Sonoma County Office of Education

SONOMA COUNTY OFFICE OF EDUCATION

SCOE BIZ Business Services Bulletin No. 15-06 October 24, 2014

To: District Superintendents District Chief Business Officials Charter School Officials From: Judy Thomson, Director Fiscal Services Subject: 2014-15 Interim Reports

The purpose of this letter is to review the process for the Interim Reports. The financial reporting periods and requested forms are due as listed below. Please comply with these deadlines: Interim Report period Reporting Dates covered Due to SCOE 1st Interim July 1 through October 31 December 15 2nd Interim July 1 through January 31 March 15 3rd Interim* July 1 through June 30 projection June 1 *Only applicable to districts that had either a 2014-15 Qualified or Negative certification. 2014-15 State Budget On June 20, 2014 Governor Brown signed the 2014-15 budget bill (SB 852) and related trailer bills. The final State adopted budget provides $250 million more funding for Local Control Funding Formula (LCFF) implementation than the May Revise. Guidelines It is anticipated that the Common Message will be issued on or near October 31, 2014. Until that time, the following guidelines should be considered:

Prepare a LCFF calculation using the FCMAT Calculator or School Services of California (SSC) Simulator. Please note the gap funding percentages used in each calculator. GAP funding percentage 2014-15 2015-16 2016-17 SSC Simulator 29.56% 7.9% 8.2% FCMAT Calculator (default %s are based on DOF estimates) ** 29.56% 20.68% 25.48% ** Please note that the gap funding % of LCFF Calculator is easily modified on the Assumptions tab.

The gap funding percentage to be used in the 2014-15 LCFF calculation is 29.56%. Gap funding in the out-years can vary dramatically based on a LEA’s risk tolerance. The more uncertain a LEA is of the variables used in calculating LCFF, such as the stability of its unduplicated pupil count or grade span ADA estimations, the lower the risk tolerance. LEAs with low risk tolerance, minimal reserves, or significant gap funding amounts should use more conservative gap funding percentages such as those incorporated in School Services of California (SSC) LCFF Simulator. Those LEAs with small gap funding amounts may use gap funding percentages up to the Department of Finance (DOF) estimates. Use the ‘SSC School District and Charter School Financial Projection Dartboard 2014-15 Adopted State Budget’ (attached) for economic planning factors. Districts with conversion charters schools must prepare a LCFF calculation for each charter because each charter school’s unduplicated pupil count will generate unique supplemental and concentration grant funding. A charter schools LCFF calculation may not use an unduplicated count percentage greater than their sponsoring district’s.

Recommended CalSTRS and PERS rates are as follows: CalSTRS Rates per AB 1469 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 Employer 8.25% 8.88% 10.73% 12.58% 14.43% 16.28% 18.13% 19.1% Member 8.00% 8.15% 9.20% 10.25% 10.25% 10.25% 10.25% 10.25% (2% at 60) Member 8.00% 8.15% 8.56% 9.205% 9.205% 9.205% 9.205% 9.205% (2% at 62)

PERS Rates M 2013-14 2014-15 2015- 2016- 2017- 2018- 2019- 2020-21 and 16 17 18 19 20 ate Employer 11.4425% 11.771% 12.60% 15.00% 16.60% 18.20% 18.20% 18.20% d Costs – One Time Funding These funds will be paid on a per ADA basis, which is estimated to be about $67 per ADA, regardless of whether or not LEAs have outstanding mandate claims. For LEAs with outstanding mandate claims, the funding allocated will count toward retiring the state’s mandate obligation. Although the Legislature’s intent that the funds be used for Common Core, they are unrestricted.

K-3 Grade Span Adjustment (GSA) In 2014-15, as a condition of receiving the K-3 GSA (1.4% of k-3 base grant), school districts must maintain or make progress towards an average K-3 class size of 24 by school site in both 2013-14 and 2014-15 unless a collectively bargained alternative to the statutory requirements have been agreed upon. If an annual audit of a school district finds the district out of compliance, the CDE will retroactively reduce the district’s funding. There is no waiver process.

Temporary Flexibility that expires June 30, 2015 o Routine Restricted Maintenance (RRM) – Set aside of 1% of total General fund expenditures returns to a 3% set aside. o Instructional days/minutes ~ Reduction of school year by up to five days and/or equivalent in instructional minutes expires at the end of this fiscal year. District must return to 180 days of instruction in 2015-16. o The suspension of instructional materials adoption requirements expires at the end of 2014-15. For greater detail, please go to: http://www.cde.ca.gov/ci/cr/cf/ Transportation Maintenance of Effort Of the funds received for home-to-school transportation, a school district is required to expend no less than the amount of funds it expended for home-to-school transportation in the 2012-13 fiscal year or the amount of revenue received in 2013-14, whichever is less. The MOE requirement only applies to spending up to the amount of the transportation entitlement received in 2012-13; contributions to transportation programs above the amount of the entitlement are not subject to MOE. This requirement is on-going, unlike ROC/P and Adult Education MOE provisions that sunset at the end of this year. MOE compliance will be audited for the 2014-15 fiscal year.

Basic Aid/ Excess Tax School Districts Under LCFF, basic aid districts will receive hold harmless funding of no less than the amount received in 2012-13. The hold harmless amount (minimum state funding) will be calculated based on the categorical allocation net of 8.92% fair share reduction. In addition, all districts are guaranteed a minimum of $200 per ADA of Education Protection Account (EPA) funding through 2018-19. It is highly recommended that Basic Aid/Excess Tax school districts not budget RDA Residual (8047 – RDAX) or RDA asset liquidation (8047-LQID) tax revenues due to their volatile and uncertain nature. It should not be assumed that a district will receive the same amounts in 2014-15 as received in 2013-14. District of Choice funding currently sunsets at the end of 2015-16 (inoperative on July 1, 2016). Do not budget district of choice revenue in 2016-17. Basic aid districts are subject to the Local Control and Accountability Plan (LCAP) and Supplemental and Concentration Grant regulations under LCFF. Basic Aid Supplemental Funding (BAS) For districts that sponsor charter schools and receive BAS funding, please be aware this funding has been capped and that the fluctuation in funding from one year to the next can be significant due to the funding status of the district of residence (LCFF or Basic Aid), the number of non-resident charter school students, and other factors. Each district is uniquely sensitive to possible changes to their BAS funding.

At First Interim, the District may budget up to prior year’s BAS revenue in the current and future years with 50% reserved in fund balance and 50% in one-time expenditures until Second Interim when P-1 apportionment amounts are known. At Second Interim, it would be considered prudent to allocate BAS revenues in accordance with District practices and policies reflecting a conservative posture. For example, one such strategy follows: 1/3rd reserved in fund balance due to the uncertainty of the funding 1/3rd used for one-time expenditures 1/3rd on-going expenditures

It is recommended that districts consider using this revenue to fund OPEB liabilities and pay the actuarially determined annual required contribution (ARC) amount rather than the pay-as-you go amount. ARC payments reduce the cost of OPEB liabilities in the out-years when financial circumstances are unknown.

Although the change in the education funding model from revenue limit to LCFF did not eliminate BAS funding, it remains a controversial form of funding. Facts and circumstances are different for each district. Please feel free to call your SCOE accountant or myself to discuss.

Form AB 2756 Reporting Requirements Please be reminded that Education Code Sections 42127 and 42127.6 require districts to submit to the County Office any studies, reports, evaluations, or audits done of the district that contain evidence that the district is showing fiscal distress. The AB2756 Reporting Requirement form is used to communicate such work and should be completed by all LEAs and then returned to SCOE with all interim financial reporting. The form is available at dp.scoe.org under the “Forms” tab.

Multi-Year Projection (MYP) An important part of the Interim Report is the completion of a thorough MYP with detailed assumptions. The MYP should include 2013-14 Actuals, if possible. Future financial projections must be developed with specific planning tools and assumptions. Details regarding ADA by grade span, unduplicated pupil count, and gap funding percentages are essential for each year presented. The MYP should reflect: the reserve levels; a three- year comparison (current and two subsequent years) with a three-column breakdown for each year by Unrestricted, Restricted, and Combined totals.

Cash Flow Report As always, it is important to prepare a thorough cash flow projection to determine if sufficient cash is available to meet operational needs. Please notify SCOE immediately if you do not anticipate having sufficient cash for all funds to remain positive at June 30, 2015. Please note: Cash in all funds must be positive at June 30, 2015. Education Code Section 42603 allows LEAs to borrow between funds temporarily. There are limitations which are noted below: o No more than 75% of the money held in any fund during the current fiscal year may be transferred. o The funds must be repaid by June 30th of the current fiscal year if the transfer was completed prior to the last 120 days of the fiscal year. o If the funds were transferred within the last 120 days of the fiscal year, repayment of the funds must be made prior to June 30th in the subsequent fiscal year. o If borrowing from Fund 21, does your bond agreement allow it? Changes in property valuations can affect the cash flow of property taxes. RDA residual (RDAX) tax revenues for 2014-15 are unknown and uncertain. RDA asset liquidation (LIQD) tax revenue is considered one-time revenue and should not be budgeted. Cash flow related to funding can be found at: o Principal Apportionment: o Go to: http://www.cde.ca.gov/fg/aa/pa/papayschedule.asp . To get monthly payment schedule, click on Payment Schedule Summary - LEA detail on the following website: http://www.cde.ca.gov/fg/aa/pa/iassf13adv.asp o Categorical funding: o Estimated cash flow schedules (prepared monthly), reporting deadlines and a list program funding by name is available from this site. o Go to: http://www.cde.ca.gov/fg/aa/ca/estcashflow.asp o Education Protection Account (EPA) Apportionment: o EPA funding uses Resource 1400, Object 8012 and will be received quarterly in 2014-15. o Go to: http://www.cde.ca.gov/fg/aa/pa/epa1415.asp A Cash Flow report template may be found on the Data Processing website at dp.scoe.org under Forms along with the multi-year projection worksheet. Also accepted are either the SACS software version or the district’s own version. Forms to Submit with your First Interim Report: The full Interim Report software package, including the cash flow and MYP, should be submitted to your SCOE Accountant by e-mail (dat file) and in hard copy. The following information/forms are requested. Please note the bolded items. They are essential in determining whether or not LCFF estimated revenues appear reasonable:

LCFF Calculator – FCMAT Calculator Use the FCMAT Calculator 15.2b version or newer, if available. It can be found at www.fmat.org Please provide an electronic copy or the following tabs of the calculator in hard copy: o District MYP Data o Charter MYP Data (if applicable) o District Class Size (if alternative ratio due to collective bargaining, please so indicate) o District NSS (if applicable) o District In-Lieu (if applicable) o Calculator o LCAP MPP o Summary o Graphs Balancing Spreadsheet ~ Due to the change to the LCFF funding model, there is presently no mechanism or technical review check (TRC) in the SACS2014ALL software which assesses State revenue. SCOE created a Balancing Spreadsheet that will assist in determining if your SACS2014ALL LCFF revenue sources tie with your LCFF Calculator, Escape, and Multi-year projection. Combined District and Charter School Enrollment and ADA Data For districts with conversion charter schools included in the General Fund, we are requesting you complete and provide the “LCFF Enrollment ADA Undup Ct worksheet 05152014” file which can be found at the dp.scoe.org website… o Under the Workshop tab o May 15, 2014 – Next Fiscal Year Workshop o LCFF Enrollment ADA Undup Ct worksheet 05152014.xlsx Cash Flow Statement (SACS or alternate form) Multi-Year Projection Worksheet with narrative/justifications/assumptions (SACS software form, SCOE’s template, or district’s own form). The MYP must report unrestricted, restricted and combined totals. District Narrative and budget assumptions, as submitted to your Board District Narrative of Special Funds, if not included in the items above AB2756 Reporting Requirements form First Interim SACS forms: o Certification Page, original signature o General Fund Summary - Combined Unrestricted/Restricted Report o General Fund Unrestricted Report o General Fund Restricted Report o Other Funds – Two-page Summary o Form A – ADA worksheet o Form CS – Criteria and Standards Summary Review – completed in full, with explanations o Technical Review Check (Exceptions only)