2013-14 First Interim Report, Concurring with District S Qualified Certification

2013-14 First Interim Report, Concurring with District’s Qualified Certification

December 30, 2013

______, Board President ______School District [Street and number] [City], CA [Zip]

______, Superintendent ______School District [Street and number] [City], CA [Zip]

Subject: 2013-14 First Interim Report

Dear ______and ______: Thank you for the timely submission of the 2013-14 first interim report. We have completed our review and analysis of the first interim report and the accompanying certification of financial solvency. In accordance with Education Code Section 42131, the governing board of the ______School District assigned a qualified certification to its 2013-14 first interim report. By issuing a qualified certification, the district’s governing board acknowledges that while the district will be able to meet current year financial obligations based on present projections, the district may not be able to meet its financial obligations for the two subsequent fiscal years. As you know, the state funding method for California public schools has changed from revenue limits and categorical programs to the Local Control Funding Formula (LCFF), effective for the 2013-14 fiscal year. The district has included the impact of the LCFF in the 2013-14 first interim report and multiyear projections. LCFF is unique for every district because of several factors including but not limited to student demographics, prior year base revenue limit and state categorical funding, and attendance by grade span. The district used the LCFF Calculator to estimate LCFF entitlements for the current year and the two subsequent fiscal years. We believe that the district’s estimated LCFF entitlement for 2013-14 is reasonably estimated. The projected LCFF entitlements for the two subsequent years are subject to change based on several factors including state revenues, LCFF gap funding rates, average daily attendance by grade span, and demographic data. The district is projecting 2013-14 enrollment of 14,507 students, which is a decrease of 101 students from prior year enrollment. The district projects that enrollment will further decline by 60 in 2014-15 and by 50 in 2015-16. We encourage the district to closely monitor enrollment trends and prepare for budget adjustments should enrollment projections fluctuate adversely. The district is projecting that it will deficit spend in the unrestricted general fund by $4.6 million in 2013-14, $4.2 million in 2014-15, and $5.8 million in 2015-16. It is important to note that the first interim report does not reflect the fiscal impact of the agreement with the California School Employees Association (CSEA) bargaining unit for 2013-14 and 2014-15. As presented in the Criteria and Standards, the district’s unrestricted general fund reserves are projected to be 4.9% for 2013-14, 2.6% for 2014-15, and -2.9% for 2015-16. We strongly recommend that the board maintain reserves higher than the state-recommended minimum, which better prepares the district to manage deficit spending and deal with state funding uncertainties. 2013-14 First Interim Report, Concurring with District’s Qualified Certification The information submitted with the first interim report indicates that salary and benefit negotiations are settled through June 30, 2015 with the ______Teachers Association and that negotiations with the California School Employees Association (CSEA) were still unsettled. However, subsequent to the submission of the first interim report, the district reached an agreement with CSEA that is effective through June 30, 2015. Additionally, the district has included the estimated cost increases for step and column movement and health benefit premiums for the current and two subsequent fiscal years. Responsibilities of County Superintendent for Qualified Districts For qualified school districts, Education Code Section 42127.6 states that the county superintendent shall do at least one of the following, and all actions that are necessary to ensure that the district meets its financial obligations: Assign a fiscal expert, paid for by the county superintendent of schools, to advise the district on financial issues. Conduct a study of the financial and budgetary conditions of the district, that includes, but is not limited to, a review of internal controls. If, in the course of this review, the county superintendent determines that his office requires analytical assistance or expertise that is not available through the district, he may employ, on a short-term basis, staff or consultants, to provide the assistance and expertise. The district shall pay 75% and the county office shall pay 25% of these staff costs. Direct the district to submit financial projections of all fund and cash balances of the district as of June 30 for the current and subsequent fiscal years. Require the district to encumber all contracts and other obligations, prepare appropriate cash flow analyses and monthly or quarterly budget revisions, and appropriately record all receivables and payables. Direct the district to submit a proposal for addressing the fiscal conditions of the district. Withhold compensation for the governing board and district superintendent for failure to provide requested financial information. Government Code Section 3540.2 requires that any school district with a qualified or negative certification under Education Code Section 42131 shall allow the county office of education at least ten working days to review and comment on any proposed collective bargaining agreement before it is ratified. Education Code Section 42133(a) reads: A school district that has a qualified or negative certification in any fiscal year may not issue, in that fiscal year or in the next succeeding fiscal year, certificates of participation, tax anticipation notes, revenue bonds, or any other debt instruments that do not require the approval of the voters of the district, nor may the district cause an information report regarding the debt instrument to be submitted pursuant to subdivision (e) of Section 149 of Title 26 of the United States Code, unless the county superintendent of schools determines, pursuant to criteria established by the Superintendent of Public Instruction, that the district’s repayment of that indebtedness is probable.

Action Required as a Result of a Qualified Certification As you are aware, the county superintendent may assign a fiscal expert to advise and assist the district on financial issues. We have assigned ______to work with the ______School District to assist in the development of a plan addressing the fiscal conditions of the district. Per Education Code Section 42133(a), the district may not issue non-voter-approved debt unless the county superintendent of schools determines, pursuant to criteria established by the Superintendent of Public Instruction, that the district’s repayment of that indebtedness is probable. Please complete the non-voter approved debt disclosure form prior to issuing tax anticipation notes, certificates of participation, revenue bonds, or any other debt instruments that do not require voter approval. Conclusion We extend our thanks to your staff for the thorough and timely preparation of the first interim report. Although the LCFF provides fiscal relief to the ______School District, the district still has a structural deficit in the unrestricted general fund. We recommend that the district consider the following risks prior to expending the new funds: Local Control Accountability Plans, increased retirement contributions for 2013-14 First Interim Report, Concurring with District’s Qualified Certification CalSTRS and CalPERS in future years, the impact of the Federal Affordable Care Act, and the risks associated with the LCFF implementation plan. More information will emerge in the coming months regarding the 2014-15 state budget and the Local Control Accountability Plan regulations and template. We encourage the district to begin 2014-15 budget development as soon as possible. Sincerely,

______County Superintendent

______Assistant Superintendent/Business Services cc: District ______, Chief Business Official