Budget

BUDGET ASSUMPTIONS

2018-19 Adopted Budget and First Interim

Since enactment of the Local Control Funding Formula (LCFF) in 2012-13, the Governor‘s top priority has been to restore K-12 funding to the levels that prevailed in 2007-08. The Governor’s goal was to reach full funding by 2020-21, an eight-year implementation period, but full implementation is reached two years earlier than planned, in 2018-19. The final State Budget Act signed on June 27, 2018 also contains an even higher-than-expected level of ongoing state funding for local educational agencies, while maintaining a healthy state Budget reserve for future economic downturns. The trailer legislation of June 2018, which includes AB1808 increased the Cost of Living Adjustment (COLA) for the LCFFF base rates from 2.71% in the Enacted Budget to 3.70% in the Enacted State Budget in June. These changes have been included in the First Interim budget and the multiyear financial projections.

The Gap Funding (the difference between the prior year Hold Harmless amount and the current year calculated Target Amount) will be 100% funded in 2018-19. Gap Funding will be approximately $1,788,844 for El Segundo Unified School District. This does not mean that each district will receive the same amount, but rather that each district’s Gap will be funded by this percentage in 2018-19.

Although reaching full implementation of the LCFF two years earlier is quite an achievement, the employer contribution rates to the California State Teachers’ Retirement System (CalSTRS) and the California Public Employees’ Retirement System (CalPERS) have increased each year to address the unfunded liability of these pension systems. Consequently 14% of new funding provided through LCFF has been used to pay these costs. Since full funding of the LCFF has not been adjusted for these local increased costs, funding to the 2007-08 level was not achieved.

With the passage of Proposition 55, voters extended the high-bracket income tax for an additional 12 years through 2030, but this does not affect revenues and spending until Proposition 30 expires in 2018.

Therefore, it is recommended that the District assigns reserves or otherwise sets aside any projected increase in LCFF revenue. If the district budgets this increased revenue and the associated expenditure, it must have a contingency or alternative plan in place should these funds fail to materialize. The District should exercise extreme caution in obligating any of these uncertain revenues.

The May Revise Budget included $2 billion in one-time funds to pay down a portion of the debt owed for mandated cost reimbursement, however the June Enacted Budget reduced the mandate reimbursement from $344 per average daily attendance (ADA) to $184 per ADA, which reduced ESUSD’s reimbursement estimate from $1,159,624 to $620,264, a decrease of 53%. The funds may be used for any one-time purpose as determined by the Board. Note that these funds will offset any applicable mandate reimbursement claims. These one-time funds are included in the Budget.

The District used the assumptions factors for 2018-19 budget provided by the Los Angeles County Office of Education (LACOE) and School Services of California (SSC). The budget has been prepared to reflect the LCFF funding model for all fiscal years and is using the Department of Finance projections.

The Enacted Budget acknowledges the statutory cost of living adjustment (COLA) of 2.71%, and increased the additional Local Control Funding revenue to 3.70%.

This is the backdrop of the circumstances surrounding the adoption of El Segundo Unified School District’s 2018-19 Budget and First Interim. These projections are the mathematical result of today’s decisions based on a given set of assumptions. Projections are expected to change as various factors change – they are not predictions or forecasts. These budget decisions are based on the current assumptions dictated by the current set of projections that are available – the Governor’s Adopted Budget and First Interim assumptions provided by Los Angeles County of Education (LACOE). These projections and assumptions will be revised as we continue to receive information.

Overall, the District continues to monitor the operating deficit. The Adopted Budget enrollment target was projected at 3,474 students but the budget was developed using flat enrollment of 3,456 for the current and subsequent years.

General Fund – 01

The General Fund is the general operating fund of the district. It is used to account for all financial resources except those required to be accounted for in another fund.

Revenues

The 2018-19 state wide statutory cost of living adjustment (COLA) is 2.71% plus additional LCFF revenue for a total of 3.70%. The COLA for 2019-20 is 2.57% and for 2020-21, it is 2.67%.

The Adopted Budget and First Interim include Gap funding for 2018-19 at 100% which is approximately $1,494,010 for El Segundo Unified School District.

Enrollment at CALPADS (California Longitudinal Pupil Achievement Data System) has been revised at First Interim to 3,456 which is a decrease of 31 students over the prior year. The budget is projected on the prior year enrollment.

Attendance is projected at an attendance rate of 96.47% of CALPADS enrollment. This rate is based on an average of the previous fiscal years. Actual attendance rates improved to 97.06% in 2017 -2018 from 96.72% in 2016 -2017. This is attributed to better retention rates of permit students and keeping class enrollments maximized throughout the year as well as increased awareness of parents of the fiscal and academic impact of keeping students in class.

The Governor’s adoption of the LCFF funding model has eliminated most categorical funding.

The Proportionality amount for 2018-19 is approximately $922,981and must be designated for English Learners, Foster Youth and Homeless for supplemental instruction.

Lottery revenue has been projected at $204 per ADA; $151 for Unrestricted, and $53 for Restricted.

Special Education revenue is not projected using state assumptions or COLA. A restructuring of the allocation formula was completed in 2004-05 through the SELPA. Funding for ESUSD remained flat from the SELPA.

The Interest Rate for 10 year Treasuries is projected to begin increasing in the following fiscal years. From a low point of 1.15% in the third quarter of 2003-04 to 5.33% at first quarter of 2007-08 to 3.17% in the 2018-19 Budget, 3.38% in 2019-20 and 3.50% in 2020-21.

K-3 Class Size Reduction program has been eliminated and modified to a base grant per average daily attendance (ADA) with the Governor’s State Budget Act, now referred to as K-3 Grade Span Augmentation Grant. The Governor’s Proposed Budget is fully funding this program beginning in 2018-19. The 2018-19 Augmentation rate is $776 per ADA, for a total of $693,190.

The District also receives an adjustment to the base grant for grades 9-12 at a rate of $235 per ADA, for a total of $282,824. The Governor’s Proposed Budget is fully funding the 9-12 Augmentation Grant in 2018-19.

Mandated cost claim revenues have been budgeted for 2018-19 because ESUSD has opted to participate in the block grant which is funded at $31.16 for grades K-8 and $59.83 for grades 9-12, per ADA, approximately $139,544. This amount will be transferred to the Post Employment Retiree Benefits, Fund 67.

One-Time Discretionary Funds (Mandated Cost Reimbursement) – The Enacted Budget also included $184 per ADA of one-time funds to pay down a portion of the debt owed to districts for mandated cost reimbursement. The funds may be used for any purpose as determined by the district’s Governing Board. These funds will be apportioned whether or not the district had any prior claims. However, consistent with previous years, any funds received will offset state obligations for any district with outstanding mandate reimbursements. For El Segundo Unified School District, the amount is approximately $620,264, which is included.

SoCalROC:
The El Segundo Unified School District Board of Education has approved an amendment to the Joint Powers Authority (JPA) with regards to the Southern California Regional Occupational Center (SoCalROC) and has agreed to contribute $1,234 times number of students enrolled in the center, for ESUSD, it is approximately $92,550.

Other local income includes:

$1,500,000 from the Educational Foundation (Same as prior year)

$1,830,000 in fees collected from the District’s before and after school daycare program and the preschool

$15,000 from Use of Facilities fees for local non-profit sports

Changes to contributions are as follows:

Special Education – The estimated contribution to Special Education from General Fund is currently projected at $3,234,784 for all programs. This is decrease of $59,581 from the adopted budget.

Ongoing and Major Maintenance – The District is required to set aside 3% of total expenditures for Ongoing and Major Maintenance. Included in the budget is $1,200,000 which is approximately 3%. The required contribution of ½% to Deferred Maintenance is no longer a requirement due to the State Budget Act. The District will set aside $150,000 for Deferred Maintenance projects for the current and subsequent years.

Interfund transfers from General Fund:

Post Employment Benefits – The District will contribute $150,000 for Post-Employment Benefits including the one-time mandated cost block grant in 2018-19 and two subsequent years to fully fund the Post-Employment Benefits as recommended by the actuarial study conducted in 2014.

The District has included in the budget a contribution of $150,000 to Deferred Maintenance beginning in 2014-15 from the Routine Restricted Maintenance account.

Expenditures

Staffing formula (regular classes):

Grades K, 24:1

Grades 1 – 3, 24:1

Grades 4 – 5, 32:1

Grades 6 – 8, 36:1

Grades 9 – 12, 36:1

The First Interim includes an increase of .5 certificated full-time equivalent (FTE) and an increase of 3.2 FTE for Classified:

Center Street Elementary

No Change

Richmond Street Elementary

No Change

El Segundo Middle School

1 Classified FTE as Safety Assistant shared with Center Street Elementary

.5 Certificated FTE as counselor

El Segundo High School

1 Classified FTE as Safety Assistant shared with Richmond Street Elementary

District Wide

1.2 Day Care

Special Education staffing - The District established a Learning Center module at both elementary schools since 2009-10. There have been no changes in staffing since the Adopted Budget.
Salaries – The First Interim does not include salary increases for staff in the 2018-19 fiscal year and no salary increase in subsequent years. All step increases have been projected as well as a modest amount for column changes for all years. Retirement savings of $30,000 has been included in the subsequent years.

Retirement Contributions:

Beginning in 2014-15, the Governor proposed a plan to eliminate the estimated $74.4 billion CalSTRS outstanding liability within the next 32 years. This plan required increased contributions to CalSTRS from the State, educational agencies and members. Educational agencies would shoulder the greatest increases in the employer contribution rates with increases phased in over the next seven

years.

Employer rates will continue to increase until 2020-21 and are expected to bring the underfunded retirement system to full funding in 30 years. The table below indicates the employer contribution rates for both CalSTRS and CalPERS. The CalPERS previously released employer contribution rates have increased .362% in 2018.19, .80% in 2019-20 and .80% in 2020-21.

Retirement Plan	2014-15	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
CalSTRS	8.88%	10.73%	12.58%	14.43%	16.28%	18.13%	19.10%
CalPERS	11.771%	11.847%	13.888%	15.531%	18.062%	20.800%	23.500%

Health Insurance costs have been projected using $8,750 as the maximum for certificated and classified bargaining unit employees and $11,750 maximum for management/confidential staff.

Books/Supplies are based on site projected CBEDS enrollment with an add-on to the amount per student based on the projected CPI. Expenses have been adjusted to reflect any one-time grants and one-time expenses.

Other Contracted Services were based on current knowledge of obligated contractual services and/or estimated at the consumer price index (CPI) increase for those that were unknown.

Transfers Out:

$212,000 to SELPA for access special education services.

Cafeteria Fund – 13

The Cafeteria Fund is used to account for revenues received and expenditures made to operate the district’s cafeterias.

Revenue is derived from Free/Reduced Meals subsidized by the Federal and State governments; breakfast and lunch sales to students, teachers, and other district employees; and catering services. The bulk of revenue in El Segundo Unified is generated through paid lunches and breakfasts.

Deferred Maintenance Fund – 14

The Deferred Maintenance Fund is used for the purpose of major repair or replacement of property. Expenditures may be of a preventative nature but cannot be used for regular, routine maintenance. The state contribution of ½ of 1% of the General Fund expenditures has been eliminated in the State Budget Act. The District has included in the budget a $150,000 contribution from the General Fund beginning in the current year and subsequent years. This year the ending fund balance is committed for deferred maintenance projects as per the new Governmental Accounting Standards Board (GASB) statement 54.

Building Fund – 21

The Building Fund is used to account for expenditures from bond proceeds for renovation, construction, and improvement of school facilities throughout the district. The District does not have any available Building funds at this time.

Developers’ Fee Fund – 25

This fund was established late in the 2003-04 fiscal year. Any funds received in 2018-19 will be committed for the established purpose.

County School Facilities Fund – 35

The remaining balance of approximately $1,219,740 is restricted for capital improvements.

Special Reserve Fund for Capital Outlay – 40

The Special Reserve Fund for Capital Outlay is used to account for capital improvements. The revenue for the sale of the Imperial site must be deposited into this fund and to be used for the allowable expenditures of capital improvements only. The amount of $22,625,000 was been deposited from the sale of Imperial site in 2016 – 2017. The remaining balance is $21,789,864 .

Self-Insurance Fund – 67

The Self Insurance Fund is used to account for post employment retiree benefits. The District opted for the mandated cost block grant and will be transferring the funds into this fund to cover post employment retiree benefits in the amount of $150,000 for the 2018-2019 fiscal year and the two subsequent years.

The District continues to use this fund to pay for retiree post employment benefits for certificated staff. The cost is projected at approximately $125,000 for 2018 - 2019 and two subsequent years.

Reserve Requirement

Senate Bill (SB) 858 (Chapter 32/Statutes 2014) establishes new transparency requirements and contains a provision that will, under certain conditions, place a hard cap on the combined assigned and unassigned unrestricted ending fund balance.

As of 2015-16, district’s public hearing for ending fund balance in excess of the minimum recommended Reserve for Economic Uncertainties (REU) must provide the following information at the public hearing for their proposed budget prior to budget:

The minimum Reserve for Economic Uncertainties (REU) level required in each year identified in the budget;

The amount of assigned and unassigned ending fund balance that exceeds the minimum Reserve for Economic Uncertainties (REU) from the General Fund (01) – Unrestricted

Reasons for the Reserve for Economic Uncertainties (REU) being greater than the minimum

Below is the table for El Segundo Unified School District’s Reserves:

Description	2018-19 Projected Budget	2019-20 Projected Budget	2020-21 Projected Budget
Minimum Reserve for Economic Uncertain (REU)	$1,190,546	$1,215,553	$1,239,801
Assigned/ Unassigned Ending Fund Balance	$4,590,772	$3,079,349	$1,499,974
Amount Over/ Under Minimum REU	$3,389,226	$1,852,796	$249,173
Amount Reserved for Revolving Fund	$11,000	$11,000	$11,000

There are a number of factors that substantiate the need for El Segundo Unified School District to maintain these higher balances:

Financial flexibility to absorb unanticipated expenditures without significant disruption to educational programs;

Structural operating deficit

Protection against exposure to significant one-time outlays such as disasters;

Cash management/ avoiding the cost of borrowing for cash flow purposes;

Protection against declining enrollment

Conclusion

The District continues to maintain the required 3% + reserve for the 2018-19, 2019-20 and 2020-21. The total available reserves for fiscal years 2018-19 is projected at 11.54%,7.57% for fiscal year 2019-20 and 3.60% for fiscal year 2020-21.