Without much fanfare, Gov. Arnold Schwarzenegger
is expected to sign the state budget for 2008-09
today, 85 days after the start of the fiscal year.
His approval of the spending plan came after a
week of unprecedented and highly unusual negotiations
by legislative leaders and the governor.
Following last Tuesday afternoon's threat to
veto the budget passed by the Legislature a mere
13 hours earlier, the "Big 5" (the state
Senate and Assembly's party leaders, along with
the governor) resumed meeting to avoid the veto
and its anticipated legislative override. The
Big 5 cobbled together an agreement that not only
fails to address the use of one-time revenues
and gimmicks to balance the budget but adds further
limits to use of an increased rainy day fund reserve.
Both the Senate and Assembly approved the agreed-to
changes late Friday afternoon. The revisions to
the spending plan include changing one of the
revenue sources; instead of relying on accelerated
personal income tax payments, the budget now relies
on an increased penalty for corporations that
file erroneous tax returns. This is very uncertain
revenue.
Additionally, the agreement restricts the amount
of money that can be withdrawn from the Budget
Stabilization Fund-the rainy day reserve the governor
demanded-in low-revenue years. This restriction
means that, in some years, the amount that could
be used from the fund would not be sufficient
to maintain the current level of spending. This
would force deeper spending cuts, even while money
sits idle in the fund. This is a constitutional
change that must be approved by the voters in
a statewide election.
The changes to the budget that was approved a
week ago are contained in two bills: Senate Constitutional
Amendment 30, which imposes the additional restriction
on the rainy day fund, and Senate Bill 1x 28,
which adds the corporate income tax penalty in
lieu of the personal income tax acceleration.
The votes were as follows:
* * SCA 30: Senate:
30-0; Assembly: 56-12
* * SB 1x 28: Senate:
22-15; Assembly: 41-30
School funding essentially flat.
Overall, the budget closes a $15.2 billion gap
with nearly $6.5 billion in revenues and $8.7
billion in spending cuts. Only $20 million of
the new money is a permanent revenue increase.
The rest represents one-time funding that simply
speeds up the receipt of revenue that is already
owed under current law.
For education, this budget means essentially
flat funding this school year. The budget will
provide $58.1 billion for Proposition 98; this
represents $800 million less than was provided
by the Conference Committee report that CSBA supported
and is $3 billion below the governor's projected
workload budget, which represents the cost of
2007-08 programs and operations adjusted for inflation
and enrollment.
The plan does include a 0.68 percent cost-of-living
adjustment-but for revenue limits only, which
is well below the 5.66 percent COLA required by
law, creating a revenue limit deficit of over
4 percent. While it appears that the $58.1 billion
is ongoing revenue, it is important to note that
this level of funding is based on nearly $6.5
billion in one-time funds and accounting gimmicks.
Therefore, funding for Proposition 98 will once
again be in jeopardy in next year's budget.
Yet another special election.
Multiple pieces of the budget agreement will
require approval by voters. Since the Legislature
and governor were unable to reach agreement in
time to make this November's ballot, a special
election will be scheduled for next spring. It
may be held in March, in tandem with already-scheduled
mayoral elections in numerous cities. This would
be the ninth statewide election in eight years.
The changes to the state's rainy day fund will
need voter approval, as will a few changes related
to the state lottery. These include securitization
of the lottery, which will allow the state to
borrow money off of future lottery revenue, and
changes in the allocation of lottery resources,
which are designed to attract investors.
More grim news next year.
With the enactment of a 2008-09 budget, which
is balanced on gimmicks and accounting maneuvers,
leaders of school districts and county offices
of education will need to brace themselves for
the fact that next year is already starting off
with a deficit-which will likely mean more cuts
for schools. Given the state of the financial
markets, the fiscal picture for next year is especially
grim, and with this budget the Legislature and
the governor added to the deepening fiscal crisis.
Related link:
A comprehensive review of the overall budget
details (but not reflecting the changes noted
above to either the Budget Stabilization Fund
or the shift from accelerated personal income
tax payments to the increased penalty for erroneous
corporate tax returns) is available @
http://www.csba.org/NewsAndMedia/Publications/CASchoolNews/2008/Sept/Electro
nicOnly/BudgetVeto.aspx.
