'Fiscal emergency' threatens funding for public schools

While friends of education are girding for battle, budget-cutters in Sacramento are sharpening their blades. A crisis is unfolding in state revenues, both for the current year and the 2008-09 budget year that will begin July 1.

Gov. Arnold Schwarzenegger declared a fiscal emergency Jan. 10, marking the first time that authority under 2004’s Proposition 58 has been invoked. The decree fast-tracks some government procedures and requires the Legislature to “address” the issue by Feb. 23, although it’s unclear specifically what that might entail. The governor has proposed immediate, across-the-board spending cuts, including $400 million for local schools. Upping the ante, Legislative Analyst Elizabeth Hill has called for Proposition 98’s minimum funding guarantee for K-14 education to be reduced by $1.5 billion. Schools are midway through their fiscal year, with most expenditures already committed, but the administration and the legislative analyst both say that their proposed midyear cuts can be done in a way that would not affect allocations to schools this year.

Schwarzenegger has also called for suspending Proposition 98 for the new budget year that begins in July.

“By suspending Proposition 98 and making crucial cuts to education, the governor’s budget will drive us even lower. This reveals a shocking lack of recognition of the real needs of kids and schools,” California School Boards Association President Paul H. Chatman said. “The education community will not agree to anything until and unless the governor and the Legislature put all of their cards on the table, including a debate about revenues as well as expenses.”

The following analysis of Schwarzenegger’s proposals for K-12 schools was written by CSBA Assistant Executive Director Rick Pratt.

Governor proposes severe cuts to K-12 funding

The governor’s budget proposal addresses a current-year shortfall of $3.3 billion and a shortfall of $14.5 billion in the 2008-09 budget year. The governor proposes to address these shortfalls with major spending reductions and a few fee increases, but no tax increases.

For K-12, the governor notes that the Proposition 98 guarantee in the current year has dropped $1.4 billion from budget projections due to lower-than-expected general fund revenues. He proposes to reduce Proposition 98 funding by $400 million in the current year. Of this, $360 million would be applied to K-12 school districts and county offices of education, and $40 million would be applied to community colleges.

Budget documents show that the $360 million midyear reduction to K-12 funding would be applied to revenue limits. It is more likely, however, that the final legislation to make the cuts would apply them to specific programs. The California Department of Education is currently reviewing all programs and appropriations to identify as much unspent and unencumbered money as it can to reduce the local impact of the cuts. CSBA will be working with CDE, the Schwarzenegger administration and the Legislature to ensure the least disruption to current-year programs.

For the 2008-09 budget year, the governor proposes a $4 billion reduction, or 9.2 percent, from the Proposition 98 “workload” budget. The workload budget is defined as the prior-year budget (in this case, 2007-08) as adjusted for changes in enrollment and a cost-of-living adjustment. In other words, the $4 billion reduction is applied to the amount schools would receive if Proposition 98 were fully funded.

Since the Proposition 98 guarantee will grow by less than $4 billion next year, there will be an actual year-to-year reduction of $865 million. Accordingly, the budget documents show a reduction of total per-pupil spending of $309 (2.6 percent), from $11,935 to $11,626. (Remember, that “total” includes spending from all sources, not just Proposition 98.)

Itemized reductions

Major proposed reductions include:

• $2.6 billion from the K-12 revenue limit

• $1.1 billion from categorical programs

• $357.9 million from special education

• $198.9 million from child development programs

• $59.6 million from Proposition 49 Before and After School Programs (this would require a ballot initiative that the administration will propose)

• $14.2 million from child nutrition programs (by reducing the reimbursement rate from 21 cents to 19 cents)

The reductions in funding to revenue limits would create a revenue limit deficit factor of 6.99 percent.

In the current year, $555.6 million in one-time funding was used to support several ongoing programs, such as home-to-school transportation and deferred maintenance. The budget proposes to backfill these one-time funds with Proposition 98 funds in 2008-09.

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CSBA is posting the latest budget news and resources @ www.csba.org/EducationIssues/EducationIssues/SchoolsInvestment.aspx