Legislature acts on midyear budget cuts

Analysis from CSBA’s Governmental Relations Department

California’s Assembly and Senate passed legislation today to enact midyear budget cuts totaling approximately $1 billion, including $506 million that would apply to Proposition 98 education funding. Of that, $474.4 million applies to K-12 schools and the balance applies to community colleges. Of the K-12 amount, $281.5 million comes from prior-year unexpended funds, and $192.9 million comes from current-year funds that have not yet been allocated to local education agencies.

Even if enacted, the K-12 cuts should not result in a reduction in funds that would otherwise be received at the local level. Instead, the savings would come from dollars that would otherwise revert to a Proposition 98 reversion account. However, this action still constitutes a cut, because these funds would ordinarily be reallocated to schools for alternative purposes. With the Legislature’s actions, these funds are no longer available.

State lawmakers also passed legislation to defer the K-12 July 2008 apportionment until September—one of many deferrals that have been adopted to deal with a cash flow problem being faced by the state. Gov. Arnold Schwarzenegger had originally proposed to defer the June apportionment, which in recent years has routinely been deferred until July.

CSBA has been on record opposing any deferral in principle, because it would only solve the state’s cash flow problem by creating a cash flow problem for school districts and county offices of education. However, the association has argued that if any deferral is to occur, it must be structured in a way that would not impair local borrowing ability. Responding to that argument, the Legislature voted to defer the July apportionment instead of the June apportionment (which is booked as prior-year revenue), to avoid the potential impact on borrowing ability. In addition, the legislation provides that the deferral is for one time only instead of permanent, as the governor had proposed.

The Legislature also adopted language to exempt from any deferral those districts that may be forced to seek an emergency loan from the state as a result of a delay in receiving the funds due them. CSBA still has concerns about the borrowing ability of districts with qualified or negative certifications. We continue to examine this issue and have put the administration and Legislature on notice that follow-up legislation may be needed to address any problems we may identify.

With the completion of action on midyear cuts, the Legislature will now focus its attention on the 2008-09 budget. The next step in that process will be the Feb. 20 release of an analysis by the Legislative Analyst Office..

Details of midyear K-12 cuts

I. Prior year reversions

II. Current year reversions