Copyright© 2002 by School Services of California, Inc.
Volume 15 For Publication Date: December 20, 2002 No. 25
Legislative Analyst
Office—Analysis of Mid-Year Budget Proposal
The Legislative Analyst Office
(LAO) has recently completed an analysis of Governor Davis’ mid-year budget
proposals. The Governor’s current year plan to address the budget shortfall
facing California calls for $10.2 billion in budgetary reductions and
adjustments in the current year ($3.4 billion) and budget year ($6.8 billion)
combined, as an initial step towards eliminating the shortfall. In contrast to
last year’s plan, which focused mainly on one-time actions such as deferrals,
reversions, and funding redirections, the current plan involves major ongoing
reductions to a wide variety of programs.
The LAO’s report states that
the focus on ongoing actions is a positive feature of the Governor’s proposal,
in that it addresses the need for early and significant ongoing actions to
address the enormous shortfall. However, the LAO points out that the current
plan merits careful legislative deliberation, since it includes much more
substantive proposals than last year’s, involving many program reductions and
eliminations. Thus, in a very real sense, this year’s current-year proposal
can be thought of as the first part of the Governor’s 2003-04 budget plans, as
opposed to just a mid-year correction to the 2002-03 budget.
The Governor’s $10.2 billion
reduction plan falls into the following categories: $7.2 million in spending
reductions; $2.3 billion in transfers, loans and reversions; and $0.7 billion in
funding shifts. According to the LAO’s report, although the $7.2 billion in
program reductions are widespread, the majority of them relate to a relatively
few major proposals:
§ Across-the-board cuts to K-14 education programs
§ Elimination of social services cost-of-living adjustments (COLAs)
§ Elimination of optional benefits and reductions in provider rates in the Medi-Cal program
§
The reductions in transportation funding
LAO Comments on Proposition 98
Because the Governor’s
proposal would lower the Proposition 98 base, the state not only saves money in
2002-03, but also in 2003-04 and beyond. The LAO believes that, given these
potential multi-year savings, the Governor’s goal of reducing 2002-03
Proposition 98 funding to the minimum guarantee is fiscally prudent. They also
support the Governor’s proposals for targeted reductions, the Proposition 98
reversion account swap, and elimination of the Proposition 98 reserve fund.
The LAO does express a concern
with the $1.1 billion across-the-board reduction proposed in the December
revision. Specifically, the across-the-board cuts would have an adverse impact
on direct services to students and would be difficult for K-14 schools to absorb
in the remaining months of the fiscal year. The across-the-board approach
assumes that all existing programs have equal value. The LAO notes that the
across-the-board cuts do not really provide flexibility to determine how to
implement the proposed cuts. Since the Governor’s approach would require
schools to continue to meet all of the program requirements of each of the
categorical programs, schools would have limited ability to reduce program
costs.
LAO Alternative to Governor’s
Across-the-Board Reduction
The LAO recommends that
alternatives to the Governor’s proposal should be considered by the
Legislature. The LAO’s alternative approach would affect community colleges in
the following manner:
§ Reduce the COLA to the statutory rate of 1.66 percent from the budget act COLA of two percent (this option would have multi-year savings)
§ Reduce the categorical COLA to 1.66 percent (this option would have multi-year savings)
§
Cut part-time faculty extra compensation (as of
How do the Cuts to Community Colleges
Compare with UC and CSU?
As usual, the community colleges
come out on the short end of the stick—the Governor proposes to reduce the
LAO Conclusion
The LAO recognizes that the Governor’s proposal is just a first step and that tax revenue options must be considered. However, the Legislature must recognize that current calculations indicate that if state taxes were increased to help address the state’s budget shortfall and Proposition 98 was not suspended, somewhat over one-half of the first $5 billion collected annually would be required to go to Proposition 98 for funding K-14 education.
Stay tuned.
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