The attached document lists the contracts executed by the Superintendent or designee for the months of April and May 2020.

The area shown within the Resolution as Exhibit A shows the area where PG&E would need an easement to underground the current overhead lines to enhance the intersection at Main Avenue and Hale Avenue. Since this would only be an underground easement it will not reduce the size of the parcel.

The City of Morgan Hill is also requesting a ROW easement at the same location in order to add a right turn only lane at the intersection of Main Avenue and Hale Avenue. This however will require a purchase agreement with the City as it will reduce the parcel size (site alterations are show in Exhibit A of the Resolution). The City and the District are working on legal descriptions of the site and the requested property along with purchase price. Approval of the purchase of the property for the easement will be presented to the Board at a future date for consideration.

Education Code Section 17556 allows for the dedication of the easement by the District with a two-step process. Education Code Section 17557 provides that the District may dedicate the easement only if the Board first adopts a resolution declaring its intention to dedicate the easement in a regular open meeting by a two-thirds vote. After adopting Resolutions of intention to dedicate the easement and prior to the final approval of the Resolutions, Education Code Section 17558 requires the District to give ten days notice of a public hearing and consideration of adopting a Resolution to dedicate the easement.

After considering the staff’s presentation, public comments, and any protests, at the public hearing, the Board will consider adopting a Resolution to Dedicate an easement for access and utility purposes at a future Board meeting date.

Recommended additions to the list that have been reviewed by curriculum council and will come back to the Governing Board for action at the next regularly scheduled Board meeting to allow the public time to comment include:

• Option A: Budget reduction of $4M in 2021-22 and $4M in 2022-23

• Option B: Budget reduction of $2M in 2020-21, $2.1M in 2021-22, and $2.1M in 2022-23

• Option C: Budget reduction of $5M in 2021-22 and $5M in 2022-23

• Option D: Budget reduction of $2.5M in 2020-21, $2.5M in 2021-22, and $2.5M in 2022-23

Background

Assembly Bill 1200 (AB 1200) enacted in 1992 was established to help ensure that local educational agencies throughout California were adequately prepared to meet and sustain their financial obligations. The first level of fiscal oversight remains with local boards of education and their administration; however AB 1200 expanded the role of the County Office of Education in monitoring school districts to ensure that these districts could meet their multi-year financial commitments.

AB 1200 requires that multi-year financial projections be included as part of the budget and interim reporting periods. Districts must certify their financial status at each reporting period as one of the following:

• Positive: LEA will meet its financial obligations for the current fiscal year and subsequent two fiscal years
• Qualified: LEA may not meet its financial obligations for the current fiscal year or two subsequent years
• Negative: LEA will not meets its financial obligations for the remainder of the current fiscal year or for the subsequent fiscal year

Multi-year financial projections are a tool used by the district to ensure that it will be able to meet its financial obligations in the current and two subsequent fiscal years. If the district is not able to meet its financial obligations for the current or two subsequent fiscal years, the county superintendent of schools must notify the district’s governing board and the Superintendent of Public Instruction of the determination. The county office must also adhere to Education Code section 42127.6 in assisting the district. This assistance can include assigning a fiscal expert to advise the district on financial problems, conducting a study of the financial and budgetary conditions of the district, and submitting a proposal for addressing the district’s fiscal condition.

In evaluating the multi-year projection, much attention is focused on the “bottom line” which demonstrates the district’s undesignated, unappropriated fund balance. If the bottom line demonstrates a positive unappropriated fund balance, this amount may be used by the Governing Board and/ or Superintendent to improve educational programs, increase employee compensation or spend in other categories. However, if the unappropriated fund balance is negative, the budget must be adjusted by the amount of the deficit spending to sustain the recommended minimum reserve levels under AB 1200 guidelines (currently 3%).  The projection must be viewed comprehensively and the district must determine what compounding effects using any or all of the unappropriated fund balance will have on the projection in the current and future years.

There are inherent limitations with any projection of financial data because projections are based on certain criteria and assumptions rather than on exact calculations. These limitations include issues such as accuracy of baseline data, unpredictable timing of negotiations, enrollment trends, and changing economic conditions at the state, federal and local levels. Therefore, the multi-year projection should be evaluated as a trend based on certain criteria and assumptions rather than a prediction of exact numbers. The multi-year projection is updated throughout the year, including at least at each interim financial reporting period and before settling negotiations to maintain the most accurate and meaningful data.

Attached are the following documents which were provided at the prior Board meetings:

• Summary of income, expenses and fund balance for all funds
• Standard Account Code Structure (SACS) financial reports for all funds reflecting 2019-20 estimated actuals and 2020-21 proposed budget

Since the June 2, 2020 Public Hearing, the following changes were made to the 2020-21 proposed budget:

• Reduction of $1.5M in expenditures in the 2019-20 budget, increasing the projected 2020-21 beginning fund balance
• Employer rates for PERS and STRS updated to reflect the Governor's May Revision which resulted in a savings of $1M 
• Elementary and Secondary School Emergency Relief (ESSER) dollars of $644,000 included in the budget supplanting operating expenses in the Unrestricted General Fund
• Deferred Maintenance contribution of $300,000 eliminated (ongoing reduction)
• Assigned Fund Balance designation updated to reflect recapturing monies from Supplemental Funds,One-Time Discretionary, and IMF monies

Education Code Section 42127 states that, “no later than 45 days after the Governor signs the annual Budget Act, the school district shall make available for public review any revisions in revenues and expenditures that it has made to its budget to reflect the funding made available by that Budget Act.”  Note that this does not specify that revisions must be made; rather, it requires that any revisions that the District chooses to make be available for public review within 45 days after the Governor signs the budget.  If the District decides to make a budget revision as a result of the Budget Act, those revisions would be presented to the Board in August 2020.

In accordance with SB 858 and Education Code 42127, school districts are required to include the following information for review and discussion with their adopted and revised budgets:

• The minimum recommended reserve for economic uncertainties for each fiscal year identified in the budget
• The combined assigned and unassigned ending fund balances that are in excess of the minimum recommended reserve for economic uncertainties for each fiscal year identified in the budget, pursuant to Education Code Section 33128(a). The fund balances included are Fund 01, General Fund, and Fund 17, Special Reserve Fund for Other Than Capital Outlay Projects.
• A statement of reasons that substantiates the need for an assigned and unassigned ending fund balance in excess of the minimum recommended reserve for economic uncertainties for each fiscal year

Beginning in 2015-16, school districts must include this information each time it files an adopted or revised budget with the County Superintendent of Schools. The County Superintendent of Schools shall determine whether a school district’s adopted or revised budget complied with these requirements.

SB 858 also includes provisions for reserve caps or limits if four State revenue conditions are met. For 2020-21, it is anticipated that not all of the conditions will be met and the reserve limits will not be activated. As amended by Senate Bill (SB) 751 in September 2017, the reserve limit only applies in a fiscal year immediately following a fiscal year in which the State makes a deposit of at least three percent (3%) of the Proposition 98 funding into the State’s Public School System Stabilization Account (the reserve that was created by Proposition 2).  If the reserve cap was activated, a district with an ADA of 400,000 or less would be limited to a combined assigned or unassigned ending balance of ten percent (10%) in the General Fund and Special Reserve Fund for Other Than Capital Outlay. The County Superintendent of Schools may grant an exemption of this requirement for up to two consecutive fiscal years within a three year period to any district that documents extraordinary fiscal circumstances that substantiate the need for a reserve in excess of the limit.

In March 2020, the California Department of Education released the 2018-19 Unaudited Actual reports which allow for the calculation of the average reserve levels by district type – for unified school districts the average General Fund plus Special Reserve for Other Than Capital Outlay Projects is 17.26%. This is remarkably close to the 16.67% minimum (2 months of payroll) recommended reserves for local governments by the Governmental Finance Officers Association and the District's Board policy.

Education Code Section 42127(a)(2)(B) requires a statement of the reasons that substantiates the need for assigned and unassigned ending fund balances in excess of the minimum reserve standard for economic uncertainties for each of the three fiscal years identified in the budget submission. The attached worksheets are based on the current multi-year projections which do not include any expenditure reductions. Worksheets for budget years 2020-21 and 2021-22 are included since these fiscal year have an assigned and unassigned ending fund balances in excess of the minimum reserve standard; however, a worksheet is not provided for 2022-23 since the District does not have excess reserves for this fiscal year.

At the May 19, 2020 Board meeting, Staff provided an update to the Board regarding internal and external strategies used to ensure adequate cash levels to meet the District's needs. One of those strategies that is typically used is a Tax and Revenue Anticipation Notes (TRANs) which is 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. At the meeting, the Board gave direction for Staff to continue with a TRANs at a level not to exceed $5 million; however, prior to issuing any debt Staff needed to receive final authorization from the Board.

Projecting cash flow this year is more challenging than normal, with the conflicting budget proposals from the Governor and Legislature. 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 utilized in the Enacted Budget but at what level remains unknown. 

The initial cash flow projection indicates that the District will not need to issue a TRAN for the first half of the 2020-21 fiscal year. A TRAN may need to be issued later in the fiscal year to provide cash flow due to the proposed apportionment deferrals especially under the Legislature's proposal if Federal funds are not received.

Morgan Hill Unified School District has identified classified positions that shall be eliminated for the 2020-2021 and positions that may be reduced due to adjustments in the educational program.  

Each year, school site and departmental administrators review with Human Resources and Business Services to determine staffing needs for the upcoming school year for both classified and certificated employees. Each school site and department’s staffing list is reviewed and changes may be made based on any of the following: 

1) Flexibility– during times of uncertain budgetary constraints, staffing levels are analyzed to provide maximum flexibility to minimally meet the prioritized needs.

2) Funding changes – categorical, general funds, and grants may increase or decrease year-to-year, which may result in the need to reduce hours or eliminate a position.

3) Program changes – a school site or district program may change a focus or manner of delivery of services, which may result in the need to reduce hours or eliminate a position.

4) Staffing formulas – due to budgetary and enrollment fluctuations, staffing formulas are reviewed, which may result in an increase or decrease of hours or elimination of a position.

Prior to determining the layoff of classified employees, a review of all vacant positions is conducted. This review enables Human Resources to begin reassigning staffing to vacant positions prior to layoffs.  The District also notifies and meets with the leader of the affected bargaining group.  For this resolution, the District has met with the Morgan Hill Classified Employee Association to review the need for the layoffs and to examine the impact to affected employees for each position identified for elimination and reduction. Under state law, Education Code §§ 45114, 45115, 45117, 45298, and 45307-9, school districts must provide not less than 60 days’ notice to classified employees of a layoff, including giving notice of any displacement (bumping) and reemployment rights.

The attached resolution identifies classified positions that will be eliminated for the 2020-21 school year and positions that are subject to a reduction in days. The District has already met with the Morgan Hill Classified Employees Association regarding the mitigation of the impact of these layoffs and will continue to meet to identify solutions to ensure the least or minimal impact on the affected employees of the District. 

Decisions continue to be made regarding the District’s budget for 2020-21 and the educational plan and calendar that may need to be adjusted due to the COVID-19 pandemic. As in any budget cycle, additional funding may become available, new positions may be identified and/or positions that were eliminated or reduced may be reinstated. It is also possible that additional layoffs may become necessary as the full budgetary impact is known.