State budget: Advocacy needed ahead of ‘May Revise’
Analysis from CSBA’s Governmental Relations Department
Published: April 5, 2010
The special legislative session to address the state’s ongoing budget crisis has adjourned. The Legislature passed a package of bills last month that attempts to drive down the $20.7 billion estimated deficit for the remainder of 2009-10 and 2010-11 and to address 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 Department of Finance releases its May Revision 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 will affect schools. Specifically, by reducing general fund revenues, a “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 cash-management legislation includes three “intra-year” deferrals of education funds of up to $2.5 billion each.
Gas tax swap
After considerable suspense, Gov. Arnold Schwarzenegger signed Assembly Bill x8 6 and ABx8 8, the Legislature’s modified versions of his January proposal to change how gasoline is taxed by the state. Basically, the sales tax on gasoline will now 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 will fund 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. This shift will free up billions of dollars in non-Proposition 98 general fund dollars over the next several years.
However, the shift will also deprive the state’s general fund of sales tax revenues from those transactions. There was initially concern about how school funding would be affected, because the governor’s original proposal 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 instead included language to adjust certain Proposition 98 calculations. However, there remains a fair amount of uncertainty as to how this shift will affect schools in the long run, and there is the potential loss of funding in the out years.
Deferrals push cash-flow woes onto schools
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 governor signed legislation, ABx8 14, establishing 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 requires 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 also allows districts, county offices 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 fall within the 2010-11 fiscal year, they do not reduce the Proposition 98 funding guarantee as deferrals that cross fiscal years do. They replace the three intra-year deferrals from last fall.
CSBA will provide more specifics on the size and timing of the three intra-year deferrals once it reviews the joint declaration from the controller, treasurer and director of the Department of Finance; it has not been released at press time.
What’s next
Following the recent actions, it is unlikely that any further budget decisions will be made until after the “May Revise” comes out in mid-May—right around the time when CSBA’s Legislative Action Conference will bring local school governance team members to Sacramento for budget briefings and lobbying. The May Revise will update the state’s revenue outlook from income tax receipts and other sources, providing the starting point for an end-game debate on how to tackle the state’s remaining 2009-10 deficit.
In the meantime, 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 time 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 coming weeks about the cuts to schools that have occurred over the last few years and the impact they have had on students.
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