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EUSD BUDGET UPDATE THE GOVERNOR’S EIGHTEEN- MONTH BUDGET 2008-09 MID-YEAR CUTS 2009-10 GOVERNOR’S BUDGET FEBRUARY 12, 2009.

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Presentation on theme: "EUSD BUDGET UPDATE THE GOVERNOR’S EIGHTEEN- MONTH BUDGET 2008-09 MID-YEAR CUTS 2009-10 GOVERNOR’S BUDGET FEBRUARY 12, 2009."— Presentation transcript:

1 EUSD BUDGET UPDATE THE GOVERNOR’S EIGHTEEN- MONTH BUDGET MID-YEAR CUTS GOVERNOR’S BUDGET FEBRUARY 12, 2009

2 HOW DID THE STATE GET INTO THIS MESS? IT ALL STARTED WITH PROPOSITION 13 (1978) –PROPOSITION 13 LIMITED THE STATE’S ABILITY TO RAISE REVENUE FROM A STABLE SOURCE – PROPERTY TAXES –MADE THE STATE DEPENDENT ON MORE VOLATILE SALES AND INCOME TAX SOURCES –SHIFTED CONTROL AND ACCOUNTABILITY FROM LOCAL GOVERNMENTS TO THE STATE STATE’S BALLOT INITIATIVE PROCESS HAS RESULTED IN CONSIDERABLE MANDATED STATE SPENDING – REDUCING THE LEGISLATURE’S BUDGET FLEXIBILITY

3 HOW DID THE STATE GET INTO THIS MESS? TERM LIMITS CONTRIBUTE TO A LACK OF EXPERIENCE AND ACCOUNTABILITY IN THE LEGISLATURE IDEOLOGICAL GRIDLOCK IS A FACTOR THESE INGREDIENTS HAVE CREATED A PREDICTABLE SITUATION – OVERSPENDING IN GOOD YEARS, AND BUDGET CRISES IN BAD YEARS

4 HOW DID THE STATE GET INTO THIS MESS? MUCH OF THE CURRENT CIRCUMSTANCES CAN BE TRACED TO PAST BUDGET PRACTICES –FROM 2002 THROUGH 2007, CALIFORNIA’S ECONOMY WAS STRONG BUT, WE HAD A BUDGET CRISIS EVERY YEAR STATE SPENDING EXCEEDED THE REVENUES PRODUCED EVERY YEAR –A SERIES OF ONE-TIME DOLLARS, CREATIVE ACCOUNTING GIMMICKS, BORROWING, AND DELAYED APPORTIONMENTS ALLOWED THE STATE TO AVOID DEALING WITH THE PROBLEM

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6 HOW DID THE STATE GET INTO THIS MESS? THE ARRIVAL OF THE WORLDWIDE RECESSION HIT THE STATE VERY HARD –ALREADY WEAKENED BY PAST BUDGETS, THE PRECIPITOUS DROP IN REVENUES WAS DEVESTATING –MOST OF THE BUDGETING TOOLS HAD ALREADY BEEN USED –CALIFORNIA HAS ONE OF THE LOWEST CREDIT RATING OF ANY STATE – THUS, EVEN ITS BORROWING ABILITY IS LIMITED

7 GENERAL FUND REVENUE COLLAPSE THREE-YEAR SHORTFALL - $31.3 BILLION

8 HOW DID THE STATE GET INTO THIS MESS? THIS BUDGET CRISIS HAS BEEN GREATLY EXACERBATED BY THE RECESSION, JOB LOSSES, WORLDWIDE CREDIT CRISIS, AND HOUSING MELTDOWN “EXPERTS” ARE PREDICTING THAT THIS RECESSION WILL LAST TWO TO THREE YEARS IT’S A MULTI-YEAR, $42 BILLION PROBLEM – WHICH IS WHY THE GOVERNOR HAS PROPOSED AN 18-MONTH SOLUTION THIS TIME

9 THE GOVERNOR’S SOLUTIONS THE GOVERNOR PROPOSES TO CUT EXPENSES, RAISE TAXES, TEMPORARILY BORROW MONEY (RAW), AND BORROW AGAINST FUTURE STATE LOTTERY EARNINGS –CUTS ARE TO ALL AREAS OF THE BUDGET –SALES TAX RATES WOULD BE INCREASED AND THE SALES TAX BASE WOULD BE BROADENED –CERTAIN FEES WOULD BE INCREASED –AN INCOME TAX SURCHARGE WOULD BE IMPOSED

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11 THE GOVERNOR’S SOLUTIONS THE SECURITIZATION OF THE STATE LOTTERY WOULD BORROW $5 BILLION, AND WOULD: –NEED TO BE APPROVED BY VOTERS –COULD BE CHALLENGED IN COURT –ELIMINATE LOTTERY FUNDING FOR SCHOOLS – BY REDIRECTING THAT FUNDING STREAM TO OTHER STATE USES –BUT, REBENCHING THE PROPOSITION 98 GUARANTEE TO REPLACE THE LOST DOLLARS WITH GENERAL FUND DOLLARS –EDUCATION WOULD NO LONGER SHARE IN ANY LOTTERY GROWTH FUNDING

12 CALIFORNIA’S EDUCATION CRISIS WITHIN THREE YEARS OF THE PASSAGE OF PROPOSITION 13 – CALIFORNIA DROPPED FROM THE TOP 5 TO THE BOTTOM 10 STATES FOR PER-STUDENT FUNDING – WHERE IT HAS MOSTLY STAYED CALIFORNIA HAS AMONG THE HIGHEST ACHIEVEMENT STANDARDS IN THE NATION – WE’RE ALREADY DOING MORE WITH LESS OUR INABILITY OR UNWILLINGNESS TO PROVIDE WORLD-CLASS EDUCATION FUNDING IS HURTING THE STATE’S ABILITY TO COMPETE IN A GLOBAL ECONOMY

13 CALIFORNIA’S EDUCATION CRISIS THIS IS A DISASTEROUS EDUCATION BUDGET COMPARED TO THE REST OF THE BUDGET, EDUCATION IS ESPECIALLY HARD-HIT –WE WILL CONTINUE TO FALL FURTHER BEHIND OTHER STATES –THE PROPOSED CUMULATIVE DEFICIT FACTOR (TWO YEARS) ON DISTRICT REVENUE LIMITS IS IN EXCESS OF 16% –ADDITIONAL REVENUES ARE PROPOSED FOR DEFERRAL – AS THE STATE DEALS WITH ITS CONCURRENT CASH FLOW CRISIS

14 PROPOSITION 98 THE PRECIPITOUS DROP IN STATE REVENUES (TAX COLLECTIONS) HAS CAUSED THE PROPOSITION 98 MINIMUM FUNDING GUARANTEE TO DROP $7.9 BILLION –THAT IS, THIS LEVEL OF CUTS CAN BE MADE TO EDUCATION – WITHOUT THE LEGISLATURE ACTING TO SUSPEND THE GUARANTEE! THE GOVERNOR HAS PROPOSED $6.3 BILLION IN CUTS FOR , AND A TOTAL CUT OF $7.5 BILLION OVER THE EIGHTEEN-MONTH PERIOD THROUGH

15 MID-YEAR CUTS THE SPEED OF THE ECONOMIC COLLASPE LAST FALL TOOK MANY ECONOMISTS BY SURPRISE –THE DEPARTMENT OF FINANCE, LEGISLATIVE ANALYST’S OFFICE, AND THE UCLA ECONOMIC FORECASTERS ALL MISSED PREDICTING THE RECESSION THE RAPID DETERIORATION OF ECONOMIC CONDITIONS CONTINUES: –THE GOVERNOR’S MID-YEAR CUT PROPOSAL IN NOVEMBER 2008 ESTIMATED THE DEFICIT AT $27.8 BILLION WITH PROPOSED CUTS TO EDUCATION AT $2.5 BILLION –HIS JANUARY 2009 PROPOSAL ESTIMATES THE DEFICIT AT $41.7 BILLION, WITH PROPOSED CUTS TO EDUCATION AT $6.3 BILLION

16 MID-YEAR CUTS GOVERNOR’S PROPOSAL MAKES MAJOR CUTS TO THE REVENUE LIMIT (UNRESTRICTED FUNDING) – AND PROVIDES FLEXIBILITY FOR MOST STATE CATEGORICAL PROGRAMS TO HELP AMELIORATE THE CUTS –THE LEGISLATURE DID NOT SUPPORT THIS PROPOSAL DURING THE FIRST SPECIAL SESSION IN NOVEMBER (SBX1) THE LEGISLATURE’S ATTEMPT TO CLOSE THE BUDGET GAP RELIED ON MAJOR CUTS TO CATEGORICAL PROGRAMS AND ELIMINATION OF THE.68 PERCENT REVENUE LIMIT COLA –THIS BILL WAS VETOED BY THE GOVERNOR (SBX1 4)

17 MID-YEAR CUTS THE GOVERNOR’S PROPOSAL REDUCES REVENUE LIMITS BY THE.68 PERCENT COLA – PLUS A WHOPPING 4.5 PERCENT MORE! –THE DISTRICT LOSES $5.1 MILLION ON REVENUE LIMITS THIS YEAR! CATEGORICAL FLEXIBILITY IS INCLUDED DISTRICT DEFERRED MAINTENANCE MATCH IS OPTIONAL 3% RRM IS REDUCED TO 1% - BUT NOT FOR DISTRICTS PARTICIPATING IN THE EMERGENCY REPAIR PROGRAM (ERP)

18 MID-YEAR CUTS THE GOVERNOR’S PROPOSAL WOULD ALLOW DISTRICTS TO REDUCE BY HALF THEIR REQUIRED RESERVE FOR ECONOMIC UNCERTAINTY – THIS WOULD HAVE TO BE MADE UP IN THE GOVERNOR’S MID-YEAR PROPOSAL CONTAINS ANOTHER $2.8 BILLION IN DEFERRED PAYMENTS $1.1 BILLION IN PAYMENTS ARE TO BE RECHARACTERIZED AS “PROPOSITION 98 SETTLE-UP PAYMENTS,” THUS WIPING THIS AMOUNT OFF THE STATE’S BOOKS THAT WOULD OTHERWISE BE OWED TO EDUCATION

19 PROPOSITION 98 GUARANTEE $50 $55 $60 Minimum Guarantee No COLA $1.6 billion revenue limit cut April deferral Special fund shift “Settle up” redesignation Minimum Guarantee $56.1 billion $51.5 billion Real Cut Actual Spending

20 PROPOSITION 98 GUARANTEE UNDER THE PROPOSITION 98 FORMULA A “MAINTENANCE FACTOR” IS ESTABLISHED WHEN THE FUNDING LEVEL IS DETERMINED BY “TEST 3,” RATHER THAN “TEST 2” THIS YEAR’S FUNDING IS TO BE ESTABLISHED BY “TEST 1” – WHICH HAS ONLY HAPPENED ONE OTHER TIME – DEPARTMENT OF FINANCE HAS TAKEN THE POSITION THAT MAINTENANCE FACTOR DOES NOT APPLY TO “TEST 1” PROPOSITION 98 CALCULATIONS NOT YET CLEAR HOW THIS CONTROVERSY WILL BE RESOLVED

21 COPING WITH THE MID-YEAR CUTS TO COPE WITH THE LOSS OF REVENUE LIMIT DOLLARS IN , THE DISTRICT IS: –INCREASING IT’S USE OF RESERVES FROM $1.6 MILLION ( ) TO ALMOST $5.9 MILLION ( ) –A BUDGET “FREEZE” HAS BEEN IMPLEMENTED – WHICH REQUIRES SCRUTINIZING ALL EXPENDITURES FOR NECESSITY AND APPROPRIATENESS – INCLUDING FILLING OF VACANT POSITIONS, EXTRA HOURS, AND SUBSTITUTE EMPLOYEES

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23 COPING WITH THE MID-YEAR CUTS THE DISTRICT HAS RECEIVED ERP DOLLARS THIS YEAR- MISSION CANOPY REPLACEMENT –IF IT IS DETERMINED THAT THIS PROJECT WILL MOVE FORWARD, WE CANNOT REDUCE THE MAINTENANCE (RRM - 3%) BUDGET –IF THE DISTRICT FUNDS THE RRM BUDGET FULLY, THERE WON’T BE ANY SAVINGS IN REDUCING OR ELIMINATING THE DEFERRED MAINTENANCE TRANSFER –WE WON’T KNOW WHAT, IF ANY, CATEGORIAL FLEXIBLITY IS AVAILABLE UNTIL A BUDGET BILL IS PASSED

24 THE BUDGET PROPOSAL THE PROPOSITION 98 GUARANTEE LEVEL IS $55.9 BILLION, AN INCREASE OF $4.4 BILLION OVER THE REVISED AMOUNT –BUT, THIS INCREASE IS LARGELY ACCOUNTED FOR BY THE DEFERRALS AND BACKFILLING ONE-TIME AMOUNTS AND PROPERTY TAX SHORTFALLS –THERE IS NO NEW MONEY

25 BUDGET PROPOSAL DISTRICT REVENUE LIMITS WILL ABSORB A DEFICIT OF OVER 16 PERCENT – THIS IS NECESSARY TO OFFSET TWO YEARS OF COLAS AND ACCOMPLISH A NET REDUCTION IN –LOSS IN IS $1.6 BILLION (4.565%) –LOSS IN IS $1.1 BILLION (2.515%) AS A MEANS TO COPE WITH THESE LOSSES, GOVERNOR PROPOSES TO REDUCE THE SCHOOL CALENDAR BY 5 DAYS (NEGOTIABLE)

26 AND K-12 REVENUE LIMITS

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28 BUDGET PROPOSAL THE GOVERNOR’S PROPOSAL CARRIES FORWARD MOST OF THE PROPOSALS INTO HE ENVISIONS CATEGORICAL FLEXIBILITY WOULD COME ABOUT BY SUSPENDING STATUTORY REQUIREMENTS OF MOST PROGRAMS –INCLUDING CLASS SIZE REDUCTION –DISTRICTS COULD BACKFILL LOST UNRESTRICTED DOLLARS BY USING CATEGORICAL FUNDS AS NEEDED

29 BUDGET PROPOSAL GOVERNOR’S PROPOSAL ALSO CALLS FOR REORGANIZING MOST STATE CATEGORICAL PROGRAMS INTO BLOCK GRANTS –MODEL WOULD BE SIMILAR TO AB 825 –BLOCK GRANTS WOULD BE PERMANENT CHANGE –EXCLUDED PROGRAMS INCLUDE FEDERAL, VOTER-APPROVED, AND LEGAL SETTLEMENTS PROPOSAL ELIMINATES THE HIGH PRIORITY SCHOOLS GRANT PROGRAM SCHOOL READINESS PROGRAMS WOULD BE REDUCED AND PROPOSITION 10 COMMISSION WOULD BE ELIMINATED

30 BUDGET PROPOSAL IN THE LONG BATTLE OVER MANDATES, THE GOVERNOR’S PROPOSAL WOULD SUSPEND ALL BUT THREE: –SUSPENSION WOULD MEAN DISTRICTS NOT RESPONSIBLE FOR CARRYING OUT UNFUNDED MANDATES –LEGISLATURE COULD REINSTATE –DECEMBER 2008 COURT CASE RULED THAT IT’S UNCONSTITUTIONAL TO REQUIRE MANDATED SERVICES WITHOUT REIMBURSING COSTS – STATE OWES $1.1 BILLION FROM PRIOR YEARS –STATE’S PRACTICE OF DEFERRING MANDATE PAYMENTS NO LONGER CONSTITUTIONAL

31 THE STATE’S CASH CRISIS THE STATE’S CASH CRISIS IS REAL AND AFFECTING ALL CALIFORNIANS STATE CONTROLLER HAS ALREADY CUT OFF SOME VENDOR PAYMENTS, AND THE ADMINISTRATION HAS ORDERED FURLOUGH DAYS FOR STATE WORKERS DEFERRALS OF EDUCATION REVENUES WERE INTRODUCED DURING THE BUDGET CRISIS – AND HAVE REMAINED –$2.8 BILLION OF NEW DEFERRALS FOR –$1.5 BILLION PROPOSED DEFERRAL FOR

32 FEDERAL FISCAL STIMULUS BILL AT THIS TIME, CONGRESS IS DEBATING THE FEDERAL FISCAL STIMULUS BILL – WHICH PROMISES SOME RELIEF TO CASH-STRAPPED STATES HOUSE AND SENATE LEADERS REPORTEDLY WORKED OUT A FINAL BILL WITH THE PRESIDENT YESTERDAY GOVERNOR HAS TAKEN THE POSITION THAT, WHILE HELPFUL, THIS STIMULUS PLAN WILL NOT TAKE THE PLACE OF A PERMANENT, STATE SOLUTION TO CALIFORNIA’S BUDGET PROBLEMS

33 FEDERAL FISCAL STIMULUS BILL AUGMENTATIONS ARE PROPOSED FOR TITLE I, TITLE I SCHOOL IMPROVEMENT GRANTS, AND FEDERAL EDUCATIONAL TECHNOLOGY FEDERAL SPECIAL EDUCATION FUNDING IS INCLUDED STATE FISCAL STABILIZATION FUNDING IS PROPOSED – UNKNOWN JUST HOW STATE WILL USE – BUT SOME OF FUNDING MUST BE PASSED TO LEAs SOME FUNDING IS INCLUDED FOR SCHOOL CONSTRUCTION

34 WHERE DO WE GO FROM HERE? BUDGET NEGOTIATIONS IN SACRAMENTO CONTINUE –“BIG 5” HAVE NEGOTIATED FINAL DETAILS IN UNPRECEDENTED SECRECY TAX INCREASES A DEFINITE – TIED TO A SPENDING CAP THAT WOULD NEED VOTER APPROVAL –BOTH SENATE PRO TEM DARRELL STEINBERG AND ASSEMBLY SPEAKER KAREN BASS HAVE PROMISED FLOOR VOTES THIS WEEK – BOTH BRIEFED THEIR CAUCAUSES TUESDAY –REPUBLICAN SUPPORT LEVEL IS UNKNOWN

35 WHERE DO WE GO FROM HERE? CURRENTLY, THE GOVERNOR DOES NOT PLAN ON A TRADITIONAL “MAY REVISE,” HOWEVER, THIS COULD CHANGE IF: –NO AGREEMENT IS REACHED IN TIME TO AFFECT THE TAX INCREASES FOR –THE ECONOMIC CONDITIONS DETERIORATE FURTHER, RESULTING IN A GAP LARGER THAN $42 BILLION –THE ADMINISTRATION DETERMINES THERE IS A NEED FOR A MAY REVISION

36 WHERE DO WE GO FROM HERE? THE DISTRICT IS STILL IN THE PROCESS OF DETERMINING WHAT LEVEL OF REDUCTIONS WILL BE NEEDED TO CRAFT A RESPONSIBLE DISTRICT BUDGET FOR : –CABINET HAS BEEN ENGAGED IN THIS WORK FOR THE PAST MONTH –2 ND INTERIM WORK IS PROGRESSING – AND IT MUST INCLUDE THE ASSUMPTIONS PROPOSED IN THE GOVERNOR’S BUDGET – WE HOPE THIS IS THE WORST CASE WE’LL BE CALLED UPON TO CONSIDER –WE ARE NOT COUNTING ON HAVING MUCH INFORMATION ON THE FEDERAL STIMULUS PROVISIONS BEFORE BUDGET ADOPTION


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