It’s no secret the state is facing a huge budget problem, namely, at least a $14 billion shortfall for 2008-09. As the Education Coalition battles to protect next year’s education budget from the draconian cuts of $4.8 billion proposed by Gov. Schwarzenegger, the state is making some budgetary moves in the current fiscal year. Naturally, the specter of midyear cuts raises concerns from educators because of painful experiences suffered in recent years.
The Legislature passed and the governor signed a package of midyear cuts in the amount of about $2 billion overall. On the education front, the package basically manages to stay away from the classroom by sweeping up reversion and other unspent funds where available in Proposition 98.
“We’re happy they came to a resolution quickly,” said ACSA Legislative Advocate Adonai Mack. “This gives districts time to prepare to apply for Tax Revenue Anticipation Notes and for the approved deferral of the Advance Apportionment.”
Of the amount cut, the midyear package contains approximately $507 million in reductions to Proposition 98. This reduction lowers the current-year Proposition 98 base, but should not impact LEA current-year revenues.
“We’re not happy there are midyear cuts, but we’re encouraged the cuts they made will not affect local programs and revenue limits,” Mack said.
The cuts package also includes a one-time deferral of the 2008-09 Advance Apportionment for the month of July 2008 to September 2008. This is different than the governor’s January proposal that would have once again shifted the P2 apportionment from July to September, which would have violated GASB 33 accounting requirements.
“The one silver lining of this fund shift is that it is specified as a one-time occurrence, unlike the previous P2 shift,” said ACSA Management Services Executive Brett McFadden.
The action taken in the Capitol will not reduce the Proposition 98 base, but it will have significant management and fiscal impacts to school districts. With a two-month delay in getting what equates to a “paycheck,” many districts may have to seek Tax Revenue Anticipation Notes to cover this temporary shortfall.
ACSA is recommending that LEAs begin analyzing the necessity of this action and begin planning accordingly, since it can take up to four months to secure a TRAN.
There will be a small amount of funding coming schools’ way in July, but it will only amount to 0.9 percent of the revenue limit apportionment, instead of the normal 6 percent amount for that month. But that same funding will be bumped up by 5.1 percent in September from the normal 8 percent, to compensate for the July funding shortfall.
The midyear cuts package did allow for exemptions for severe fiscal hardships this shift might cause in districts. The exemption applies if the shortfall would cause a district to request an emergency apportionment.
“Districts should now start analyzing their cash flow situations for the months of July and August,” McFadden said. “Securing a TRAN can take quite a bit of time, so they should work closely with their county offices and begin this process ASAP.”
There was also some action taken in the area of funding Home-to-School Transportation through the Public Transportation Account.
Due to a court ruling, the Legislature agreed to reimburse the state General Fund by $409 million from HTST funding, but backfilled that amount with funding from the PTA. It also adopted language suggested by the Education Coalition that would protect the Prop. 98 base. This is basically an accounting move, and is not expected to have any noticeable impact at the local level.
LAO chimes in
Meanwhile, the Legislative Analyst’s Office released its updated look at the upcoming budget and recommendations for it. The LAO projects that – prior to any corrective actions – the budget shortfall could now amount to $16 billion.
To address this, in the area of education, the LAO has several recommendations. Of the LAO’s primary recommendations, two were reflected in the strategies used for the midyear cuts package that was passed: sweeping up the unspent Prop. 98 funds and designating the Public Transportation Account funds for HTST. The LAO also recommends suspending the Quality Education Investment Act to save about $450 million. In addition, the LAO recommends consolidating more than 50 categorical programs into a few large block grants.
“Unfortunately all this budget news does not come as a big surprise,” McFadden said. “Monthly revenues have been considerably below projections for much of the past year. We can only hope it doesn’t get worse.”
More details on the cuts package and LAO report are available at ACSA Online.