Each January the Governor submits his proposed budget to the Legislature. This is the first act in the a three part play. The second act occurs in May with the May Revise and finally the third act is the actual passage of the budget. Even before the Governor submits discussions begin. In 2004, the education lobby began with a request for the Governor to "honor his deal" from 2003. In 2005, the education lobby make their request for $5.5 billion in an additional funding. The Governor and his Education secretary responded with their potential direction. Sacramento Bee columnist Dan Walters examines the big picture behind funding California public education. Sacramento Bee columnist Peter Schrag examines what school reform can be agreed to within the negotiations for additional dollars for public education. George Skelton Los Angeles columinst examines the dynamics between the Governor, the education lobby and the Legislature in the coming year.
After the initial flurry reaction to the released budget, there is minimal activity until May revise is released. The exceptions are editorial pieces or press events that attempt to shape the budget talks during the coming months. Dan Weintraub, Sacramento Bee columnist explains that the current good economic times need to be handled carefully. Goerge Skelton, Los Angeles Times columnist, points it is hard the "people's Governor" when they do not know what they really want. Speaker Nunez comments the education funding in a weekly press conference in early February. In late February, the California School Board Association reported on the Legislative Analyst Office review of the budget.
In late January, the California Teachers Association selects Phil Angelides as their Demoractic candidate for governor. Amazingly enough, the blogosphere had already predicted the outcome before seemingly democratic vote took place.
Schools want $5.5 billion in additional funding next year
By Tom Chorneau, Associated Press Writer, December 3, 2005
SACRAMENTO (AP) - The state's powerful education lobby has met privately with top aides to Gov. Arnold Schwarzenegger and sought to make two points clear: it came out on top in the Nov. 8 special election and it wants the administration to make good on a $5.5 billion bill to schools next year.
The Wednesday meeting, which lasted an hour, could prove a significant step in repairing the damaged relationship between the governor and educators. It also could hasten a resolution on education funding, a perennial sticking point in budget negotiations because it accounts for the greatest chunk of the state's annual spending plan.
"It was much more than a handshake meeting," said Bob Wells, executive director of the Association of California School Administrators. "It was an opportunity for both sides to start saying some of the things that need to be said so that we can move on."
The stakes are high. The additional $5.5 billion that schools are requesting likely would force the state to cut other programs, draw on reserves or even borrow money.
Educators said they are owed the money from an agreement the governor made with them shortly after taking office in 2003. They maintain that voters supported the notion of fully funding education when they overwhelming rejected the governor's Proposition 76, which would have capped state spending and revised a funding guarantee for schools.
"It was a bit uncomfortable, but we had to remind them that we won," Wells said. "We also had to be honest with them about the numbers."
Republican lawmakers, already wary of Schwarzenegger's decision this week to hire a Democratic activist as his new chief of staff, said they are following the early budget talks. They also are watching for any sign that the governor might go too far in making amends to schools.
"There's always that concern," said Senate Minority Leader Dick Ackerman, R-Tustin.
He said the education coalition is overreaching.
"If their opening salvo is that they want more money, I don't think that's going to impress anyone," he said.
Ackerman also said he did not believe voters gave any mandate in the special election and said his caucus will not support a significant hike in spending without more controls on how money is spent.
The governor has only a few more weeks to complete work on his budget plan, which must be finished early next month. Education spending represents about half of the $117 billion state budget.
Unlike past years, state coffers are looking flush for the next fiscal year, which begins July 1.
The nonpartisan legislative analyst estimates that the state will have $5.2 billion more than anticipated by the end of the 2006-2007 fiscal year. But almost all that money will be needed to cover the expected growth in expenses, which includes a minimum funding mandate for schools.
H.D. Palmer, spokesman for the governor's Finance Department, would not comment about the Wednesday meeting. But he said schools can expect to get more money than last year's $50 billion - the most ever spent for kindergarten through 12th-grade education in California.
"The question is, 'How much more?'" he said. "And that's something we will be deciding in the next couple of weeks."
School lobbyists' claim to the money dates to an agreement they made with Schwarzenegger in December 2003, about a month after he was sworn into office.
Facing a multibillion dollar budget deficit, the governor asked schools to give up half of a $4 billion increase in funding they could have demanded under Proposition 98, the voter-approved funding guarantee.
As part of that deal, educators say the governor promised to share any extra unanticipated tax revenue that came in that year. The state did receive additional money that year, and educators said their share of that amounted to about $1.8 million.
Educators said they arrived at the $5.5 billion figure by multiplying that rough amount by three - to cover the three fiscal years since they claim Schwarzenegger made his promise.
Schwarzenegger has denied he ever made the promise and even called the claims a "right-out lie" during a press conference last spring.
Wells said no one attending Wednesday's meeting was interested in arguing the point. He said the governor's aides, led by senior adviser Bonnie Reiss and Education Secretary Alan Bersin, were conciliatory and interested in laying the ground work for future conversations.
Representatives from the California Teachers Association also attended but declined comment.
Some members of the education coalition said they can be reasonable in the amount of extra money they eventually demand in the next budget.
"The opening gambit was, 'Write us a check,'" said Scott Plotkin of the California School Boards Association. "We know that's not possible."
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As school money debate resumes, we should look at big picture
By Dan Walters, Sacramento Bee, December 4, 2005
California's perennial angst over financing education was the nucleus of the just-concluded ballot measure battle, with the California Teachers Association accusing Gov. Arnold Schwarzenegger of shorting schools by $3 billion as part of a successful strategy to undermine his public standing and thus destroy his four measures.
While the CTA emerged victorious from this latest clash, the years-long debate over school finance is far from resolved. The union and its Democratic allies will be pressing Schwarzenegger to pony up more school money. More than likely, he'll accede with a to-the-victor-belong-the-spoils gesture, even though it would enlarge the state's chronic budget deficit. And as long as the deficit continues, which is indefinitely, school financing will remain central because it's the largest single portion of the budget.
With state school aid protected by a unique constitutional lockbox (Proposition 98, enacted by voters in 1988), the state budget has become a three-cushion billiards game - school money vs. money for prisons, health care, colleges and other programs vs. the perpetual deadlock over raising taxes. One example: Schwarzenegger reneged on his vague school aid promises - thereby incurring the CTA's wrath - on the rationale that to protect the economy, taxes shouldn't be raised and giving educators what they wanted would require draconian cuts in health care and other non-school spending.
Californians never face the three-sided question directly. They are occasionally presented with one of the three, often as a ballot measure, and express their opinions in ignorance of interaction with the other two. Most voters might agree if asked only whether schools need more money (they did so directly by passing Proposition 98 and indirectly by rejecting Schwarzenegger and his measures last month), but they might also say they don't want spending on health care or colleges to be reduced, or prison inmates to be released, and probably would reject major new taxes that they would pay.
Even without the other two fiscal facets, the school money debate breaks down to two competing world views: Whether more money would lead to improvements in educational achievement or whether school performance hinges on other factors, such as academic standards and parental involvement.
The CTA and its allies, of course, argue the former, incessantly noting that California ranks rather low among the states in per-pupil spending and implying that academic results would soar were we to emulate high-spending states. But to do so would require substantial increases in taxes. Matching New York's per-pupil spending (raising it from about $8,000 a year to more than $12,000), for example, would cost about $25 billion more a year, as Children Now notes in its "assessment of children's well-being." That's the equivalent of increasing the state's general fund budget by more than 25 percent, or doubling the state sales tax.
Just raising California to the national average would cost nearly $5 billion. Would it be worth it? New York youngsters perform marginally better on national achievement tests. And how does one account for Texas, whose demographics and economy more closely resemble California's than do New York's? Texas spends about $1,000 less per pupil each year than California, although with adjustment for the cost of living, some argue, it may be spending a bit more. Its reading and mathematics test scores are virtually identical to New York's, although California officials complain that Texas juices its scores by not testing many of its non-English-fluent students.
Could it be that despite all the propaganda, money is not central to educational success? Perhaps it's how we spend the money (California's teacher salaries are among the nation's highest, nearly 50 percent higher than those in Texas), or demographics (California has the highest percentage of English-learning students, nearly 40 percent), or the lack of parental and civic involvement (Texas is particularly known for the latter).
Rather than casting envious glances at New York, perhaps we should be finding out whether Texas is doing as well as its test scores indicate, and if so, why?
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Buying school reform: It's time to make a deal
By Peter Schrag, Sacramento Bee, December 14, 2005
A couple of weeks ago, the education coalition, which includes leaders of most of California's major school interest groups, met with Gov. Arnold Schwarzenegger's staff in what Education Secretary Alan Bersin described as an attempt to restore diplomatic relations.
Given the animosities generated by last month's special election and the acrimony over what the ed coalition regards as the governor's failure to honor the funding promise he made in his first year, that may take some doing.
The California Teachers Association is still smarting at Schwarzenegger for launching a costly fight in which the CTA and its allies spent $100 million-plus to defend the status quo. That doesn't make for gracious winners.
But California's improved fiscal circumstances offer at least a chance of leveraging some of that money to begin the education reforms the state so badly needs. Bersin, the smart and thoughtful former San Diego school superintendent who replaced the hapless Richard Riordan only last summer, is relatively untainted by this fight. That can't hurt.
Among the priorities:
- Changing the inflexible seniority-based salary schedules that are at the core of most local teacher contracts and creating differential pay and working conditions to allow schools and districts to attract and retain good teachers and those with special skills to high-poverty schools. Last month, Denver voters approved a tax increase to help fund a union-backed merit pay agreement that might be a model for a similar test in California.
- Creating a weighted school funding system based on each student's needs and letting those funds follow the student into the classroom. The most experienced (and thus the highest paid) teachers now cluster in middle-class schools, the least experienced in the neediest schools. Real funding is both inadequate and inequitable.
- Eliminating the contractual "bumping" rights that allow senior teachers, whatever their qualifications, or lack thereof, to push younger teachers out of jobs in which those younger teachers might be more effective.
- Speeding up the slow-as-molasses creation of a universal student identifier system allowing the state to track individual students from school to school and district to district. Bersin apparently has managed to persuade the state Department of Finance to end its foot-dragging on that effort.
The universal identifier would permit schools and teachers to spot learning and teaching problems more quickly and make it possible to develop some sort of value-added analysis to judge the effectiveness of schools far more accurately than the current accountability system allows. Eventually it might also be linked to teacher performance and thus (among other things) provide feedback to the teacher training institution from which the teacher came.
Bersin also wants to create a simpler teacher credentialing process that would reduce the emphasis on ed-school pedagogy programs and replace it with a single test, a three-year mentoring program and teaching performance assessments.
Schwarzenegger's special election agenda touched on some of these issues but did it with proposals that promised more problems than solutions and that, in the context of the governor's attacks on his opponents, were so obviously political that even the need for reform was nearly forgotten. Not only was a year lost, but a toxic atmosphere was generated that may last much longer.
There's optimistic talk around the Capitol about new bipartisan efforts in other areas - redistricting reform, combined with some loosening of legislative term limits; the so far still nebulous infrastructure bond for roads, transit and other overdue projects - all driven by polls showing both the governor and Legislature stuck in a swamp of voter disapproval.
But it will take more than brave words. Going from re-establishing diplomatic relations to civil dialogue and real joint efforts in education (or any other area) will hardly be easy. What made the school lobby particularly angry about Schwarzenegger's broken funding promise is that the deal the school people made with the governor in 2003-04 angered legislative Democrats, who in general are their faithful allies.
"We paid a price with the legislative leadership," said Bob Wells, the executive director of ACSA, the Association of California School Administrators. "When you do that, who's going to be your best friend tomorrow?"
Under the circumstances, it's not surprising that the school people are looking for additional billions without strings - a realistic figure this year will be $2 billion to $3 billion, though they claim more. Nonetheless, the new money ought to provide Bersin some opportunity to move toward the reforms that are so long overdue.
"We have to break this unproductive gridlock," Bersin told leaders of the California School Board Association last week, "between 'no new taxes' and 'we need more money.' We have to talk about the common ground." Schwarzenegger has learned that even he can't simply shove half-baked ideas down the school lobby's throat: There'll never be school reform without additional money to grease the changes and make the deals. But the money the schools so badly need shouldn't simply be thrown on the table where it will achieve almost nothing.
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Schools in line for more aid
Governor tries to mend rift with education advocates
By Clea Benson , Sacramento Bee, January 4, 2006
In a conciliatory gesture, the Schwarzenegger administration said Tuesday the governor wants to begin paying back state funds that education advocates say he promised to schools but never delivered.
Gov. Arnold Schwarzenegger for the first time Tuesday also offered some detail about the schools piece of a proposed bond package he plans to unveil in his State of the State speech Thursday.
"Our bond that we propose will have money for building more schools, thousands of more schools, 40-some-thousand more classrooms, modernizing 140,000 other classrooms and so on," he told reporters while he visited a Sacramento River levee that had been eroded by recent storms. "So we really want to move aggressively forward to make sure we do everything we can for education."
Education Secretary Alan Bersin said the governor's proposed budget for the fiscal year that begins July 1 will address the rift that developed last year when schools advocates said the state improperly withheld billions of dollars guaranteed to schools under the terms of Proposition 98, the state law setting minimum levels of school funding.
The proposed budget will include an additional $1.67 billion to pay back about a third of the money education advocates say is owed, Bersin said.
Schwarzenegger's proposed budget for education will include $54.3 billion for kindergarten through community colleges, an overall increase of $4.3 billion over the current year's budget, Bersin said. The Republican governor is scheduled to present his complete budget Tuesday.
Education leaders believe the state owes schools $4 billion more than the governor is planning to propose, but they said they were treating his position as a positive opening move in budget negotiations.
"It's a start," said Barbara Kerr, president of the California Teachers Association.
"It's better than where we were last year at this time."
That reaction contrasted starkly with the anger education leaders expressed last year after learning schools would be getting billions less than they expected.
Last January, school leaders said, they learned the details of the governor's budget shortly before it became public. Tuesday, Schwarzenegger called them in for a full briefing.
Kevin Gordon, an education consultant who attended the meeting, said advocates are giving the governor "breathing room" to re-establish cordial relations, and they hope Schwarzenegger will end up approving a budget that includes more funding than his initial proposal.
"There's potential the administration is serious about getting back on track on education," Gordon said.
Education groups and some Democrats described the governor's proposed school-funding increase as a "down payment," but not the final amount that schools deserve.
"It's going to be a long budget dance," said Superintendent of Public Instruction Jack O'Connell, a Democrat. "If this amount does not increase above the initial budget, it will again shortchange our students."
After last year's budget debate, Schwarzenegger's relationship with some segments of the schools community deteriorated even further in the months leading up to the November special election. Schwarzenegger backed initiatives that would have changed school funding formulas, required teachers to work longer before getting job protection, and made it harder for public employee unions to spend members' dues on political activity.
As part of the campaign against the governor's initiatives, the California Teachers Association and other groups spent tens of millions of dollars on television ads accusing Schwarzenegger of breaking his promise on school funding.
All of the initiatives the governor backed lost, emboldening advocates who viewed the election results as a mandate for schools.
Assemblyman John Laird, D-Santa Cruz, chairman of the Budget Committee, said the governor "clearly heard the people last November who resoundingly spoke out in support of Proposition 98. But we have to see how this fits into the entire budget."
Next year's budget picture is far brighter than it has been for the past few years. Thanks to a robust economy, the Legislature's budget analyst has predicted, California will have about $4 billion more than originally expected in its bank accounts at the end of the fiscal year in June.
Democrats in the Legislature said it would be hard to tell how much money schools should get until the entire budget picture is clear.
Schwarzenegger's proposal is "clearly not enough," said Senate President Pro Tem Don Perata, D-Oakland. "I'm not sure how much would be enough. That's the problem with announcing things when we haven't seen the overall budget."
Bersin also said the governor's education budget will earmark new funds for initiatives that are "statements by this governor of his values and what he believes in."
The new initiatives will include funds for art and music education, money to lure teachers to low-performing schools, and funds for teacher mentoring. He also plans to spend $428 million on after-school programs, fully funding for the first time provisions of Proposition 49, the initiative Schwarzenegger pushed before becoming governor.
Schwarzenegger said the increase was possible because of the state's improved budget outlook.
"The money that they wanted last year, we have the money this year to give it to the educational community," he said. "They deserve it."
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Chastened Governor Tries Softer Tone With Educators
The atmosphere has changed around the Capitol. The air is less polluted, especially between Gov. Arnold Schwarzenegger and the school lobby
By George Skelton, Los Angeles Times Columnist, January 5, 2006
That bodes well for California's 6.3 million public elementary and high school students. Their campuses will be getting more money. And, presumably, they won't have to cover their ears while the grown-ups — the governor and teachers union leaders — call each other liars.
In his State of the State address tonight, it's a good bet the more conciliatory governor won't be barking again about "union bosses." That alone will contribute to a healthier climate in Sacramento.
This is how bad it got last year: Schwarzenegger administration officials would only meet with school advocates in hidden, out-of-the-way places, for fear of being spotted and raising suspicions about renegade negotiating or tipping off special election strategy to the enemy.
"I've been in this business for 30 years," says Scott Plotkin, executive director of the California School Boards Assn., "and I've never had to go to some dark and dank coffee shop on the edge of town to meet with people. Things got so dark-edge. I found it very odd.
"They felt they couldn't be seen with me, because somebody would think they were negotiating on the side. I was just trying to keep the lines of communication open."
It happened "at least a dozen" times, Plotkin says. "It was pretty scary stuff. Kind of like Watergate. One gentleman kept looking around, making sure that nobody was lurking who might spot us, even though no Capitol denizen was anywhere in sight."
By contrast, when Plotkin went to meet with administration officials Tuesday, he walked right into the Capitol, through the big doors of Schwarzenegger's office, and took a seat in the Governor's Council Room.
There he listened with several other school advocates as the governor's new education advisor, former San Diego Supt. Alan Bersin, outlined Schwarzenegger's latest funding proposal.
What it boiled down to — cutting through all the Proposition 98 jargon — was that Schwarzenegger offered to keep one-third of the funding promise he made to the school lobby two years ago in a budget deal that he later reneged on to avoid raising taxes.
Education interests say they'll be owed roughly $5.5 billion by the next fiscal year beginning July 1. Schwarzenegger will place about $1.7 billion of that in his budget proposal to be sent to the Legislature next week. "A down payment," is how it's characterized by the ed lobby.
Schwarzenegger isn't characterizing it. But he does admit to owing the schools money, while not saying how much. And that's a big step from last year.
It's the most significant facet of Schwarzenegger's school proposal. It's more important than the details of the original deal, or how the latest offer adds up, or the grand total he's offering kindergarten through community college ($54.3 billion, a $4.3-billion increase).
Much more crucial is that the governor now says he's willing to seriously negotiate with the Legislature and schools over money and the timetable for future check deliveries.
"We agreed to disagree" on details, Bersin told reporters, "but we agreed that the doors would be open to discussion."
Schwarzenegger wants to avoid at all costs fighting the school community again this year after the pounding he suffered in November, particularly from teachers unions.
He especially doesn't want to be battling Democrats over school funding at budget time next summer as he's running for reelection. He'd really like to maneuver Democrats into demanding a tax increase for welfare benefits.
The governor doesn't actually have any choice but to negotiate over school funding — and from a position of weakness. But nevertheless he is scoring points with a softer tone.
"He's trying to be constructive, and emphasizing this [budget proposal] is a starting point," Plotkin says.
Schwarzenegger spoke briefly to the education group. "He wasn't contrite," Plotkin reports, "but he emphasized he wanted to put last year behind us and learn from that."
The inexperienced governor learned the hard way that in Sacramento compromise is usually more effective than confrontation.
Another school advocate who attended the briefing was Lynne Faulks of the California Teachers Assn. Before the governor arrived, "it got very frank" with Bersin, she says. "People told him, 'This might be nice, but this isn't the calculation we've made. We're still owed more than $3 billion.'
"But we also talked about how important it was that neither side go crazy in the press. If they started saying derisive things — like 'You can never give them enough money!' — that would make it difficult to have a conversation."
So far everyone is behaving.
"It's certainly a completely different [Schwarzenegger] strategy than last year," says Joe Nuñez, the CTA's lead political strategist. "Last year they called us in one hour before the [State of the State] speech and laid on us that they were breaking a deal. This year they called us in one day before and laid a certain amount of money on the table."
From the schools' mellowed perspective, Plotkin says, "we've all gone through our period of venting about last year. We're done with that."
He also is done with dark, dank, hidden coffee shops and is back lunching with administration officials at "see and be seen" restaurants around the Capitol.
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Don Perata Communication
Email List, January 10, 2006
Earlier this week, Governor Schwarzenegger released his proposed 2006-07 state budget.
We all need to look at budgets as moral documents, texts that reflect our values and priorities. I view this $97.9 billion budget through the prism of responsible investment. We must ensure that we invest not only in bricks and mortar infrastructure, but also our most important and valuable asset – our people. In a year when we have $9.2 billion above what we were expecting, does the budget make investments we need?
I am pleased to see Governor Schwarzenegger prioritize some long-neglected and critical areas in his proposed investments. These include improving public health by providing $62.3 million to enhance our statewide emergency preparedness and response. The Governor also suggests giving the Regional Centers (which provide services to Californians with developmental disabilities) a 3% cost-of-living increase after five years of frozen rates. Additionally, unlike last year, the Governor has not proposed any cuts to In-Home Supportive Services.
Education is the biggest challenge facing the state in the next 20 years. Nothing is more important to our economy or where we're going as a state. I am pleased to see the Governor move in the right direction by giving schools $1.6 billion more than the minimum Proposition 98 Guarantee would require. However, the schools are still owed money and we still have work to do to determine what it truly costs to properly educate a child. This will be the year to make that determination as tragically, 100,000 high school seniors may not graduate. Additionally, I am not convinced that we should cut $17.2 million for the academic preparation programs that help high school students get into colleges and universities while students are not passing the high school exit exam.
Finally, at a time when the federal government is poised to increase work participation requirements, the Governor proposes a $198.9 million reduction in CalWORKs, the state’s welfare-to-work program. I wonder if it is responsible to reduce the resources that counties have available for childcare and other services necessary to assist people in gaining employment.
The Governor’s January proposal is the first step in our annual budget process. I look forward to working with the Governor and my colleagues in the Legislature over the coming months to agree on a final budget. As always, I value your input.
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Riding the revenue rollercoaster up, again
By Daniel Weintraub, Sacramento Bee, January 24, 2006
What a difference six months can make.
Last summer, Gov. Arnold Schwarzenegger and state lawmakers were haggling over a few million dollars here and a few million there as they struggled to close a deal on a state budget plan that would feature about $90 billion in general-fund spending.
Since then, $5.5 billion in unexpected tax revenues have flowed into state coffers. That's enough to pay the entire general-fund cost of the University of California and the California State University system, and more than twice as much as the state will spend on welfare grants this year. Looking ahead, the forecast for the coming fiscal year now includes $5 billion more than the state's nonpartisan legislative analyst projected a year ago.
Those revenues reflect a resurgent California economy, with high-tech giants such as Google and Yahoo leading the way, old standbys such as Intel chipping in and thousands of smaller businesses doing their part. Profits are up, and in the past year, employment growth has started to keep pace, thanks in part to a housing boom that has kept construction workers and lenders busier than ever.
The structure of California's tax system and its economy mean that when incomes start to rise, the tax take rises even faster. And it looks as if we are riding that rollercoaster to the top again.
As the Department of Finance said in a recent budget document: One dollar of income on a high-income tax return can generate nine times more revenue than a dollar on a low-income tax return. That's because a person in the bottom tax bracket pays 1 cent of each additional dollar in personal income tax while a high-income person pays more than 9 cents in taxes on that dollar.
And in California, even more than in the rest of the country, income tends to be concentrated at the upper end of the spectrum, where the tax rates are higher. Those two factors - a graduated income tax and the concentration of income - mean the state is heavily dependent on taxes paid by its most affluent citizens.
In 2003, according to the Finance Department, the top 12 percent of state taxpayers - those with adjusted gross incomes of more than $100,000 - paid 76 percent of the personal income tax.
Much of that money comes in the form of taxes on investment gains -- in business, the stock market and real estate. And just as we saw during the dot-com boom, investment income is responsible for much of the tax surge the state is getting now.
Since 2002, taxes on capital gains and stock options have increased from an estimated $5.2 billion to $11.3 billion, and are projected to climb to $12 billion next year.
That run-up is similar to what happened between 1998 and 2000, when taxes collected from those same sources jumped from $7.5 billion to $17.6 billion in just two years.
The danger is that investment income - and the tax derived from it - is highly volatile.
Between 2000 and 2002, income from capital gains and stock options cratered, falling from $196 billion to $95 billion in one year, and then to $58 billion the next. Taxes from those sources dropped by two-thirds.
Most experts don't expect a repeat of that scenario any time soon, for several reasons.
One is that revenue from stock options and capital gains accounts for about 13 percent of the state's general fund today. That's high by historical standards, but far less than the 25 percent of the budget those sources represented at their peak in 2000.
The general fund today is also a bit more diversified. Between 1998 and 2000, 79 percent of the new revenue in the budget came from taxes on capital gains and stock options. Between 2002 and 2006, only 36 percent of the new revenue has come from those sources. That suggests the current revenue base should be a bit more stable and better able to absorb a downturn in investment income.
The problem is that, unlike earlier this decade, the state is not running an operating surplus.
In the current fiscal year, which ends June 30, the government expects to spend $2.6 billion more than it collects from taxes. In the year that begins July 1, Schwarzenegger is proposing to spend about $6 billion more than the state takes in.
The difference would be covered by revenue left over from the recent surge in tax revenue.
But when that windfall is gone, the gap between spending and revenue is expected to live on.
A year from now, whoever is governor is likely to be facing a shortfall of about $6 billion - with no spare cash to cover it. And that's assuming the economy continues to grow and suffers no shocks from natural disasters, terrorism or a bigger-than-expected slowdown in the housing market.
So while there is plenty to celebrate in today's economy - and the tax revenue it is generating - there is also a huge caution flag for state leaders, from the governor on down.
They need to get the state's finances in shape now, while times are good, or they could face disastrous consequences if the boom times end.
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A Leader Can Get Lost Following the People
Gov. Arnold Schwarzenegger has always said he wants to be "the governor of the people," executing their commands. But there is a problem with that notion. Too often, the people don't have a clue
By George Skelton, Los Angeles Times, January 30, 2006
Oh, they have a clue about what they want. They know where they want to wind up — but have little inkling of the route or the fare. Nor what's feasible and what's fantasy.
Frequently they're confused. That's partly because they're misled by demagogues — and also because, being human, they try to avoid pain by living in denial.
"Voters are conflicted," says Mark Baldassare, pollster for the nonpartisan Public Policy Institute of California. "They want almost everything. They want to continue to spend more money and tax other people. Or borrow.
"There's not a whole lot of fiscal discipline in the public."
That's why Americans are carrying $2 trillion-plus in consumer debt.
In that respect, Schwarzenegger is the people's governor. His latest $125.6-billion budget plan would have state government spending $6.4 billion more than it takes in during the next fiscal year. That "moves the state in the wrong direction," says nonpartisan Legislative Analyst Elizabeth Hill.
This is the "live within your means" governor, remember? Why didn't he propose a "live within your means" spending plan? a reporter asked him at the Jan. 10 budget unveiling.
"It is easier said than done," Schwarzenegger replied. "When I ran [for governor], I thought it was easier to balance the budget, to be honest with you. But it's very, very difficult because you're not sitting … alone in the Capitol. You're making decisions together [with legislators]….
"If I do my [family] budget at home, yes, it's easy to just say, 'Oh, we spend less here.' End of story…. It's easier than working at the Capitol."
That was refreshing: a Republican admitting that it's much simpler for a family to balance its budget — although many don't — than for a clan of elected representatives.
Last week, at a Sacramento Press Club luncheon, Schwarzenegger again blamed the Democrat-controlled Legislature. While the "structural deficit" has been whittled to less than a third of what it was when he took office, the governor said, "the legislators are still unwilling to only … spend what they have."
Why doesn't he himself just propose deep spending cuts? "You have to do it together with the Democrats — as much as you have to do it together with the Republicans to increase taxes.
"You saw what happened when we didn't give education last year [its expected] money, and they were all over me with a lot of [TV ads] and a lot of beating…. One has to be very careful. This is a very, very sensitive thing of how far you can go."
Actually, to his credit, Schwarzenegger doesn't have the stomach to slash where he'd have to: deeper into programs for the impoverished aged, disabled and poor kids who don't have health insurance.
So, for the umpteenth time, he's asked why not raise taxes to finally eliminate the deficit — as did Govs. Pat Brown (his new hero), Ronald Reagan, George Deukmejian and Pete Wilson when they truly lived within their means?
"Because I think that we want to keep the money out there with the private sector and stimulate the economy," Schwarzenegger answered, noting that even existing tax rates are generating revenues beyond expectations.
It's fiscal policy paralysis: Democrats refuse to significantly cut spending. Republicans refuse to raise taxes. The governor won't do either.
And the voters are sending mixed signals. These are examples from a Public Policy Institute poll last week:
- Asked whose approach they preferred on taxes and spending — Schwarzenegger's, Democratic legislators' or GOP lawmakers' — voters sided with Democrats. They answered: Democrats 40%, Republicans 24% and the governor 20%.
- Queried whether they'd rather pay higher taxes and receive more state services, or pay lower taxes and get fewer services, voters opted for increased taxes and services, 56% to 36%.
- Most thought the state should spend more on K-12 schools (66%), roads and other infrastructure (59%) and health and human services (55%).
- They overwhelmingly favored raising income taxes on the wealthiest people (66%) and on cigarettes (70%).
- But 58% would oppose a ballot measure making it easier to raise their own local sales taxes to fund transportation projects.
- And the preference for financing a statewide infrastructure program was to "use only surplus budget funds." Of course, there are none. A tax increase "for all Californians" was the least popular.
But another recent poll showed that the public possibly could be persuaded by a strong leader to pay higher income taxes, across the board, for the right cause.
The Survey and Policy Research Institute at San Jose State asked voters how they'd feel about hiking the income tax by 2.5% to raise $1 billion annually for public schools. People were closely divided: 45% for and 48% against.
A bold governor has options. Voters usually are more flexible than their elected representatives.
"In a way, this is on-thejob training," Schwarzenegger told the press club. "I did not go to school to become a governor."
Here's one vital lesson: The best way to be the people's governor is to lead them, not try to follow. When a governor tries to figure out where the puzzled people are headed, too often nobody gets anywhere.
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Teachers' Unions, Democracy and Reality
CTA Endorses Angelides for Governor
by Mike Antonucci, Education Intelligence Agency Blog, January 30, 2006
Over the weekend, the California Teachers Association's State Council voted overwhelmingly to recommend state Treasurer Phil Angelides in the Democratic primary for governor.
This minor news item follows what was an illuminating exchange at the end of last week. LA Weekly columnist and political insider Bill Bradley (not that one, this one) reported on his blog last Wednesday morning "Powerful Teachers Union Backs Angelides," in which he noted the union would endorse Angelides on Saturday.
This prompted Julia Rosen, who blogs for the Alliance for a Better California, the labor coalition that defeated the governor's initiatives in November, to call Bradley's item a "False Rumor."
"The CTA," Rosen wrote, "like most unions, has a very democratic process for their endorsements. A committee has been interviewing the candidates. They have decided to recommend that Aneglides (sic) be endorsed by CTA. However, it is not a foregone conclusion that the larger CTA State Council will actually do that. That group, made up of about 800 teacher representatives (voted on by the rank and file) will be meeting this weekend. They will vote there on an endorsement."
Bradley responded with an item headlined "Spin Patrol," in which he wrote of his prediction "Bets are always accepted."
Rosen returned with a post that noted, "His [Bradley's] post had lead to some conflagration within the CTA and had prompted at least one media call, wondering what was up."
She then changed the subject by writing, "Let me take the time to point out how wonderful it is to have our journalistic class engaging in two-way communication with the public. After having grown up listening to my uncle rail on about civic journalism, it is heartening to be participating in a form of it."
Translation: "Bradley's not buying it, and I'm in a corner because, dammit, they WILL endorse Angelides on Saturday and everyone knows it."
Bradley got the last word on Saturday evening with "Teachers Union Backs Angelides, He Wows Dems."
Bradley had this nailed from the beginning and is to be commended for not equivocating in the face of union spin about "democracy" and "process." As one blog commenter put it, "This is labor hack politics at its Orwellesque worst."
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LAO urges restraint on new state spending
CSBA Website, , February 28, 2006
Proposals for state spending for education in 2006-07 took another turn last week, when Legislative Analyst Elizabeth Hill released her report on Gov. Arnold Schwarzenegger’s budget proposal.
California owes $115 million more to its public education system for the coming fiscal year than Schwarzenegger has calculated under Proposition 98, according to Hill, primarily due to differences in calculating cost-of-living adjustments in the Proposition 98 funding formulas. She also recommends that the Legislature add $39.4 million to fund state program mandates at the local level.
That would bring Proposition 98 spending in 2006-07 to $52.8 billion, and Hill is recommending that the state Legislature hold the line on education spending at that amount. Schwarzenegger would add $1.7 billion in new spending to his own calculation of a $52.6 billion minimum obligation under Proposition 98, bringing his total investment in education to $54.3 billion – $1.5 billion more than Hill advocates.
The Education Coalition, in contrast, argues that Proposition 98 has been under-funded by $3.1 billion since 2003, and CSBA recently filed court papers to join a lawsuit, CTV v. Schwarzenegger, seeking to restore that funding.
In media briefings on her annual analysis of the governor’s budget proposal, Hill stressed her concerns about looming costs for public sector retirees’ pension and health care costs at all levels of government, including schools. CalPERS, the pension program for state employees, may face $40 billion to $70 billion in unfunded liability as baby boomers retire, Hill warned, and other levels of government could face similar budgetary strains.
(CSBA’s GASB 45 program, named for the Government Accounting Standards Board’s rule that tightens accounting requirements for retiree costs, can help local education agencies assess their retiree obligations. )
If legislators want to match the governor’s augmentation of Proposition 98 funding, Hill offered two alternatives:
Pay down the state’s debt to local education agencies stemming from under-funded Proposition 98 allocations in 2002-03 and 2003-04 and from unfunded mandates; unlike cost of the governor’s new and expanded programs, these repayments would not become part of future Proposition 98 guarantees, according to Hill.
Add $388 million to K-12 discretionary spending; return the $426 million allocated for Proposition 49 to the general fund; and create a $412 million “fiscal solvency block grant,” to be apportioned to all districts on a per-pupil basis. “The block grant would provide a flexible source of funding that districts could use to improve their fiscal health, adjust district operations to reflect lower student attendance, and begin the process of setting aside funds needed to pay for future retiree health care costs,”.
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Governor Tries to Defuse Union Wrath
By Peter Nicholas, Los Angeles Times, May 11, 2006
SACRAMENTO — With his deal (details) this week to repay schools billions of dollars he had borrowed to balance the state budget in recent years, Gov. Arnold Schwarzenegger has undercut the main argument that California's powerful education unions have made for driving him out of office.
The pledge to restore the funds is the governor's latest move in a clear strategy to neutralize the network of teachers, nurses, firefighters and others that has dogged him throughout his tenure and blocked major pieces of his agenda.
When Schwarzenegger backtracked last year on a commitment to pay off education money that had been diverted to other state programs, he made a political enemy of the well-funded education lobby. Union leaders cast him as a double-talking politician who could not be trusted to protect California's schoolchildren.
Now that argument becomes harder to make: Schwarzenegger is pledging to repay over seven years more than $5 billion that education groups say they are due — beginning with a $2-billion cash infusion this summer.
"There's no question in my mind that there's a political effort underway to neutralize as much opposition as possible," said Assembly Speaker Fabian Nuñez (D-Los Angeles). "I don't think the administration lives in fantasyland. They know they're going to have strong opposition in November. But this is a way to soften the blow. And if they can soften the blow enough, they think they're looking at the governor's reelection."
Other union allies say that there is no political truce with the governor and that they remain committed to Schwarzenegger's defeat. The California Teachers Assn., one of Schwarzenegger's main adversaries, has endorsed Democratic state Treasurer Phil Angelides for governor. There is no sign that will change.
On Wednesday, CTA President Barbara Kerr would not comment on the political implications of the budget deal, saying only: "He's restoring the money that he owed and this is going to be really good for our schools and our communities and for public education."
But political analysts said Schwarzenegger's budgetary moves may gratify the union rank-and-file, quelling talk of dues hikes or other financial sacrifices that might be needed to bankroll an all-out campaign against the governor.
"He must be hoping that by doing this, it will quiet the discontent among the rank-and-file and make the leadership more amenable to not opposing him too vigorously," said Joel Aberbach, professor of political science and public policy at UCLA.
Bob Wells is executive director of the Assn. of California School Administrators, which represents 16,000 members. His organization was among those that joined a lawsuit against the administration to force repayment of the education money. He said the agreement "brings some closure to what was a pretty ugly chapter between us…. I think for the good of the state it's time to move on."
Schwarzenegger's decision to put more money into education caps a string of gestures that appear to be aimed at appeasing the groups that have caused him the most trouble. They are part of a formidable coalition that thwarted the governor's special-election agenda last year.
One by one, Schwarzenegger has reached out to his antagonists and offered to settle the disagreements that led to the rifts.
The conciliatory steps began immediately after the November special election, when all four initiatives he embraced were rejected by the voters and his approval ratings flat-lined.
First, Schwarzenegger dropped an effort to reduce required nurse staffing levels at California hospitals. In heeding the hospital industry's call for lower staffing, Schwarzenegger made a determined enemy of the state's nurses.
Then he signaled that he would delay a proposal to cut back on public employee pensions, announcing that the issue needed more study. Police and firefighters were furious with Schwarzenegger's plans to switch from guaranteed pension benefits to a private sector, 401(k)-type system.
Since hiring Democrat Susan Kennedy as his chief of staff, the Republican governor also has courted the state's prison guards union, which is capable of plowing millions of dollars into anti-Schwarzenegger campaign ads.
Last year, the California Correctional Peace Officers Assn. raised dues on its 31,000 members to help finance the defeat of Schwarzenegger's special-election ballot measures. At an early point in his tenure, Schwarzenegger showed defiance toward the union, which had been an influential player in prison management and policy under then-Gov. Gray Davis.
Union leaders had been frozen out of administration meetings. And Schwarzenegger's corrections secretary, Roderick Q. Hickman, said that corrupt guards were being protected by a pervasive "code of silence" in prisons. Hickman has since left. And there now seems to be a rapprochement.
The governor's office said top aides have been trying to improve communication with the union through meetings with its leaders.
"It is thawing somewhat," said Chuck Alexander, the union's executive vice president, "but it's too early to tell where all this will lead. The only thing we've ever wanted was to be part of the solution, and I think they now recognize the value of our input."
Of all the governor's opponents, the CTA may be the most formidable. The union pumped about $60 million into the successful campaign to beat back the governor's "year of reform" agenda last year, leading the anti-Schwarzenegger crusade.
But now that the governor is ponying up the education money, the anti-Schwarzenegger zeal so prevalent last year may not be so quick to coalesce, friends of the governor said.
"I would think there comes a point where their membership begins to question why they would continue to spend [millions of dollars] to oppose a governor who has been a friend to education," said Rob Stutzman, Schwarzenegger's former communications director.
Not that reelection will necessarily be easy for Schwarzenegger.
Several hundred nurses protested the governor's fundraising practices Tuesday at the state Capitol, as part of a "clean-money" campaign.
And dozens tried to disrupt a recent fundraiser Schwarzenegger held at the Hyatt Hotel here.
"We are going to bring some heat and light" to the governor's campaign, said Chuck Idelson, a strategist and spokesman for the nurses' group.
Carroll Wills, a spokesman for the California Professional Firefighters, said he doubted that his group would reduce its opposition this year.
As firefighters see it, Wills said, the governor's actions last year "kind of hit them in their guts and their professional values, and it's a very hard thing to turn around. There is still a lot of anger with Arnold Schwarzenegger."
Students and Schools Win as Governor’s Budget Revision Repays Schools and Settles Lawsuit Over Education Funding
Schools and Students with Greatest Need to Get Assistance
CTA Website, May 11, 2006
SACRAMENTO – Students and schools are the winners in the Governor’s revised budget. His decision to repay all the money owed to public education under the 2004 agreement is the news that California’s 6.2 million kids have been waiting for and settles the lawsuit the California Teachers Association filed against Governor Schwarzenegger last August. In addition, the revised budget includes an exciting opportunity to provide assistance, rather than sanctions, to our schools that need help the most.
“This is a good thing for our schools and community colleges throughout California,” said Barbara E. Kerr, president of the California Teachers Association. “Having all the money owed to our schools under Proposition 98 and the governor’s agreement of 2004 restored to our students is the news we’ve been waiting for. It is especially good for those students who live in high-poverty areas and who do not speak English as a first language. Using some of the repayment money to improve learning and instruction in our schools of greatest need will help us close the achievement gap.”
Under the revised budget proposal and legal settlement, public schools will receive $5 billion due under Proposition 98. The dollars represent repayment of the money owed to education under the 2004 agreement with the education community and schools’ share of new state revenues. It includes $3 billion that will be paid over a seven year period and will be used to help schools that are serving low-income students and English language learners. Part of the money will also go to community colleges to expand career education programs and improve transfer rates to four-year colleges.
It has been a long time goal of the California Teachers Association to increase the resources to the schools of greatest need. The repayment dollars will be used to address the problems facing struggling California public schools including reducing class sizes, improving teacher and principal training, increasing parental involvement and providing school counselors.
“The repayment of the money owed under Prop. 98 moves us forward. However, we must recognize that these are one-time dollars. We must now build on this commitment. Teachers look forward to working with the administration and the legislature to determine how we provide adequate resources for our schools on a long-term basis,” said Kerr.
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