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Welcome to the 2013 Budget Perspectives Workshop

Welcome to the 2013 Budget Perspectives Workshop. Jeff Owen Vice President – Operations School Innovations & Achievement. SI&A Announcement Scott Hill SI&A , National Policy Advisor Bill & Melinda Gates Foundation, Sr. Program Manager. His focus:

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Welcome to the 2013 Budget Perspectives Workshop

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  1. Welcome to the 2013 Budget Perspectives Workshop Jeff OwenVice President – OperationsSchool Innovations & Achievement 877.954.4357 • www.sia-us.com

  2. SI&A Announcement Scott Hill • SI&A, National Policy Advisor • Bill & Melinda Gates Foundation, Sr. Program Manager • His focus: • National Implementation of Common Core State Standards & Assessments. • Building support systems for the new standards. 877.954.4357 • www.sia-us.com

  3. One critical support system is Academic Tenacity • What is it? Persistence of effort • How is it measured? Attendance (A2A) is the only proven Attendance Intervention System on the market • A2A currently supports nearly 1M families and students • Last year, A2A clients had: • More than a 25% reduction in daily absences • Over 2,700 school children back in school every day • Nearly 500,000 additional instructional days gained • Average ADA gain of .62% - over $14 million dollars generated • Significant improvement in all sub-groups 877.954.4357 • www.sia-us.com

  4. What is your ? * I1 Save Rate A2A Results Combined Save Rate of I1 and I2 Hispanic African White Total American Hispanic African White Total American • *Save Rate is defined as “children that do not continue on a path toward ‘chronic absenteeism’”. 877.954.4357 • www.sia-us.com

  5. A2A results are not an accident.Intervention Student Sample Size Hispanic African American White 877.954.4357 • www.sia-us.com

  6. A2A - Making An Impact • Excited to know that this work is being recognized nationally • as a key component of emerging national strategies, • in supporting the implementation of the Common Core State Standards • We look forward to working with all of you, to supporting your Common Core implementation efforts this year and in the future. • THANKS 877.954.4357 • www.sia-us.com

  7. Jack O’Connell Partner Kevin Gordon President and Partner Abe Hajela, Partner Gerry Shelton Partner Susan Stuart Partner Barrett Snider Partner Lee Angela Reid Chief Legislative Advocate 877.954.4357 • www.sia-us.com

  8. David Walrath President, Murdock Walrath and Holmes Adonai Mack Legislative Advocate 877.954.4357 • www.sia-us.com

  9. The Governor’s 2013-14 Budget “Subsidiarity”: The idea that a central authority should have a subsidiary function, performing only those tasks which cannot be performed effectively at a more immediate or local level. [Oxford English Dictionary] 877.954.4357 • www.sia-us.com

  10. Budget Themes & Thoughts • Basking in Victory • Erasing the Deficit • Wall of Debt – Work in Progress • Counting on Economic Growth • Investing in Education – Over Time • “Subsidiarity” • Centerpiece of Budget is “Local Control Funding Formula (LCFF)” 877.954.4357 • www.sia-us.com

  11. Economic Outlook • Nation – Continued Slow Recovery • Less than 2% GDP growth through mid-2013, improving to 3% beyond • Unemployment = 7.8% - down from 10% in 2009; 9% for much of 2011 • California – Still Even Slower Recovery • Unemployment below 10%, down from 12.4% in 2011; falling to 8.4% in 2014 • Employment (vs. labor force dropouts) actually growing • Real Personal Income growth above 3% going into 2014 • Construction/housing sector is recovering • Challenges • Washington – deficits, politics, short-term fixes • Interest rates and the construction/housing sector 877.954.4357 • www.sia-us.com

  12. Political Backdrop • Decisive win on Prop 30 = political capital for Brown • Getting voters to do the impossible – raise taxes • The low budget, late game strategy wins again • What Prop 30 really does vs. perception • The changing demographic of a major blue state • Rise of the Hispanic voters • Voters between 18 and 29 • Democrat supermajority • Potential to equalize power between Governor and Legislature • Budget & taxes • Urgency statutes • Veto override • Influence of organized labor • Unprecedented number of new lawmakers 877.954.4357 • www.sia-us.com

  13. Governor’s Budget • Governor declares that deficit is erased • Second budget in a decade without a projected deficit • Increases GF spending by 5 Percent - going from $93 billion in 2012-13 to $97 billion in 2013-14 • Increases funding for K-12 schools & higher education • Expands Medi-Cal under state implementation of federal health care reform • Pays down $4.2 billion in budget-related borrowing • Establishes a $1 billion reserve 877.954.4357 • www.sia-us.com

  14. Governor’s Budget • Assumptions above LAO’s projections – erases deficit and creates a $1 billion reserve • $1.1 billion in higher revenues over three years (mostly Prop 30) • $500 million by repaying less of borrowing from special funds • $1 billion higher estimate of savings (RDA/Cap and Trade) • Extending health care-related taxes and fees 877.954.4357 • www.sia-us.com

  15. Voters to the Rescue - Ballot Measures Budget includes almost $6 billion for 2013-14 in new revenues from voter approval of Prop 30 and Prop 39 • Prop 30: • New tax rates on highest-income earners – married taxpayers at $500,000 or above beginning in 2012 through 2018 • Increases state’s sales tax rate by one-quarter cent beginning this year through 2016 • Prop 39: • Requires multistate corporations to use the “single sales factor” method of apportionment in calculating their taxable income • The measure ends an advantage signed into law under a previous budget deal allowing firms choosing the more favorable of two methods for determining their tax 877.954.4357 • www.sia-us.com

  16. New Revenues and Growth • Increase in GF personal income tax revenues of 1.8 percent from 2012-13 to 2013-14 • Increase in GF sales and use tax revenues of 12.5 percent from 2012-13 to 2013-14 • Increase in corporation tax revenues of 20.5 percent from 2012-13 to 2013-14 • Increase in GF revenues of $50 million in 2013-14 as part of proposal for the state’s Enterprise Zone Program • Increase in revenues from permanent reauthorization of the gross premiums tax on Medi-Cal managed care plans and extension of the Hospital Quality Assurance Fee through 2016 877.954.4357 • www.sia-us.com

  17. Key Education Components • K-12 Deferrals— $1.8 billion Prop 98 GF to reduce inter-year budgetary deferrals • New School Funding Formula — Additional $1.6 billion in Prop 98 GF for school districts, COEs and charter schools in 2013-14, an increase of 4.5 percent • New County Office of Education Funding Formula — Additional $28.2 million Prop 98 GF to support a new funding formula for COEs in 2013-14 • Energy Efficiency Investments — $400.5 million Prop 98 GF to support energy efficiency projects per Prop 39 • Charter Schools— $48.5 million Prop 98 GF to support projected charter school ADA growth • Special Education — $3.6 million Prop 98 GF for Special Education ADA growth • K-12 Mandates Funding— Additional $100 million to the K-12 portion of the mandate block grant to support costs associated with the Graduation Requirements and Behavioral Intervention Plans mandates 877.954.4357 • www.sia-us.com

  18. Key Education Components • COLA – Select Programs— $62.8 million to support 1.65% COLA for select categorical programs, including: Special Education, Child Nutrition, American Indian Education Centers, and the American Indian Early Childhood Education Program • Emergency Repair Program — $9.7 million one-time Prop 98 GF Reversion Account for the Emergency Repair Program  • Average Daily Attendance (ADA) — An adjusted increase of $304.4 million in 2012-13 and an increase of $2.8 million for 2013-14 • Child Nutrition Program—$77 million in federal local assistance funds to reflect growth of nutrition programs at schools and other participating agencies • Prop 98 Adjustment – Credits over-appropriation of $162.8 million in the 2012-13 Prop 98 guarantee to retire future funding obligations of the CTA v. Schwarzenegger settlement 877.954.4357 • www.sia-us.com

  19. School Finance Reform • Governor’s criticisms of current system • State driven • Overly complex • Too much bureaucracy and administrative tasks • Inequitable • Not reflective of student needs • Goals for new funding system • Increase local control – “Subsidiarity” • Reduce state bureaucracy • Reduce inequities • Reflect student needs • Transparency 877.954.4357 • www.sia-us.com

  20. Local Control Funding Formula (LCFF) • Basic Grant • Supplemental (weighted) Grant • Concentration (weighted) Grant • Augmentations to the Base Grant • Add-ons to formula • Separately funded programs • Hold-harmless and transition 877.954.4357 • www.sia-us.com

  21. Base Grant • Base Grant per ADA by grade span (no more revenue limit) K-3 = $6,342 7-8 = $6,628 4-6 = $6,437 9-12 = $7,680 • When LCFF fully implemented (estimated in 7-years), Base Grant should equal the undeficited statewide average revenue limit for the current year ($6,816) 877.954.4357 • www.sia-us.com

  22. Supplemental / Concentration Grants • Supplemental Grant • Equal to 35% of Base Grant for each English Learner (EL), Economically Disadvantaged (NSLP eligible), and/or foster student – unduplicated count • Concentration Grant • Equal to 35% of Base Grant For Each EL, Economically Disadvantaged, and foster student above 50% concentration threshold • EL students eligible for Supplemental and Concentration Grants for no more than 5 years 877.954.4357 • www.sia-us.com

  23. Augmentations and Add-ons • Augmentations to the Base Grant • K-3 Class Size Reduction funding augments the K-3 Grade Span Base Grant - 11.23% (approx. $712) • CTE funding augments the 9-12 Grade Span Base Grant - 2.8% (approx. $215) • Add-ons • Home-To-School Transportation and Targeted Instructional Improvement Grant (TIIG) funding permanently added to the entitlement for districts currently receiving those funds 877.954.4357 • www.sia-us.com

  24. LCFF Funding Entitlement Target TIIG Add-on Trans. Add-on CSR Augmentation CTE Augmentation Concentration Grant Supplemental Grant Base Grant 877.954.4357 • www.sia-us.com

  25. LCFF - Transition • An “Entitlement Target” will be calculated for each district • Equal to Base Grant + Supplemental Grant + Concentration Grant + Augmentations + Add-Ons • Entitlement Target adjusted each year for COLA, demographic changes, grade span changes • 2013-14: each LEA receives at least a hold-harmless amount equal to 2012-13 funding for revenue limits + included categoricals • Each FY thereafter: each LEA receives some amount of growth, added to the hold-harmless amount, that moves the LEA toward its Entitlement Target • Administration estimates 7 years to reach Entitlement Targets • 50% of Prop. 98 growth used to move LEAs toward Entitlement Targets (other 50% buys down deferrals) • Growth funding proportionally moves all LEAs toward the Entitlement Targets 877.954.4357 • www.sia-us.com

  26. LCFF Funding Hold Harmless Funding Entitlement Target TIIG Add-on Trans. Add-on 2012-13 TIIG CSR Augmentation CTE Augmentation 2012-13 Trans. Concentration Grant 2012-13 “Included” Categoricals Supplemental Grant Base Grant 2012-13 Revenue Limit 877.954.4357 • www.sia-us.com

  27. LCFF Funding – An Example Entitlement Target $46,683,314 TIIG Add-on $500,000 District X is a unified school district with an ADA of 5,000. 25% of its pupils are enrolled in each of the four grade spans. 70% of the district’s pupils are EL, NSLP eligible and/or foster youth (unduplicated count). The district received $500,000 in Home to School Transportation and $500,000 in TIIG funding in 2012-13. Trans. Add-on $500,000 CTE Augmentation $268,800 Supplemental Grant $8,295,394 CSR Augmentation $890,258 Base Grant $33,858,750 Concentration Grant $2,370,113 877.954.4357 • www.sia-us.com

  28. Separately Funded Programs • Federally funded programs • QEIA (for next two fiscal years only) • Special Education • After School Education and Safety • Child Nutrition • Preschool • Various programs not funded in all districts • e.g., High-Speed Internet Access, Indian Education Centers, FCMAT 877.954.4357 • www.sia-us.com

  29. Expenditure of LCFF Funds • Base Grant, CTE Augmentation to 9-12 Base Grant, and Add-ons are unrestricted and completely discretionary • Supplemental and Concentration Grants are “Available for any purpose that benefits the students generating the funding”, but funding need not strictly “follow the student” • Must hold average pupil-teacher ratio in K-3 to 24:1 (or locally bargained ratio) or risk loss of K-3 CSR Augmentation • 24:1 implemented in stages during transition 877.954.4357 • www.sia-us.com

  30. LCFF – Charter Schools and Basic Aid • Charter schools are included in the proposal and treated the same as districts • Basic aid districts (COEs) are treated the same as other districts (COEs) • Basic aid is now defined to be a district (COE) where local property tax proceeds equal or exceed the entitlement target • Districts (COEs) get to keep excess property taxes • Some basic aid districts (COEs) may start with the hold-harmless amount greater than their entitlement target 877.954.4357 • www.sia-us.com

  31. LCFF – County Offices of Education • County Offices of Education (COE) • New two-part formula for Base Grant • Per ADA funding for county community and court schools • Discretionary general fund based on total ADA within the county • COEs eligible for the Supplemental and Concentration Grants for EL and economically disadvantaged pupils • Same transition and hold-harmless provisions apply to COEs 877.954.4357 • www.sia-us.com

  32. New Accountability System • Governor proposes to redefine fiscal accountability for LEAs and charter schools • Eliminates most current programmatic and compliance requirements • Makes LEAs and governing boards accountable to the community with less emphasis on the State • Requires LEAs to create the District Plan for Student Achievement – to be concurrently adopted with the annual budget 877.954.4357 • www.sia-us.com

  33. New Accountability System • The District Plan must address at least the following: • Basic conditions for student achievement (qualified teachers, sufficient materials, school facilities - Williams type elements) • Programs or instruction for low-income and English language learners • Implementation of Common Core Standards (progress toward college and career readiness as measured by the API, graduation rates, completion of college-prep and CTE courses) • DOF suggests that no State agency would review the District Plans • Instead the K-12 Audit Guide would be revised to require independent auditors to verify the Plans contain all mandatory elements and related expenditures 877.954.4357 • www.sia-us.com

  34. Proposition 98 • Prop 98 spending fell from $56.6 to $47.3 billion between 2007-08 and 2011-12 – A decline of 16.4%, not including manipulations • Most devastating cuts to public education in memory • 2013-14 Prop 98 funding is proposed to be $56.2 billion or $2.7 billion higher than the revised 2012-13 guarantee • Increased GF revenues drive the guarantee upward - Prop 30 and Prop 39 have a positive impact on the guarantee • Governor dedicates $400.5 million of Prop 39 to meeting the guarantee • For 2012-13, the Administration estimates that Prop 98 is funded beyond the guarantee and thus credits those dollars toward future CTA v. Schwarzenegger settlement obligations 877.954.4357 • www.sia-us.com

  35. 2013-14 Revenue Limit Calculations* * Assumes: no LCFF implementation, no def. factor reduction, and full COLA 877.954.4357 • www.sia-us.com

  36. Deferrals • Governor stays true to commitment to eliminate deferrals over time. • $2.2 billion buy out of inter-year deferrals stays in place with passage of Prop 30 • Proposes to buy out an additional $1.8 billion in existing inter-year deferrals • $5.6 billion in inter-year deferrals would remain, down from over $10 billion • $3.5 billion in intra-year deferrals remain, in addition to 2012-13 “Cash Management Plan” 877.954.4357 • www.sia-us.com

  37. Inter-Year (Cross-Year) Deferrals 877.954.4357 • www.sia-us.com

  38. Intra-Year (Same-Year) Deferrals All amounts in millions 877.954.4357 • www.sia-us.com

  39. Mandate Funding • Remember that THIS February, all districts including those that opted for MBG, will be filing for costs incurred in the 2011-12 fiscal year • 2012-13 claims will be the first year impacted by MBG – Decision already made • September 30th 2013 districts again have an option for claiming for 2013-14: continue filing or choose block grant • Block grant funding proposed to be $300 million for K-14 mandates, or $47 per student for K-12 districts and COEs- $24 per pupil for charter schools • Folds in ongoing BIP and Grad Requirements • MBG will not cover prior-year claims for both • Consistent with the motivation for establishing the MBG, inclusion of these added mandates creates savings to the State. 877.954.4357 • www.sia-us.com

  40. Mandate Funding • Two mandates approved for claims to be filed in 2013 • Charter Schools IV – Petition review for districts and COEs • Public Contracts – Requirements imposed on districts • Five pending mandates approved but pending Ps&Gs • Behavioral Intervention Plans • California Public Records Act • Uniform Complaint Procedures • Parental Involvement Programs • Williams Case Implementation I, II, III • Eight mandate test claims pending • For prior year claims on Graduation Requirements Mandate and Behavioral Intervention, districts need to file GR and BIP in Feb 2014 or lose that prior year funding • First Time Filing for BIP goes back to 1994/95 877.954.4357 • www.sia-us.com

  41. Politics & Compliance Under either claiming approach, the statutes requires districts to comply with all mandates • The audit guidelines are subject to change each year • Anticipating the two types of audit requirements under the options – they are not the same • Constitutional Funding = Did you claim correctly • MBG = Did you actually provide the services No guaranteed funding • Not allocated to both options deliberately • How will new mandates get funded now…and in the future? • What happens when people stop paying attention? 877.954.4357 • www.sia-us.com

  42. Mandates - Maintaining Flexibility You hate mandates – You’re done, you are among those who opt for MBG At a minimum you should: • Ensure the ability of the LEA to accurately assess the best reimbursement option for the annual decision in September • Don’t hesitate to get the expertise you need to help you with the data • Preserve the district’s flexibility to opt between the MBG & Constitutional claiming option by maintaining basic processes • Know Your Risks • Position the district to maintain a defensible audit position • Ensure the district’s ability to file any mandates that exist outside the block grant 877.954.4357 • www.sia-us.com

  43. Governor’s Major Policy Proposals 877.954.4357 • www.sia-us.com

  44. School Facilities • Eliminates minimum contribution for routine restricted maintenance • Eliminates the required local district set-aside for deferred maintenance • Allows districts to use proceeds from the sale of surplus property for one-time general fund purposes – after giving Charter Schools first priority (see Charter Schools section) 877.954.4357 • www.sia-us.com

  45. School Facilities Program • Governor wants to explore State’s role in school facilities • Balance operational needs with funding • Simplify • Increase local control • 2014 bond supported by State Superintendent, education community • AB 41 (Buchanan) and SB 45 (Corbett) • State school bond being discussed at $5-7 billion 877.954.4357 • www.sia-us.com

  46. Parcel Taxes • Democrats 2/3 control of both houses of the Legislature • Democrats have been pushing for years to lower vote threshold to pass local parcel taxes from 66.7% to 55% - the same as school facilities bonds • Public opinion appears to support the lower threshold • Fits with Governor’s “subsidiarity” • SCA 3 (Leno), AB 59 (Bonta), and SCA 7 (Wolk) 877.954.4357 • www.sia-us.com

  47. Capital Appreciation Bonds (CABs) • Recent press reports make them a hot issue in 2013 • Political imperativefuels an outright ban • Supported by Legislature and Treasurer, Bill Lockyer • Assembly Member Hueso will introduce bill • Discussions of legislative reforms include: • Limiting school bond financings to 25 years • Requiring a 4 to 1 repayment ratio – unless a waiver is granted • Disclosure (sun-shining) • Requiring optional redemption after 10 years • Limit the maximum interest rate from 12 to 8% • Added oversight by county agencies 877.954.4357 • www.sia-us.com

  48. Prop 39 – Energy Efficiency • Passed by voters in Nov 2012 • Bond for energy efficiency for K-12, higher ed, and local governments • Generates $2.5 billion over 5 years • Gov. proposes to use $450 million for K-14 with no funds going to higher ed or local governments • $550 million in each of next 4 years • CDE to develop guidelines for K-12 projects 877.954.4357 • www.sia-us.com

  49. Prop 39 – Energy Efficiency • $66 per pupil ADA • Funds may be used for uses consistent with the state’s loading order policies, including: • Construction or modernization of buildings in a manner that uses less energy • Purchasing energy efficient equipment • Undertaking renewable energy projects such as installation of solar panels and geothermal heat pumps 877.954.4357 • www.sia-us.com

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