Thursday, November 17, 2011

The Return of ‘A State without a Budget, A government without a Clue’: BIG MIDYEAR HIT FOR PROP 98 LIKELY + DEEPER CUTS TO STATE BUDGET EXPECTED + Addl Coverage + smf’s 2¢

smf: In budget cycles past, 4LAKids broke out the California Budget Debate from the rest of the Education mess and placed in in a separate blog: A state without a Budget, a government without a Clue”.  4LAKids was trying to keep the recession separate from recess – and to avoid depression altogether.

This past year the state got a budget early, and after an initial hiccough got a another, “final” budget; close enough to on-time to escape a tardy slip. There was no “State without a Budget, Government without a Clue.”

Except, of course, it unraveled just like the Schwarzeneggerian budgets previous:  Those rose-colored glasses and fanciful projections ran afoul of reality and the towering house of cards came tumbling down like a pre-Field Act elementary school in Long Beach in 1933.

The May Revise comes in December this year; pink slips and holiday cards will be in the mail. And charter schools and school districts will go into bankruptcy and/or receivership.

So we’re back right back where we started – deeper in debt, mired in the shortfall, tangled in the great expectations and the Reform®; Tested, Assessed Value-addled+Data-driven to Distraction. 

“Cut, cut, cut!”
say the Republicans.

”Cut!” says the director.
”Places” says the A,D.
“…Roll Camera.”
“………………Scene 2011, Take Three. Marker.”
”…………………………And…. ACTION!”

Big midyear hit for Prop 98 likely: LAO foresees $3.7 billion state shortfall

By John Fensterwald - Educated Guess |

11/17/11 • The first shoe fell with a thud Wednesday, when the Legislative Analyst’s Office predicted that a $3.7 billion state revenue shortfall this year would result in $2 billion in midyear “trigger” cuts, including $1.5 billion in Proposition 98 funding and $100 million each to the University of California and California State University.

The other shoe will drop next month when the state Dept. of Finance issues its own revenue estimates and then sets the midyear cuts based on the rosier of the two projections.

The LAO is predicting a $13 billion state deficit next year, even after $2 billion in midear cuts this year, declining gradually over five years. Click to enlarge.

The LAO is predicting a $13 billion state deficit next year, even after $2 billion in midear cuts this year, declining gradually over five years. Click to enlarge.>>

The expected cuts, which will bite into services for the disabled as well, follow dreary revenue reports for the first four months of the fiscal year, and so should come as no shock. The repercussions were felt immediately Wednesday, with CSU trustees approving a 9 percent tuition increase for next year unless the state increases funding by at least $138 million next year. The $100 million midyear cut will put CSU that much more in a hole and wipe out the system’s reserves.

Under the budget passed last year, the shortfall also will lead to a $10 per credit community college fee increase, and will compound problems for K-12 districts, especially those that, hoping against hope, didn’t build in sufficient reserves or don’t have contingencies for negotiating additional staff furlough days this spring. Under the worst-case scenario, some of those districts, the LAO said, may run right out of cash by year-end and have to seek a state emergency loan.

The $1.5 billion in Prop 98 cuts would include the $248 million in home and school transportation payments – more than half of funding for the program – and $1.1 billion in standard revenue limit funding for districts. The latter equals a cut of $180 per student, about 3 percent of state tuition payments.

The transportation cuts, an average of $41.60 per student, will disproportionately affect rural and poor urban students, according to a breakdown by Stephen Rhoads, a lobbyist with Strategic Education Services in Sacramento. In rural Humboldt County, the cut amounts to $113 per student; in Mariposa County, $346 per student; for low-income students, the cut would average $49 per child, compared with $23 in wealthier districts. If students stop attending school regularly after bus routes are cut, districts would see a further erosion in revenue.

The Legislature made contingencies for cuts when it shifted $2 billion in sales tax revenue from Prop 98 to pay for transferring prisoners to county and local jails. Rather than immediately cut education, the Legislature assumed that the state would take in an extra $4 billion in revenue – a deal it cut with the California Teachers Association that in the end turned sour.

CTA President Dean Vogel, commenting on the LAO report, called for fixing the state’s “unfair tax structure and corporate tax breaks” in order not to shortchange education.

“It’s time to put a fair and equitable tax system in place so that our students and the most vulnerable Californians don’t have to continue to do without,” he said.

Looking ahead to a sluggish economy and an unemployment rate that will likely remain above 8 percent for another five years, the LAO assumes that the midyear cuts won’t be restored for years. Even with the midyear cuts, the LAO is predicting that the state will end this year $3 billion in the red, and the deficit will grow to $13 billion next year, and will remain above $5 billion per year through 2016-17.

If there’s good news for schools, it’s in the LAO’s projection that the funding obligation for K-12 and community colleges will rise $4 billion next year. But more than half of that will be simply part of what the state owes the schools: restoring Prop 98 to the level before the $2 billion in sales tax money was diverted and then partially repaying for the lost $2 billion this year ($400 million per year for five years).

With unemployment beginning to drop next year, per capita income will rise 4 percent, resulting in an increase of nearly $1 billion in the Prop 98 obligation. But, with the Prop 98 increase contributing to the $13 billion deficit, the LAO suggested that the Legislature would have to consider suspending Prop 98 – and how to do it.

It added two more cautionary notes: Even though an upsurge in revenue may enable the state to fund Prop 98 an average of $2.5 billion a year beyond the minimum guarantee from 2013-14 to 2016-17, it will still end up owing education $10 billion in past obligations. And it will not have begun to pay down CalSTRS’ unfunded pension liability. “Addressing the unfunded liabilities of just the teachers’ retirement fund probably will require billions of dollars of additional payments annually over the coming decades,” the report said.


Deeper cuts to state budget expected: Lower-than-forecast revenue means automatic reductions will likely kick in. A shorter K-12 school year could result.

By Anthony York and Nicholas Riccardi - Los Angeles Times |


Students and parents rallied against education cuts outside Millikan Middle School earlier this year. (Kirk McKoy / Los Angeles Times)

November 17, 2011 - Reporting from Sacramento— Sluggish state revenue is likely to trigger a new round of spending cuts that could mean a shorter school year and millions of dollars slashed from public universities, child care programs and services for the disabled, the Legislative Analyst's Office says.

California's coffers will be $3.7 billion below what lawmakers and the governor assumed in the budget they crafted last summer, said Mac Taylor, the analyst whom legislators look to for nonpartisan financial advice. The new reductions were built into the spending plan, to kick in if state income fell short.

A final decision will be made next month, when Gov. Jerry Brown's Department of Finance releases its own forecast for the rest of the fiscal year, which ends June 30. Taylor said the projections could still change enough to ward off some of the deepest cuts. But his announcement Wednesday was the first official confirmation that reductions are likely.

The grim news prompted outrage from education officials who have already sharply pared their budgets. But it was no surprise to economists who had criticized Brown for balancing the budget by anticipating an extra $4 billion in revenue after he failed to secure Republican support for a ballot measure to raise taxes.

"Short of aliens landing on the planet with a big bucket of cash," said Christopher Thornberg, a founder of Beacon Economics, "there's no way we're going to make [Brown's] revenue projections."

If the economic picture does not improve in December, the new cuts would include a $1.4-billion reduction in public school funds that would even force state-provided student buses to be mothballed. Such severe cuts had Los Angeles schools Supt. John Deasy publicly contemplating defiance Wednesday.

"What comes to mind is we simply won't do it," he said in an interview.

At the urging of teachers unions, legislators barred districts from closing the money gap by laying off teachers. Rather, they would have to cut expenses elsewhere. The state gave them permission to trim up to a week from the school year if they agreed with their local teachers unions to do so.

Kevin Gordon, a lobbyist for several school districts, said he believes it would be almost impossible for local authorities to win permission from labor to curtail the academic year and the Legislature would have to revisit the issue.

"There will be a reshuffling of the deck entirely if it appears schools will have to shoulder the magnitude of cuts" that the Legislative Analyst's Office projects, Gordon said.

In addition to reductions in K-12 education, the University of California and California State University systems would each lose $100 million. Fees at the state's community colleges would increase by an additional $10 per unit.

Counties, already struggling to accommodate more inmates under Brown's current budget, which shifts responsibility for some offenders from the state to local governments, would lose $72 million that pays for the housing of serious juvenile offenders.

Funding for home health aides would be cut by 20%, and services for the disabled would be slashed by $100 million — on top of deep reductions already made in those programs.

That could be the last straw for Michelle Franklin, 45, of Stockton, who receives just under $800 a month from the state to care for her schizophrenic son and an elderly neighbor. If her payments drop by 20%, she said, she may have to commit her child to a state mental hospital.

"I love my son dearly and it's going to break my heart, but if they cut my hours I may have to make the decision to let my son go," Franklin said. "That's going to end up costing the state a lot more in the long run."

Administration officials and Democratic legislative leaders urged calm, holding out hope that December's forecast would be better and enable the state to dodge the automatic cuts. They stressed that the state's finances are in better shape than they have been for much of the decade-long budget crisis.

"California's budget gap is the result of a decade of poor fiscal choices and a global recession," said Brown spokesman Gil Duran. "This year, we cut the problem in half. Next year, we'll continue to make the tough choices necessary until the problem is solved."

But Taylor's analysis shows little relief in sight. It predicts that even with the new slate of cuts, the state will face a $13-billion shortfall in the next fiscal year. That gap would be so severe it would be difficult to close without going below the minimum funding that state law guarantees for K-12 education.

The good news, Taylor said, is that the annual deficit is expected to gradually dwindle into the range of $5 billion by 2016, a better long-range picture than he has seen in years.

The cuts will become official Dec. 15 if the projections don't improve, then be phased in over subsequent months. In September, Brown vetoed a bill that would have allowed the Legislature to reconfigure the cuts, saying it would be reckless to alter them. On Wednesday, Taylor said it would be "unwise" to do so.

A bevy of interest groups are trying to change them anyway.

Jean Hurst, a lobbyist with the California State Assn. of Counties, said her members would ask the administration to reconsider taking $72 million in juvenile lockup funds from them. She noted that the move would come as counties implemented Brown's "realignment" plan by keeping inmates who would have otherwise gone to prisons.

"To pull additional funds out of our base of safety services is a huge challenge," she said.

Social service advocates and unions representing home health workers vowed to sue to stop what they described as "devastating" cuts to services for the disabled. They joined labor groups and many Democrats in calling for tax hikes to be placed on the 2012 ballot to stave off more reductions.

Both university systems have said they believe they can absorb their potential cuts, though this year's austere budget led Cal State trustees to approve a 9% fee hike Wednesday.

Full coverage from google news

Most school districts may weather midyear cuts, but worry about future

San Jose Mercury News – Nov 17, 2011

California's anemic tax revenues may trigger steep budget cuts on Feb. 1, but with most school districts anticipating them, they won't set off drastic changes in the school year. That doesn't mean the cuts, estimated to be $180 per ...

Calif. budget cuts could shorten school year

San Jose Mercury News - Nov 17, 2011

SACRAMENTO, Calif.—Millions of California parents and schoolchildren face a direct hit from the state's latest financial woes—the prospect of fewer school days that would make California's school year among the ...

Fitch: Effect of California Trigger Cuts to Vary for State & Schools

MarketWatch (press release) - Nov 17, 2011

NEW YORK, Nov 17, 2011 (BUSINESS WIRE) -- Underperforming revenues will likely prompt the State of California to lower its near-term revenue outlook and implement some mid-year trigger cuts contained in its 2012 fiscal budget, a scenario that will have ...

Calif. faces $13B deficit, faces midyear cuts

BusinessWeek - Nov 17, 2011

California faces $2 billion in automatic spending cuts at the first of the year that will reduce funding for public schools, higher education and a range of state services, according to a nonpartisan fiscal analysis released Wednesday. ...

State fiscal nightmare: deep cuts on horizon

San Francisco Chronicle (press release) - Nov 16, 2011

Rich Pedroncelli / AP California faces deep midyear cuts to its universities, community colleges, social service programs and public schools - which may have their year shortened - because the state will collect billions of dollars less in revenue than ...

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New California budget report triggers old partisan arguments

Sacramento Bee (blog) - ‎Nov 16, 2011‎

Fresh off a new Legislative Analyst's Office report that paves the way for mid-year cuts in education and social services, Democrats called for additional taxes and Republicans said lawmakers must rein in spending. The report also pegs the state's ...

BUDGET Analyst projects revenue $3.7 billion short

Press-Enterprise (blog) - ‎Nov 16, 2011‎

By PE Politics on November 16, 2011 11:25 AM California would face $2 billion in midyear cuts to schools, universities and other programs under an updated revenue analysis by the Legislature's nonpartisan fiscal analyst. State revenue is on pace to be ...

LAO Predicts Trigger Pulled On Budget Cuts

Capital Notes (blog) - ‎Nov 16, 2011‎

The annual fiscal forecast of the Legislative Analyst's Office is always interesting to budget wonks, but never so consequential to the services used by millions of Californians as it is this year. That forecast, released this morning, projects the ...

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United States

Californians Dislike Cuts as Revenue Projected to Trail Budget

BusinessWeek - Nov 16, 2011

Nov. 17 (Bloomberg) -- Almost three-quarters of Californians say the state doesn't spend enough on higher education, according to a new survey, even as revenue forecasts raise the likelihood of more cuts to colleges ...

Sharp Decline in Revenue Is Forecast for California

New York Times - Nov 16, 2011

A report released by state budget analysts on Wednesday forecasts a sharp decline in revenue for this fiscal year, which could set off more than $2 billion in new cuts in state spending in January, including a seven-day reduction in ...

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Sacramento, CA

LAO: Calif. Budget Triggers Likely, $13 Billion Deficit Next Year

Capital Public Radio News - ‎Nov 16, 2011‎

It now looks even more likely that California will have to make mid-year “trigger” cuts to the state budget, according to a new report by the state's nonpartisan legislative analyst's office. By Ben Adler This year's budget relies on an extra $4 ...

California Budget Facing Billion Dollar Deficit

KCRA Sacramento - ‎Nov 16, 2011‎

SACRAMENTO, Calif -- California's nonpartisan fiscal analyst projected the state to have a $13 billion budget shortfall over the next 18 months. That likely means Gov. Jerry Brown and state lawmakers will have to make another round of spending cuts. ...

Analyst: State Faces $13B Deficit Next Year

KCRA Sacramento - ‎Nov 16, 2011‎

California's nonpartisan budget analyst says the state is projected to face a $13 billion budget shortfall next year. By The Numbers The Legislative Analyst's Office on Wednesday released a gloomy state fiscal outlook. It says tax revenue will fall ...

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