I. General
a. The Live Oak Charter School’s (LOCS) administration prepared the Second Interim Budget revision based on the best information available and/or known at the time including actual financial results through February 28, 2019. For purposes of the Second Interim Report actual results will be reported through January 31, 2019 as required by law. State revenue and other common assumptions were updated based on the guidance of the “The Common Message – 2018-19 Second Interim” (Feb 2019) published by the California County Superintendents Educational Services Association (CCSESA-BASC). For purposes of this analysis, variances are calculated against what was reported in the First Interim Financial Report, which was the latest review presented to and approved by the board.
II. 1stInterim Budget Revision Notes:
a. General: When the 1st Interim Report was presented to the board in December, the administration provided an oral report as regards the variances, program changes, assumptions and other changes from the 2018-19 Original Budget (OB). This section attempts to summarize some of the more significant changes in order to provide the ground for subsequent comparisons.
i. Business and Financial Services/Support: At the beginning of the 2018-19 school year the school transitioned its business services and financial support model. For 2017-18 and previous years, PCS had provided these services for LOCS. This included support in preparing the 2017-18 Operating Budget. At the end of 2017-18 LOCS joined with two other local charter schools (Sebastopol Charter and Novato Charter) to form the Charter Business Services Consortium (CBSC) to provide these services for LOCS and the other two schools. LOCS is the lead agency for the consortium and hired John Azzizzi, formerly the Operations Director at Sebastopol Charter, as the lead to provide the services. The 1st Interim budget was the first budget that the CBSC assisted in preparing.
b. Revenues (+$89.1K vs. OB)
i. LCFF Revenues (-$8.1K): Slight decrease driven mainly by the decrease in the unduplicated count from 58 to 49 students.
ii. Other State Revenues (+$27.6K): This was driven mainly by the inclusion of the new Low Performing Student Block Grant (LPSBG) at $25.7K augmented by updated assumptions in other state revenue programs.
iii. Local Revenues (+$69.6K): driven primarily by a one-time expected increase in local fundraising of $43.4K mostly from funds that were held over by the Live Oak Foundation from prior year fundraising; an increase in expected After Care program receipts (+$10K); and inclusion of an expected amount for local grants and other donations in the 1stInt which were not included in the OB (+$16K).
c. Expenditures (+$162.3K vs OB): Primarily driven by the below elements.
i. District Cost Transfers (+$35K): Based on 17-18 billing the school increased its budget allotment for District-provided Special Education and Health services.
ii. Salaries and Benefits (+$61.2K): This was driven primarily by additional FTE (full-time equivalent) assignments for Classified RTI support and Aides over what was included at the time the OB was put together. Additionally, all actual salaries and benefits were reconciled with position control records entered in the payroll system and updated to reflect actual salary and FTE levels as of November 2018. Supplemental and hourly
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payroll accounts were updated to reflect expected annual amounts; in particular $11K was added to cover additional supplemental pay related to training and LPSBG related activity.
iii. School Operations (+$8.5K): Amounts for operations accounts 5400-5500 were adjusted to account for actual running rates and billing to date for operations-related expenses.
iv. School Lease/Rentals Costs (+$14.1K) Obj 5600: Lease costs were adjusted to account for actual lease rates for the Fairgrounds and leased portables and billing to date for rentals expense.
v. Repairs and Maintenance (+$11.2K) Obj 5630: Significant work was done over the summer and early in the school year to repair water damage including water mitigation services, installation of new windows and other related repairs and upgrades. Additional expenses were also charged to other accounts (e.g. 4390, 5800) related to this work for materials and other services (see 2ndInterim analysis).
vi. Contracts & Services (+41.5K) Obj 58xx:
1. Restorative Justice Program (+$9.5K) Obj 5800: The school engaged the non- profit Restorative Resources to provide training and mentoring to support the school’s Restorative Justice program.
2. Music Program Services (+$29.8K) Obj 5830: The school entered into a one- time contract for services to re-vamp the school’s music program and temporarily lead the program until a regular music teacher could be hired. 3. Legal (+$2.5K): The school added a provision to cover additional legal costs
expected as part of the Charter renewal process.
d. Surplus / Deficit (-$73.2K): As a result of the changes detailed above the school went from a $44.7K net surplus position in the OB to an expected deficit of $28.5K in the 1st Interim revision.
III. 2ndInterim Budget Revision Notes: Comparisons are made to the First Interim Budget (1stInt) a. Revenues: -$2.2K from 1stInt
i. Attendance / LCFF base funding (-$19.6K): The school has decreased its ADA estimate for 2018-19 by 2.27 ADA to 278.50 to align with results reported at P-1 (278.76 ADA, 96.28% attendance rate). Enrollment and attendance estimates were entered into the latest version of the LCFF Calculator (v19.2c January 14, 2019) to obtain updated revenue estimates based on updated assumptions provided by the DOF and FCMAT. Property Tax estimates were received from the schools authorizing district (PCS). MYP Unduplicated Pupil Counts were adjusted in the model to reflect 2018-19 results as reported in CalPADS.
ii. All Other State Funding (+$6.7K): reflects the addition of a new state categorical grant program, the Classified Employee Professional Development Block Grant, for which the school is receiving funding on 2018-19 (+$3.3K) along with the recognition of prior year lottery revenue received over amounts accrued in line with end of year CDE estimates (+$2.9K)
iii. Local Revenues (+$10.6K): driven primarily by: higher expected interest income driven by increasing interest rates and higher fund balances (+$5.3K); and receipt of additional local mini-grants (+$5.3K). The additional costs associated with the mini- grants was also added (see e.g. III.b.vi below).
b. Expenditures (+$67.3K) up 2.1% from 1st Int: The main factors affecting the variance are detailed below:
i. Salaries and Benefits (+$31.9K): This was driven primarily by the addition of a music teacher (+$20.6K) to carry the music program from after spring break to the end of the year. Additional changes include: additional provisions for expected supplemental and
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substitute pay through the end of the year (+$5.9K) and After Care FTE/salary adjustment ($+2.7K). Additionally, as was done as part of the 1stInterim process, all actual salaries and benefits were reconciled with position control records entered in the payroll system and updated to reflect actual salary and FTE levels as of February 2019 which resulted in the remainder of the changes.
ii. Repairs and Maintenance (+$21.1K) -- Obj 5630 ($+4.0K); Obj 4390 (+$15.6K); Obj 5800 (+$1.5K) see note II.c.v. above: Additional provisions were added into the 2nd Int to cover the costs of materials and services related to water damage including additional water mitigation services, replacement of cabinetry and music racks; and other related repairs and upgrades.
iii. Field Trip Expenses (+$10.0K) Mgmt TRIP, Obj 4390, 5200, 5800: Due to technical accounting changes these costs were not included in the Original Budget and were added in to the 2ndInterim.
iv. Depreciation ($+7.6K): Allowance for depreciation was not included in the Original Budget and was also not included as part of the 1stInterim revise.
v. Music Instrument Library (+$5.2K) Obj 4400: Additional purchases were required to provide/replace instruments for students that were not budgeted for previously. vi. Lowe’s Mini-Grant Materials (+$4.0K): [Net $0 impact] Materials costs were added to
go along with the mini-grant revenue received [III.a.iii. above]
vii. Legal Fees (+$4.0K): additional expected legal costs related to current or pending support needs.
viii. District Fees (-$11.8K): Adjusted to reflect changes in district support structure discussed in II.a.i.. Amount left in the budget covers the expected 1% (of LCFF revenue) oversight fee.
c. Surplus/Deficit and Reserves (-$69.5K):
i. As a result of the changes detailed above the school went from the $28.5K deficit position reported at 1st Interim to an expected deficit of $98.0K in the 2nd Interim revision, an increased deficit of $69.5K.
ii. Beginning Balance: At 7/1/18 The school had a total beginning fund balance (BFB) of $852.6K of which $173.3K was restricted (Prop 39 Energy funds) making the Unrestricted BFB $679.3K.
iii. Ending Fund Balance (EFB): After taking into account the expected deficit the school will have a total EFB of $754.6K and an Unrestricted EFB of $581.3K. This represents 18.0% of Total Expenditures equivalent to 2.16 months of expenditures. The 18.0% is well above the 5% minimum reserve required for a positive certification.
d. Risks: Charter School Facility Grant Program (CSFGP)
i. Issue: The school has participated in the CSFGP for over a decade. The school has qualified under the program as part of both the McKinley and McDowell elementary school areas, although for technical reasons only one of these (McKinley) shows on the school’s eligibility documents with the CSFA. The school alerted the CSFA in the latest round of eligibility document submissions, and submitted a letter documenting, that McDowell should be listed as the school area for eligibility purposes. The school was recently informed by the CSFA that these changes had not been recorded by the CSFA as regards meeting eligibility requirements and as such that the school does not show in their system as eligible to participate in the program for 2018-19 since the McKinley school no longer meets the FRPM eligibility requirements for the program. The school has alerted legal counsel to the issue and is in the process of filing an appeal regarding this matter.
ii. Potential financial impact: (2018-19) $178.5K reduction in income. [Note: the school has or will receive an additional $20.7K for 2017-18 in the current year over amounts
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that were accrued at the end of the prior year. The under accrual / additional funds for 2017-18 was a result of last minute changes to the Governor’s June budget to add additional funding to the then over-subscribed CSFGP, the impacts of which were not communicated to participants until late October 2018.]
1. A $178.5K reduction in 2018-19 income would further reduce the school’s Unrestricted Reserves / EFB down to $402.8K which equates to 12.5% of total year expenditures. While not ideal, this level is still above the 5% minimum reserve threshold.
2. The Live Oak Foundation, which provides fundraising and financial support to the school, sets aside a portion of its fundraising for a reserve fund that could be accessed at an appropriate juncture should the school reserve position require bolstering. As of February 2019 the Foundation’s reserve fund was $72K.
iii. Potential financial impact: (2019-21)
1. If the school’s 2018-19 appeal is denied, it is expected that this will not affect the school’s eligibility in 2019-20 and beyond as the changes in elementary school areas are being included in the charter renewal documents currently under review.
2. In the 1stInterim MYP the school estimated CSFGP Grant amounts at $180K for both years. Should there be further issues with the school’s eligibility, the school has developed a reduced staffing contingency plan to reduce its cost structure by an equivalent amount for 2019-21 in order to balance the budget in those years.