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California Budget Crisis for 2009

Where to begin? Is the 2009 California Budget Crisis really a carryover from the 2008 budget crisis?  Or is the 2009 budget crisis really the 2003 budget crisis only worse? Certainly a case can be made for a bit of both. Regardless, the 2009/10 State budget development will be painful. Since California is under significant pressure to generate cash flow, prior delaying tactics of the Legislature will not work this time.  The process started with an early release of the Governor's budget along with usual. reactions to the Governors budget,  The Governor delivered a very short State of the State speech focused on the budget crisis rather any vision for California. Reaction to the speech was not surprising.

Background Documents

Governor's Fact Sheet detailing how California Arrived at the Huge 2009/10 Projected Deficit
Legislative Analyst Office Review of the Governor's Proposed Budget
Legislative Analyst Office Review of Cash Flow in 2009
Legislative Analyst Office Review of Prop 98 in 2009
Legislative Analyst Office Review of the Governor's May 14 Revise
School Services Pocket Guide to Governor Budget 09/10 for Education

California School Boards Association Analysis of the Governor's 2009/10 Budget
2009 Economic Forecast prepared for CSBA by Beacon Economics
California Budget Project 2009 Report on School Finances
CSBA Budget Advisory 2009/10 Budget October, 2009
LAO Forecast of General Fund Expenditures for Bond Debt
LAO Fiscal Outlook 2010 and Beyond - November 2009
Report on Budget Deficits for all 50 States
State and Federal Representative Contact Information

Prior Year Links
AUSD Finances

January Developments

In late December, the Governor's staff began using a number of social media tools to attract attention to budget deficit. Along with creating a Twitter account to "follow the Governor" they create a widget for people to share:

On December 31st, Governor Schwarzenegger took the unusual step of releasing his 2009/10 budget early.

February Developments 

While California struggles to deal with its budget problem, Pew Research issued a report which four states that are proactively dealing with their budget problems.

In mid-February President Obama signed the $787 billion federal stimulus package. As a result, Alameda Unified School is projected to receive approximately $873,000 of Title 1 funding and $1,923, 000 for Special Education over the next 18 months.

On February 17 the Legislature passed an 18 month budget due to dire fiscal situation. The Legislative Analyst Office issued their anlaysis of the newly passed state busget. A special election is scheduled for May 19 that contains stx ballot measures that all need to pass. The Legislative Analyst Office issued preliminary analysis of six measures: Prop1a, Prop1b, Prop1c, Prop1d, Prop1e, and Prop1f

The Sacramento Bee published a tax calculator to let determine the impact of the new taxes.

March Developments

In a tenous agreement, California Teachers Association agrees to join forces with Governor Schwarzenegger to support Prop 1B. At the end of March, School Service of California presented detailed overview of the State Budget along a review of the Federal Stimulus Plan.

April Developments

In early April, the Department of Education released a presentation on how Federal Stimulus monies would be used for Education. In mid-April the LAO appeared at a statewide EdSource meeting delivered the following presentation that details the entire 2008/09 and 2009/10 budget and Special Election implications on education funding. Alameda County Superintendent Sheila Jordan encouraged local school boards to wait for more information regarding federal stimulus funds at April 30 county meeting.

May Developments

In early May, the California Department of Education published Title I and IDEA distributions for local school districts. The LAO issued a report on the poor conditions that exist cash flow for the coming months. On May 9, the State Fiscal Stabilization Funds projections from the Federal Stimulus were released. AUSD is project to $2,600,000.  On May 19 all of the Propositions related to budget solution passed in February are rejected by California voters. The projected deficit is now over $20 billion.

June Development

Initial 2009/10 budget projections prepared by staff show ongoing revenues being reduced over $5 million a year BELOW 2007/08 levels.  Here a graph of the impact on AUSD base limit revenues:

The San Jose Mercuty prepared a Budget 101 overview of why the State of California continues to have budgetary problems.

July Developments

With the failure of the Legislature and the Governor to agree upon a revised budget to address the $24 billion deficit by June 30th, AUSD does not know what its revenues for 2008/09 will be. The Education Coalition sent a letter to the Legislature opposes any plans to suspend Prop 98.  The California Buget Project published a review of the impact on California schools with the infusion of Federal stimulus monies. On July 21, a budget deal was announced.  On July 28 the budget deal was signed.

P.S. While the 2009/10 budget was signed do not be surprised if the Governor's Janaury budget proposal for 2010/2011 includes a reduction in funding for 2009/10.

October Developments

One of the biggest problem facing public edcuation is receiving at least stable funding from the State. The recent economic downturn which reduced State revenues by over $20 billion leads to dramatic reduction in public education funding. One solution is to rework the tax system to improve smooth out peaks and valleys. The Governor appointed a commission that delivered a report to overhaul California's tax system.  Here is a CSBA's review of the recommendation in that report. CSBA issued an analysis of 2009/10 State Budget. The LAO issued a forecast of general fund revenues that will be used for bond debt.

November Developments

Despite the overall disenchancement with Sacramento, a poll conducted by the LA Times indicates a majority do not favor changes to taxes or the way we govern. The LAO issued a fiscal outlook that shows that the state must address a General Fund budget problem of $20.7 billion between now and the time the Legislature enacts a 2010–11 state budget plan. The budget problem consists of a $6.3 billion projected deficit for 2009–10 and a $14.4 billion gap between projected revenues and spending in 2010–11. Addressing this large shortfall will require painful choices—on top of the difficult choices the Legislature made earlier this year.

The National Association of Governors issued a report on the decline of state spending on public education for 2009.  In addition a report of the budget deficits at all 50 states was published.


Governor Statement

Today's announcement represents the sixth budget I have proposed to the legislature this year. The fact that the legislature has failed to reach a compromise between Republicans and Democrats and take action during the last three special sessions is inexcusable.

My proposal today follows the same blueprint of my last two proposals which balance cuts with revenue proposals. And, I will continue to stand by my promise to Californians and only sign a budget that does everything we can as a state to reduce spending, create jobs and keep people in their homes. It's pretty clear from the legislative leaders that they are listening to what they want to hear in the governor's plan.

Reactions from the four legislative leaders:

Senate President Pro Tem Darrell Steinberg, in an interview with The Bee's Kevin Yamamura: If the administration's point today in putting forward a $41 billion solution is to try to impress upon us the urgency of the situation, it's not necessary. We feel the urgency of the situation, and that's why Speaker Bass and I and our staffs have been working diligently throughout the holidays to try to meet the administration halfway or more on their economic stimulus proposals. The fundamental problem, of course, with what the administration laid out today is that they don't bring a single Republican vote to pass the revenue elements of their proposal.

Democratic Asssembly Speaker Karen Bass, in a prepared statement: The governor's proposal released today has one positive message: he may finally be coming around and realizing he needs to approve the responsible package of budget solutions the legislature passed December 18.

That package includes $18 billion in real cuts and new revenues to head off the cash crisis and take a big swipe at the deficit. It includes $3 billion in new funds for transportation projects and $3 billion in expedited projects voters have already approved. That means we'd be creating 367,000 new jobs at a time California needs all the new jobs we can get.

So far, legislative leaders have compromised, but the governor has been holding up these budget solutions and these new jobs. We've compromised by easing environmental restrictions for transportation projects. We've compromised by expanding public private partnerships. We've compromised by putting half a billion dollars in state employee compensation on the table.

The governor's latest proposal assumes the cuts and revenues from the legislative budget solution package. That's progress. So let's get agreement on that package, keep California from going over the financial cliff, and then tackle the next round of hard challenges to find solutions to the rest of the deficit.

There are significant questions about what revenue the lottery can really bring in...there are concerns about whether California can manage the additional borrowing the governor is proposing ... and there are problems with cuts that seriously harm the students in our schools.

All those issues can be addressed as we move through the rest of the budget process. Right now the most important step is for the governor to recognize that all his demands aren't nearly important as the jobs we want created.

I appreciate the governor acknowledging today the necessity of the cuts and revenues the legislature approved and I hope the governor's first act of the new year will be to sign the responsible package we are putting before him.

Republican Assembly leader Mike Villines, in a prepared statement:

Republicans believe the Governor took important steps to address California's growing budget crisis by including budget reform and proposals to streamline government in his latest budget plan. We also join with him in making economic incentives and job creation a top budget priority.

We are also pleased to see the Governor has adopted the Republican's proposal to let voters choose to redirect billions in existing tax dollars to protect the priorities of working families in these tough budget times. However, Republicans cannot support the Governor's proposal to impose $14 billion in higher taxes on Californians. We believe this will devastate an economy already in turmoil and will hurt people who are struggling to make ends meet. Before we should even consider raising taxes on people, we need to take action to reduce government overspending starting with the elimination of all automatic increases, and enact an economic recovery plan to grow our economy and create jobs.

We cannot wait until the summer to enact responsible budget solutions for California. When the Legislature comes on Monday, we should vote immediately to pass the over $6 billion in common solutions that were in the special session budget plans put forth by Democrats, Republicans and the Governor. Taking urgent action to pass these reductions can get us through our immediate cash flow crisis. If we also take action now to get Californians back to work and to help stimulate our economy, we will be in a better position to address our state's budget problem for next year and the years ahead.

Senate Republican leader Dave Cogdill, in a prepared statement:

I applaud the Governor for including elements of the Republican budget plan into the proposal released today. During these tough economic times, it makes sense to go back to the voters and ask them to redirect money for their intended purposes, such as children's health and mental health programs, instead of sitting idly in the bank.

While Republicans have serious concerns about raising taxes during a recession, we appreciate that the Governor's proposal includes difficult, but necessary reductions to bring state spending closer in line with revenues.

Instead of simply asking taxpayers to send more of their hard-earned money to Sacramento we should focus on economic stimulus. Growing and protecting jobs in California has a direct relationship to a robust state treasury. Stimulating our economy should be the Legislature's top priority and it is unfortunate that the majority party has blocked these common-sense reforms to get more Californians back to work.

In addition, we need to ensure the state never again faces a deficit of this size by enacting long term structural reforms such as a spending cap and rainy day fund.

Republicans continue to stand ready to be a part of a responsible budget solution. The Governor's early release of his budget underscores the magnitude of the state's budget problems and the need for urgent action in addressing this crisis.

Schools Chief Jack O'Connell Issues Statement

SACRAMENTO - State Superintendent of Public Instruction Jack O'Connell today issued the following statement in response to the release of Governor Arnold Schwarzenegger's proposed January budget.

"Many families in California are already reeling from the national economic crisis. The cuts to schools and state services proposed in the Governor's budget will exacerbate the challenges faced by families in these tough economic times.

"I recognize that the magnitude of our state's economic crisis leaves the Governor and the Legislature with very few choices to balance our state budget. I applaud the Governor for calling for new revenues to be part of the solution to the budget shortfall. While cuts may have to be part of this equation, we have to recognize the real world consequences of these drastic steps.

"The Governor's proposal to reduce current year funding to public education by over $6 billion will be extremely difficult for school districts to absorb. I am particularly concerned about the proposal to defer $2.8 billion in payments due early in 2009 to the next fiscal year. This will create a cash flow crisis for school districts.

"I also worry about the impact that the cuts and the proposal to reduce the school year by five days will have on students and learning. Steady increases in achievement data show that students are rising to the challenge of our high expectations. But, offering less time in school runs contrary to our goal of closing the achievement gap and increasing proficiency for every student.

"Finally, while flexibility should never be regarded as a replacement for needed funding, I have heard from many school district superintendents in California that added flexibility is an important tool that will help them weather this fiscal crisis. Discretion over added flexibility must be considered carefully and I will work with the education community, the Governor and the Legislature to flesh this concept out in a way that protects students to the maximum extent possible."

Schwarzenegger seeks education cuts

By Jim Sanders, Sacramento Bee, January 2, 2009

California schools could eliminate a week of instruction and increase class sizes next year under Gov. Arnold Schwarzenegger's new plan for solving the state's budget crisis.

Vowing to give schools maximum flexibility to cut costs, the proposal unveiled Wednesday also would allow districts to eliminate one of two science courses required for high school graduation.

Schwarzenegger's plan would provide no teacher salary increases, eliminate a program providing subsidies to overhaul low-performing schools, and suspend participation in a program encouraging teachers to obtain national certification.

"It's got a lot of ugliness to it and something for everyone to hate," said Kevin Gordon, a veteran education lobbyist who said he sympathizes with Schwarzenegger's plight.

Students could see dramatic impacts from the governor's proposed $2.1 billion in education cuts this fiscal year and $3.1 billion from what schools anticipated in 2009-2010.

"What we've done is protect education to the extent possible," said Chief Deputy Director Ana Matosantos of the state Finance Department.

Matosantos said the state's plunging economy could have forced far deeper cuts in education than the ones Schwarzenegger proposed.

"We'll be working with our education partners and with schools to try to make this as workable as possible, but we recognize that difficult choices are required," she said.

Bob Wells, executive director of the Association of California School Administrators, said the possibility of cutting the school calendar from 180 days to 175 sends a terrible signal.

"It sort of sends the message that we're giving up," he said. "One of the contributing factors to what students learn is how much time they spend (in class)."

Debbie Bettencourt, deputy superintendent of the Folsom Cordova Unified School District, said cutting the calendar would only exacerbate the strain on schools to cover mandated instruction.

Bettencourt said a new round of budget cuts could force Folsom Cordova schools to eliminate its class-size reduction program.

Jack O'Connell, state superintendent of public instruction, said through a spokeswoman Wednesday that the proposed cuts could hurt families statewide but that he understands the governor's dilemma.

"Nobody in education wants less education," said Hilary McLean, O'Connell's spokeswoman. "That's the last thing anyone would propose. But how do you swallow billions of dollars in cuts in one fell swoop?"

O'Connell supports the governor's push to give school districts more flexibility in cutting programs. "It's flexibility - with a gun to our head," Wells said.

Schwarzenegger's budget would not require districts to slice five days of instruction, but it assumes that many would, and it projects $1.1 billion in savings next year.

To compensate for cutting the school calendar, some districts potentially could add more minutes of instruction per day.

California faces a projected shortfall of about $40 billion over the next 18 months.

The governor has proposed to ease the pain, in part, by accounting transfers involving state transportation funds and by deferring $2.8 billion in school payments from April to July. Wells said the state, by deferring payments for three months, would place an "awful" new burden on school districts to secure short-term loans.

"Where they would normally borrow the money is from counties  and the counties are broke," Wells said.

Tri-City educators decry governor's proposal to shorten school year

By Linh Tat, Fremont Argus, January 12, 2009

KATHY CADENA-GARCIA, 8, a third-grader at Cabrillo Elementary School in Fremont, listens to instruction during class Friday. (MIKE LUCIA/STAFF ) Rather than shorten the academic year, if anything, the state should fund increased classroom time, some educators are saying, as they lash out against Gov. Arnold Schwarzenegger's latest proposal to reduce the school year by five days.

The proposal would save the state $1.1 billion annually, but many educators say Californians can ill afford to shortchange today's youths.

"To close the achievement gap and prepare our students for success in the competitive global economy, we should be talking about making the school year longer, not shorter," state Superintendent of Public Instruction Jack O'Connell said Friday.

Agreeing with O'Connell, Fremont Unified's interim Superintendent Milt Werner who will hold a community meeting Thursday to discuss possible budget cuts  called any plan to lessen instructional time "educationally unsound."

"Many students need all the hours we personally have available for instruction. Cutting back on instructional time is something that needs to be put aside. ... I would wholeheartedly support more hours, more days" for instruction, he said.

By law, schools in California must be in session at least 175 days, but the majority of districts offer 180 days of instruction, taking advantage of additional state money available to them if they agree to stretch out the school year.

This arrangement  in effect the past 25 years may end, though, if the state Legislature approves the governor's proposal.

California Department of Education spokeswoman Hilary McLean said it's unclear if shortening the academic calendar would mean a constitutional amendment to allow districts already offering the minimum 175 days of school to drop to 170 days. Only eight states offer fewer than 180 days of instruction, and none offer less than 173 days, according to 2002 figures provided by O'Connell's office.

Newark teachers union President Phyllis Grenier said that, between the lack of school funding and ever-increasing demands to raise academic standards, it's become "harder and harder to teach."

"We already have too much to teach in the time that we have to teach it," she said.

Instead of shortening the number of days students receive instruction in class, school leaders should consider eliminating testing days for students, Grenier said.

Another option would be to eliminate staff development days, which amount to three days per year, she added.

"At least that won't affect the students," she said.

New Haven schools chief Kari McVeigh, meanwhile, is concerned how the governor's proposal might hinder the district's goal of having 85 percent of students test proficient in English and math by 2011.

"Kids who are not proficient currently, given enough time, can be brought to proficient levels. "... We have to have the ability to give kids enough time to do the learning," she said.

The new superintendent also is worried how shortening the academic year might affect school districts' relationships with their employee groups.

The New Haven district has multiyear contracts with teachers and classified employees, which specify that they will be paid for 180 days of work. Even if the state were to reduce funding to the district, "we're obligated to honor those contracts," McVeigh said.

"We can't arbitrarily break teachers' contracts, nor should we think that's a good thing," she added.

Governor Annual State of the State Speech

Lt. Governor Garamendi, Chief Justice George, President pro Tem Steinberg, Speaker Bass, Senate Republican Leader Cogdill, Assembly Republican Leader Villines, Members of the legislature, ladies and gentlemen, we meet in times of great hope for our nation.

Although we hear the drumbeat of news about bailouts, bankruptcies and Ponzi schemes, the nation with great anticipation is also awaiting the inauguration of a new president.

Our nation should be proud of what President-elect Obama's election says to the world about American openness and renewal.

President Reagan used to tell about the letter he got from a man who said that you can go to live in Turkey, but you can't become a Turk. You can go to live in Japan, but you cannot become Japanese. And he went through other countries.

"But," the man said, "anyone from any corner of the world can come to America and become an American."

And now, we know that any American child, no matter what corner of the world his father or mother comes from, can even become President of the United States.

What a wonderful national story for us.

This nation rightfully feels the hope of change.

Californians, of course, desire change here in their own state as well.

Yet they have doubts if that is possible.

For months, in the face of a crisis, we have been unable to reach agreement on the largest budget deficit in our history.

We are in our third special session and we've declared a fiscal emergency - and every day that goes by, makes the budget problem that much harder to solve.

As a result of all this, California, the eighth largest economy in the world, faces insolvency within weeks.

The legislature is currently in the midst of serious and good faith negotiations to resolve the crisis, negotiations that are being conducted in the knowledge we have no alternative but to find agreement.

The importance of the negotiation's success goes far beyond the economic and human impact.

People are asking if California is governable.

They wonder about the need for a constitutional convention.

They don't understand how we could have let political dysfunction paralyze our state for so long.

In recent years, they have seen more gridlock in Sacramento than on our roads, if such a thing is possible.

I will not give the traditional State of the State address today, because the reality is that our state is incapacitated until we resolve the budget crisis.

The truth is that California is in a state of emergency.

Addressing this emergency is the first and greatest thing we must do for the people.

The 42 billion dollar deficit is a rock upon our chest and we cannot breathe until we get it off.

It doesn't make any sense to talk about education, infrastructure, water, health care reform and all these things when we have this huge budget deficit.

I will talk about my vision for all of these things... and more... as soon as we get the budget done.

So, no, I did not come today to deliver the normal list of accomplishments and proposals.

I came to encourage this body to continue the hard work you are doing behind closed doors.

There is a context and a history to the negotiations that are underway.

It is not that California is ungovernable. It's that for too long we have been split by ideology.

Conan's sword could not have cleaved our political system in two as cleanly as our own political parties have done.

Over time, ours has become a system where rigid ideology has been rewarded and pragmatic compromise has been punished.

And where has this led?

I think you would agree that in recent years California's legislature has been engaged in civil war.

Meanwhile, the needs of the people became secondary.

Our citizens do not believe that we in government are in touch with their needs.

These needs are not unreasonable.

At the end of the day, most people do not require a great deal from their government.

They expect the fundamentals.

They want to live in safety.

They want a good education for their children.

They want jobs.

They want to breathe clean air.

They want water when they turn on the faucet and electricity when they turn on the switch.

And they want these things delivered efficiently and economically.

One of the reasonable expectations the public has of government is that it will produce a sound and balanced budget.

That is what the legislative leaders are struggling to do right now.

There is no course left open to us but this: to work together, to sacrifice together, to think of the common good - not our individual good.

No one wants to take money from our gang-fighting programs or from Medi-Cal or from education.

No one wants to pay more in taxes or fees.

But each of us has to give up something because our country is in an economic crisis and our state simply doesn't have the money.

In December, we even had to suspend funding that affects 2,000 infrastructure projects that were already underway.

So, now, the bulldozers are silent. The nail guns are still. The cement trucks are parked. This disruption has stopped work on levees, schools, roads, everything.

It has thrown thousands and thousands of people out of work at a time when our unemployment rate is rising.

How could we let something like that happen?

I know that everyone in this room wants to hear again the sound of construction.

No one wants unemployment checks replacing paychecks.

So, I am encouraged that meaningful negotiations are underway. And, as difficult as the budget will be, good things can come out of it.

Because, in spite of the budget crisis, when we have worked together in the past, we have passed measures that moved this state - and even the nation - forward.

When a budget agreement is reached, when some of the raw emotions have passed, I will send to the legislature the package of legislative goals and proposals that a governor traditionally sends.

These proposals are sitting on my desk. Let me tell you, I have big plans.

They include action on the economy, on water, environment, education, health care reform, government efficiency and reform, job creation.

But, our first order of business is to solve the budget crisis.

And I have an idea going forward.

As you know, in the last 20 years of budgeting, only four budgets have been on time.

So, if you don't mind, let me make a little suggestion.

We should make a commitment that legislators - and the governor, too - lose per diem expenses and our paychecks, for every day the budget goes past the constitutional deadline of June 15th.

You have to admit it is a brilliant idea.

I mean, if you call a taxi and the taxi doesn't come, you don't pay the driver.

If the people's work is not getting done, the people's representatives should not get paid either.

That is common sense in the real world.

And I will send you some other reforms, too.

Let me close by saying something about the fires of 2008.

At one point, I got a phone call that we had 875 wildfires burning all at the same time.

I said to myself, how do we deal with this?

The next morning I get a call, "Governor, there are now 2,014 fires burning all at the same time."

The largest number on record.

Imagine, 2,000 fires, a huge challenge and every one of those fires was put out.

You know why? Because we have the best trained, the most selfless, the toughest firefighters in the nation.

Thirteen of whom lost their lives.

They gave their lives for this state.

Ladies and gentlemen, the courageous examples of those firefighters should not be lost on us.

In our own way, we, too, must show courage in serving the public.

Ladies and gentlemen, let this be a year of political courage.

Let us be courageous for the people.

Let us be courageous for the common good of California.

Let us resolve the budget crisis, so that we can get on with the people's work.

Thank you.

Governor Schwarzenegger delivered his 2008 State of the State speech that focused on fiscal responsibility by proposing a constitutional amendment to change the budgeting process. In his 2007 State of the State speech he focused on finding the center compared to the 2006 speech focused on rebuilding the State while the 2005 speech focused on reform.

Reaction to Governors State of the State Speech

Lt. Gov. John Garamendi

The speech was extremely disappointing because the Governor stated the obvious and was very lean on solutions. Democrats in the Legislature have offered compromise after compromise and the Governor vetoed their proposals, directly pulling the plug on public work projects.

I believe that California is governable.

We need a governor who can lead. We need solutions that respect our working families, invest in our children, environment, and the future greatness of California.

We must work together.

The Governor said he would not talk about education, the environment, health care and children in his State of the State because his speech was about the budget. Yet these are the essence of our state budget. They are on chopping block and they are on the forefront of the minds of the people of California.

State Controller John Chiang:

We cannot afford another unbalanced budget or another year of missed opportunities. I commend the Governor for setting a positive tone and recognizing that it will take courage and collaboration to solve our persistent budget problems.

I urge Legislative leaders to continue working with the Governor on the responsible solutions that will to put an end to our cash crisis. Solving a deficit of this magnitude will require the Governor and Legislature to make painful choices - but the responsibility to make those choices comes with the job of elected office.

State Superintendent of Public Instruction Jack O'Connell

Governor Schwarzenegger is right: the severity of state's budget crisis does demand our total focus. Closing the budget shortfall will require sacrifice on the part of every constituency and taxpayer. However, we must not allow this crisis to force decisions that shortchange our future. I disagree with the Governor's proposal to shorten the school year by one week. To close the achievement gap and prepare all students for success in the competitive global economy, we should be offering more time in class, not less. California currently ranks 47th in the nation in terms of per-pupil spending. The cuts to public education proposed by the Governor would certainly push us to the back of the pack. Education is the key to surviving this economic downturn and thriving when the economy improves. I urge the Governor and legislative leaders to quickly find a budget solution that keeps the school year intact and protects students to the greatest extent possible.

Legislative leaders

Assembly Speaker Karen Bass:

The governor's state of the state address underscored the sacrifices ahead of us in guiding our state through this economic emergency.

In his address the governor committed to working with the legislature to solve the budget problem, and that's important.

Californians want us to negotiate a solution to the budget and avoid the cash crisis. They don't want school districts to go broke and layoff teachers...they don't want small business vendors getting IOUs and they don't want their income tax refunds delayed.

Democrats have stepped up by passing an $18 billion package of solutions ....we've stepped up by cutting our operating budget 10%.... we've stepped up by introducing bills to aid unemployed Californians ....we've stepped up by introducing a green economic stimulus package that will create more than 40,000 jobs ...and we're stepping up by pursuing foreclosure relief and mortgage reform.

When the governor and legislature work together as partners, real achievements like AB 32 and the infrastructure bonds get done. The same can happen on the budget.

Assembly GOP leader Mike Villines:

Republicans share the Governor's sense of urgency that we must work through our differences to reach consensus on honest solutions to solve our immediate and long-term budget challenges. We agree with him that now is not the time for new programs and new initiatives we cannot afford given our budget crisis.

However, we believe California has a unique opportunity this year to make positive changes to ensure government operates more efficiently and prevent future budget crises from hurting Californians. That's why Republicans will work hard to pass common-sense reforms to turn our economy around and encourage more job creation in our state, help local schools spend less on bureaucracy and invest more in our kids, ensure the state spends every tax dollar as effectively as possible and fix our broken budget system to help California live within its means.

We will continue to work across party lines and are optimistic that we can reach agreement on a budget compromise and the reforms necessary to get Californians back to work and put our state on the road to recovery.

Senate GOP leader Dave Cogdill

The Governor's decision to dispense with the primetime pageantry of years past is appropriate in light of California's dire financial condition. We see eye to eye on the fact that getting unemployed Californians back to work is vital to our economic recovery, and I've been pleased with his insistence that economic stimulus must be an integral component of any budget package. I also agree that our budget system is broken and in need of substantive and lasting reform. Senate Republicans have been proposing structural reforms of the budget process for years, and we'll continue to press for them.

Senate leader Darrell Steinberg, D-Sacramento (the beginning of his response):

We stand here together on behalf of our respective houses to tell Californians that we are working hard to find common ground with Republicans and the Governor on a budget solution.

We all understand what is at stake: California will run out of money if we fail to act. Tax refunds delayed. Job creating construction postponed.

There is nothing easy about making up a $41 billion shortfall in our state budget.

We have children to teach. Roads to build. Natural resources to protect. Seniors to care for. But we don't have the money to do everything this year, thanks to a national and international economic crisis that some say is the worst since the Great Depression. In bad economic times many Californians know what it means, in fact, to cut back.

State Government must do the same, but in a way that does the least damage to public education, to the environment, to the economy and to those most vulnerable protected by our social safety net.

We have to and we will, throw out the harsh rhetoric in times like these. It's no time for finger-pointing - Californians want and deserve more from us. They expect us to work together to fix the problem and that's exactly what we are in the midst of doing.

To the extent that we have real differences with our Republican colleagues or the Governor, there will be policy differences and we will work them out the best we can. We have no choice.

Like the Speaker, I am still extremely proud that the majority party sent the Governor an $18 billion deficit reduction plan that would have fixed nearly half the budget shortfall and perhaps forestalled the cash crisis.

And I genuinely believe that our action in that regard, in part has lead to the resumption of Big 5 negotiations and the effort to solve the entire $41 billion problem.

February Budget Deal

The overall budget solution includes $15 billion in cuts, $14.4 billion in temporary revenues and $11 billion in borrowing ($6 billion from Revenue Anticipation Warrants and $5 billion from lottery securitization). Revenues include five major elements:

  • 1-cent increase in the sales tax
  • Vehicle License Fee increase to 1 percent of the car’s value
  • 0.25 percent increase in the state income tax
  • reduction of the dependent care tax credit
  • income tax surcharge of 2.5 percent

Revenues are tied directly to the passage or failure of a modified spending cap that will appear on the ballot in a statewide special election to be held May 19. 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 enactment.

The following measures will appear on the May 19 ballot:

  • 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
  • Proposition 1C: education funding for the maintenance factor
  • Proposition 1D: allows the state to divert the use of Proposition 10 monies
  • Proposition 1E: allows the state to divert the use of Proposition 63 monies

2008-09 K-12 cuts

The budget reduces the current year Proposition 98 appropriation by $5.9 billion through a mix of program reductions, deferrals and redesignation of funds. Of this amount, $2.3 billion would come from program reductions, which would reduce actual apportionments to districts in the current year. The reductions eliminate the partial cost-of-living adjustment and then are evenly split between categorical program funding and revenue limits. (See below for more information on categorical funding.)

2009-10 K-12 cuts

The 2009-10 budget includes the following K-12 education provisions:

  • eliminates the estimated 5.02 percent statutory COLA for school district and county office revenue limits
  • further reduces K-12 spending within Proposition 98 spending levels by $530 million; this reduction will be split equally between revenue limits and categorical programs as follows:(1) $265 million reduction to school district and county office of education revenue limits (added to Proposition 98 deficit factor): and (2) $265 million in across-the-board reductions (4.9 percent) to the same categorical programs (Tier II and III—see below) reduced in 2008-09
  • eliminates the High Priority Schools Grant Program, resulting in $114.2 million in additional K-12 cuts

In 2009-10, a deficit of 13.094 percent will be applied to school district revenue limits and 13.360 percent to county office of education revenue limits.

Categorical program cuts and flexibility

There are three tiers of categorical program cuts. The programs in Tier I will receive no funding cuts, but for those programs there will be no “program flexibility” in the use of the funds, and no ability to waive statutory requirements. Programs in Tier II will receive a funding reduction of approximately 15 percent in the current year, but there is no program flexibility and the programs are to be operated in accordance with current statute. Tier III will also take an approximately 15 percent cut, but with “maximum flexibility.” Districts will be able to use these funds for any purpose. The changes to these categorical programs will be in effect for the remainder of this fiscal year and for four additional years.

Categorical programs’ tiers are:

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
  • agriculture-vocational education
  • apprenticeship programs
  • Charter School Facilities Grant
  • English Language Acquisition Program
  • foster youth
  • K-12 high speed network
  • multitrack year-round education
  • partnership academies
  • state testing

Tier III includes all other categorical programs. These programs will receive an approximate 15 percent reduction in the current year and for four additional years.

K-3 class-size reduction flexibility

Technically, there will be no change to the statutory requirements of the K-3 class size reduction program. However, there will be changes to the penalty provision for classes that exceed the current 20.4 to 1 ratio of students to teachers. The changes to the penalties are as follows:

  • up to 20.5 students per teacher—no penalty
  • up to 21—5 percent penalty (20 percent penalty is current law)
  • up to 21.5—10 percent penalty (40 percent penalty is current law)
  • up to 22—15 percent penalty (80 percent penalty for 21.9 is current law)
  • from 22 to 25—20 percent penalty
  • Over 25—30 percent penalty (with no cap)

      Prior-year categorical reserves

      The budget 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—and to use the money for any educational purpose. Categorical programs “protected” from such access are:

      • economic impact aid
      • Targeted Instructional Improvement Grant
      • instructional materials
      • special education
      • Quality Education Investment Act
      • California High School Exit Exam
      • supplemental instruction
      • home-to-school transportation

      Other flexibility provisions include:

      • routine maintenance reserves: reduces the amount that school districts are required to set aside in "routine restricted maintenance accounts" from 3 percent to 1 percent of their general fund budgets for the current year plus four years
      • deferred maintenance: eliminates the local 0.5 percent statutory match for deferred maintenance for the current year plus four years

      The budget makes no changes to the current reserve requirements under Assembly Bill 1200 and does not include Gov. Arnold Schwarzenegger’s proposal to suspend mandates for the budget year.

      Maintenance factor

      An issue arose in January 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 asserted, incorrectly in the view of most school finance experts, 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—an amount equal to the estimated existing maintenance factor. Specifically, the proposal—contained in Assembly Constitutional Amendment 3X 2 by Assembly Speaker Karen Bass, D-Los Angeles, 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, because the funding source for these payments would be half of the annual set-aside for the fund. Assembly Member Niello’s ACA 3X 1 would create the Supplemental Education Payment Account for the purpose of making the payments to schools and require 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. These supplemental payments will appear before voters as Proposition 1C on the May 19 ballot.

      Budget stabilization

      ACA 3X 1, which will appear on the May 19 ballot as Proposition 1B, establishes a state rainy day fund. Beginning with the 2011-12 fiscal year, the state would be required to calculate “unanticipated revenues,” which would be actual revenues (plus transfers and prior year reserves) that exceed revenue forecasts for that year. The calculation of forecast revenues would be based on actual revenues received for the prior 10 years, using a linear regression analysis.

      The first priority for any 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 forecast revenues if a portion of the excess revenues is 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 Consumer Price Index and population growth).

      After the Budget Stabilization Fund reaches its cap, any unanticipated revenues would be spent in the following order of priority:

      1. outstanding Proposition 98 obligations
      2. debt service
      3. one-time infrastructure or other capital outlay purposes
      4. additional debt retirement
      5. unfunded liabilities for vested non-pension benefits for state annuitants
      6. transfer by statute to the Budget Stabilization Fund

      Voter approval of the Budget Stabilization Fund is tied to the proposed revenue package and to the maintenance factor payment. If voters approve the fund, 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 the Budget Stabilization Fund is necessary to provide the funding source for the Proposition 98 maintenance factor payment.

      What’s next

      This budget package covers the balance of the current fiscal year and the next budget year. However, there will still be a May Revision on May 26 (one week after the May 19 special election) to make changes—if needed—on the basis of updated information regarding state revenues and to address the failure of one or more ballot measures, if that should occur.

      Budget crisis spawns uneasy election alliance between Governor, teachers

      By Anthony York, Capital Weekly, March 5, 2009

      The California Teachers Association, which more than three years ago led the charge against Gov. Arnold Schwarzenegger's special-election bid to slash state spending, has changed its tune -- dramatically.

      The May 19 special election has brought about a temporary and uneasy truce between the Schwarzenegger administration and the teachers union that once spent millions to defeat the governor's agenda.

      More than three years ago, the California Teachers Association spearheaded the opposition against Schwarzenegger's special election initiatives. Among those measures was Proposition 76, which sought to limit state spending.

      Now, CTA is deeply invested in the passage of the governor's new spending cap proposal. That's because the measure that guarantees the $8 billion in school payments -- Proposition 1B on the May 19 ballot -- can only be enacted if the spending limit plan -- Proposition 1A -- is also approved by voters.

      Late last year, the Schwarzenegger's administration was heading for a showdown with the powerful education lobby. The state's cash flow had plummeted, altering the revenue-driven formula used to determine how much money the state owed to public schools. The governor's numbers crunchers said they owed schools $8 billion less than what the schools thought they had coming.

      The details of how and why the two groups came up with such radically different numbers has roots in the minutiae of education finance, a subject that forces the eyes of even experienced Capitol veterans to glaze over.

      But the compromise that was reached was a purely political one. Essentially, the schools were given their extra $8 billion, if they agreed to wait until the 2011-12 fiscal year to recoup that money. And for good measure, the administration wrote a provision into the deal that said schools were only guaranteed their money if the governor's spending cap proposal is approved by voters in May.

      The linking of the two measures was a political maneuver by Schwarzenegger to ensure the teachers union did not work to defeat the spending limit proposal. CTA has not formally taken a position on Proposition 1A, but spokeswoman Sandra Jackson said it was highly likely they would support the measure.

      "We have taken a position on 1B. That is the measure that would repay Proposition 98. Of course, 1B is contingent on 1A passing, but our state council has not formally taken a position on that yet."

      While the Schwarzenegger campaign team has set up a campaign committee to support all six of the measures on the May 19 ballot, campaign spokeswoman Julie Soderlund referred questions about Proposition 1B to the teachers' union.

      CTA President David Sanchez wrote the ballot arguments in support of Proposition 1B. In those ballot arguments, Sanchez writes 1B "starts the process of paying back to the schools and community colleges some of the money lost by (recent) devastating cuts."

      Under current law, the state may delay payments to schools in years of financial trouble. When revenues are down, the state can essentially borrow against the money Proposition 98 sets aside for schools. That borrowed money, known as the maintenance factor, is currently at more than $1.4 billion.

      If Proposition 1B is approved, it would set up a more rapid repayment plan for money "borrowed" against schools in the future.

      The measure stipulates that 1.5 percent of general fund revenues would go to repaying any future maintenance factor debts. So, if general fund revenues come in at $100 billion, up to $1.5 billion would automatically go to settling up general fund debts to the schools. That is in addition to the formulaic guarantee set out in Proposition 98.

      "Prop. 1B has an easy payment plan," said Rick Simpson, who advises Speaker Karen Bass, D-Los Angeles, on education issues. "It will create a steady restoration schedule of 1.5 percent of general fund revenues, which makes it more predictable for schools."

      The state legislative analyst's breakdown of Proposition 1B underscores the potential fight that would erupt if the measure is not passed. On the one hand, the LAO writes, the bill could save the state "several billion dollars" over the next two years by delaying maintenance factor payments.

      But that is under a reading of the law that says the schools would be owed $8 billion next year. "Under other interpretations of current law, however, this measure would result in no savings in 2009-10 and/or 2010/11," the analysis states.

      But passage of the measure "under most situations" would increase state payments to public schools and community colleges "potentially by billions of dollars each year."

      Simpson said the administration avoided a showdown with the education lobby by agreeing to place Proposition 1B on the special election ballot. But the détente is all dependent on the measure being approved by voters this spring.

      Simpson said if Proposition 1B is not enacted, Schwarzenegger and education interests will once again be locked in an $8 billion showdown. The fight would come back "with a vengeance" if the measure is not enacted, Simpson said.

      A brief Proposition 98 primer

      Proposition 1B would alter the way the constitutional guarantee for schools is calculated, and how certain payments to schools are made. No piece of the budget is more arcane or complex than education finance. What follows is a brief explanation of how California public schools and community colleges receive their funding.

      In 1988, voters approved Proposition 98, which set minimums for how much the state was required to spend on education. The initiative set up a number of formulas - called "tests" - to determine the amount of money schools would receive.

      The first formula, known as Test 1, ensures that public schools and community colleges receive about 40 percent of all money in the state's general fund. That money was intended to be a bare minimum. Indeed, in all the 20 years since Proposition 98's passage, the funding for schools has exceeded 40 percent of the state's general fund revenues.

      In years of general fund growth, the formula known as Test 2 is used to come up with the schools' dollar figure. Test 2 links increases in school funding to growth in the state's per capita income.

      In years of slower growth, Test 3 typically applies. Test 3 was not actually part of Proposition 98. It was adopted in 1990 as Proposition 111 as a way to lower demands on the general fund in times of slow budget growth. Test 3 is typically used when general fund revenues drop. In those years, the state can defer payments to schools for up to five years.

      The money owed to schools by the general fund is known as the "maintenance factor," a fancy term for a debt. The current maintenance factor is about $1.4 billion. That is money that was owed schools and has not yet been repaid, dating back to 2005.

      This year, for the first time since Proposition 98's passage, schools are simply guaranteed the 40 percent minimum of the state's general fund. With plummeting revenues, the state now finds itself in a "Test 1" year for the first time.

      There has been debate over whether the state still owes the "maintenance factor" money to schools in Test 1 years. The Legislature and Gov. Schwarzenegger have tangled over that $8 billion question. But Proposition 1B avoids that particular fiscal showdown -- for now.


      State and Federal Representatives

      Senator Feinstein
      Senator Boxer
      U.S. Representative Pete Stark

      Suggested topics for Federal representatives include:

      • improving funding Special Education (AUSD services provides exceed reimsbursement by over $5 million a year)
      • improving funding for No Child Left Behind (AUSD has no real estimate of costs with compliance with the Federal legislation)
      Governor Schwarzenegger
      State Senator Hancock
      Assembly Member Sandre Swanson

      Suggested topics for State representatives include:

      Prior Year References

      2003 State Budget Crisis
      2004 State Budget Crisis
      2005 State Budget Crisis
      2006 State Budget Crisis
      2007 State Budget Crisis
      2008 State Budget Crisis
      2003 AUSD Budget Issues
      2004 AUSD Budget Issues
      2005 AUSD Budget Issues
      2006 AUSD Budget Issues
      2007 AUSD Budget Issues

      Send mail to mikemcmahonausd@yahoo.com with questions or comments about this web site.
      Last modified: January 2, 2009

      Disclaimer: This website is the sole responsibility of Mike McMahon. It does not represent any official opinions, statement of facts or positions of the Alameda Unified School District. Its sole purpose is to disseminate information to interested individuals in the Alameda community.