| Governor's Proposal for 2008-09 and 2009-10 State Education Budget
The Constitutional deadline for the Governor to release his initial budget proposal for 2009-10 is January 10th. However, in an unprecedented move, on December 31, 2008, the Governor's proposal was presented. This early release was an effort to stimulate legislative action to address not only the 2009-10 Budget, but also the shortfall in the 2008-09 Budget. According to School Services of California's Fiscal Report, "The State deficit at the end of 2009-10 is estimated now to be $41.6 billion unless corrective action is taken."
At this time, the District does not have details of the Governor's proposal. However, based on the information in the press and the advisories from the various educational groups some of the major impacts to the District would be:
2008-09
- Elimination of the .68% cost of living adjustment (COLA) for K-14 education:
- GUSD Impact - approx. $1 million
- Further reduction of the K-12 revenue limits of $1.6 billion, estimated to be 4.5%:
- GUSD Impact - approx. $7 million
- Flexibility:
- Utilize categorical funds for any purpose after local public hearings
- Reducing the K-12 local Routine Restricted Maintenance Account (RRMA) set-aside requirement from 3% of General Fund expenditures to 1%
- Elimination of the K-12 Deferred Maintenance match
- Reducing the State required level of K-12 Unrestricted General Fund reserves from 3% to 1.5%
2009-10
- No COLA (estimated to be 5.02%) for K-14 education
- $1.1 billion reduction in the revenue limit funding for K-12 education to allow school agencies to eliminate 5 days of instruction
- Shift of $1.06 billion from the General fund to K-14 education to replace Lottery revenue due to the securitization proposal, bringing this funding under the Proposition 98 umbrella (note: this would require voter approval)
- $65 million increase to pay for the special education behavioral intervention lawsuit settlement
- $13.4 million for State mandated programs, thereby suspending all programs except for two K-12 mandates: interdistrict and intradistrict transfers and the California High School Exit Exam. It is believed that this is in response to the recent judgment that the State must either fund or suspend the mandates.
- Flexibility: the same flexibility as proposed for 2008-09
On January 13, 2009, a workshop is scheduled to review the Governor's proposals in more detail. That information will be shared with the Board when it is received. At this point in time, the District's administrative team continues to focus on reducing expenditures in the current year and future years, analyzing the various programs for potential reductions/restructuring, and developing cost analysis. Additionally, data is being gathered to develop options that may become available should the State adopt the flexibility proposals.
It is important to note that this is the Governor's proposal and reduction for 2008-09 will require legislative action. Additionally, this is just the initial step in the 2009-10 State budget process. While we know there will be reductions to education, there is no certainty as to how the reductions will be structured and that is a critical component in our decision making process.
FEBRUARY 2009 BUDGET AGREEMENT The overall budget solution includes $15 billion in cuts, $14.4 billion in temporary revenues, and $11 billion of borrowing ($6 billion from Revenue Anticipation Warrants and $5.4 billion from lottery securitization). Revenues include five major elements:
- 1 cent increase in the sales tax
- Increase in the VLF to 1-1.15 percent of the car's value
- Gas excise tax of approximately 12 cents per gallon
- Eliminating the dependent care tax credit
- Increasing the taxes on high income earners
Revenues are tied directly to the passage or failure of a modified spending cap which will appear on the ballot on a statewide special election to be held on May 19 th of this year. If the spending cap is approved by voters, then the revenues will stay in effect through the 2012/13 fiscal year. If the spending cap is not approved by voters, then the revenue will stay in effect for only 24 months after their enactment.
The May 19 th ballot will the following measures:
- Proposition 1A: A measure to securitize the state lottery, taking schools out of the lottery and allowing the state to sell bonds to help balance the budget in the 2009-10 fiscal year and possibly later. Schools will see an increase in Proposition 98 funding to accommodate the loss of lottery revenue.
- Proposition 1B: State spending cap (ACA 1 3x)
- Proposition 1C: Education Funding (ACA 2 3x)
- Proposition 1D: Allows the state to divert the use of Proposition 63 monies
- Proposition 1E: Allows the state to divert the use of Proposition 10 monies
Spending Cap
ACA 3X 1 (Niello), which will appear on the May 19 ballot as Proposition 1B, establishes a state rainy day fund. Beginning with the 1011-12 fiscal year, ACA 3X 1 would require the state to calculate "unanticipated revenues." Unanticipated revenues would be actual revenues (plus transfers and prior year reserves) that exceed forecasted revenues for that year. The calculation of forecasted revenues would be based on actual revenues received for the prior 10 years, using a linear regression analysis.
The first use of unanticipated revenues would be to satisfy any outstanding Proposition 98 obligations for that year. Any remaining funds would be transferred to the Budget Stabilization Fund until the amount in the fund reaches 12.5 percent of General Fund revenues. However, the transfer to the rainy day fund could be less than the difference between actual and forecasted revenues if a portion of the excess revenues are needed to maintain a "workload" budget. The workload budget would be defined as the General Fund expenditures for the prior year as increased for the so-called "Gann factors" (California CPI and population growth).
After the Budget Stabilization Fund reaches its cap, any unanticipated revenues would be spent in the following order of priority:
- Outstanding Proposition 98 obligations
- Debt service
- One-time infrastructure or other capital outlay purposes
- Additional debt retirement
- Unfunded liabilities for vested non pension benefits for state annuitants
- Transfer by statute to the Budget Stabilization Fund
Voter approval of ACA 3X 1 is tied to the proposed revenue package and to ACA 3X 2. If voters approve ACA 3X 1, then the new revenues would be in place for the balance of the current year plus the next four budget years. If rejected, the new revenues would be in place for the next 24 months.
In addition, approval of ACA 3X 1 is necessary to provide the funding source for the Proposition 98 payment provided in ACA 3X 2.
Maintenance Factor
In January an issue arose regarding the long term funding levels under Proposition 98. During downturns in state revenues, Proposition 98 allows for a lower level of funding for schools known as Test 3. However the Constitution also provides that the loss of funding be restored over time, through a maintenance factor. The Department of Finance, in calculating the revised funding levels for 2008-09 and 2009-10, determined that both years would be Test 1 years and in this determination they also falsely asserted that no maintenance factor was created resulting in a loss of $9 billion for schools.
This issue was part of the negotiations on the budget deal and an agreement was reached that calls for the electorate to vote on a constitutional amendment that would provide $9.3 billion in payments to schools and community colleges. Specifically the proposal, contained in ACA3X 2 (Bass), would establish annual supplemental payments beginning in 2011-12 that would be in lieu of a maintenance factor for 2007-08 and 2008-09. The supplemental funding would be adjustments to school district revenue limits and in addition to the Proposition 98 guarantee. The supplemental payments would subsequently be built into the base for each year. Up to $200 million would be set aside in the first payment to fully fund any remaining equalization.
Establishing these supplemental payments is linked to the establishment of a rainy day fund as the funding source for these payments would be half of the annual set-aside for the fund. ACA 3X 1 (Niello) creates the Supplemental Education Payment Account for the purpose of making the payments to schools and requires that 1.5 percent of general fund revenues be transferred to that account annually. The entire $9.3 billion would likely be paid out over five years.
This issue will appear before voters as Proposition 1C on the May 19 ballot.
Summary of Current Year Funding Cuts
Current year (2008-09) K-12 funding cuts total $1.88 billion - the same level of cuts proposed earlier by the Governor. However, unlike the Governor's proposal, this agreement does not take the entire cut through a revenue limit reduction. It does include elimination of the current year .68% revenue limit COLA. But the remainder of the reduction is split 50/50 - with half coming from revenue limits (a little over 1% additional cut) and the remainder through a 15% cut to specified categorical programs, as noted below.
Categorical Program Cuts & Flexibility
There are 3 tiers of categorical program cuts. Tier I receives no funding cut and there is no "program flexibility" in the use of the funds and no statutory requirements can be waived. Programs in Tier II will receive a funding reduction of approximately 15% but there is no program flexibility and the programs are to be operated in accordance with current statute. Tier III will take an approximate 15% cut and there is "maximum flexibility." Districts will be able to use of these funds for any purpose. The changes to these categorical programs will be in effect for the remainder of this fiscal year and for 4 additional years.
Tier I:
- Child Development Child Nutrition
- Economic Impact Aid K-3 Class Size Reduction
- Proposition 49 after school programs Special Education
- Quality Education Investment Act Home-to-School Transportation
Tier II:
- Adults in correctional facilities Partnership Academies
- Apprenticeship programs State Testing
- English Language Acquisition Program Agriculture-Vocational Education
- Foster Youth Charter School Facilities Grants
- K-12 High Speed Network Multi-Track YRE
Tier III includes all other categorical programs. These programs will receive an approximate 15% reduction in the current year and for 4 additional years.
Use of Prior-Year Categorical Reserves
The budget proposal authorizes districts to access ending fund balances as of June 30, 2008 (from the 2007-08 school year only), from most restricted, categorical program accounts - to use for any educational purpose. Those categorical programs "protected" from such access are:
- Economic Impact Aid (EIA)
- Targeted Instructional Improvement Grants (TIIG)
- Instructional Materials
- Special Education
- Quality Education Investment Act (QEIA)
- California High School Exit Exam (CAHSEE)
- Supplemental Instruction Home-to-School Transportation
Additionally, the budget allows districts flexibility in the flowing programs for 2008-09 only: Routine Maintenance Reserves: Reduces the amount that school districts are required to set aside in "routine restricted maintenance accounts" from 3% to 1% of their General Fund budgets, for the current year plus 4 years. Deferred Maintenance : Eliminates the local 1/2% statutory match for deferred maintenance, for the current year plus 4 years. Reserve for Economic Uncertainties: Makes no changes to current law requirements for minimum general fund reserves for economic uncertainties. Mandates: No new mandate funding provided; does not include governor's proposal to suspend mandates in the budget year.
K-3 Class Size Reduction Flexibility
Technically, there is no change to the statutory requirements of the K-3 class size reduction program. However, changes have been made to the penalty provision should a class exceed the current 20.4 to 1 ratio. The changes to the penalties are as follows:
- Up to 20.5 - no penalty
- Up to 21 - 5% penalty (20% penalty is current law)
- Up to 21.5 - 10% penalty (40% penalty is current law)
- Up to 22 - 15% penalty (out of compliance penalty is current law)
- From 22 to 25 - 20 % penalty
- Over 25 penalty is 30% (with no cap)
2009-10 Fiscal Year
This package includes the passage of the 2009-10 Budget. The agreement includes the following K-12 education provisions:
- Elimination of a 5.02% statutory COLA on school district and county office revenue limits. This results in $2.5 billion in cost savings to the General Fund and increases the Proposition 98 deficit factor by 4.529%.
- Further reduces K-12 spending within Proposition 98 spending level by $530 million. Just as was done in the 2008-09 year, this reduction will be split equally by reductions to Revenue Limits and Categorical Programs as follows:
- $265 million reduction to school district and county office revenue limits (added to Proposition 98 deficit factor)
- $265 million in across-the-board reductions (4.9%) to the same categorical programs (Tier 2 and 3) reduced in 2008-09.
- Eliminates the High Priority Schools Grant Program, resulting in $114.2 million in additional GF savings.
- There is to be a May Revision in late May to reconcile the spending levels and budget projections made as a part of these actions.
Impact of Federal Stimulus Package
The federal stimulus package will likely be approved by the President in the coming week. This funding will provide $789 billion to boost the national economy. While there will be billions of dollars provided for education, these resources will have a minimal impact on reducing the size and magnitude of the state reductions in education funding. The current stimulus package contains funding dedicated to a provision called the "State Stabilization Fund." This funding will be allocated to local school districts and/or higher education using existing funding formulas, which can be used to backfill cuts, prevent layoffs and modernize schools as well as other purposes. However, these funds will be provided to the Governor to determine how they will be spent. We believe that the state Legislature will also decide how best to use those resources. We also believe that a portion of that money will be provided to pay for the state's Revenue Anticipation Warrants and to build the state General Fund reserves. |