Transcript BUDGET: PowerPoint Presentation (Files)

The Political Landscape
• During good years, we overspend and make
long-term commitments
• During bad years, we use stop-gap measures
and borrowing to get through a year at a time
until we get another good year
• No new revenue + increased costs = yet
another budget crisis
History of 08-09 Budget
• January Budget suspends Prop 98 and takes
$4 billion from education
• May Revision withdraws suspension, but still
cuts education by nearly $3 billion
• Current Budget, AB 1781, still cuts education
by about $2.5 billion
• And yet none of these proposed Budgets is
balanced in the longer term-nor do they deal
with the structural causes of the deficit.
• Every one of these budgets is balanced using
assumptions for revenues that do not exist– HOPE IS NOT A PLAN
How did education survive cuts?
• The two parties agreed that education should
be protected when it came to budget
negotiations
• But we still lag in spending per student; we
are 47th
How national economics affect California
• We are not yet in a recession; that is defined
as two quarters of negative growth in Gross
Domestic Product (GDP) and we haven’t
even had one
• But GDP is below 1%, so it feels like a
recession
• Credit is hard to come by
• Sales tax revenues are down in the month of
September
• U.S. unemployment rate exceeds 6.1%, but
California’s is 7.7%
How national economics affect California
-cont
• California’s economy consists of housing,
entertainment, tourism, technology, financial
services and agriculture.
• Businesses can’t expand without credit and
the lenders are grappling with their own
defaults because they bought risky debt.
• We depend on rising tax revenues to fund
growth in school budgets
• Rising tax revenues follow a recovery
• A recovery seems to be slow to come
Budget Reform?
• The Adopted Budget authorized the Governor
to make midyear reductions to certain state
programs
– Reductions can occur when either
revenues or expenditures “substantially”
deviate from the budgeted level
– Local assistance funding, including K-14
support is exempt from midyear reductions,
but this authority was not required for the
midyear cuts in the past
Budget Reform-cont?
• Lottery is secured based on the assumption
that the revenues will double and the
increase will service the long-term debt
• Must be voter approved
• Short-term impact is no more lottery
revenues for education
– Instead beginning in 2009-2010 money
substituting for lottery is received as
revenue limit (General Fund dollars) and
capped at 2008-2009 levels, but increased
by COLA each year
Budget Reform-cont?
• The State’s budget continues its deficit
spending
• The reserve is only 1% of revenues and
transfers
• The fund balance declines $3.5 billion in
2008-2009
Summary of Adopted Budget
• COLA is 5.66% before deficit
• After deficit of 4.713% it nets out to a $38
increase over last year’s base revenue limit
• Categorical Programs no longer receive the
6.5% reduction; funding restored to 20072008 levels with no COLA
Summary of Adopted Budget-cont
• Supplemental Hourly Programs are greatly
deficited (as they were in 2007-2008) with the
exception of Grade 7-12 CAHSEE program
• Special Education has funding provided for
growth
• No change in funding for mental health prereferral services
• Transportation receives no COLA
Summary of Adopted Budget-cont
• State Deferred Maintenance is funded
• Instructional Materials Funding Realignment
Program is still provided, but funding levels
remain at 2007-2008 levels
• The sunset date that allows school districts to
receive prorated penalties under the K-3 CSR
program was extended by the Governor
Looking Ahead
• No signs that this will be a short-term
problem
• California has no economic recovery plan
• California’s unemployment rate remains high
• Collapse of the credit markets will slow the
recovery whenever it begins
Looking Ahead-cont
• School Services of California sees 2009-2010
being more difficult than 2008-2009
– Revenues will remain relatively flat
– Expenditures continue to rise (think step
and column increases, CPI and energy
costs)
– Borrowing will be difficult and expensive
Looking Ahead-cont
• If the downside risks materialize and the Budget
shortfall gets worse, education funding is at risk
in 2009-2010 and beyond
– A 5% shortfall in revenues distributed to all statefunded programs would mean a 5% across the
board cut
– Taking education funding off the table translates
into an 8.3% cut for the remaining programs
– Some other state expenditures would likely be
exempt from cuts, such as debt service, courtordered expenditures, and public safety
spending, leaving an even deeper cut for the
remaining programs
Looking Ahead-cont
• What does all this mean?
– It will be increasingly difficult to spare K-12
funding from the loss of the statutory COLA
or even year-over-year cuts if new
revenues are not secured
2009-2010 Budget
• The 2008-2009 Budget pushes difficult
decisions into next year
• Even if everything goes as planned in 20082009 (which we know already it isn’t) the
Budget writers acknowledge a $1.5 billion
shortfall in 2009-2010
2009-2010 Budget-cont
• So you ask – what else could go wrong?
– The economy slips into a recession and a
mere 3% shortfall in revenues takes away
$3 billion
– The lottery securitization plan is rejected by
the voters and another $5 billion is
eliminated in the 2009-2010 budget
– A court orders the state to pay $3 billion for
prisoner medical care facilities
2009-2010 Budget-cont
• How much is all that?
– Instead of an $1.5 billion shortfall going
into 2009-2010 we are now at an $15.5
billion shortfall going into 2009-2010
• Bottom Line: The State Budget faces huge
downside risks
Wrap-Up and Up-to-the-minute news
In the San Francisco Chronicle on Sunday,
October 5, Matier & Ross discussed
California’s finances.
“...have tanked so badly that Gov. Arnold
Schwarzenegger is considering calling an
emergency session of the Legislature
within the next month to reopen the very
budget that lawmakers just passed.”
Wrap-Up and Up-to-the-minute news-cont
• The “Big Five” are scheduled to meet
Wednesday, October 8 to formulate a
strategy if they need to reopen the budget
• The “Big Five” are Schwarzenegger, Don
Perata Democratic Senate Leader, Karen
Bass Assembly Speaker and their
Republican counterparts – Mike Villines
Assembly GOP leader and Dave Cogdill
Senate Minority Leader
Wrap-Up and Up-to-the-minute news-cont
• Why reopen the budget?
– The national credit crunch has increased
the cost of short-term loans-California will
run out of cash by the end of October
– California needs $7 billion to bridge the gap
between the shortage of revenues currently
coming into the state and next spring.
Wrap-Up and Up-to-the-minute news-cont
• Why reopen the budget?-cont
– Not unusual for us to acquire short-term
loans, but if we had passed a timely
budget, we would have found it much
easier to find funding and at a lower cost
– Gov Schwarzenegger has already
requested a federal loan – a very unusual
move
Wrap-Up and Up-to-the-minute news-cont
• Why reopen the budget?-cont
– Slow economy-sales taxes are coming in far
below projections in the quarter ending
September 30 and aren’t looking to get any
better by the Holidays
– The housing market meltdown is hitting the
tax revenues and properties are being
reassessed downward
• Remember
– We depend on rising tax revenues to fund
growth in school budgets
Wrap-Up and Up-to-the-minute news-cont
• What can we expect in January?
– Possibly Categorical reductions of 6.5% as
proposed in the May revise
– Possibly 0% COLA, instead of the .68%
adopted
• Do we have to wait until January for a sense
of direction?
– Maybe not, because any special session
called must be completed by November 30,
the last day termed-out members are allowed
to vote