Special legislative session on budget adjourns; impact on schools still hazy, but 2010-11 cuts remain likely
Analysis from CSBA’s Governmental Relations Department
Published: March 12, 2010
On Thursday the state Legislature adjourned the special session called by Gov. Arnold Schwarzenegger in January to address the state’s ongoing budget crisis. The Legislature passed a package of bills over the last two weeks that attempt to drive down the $20.7 billion estimated deficit for the remainder of 2009-10 and 2010-11. Efforts over the last several weeks have focused on bringing down the current budget year’s deficit of more than $6 billion and addressing the state’s long struggle with cash-flow management.
No direct reductions to K-12 schools were approved, and the intent from the Legislature’s perspective is to wait until after the May Revision comes out with more certain revenue numbers. While revenues are expected to be higher than currently projected, schools will likely still be facing cuts for next year.
The two major pieces of the midyear budget package did include provisions that would affect schools. Specifically, by reducing general fund revenues, a proposed gas tax swap may have some effect on Proposition 98’s minimum education funding guarantee despite the inclusion of language intended to avoid that; and proposed cash-management legislation includes three “intra-year” deferrals of education funds of up to $2.5 billion each.
Gas tax swap
Last week, the Legislature approved a modified version of the governor’s January proposal to change how gasoline is taxed by the state. Under the legislative scheme, just as with the governor’s, the sales tax on gasoline would be replaced with an excise tax. The sales tax on diesel, which would be used to fund mass transit projects, would remain.
The revenue generated by the excise tax would be dedicated to transportation bonds and highway and street improvements. A court ruling that sales tax revenue from gasoline purchases could not be used to pay debt service on transportation bonds was the catalyst for the shift to an excise tax, where the presumption is that it would not face a similar challenge. If signed by the governor, this shift would free up billions of dollars in non-Proposition 98 general fund dollars over the next several years.
However, the shift would deprive the state’s general fund of sales tax revenues from those transactions. The concern for schools is how Proposition 98 would be affected. The initial proposal by the governor would have reduced the Proposition 98 guarantee by its share of the loss of the general fund dollars. Fortunately, the Legislature rejected this approach and included language that would adjust certain Proposition 98 calculations. However, there is a fair amount of uncertainty as to how this shift would affect schools in the long run, and there is the potential loss of funding in the out years.
The governor has expressed concerns about certain aspects of this package, including the Proposition 98 adjustment, and so how he will act on the bills—Assembly Bill x8 6 and ABx8 8—remains uncertain.
State pushes its cash-flow problems on to schools
Earlier this month, legislators approved bills that would defer billions in payments to schools over the 2010-11 fiscal year. In addition to approving deferrals to push the state’s cash-flow shortfalls onto school districts,, charter schools and county offices of education, the original legislation raised implementation challenges for them, as it contained significant uncertainties. Based on concerns raised by CSBA and others in the education community, follow-up legislation designed to provide more certainty was approved to help districts and county offices adjust their budgets next year, including provisions to allow increased short-term borrowing, to ensure they maintain enough cash resources to meet their obligations.
The legislation, which is awaiting action by the governor, would establish three deferrals—in July, October and March—of up to $2.5 billion each. They would be limited to 60 days for the July deferral, 90 days for October and 30 days for March. The legislation would require the state controller, state treasurer and director of the Department of Finance to provide a joint declaration by March 31 detailing the amount and timing of each deferral.
The legislation would also allow districts, counties and charter schools to avoid having their funding deferred by certifying that they could not meet their financial obligations without the state payments and would need to seek a loan from the state. They would have to make the certification by June 1 to receive their July and October payments this year, and by Jan. 5, 2011, to avoid a deferral in March of next year.
Because these new deferrals would be within the 2010-11 fiscal year, they would not reduce the Proposition 98 funding guarantee as deferrals that cross fiscal years do. Additionally, they would replace the three intra-year deferrals from last fall.
If the governor signs the enabling legislation, CSBA will provide more specifics on the size and timing of the three intra-year deferrals following the release of the joint declaration from the controller, treasurer and director of the Department of Finance March 31.
So now what happens?
Following the recent actions by the Legislature and presuming approval by the governor, it is unlikely that any further budget decisions will be made until after the governor releases the “May Revise” in mid-May. This revised budget proposal should reflect a more up-to-date snapshot of the state’s revenue outlook and be the starting point for more serious debate on how to tackle the state’s remaining deficit.
In the meantime, the budget subcommittees in both houses will hold hearings to review the January budget proposals and to allow for public comment that will hopefully inform the Legislature’s decisions.
Board members, as well as others in the education community, should use this opportunity to actively engage their legislators by meeting with them, inviting them to board meetings and community forums where cuts will be discussed, and providing written details of the specific cuts they have already made and those that are on the table. Legislators need to hear from board members, administrators, teachers, school employees and parents in the next couple of months about the cuts to schools that have occurred over the last few years and the impact they have had on students.