Analyzing this year’s final state budget is a thankless task. After a record-breaking 85 days, the Legislature and Gov. Schwarzenegger passed and signed a budget that contains little good news.
The disappointing part is that after all that delay, the outcome is a budget that merely sweeps the structural problem under the rug of budgetary tricks and borrowing, and already leaves the 2009-10 budget $1.5 billion in the hole before it even gets out of the gate.
The Legislature’s insistence on marching in partisan lockstep and refusing to seriously address the structural problem now with new revenues, in essence passing a “get out of town” budget and shoving the problem down the road, almost certainly means that the state will face serious budgetary problems at least into 2010-11.
Following is part of the final budget analysis provided by ACSA’s Govern-mental Relations Department. For the full analysis, go to the ACSA Web site at www.acsa.org.
This year’s impasse highlighted the many problems with the existing legislative process for passing the state budget. On one end, Democrat leadership believed that the state needed permanent revenue increases to solve the budget deficit and resisted spending cuts to state services. Further, Democrats resisted any type of budget reform, whether a spending cap or restrictive “rainy day” reserve, that would tie the hands of the Legislature.
Conversely, Republican leaders believed that tax increases would harm the economy and that the state needed to reign in spending by putting a cap on spending with an automatic savings mechanism to use during down times.
The ongoing budget squabble produced an unheard of budget compromise or “August Revise” from the governor; several iterations of the budget conference committee; a proposal from the Senate Republican Caucus and an attempt to increase tax withholdings from employee paychecks.
All of this posturing eventually led to an agreement in the form of a budget that failed to solve the state’s structural budget problems, relied mainly on borrowing, deferrals and accounting gimmicks, and provided minimal revenues to close a $15 billion budget deficit.
K-adult education budget
The 2008-09 budget fully funds the Proposition 98 minimum guarantee at $58.1 billion. This is $1.3 billion higher than the May Revise, but provides a flat budget from the 2007-08 state budget. It also incorporates a slight decline in average daily attendance in public schools. For 2008-09, statewide K-12 ADA will decrease by an additional 31,000 to 5.92 million.
The budget also includes a funded cost-of-living adjustment of 0.68 percent to school district and 1.02 percent to COE revenue limits only. The statutory COLA is 5.66 percent. Categorical programs do not receive the COLA.
The following are key provisions of the budget pertaining to K-adult programs:
• Defers a statutory appropriation of $150 million in 2008-09 for purposes of providing payment of prior-year Prop. 98 “settle-up.”
• Provides $25.4 million to support the development of the California Longitudinal Pupil Achievement Data System and $1.2 million in federal funds to support development of the Teacher Integrated Data System.
• Continues the deferral of annual mandate payments for K-12 education in 2008-09, estimated to cost $180 million annually.
• Includes $402 million to continue the Quality Education Investment Act.
• Eliminates the STAR norm-referenced test currently administered to students in grades 3 and 7 for a savings of $2.5 million.
• Adopts trailer bill language that basically would treat the After School Education and Safety Program similar to other programs subject to annual legislative appropriations. This would be subject to voter approval.
• No additional program and/or fiscal flexibility.
Lottery securitization
The budget package includes changes to the operation of the California State Lottery. Under this plan, K-adult education is removed from the payouts of the state lottery, and the funding from the lottery is included in the Proposition 98 minimum guarantee. The effect of this is to build the Prop. 98 minimum funding level by an estimated $1.1 billion in 2009-10, which will grow over time based on the Prop. 98 growth factors.
The budget assumes the changes to the lottery will generate $5 billion in 2009-10 and $5 billion in 2010-11. This agreement requires that the changes be submitted as a ballot measure to the voters in order to modify lottery operations and authorize the state to issue bonds that would be repaid out of future lottery proceeds.
Governor’s line-item vetoes
The governor’s line-item vetoes related to education include:
• A $16.4 million cut to CalWORKs Stage 2 childcare funding.
• Deletion of a budget bill provision that would have exempted families who receive childcare services from paying fees if their incomes are less than 40 percent of the state’s median income, adjusted for family size.
• $6 million for non-Title 1 schools subject to sanctions for failing to make progress under NCLB or the state’s accountability system.
• $1.8 million in federal funds allocated to schools whose English learners are failing to make annual progress under NCLB.
• Reducing support for child nutrition programs in schools and child care programs by $862,000.
• $253,000 for public libraries that provide literacy instruction.
Management recommendations
The final 2008-09 budget will create significant fiscal challenges for LEAs going into 2009-10. Projected declines in state revenues associated with sluggish national and state economic conditions will make 2009-10 just as difficult, if not more so, than 2008-09. LEAs are entering a protracted state of fiscal uncertainly likely to remain well into the 2010-11 fiscal year.
ACSA recommends education leaders consider the following when revising their budgets and making multi-year projections:
• Build your reserves.
• If possible, set aside the amount budgeted for the May Revise 6.5 percent reduction to categoricals in June budgets.
• Hold major expenditures until after January.
• Hold off on settling 2008-09 labor contracts until the governor’s January budget proposal.
• Manage categoricals and closely watch spending/cash flow.
• Use existing flexibility where possible.
• Build fund balance.
• Run worst-case scenarios in multiyear projections and prepare contingency plans.
• Stay in contact with your COE.
• Communicate your situation to stakeholders and community.
• Protect your core – students and academic achievement.