State budget continues to move toward revise

It may seem as if no news is emerging on the state budget lately, but that’s typical for the process. As ACSA Legislative Advocate Adonai Mack explained, the governor proposes his budget in January, and now the various committees and subcommittees in the Legislature are debating pieces of the plan to determine their course of action.

"The past several weeks have included incremental movement on the current-year budget deficit, the beginning of the budget process, veto promises and an ongoing battle over the federal maintenance of effort waiver," Mack said. "While California is showing some slow recovery from the recession, the state still struggles with potential cash flow problems and an ongoing structural budget deficit."

Mack provided the following analysis on key budget activity.

Cash flow deferrals

In late February, the state treasurer and controller designed legislation that would allow for another round of deferrals in the 2010-11 fiscal year in an effort to protect the state’s cash flow concerns. This bill caught many in the education community off guard.

Even though the education community was unsuccessful in preventing the first deferral bill, Assembly Bill x8 5, from being signed, it was successful in moving clean-up legislation in ABx8 14 to provide lead-time and ease the impact of the deferrals on school districts. The governor has signed ABx8 14.

ABx8 5 authorizes the state to defer K-12 apportionments in July 2010, October 2010 and March 2011. The state can defer up to $2.5 billion for 60 days for the July, 90 days for the October and 60 for the March deferrals. All of these deferrals are intra-year for the 2010-11 fiscal year.

The bill also contains language that allows the state controller to defer the apportionment 30 days earlier or later. Lastly, the bill authorizes a hardship exemption process for county offices of education, local education agencies and charter schools.

When this bill was introduced, the education community voiced several concerns. These included the lack of certainty regarding the exact amount the state would defer and the impact of this uncertainty on school districts obtaining loans.

In addition, the date for applying for waivers, May 17, was unrealistic given it is too close to the May Revision of the state budget. Lastly, the final deferral in March impacted school districts’ ability to pay back the loans obtained through Tax Revenue Anticipation Notes.

The education community, led by the California Association of School Business Officials on this effort, pushed for amendments in ABx8 14 that eased the impact on districts.

Specifically, the bill:

•Clarifies that the deferrals will not total more than $2.5 billion at any one time.

•Requires the controller, treasurer and director of finance to issue a declaration no later than March 31, 2010, on the amounts and timing of the deferrals. This is intended to address concerns expressed about not knowing specifically when each deferral will occur and for how much.

•Specifies that the March 2011 deferral will be repaid by April 29, 2011, to shorten the payback and lessen the problem facing LEAs in making their TRAN set-aside payments.

•Allows LEAs to certify by June 1, 2010, for the July and October deferrals, and Jan. 5, 2011, for the March deferral, that the deferral will result in the LEA needing an emergency apportionment, and thus be exempt from the deferrals.

Sales tax shift

The Legislature passed ABx8 6 and ABx8 9 to address a gas tax swap. ABx8 6 would eliminate the existing sales tax on gasoline and immediately replace it with a per-gallon excise tax at the same level. This bill also includes language that holds Proposition 98 funding harmless in a Test 1, high revenue year.

ABx8 9 contains a $400 million appropriation to State Transit Assistance; the allocation of new excise tax revenue to Local Streets and Roads, State Transportation Improvement Program, and State Highway Operations and Protection Program; and other statutory changes to the Public Transportation Account.

These bills were passed by the Legislature, but vetoed by the governor, as he vowed to do. It is unclear how the Legislature will respond to the governor’s veto.

Revenues

Finally, some good news regarding the state’s finances. The state controller released a monthly update, stating General Fund revenues improved again in February. The revenues were $480 million above the governor’s January budget estimates. Even though personal income tax came in lower than estimates, both the corporate tax and sales tax showed increases. When compared to February 2009, GF revenues are up $1.89 billion.

If the revenues continue to stabilize or increase, the Legislature and governor may have a dilemma for the May Revision if the Prop. 98 minimum guarantee requires additional funding for education, even though there may not be enough revenues to close the entire deficit.

Assembly budget hearing

The Assembly Subcommittee on Education Budget conducted a hearing to discuss issues including the targeted cut to central district administration, the flexibility provided for contracting out, and the targeted cut to county offices of education.

It appears the Assembly heard ACSA’s concerns regarding the targeted nature of the reductions and took action to reject the governor’s policy proposal to link a reduction in school district revenue limits to specific district office costs, as well as the changes to current law governing school contracting out.

Further, the subcommittee rejected linking a reduction of COE revenue limits to county office consolidation. However, it delayed taking action on the specific revenue limit reductions until after the May Revision.

This means the Assembly is separating the conversation regarding the policy issues of administrative cuts, contracting out and COE consolidation from the revenue limit reductions of $1.5 billion.

The issue of how to treat the revenue limit reduction will be discussed after the May Revision is released. ACSA is hoping the Senate takes a similar strategy and takes the targeted cut to school leaders off the table.

ACSA comments

The discussion of the state budget will quiet somewhat as both the Senate and Assembly begin to discuss the budget components through the committee process. Educators will hear different proposals from each on how this should be done, but the true budget negotiations will not begin in earnest until after the May Revision is released.

Questions may be directed to Adonai Mack at amack@acsa.org.

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