Budget: Bad news just gets worse 

Analysis from CSBA’s Governmental Relations Department

California’s budget process has changed over time, and in recent years it’s become increasingly unpredictable. This has never been truer than with the process for 2008–09, which began when Gov. Arnold Schwarzenegger released his budget proposal in January 2008—more than 18 months ago; it’s still in flux as this issue of California School News goes to press, with the Legislature contemplating another round of cuts to help close a $24 billion imbalance between revenues and expenditures through 2009–10.

If legislators and the governor approve spending cuts for education that resemble those the Budget Conference Committee approved June 16, schools will have been cut over $5.2 billion in 2008–09, or more than $880 per student—including $220 in the last few days of the school year. And that’s not counting inter-year deferrals and the reclassification of $1 billion in school funding in order to further erode Proposition 98’s minimum guarantee.

The budget for 2009–10 doesn’t get any better. Schools are likely to suffer another $2.5 billion cut—$650 million that was already approved in February and another $1.8 billion cut that was still on the table at press time. This would cost schools nearly $425 per student more, compounded by additional deferrals and the loss of a cost-of-living adjustment. The net effect: School districts and county offices of education would receive only about 83 percent of the general-purpose funding they are entitled to under the revenue limit formula.

All told, the combined two-year hit to schools threatens to top $16 billion. Funding under Proposition 98 stood at $49.1 billion in 2008–09—less than 2005–06 levels.

Assembly Democrats have been trying to keep revenues on the agenda. Speaker Karen Bass, D-Los Angeles, has said the state’s massive deficit cannot be solved by cuts alone, particularly after the cuts that have already been made. She and Senate President Pro Tem Darrell Steinberg, D-Sacramento, have called for a “share the pain” budget.

Ultimately, the budget passed by the Democratic-controlled Conference Committee included only $1.9 billion in new revenues: $1 billion from taxing tobacco and $900 million from a 9.9 percent oil severance tax. However, the governor and many in the Legislature categorically reject any revenue increases, contending that failure of budget-balancing propositions in the May 19 special election signaled voters’ opposition to taxes.

While the final budget fixes remain unknown at press time, we can confidently say it will include more—and deeper—cuts, and it’ll probably occur before the 2008–09 fiscal year ends June 30. That would lower the Proposition 98 guarantee even further, because reducing 2008–09 funding would also lower the Prop. 98 base for 2009–10 and thereafter.

Immediate action is also probable on the state’s need to borrow money to address its severe cash-flow problem. Without a budget that addresses the deficit, it’s highly unlikely that Wall Street will lend the state much-needed cash. Moody’s Investor Service recently followed the Standard & Poor’s credit rating agency in placing California on a credit watch due to the state’s chronic budget deficits and a “continued political stalemate” over closing them.

The state’s new budget, whenever it’s passed, isn’t apt to fully address the known budget gap, nor will it adequately deal with the likely potential of a further reduction in state general fund revenues. The nearly inevitable result: even more reductions to the 2009–10 budget in the coming months.

Related link:

Find updated information on the state budget, along with “Fast Facts” and key messages and talking points to help educate your community on the state budget, under the Spotlight section @ www.csba.org; click on “Schools: An investment we can’t afford to cut.”