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Legislature Tries For Budget Majority – Again

By Jeff Hudson - February 17, 2009

Gov. Arnold Schwarzenegger and legislative Democrats will try one more time on Tuesday, hoping to secure a majority big enough to pass a budget compromise in the California Senate.

Legislators spent most of the President’s Day weekend trying to convince one more Republican senator to vote in favor of the budget bill – and one more vote would be enough to give the proposed legislation enough votes to secure passage in the California Senate. (There are reportedly enough votes to get the package through the California Assembly).

While the ultimate fate of the compromise budget bill was still unclear on Tuesday morning, the broad details of the bill were emerging.

The so-called Budget “Correction” Package covers the 2008-2009 and 2009-10 years, and involves $15 billion in cuts, $14.4 billion in temporary revenues, and $11 billion of borrowing.

The revenues reportedly will come from five areas:

  1. A one percent sales tax increase.
  2. An increase in the Vehicle License Fee, up to 1.15 percent of the car’s value.
  3. An excise tax on gasoline, approximately 12 cents per gallon.
  4. Reduction of the dependent care tax credit (reportedly from $300 to $100).
  5. An income tax surcharge on some earners, reportedly 2.5 percent.

In terms of education funding, the budget package makes funding reductions, provides some flexibility in categorical programs and establishes new apportionment deferrals.

Current year (2008-2009) education funding is reduced by a reported $2.3 billion – similar to the cuts proposed by the Governor in his surprise announcement on Dec. 31. However, the current agreement does not make the entire cut through a revenue limit reduction. The package eliminates the 2008-09 COLA and reduces another $1.88 billion.  The $1.88 billion  reduction is split between cuts to revenue limits and categorical programs.

The Budget package also outlines three tiers of categorical program flexibility.

In Tier I, there would be no funding cut, and no “program flexibility” regarding the use of funds. Tier I will include Child Development, Child Nutrition, Economic Impact Aid, K-3 Class Size Reduction, Proposition 49 After School Programs, Special Education, Quality Education Investment Act, and Home-to School Transportation.

In Tier II, there would be a funding reduction of approximately 15 percent for this year and the next four years, with no “program flexibility.” Tier II will include Adults in Correctional Facilities, Partnership Academies, Apprenticeship programs, State Testing, English Language Acquisition Program, Agricultural-Vocational Education, Foster Youth, Charter School Facilities Grants, K-12 High Speed network, and Multi-Track Year Round Education.

Tier III would include all other categorical programs, which would receive a 15 percent funding cut for this year and the next four years, with “maximum flexibility” (allowing districts to use these funds for any purpose, including transfer to the unrestricted General Fund).

While the legislation would not change funding for the Class Size Reduction, it would make significant changes in the way the program is administered by reducing the penalties for raising class size.  For grades K-3, there would be no penalty for increasing average class size from 20 up to 20.5 students.  For raising class size to 21 students, there would be a 5 percent penalty (compared to a 20 percent penalty under current law); for up to 21.5 students there would be a 10 percent penalty (compared to 40 percent under current law); for up to 22 students there would be a 15 percent penalty (22 students puts a district out of compliance with current law); and for 22-to-25 students, there would be a 20 percent penalty.  If a district goes over 25 students, there would be a 30 percent penalty with no cap.

The flexibility provisions are intended to help school districts manage the budget cuts, which are compounded by another provision in the package that defers approximately $5 billion of school district payments from the current year to the budget year and delays additional payments throughout the budget year.

All of the budget packages funding, reductions and other gimmicks hinge on voter approval of five ballot measures, which will go before voters in a special election on May 19.  The ballot measures will be:

    1. Proposition 1A. The measure would take school funding out of the lottery and securitize lottery revenue, allowing the state to sell bonds to help balance the budget in 2009-2010 (and possibly later schools would see an increase in Proposition 98 funding to counterbalance the loss of lottery revenue.
    2. Proposition 1B. A state spending cap, taken from the ACA 3x 1 legislation by Assemblyman Roger Niello (R-Sacramento).
    3. Proposition 1C. An education funding package, taken from ACA 3x 2 by Assembly Speaker Karen Bass.
    4. Proposition 1D. Allows the state to divert the use of Proposition 63 monies.
    5. Proposition 1E. Allows the state to divert the use of Proposition 10 monies.

ACA 3x 1 revises the state’s Budget Stabilization Fund (also known as the “rainy day fund”).

Still unclear is what would happen if anticipated state revenues drop below projected levels. With economic problems piling up faster than anticipated across the nation, it is possible that California’s 18-month budget “correction” might have to be modified, further reducing funding before 18 months are over.

Governor Arnold Schwarzenegger added a further element in the political mix on Monday afternoon, as reports surfaced that the Governor would direct state agencies to send layoff notices to 20,000 state employees on Tuesday.  The Governor had held off from sending layoff notices the preceding Friday, saying that an agreement on a budget deal was at hand.  But with the budget agreement proving elusive, the layoff notice process was once more set in motion.

It appears that the federal stimulus package – to be signed by President Obama in Denver today – will have a minimal impact on reducing the size of state reductions in education funding.  But in each state, the Governor will play a role in determining how federal stimulus money will be spent (within the framework of the federal law).  Options include using the federal money to backfill state cuts, to prevent layoffs, or to modernize schools, among other possibilities.

The political situation in Sacramento remains fluid, and changes in the details of the Budget “Correction” Package are still possible.

Editor's Note: Jeff Hudson is the editor of EdBrief and an award-winning education reporter and writer in print, radio and television media.