What to Do about Proposed Midyear Cuts
Now that more detail is available on the Governor’s proposals for midyear cuts and related categorical flexibility, many school agencies are asking us what they should do when estimating the revenues in their current year budgets.
The proposal from the Governor to slash apportionment funding and to increase flexibility in the use of categorical funds to potentially offset unrestricted cuts is currently just that—a proposal. While the continued declines in the state economy will likely result in significant cuts to K-14 education, we recommend that you use the assumptions that are now in current law and are reflected in the Dartboard.
If you need to prepare an updated budget for your board before the outcome of the special session of the Legislature is known, our specific recommendations on what to do for the revenues in are as follows:
· For the 6.5% cut to categorical programs that was proposed in the May Revision, but did not end up in the adopted version of the State Budget:
Ø If your latest budget included a restoration of this cut, we recommend that it be set aside in case there is flexibility as part of the solution from the special legislative session.
Ø If your latest budget for categorical program revenues still reflects the 6.5% cut, we recommend that you restore the 6.5% cut to reflect the adopted State Budget, but that you set it aside in the ending balance.
· For categorical program balances: keep holding the balances that have been set aside. In addition, consider a spending freeze—or at least an additional review of expenditures to ensure that they are critical for current-year instruction and services to students—so that additional funds can be made available in case flexibility is provided.
· For the general apportionment:
Ø If your latest budget does not yet reflect the 0.68% cost-of-living adjustment (COLA) for this year, we recommend that you add in the 0.68% COLA but set it aside in the ending balance.
Ø If your latest budget includes the 0.68% COLA and it has not been committed, we believe that it is prudent to keep it set aside. For the 2009-10 fiscal year in your multiyear projection, we continue to recommend that you not plan on any state-funded COLA.
While our recommendations for updating your budget at this time are generally in keeping with the current adopted State Budget, we do recommend that you educate your stakeholders on what is happening at the state level now and plan accordingly. While the questions coming from our clients have been specifically about the Governor’s proposals for the special legislative session, we would be remiss if we did not also address these other related issues that follow.
Expenditures
Above we recommend a spending freeze on categorical funds. This should be done for all funds and programs if the midyear cuts, as proposed, would put your district in fiscal jeopardy. This means that each personnel action form, each purchase requisition, each conference and travel request—anything that commits to an expenditure—should be subject at least to a review of whether or not that expenditure is mission critical and has to be done now. If not, then the request should be denied.
Cash Flow
As we have discussed before, local agencies have to watch cash flow more closely than ever because of changes in the state’s cash flow to school agencies and because of local budget issues as well. Our advice continues to be to monitor cash closely in all of your funds. For the General Fund especially, you should update your cash flow projection each month for the actuals-to-date and you should revise the projection for the rest of the year based upon your revised budget. It is not too early to start projections for 2009-10 so that you can see if your agency will have a cash flow problem, especially in the early months of the year when cash outflows are typically more than inflows. A hiring and spending freeze will serve to improve not only your budget, but also your cash flow.
Reductions in Force
Our advice continues to be to prepare for a reduction in force if the worst case scenarios for this year would require you to do so in order to maintain fiscal solvency. It is time to start putting together your seniority lists so that, as the financial picture from the state continues to unfold over the next couple of months—with the special session to address the current year and the Governor’s proposal for 2009-10 in January—your agency will be prepared meet the statutory timelines to enact the expenditure reductions that will be necessary.
Collective Bargaining
We continue to recommend that you delay any collective bargaining decision that financially obligates your district until after the specifics of the Governors January Budget is known. And, even though above we recommend that you recognize the 0.68% COLA for the current year in your revenue budget, hold off on committing that amount through a salary schedule formula until we see what the actual funded COLA is—if any—after any midyear cuts are enacted.
Multiyear Projections
As always, the Dartboard will be revised as decisions are made at the state level, and most certainly once the Governor issues his January 2009-10 State Budget Proposal. Until that time, we recommend that you continue to use the current version of our Dartboard as the basis for your assumptions.
—Sheila Vickers and John Gray