The budget deal: Subtract another $6 billion from Prop. 98 

Analysis from CSBA’s Governmental Relations Department

It’s like déjà vu all over again. Another budget agreement has been reached by the governor and legislative leaders, and schools will again be cut billions of dollars. This time, Gov. Arnold Schwarzenegger, Democratic Senate President Pro Tem Darrell Steinberg and Assembly Speaker Karen Bass, and Republican leaders Sen. Dennis Hollingsworth and Assembly Member Sam Blakeslee agreed to close the projected $26.3 billion deficit by making nearly $15 billion in cuts, $2.3 billion in revenue accelerations, nearly $5 billion in accounting shifts and borrowing still more to balance the state’s books. Legislators, who must also approve these deficit-closing measures, were being briefed earlier today. A vote is expected by the end of the week.

The agreement addresses two outstanding issues for schools that contributed to a delay in reaching a settlement. While Proposition 98’s minimum education funding guarantee will not be suspended, an accounting maneuver will be utilized to make a $1.6 billion cut from Proposition 98 in the fiscal year that ended June 30 in order to reduce the base for 2009-10. The package also includes the acknowledgement of an $11.2 billon maintenance factor that would restore funding to schools in future years.

If approved, the total cut to Proposition 98 in 2008-09 and 2009-10 would be $5.9 billion—on top of the cuts already made in September and February. This includes:

• $1.6 billion from sweeping up 2008-09 funding for schools that has been appropriated but not actually sent to districts and county offices
• $2.6 billion from 2009-10 general purpose spending for local education agencies and community colleges
• $1.7 billion in revenues that are deferred into 2010-11

An additional $450 million in federal funds will be used to backfill a reduced appropriation for schools that receive funding under the Quality Education Investment Act, resulting in a further cut since that money will not be able to help high-priority schools.

The package also includes the ability for schools to reduce the school year to 175 days. It is important to note that this is an authorization to be exercised at the discretion of each school district and would likely face significant challenges locally, such as the need to negotiate the provision with employee unions. The requirement for special education students to pass the California High School Exit Exam in order to graduate from high school would also be suspended until the State Board of Education addresses the issue. The Democratic-controlled Budget Conference Committee had previously approved a suspension of the requirement for all students to pass the CAHSEE. A five-year suspension of the requirement for school districts to purchase instructional materials within 24 months of adoption by the SBE is also included.

Schools are not alone

Schools aren’t the only ones feeling the sting of this budget agreement. The University of California and California State University systems are facing a combined hit of $3 billion. Funding for cities, counties and special districts is being whacked $2.7 billion through a $1 billion cut in funding for transportation and a $1.7 billion cut from redevelopment agencies; this is on top of an involuntary loan of nearly $2 billion from those local governments to the state. The revised spending plan also includes cuts of $1.2 billion to the state’s prison system. Programs that provide assistance and childcare for needy families, the disabled and elderly and provide health insurance for children were cut by $850 million.

Are we done yet?

Votes are expected Thursday, but conventional wisdom is that the 25 or so bills needed to implement the budget provisions won’t be ready until Friday. There are believed to be enough votes to reach the two-thirds threshold needed for most of those “trailer” bills to take effect immediately. This is not necessarily the case for the bill to establish a Proposition 98 maintenance factor, however, because Republicans have opposed that provision.

It is also important to note that this is likely another stopgap measure and, as state general fund revenues continue to decline, the Legislature and the governor will have to reach future agreements on how to address any additional shortfalls. Translation: more cuts. So school communities should brace themselves for the likelihood of more bad news to come.