To the surprise of no one, the state budget the Legislature passed and the governor signed mere weeks ago has blown up faster than a package of Mentos in a liter of diet soda.
After what seemed like endless months of posturing over California’s chronic structural budget deficit, but not really doing much to seriously address the problem, politicians passed a “get out of town” budget that failed to take any steps to do what many feel must be done: raise revenues. After years of budget cuts and papering over the problem with bonds and loans, raising revenues is about the only real answer left.
On Nov. 6, the governor called for a special legislative session on the budget, something he had been promising to do. The governor defined the overall budget deficit for the current fiscal year and the 2009-10 fiscal year and introduced his plan to fix it.
The governor defined the budget deficit as a shortfall of $11.2 billion for the current year and another $13 billion for 2009-10. As ACSA and many others had expected, the revenue estimates and accounting gimmicks designed in the 2008 Budget Act were far below the expectations.
Given the dire circumstances for the state’s budget, the governor called a special session to address the budget deficit. The governor’s solutions include a balanced approach of increased revenues and targeted cuts to all sections of the budget, including education. In an effort to respond to this special session, both houses of the Legislature had floor sessions to set up an initial discussion regarding the governor’s proposal.
Right now the governor is calling for $2.5 billion in mid-year cuts to Proposition 98 K-Adult education. This is especially unwelcome news, seeing as how education already took a $3 billion hit this year.
Specifically, the governor has proposed:
• Eliminating a 0.68 percent COLA - $244.3 million.
• Reduction to local revenue limits - $1.791 billion.
• Capping allocation to childcare, preschool and alternative payment programs - $55 million.
• Reduction to Stage 2 and Stage 3 child care programs - $42 million.
• Reappropriation of unused CalWORKs Stage 2 and 3 child care programs - $108 million
• $71.2 million in prior year Prop. 98 reversions, including: $28.6 million - K-3 class size reduction; $2.6 million - principal training; $3.3 million - alternative credentialing; $1 million - Pupil Retention Block Grant
• Reduction in the appropriation for Targeted Instructional Improvement Grants on a one-time basis, backfilled with cuts from the above programs.
The cuts to revenue limits are combined with flexibility to transfer categorical program funds to a school district general fund. The intent of this proposal is to provide school districts the maximum flexibility in order to implement the cuts to the revenue limit. Districts will be given the option to move any categorical program funding, as long as it does not conflict with federal law to the district’s unrestricted general fund.
The administration has proposed that these flexibility options would be available for a minimum of two years. Further, school districts would need to develop a plan on the use and transfer of the fund and have the plan be adopted by the local governing board.
Revenue increases
The governor also proposed several revenue increases that total $4.7 billion. These include:
• Temporary Sales Tax Increase. The governor poses to raise the sales tax by 1.5 percent for three years. After the three-year sunset, the sales tax goes back to current levels. This would generate $3.5 billion in 2008-09 and $7.3 billion in 2009-10.
• Broaden Sales and Use Tax. The governor proposes to apply the sales and use tax rates to appliance and furniture repair, golf, veterinarian services, amusement parks and sporting events. This would generate $357 million in 2008-09 and $1.15 billion in 2009-10.
• Oil Severance Tax. This proposal imposes an oil severance tax upon any oil produced or extracted from California land or water. The proposal is expected to generate $528 million in 2008-09 and $1.195 in 2009-10.
• Increase Alcohol and Excise Taxes. This proposal would raise alcohol excise taxes by 5 cents per drink. A drink is defined as 1.5 ounces of distilled spirits, 12 ounces of beer, or 5 ounces of wine. This would generate $293 million in 2008-09 and $585 million in 2009-10.
• Vehicle Registration Fee Increase. This proposal would increase the annual vehicle registration fee by $12. This is different from the Vehicle License Fee, and could generate $150 million in 2008-09 and $359 million in 2009-10.
What does this mean?
This proposal suggested by the governor still needs to be adopted by the Legislature, and a two-thirds vote is needed to pass any increase in taxes. However, cuts to Prop. 98 can be accomplished by a simple majority vote. So far, the indications are that the Democrats are not going to discuss midyear cuts until the governor establishes that he has the necessary votes to pass the tax increases. Alternatively, Republicans have continued with their no taxes mantra.