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The CAEAA Thirteenth Annual State Conference

The CAEAA Thirteenth Annual State Conference. Legislative and Budget Update January 29, 2010 B. Teri Burns. Governor’s 2010-11 january budget proposal. Themes For This Year. Pitting groups against each other Unrealistic optimism Protecting education doesn’t mean no cuts. Budget Theme.

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The CAEAA Thirteenth Annual State Conference

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  1. The CAEAA Thirteenth Annual State Conference Legislative and Budget Update January 29, 2010 B. Teri Burns 877.954.4357 • www.sia-us.com

  2. Governor’s 2010-11 january budget proposal 877.954.4357 • www.sia-us.com

  3. Themes For This Year • Pitting groups against each other • Unrealistic optimism • Protecting education doesn’t mean no cuts 877.954.4357 • www.sia-us.com

  4. Budget Theme “This budget amounts to a big pile of denial. The Legislature will take a much more serious approach to closing the state’s budget deficit.” • Assembly Speaker Karen Bass 877.954.4357 • www.sia-us.com

  5. What is the fiscal picture??? 877.954.4357 • www.sia-us.com

  6. Source: Governor’s Budget Summary 877.954.4357 • www.sia-us.com

  7. California Revenues • Major components of the revenue decline: • Capital gains taxes ($8 billion) • Income tax on wages ($6 billion) • Taxes on other income ($7 billion) • Sales tax ($11 billion) • Corporate taxes ($2 billion) • Other taxes ($1 billion) • Pre-recession revenues are not expected to recover quickly 877.954.4357 • www.sia-us.com

  8. Governor’s Proposal 877.954.4357 • www.sia-us.com

  9. 2010-11 Budget: $19.8 Billion Solutions Source: Governor’s Budget 877.954.4357 • www.sia-us.com

  10. Governor Declares Fiscal Emergency (Again) • Uses Prop 58 power to call session • The Governor has submitted proposed amendments to the 2009-10 Budget • The Legislature is required to take action to address the problem within 45 days of the special session being called (by Monday February 22nd) and may not take action on any other legislation during that time period 877.954.4357 • www.sia-us.com

  11. 2009 Budget Gimmicks “The vast majority of the new budget problem we have identified for 2009-10 can be attributed to the state’s inability to implement several major solutions in the July 2009 budget plan…” - Mac Taylor, Legislative Analyst November, 2009 877.954.4357 • www.sia-us.com

  12. 2009 Budget Gimmicks Fail Some of the major gimmicks that failed to materialize from last year's budget: • $2.4 billion related to the court decision which limits the state’s ability to use “spillover” gasoline sales tax and Public Transportation Account funds to reduce General Fund spending • $1.1 billion from costs for the corrections receiver that was not included in the budget • $1 billion from failure to sell the State Compensation Insurance Fund • $972 million from failure to achieve savings assumed in corrections • $1.1 billion in federal flexibility for Medi-Cal that was assumed in the budget, but did not occur 877.954.4357 • www.sia-us.com

  13. Governor’s Proposal: 2009-10 Budget • No mid-year program cuts • Categorical sweeps – CSR funding (reversion) • Categorical flexibility remains unchanged • No other changes proposed 877.954.4357 • www.sia-us.com

  14. Governor’s 2010-11 Budget • Relies on 2009-10 Prop 98 recalculation • $1.7 billion reduction to programs • Major policy changes (seniority, substitutes, lay-off notices) • Promise of more “comprehensive reforms” • Negative COLA • No proposed change to Prop 49 877.954.4357 • www.sia-us.com

  15. Governor seeks to undo “The Deal” • The budget package enacted in July 2009 included language that specifically certified the Prop 98 guarantee for 2008-09 as $49.1 billion.  • The Governor’s budget indicates that final revenues were substantially lower than estimated and the actual Prop 98 guarantee for 2008-09 should be $46.8 billion. • The Governor proposes to lower the Prop 98 guarantee for 2008-09 and pay for $1.3 billion of school costs that year out of maintenance factor.  877.954.4357 • www.sia-us.com

  16. Governor seeks to undo “The Deal” • By lowering the base, this would have the effect of lowering the Prop 98 guarantee for 2009-10 and 2010-11. • This adjustment allows the Governor to claim he is “protecting” education funding by maintaining roughly the same level of Prop 98 funding in each of 2008-09, 2009-10 and 2010-11.  • From a school perspective, the problem is that this “protects” schools at a base level that the Governor is proposing to reduce from what was already being provided.   • The Governor acknowledges that “all the proposed changes will require legislation”. 877.954.4357 • www.sia-us.com

  17. Governor “Protects Education”? $47.7 * Although the Governor says the Prop. 98 guarantee should be $46.8 billion for 2008-09, current law certifies the guarantee amount at $49.1 billion. The Governor proposes to reduce the 2008-09 guarantee by $82.9 million to bring the level down to the actual level of expenditures. He does not propose expenditure reductions for 2008-09, but does propose to account for $1.3 billion of those expenditures as counting against prior year “maintenance factor” amounts due. 877.954.4357 • www.sia-us.com

  18. Proposed 2010-11 Program Reductions • $202 million due to a negative cost-of-living adjustment (-.38%) • $1.2 billion from school district revenue limits “targeted to school district central administration.”  Department of Finance staff has indicated that the proposed budget language will specify the account codes from which expenditures may be reduced.   This represents a revenue limit reduction of slightly more than $200 per ADA. • $300 million from school district and county office of education revenue limits based on savings from eliminating “barriers to contracting out to enable school districts to achieve cost reductions.”  This represents a cut of about $50 per ADA. • $45 million from county offices of education, based on savings from the consolidation of services and functions through regional consortia (as yet undefined).  Total: $1.7 billion reduction to programs 877.954.4357 • www.sia-us.com

  19. 2010-11: Major Policy Changes Proposed • Change state law to give districts the flexibility to layoff and rehire teachers without regard to seniority • Eliminate the provisions in current law that require laid off teachers to receive first priority for substitute service and be paid at their rate prior to lay-off • Change the lay-off notice for teachers to 60 days after the state budget is adopted or amended • Promise of more “comprehensive reform” (TBA) 877.954.4357 • www.sia-us.com

  20. 2010-11: Revenue Limit Calculation • Negative .38% COLA is applied to base • Deficit factor remains unchanged • Proposed cuts are to base; does not increase deficit factors • DOF notes totality of Governor’s cut is equal to the one-time revenue limit cut in 2009-10 877.954.4357 • www.sia-us.com

  21. Revenue Limit Reductions Are to Base, Not Deficit Factor ↓Down 4.1% 877.954.4357 • www.sia-us.com

  22. Negative .38% COLA ADJUSTMENT *Undeficited 877.954.4357 • www.sia-us.com

  23. Revenue Limit Cut Proposed *Department of Finance 877.954.4357 • www.sia-us.com

  24. 2010-11: Categorical Program Funding • No new flexibility proposed and no other revisions • Negative .38% COLA applied to Tier II and III • Tier I programs remain unchanged • $29.5 million included to fund new schools established in and after 2008-09 impacted by Tier III and K-3 CSR limits – but Adult Ed is a “program” 877.954.4357 • www.sia-us.com

  25. 2010-11: Charter Schools • Rough estimates include same per ADA targeted cut of $1.5 billion applied to school districts revenue limit 877.954.4357 • www.sia-us.com

  26. Prop. 98 877.954.4357 • www.sia-us.com

  27. Prop 98 – The Basics • Prop 98 sets a minimum funding guarantee for K-14 education • Prop 98 does not guarantee what programs are to be funded Prop 98 can be suspended by a two-thirds vote of the Legislature 877.954.4357 • www.sia-us.com

  28. Prop 98 – In Context • General fund revenue is key driver • Last summer: are schools in test 1 or test 2 for 2008-09? • Difference related to assertion that maintenance factor goes away in test 1 scenarios • Ed community strongly asserted maintenance factor does not go away when K-14 is subject to test 1 – DOF & LAO assert it does • Conditions to July 2009 budget deal hinged on resolving the Prop 98 base funding for 2008-09 and status of maintenance factor obligations 877.954.4357 • www.sia-us.com

  29. Prop 98 – The Deal – The Law • Certified the amount of the Prop 98 minimum guarantee for 2008-09 at $49.1 billion, regardless of where the guarantee might end up • Also certified outstanding Prop 98 balances from 2005-06 to 2008-09 at $11.2 billion • Created an alternative statutory repayment plan to restore $11.2 billion to begin in 2010-11 877.954.4357 • www.sia-us.com

  30. Prop 98 – The Governor’s Version • 2008-09 General Fund revenues fell further after the July budget agreement, lowering Prop 98 calculation. • Ignoring the “certification” of the Prop 98 base for 2008-09, the Governor asserts the drop in revenue puts Prop 98 in Test 1 for that year. • That change would drop the Prop 98 base from $49.1 billion to $46.8 billion, enabling the cuts of $2.3 billion. • The Governor additionally ignores the repayment schedule for the $11.2 billion by deferring the first year obligation to 2012-13. • All of this requires a change in existing law. 877.954.4357 • www.sia-us.com

  31. Gas Tax Swap • 2010-11: Governor proposes to eliminate the current 16 cents per gallon state sales tax on gasoline • Replaces it with excise tax of 10.8 cents per gallon • Transaction eliminates $1 billion required to be spent on state transit programs • Because excise tax revenue would not count toward the State General Fund calculation for Prop 98, minimum guarantee for 2010-11 reduced by $836 million 877.954.4357 • www.sia-us.com

  32. 877.954.4357 • www.sia-us.com

  33. Maintenance Factor • “Real” maintenance factor is projected to be $1.3 billion – funds still owed to schools as a result of 2007-08 • Governor’s proposal to redefine budget agreement from July 2009 would utilize some of his newly declared “over-appropriation” for 2008-09 and credits the state, wiping out the obligation • Governor proposes to push “Maintenance factor like” payments off to 2012-13 877.954.4357 • www.sia-us.com

  34. Where’s the Federal MOE Firewall? • Well into the 3rd Q. of 2009, DOF & LAO asserted that the state was slightly above the minimum MOE requirements to protect ARRA funding • Governor now says state is below MOE by $550 million and will seek approval from feds based upon criteria DOF says recognizes increased year-over-year funding • If full waiver is required, it could be difficult for Governor to secure 877.954.4357 • www.sia-us.com

  35. QEIA Fix: Back to Normal • Quality Education Investment Act funding gimmick last year created huge political and fiscal problems for Governor & Legislature • After State Commitment, QEIA schools almost left holding the bag • Problem solved for 2009-10 with federal dollars by nearly every district in California • Governor fully funds QEIA for 2010-11 877.954.4357 • www.sia-us.com

  36. Prop 98 – K-12 Local and State Shares Source: Department of Finance 877.954.4357 • www.sia-us.com

  37. Education Funding: Recap Ongoing Major Funding Sources Most Districts Receive Ongoing Revenue From the Following Major Funding Sources: General Fund State Categorical Tiers I, II, and III Ongoing Federal Title I, II, III, IV Local Bonds & State Match Programs for Construction One-Time Federal ARRA Funds State Fiscal Stabilization Funds Title I, IDEA Formula Funds Facilities $ Direct to largest 100 Districts 877.954.4357 • www.sia-us.com

  38. Analysis and Considerations Out of crisis comes opportunity. • Implement innovative solutions now to generate/sustain revenues • Use flexibility options prudently and wisely • Don’t eliminate services that increase or leverage revenues and efficiencies • Engage your community 877.954.4357 • www.sia-us.com

  39. Politics 877.954.4357 • www.sia-us.com

  40. Education Politics • Attacks on everyone galvanize education advocates, not the opposite • Focus of the fight will be on defining the 08-09 base and another “broken deal,” as well as gas tax shift that drops the base another $836 million • Success on these issues removes the capacity for deep education budget cuts without suspension • The Legislature must evaluate what challenges they bring by sticking with the July budget agreement • Governor takes full “hit” for these ugly proposals – Could the Legislature reluctantly accept and simply place the blame at his door? 877.954.4357 • www.sia-us.com

  41. Education Politics If July Budget Deal Stays Intact: • Prop 98 base will be underfunded by $1 billion requiring added dollars, another settle-up deal or suspension • Sticking with “Maintenance Factor Like” repayment schedule of the $11.2 billion would require added dollars for K-14 in 2010-11 • Higher overall obligations can be leveraged for less fiscal impact to schools • Invites another debate about Prop 98 Suspension • If suspension occurs, could cuts be deeper than Governor’s proposals? 877.954.4357 • www.sia-us.com

  42. State Political Backdrop • Election year – state and federal mid-term • Increased polarization • Speaker and leadership turnover • Experience deficit • Fight longer and harder • No one power center • Recalls and Lt. Governor vacancy • Governor’s race • Ballot measures 877.954.4357 • www.sia-us.com

  43. State Ballot Politics 877.954.4357 • www.sia-us.com

  44. State Ballot Politics • Other ballot measures: • Higher ed vs. prisons – ballot box budgeting • Prop 1A do-over – League of Cities carves out more • Gay Marriage & Abortion – drives who turns out • Props 10 and 63 changes – been here before 877.954.4357 • www.sia-us.com

  45. State Political Backdrop • Governance reform • California Forward • Constitutional Convention • SPI race impact • CTA v. EdVoice power struggle • Do Dems get 2/3rds in State Senate… does it matter for school budgets? • Maldonado Senate seat • Benoit Senate seat 877.954.4357 • www.sia-us.com

  46. What’s Next? 877.954.4357 • www.sia-us.com

  47. Where We Go From Here • January/February Budget Committee hearings • Feb: Legislature/Governor do something with current year budget • May Revise • Expect late and contentious budget 877.954.4357 • www.sia-us.com

  48. Funding Flexibility!!!! 877.954.4357 • www.sia-us.com

  49. What’s Happened with Flex So Far? • SI&A 2009 survey of Adult Ed program status • Shared with Legislature, staff, LAO, DOF • Shared with Adult Ed programs • Shared with media • Shared with industry and labor groups 877.954.4357 • www.sia-us.com

  50. Survey Data Fall - 2009 • Adult Education Sites that are Cutting the Number of Classes that they Offer • Nearly all adult education sites in California have cut the number of classes offered in their programs. So far, four-fifths of all adult education sites in California have cut the number of classes that they offer. • A little more than four-fifths of adult education sites in East Central California have cut the number of classes that they offer. • Among the adult education sites in North West, North East, West Central, Southern California, and the L.A. area, nearly three-quarters have cut the number of classes that they offer. 877.954.4357 • www.sia-us.com

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