Budgeting & COVID-19WHAT THIS MEANS FOR YOUR SCHOOL’S
FY2021 BUDGET AND BEYOND
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Agenda
Objectives
Charter Choices – About Us
Reimbursement Rates
◦ Expenditures
◦ Revenues
◦ Take-Aways
PSERS Trends
Things to Expect….. and Uncertainty
Things You Can Control and Influence
Thinking Through Scenarios
Summary
2
Objectives
Generate discussion and share ideas
Provide context and historical examples
Identify key factors and potential impacts
Examine several possible scenarios
Share best practices, regardless of current environment
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Independent organization serving charter schools and
related entities in Pennsylvania for over 15 years.
Offices located in Philadelphia and Pittsburgh
Advisors to boards, school leaders, and business managers
Currently serving more than 50 clients, providing:
◦ Full-service back office support
◦ Accounting and financial services
◦ District billing services
◦ Strategic planning consulting
◦ Compliance and reporting support
◦ Including PIMS reporting
◦ Capital financing services
◦ Charter applications and renewal
◦ Audit preparation
Mission:
To support innovative and high quality schools
We are a group of visionary choice advocates, accountants, analysts, billing-gurus, designers, forward thinkers, backwards thinkers, never-ending learners, former teachers and forever students. Most of all, we’re here to help your school grow, innovate and succeed.
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About Us
KEVIN CORCORAN, MBA, MPP
Kevin brings more than 20 years of financial, accounting and management experience to serving clients, including 10 years in leadership positions at one of the largest charter schools in the state including 6 years as its Chief Financial Officer. He also has served in client service and consulting organizations with an emphasis on operations management, procurement and contracts. Kevin is a trusted advisor to Boards and school leaders, providing guidance during pivotal events such as audits, charter application and renewal, and leadership transitions. He has helped educate legislators and officials in Harrisburg on key charter school issues and has provided testimony to the Senate Education Committee. Kevin has also served for more than 20 years in the United States Navy, where he holds the rank of Captain and Commanding Officer of a reserve unit providing logistics support to the Pacific Fleet. Kevin is a native of Philadelphia and earned dual MBA/Master of Public Policy degrees from Duke University and B.S. from Villanova University.
JOE MARTIN, MPA
Joe has served as the Director of Capital Financing since 2014, working with clients around the Commonwealth to secure over $130 million in debt for refinancing, capital improvements, and new construction. In addition to his financing work, Joe also works with clients to build multi-year financial projections and conducts market and compensation analyses to improve outcomes for schools. Joe also leads our Data Solutions team which provides thought leadership to schools, charter advocacy groups, and lobbying efforts. Joe holds a Masters of Public Administration from the Rockefeller College of Public Affairs and Policy and has previously worked for Public Financial Management and the City of Philadelphia.
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“Everyone has a plan until they get punched in the mouth.”
- MIKE TYSON
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Setting the Stage……….
• Reminder on district rates: 20-21 charter funding based on 19-20 district budgets
• SB751 ensures District and Charter funding for 19-20, based on March enrollment
• Initial Federal response includes Title-style grant through PDE (CARES Act)
• Median Charter School revenue mix:
• 90-95% District funding (Gen Ed, Special Ed)
• 3-7% Federal (Title programs, IDEA)
• 1-3% State (Health reimbursement, Lease reimbursement, Safety/PCCD)
• 1-3% Fundraising/Development/Other
7
COVID in Context
2001 - 2002
Weakening economy, Tech bubble, Shock of
9/11
Unemployment increases from 4% to 6.5%
over 2-year period
Stock market loss 2001-2002:
Dow >20% Loss
NASDAQ >40% Loss
2008 - 2009
Weakening economy, Real estate/subprime
bubble, Liquidity fears
Unemployment increases from 5% to 10%
over 2-year period
Stock market loss
45% decline before rebound
8
COVID in Context (cont’d)
2020 - ?
Stable economy and shock event, Sharp and
sudden suspension in demand/consumption
26+ million unemployment claims in ~30 days,
PA rate growth from 4% to 6% in two weeks.
Forecast 25-30% within 3 months
Markets: 33% loss in March, has regained half
of losses but remains highly volatile
State and local tax base decimated: Sales tax,
gaming revenue, real estate transfer taxes,
income and corporate taxes, wages taxes
March impact alone (half month of measures):
State revenue 6.2% below budget
CBO: double-digit unemployment thru 2021
PASBO: 4-6% decrease in State funding to
districts in 20-21
9
Reimbursement RatesCOMPOUND ANNUAL GROWTH RATES – TUITION
REIMBURSEMENT
District Wide
2001-09 2010-13 2014-20
Reg Rate 4.1% 0.7% 3.7%
Sped Rate 5.4% 0.2% 4.2%
Ultimately the largest impact to charter
school’s will be the change in revenue at the
district level and how that effects
reimbursement rates.
Historically in periods of stable government
funding, reimbursement rates have grown
between 3-5% annually
In the 4 years after the Great Recession,
rates grew by less than 1% annually
Top 20 Highest Tuition Paying Districts
2001-09 2010-13 2014-20
Reg Rate 3.9% 0.8% 3.0%
Sped Rate 5.7% 2.0% 3.4%
Philadelphia School District
2001-09 2010-13 2014-20
Reg Rate 4.3% -0.4% 2.7%
Sped Rate 5.8% 2.8% 3.8%
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Statewide District Expenditures vs Average Reimbursement Rates
$6,035 $6,166 $6,507 $6,766 $7,131 $7,542 $7,880 $8,210 $8,664 $9,023 $9,303 $9,433 $9,266 $9,564
$10,079 $10,558
$11,107 $11,309 $12,283 $12,317
$11,092 $11,435 $12,223
$13,002 $13,952
$14,953 $15,880
$16,734
$17,874 $18,832 $18,646
$19,120 $19,003 $19,938
$21,163
$22,335
$23,760 $24,200
$26,412 $26,543
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total District Spending Average Reg Rate Average Sped Rate*expenditures in millions
FY19 AFR data not available.
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Top 20 Tuition Paying Districts Expenditures vs Average Reimbursement Rates
$12,449 $12,954
$13,730 $14,685
$15,791 $16,911
$17,938
$19,267
$20,573 $21,103 $20,860
$21,962 $22,851
$23,349
$24,813
$26,300 $27,003 $27,400
$29,002 $29,581
$6,169 $6,277 $6,562 $6,840 $7,197 $7,507 $7,881 $8,232 $8,739 $9,137 $9,384 $9,605 $9,423 $9,350
$9,873 $10,248 $10,654 $10,840 $11,414 $11,500
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total District Spending Average Sped Rate Average Reg Rate*expenditures in millions
FY19 AFR data not available
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Philadelphia School District Expenditures vs Reimbursement Rates
$10,642 $11,164 $11,332
$12,032 $13,062
$14,309 $15,346
$16,760 $17,658 $17,789
$18,512 $19,423 $19,831
$22,307 $23,293 $23,697
$24,574
$26,197
$29,300 $28,980
$5,558 $5,860 $6,139 $6,286 $6,544 $7,101 $7,248 $7,708 $8,088 $8,184 $8,608 $8,773
$8,064 $8,417 $7,992 $7,738 $8,139 $8,327 $9,099
$10,157
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total District Spending Average Sped Rate Average Reg Rate*expenditures in millions
FY19 AFR data not available
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Revenue Changes
In the aftermath of the “Great Recession” 2008-09:
◦ Statewide district local tax revenue only decreased in 2009
◦ State revenue decreased between 2010-2012 before recovering
◦ Federal Revenue via ARRA Funding in 2011 and 2012 more than doubled to supplant the declining
local and state revenues.
◦ A consistent upward trajectory was not re-established until 2016
Ongoing effects and aftermath of COVID:
◦ Impact on local tax revenue could be much more pronounced and drawn out
◦ How long it will take to return pre-COVID conditions is impossible to know at this stage
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District Revenue Statewide by Source
$8,600 $9,039 $9,664 $10,331 $11,017 $11,699 $12,277 $12,788 $12,720 $13,072 $13,479 $13,851 $14,311 $14,634 $15,177 $15,590 $16,083 $16,629$462 $462$429
$434$536
$694$850 $846 $694 $702 $676 $646 $670 $727 $709 $720 $756 $821
$5,841 $6,095$6,272
$6,627$7,135
$7,410$7,987
$8,383 $9,173 $8,755 $8,670 $8,918$9,152
$9,583$10,022
$10,475$11,311
$11,495
$566$619
$717$832
$851$857
$808$818
$851 $1,770 $2,174 $1,048$1,037
$813$815
$775$843
$897
$15,647 $16,756 $17,270
$18,528 $19,829
$20,964 $22,139
$23,074 $23,726
$24,620 $25,379 $25,031
$26,005 $26,218 $27,578
$28,494
$30,751 $30,282
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Tax Revenue Other Local Revenue State Revenue Federal Revenue Other Revenue Total Revenue*revenues in millions
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District Revenue Statewide by Source
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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Tax Revenue $12,277 $12,788 $12,720 $13,072 $13,479 $13,851 $14,311 $14,634 $15,177 $15,590 $16,083 $16,629
Other Local
Revenue $850 $846 $694 $702 $676 $646 $670 $727 $709 $720 $756 $821
State Revenue $7,987 $8,383 $9,173 $8,755 $8,670 $8,918 $9,152 $9,583 $10,022 $10,475 $11,311 $11,495
Federal
Revenue $808 $818 $851 $1,770 $2,174 $1,048 $1,037 $813 $815 $775 $843 $897
Other Revenue $218 $238 $288 $320 $380 $568 $834 $461 $855 $934 $1,759 $439
Total Revenue $22,139 $23,074 $23,726 $24,620 $25,379 $25,031 $26,005 $26,218 $27,578 $28,494 $30,751 $30,282
*revenues in millions
Change in District Revenue Statewide by Source
107.9%
22.8%
-51.8%
-1.1%
-21.7%
-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
-
0
0
1
1
1
1
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
% Change Tax Revenue % Change State Revenue % Change Federal Revenue
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Reimbursement Rate Take-aways
Charter school reimbursement rates are based on the general fund budget of the receiving
district’s previous year. For example, your FY20 rates are based on districts FY19 budgeted
expenditures. (PDE 363)
Reductions in State assistance to Districts ripples through to charters beyond the more direct
measures (e.g. Health and Lease reimbursement)
Federal assistance was invaluable in filling gaps in 2009-11. We do not yet know what
federal support will look like beyond the next few months
Funding rates for 20-21 can go lower if a district submits a revised 19-20 Budget (Phila SD)
budget
.
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PSERS Trends
Over the past 10 years PSERS employer contribution rates have risen by nearly 30%
These contributions have increased to close the gap on PSERS unfunded liability
The decrease in the funded ratio despite an increase in employer contributions is driven by:
◦ Decreased value of assets
◦ Decrease of number of employees paying into system vs the increase in annuitant members
As the state realizes losses in the value of assets and as the state freezes hiring and salary increases, the unfunded liability is likely to grow without an increase in employer or employee contributions
The rate currently projected by PSERS are likely not the rates we will have. However, ER rate increases will not be immediate
As PSERS employer contributions have a large direct impact on your budget, increases in employee contributions should also be considered when calculating total compensation for your employees
Questions:
What is your exposure
to PSERS?
Are you still hiring into
PSERS? If so, why?
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PSERS ER Contributions vs Funded Ratio Assets/Liabilities
8.76%6.04% 4.61%
1.94% 1.09% 1.15%3.77% 4.23% 4.69% 6.46% 7.13%
4.76% 4.78% 5.64%8.65%
12.36%16.93%
21.40%25.84%
30.03%32.57% 33.43% 34.29% 34.77% 35.19% 35.84% 36.30%
110.6%
119.0%123.8%
114.4%
104.8%
97.2%91.2%
83.7%81.2%85.8%86.0%
79.2%75.1%
69.1%66.4%63.8%62.0%60.6%
57.3%56.3%56.5%58.1%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
-
20,000.00
40,000.00
60,000.00
80,000.00
100,000.00
120,000.00
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
ER Contributions vs Funded Ratio Assets/Liabilities
Value of Assets Accrued Liability ER Contribution Funded Ratio
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*FY22 and forward are estimates and likely to change
EE and ER Contributions vs Funded Ratio
8.76%
6.04%4.61%
1.94%1.09% 1.15%
3.77% 4.23% 4.69%
6.46%7.13%
4.76% 4.78%5.64%
8.65%
12.36%
16.93%
21.40%
25.84%
30.03%
32.57%33.43%
5.65% 5.69% 5.72% 5.77% 6.43% 7.10% 7.08% 7.12% 7.16% 7.21% 7.25% 7.29% 7.32% 7.34% 7.37% 7.40% 7.43% 7.46% 7.49% 7.52% 7.54% 7.57%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
ER Contribution EE Contribution Funded Ratio
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PSERS Membership vs Funded Ratio
63.5% 62.7% 63.6% 64.7% 63.2% 62.9% 62.1% 62.0% 61.9% 61.1% 61.1% 61.1% 60.4% 58.9% 57.5% 56.1% 55.2% 54.2% 53.3% 52.7% 52.4% 51.9%
36.5% 37.3%36.4% 35.3% 36.8% 37.1% 37.9%
38.0%38.1% 38.9%
38.9% 38.9% 39.6% 41.1% 42.5% 43.9% 44.8% 45.8% 46.7% 47.3% 47.6% 48.1%347,517 356,364 368,268 376,027 384,030 392,393 399,453
411,984 425,163 432,049
446,230 457,664
466,975 473,774 475,519 476,632 477,212 479,643 481,908 485,959 489,650 493,088
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
-
100,000
200,000
300,000
400,000
500,000
600,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Active Members Annuitant Members Total Members Funded Ratio
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PSERS Rate Take-aways
PSERS funded ratio was already low before COVID. The increase in employer contributions were an attempt to bring that percentage upward.
Because of COVID, the unfunded liability will be exacerbated by:
◦ Decrease in the number of employees paying in to the system due to layoffs
◦ Continued increase in the number of retirees collecting benefits
◦ Reduced investment value of assets
To mitigate this problem the state may:
◦ Increase employee contributions
◦ Increase employer contributions
◦ Modified pension benefits for new employees
◦ Do nothing and let the unfunded liability grow
For charters this all boils down to an increased urgency to switch to 403b plan for all new employees. The minimum employer contribution is 5% which would be over a 30% savings per employee by FY22.
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Looking Ahead: Things We Know or Might Expect
There will be financial hardship for charters in the next 1-5 Years
Charter School budget challenges will begin in earnest in FY21-22 - but arrive earlier
if your feeder districts amend their FY19-20 budgeted expenditures downward
Districts will be stressed and stretched from Local challenges as well as possible
reduction in State funding to districts (which ripples through to charter rates)
Federal support (e.g. CARES Act, etc.) available to charters as well as districts will
become more important to fill gaps at State and Local levels
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Things We Know or Might Expect (Cont’d)
• Fundraising and Development success may not come as easily as recent years
• Low interest rates means lower Interest Revenue for schools
• Health insurance costs likely to increase 10% or more in 20-21
• Tech replenishment costs (e.g. Chromebooks and kids a volatile mix) to increase, especially in event of
2nd wave and any 20-21 closures
• District hiring freezes, salary freezes and possible layoffs mean a labor market more favorable to charters
• Changes to EITC funding
• Charters lost the State Social Security reimbursement in FY11 and the State PSERS reimbursement in
FY14. The Lease Reimbursement may be next in line.
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….and Things That We Don’t Know
Extent of damage to state and local district budgets
Duration of recession and recovery
Ability/willingness of federal government to provide sustained support
Impacts of recurring physical closures on economy
Outcome of state and federal elections and potential impact
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Control & Influence
There are many factors beyond your control………be sure to make the best
decisions for your school on those factors you can control or influence.
Control Influence Neither
Salary Increases District Rates
Discretionary Spending Rent Facility Federal Support
Enrollment State Support
PSERS vs 403b for new employees
Contract Negotiations
Review Insurances and policy quotes
Political Environment
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Best-case Scenarios
FY2020 (19-20) FY2021 (20-21) FY2022 (21-22) FY2023 (22-23)
FY20 District budgets not
amended
Flat local funding Decrease in tuition
reimbursement rates
Flat or small increases in
tuition reimbursement
rates
School receives federal
support (CARES, etc.)
Continued federal support
(CARES)
Strong federal support Strong federal support
Use additional funds to
support rainy day fund for
coming years
Slight decrease in state
support
State support rebounds Stabilization of state
revenues
No change to current funding formula
Minimum increase to PSERS employee and employer contributions as market rebounds to reduce unfunded liability
growth
3-month closure followed by V-shaped recovery
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Worse Case Scenarios
FY2020 FY2021 FY2022 FY2023
Districts revise their 2019-
20 budgets downward
Decrease in tuition
reimbursement rates
Additional decrease in
tuition reimbursement
rates
Additional decrease in
tuition reimbursement
rates
School receives some
federal support (CARES)
Continued federal support
(CARES)
Additional federal support
goes away
Return to pre-COVID
federal support levels
Use additional funds to
support rainy day fund for
coming years
Moderate decrease in
state support
State support does not
rebound
Stabilization of state
revenues
Large increases in PSERS employee and employer contributions while unfunded liability grows
Prolonged economic shutdown followed by W-shaped or anemic recovery
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And WORST Case Scenario
FY2020 FY2021 FY2022 FY2023
FY20 District budgets
amended their budget
Decrease in tuition
reimbursement rates
Additional decrease in
tuition reimbursement
rates
Additional decrease in
tuition reimbursement
rates
School receives some
federal support (CARES)
Continued federal support
(CARES)
Additional federal support
goes away
Return to pre-COVID
federal support levels
Use additional funds to
support rainy day fund for
coming years
Loss of Rental
Reimbursement
State support does not
rebound
Stabilization of state
revenues
Changes to funding formula – district/union win political battle: sped rates decrease 15-30%
Large increases in PSERS employee and employer contributions while unfunded liability grows
Governor and Districts prevail in imposing drastic Special Educating funding cuts…………
Add: Special Ed funding
decrease
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Budgeting for Scenarios
Conservative budgeting of tuition reimbursement rates in FY20-21
Include federal CARES Act money for FY2021
Health insurance growth at 10% with expectation rates will increase over the next few years
Expect moderate dips in reimbursement rates in future years and don’t expect rates to
recover until FY2025
PSERS ER and/or EE contribution rates to increase over the coming years
Hiring freezes and low/no salary increases are available tools; high mobility of staff unlikely
as Districts will freeze hiring first
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Best practices in any scenario
Plan now, get out ahead, build safety net, communicate
Unless in dire straits, earmark CARES Act funds for future help
Re-examine cost structure: does spending reflect priorities?
Scrutinize capital projects and large expenditures
Protect Cash and establish Line of Credit with your bank
Educate staff and stakeholders; prepare for coming hardship
For the few remaining charter schools still hiring into PSERS, please…..Stop hurting yourself
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Summary
Unprecedented spike in unemployment and collapse of tax bases
District reimbursement rates - by far biggest revenue sources for charters – will see reductions of
unknown magnitude and duration – most likely a year from now
Reduced state aid to districts has indirect but important impact
Direct Federal dollars (e.g. CARES Act) are helpful but not game-changing
Level, duration and deductibility of Federal funds for rate determination all variables to watch
Savings, discipline and communication now will make inevitable challenges in 1 to 3 years more
bearable
Stay flexible: we are only in the middle of the movie
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143K Rising
143K Rising provides the 143,000 charter
school students and their families a
platform to share their stories and contact
their elected officials.
Please share this link with anyone on your
team who may be able to assist with getting
this information disseminated to your
families. We are asking that each school
make this a priority over the next few weeks.
https://143krising.com/
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“The future depends on what we do in the present.”
- MAHATMA GANDHI
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