The Governor s Budget for Proposes Historic Cuts for Education

Transcription

1 The Governor s Budget for Proposes Historic Cuts for Education February 5, 2008 Gov. Arnold Schwarzenegger s proposed budget for has sent shock waves through the education community. He has recommended a $4.8 billion cut for K-14 education, on top of a $400 million reduction for education in the current year. The net effect is about $750 less per student than K-12 education would normally receive or about $18,750 per classroom. On Jan. 10, Gov. Arnold Schwarzenegger released a proposed budget for that includes cuts for most state programs, but hits education particularly hard. His proposal calls for the suspension of Proposition 98 the state s minimum funding guarantee for public schools and community colleges in order to help address a $14.5 billion state budget shortfall. The proposed cuts are the largest ever contemplated for public schools in California. Along with the budget release, the governor declared a fiscal emergency that will affect funding in the current year. Consistent with new regulations approved by voters in Proposition 58, the Legislature is required to act quickly to address the current budget problem. This brief describes the governor s proposal and outlines the immediate impacts it is expected to have on California school districts as they complete this school year and plan for the next. The state budget situation will affect current year funding For K 14 education, the most immediate concern is the state decision regarding funding for the current school year. The governor s budget calls for a $400 million reduction in state appropriations to public schools and community colleges. The $400 million includes a reduction of $40 million for community colleges and $360 million for K 12 schools. Along with recommending a $360 million reduction for K 12 education, the governor recommended a process for how the cuts should be made. The Department of Finance (DOF) would identify funding allocated to categorical programs that has not been sent to districts yet and/or may not be needed. If the total reduction is not covered by these funds, the governor proposes taking the balance from districts general purpose revenue limit funds. Page 1

2 Because of this uncertainty, the Fiscal Crisis & Management Assistance Team (FCMAT), and the California County Superintendents Educational Services Association (CCSESA) agencies charged with the oversight of school districts fiscal health are cautioning that the amount available from these programs may not reach $360 million. These organizations are urging districts to plan for the worst-case scenario based on the assumption that about $180 million could be cut from revenue limit funds statewide, which is equal to about one-half of one percent of revenue limit funding for each district, or about $30 per student. The state would take this deduction at the time it issues districts second round of funding commonly referred to as the P-2 allocation after the school year ends. A further proposal in the governor s budget is to delay that P-2 allocation to districts, which totals about $1.3 billion, from July to September. This move is aimed at strengthening the state s cash reserves. Education advocates say it would do so at the expense of local school districts, some of which would have to borrow to meet their own cash flow requirements. The governor proposes funding education $4.8 billion below what COLA and workload projections would otherwise provide in The governor s proposal for assumes that his current year recommendations will be implemented. He then recommends that K 14 education be treated in the budget year the same way as other state programs. In crafting the proposal, the administration first created a workload budget for all state programs, including education. The workload budget starts with the revised funding levels and projects what each program would get based on a cost-of-living adjustment (COLA) and changes in workload, which for K 12 schools means average daily attendance. Then the governor proposes an across-the-board cut of approximately 10% for almost all state-funded programs. For public schools, however, the reduction would be 10.9% according to the Department of Finance. The total reduction from the workload budget is $4.8 billion, with $4.3 billion from K 12 education and $500 million from community colleges. Total Proposition 98 funding for would, under the governor s proposal, be $55.6 billion. As the table below shows, that is $1.4 billion less than K-14 education was slated to receive in the current year and $1 billion less than it would receive under the governor s revised budget. Page 2

3 An important question is what net effect these reductions would have on schools. Estimates of the impact on per-pupil funding help to put it into perspective. The difference between what schools would get in (based on the governor s workload budget) and the final budget proposal is $750 per student. The $1.4 billion difference between what they were allocated in the Budget Act and the proposal comes to about $250 per student. These figures are based on the state s average daily attendance, which the governor s office is estimating at 5.89 million students for A cut of that magnitude would require the suspension of Proposition 98, which can only occur with a two-thirds vote of the State Legislature. Proposition 98 was also suspended in but that was a year when state revenues were growing so the suspension did not involve cuts from the prior year. That year, education advocates promised Schwarzenegger that they would not fight a suspension vote, provided that the maximum reduction to education funding would be $2 billion, a level which provided both COLA and growth. This year, the state s major education groups have already come out forcefully opposing another suspension (in millions) (in millions) Budget Act Revised Gov s Proposal K 12 $50,797 $50,423 $49,310 Comm Colleges $6,209 $6,167 $6,223 Other agencies $119 $119 $106 Total $57,125 $56,709 $55,640 Data: Legislative Analyst s Office, Overview of the Governor s Budget, January 2008 Education cuts affect general purpose and categorical funds differently As is the case with the current year reductions, the governor s budget proposal is specific in its recommendations for how education cuts should be made. For K-12 education, the three-step process for calculating the reductions in state funding looks like this: 1. apply to eligible programs the 4.94% cost of living adjustment (COLA) called for in state law to eligible programs, 2. adjust the program funding for enrollment changes (most programs), which is generally a decrease because of declining enrollments, and 3. impose a 10.9% cut on the total workload funding for Page 3

4 School Services of California estimates that for districts revenue limit funds, the net result of this calculation is a 2.4% cut statewide. For categorical programs that receive a COLA, the cut averages about 6.5%. A few programs would not receive COLA adjustments and are simply cut by 10.9%. One approach to explaining this difference is to think of Proposition 98 funds for schools as a pie that is first divided into two major sections: revenue limit funds and categorical programs. Considering the revenue limit slice first: this segment includes both property taxes and state funds. The 10.9% cut would apply only to the state-funded portion, with the net result a 2.4% reduction in total revenue limit funding for the average school district. Page 4

5 The categorical program segment comes exclusively from state funds. About 8.5% of categorical dollars are in programs that do not receive a COLA (based on either law or historical patterns) and are marked for the 10.9% reduction. For the bulk of categoricals, applying the governor s formula results in a 6.5% reduction. Further, the state effectively has divided the categorical portion of the pie into a multitude of separate slices or programs that range widely in size. The governor s proposal calls for keeping all those slices. The following table shows that the six largest state categorical programs which include child care/development and adult education fare somewhat differently under this scenario. (All dollar amounts are in millions.) Program Revised Base Funds for workload change COLA (4.94%) Total Baseline Budget Proposed funding after reduction of 10.9% Net reduction as % of Base Special $3,133 -$17 $169 $3,285 $2, % Education Class Size $1,830 $9 $57 $1,896 $1, % Reduction (K-3) Child Care & $1,734 $11 $80 $1,825 $1, % Development Targeted $1,076 -$5 $53 $1,123 $1, % Instructional Improvement Grant Economic $994 $0 $49 $1,043 $ % Impact Aid Adult Education $753 $19 $38 $811 $ % Data: Department of Finance. Adjustments: Strategic Education Services Page 5

6 The Legislature has alternatives to consider The same total savings to the state could be achieved using a variety of other approaches to categorical funding in particular and to the funding pie for schools overall. For example, some categorical slices could be eliminated or reduced even more to make funds available for other uses. Policymakers could also decide to not cut revenue limits at all, but make all the reductions from the categorical side of the pie. The Legislature has two sets of decisions to make related to next year s K-12 budget allocations. The first is whether it agrees with the governor s basic recommendation of a cut for K 12 schools and the amount of that cut. The second is how it wants to configure the slices of the funding pie, perhaps changing some of the slices. The latter could take many different forms depending on whether lawmakers have specific programs they want to eliminate or protect, and the degree to which they believe local school districts need flexibility in a particularly difficult budget year. School districts must start taking actions now, planning for the worst Each year, school districts in California begin developing their budgets for the coming year based on the governor s budget. This document is just the starting point for what promises to be a lengthy and contentious debate in Sacramento. At the same time, it forms the basis for district projections, legal reporting, and personnel decisions that must be made before the debate is finished or state decisions are clear. Districts are being urged by FCMAT and others to plan for the worst so they can meet their financial obligations no matter what the final budget decisions are. Step one is for each district to determine the extent of its potential funding cuts. The impact of the governor s budget proposal on a given district will vary for a variety of reasons. The actual reduction in general purpose funding depends on the district s current revenue limit amount and a set of detailed calculations. The balance of cuts, especially those from categorical programs, will be more complex as they depend on which programs a district participates in and the portion of students they expect to serve (at least for many programs). Based on the governor s budget, most districts will have to cut personnel School districts work evaluating next year s budget and potential cuts must begin immediately because they will quickly face important personnel decisions. By March 1, districts must give notice to any administrator who could be Page 6

7 reassigned to the classroom for the school year, which is a distinct possibility given the severity of the proposed budget cuts. By March 15, they must provide layoff notices to teachers who might not be employed next year. If they do not give the affected employees notice by these deadlines, their subsequent ability to make these staffing reductions will be limited. Because personnel costs represent more than 80% of expenditures in most districts, few will be able to respond to the worst case scenario without some workforce reductions. The Education Coalition is predicting that the governor s proposal could lead to dramatic reductions in support staff at schools as well as widespread teacher layoffs, with resulting increases in class sizes. Concurrently, districts must analyze their financial position through January 31 and prepare their Second Interim financial report, which is submitted to the local County Office of Education. In that report, a district certifies its ability to meet fiscal obligations in the current year and next two years. (For a full budget cycle calendar go to Preliminary information indicates that 55% of districts might be in financial trouble A survey of county offices conducted by CCSESA indicates that perhaps 55% of districts in the state will file a qualified or negative certification saying that they either might not or cannot meet their financial obligations. Normally, a negative or qualified certification triggers extra scrutiny on the part of County Offices of Education and can trigger sanctions, but the sheer numbers will likely prompt some variation in how that is handled. FCMAT and CCSESA are working with county offices and district officials to develop a rational approach for this extraordinary situation. In the slightly longer term through the end of June the state s budget process will proceed. An important benchmark in that process will be the May Revision, which will update the state s revenue and caseload projections leading up to the final budget decisions for At that point school districts will have more information with which to finalize their budgets, which must be approved by June 30, regardless of whether state leaders have met the constitutional deadline for the overall state budget. Page 7

8 What are the key decisions policymakers must consider in the months ahead? The budget is likely to be the major focus for state policymakers through at least the next six months. The Legislature will be responsible for either turning the governor s proposals into law or developing alternatives that deal with the state s fiscal crisis differently. In his State of the State speech, the governor positioned this year s budget difficulties as an expenditure problem. Others, including the Legislative Analyst and education advocates, say that the state cannot just cut expenditures to bridge its $14 billion gap. Rather, they are calling on the Legislature to expand state revenues as well, which could be done by closing some tax loopholes, increasing fees, or raising taxes in some other way. Such actions would require a two-thirds vote of the Legislature and the agreement of the governor, as would the suspension of Proposition 98. Ultimately, legislative passage of the state budget has the same two-thirds requirement, which means that all three decisions will likely be closely tied together. Whatever level of funding is available to schools, state policymakers will also have to decide how the funds will be allocated and the effects on specific programs or allocations, such as revenue limits. In addition to the specifics related to dollar amounts, the governor has also proposed some fundamental changes to the state s budget process. One proposal is the Budget Stabilization Act, which in high-revenue years would exclude funds from the calculation of General Fund growth and give the governor power to make unilateral spending reductions if a deficit occurs. Another is a change to how the state calculates the annual cost-of-living adjustment for state programs, including Proposition 98. These could have a significant effect on the Proposition 98 minimum guarantee, but details on these proposals are not yet available. Because both require voter approval, the Legislature will need to decide whether to place them on the June 2008 ballot and in what form. Despite already being funded at a lower level per pupil than schools in most other states, and having some of the worst staffing ratios in the nation, California schools will almost certainly face budget cuts in Members of the State Legislature could decide they agree with the governor s approach and cut about $800 per student from K-12 education. They could take cuts from other areas of state government. Or they could choose to pursue more solutions on the revenue side of the ledger in order to mitigate the level of cuts they must make. Page 8

9 Defining the options that get serious consideration and the terms of the debate will be an important part of this spring s discussion in Sacramento and will be crucial to the solutions that eventually are considered and adopted. It appears that California is in for a long and likely very difficult debate before the budget is finally adopted this summer. Whatever is decided will reverberate through California public schools for years to come. FOR MORE INFORMATION EdSource provides clear explanations of California s school finance system and district budgeting procedures at The site has a new Budget and Funding section where this article is available electronically and updates on the budget situation can be found. The Legislative Analyst s Office, publishes various analyses of the budget. The full budget documents, as well as summaries, are posted on the Department of Finance website at For more on what the Education Coalition is saying, go to The California Budget Project provides analysis of the overall budget and its effect on low- and middle-income Californians. A variety of publications are available at NEED DEFINITIONS? Explanations of the following terms found in this article can be found in the Glossary on the California School Finance website ( Proposition 98 Revenue Limits Categorical programs Page 9