Monday, February 9, 2009

January 28th Budget Update to Staff

Dear Sylvan Staff,

I am writing to give you all an update on our current response to the State budget crisis. This cannot be done with a short explanation. So, I hope you bear with me and read on.

Last night I met with the Sylvan Board of Trustees in a study session. The session had two purposes and lasted 90 minutes:
1. To communicate the impact of the Governor’s budget proposal on SUSD.
2. To establish a target for reduction of “Particular Kinds of Services” for certificated employees.

Here are the facts regarding the impact of the Governor’s budget on SUSD.
This year’s budget will be reduced by 4.5% or $2,000,000.
Next year’s budget will be reduced by 2.2 % or $1,000,000.
At the same time our unfunded expenses continue to rise:
Step and column for all employee groups- $700,000
Health benefits increases- $300,000
Loss of funding due to our students going to a charter school- $200,000
Increased costs and numbers of special ed students - $1,500,000

If you do the math you can see our budget has taken a broadside hit of $4.7 million this year and we can expect nothing different for next year.

For those of you who don’t want to read further, here is the short version:

Based on the Governor’s budget, the District must cut $4 Million for 2009-10 and another $3 Million for 2010-11. (This is HUGE)
85% of our budget constitutes people. Unfortunately, most of our cuts need to be people.
Many decisions will need to be made this spring and the State budget is subject to changes along the way.
Reductions of certificated staff must be determined in February and notices given by March 13th. Classified decisions come later with a 45 day notice.
Reductions of 58.8 certificated positions are recommended for notification. Scroll down a couple pages for specific positions.
The SUSD Board will consider a resolution to accomplish this next Tuesday night.
As more information on the State budget is determined, or alternative budget reductions are decided Feb-May, the number of reductions may be reduced.

The issue we face is: what can we do to withstand such a massive reduction and out-of-control increases? I will address the issues in reverse order:

Special Education Increases- Due to Sylvan’s excellent reputation, the District has become a magnet for families with Special Needs children. Like in every aspect of our District, we go above and beyond in the support of children. For special education this comes with unfunded Federal mandates and decisions made in IEP meetings every day. Almost 22% of our budget or $14 million goes to special education. Unfortunately $6.8 million is unfunded and must be taken from our unrestricted funds to pay for this encroachment. While most districts are experiencing the same problems, ours is disproportionate to other districts.

What can we do about this? There is no short-term solution since it is a matter of federal law that we provide a “Free and Appropriate Education” for ALL students. The long term solution is to commit knowledgeable and trained staff to attend all IEP meetings and make informed decisions that are reasonable and responsible regarding the level of services provided on a case-by-case basis. This will take time, training, and persistence by our expert staff and leaders.

Loss of funding due to charter schools- This results from a quirk in the law recently established. It says that if a student leaves a school district to attend a charter that this same district denied, said district cannot claim declining enrollment revenue for that student. The State sees this as double dipping. This should not be such a huge issue in the future as long as new charters are not established in our District while we are declining at the same time.

Health Benefit Increase- Unless we reach agreement between both unions and the District to modify our current health benefit options, we will continue to pay more each year. The health benefits committee has explored numerous strategies to reduce expenditures and have failed to reach consensus. The result is status quo and increased costs. Both unions and the District must agree to institute any changes.

Step and Column- With fewer people at the top of the schedule, we experience more movement and thus more expense. Typically, movement on the schedule is compensated by retirement and hiring of people at the bottom of the schedule. That compensation is deferred by a couple years if the retiree is given a Golden Handshake, each costing the District in excess of $40,000 each. In other words, there is no immediate cost savings on the schedule until the incentive expense is paid. There is no quick solution to this. There are no plans to establish incentives like the Golden Handshake in the future. So, eventually the expenses will be paid off. A short-term freeze in step and column could be negotiated if there was support for this.

Governor’s Budget Deficits 2008-09 and 2009-10?- As you are all aware, as I write, the Governor and representatives of the democrats and republicans are attempting to hammer out a deal on the deficit. The special session called by the Governor ends on Sunday and they say they will make a deal by then. We will see. This deal may only impact this year and not the budget year. The only parameters we will have are those found in the Governor’s budget. This could remain the case through August.

The Governor’s budget drastically reduces our revenue. To allow us latitude to compensate for this loss, he has proposed flexibility for many of our restricted, or what we call categorical, programs. This simply put is that we keep the funding but not the requirements to maintain the program. We have many restricted programs and each would need to be considered separately. The largest of these restricted programs is Class Size Reduction (CSR).

Many of these restricted programs also have a carryover from the previous year. If we are given flexibility, it is possible that we can capture all unspent funds, in the short-term (one time), to offset the proposed loss in unrestricted revenue. For SUSD this could be over $2 million. This would help both in the short-term and in the long term. However, if we chose to stop providing certain restricted programs, there would be a significant reduction in educational opportunities for our students.

I will now go back to what I told the Board last night. The Sylvan Union School District has no alternative but to plan for massive reductions to our budget. Based on our best projections as of yesterday, we need to cut $4,000,000 from next year’s budget and another $3,000,000 for the following year (2010-11). Both of these reductions will need to come from on-going expenses, as opposed to one-time revenues or reductions.

You may recall that last spring we reduced $2,900,000 from our budget. Much of this came from reserves and one time reductions. Another large piece came from the reduction of staff due to attrition. At that time we also planned cuts for 2009-10 such as the elimination of all stipend positions, field trips, and AV contract along with a 10% reduction of all budgets to name a few. On top of these plans, we now need to find another $4 million.

Approximately 85% of our budget is staffing. Therefore, to find $4M the vast majority must come from staff expenses in all employee groups. This means a reduction of staff, either by attrition or layoff.

For certificated staff to be laid off, each employee must receive notice by Friday, March 13th. For classified staff, a notice of 45 days is required. Last night we began our discussion with the Board on the options for layoff of certificated staff. I reviewed the following list for their consideration. There are two groups: staff that do not require categorical program flexibility and those that do. Since we do not know the answer regarding flexibility yet, we must plan as if it will happen. The recommendation includes the reduction of 58.8 FTE certificated positions (24 unrestricted and 34.8 restricted). The positions are as follows:

Administration ($439,000)
1. All Middle School Deans
2. Crossroads Assistant Principal
3. One principal position- assign Directors of Student Services & Technology
4. Superintendent to continue as business manager

Unrestricted Positions ($1,520,000)
1. Music Program teachers K-5 (7)
2. Art Program teachers K-5 (3.5)
3. K-6 Classroom teachers due to reduced enrollment (5)
4. Librarians MS (2)
5. 6th grade exploratory teachers (3)
6. K-5 counseling position (1)

Contingent on Categorical Flexibility ($1,780,750)
1. BTSA Coordinator (1)
2. AT&G Pull Out program (0.8)
3. MS Counselor (1)
4. Kindergarten CSR (14)
5. Third Grade CSR (14)
6. Instructional Facilitators (4)

It will be my recommendation on February 3rd that the Board pass a resolution authorizing the notification for layoff of 58.8 FTE certificated positions. This number could be reduced as time goes by this spring due to resignations and retirements received.

These potential reductions constitute a little over $3.5 million. Over the course of the next two months additional decisions will be made as the State budget evolves. We will also be looking at classified positions with the possibility of reducing as much as another million in positions yet to be determined. We will scour our budget for all potential non-staff reductions. If granted categorical flexibility we will have many additional opportunities to modify programs and services that may or may not affect staff. However, most staff members funded through categorical programs have temporary contracts and are not subject to the layoff process. They are just not offered a contract for the next year.

It is unfortunate that school districts are forced to make certificated layoff decisions by March 13th without full knowledge the actual budget. This forces us to be precautionary and develop worst-case scenarios. However, during these uncertain times, even our worst-case scenarios may not be worst-case.

To conclude and summarize the certificated layoff decisions ahead of us, I offer you the following timeline of events:
January 27th- Superintendent informs the Board the depth of notices that should be given for potential layoff.
February 3rd- The Board considers a resolution authorizing the reduction of the particular kinds of services we would intend to reduce, i.e. number of multiple subject, number single subject, etc
February thru May- additional information will influence decisions
March 13th or before- Individuals effected by reductions receive notice
May 15th decision becomes final for layoff for 2009-10

This may all be subject to change based upon the pending decisions made by the State.

As I stated in my last update, I am planning a webcast to all of you during your staff meeting on February 23rd. In the meantime, I will keep you updated via email.

From my last update I received three questions. Here they are along with my responses:

Is the district thinking about incentives for early retirement? Response- We are not considering this at this time. We offered Golden Handshake last year and I am certain we will not do that again. As for other incentives, we’ll see. If you are reading this and believe an incentive might influence you to retire this year, give me or David Holtz a call or email soon. Here is a small incentive for retirement I heard: when you retire you are guaranteed a 2% annual COLA on your retirement check. I doubt very much that school districts will see a COLA in the next couple years.

Are we considering reducing days in next year’s contract? We are going to talk to SEA next week about this. The Governor’s budget includes flexibility to reduce instructional days by five. However, there is still some confusion over this issue. Some districts are discussing reducing staff development days and a corresponding wage for one or more days. In our case, each day, for all employee groups, costs approximately $220,000.

Have we considered across the board reductions for all employees? Not yet, that would need to be negotiated. I can say we would be willing to entertain this idea. Each one (1) percent of reduction for all staff constitutes as savings of $445,000.

Finally, I look forward to your questions. I will send out information on the State’s decision on the deficit and its impact on SUSD once that is known. You can expect my next update to follow next week’s Board meeting.


John Halverson

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