Per the Governmental Accounting Standards Board (GASB) Statement 54, districts may continue to use Fund 11 and 14, if formal action is taken, to commit the funds for the purposes for which they were originally intended. By passing this resolution, the Board is committing the fund balances in Fund 11 for the purpose of Adult Education and Fund 14 for the purpose of Deferred Maintenance. These funds may be uncommitted at any time by Board action.

The attached document lists the contracts executed by the Superintendent or designee for the month of March 2020.

• Burke, Williams & Sorensen
• Liebert Cassidy Whitmore
• Lozano Smith
• Orbach Huff Suarez & Henderson

Having a variety of legal firms allows the District flexibility to select the firm with the most expertise and experience for a particular matter. Since these firms represent many clients in the education field the possibility of conflict of interest could arise, the District will have the option to easily select alternative counsel.

Morgan Hill Unified School District places a strong emphasis on recruiting fully credentialed teachers. To accomplish this, Human Resources posts vacancies on online platforms and with nearby universities' teacher preparation programs and career centers, attends recruitment fairs, and advertises in various professional publications. Despite all recruiting efforts for fully credentialed teachers, due to a teacher shortage and lack of availability of certain credentials, there are times when the District will have the need to hire interns or other short-term permitted teachers.  Annually, the District must estimate the number of teachers without full credentials that they may have the need to hire.  Attached is the Declaration of Need which will be submitted to the Santa Clara County Office of Education and to the Commission on Teacher Credentialing. These numbers are estimates only for the 2020-21 school year.

The Commission on Teacher Credentialing requires the Board of Education to take action to approve the Declaration of Need in an open session of a regularly scheduled board meeting.  Upon approval, the necessary documents will then be timely filed with the appropriate agencies.

The District will continue to place its emphasis on the recruitment and retention of highly qualified, fully credentialed teachers throughout the school year.

The Governor's January budget proposal has historically been reliable in providing direction to the District in establishing a framework of assumptions to use in developing next year's budget; however, the State must now recast and significantly adjust its revenue projections downward from the Governor's January's Budget in light of the COVID-19 health pandemic that has shut down the state, national, and global economies. 

Staff will present information on the Governor's May Revision, and its effect on the District's budget including funding proposals for the Local Control Funding Formula. Staff will also present an update on the work of the District's Budget Committee and timelines for potential budget reductions.

Attached is a summary description of each of the restricted non-general funds and a spreadsheet summarizing the budgeted amounts.

The proposed adopted budget report for all funds will be presented at the June 2, 2020 Board meeting as part of the public hearing prior to the Board’s adoption of the District’s 2020-21 budget on June 16, 2020.

During the last recession, a significant decline in state tax revenues prompted numerous apportionment deferrals that caused cash fluctuations and resulted in extensive inter-year and intra-year cash deferrals. It is expected that cash deferrals will be one of the first tools the state uses to stabilize its own cash flow and to control in what year Proposition 98 appropriations are attributed. Cash deferrals are more favorable than actual funding reductions but typically require districts to borrow internally or externally to ensure sufficient cash is available for operating expenses.

Given that neither the May Revision or the June enacted budget will provide definitive answers about budget and apportionment schedules, it is critical that school districts analyze and proactively plan for various scenarios that may adversely impact cash flow in order to avoid cash shortfalls.

Below is a narrative describing various strategies Morgan Hill Unified School District utilizes to manage cash flow. It is important to emphasize the District has a very strong cash position (e.g. end of month cash position for the current fiscal year ranged from $15.8M - $33.3M); however, the District is proactively monitoring and has begun utilizing various strategies to build cash balances in advance of expected deferrals.

Internal Cash Management Strategies

The District has very little control over cash inflows given that the timing of inflows are established in federal, state, and county statue. The District has more control over cash outflows, although the majority of monthly expenses are attributed to payroll and benefits. In order to preserve cash for critical operational functions, the District may delay any nonessential expenditures, postpone discretionary purchases, or stretch payment terms (e.g. 30 > 45 days).

The District also has the ability to use cash resources available outside of the District’s General Fund – referred to as interfund borrowing. Education Code Section 42603 allows temporary borrowing between funds to satisfy temporary shortfalls in operating cash and is commonly used among school districts. The District must ensure compliance with the legal requirements including the maximum borrowing limits and repayment requirements as specified in code. The Education Code does not limit interfund borrowing authority to particular funds and includes no specific exclusions for funds although borrowing from bond funds is not advisable for a variety of reasons. The District has not needed to utilize interfund borrowing since 2010-11.

District staff recommends approval of the Resolution to Establish Temporary Interfund Transfer of Special or Restricted Fund Moneys in order to allow staff to borrow funds as permitted under Education Code Section 42603 in order to manage cash shortfalls. This is a preferred strategy to manage cash shortfalls because it is inexpensive and relatively easy to implement as it requires only coordination with the County Treasurer.

External Cash Management Strategies

Tax and Revenue Anticipation Notes (TRANs) are a common method for governmental agencies to mitigate a cash shortfall. TRANs are short-term loans that are issued by school districts and secured by anticipated tax revenues to be collected from the same fiscal year. TRANs funds may be used for any purpose including current expenses, capital expenditures, repayment of indebtedness or working capital. Many districts access TRANs through ‘pools’ such as the California School Cash Reserve Program. By ‘pooling’ financing requests, districts are able to minimizing borrowing costs. There is usually a 60-day lead time to complete a TRANs transaction as well the shared cost of issuance fees (i.e. attorney, financial advisor, underwriter, and other professional services).

The District participated in California School Cash Reserve Program program consistency from 1997-98 to 2013-14. Staff recommends approval of this resolution to allows the District the option (not the requirement) to participate in California School Cash Reserve Program TRANs. The final determination whether to issue TRANs would be made by staff based on the information in the enacted budget and projected cash flow.

Layoff Timeline 

for Probationary and Permanent Certificated Employees

and Permanent Classified Employees

for 2020-21 School Year

There is a provision in the Education Code that allows a second window for certificated layoffs should the increase in the enacted budget be less than two percent.  This provision may need to be used across the state as districts absorb the impact to school funding as a result of reduced taxes collected due to COVID-19.

Ed Code 44955.5 (a):  During the time period between five days after the enactment of the Budget Act and August 15 of the fiscal year to which that Budget Act applies, if the governing board of a school district determines that its total revenue limit per unit of average daily attendance for the fiscal year of that Budget Act has not increased by at least 2 percent, and if in the opinion of the governing board it is therefore necessary to decrease the number of permanent employees in the district, the governing board may terminate the services of any permanent or probationary certificated employees of the district, including employees holding a position that requires an administrative or supervisory credential. The termination shall be pursuant to Sections 44951 and 44955 but, notwithstanding anything to the contrary in Sections 44951 and 44955, in accordance with a schedule of notice and hearing adopted by the governing board.

In order to complete any final notices for summer layoffs by August 15, the Morgan Hill Unified School District will use the following timeline:

On April 24^th the CHSRA made available the San Jose to Merced draft environmental documents which begins the statutory period for public comment (April 24 – June 8, 2020). An Environmental Impact Report (EIR) and Environmental Impact Statement (EIS) are documents that are required to comply with the National Environmental Policy Act and the California Environmental Quality Act. The purpose of these documents is to analyze and disclose a project’s potential effects on the natural and human environment and identify mitigation measures and alternatives to avoid significant effects. An EIS is prepared when there is Federal involvement in the project and an EIR is prepared when the project is subject to State or local jurisdiction. A joint document, an EIR/EIS, may be prepared when both a Federal and State agency are involved. The approval of the final EIR/EIS enables CHSRA to approve the project and proceed to final design and begin construction.

Staff from CHSRA provided a project update at the Board of Education meeting on May 5, 2020. During the meeting Trustees and District staff expressed concerns about the potential impact of Alternative 4 to school district sites and operations. Although the District has no direct influence over the decisions made by CHSRA, the District can ensure that the natural and human environment effects are correctly identified and adequate mitigation measures are identified in the final environmental documents. If the school district can demonstrate unidentified effects or inadequate mitigation measures it could force changes to the project. Also the District can only legally challenge issues, with a few exceptions, raised during the administrative review of a project so the District would likely be legally precluded from challenging the EIR/EIS at a later date by not responding to the draft environmental documents.

In addition to dedicating internal staff resources, the District would need to procure services from two external consultants (legal and environmental) at a total estimated cost of $15,000 to help evaluate, analyze, and respond to the draft EIR/EIS. Given the fiscal implications, staff seeks direction from the Board whether to proceed with entering into contract for consultant services in order to provide formal comment on the EIR/EIS.