“It was not an easy budget to do. Times are tough and they’re going to get tougher,” LUHSD Chief Business Officer Debbie Fry said during a Tuesday, June 19 meeting of the LUHSD board of trustees.

As she started building the budget, Fry said she knew she would have more expenses than revenue and had to apply cuts on top of that.

Fry told the board the most important thing she was going to say is the (uncertainty) is no longer temporary; it’s no longer going to be a short-term deal. Once it starts to get better, Fry said the district will still not be where it was.

“The economy is truly not recovering … the way we thought it would, and expenditures are outpacing revenue and enrollment,” Fry said.

The budget, she said, is structured so the district will make budget through the next school year.

“But the budget is structured by moving money from our special funds into our general fund this year to build up the ending fund balance to support next year,” she said.

In a written report provided to the board, Fry said as the budget was built every expenditure line was reviewed and expenses either streamlined or eliminated to reduce costs to the district. Payroll and position control were balanced and substitute costs were minimized based upon current-year use.

Key budget assumptions include a continued Average Daily Attendance (ADA) decline of 10 students per year and zero Cost of Living Adjustment (COLA) applied to the revenue limit, which is money schools receive from state aid and property taxes. All anticipated step and column movement isincluded and the benefit cap negotiated last year will remain in the budget.

The budget also has been prepared to reflect the worst case scenario if Governor Jerry Brown’s tax measures do not pass in the November election.

If the tax measures do not pass, it will mean a $456 loss per ADA to the revenue limit. According to Fry, rather than receiving $6,019 per ADA, the district will only receive $5,578.

Tax increases will mean flat funding, no mid-year cuts, and some relief from state deferrals, but Fry said it does not mean new funding for schools even though the state is saying there will be an additional $6 billion.

“That’s important because the state wants taxpayers to believe if they pass (Brown’s) tax initiatives, there will be more money for schools. There will not be any new money. The only thing (the state) is going to do is pay off some of the deferrals, which are the loans they are getting from us,” Fry said.

Also in the budget is a 22 percent deficit on the revenue limit meaning the state will take away 30 cents on every dollar the district should receive, according to Fry.

The 2012-2013 revenue limit budget is based on $6.5 million received from an ADA of 844, and179 school days.

Fry said, “With the 22 percent deficit we won’t be funded after April 10 and if the tax initiatives fail, it backs up all the way to March 18. That’s almost three months of school with no funding, and I’m not talking about apportionment payments, I’m talking about days we’re just not getting paid for. That’s what the deficit equates to.”

During the budget presentation, Fry also highlighted some points from Governor Brown’s May revision which recognizes January’s projected $9.2 billion state budget shortfall has grown to $15.7 billion in May.

If Brown’s tax measures pass in November, there will still be a significant state budget problem and, as a result, Brown proposes more cuts to the non-Proposition 98 side of the budget and more manipulation to reduce Proposition 98 actual funding.

Proposition 98 is an education guarantee that 40 to 50 percent of the state’s general fund goes to education.

However, she said Brown moved general fund money to special funds, which resulted in less money going to schools, and the courts upheld the move.

In addition, if the tax initiatives pass, Fry said it is expected Brown will move forward with a new school funding plan where schools will be funded on a flat rate of $5,000 per student with additional money factored in for how many students are English language learners and those who qualify for the free and reduced lunch program.

The new funding plan will move all categorical money into the general fund, which means no Gifted and Talented Education or agriculture program money.

The funding plan, Fry said,would provide more local control but is scary as the district would lose $550,000 in categorical money.

Another concern to the district is cash flow. According to Fry, the state is deferring 39 percent of the money it owes the district to next year.

“We can have a budget problem year over year over year, but we can’t with cash. If we run out of cash, we’re done,” she said.

She said a key part is holding onto reserves.

“If we don’t start to really guard those reserves we’re going to run out of cash. The initial cash flow that I did had us out of cash by May of next year,” she said.

Fry said multi-year projections assume reductions in both classified and certificated staff. Utilities are projected at current levels plus 5 percent. Services have been estimated at minimal levels equal to categorical funding sources in most cases.

In multi-year projections,which Fry described as “nailing jello to the wall,” due to the little information she receives for the future,deficit spending worsens the next year. By the second subsequent year, the reserves will have been minimized and the state required reserve for economic uncertainty will not bea sufficient reserve for long-term viability.

Assumptions for the two subsequent years are cuts to state aid funding for $441 per ADA, reduction of at least 4.0 full-time equivalents (FTE) in certificated staff and a reduction of at least 8.0 FTE in classified staff.

There will be a continued decline in enrollment, no COLA to revenue or salaries, realigning positions to categorical programs in 2012-2013 and reducing positions to align with staffing ratios and/or program reductions in 2013-2014.

Fry said she recommends the board and superintendent start considering program reductions in the 2012-2013 school year in order to reduce expenditures and retain reserves and cash to avoid borrowing.