Late-Breaking News
Governor to Declare Fiscal Emergency
In late-breaking news, The Sacramento Bee reported that Governor Arnold Schwarzenegger will declare a “fiscal emergency” under the terms of Proposition 58 some time next week. He is quoted as saying, “We are going to call this January for a fiscal emergency when the legislators come back.”
The Administration has been signaling the deterioration of the state’s budget condition over the last several weeks, with the latest statement made by the Governor himself that the state’s Budget deficit is now projected at $14 billion for 2008-09. Less than one month ago, the Legislative Analyst’s Office had pegged the deficit at just under $10 billion.
Under Proposition 58, approved by voters in 2004 along with $15 billion in deficit bonding authority sought by the Governor when he first took office, the Governor is authorized to declare a “fiscal emergency” when revenues are "substantially below" the level anticipated when the Budget was signed. Such a declaration triggers the Legislature into special session to address the budget crisis. The Governor must also propose legislation to address the Budget shortfall. The Legislature, in turn, must adopt the Governor’s plan or adopt an alternate plan. If lawmakers fail to send the Governor legislation addressing the Budget problem within 45 days, they cannot take action on any other bills or adjourn until they do so.
All state expenditures, including K-14 education, are subject to review and potential mid-year reductions under Proposition 58.
Recommendation: Delay Financial Decisions if You Can
Over the past few weeks, School Services has tried to keep you abreast of the rapidly eroding economic picture at the state level and to provide guidance on what actions might be appropriate for school agencies. While throughout the entire year we have been concerned about the monthly shortfalls in state revenues, over the past few weeks, the projections have deteriorated significantly.
The prospect for mid-year cuts during 2007-08,
elimination of the 2008-09 COLA, and across-the-board reductions at the state
level have increased as the projected structural deficit has advanced from $4
billion over the two-year period, to $10 billion, and now to an estimated
$14 billion and beyond.
We continue to believe that the array of options available to the state is wide and that we will have no definitive direction until the Governor’s State-of-the-State address on January 8, 2008, and release of the Governor’s Budget Proposals on January 10, 2008. But our level of concern is becoming more elevated with each negative revised forecast.
We are not recommending that school agencies panic or fail to follow through on prior commitments, including those for collective bargaining. Based upon current law, there is no justification for not meeting current commitments. And districts in general have been making similar commitments all year in reliance on what have been more positive forecasts.
We do, however, now recommend that any decision
that can be put over until after
January 10, 2008, including new settlements of collective bargaining agreements,
be held in abeyance until then.
The range of solutions that could be proposed by the Administration is such that
there is no “likely proposal.” This creates an even higher level of uncertainty
as to the Administration’s response to the growing problem.
[Posted to the Internet 12/14/07] —Ron Bennett, Robert Miyashiro, and Deborah Harmon