Budget imbroglio takes new twists and turns

Analysis from CSBA’s Governmental Relations Department

In a highly unusual move, Gov. Arnold Schwarzenegger released his January budget proposal early—on Dec. 31. The spending plan, which is typically the start of the budget season in Sacramento, is not required to be provided to the Legislature until Jan. 10.

This latest proposal—the governor’s third since he signed the long-overdue 2008-09 budget, which almost immediately tilted dangerously out of balance—is also unusual in that it covers 18 months instead of 12. It uses elements from his earlier proposals as well as some from Democrats, Republicans and the Legislative Analyst’s Office to close the estimated $40 billion deficit projected for the waning months of 2008-09 and for 2009-10.

The architecture of the plan would close the 18-month deficit by making $17.4 billion in cuts, increasing revenues by $14.3 billion, borrowing $5 billion and counting on another $5 billion from the California Lottery. The new revenues would include a previously proposed temporary increase to the state sales tax, expansion of the sales tax to cover some services, a nickel-a-drink alcohol tax, a new tax on oil production and a $12 hike in vehicle registration fees (this would not, however, reinstate the higher vehicle license fees). Additional revenues would be raised by reducing the dependent-care exemption from the current $309 per dependent to $103, carrying over some of the deficit into the 2010-11 fiscal year and borrowing funds from voter-approved Propositions 10 and 63, which provide programs and services for children from birth to age 5 and for mental health.

Proposition 98
The plan calls for a significant reduction to the level of funding for Proposition 98, as well as much-desired flexibility. This reduction would be realized by eliminating funding for the partial cost-of-living adjustment and by a direct cut of $1.6 billion to school district and county office of education revenue limits. Additionally, the plan also includes yet another deferral; $2.6 billion in payments for revenue limits and class-size reduction would go out in July—the 2009-10 fiscal year—instead of April. The governor would also count $1.1 billion in current-year spending as “settle-up” for prior-year obligations under Proposition 98 and use $618 million from the Public Transportation Account to fund home-to-school transportation. These last three provisions are a means to reduce the Proposition 98 guarantee but not reduce dollars that school districts have to spend in the current year.

For 2009-10, the governor would fund Proposition 98 at $55.9 billion. However, the amount of funding available for education would only be $53.3 billion, since the $2.6 billion that was deferred until July would be used for costs incurred in 2008-09, but would count toward the 2009-10 guarantee. This would not include any funding for the statutory COLA—a loss of $2.5 billion. It would also cut district and county office revenue limits by $1.5 billion. A further reduction of $1.1 billion would allow—but not require—districts to reduce the school year by five days.

To “minimize impacts to essential classroom instruction,” the governor proposes broad and permanent flexibility beginning in the current school year. Districts and county offices would be authorized to transfer any categorical allocation to their general fund “for any purpose, without dollar limit”; previously, the governor had wanted a limit on such transfers. Expanded flexibility would also include reducing the contributions for restricted routine maintenance from 3 percent to 1 percent; eliminating the match requirement for deferred maintenance; allowing prior-year restricted fund reserves to be used for other purposes; and allowing districts to reduce their reserve for economic uncertainties pursuant to Assembly Bill 1200 by half. Such expansive flexibility, however, will face an uphill battle in the Legislature—which, after all, crafted the categoricals in the first place.

In response to the recent court victory by CSBA’s Education Legal Alliance regarding the nonpayment of mandates, the governor also proposes to suspend all K-12 mandates except for interdistrict and intradistrict transfers and the California High School Exit Exam. Additionally, $65 million is provided in response to the agreement the Alliance reached with the Schwarzenegger administration on Special Education Behavior Intervention Plans.

Democratic plan vetoed
In releasing the plan early, Schwarzenegger hopes to spur the Legislature to approve a plan by Feb. 1, when the state is expected to begin operating in the red. Recent reports indicated that he had been negotiating with Senate Majority Leader Darrell Steinberg and Assembly Speaker Karen Bass on an economic stimulus package that met his approval in order for him to sign their controversial plan approved by Legislative Democrats on Dec. 18. The plan was predicated on a majority-vote revenue package instead of the two-thirds majority generally required. Those talks broke down, however, and yesterday the governor vetoed the package, calling for deeper cuts and a waiver of environmental regulations to allow highway projects to continue this year.

Forecast: Register now for Jan. 15 online briefing
Conditions under the Capitol dome continue to change abruptly, clouding the outlook for resolution of this epic budget battle. For a live, online briefing on the latest budget news, register for CSBA’s Forecast Webcast, coming free of charge over the Internet from 2 p.m. to 4 p.m. Thursday, Jan. 15. Executive Director Scott P. Plotkin, Assistant Executive Director Rick Pratt and economist Christopher Thornberg will analyze how political and economic developments will affect local districts and county offices around the state. A link to more information and the easy registration process is below.

Governmental Relations Teams: Advocate at state, federal levels
CSBA has also launched a new program to help its members take an active role in government issues. The association is seeking volunteers for its Governmental Relations Teams, which will engage in grassroots lobbying on behalf of children and schools.

This program expands on CSBA’s Governmental Relations Chairs system, which generally relied on a single contact in each Assembly, state Senate and congressional district to coordinate local advocacy efforts on either state or federal issues. The new Governmental Relations Teams will include all interested board members who commit to working with CSBA’s Governmental Relations Department on advocacy efforts over the next two years; separate teams will advocate at the state and federal levels. Applications are due by Friday, Jan. 16.

Related link:
Details on the Forecast Webcast and the Governmental Relations Teams are posted under the Spotlight section of CSBA’s Web site: http://www.csba.org.