Analysis from CSBA’s Governmental Relations Department
06/15/07

The Legislature is poised once again to miss its constitutional deadline of June 15 to pass a state budget. The Budget Conference Committee has met only once in the past week, taking little action and leaving the major issues unresolved. Among those is the chief component for education, referred to as the “Proposition 98 Package” of one-time and ongoing programs.

The week began with a new challenge: After exceeding projections in April, an updated budget picture from the Governor’s Office showed tax revenues for May down $764 million. Still, the Department of Finance has indicated it does not plan to alter the overall revenue figures in its budget proposal. Given the gloomy numbers, Gov. Arnold Schwarzenegger’s recent authorization of the early repayment of $1 billion toward Proposition 57’s $15 billion deficit reduction package of 2004 is curious.

It’s important to note that actual tax receipts continue to jump above and below projections. The current figures put the state’s overall revenues in line with Legislative Analyst Elizabeth Hill’s February projections, which were lower than the estimates contained in both the governor’s January budget proposal and his May revision.

It’s uncertain what the revised revenue picture means, both for the budget overall and for Proposition 98’s minimum education funding guarantee. It may result in lower funding for the current year, which would lower the 2007-08 budget year guarantee as well. This would impact the available one-time dollars that were used to fund some of the education programs the governor included in his January and May revenue and spending plans.

This may also impact the revenues available to fully fund the 4.53 percent cost-of-living adjustment and to restore the equalization funding that was inadvertently left out of the governor’s May revision. There has been little discussion of not funding equalization and the COLA, but some creative budgeting or appropriations above the Proposition 98 guarantee would likely be required to fully fund both.

The Budget Conference Committee is not expected to reconvene until staff working groups are able to propose agreements on remaining issues. Ultimately, the largest decisions will be made by the so-called “Big Five,” composed of the governor and legislative leaders from both houses.