LAO confirms $2.4 billion hit to Prop. 98 in governor’s budget
Published: February 16, 2010
State legislators face “incredibly daunting challenges’ in creating a balanced budget this year, the nonpartisan Legislative Analyst’s Office opined in a recent analysis of Gov. Arnold Schwarzenegger’s 2010-11 budget proposal.
The LAO’s estimate of the deficit over the current and 2010-11 budget years is $20.7 billion, slightly more than the governor’s “somewhat more optimistic” $18.9 billion.
As an independent adviser to the Legislature, the LAO each year examines the assumptions in the proposed budget and offers what is supposed to be a reality check on the governor’s numbers.
Prop. 98 cuts
The analysis reinforces the education community’s assertion that the governor’s budget does not, in fact, “protect” education spending, as Schwarzenegger had said. It estimates that the complicated accounting maneuvers the governor has proposed would reduce the minimum funding guarantee under Proposition 98 by a total of $2.4 billion over 2009-11.
Through a variety of proposed funding shifts, the Proposition 98 guarantee would drop by $893 million for 2009-10. For 2010-11, the proposals include replacing sales taxes on gasoline with an excise tax. That shift would bypass the state’s general fund, thus reducing the Proposition 98 minimum by $1.5 billion, according to the LAO.
According to a recent CSBA analysis, various budget manipulations in recent years have created a significant difference between the amount that the state records as Proposition 98 spending and the amount of revenue that K-14 entities actually receive. Depending on how the Legislature responds to the governor’s new revenue proposals, the minimum Proposition 98 guarantee could rise or fall, the LAO said.
Although by one interpretation of the state constitution the minimum funding level under Proposition 98 may technically be met by the governor’s budget proposal, the LAO analysis said others would interpret the constitutional requirement at a “significantly higher” level. Regardless, “the administration acknowledges that it is veering away from the July 2009 budget agreement” that had addressed the state’s obligations under Proposition 98, the LAO said.
Maintenance of effort
The proposed reductions would require U.S. Education Secretary Arne Duncan to approve the state’s request for a waiver from maintenance–of–effort funding requirements included in the federal American Recovery and Reinvestment Act.
The Education Coalition, consisting of CSBA and other groups representing public school administrators, employees and parents, have corresponded with Duncan more than once to object to the “shell game” the governor is staging to meet the federal MOE requirement.
“No amount of manipulation can mask the fact that the Governor is proposing new, additional cuts to K-12 education of $2.4 billion,” said one coalition letter. “These cuts simply do not meet any test of the reasonable meaning of the term ‘maintenance of effort.’ If the investments made in public education through ARRA are to have meaning, it is critical that you enforce the commitment to a maintenance of effort that was signed by the Governor last year and that the proposed devastating cuts to public education be rejected.”
General fund: ‘very difficult choices’
The LAO pegs much of the state’s $20.7 billion shortfall through June 2011 on the failure of several proposals for balancing the budget in recent years. In addition, settlements in several adverse court rulings and the expiration of various one-time and temporary budget solutions approved during the last budget cycle have grown the deficit.
To help close the projected gap, the governor has proposed asking the federal government for $6.9 billion in additional funding related to health, social services, education and prison programs. While the LAO said that’s probably a good idea, the likelihood that the Obama administration will agree to that level of extra support is “almost nonexistent.”
Should the state fail to receive all the extra federal support requested, the governor proposes dollar-for-dollar cuts to a number of health and human services that would negatively impact public school students and their families. Programs on the “trigger” list include CalWORKS, Healthy Families, Medi-Cal, In-Home Supportive Services, Supplemental Security Income and food programs.
“The Legislature must make very difficult choices affecting both state revenues and spending. The Governor’s trigger cuts—to take effect if federal funding is less than the Governor hopes for—are painful and in some cases draconian,” according to the report.
Meanwhile, time is of the essence, and the LAO recommends that legislators assume federal relief will be far less than the governor requests.
Anticipating the state’s dire financial picture will persist into the foreseeable future, the analysis advises lawmakers to take a comprehensive look at the state’s priorities and suggests working toward creating a “new, sustainable budget framework” that would need to encompass both revenues and spending. “Such progress is imperative to restore the state’s fiscal health and enhance public trust in state government,” the report said.
The “bottom line,” according to the LAO, is that legislators need to act immediately—by March, well before June’s constitutional deadline for a budget—if any savings are to be realized this year. And it’s going to hurt, said the analysis.
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