Forecast ’08: Plotkin calls for ‘all cards on the table’

At CSBA’s annual Forecast Conference Webcast Jan. 17, Executive Director Scott P. Plotkin came out swinging on the subject of Gov. Arnold Schwarzenegger’s proposed cuts to California’s education budget.

“The governor is saying that we’re not going to have any kind of conversation about revenues and that it’s going to be all visited upon us in terms of cuts,” Plotkin said. “Which means that we’re not obligated to agree to anything unless people are willing to put all their cards on the table.

“And if they’re not willing to do that, then we’re going to have this circular and very damaging conversation about future funding for the public schools, as well as everything else that is funded by the state,” Plotkin added.

His statement came near the end of a two-hour session that was disseminated around the state via the Internet and viewed by more than 200 participants. Many faxed in questions for a panel introduced by CSBA President Paul H. Chatman and made up of Plotkin, CSBA Assistant Executive Director Rick Pratt, economist Christopher Thornberg and Ron Bennett, president and CEO of School Services of California Inc.

Thornberg kicked off the presentations with a hard-hitting overview of economic forces confronting California and the nation.

“We’re experiencing a freefall in the markets,” Thornberg, principal of the research and consulting firm of Beacon Economics, said. Real estate prices are approximately 60 percent too high relative to personal income, and affordability rates are at an all-time low. Thornberg said prices have fallen as much as 35 percent in California, and he expects them to drop another 15 percent or so in 2008. One result: State and local budgets are “a mess,” the economist said, summing up the impact for local education officials.

Unemployment is adding to the economic slowdown. Rates are up by 0.5 percent nationally and nearly 1 percent in California. Thornberg said that a recession is almost certain—and may have already begun. While it might be mild, a recession could worsen if financial losses exceed expectations and inflation becomes a factor. He warned the economy would likely not sustain any substantial growth until 2010.

“It’s not a pretty situation,” Thornberg concluded.

Governmental Relations weighs in

“Chris gave you an excellent—if depressing—overview of the economy,” Pratt, assistant executive director for Governmental Relations at CSBA, said at the outset of his presentation.

Pratt discussed the $3.3 billion shortfall in the state’s current budget and a $14.5 billion shortfall projected for next year. He took Gov. Arnold Schwarzenegger to task for contradicting himself about the cause of California’s economic meltdown.

“We don’t have a revenue problem, we have a spending problem,” Schwarzenegger said in his State of the State speech last month, Pratt noted. However, the governor had characterized the budget as responsible when he signed it last August, affirming that “This budget also limits spending growth to less than 1 percent.”

“So which is it?” Pratt asked. “Do we have a spending problem, or is spending under control?”

Pratt answered his own question with an analysis that showed spending had, in fact, declined by $2 billion; unfortunately, revenues have declined even more—by $4.9 billion, a development that contributed to the fiscal emergency declared by Schwarzenegger Jan. 10.

The governor’s declaration, authorized by Proposition 58—a measure voters approved in 2004—forces lawmakers to vote on the governor’s proposed midyear cuts within 45 days, instead of waiting until the new budget year begins July 1. By law, if they take no action, they cannot address other state business.

Impact on Prop. 98

The governor proposes a $400 million reduction in the current budget for schools and has called for suspension of the funding guarantee in the 2008-09 budget year.

Legislative Analyst Elizabeth Hill recommends going beyond those adjustments. The economic downturn, and the resulting $4.9 billion drop in state revenues, has reduced the minimum funding guaranteed to K-14 education under Proposition 98 by $1.4 billion, and Hill advocates reducing education spending by that full amount.

“There are a lot of moving parts” to the Legislative Analyst’s Office proposal, Pratt said. Hill proposed applying unspent funds from prior years to current spending, “unappropriating” unspent current-year funds and designating the difference as “settle-up” funding, which would not increase Proposition 98’s base funding level requirements.

“The LAO believes their proposal would give the Legislature more flexibility, which may or may not be the case,” he said. In any case, “we’re left with the same bad outcome: unacceptable cuts to school spending.”

What’s next

The special legislative session called by Schwarzenegger when he declared the fiscal emergency will run concurrently with the Legislature’s regular session, with the lawmakers required to act by Feb. 23 to address the governor’s proposals for dealing with the current year’s fiscal problems. There will be hearings on the 2008-09 budget from February through May, when the governor will submit his revised budget proposal reflecting updated revenue projections. The Legislature’s budget deadline is June 15, and the governor is supposed to sign a budget before the new fiscal year begins July 1.

Throughout the process, Pratt said, CSBA and the Education Coalition will lobby aggressively and continue to foster grassroots activities “to get the governor to understand the real-world impact of these cuts” on California’s schoolchildren.

Related link:

View the recorded Forecast Conference Webcast under the Spotlight section @ www.csba.org