MDUSD Budget Situation- Update #2 - (2/28/11)

This is the second part of a two part budget update.  

Part one was posted on this blog 3 weeks ago, and can be read here from 2/8/11.

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Mt. Diablo USD News Update

Where Kids Come First

Governor’s Budget Proposal and Impact on MDUSD

The information for this News Update was gathered from:

1. A budget presentation made by State Senator Mark DeSaulnier and State Treasurer Bill Lockyer on Wednesday, February 23, 2011.
2. A February 7, 2011, article by the Legislative Analysis Office entitled Update on School District Finance in California.  The article can be found at: http://www.lao.ca.gov/analysis/2011/education/ed_survey_two_020711.aspx .
3. California County Superintendents Educational Services Association’s (CCSESA) paper entitled:  Basic District Fiscal Oversight Common Message Background and Advice to County Office of Education CBOs 2010-11 Second Interim Report and Related MYPS, February 9, 2011.  This paper is posted on our website at: http://www.mdusd.org/Departments/Fiscal/Documents/Website%20-CommonMessage020911%20BASC%20CCSESA-02-25-11.pdf .
4. A memo from Bill Clark, Associate Superintendent, Business Services Contra Costa County Office of Education outlining the Second Interim Guidance 2010-11.  The memo is posted on our website at:  http://www.mdusd.org/Departments/Fiscal/Documents/Website%20081%20Second%20Interim%20Guidance-02-25-11.pdf .

According to the above-referenced CCSESA paper:

Governor Brown has acknowledged that education has been the only major program that has taken disproportionate budget reductions since 2007-08. Therefore, he committed to protect education by proposing flat funding for education for 2011-12. However, flat funding really results in about a $19 annual per pupil reduction.

The 2011-12 Governor’s Proposed Budget was submitted with an estimated 18-month budget shortfall of $25.4 billion, comprised of an $8.2 billion shortfall in 2010-11 and a $17.2 billion shortfall in 2011-12. The Governor’s proposal addresses the shortfall in three ways: (1) reducing expenditures by $12.5 billion over two years (2010-11 and 2011-12); (2) enhancing revenue by $12 billion over the same two-year period to be achieved through a June ballot measure to extend the temporary taxes enacted in 2009-10 by five years (.25 percent surcharge on income tax, 1 percent increase in the sales tax, .5 percent increase in the vehicle license fee); and (3) borrowing $1.9 billion from special funds and other one-time measures.

The success of this proposal largely depends on a two thirds bipartisan legislative approval to place the tax extension measure on the ballot and then on a majority of the voters approving the tax extension. Additionally, the Legislature would have to agree to expenditure reductions similar to ones that they have rejected in prior years. Part of the Governor’s strategy is a proposal to realign or to shift responsibility of many programs along with the revenue sources to local governments. This shift would include using one-time Proposition 63 funds of $861 million to fund community mental health services. Clearly, there are many challenges ahead for the Governor and the Legislature to balance this budget.

If all of the Governor’s strategies are enacted, then the total K-14 Proposition 98 funding would be $49.3 billion, slightly less than the 2010-11 level of $49.7 billion.  This would amount to a reduction of approximately $600,000 for our District. 

Another major impact for education in the Governor’s proposal is the deferral of several apportionments.  School districts are not paid in one lump sum at the beginning of the year.  We receive incremental payments (apportionments) throughout the fiscal year from July through June.  In the Budget Proposal, the Governor recommends delaying our payments for April, May, and June until July 2011, which is in the next fiscal year, and then delaying the July 2011 payment until July 2012, again another fiscal year.  In essence, this will delay $25 million in payments from this school year by 12-15 months to the beginning of the 2012-13 fiscal year.  Basically, the State is taking their cash flow crisis and making the school districts deal with it by deferring our payments.

How will the District deal with this cash flow issue in order to pay employees and keep our schools running?  In order to deal with these deferrals in payments, the District will have to go out for a short-term loan called a Tax Revenue Anticipation Note (TRAN).  Basically, a TRAN allows a school district to borrow money for up to 12 months and then pay back the loan when the deferrals come in.  Since school districts are being delayed payments for a total of 15 months we may have to go out for two TRANs because one will not be long enough to cover the deferrals that are being recommended.  Bottom line is we will have to secure short term loans which will cost us thousands of dollars in issuance costs and interest.

The big unknown is whether or not the Governor’s revenue proposals will be put on a June ballot and whether or not they will pass.  If either doesn’t happen, the minimum school funding guarantee under Proposition 98 would drop by an additional $350 per student annually.  However, due to other constraints on the State’s budget, it is projected that Proposition 98 will be suspended and that education would be cut by additional billions of dollars which would translate into a reduction of between $650 and $1200 per pupil annually.  This would mean a reduction between $21 million and over $35 million annually for the District.  At their presentation on Wednesday, February, 23, Senator DeSaulnier and Treasurer Lockyer both stated there was a 50-50 chance that the tax extensions would garner the Legislative two-thirds support necessary to put them on a June ballot.

In a letter from the Contra Costa County Office of Education (CCCOE), we are being directed to submit a Second Interim Budget in March that uses the assumptions that the tax extension fails and assumes a loss of $350 per student.  This would amount to a reduction of approximately $11.5 million.  The letter goes on to say that given the risk outlined in the Legislative Analysis Office analysis of the budget, the CCCOE “recommends that districts set aside an additional reserve equal or plan for approximately $300 per ADA in addition to the $350 reduction outlined above.”  This will amount in the District either identifying an additional reserve of approximately $9.8 million or making cuts that total $21.3 million ($11.5 M + $9.8M).  This would be equivalent to subtracting 25 days from the school year and starting the school year on approximately October 1^st. 

What can our community do to help ensure that we do not have to reduce our budget by an additional $21.3 million?

1. Work to ensure that the Legislature approves placing the tax extensions on a June ballot.
2. Work to ensure that all community members thoroughly understand the negative implications for our children’s education if the tax extensions do not occur.
3. Work to ensure that every parent with a child in the Mt. Diablo Unified School District participates in the democratic process that we hope will occur in June.

At a Board workshop on Tuesday, March 1, the Board will discuss the ramifications of the budget reductions outlined above and review potential reductions to be included in the Second Interim budget.  The Board workshop will be held in the Board room at the District Office and begin at approximately 6:15 p.m.  The Board will then adopt the Second Interim budget at the regularly scheduled Board meeting on March 15.