Current Legislative Updates

GOVERNOR UNVEILS 2008-09 STATE BUDGET

Major Budget Cuts Proposed

On January 10, 2008, Governor Schwarzenegger unveiled his proposed 2008-09 state budget.  He did this in the face of a looming $14 billion budget shortfall projected for an 18 month period covering both the current 2007-08 and 2008-09 fiscal years.  The Governor has proposed a number of budget balancing measures and reiterated that he does not support the raising of taxes as one of the budget-balancing solutions.  Given the number of court cases decided against the state in prior years and initiatives that have been passed, there are very few ways to avoid the severe cuts being proposed by the Governor.

Governor Proposes Across the Board Cuts

The Governor’s Budget proposes a 10 percent across the board reduction for all General Fund departments and programs.  The Governor argues that this approach, while challenging, is designed to protect essential services by spreading reductions as evenly as possible so that no single program is singled out for severe reductions.  Many of these reductions will require statutory changes in order to implement and early implementation in 2007-08 in order to achieve the full 10 percent reduction in 2008-09.  However, the Governor acknowledges that some programs should be spared from these cuts either for constitutional or humane reasons.  The programs not being cut include Proposition 42 transportation programs, retirement allocations, debt service, lease payments, homeowner exemptions, and retiree health and dental benefits.  Additionally, the Governor des not feel it is appropriate for medi-cal payments to long term care facilities, Cal Grants, juvenile justice or inmate health care be reduced.  

Need For A Prudent Cash Reserve – School Apportionments To Be Delayed

When the 2007-08 budget was enacted, the cash flow projected for the state presumed that there would be an end balance of $11.6 billion.  However, the state’s revenues have not met these projections.  The deterioration in the state’s reserves has also created a projected cash shortage for the state.  To address this problem the Governor ahs called a special session of the Legislature to immediately address the budget and cash shortfall.   The governor has proposed a number of cash flow saving measures that total $8.7 billion.  Included on this list is a delay in sending the June apportionment.  

Under current law, the June apportionment is delayed until July for both K-12 and community colleges.  This delay creates a saving to the state of $1.3 billion.  In order to increase cash reserves during the months when cash balances are projected to be the lowest, the budget proposes to delay the June apportionment to September.  This will result in the savings of millions of dollars in interest payments for the state.  However, it would significantly increase the interest payments for school districts who would have to borrow funds to meet its obligations.

2007-08 Proposition 98 Mid-Year Reductions

For the 2007-08 fiscal year, the state General Fund share of the budget is over-appropriated by $1.4 billion, based on the current Proposition 98 minimum guarantee.  However, the Governor has indicated that a reduction of this magnitude would be too difficult for school districts to absorb.  As a result he is proposing that a mid-year reduction of $400 million be made.  $360 million would be in K-12 apportionments and $40 million to the community colleges.  The first priority will be to find program funds that have not been fully appropriated in the current year and prior year funds that have “reverted.”  The goal will be to find $400 million that school districts not already budgeted.  If the legislature is not able to find $400 million then the budget proposes to reduce revenue limits across the board in an amount needed to reach the $400 million level.  

Reductions for the 2008-09 Fiscal Year

The Governor proposes to suspend Proposition 98 for the 2008-09 fiscal year.  He also proposes to reduce the K-14 budget by 9.2 percent, or $4.4 billion.  This would cover both K-12 and community colleges and would result in a per-pupil spending decrease of approximately $100 per student from $8,558 in 2007-08 to $8,458 in 2008-09.  The proposed budget spreads the impact of the 9.2 percent over a number of programs.  If this budget were to pass, the Proposition 98 maintenance factor for 2008-09 would be 4.1 percent.

Details of Proposed Budget Balancing Reductions

Cost-of-Living Adjustment & Revenue Limits – The proposed budget eliminates the 4.94 percent COLA and reduces apportionments for revenue limits by almost 2 percent.  The budget would $2.6 billion for the COLA and would reduce revenue limits from the current year.  This would create a 6.99 percent deficit factor.  (Note:  If a change in the COLA calculation is made that deficit factor will be reduced to 5.834 percent.)

Special Education – A reduction of $357.9 million is proposed for special education that would include the elimination of the COLA and a reduction in state funding which would have to be offset by local LEAs.

Child Development – A reduction of $198.9 million will be proposed for child development programs which will mean no COLA or growth will be provided to the program in 2008-09.  It is presumed by the administration that normal attrition rates will prevent any child from losing their slot.

Before & Afterschool Programs – The administration proposes a reduction of $59.6 million in the program.  The administration will propose changes to Prop 49 in order to achieve these savings.

Child Nutrition – A cut of $14.2 million is being proposed that will reduce the free and reduced price meal reimbursement rate by approximately$0.02. 

Categorical Programs – Virtually all categorical programs are being proposed to receive no COLA and to be reduced by 10.9 percent.  This reduction would save $1.09 billion.  However, adult education will receive a workload increase of $18.8 million to reflect the annual 2.5 percent growth factor.  This calculation will be done prior to backing out the proposed cut.  Additionally, the charter school block grant will receive a workload increase of $46.1 million.  (Note:  The Quality Education Investment Act is not scheduled for the 10.9 percent reduction.)

CDE Support Services – The budget proposes to reduce the Department of Education funds by $5.6 million for administration and program support.  The Superintendent will have the discretion to allocate these cuts.

Programs Exempted Fro Budget Year Cuts – Several programs, totaling $9.1 million have been exempted in the proposed budget from any reduction.  These programs include Fiscal Solvency Loan Payments, Proposition 98 Mandate Deferrals and Lease Payments Securing Leave Revenue Bonds.

Proposed Change In COLA Calculation – The administration proposes to change the K-14 program COLA factor from the State and Local Implicit Deflator to the Consumer Price Index for Wage Earners and Clerical Workers.  The administration believes that this change will “more appropriately reflect inflation for educational programs as the vast majority of educational expenditures are for wages and salaries and the recent fluctuations in the State and Local Implicit Deflator do not appear to be related to costs which significantly affect schools.”  This change will reduce the COLA from 4.94 percent to 3.65 percent.  The savings that would result proposal are subsumed in the 10 percent reduction identified in the 2008-09 proposed cuts.

Data Collection Proposed For Budget Increase – Despite the major reductions being proposed in the 2008-09 Budget, the Governor feels that it is imperative that the state continue to invest in the collection of quality student data.  The budget proposes to provide $8.1 million (with $2.2 million coming from the state General Fund) to fully fund the California Longitudinal Pupil Achievement Data System (CalPADS).  Additionally, the budget proposes an increase in order to fund the California Longitudinal Teacher Integration Data Education System (CalTIDES).  The budget includes $1.8 million in one-time federal Title II funds for three limited term staff and $400,000 for the Commission on Teacher Credentialing for workload associated with the project.  

Summary – This is the first salvo of a long battle that is ahead.  This budget proposal suggests a series of cuts but does nothing to assist districts in addressing the cuts and still being able to meet its AB 1200 balanced budget requirements.  Additionally, the budget does not suggest alterations to the AB 1200 criteria.  Given the proposed cuts, it is likely that without changes to the AB 1200 requirements that virtually all districts would face negative or qualified status.  The proposal does not suggest any flexibility options to allow districts to have more discretion over their local funds in order to meet local obligations.  These are issues that will likely be addressed as the budget proceeds through the legislative process.  We will keep you informed and this process moves forward.

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