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updated on
May 15, 2008.

News

Thursday, May 15, 2008

Budget Update: The May Revise and K-12 Education Budget

A message from Deputy Superintendent Eric D. Smith

THE MAY REVISE
Governor Schwarzenegger has released a May revision of his January budget that is clearly – for education – “better-than-January.” His new budget proposal provides $1.8 billion more for education than he proposed in January. The governor’s revised education budget plan also avoids additional current year cuts, avoids suspension of Proposition 98, walks away from cuts to revenue limits and special education, and provides districts with local flexibility options that will make it easier to deal with the tough times ahead.

The governor proposes to address the shortfall not just through cuts this time, but through a few minor tax and fee increases as well as a controversial proposal to reform the state lottery and borrow against future lottery revenues. The lottery proposal would generate $5.1 billion for the budget year and a total of $15 billion by 2010-11 with the future year dollars going to the proposed “budget stabilization” account. As part of the proposal, school lottery revenues would be capped at current levels (about $1.2 billion annually). The governor is also proposing a sales tax increase that, if approved by the Legislature, would trigger a one-cent sales tax increase over the next three years, in the event that the lottery proposals fail to generate anticipated dollars.

While the governor has gone out of his way to protect education, his May revise includes major new cuts to health and human services. The additional cuts ($627 million more) come from raising eligibility requirements for Medi-Cal services for undocumented immigrants, newly qualified immigrants, and poor families. In addition, the governor proposes that 1.3 million senior and disabled SSI/SSP recipients forego both federal and state cost-of-living increases. Furthermore, families receiving CalWORKS program assistance would not receive cost-of-living raises, and doctors, hospitals and health care providers that take care of the poor would see a 10 percent cut in reimbursements.

K-12 EDUCATION BUDGET
The following contains major highlights of the K-12 portion of the budget.

Cost of Living Adjustment (COLA)
Eliminates the proposed January cut to revenue limits, thus providing a “zero” COLA on revenue limits. The Department of Finance pegs the current deficit factor at 5.37 percent, but notes that the deficit factor would be reduced to 4.214 percent if the administration’s January proposal to redefine the K-12 statutory COLA is adopted by the Legislature.

Growth
K-12 average daily attendance (ADA) continues to decline, but the decline is now projected to be less than anticipated in January. The May revise adjusts upward the statewide projected ADA for this year and next year by 24,000 ADA and 23,000 ADA respectively.

Special Education
Eliminates the governor’s January cut to special education, providing special education with level funding. According to the administration, this action also ensures the state meets federal maintenance of effort requirements.

Deferred Maintenance
Proposes shifting over $222 million out-of-state deferred maintenance funding, using the money to restore special education cuts as noted above. This leaves just $39.6 million for the deferred maintenance program which he proposes be reserved for hardship projects. In addition, the governor proposes eliminating the local match requirement for this program and also provides $100 million for the Emergency Repair Program, as required by the Williams settlement.

Categorical Programs
Continues the governor’s January proposal to reduce all categorical programs by ten percent, except for special education and deferred maintenance as noted above. The ten percent cut is based on a workload budget, and thus computes to roughly a six percent cut to these programs. In addition, categorical programs, with some exceptions, would be subject to new local flexibility options as noted below.

Local Flexibility Options
The budget contains a laundry list of local flexibility options to assist districts in managing the tough year ahead. They include:

Reserve for economic uncertainty
Reduces the minimum economic reserve requirements by half, for purposes of determining “negative” and “qualified” budget status. [Note: The administration proposes that this option would be available for two years.]

Categorical flexibility

• Authorizes districts to transfer dollars from categorical sources to revenue limit apportionments sufficient to ensure a two percent increase in the revenue limit.
• Allows districts to move state categorical program carryover or reserve funds from any prior year and from any program to the district’s unrestricted general fund, excluding those funds prohibited under federal or state law as well as other categorical programs including EIA, instructional materials, special education, and QEIA. At this time, it is unclear which other categorical programs the administration may be proposing to be excluded from this provision. 
• Increases current percentage caps on district transfer authority for Assembly Bill (AB) 825 categorical block grants from 15/20 percent to 20/25 percent.

Routine maintenance reserve
Reduces the required three percent minimum annual contribution to the districts’ restricted reserve for routine maintenance to two percent.

Deferred maintenance
Eliminates the local match requirement under the Deferred Maintenance Program

WHAT IT MEANS TO THE SANTA BARBARA SCHOOL DISTRICTS
It is important to note that the May revision to the governor’s proposed budget is only a proposal and will require both houses of the state Legislature to sign off before a budget can be adopted.  However, in the event the budget is adopted as now proposed, the districts would receive in excess of $2 million in ongoing revenues not previously contemplated in the districts’ multi-year financial projections. The districts’ multi-year projections indicate that the structural deficit (i.e. the ongoing imbalance between revenues and expenditure) going into the 2008-09 fiscal year was in excess of $6 million. The districts’ recently cut $4 million with adoption of its Fiscal Recovery Plan on April 22, 2008. The additional $2 million would not enable the districts to restore cuts made previously but may mitigate the magnitude of additional cuts to be made for the 2009-10 fiscal year.