid � State Funded (ESD) District is entitled to a calculated Entitlement ◦ Comprised of property taxes and State Aid ◦ When property taxes don’t fill the bucket, the State makes up the shortfall with State Aid � 3

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17 -18 Revised Budget Comparison to 18 -19 Projected Budget � Notes: � 1 LCFF fully funded in 2018 -19 � � � � 2 Prop. 39 RS 6230 Revenue & Expense drops off in 2018 -19 ($1. 067 M in 17 -18 4 Local revenue/donations booked as received 5 Projections include step and column movement of 1. 5% certificated and 1. 5% classified. 6 Projection includes estimated increases in state pension percentages for both STRS & PERS. Assumes historical increase in health & welfare benefits. 7 Additional contributions primarily relate to the increase of the following: step & column costs, and pension (STRS & PERS) � � Notes: 1 Assessed values estimated to increase by 5% per year. 2 Prop. 39 RS 6230 Revenue & Expense drops off in 2018 -19 ($500 K in 17 -18) 4 Projections include step and column movement of 1. 5% certificated and 1. 5% classified. 5 Projection includes estimated increases in state pension percentages for both STRS & PERS. Assumes historical increase in health & welfare benefits. 6 Additional contributions primarily relate to the increase of the following: step & column costs, and pension (STRS & PERS) 6

2018 -19 Key State Budget Items � The Governor continues the commitment to full LCFF implementation ◦ Commits $3. 67 B to fully fund LCFF ($407 M above the May Revision) ◦ COLA increased to 2. 71%, plus a small augmentation brings the total to a 3% increase to the LCFF target rates � $1 B in one-time discretionary funds, equaling approx. $168 per ADA � Continues on-going $150 M to career tech � One-time funds for special education teacher recruitment and retention, support for an Early Math initiative, and creating a Community Engagement initiative 7

Gap Funding Under LCFF � The difference between the calculated “Target” funding and the actual annual entitlement is the Gap (goes to 0% gap this year!) ◦ The original gap for SRESD was $12. 2 M ◦ Final ESD gap amount is $2, 934, 000 to be paid during 2018 -19 8

Revenue Assumptions � ESD LCFF funding for 2018 -19 is estimated to increase by $2, 482, 000 from 2017 -18. � HSD LCFF sources for 2018 -19 is est. to increase by $1, 362, 000 from 2017 -18 of which $1, 238, 000 is from projected 5. 00% secured property tax growth. � One-time discretionary funds of $168 per ADA ESD Estimated to Receive $ 760, 000 HSD Estimated to Receive $ 430, 000 9

Property Taxes > LCFF Transition = Basic Aid Status for HSD 18 -19 Property Tax Revenue Less: LCFF Entitlement Excess Property Taxes $ $ $ 27, 392, 295 25, 995, 694 1, 396, 601 • SRHSD LCFF entitlement is $26 million now that LCFF is fully funded and estimated grow to $29. 1 million in 2023 -24 • Based on current assumptions and 5% annual property tax growth, Basic Aid funding in 2023 -24 = $34 million • In 2023 -24 LCFF funding for the HSD will still about $4. 9 million more as a Basic Aid district. • Based on these projections it is likely SRHSD will remain designated as a “Basic Aid” District in the foreseeable future 10

Revenue: EPA – part of LCFF �Education Protection Account (EPA) ◦ K-14 general purpose funds must be utilized for instructional purposes ◦ EPA dollars are not “new” or “additional” monies but are part of the District’s unrestricted LCFF State Aid. 11

Key Assumptions: Enrollment/ADA Average Daily Attendance (ADA) Vs. Enrollment � ESD-Projected 2018 -19 ADA is 4, 496 a decrease of 52 from 2017 -18 P-2 ADA of 4, 548. ◦ ESD 19 -20 Projected ADA is 4471 (-25) ◦ ESD 20 -21 Projected ADA is 4456 (-15) � HSD – Projected 2018 -19 ADA is 2, 525 � HSD – Projected enrollment for 2018 -19 is 2, 760, an increase of 55 over 2017 -18 ◦ HSD 19 -20 Projected Enrollment is 2, 760 (0) ◦ HSD 20 -21 Projected Enrollment is 2, 672 (-88) Due to the fact that the HSD is community funded, the increase in ADA over the last few years does not significantly impact operating revenues, but does increase operating expenditures. 12

Key Budget Assumptions � Step and column adjustments of 1. 5% � Increased STRS and PERS rates reflected � No adjustments or budget assignments for collectively bargained salary and benefit increases � ESD - Local Control Funding Formula (LCFF), including 2. 71% COLA, plus a small augmentation brings the total to a 3% increase to the LCFF target rates � The budget for Parcel Tax revenues has increased based on current estimates and an increase in the number of senior exemptions. Parcel Tax est. ESD=$3. 15 M (+9. 9%), HSD=$3. 08 M (+1. 8%) 13

Key Budget Assumptions � Unduplicated pupil percentage for supplemental and concentration funding estimate: ◦ ESD 68. 72% and HSD 51. 81% ◦ Parents will continue to complete an income verification applications which drive the percentage (%) rate of eligibility for the Supplemental and Concentration dollars. � Lottery: $146/ADA & $48/ADA Prop. 20 � Mandated � No Block Grant ($31. 16/ESD, $59. 83/HSD) changes budgeted for Federal Revenues � One-time revenue or programs that are ending were removed from the budget including Educator Effectiveness, College and Career Readiness, and Prop 39 energy grants which will continue to spend carryover dollars 14

Combined General Fund Revenue � Elementary � High School District: 15

General Fund Revenue Budget General Purpose – Property taxes, basic state aide, and education protection account funds Federal – District must follow specific grant guidelines (Title I, Title II, etc. ) Total HSD General Fund Revenues Local Revenue 13% State Revenue 7% Federal Revenue 3% General Purpose (LCFF) Revenue 77% Other State – State funds not part of State Aid (Lottery, Special Education, Mandate etc. ) Local – Funds received from local sources (Parcel Tax, Foundation support, PTSA support, Interest, etc. ) 16

Combined General Fund Expenditures � Elementary � High School District: 17

General Fund Expenditures (ESD) � Reflects General Fund only (no Cafeteria, Bonds, Facilities, Child Development etc. ) � Employee costs are approximately 76% for combined general fund and 84% for unrestricted general fund � LCAP Expenditures are included in the budget 18

General Fund Expenditures (HSD) Reflects General Fund only (no Cafeteria, Bonds, Facilities, Adult Ed, etc. ) � Employee costs are approximately 76% for combined general fund and 85% for unrestricted general fund � LCAP Expenditures are included in the budget � Total HSD General Fund Expenditures Budget Adoption 2018 -19 Capital Outlay 0% Other Services & Oper. 16% Books and Supplies 4% Certificated Salaries 47% Benefits 14% Classified Salaries 15% 19

Adopted Budget Summary - ESD � The General Fund is comprised of Unrestricted and Restricted dollars ◦ Unrestricted is LCFF, most of Lottery, one-time dollars ◦ Restricted is Parcel Tax, Title I, Special Ed, Prop 20 Lottery among others 20

Adopted Budget Summary - HSD � The General Fund is comprised of Unrestricted and Restricted dollars ◦ Unrestricted is LCFF, most of Lottery, one-time dollars ◦ Restricted is Parcel Tax, Title I, Special Ed, Prop 20 Lottery among others 21

What Were the Changes to the Budget? � ESD LCFF funding increased and eliminated gap funding � HSD LCFF funding adjusted for property tax growth � Supplemental & Concentration funding adjusted � Adjustments for increases in STRS & PERS � Donations and local grants are not budgeted until funding or award letter has been received. � Adjusted salaries for late hires, unfilled positions (due to recruitment) and positions that will not be filled in the future. � Special Ed contribution decreased for Substitutes & OT costs, unfilled vacancies, Non-Public Schools and Agencies � MCOE Excess Cost “Billback” increased – ESD $209 K HSD $214 K � Mandated cost revenue of $168/ADA 22

Multi-Year Assumptions � Adjusted enrollment and used Dept. of Finance (DOF) funding assumptions ◦ HSD projects 5% increase annually in property taxes � Removed one-time Mandated Cost revenues � Step and Column cost increases 1. 5% annually � Increased STRS and PERS required contributions � Unrestricted supplies, operating expenses and capital outlay to remain constant � Contributions for restricted programs increased for salary, pension costs and anticipated incoming and exiting special need students. 23

Expenditures: STRS and PERS � � � Recent legislation requires ever increasing contributions to the retirement systems for both the employer and the employee. By far the biggest increases are for the employer Assembly Bill 1469 increases employer contribution of Cal. STRS from 14. 43% to 16. 28% (Increase ESD $426 K, HSD $299 K) Cal. PERS increased employer contribution from 15. 53% to 18. 062% (Increase ESD $193 K, HSD $334 K) 24

STRS and PERS Grow Exponentially � By 2024 -25, additional STRS employer costs will add $5. 4 M to the 2013 -14 salary base ◦ Combined HSD & ESD 25

PERS Rates More Than Double � PERS rates go up to 25. 8% by 2023 -24 � Combined HSD & ESD 26

Unrestricted Funds to Restricted Programs � Contributions to Restricted programs for ESD: � Contributions to Restricted programs for HSD: 27

ESD 17 -18 Est. Actuals & 18 -19 Preliminary Budget 28

ESD MYP Footnotes 29

HSD 17 -18 Est. Actuals & 18 -19 Adopted Budget 30

HSD MYP Assumption Footnotes 31

Summary Elementary MYP PThe ESD 2018 -19 budget is projected to have an increase in fund balance based on the assumptions presented. 32

Summary High School MYP Ongoing trend of deficit spending continues and will need to be addressed in 2018 -19. � 2020 -21 State required 3% reserve=$1, 162, 500 � Unrestricted Fund Balance in excess of 3% = $142, 853 by 6/30/2021 � 33

2018 -19 All Funds (ESD) 34

2018 -19 All Funds (HSD) 35

Uncertainties and Prudence ESD Enrollment & ADA are slightly declining going forward � HSD Growth projections require budget tightening � Ongoing costs for step, STRS/PERS will outweigh new LCFF funding moving forward � Eventual downturn in the economy (every 8 -10 years) based on past trends is looming � HSD Multi-year Deficit spending erodes fund balance leaving unrestricted reserves above the required 3% at $142, 853 by 6/30/2021 � Improvements in working conditions in the form of salary increases have not been recognized in budget In the absence of revenue increases, on-going expenditure reductions in the HSD must be made for next year’s budget � P 36

Next Steps � Public hearings on LCAP and proposed budget tonight � LCAP and budget adopted on June 27, 2018 � Based on the enacted State budget, there are no significant budget changes to be brought to the Board in August � Unaudited Actuals to the Board by September 15 � First Interim as of October 31 � By September 15 th, unaudited actuals will be presented with budgets adjusted for carry-over balances and any new revenues. ◦ Rolling carryover balances will reduce 17 -18 deficit spending. � Update the Budget Advisory Committees (BAC) on the current fiscal status in October 2018 37

Questions 38