At Last, At Last, the Budget Passed!
A full 77 days late, both houses of the legislature have passed the state’s latest Budget ever. Citing the need to end the “human suffering” caused by the absence of a Budget, Assembly Member Laird called upon Assembly Democrats to approve what he called a compromise Budget; one that gave no one all that they wanted but which avoided for everyone the potential for manifestation of their greater fears. Laird announced that between the previously adopted mid-year cuts and this Budget, the Legislature adopted $24 billion in solutions. Republicans were urged by Assembly Member Niello to join in support of the compromise. Later in the evening the lengthy mechanics of considering and adopting both the Budget (consisting of AB 1781 of the Conference Committee Report, and the supplemental bill, AB 88) and the Budget trailer bills played out in both the Assembly and the Senate.
Legislators voted on bills that were in “mock up” form. In other words, the amendments were not in print and thus, not on line or otherwise available to the public. We expect the amendments providing the detail on the actions taken to be in print as early as September 16. In the meantime, we want to provide a short summary of the major points of agreement, as well as some details that were made available earlier in the day but that were not part of the actual Budget debate on the floor of the Capitol.
State Budget
Education Funding
Ø Proposition 98 funding set at $58.1 billion This is:
· $1.3 billion higher than the May Revision
· $2.1 billion higher than the Republican Plan
· $264 million higher than Governor’s "August Revise"
Ø Would provide California Community Colleges with a 0.68% COLA ($39.78 million) on apportionments only; no enrollment growth or COLA on categorical programs
Ø Would restore Governor’s proposed cuts to categorical programs
Ø Would provide 1.98% enrollment growth
Ø Would maintain funding for new Competitive Cal Grants
Ø Current Lottery funding of $1.2 billion to K-14 education would be replaced by a corresponding increase in Proposition 98 funding from the General Fund if the securitization plan is approved by voters, effective 2009-10
Revenues and Tax Accelerations
· Does not include Governor’s proposed temporary one cent sales tax, that would have been followed by permanent reduction in sales tax
· Securitizes lottery; voters will have to approve change
· Accelerations of various tax liabilities, including accelerated quarterly payments for corporations and high income taxpayers (60% of liability in the first two quarters vs. 50% currently); increased withholding by 10% but no increase in liability; limited liability companies prepay fees; and other accelerations yielding $6 billion
· Shifts $350 million in redevelopment agency revenues to local education agencies on a one-time basis, reducing state General Fund costs
· Suspends net operating loss carry forward for two years; limits business tax credit; closes use tax loophole for personal property (commonly referred to as the “yacht tax”)
Budget Reform
· Rejects spending caps, including hard cap proposed by legislative Republicans
· Increases annual contribution to the Budget Stabilization Fund (currently titled the Budget Stabilization Account) from 1.5% of state revenues to 3% annually
· Increases the target level of the fund from 5% to 12.5% of General Fund revenues
· Restricts transfers out of the Budget Stabilization Fund to a narrowly defined set of circumstances
The Compromise leaves a $1.2 billion shortfall next year.
Trailer Bills
We’ll be analyzing the Budget along with the various trailer bills, and will undoubtedly have further detail to report later. However, we can tell you some detail regarding the Education Budget Trailer bill, AB 519 (Assembly Budget Committee). It would:
Ø Suspend existing statute that specifies the Proposition 98 split between local education agencies, community colleges, and other state agencies
Ø Extend the date by which the Department of Finance is authorized to sell, or effectuate an “alternative arrangement to the sale” of EdFUND
Ø Authorizes the California Student Aid Commission to act as the “Lender of Last Resort” should students be unable to secure student loans through the traditional federally-subsidized student loan programs
Ø Expands the authority of the California Student Opportunity and Access Program (Cal-SOAP) to provide public awareness and outreach activities related to career-technical education
Ø Clarifies the uses of community college financial aid funding to include financial aid support services, in response to a recent Commission on State Mandates decision
Ø Appropriates $39.8 million in augmentation of community college apportionments Budget Act Item to provide a 0.68% cost-of-living-adjustment
Ø Extends the authorized expenditure period for June apportionment deferrals by one month—from June 30, 2009 to July 31, 2009. (This makes the expenditure period for apportionment payment deferrals consistent with the expenditure period for Budget act appropriations)
Ø Continues to defer $200 million of community college payments from
the 2008-09 to the 2009-10 fiscal year
While we are still analyzing its contents, AB 1389 (Assembly Budget Committee), the General Government trailer bill, contains some provisions of interest to community colleges. It would:
Ø Revise the payments and calculations used by the State Teachers’ Retirement System (STRS) for the Supplemental Benefits Maintenance Account (SBMA)
Ø Establish a process to improve the compliance of redevelopment agencies (RDAs) with existing law, which requires them to pass through to K-14 education agencies a portion of their tax increment revenues from post-1993 project areas and expansions, and that requires a portion of those pass-through payments to be reported by K-14 education agencies as property tax revenues for apportionment and Proposition 98 purposes. The process will identify and recover pass-through payments that redevelopment agencies failed to make to K-14 education agencies for fiscal 2003-04 through 2007-08, and ensure proper payments in 2008-09. The process also will ensure that the required percentage of those pass-through payments are identified as K-14 property tax revenues and offset state education costs for an estimated General Fund savings of $98 million in 2008-09.
Concluding Thoughts
This Budget process represents both the best and worst attributes of California’s political process. On the negative side, neither party, nor the Governor, nor the Big 5 could generate the urgency necessary to adopt the compromises in this Budget earlier in the year. This caused a delay in implementation of some of the actions ultimately agreed to and a concomitant loss of value for some of the budget solutions. The delay also put many of California’s neediest residents through trials and tribulations, not of their own making, but that had very real impacts on them personally.
Alternatively, on the plus side, this budget avoided the worst case solutions on both sides. Neither a suspension of Proposition 98, proposed in January, nor the 10.9% across the board cuts also proposed in January are part of the Budget passed by the legislature. The combination of short-term revenue improvements, Budget reductions, Budget reform and acceleration of future revenues was barely acceptable to anyone, but in the end was accepted by all.
We will never say that education fares well in a year where we will almost certainly fall further behind per student spending in other states, but we all know it could have been much worse. Restoration of the proposed categorical program reductions, essentially flat funding for most programs, and a tiny COLA represent a tribute to the commitment educators have made to telling our story.
The vigil inside and outside the Capitol by parents, teachers, administrators, classified employees and those who represent them has truly made a difference. We reluctantly report that this same level may be necessary in the years immediately before us to stave off future forays into Proposition 98 and education funding. This year we stood together and turned a likely disaster into a barely acceptable result. But the needs of California’s children and young adults are growing even as our ability to respond to them diminishes. This is not the last time we will be called upon to stand on behalf of our children and their futures.
In the longer term, we remain bullish on our state and our country. But our first long term goal is to survive the short-term, a mission that will call upon us to put forward our very best thoughts and actions more often than any of us anticipate. So, we are pleased that the budget debate is over for 2008-09, but we know 2009-10 will be just as difficult.
It’s unclear whether the Governor will sign the just-passed Budget, though we think he will. The caveat is that he sent legislative leaders a memo Monday stating that three changes relating to the Budget Stabilization Fund would have to be made for him to be able to sign the Budget. Only two of the three requested changes were made. Stay tuned . . .
—The SSC Staff