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State Issues – November 19, 2009
The bad budget news continues for California.
Less than six months ago, the state faced a $26 billion deficit. In July,
Governor Schwarzenegger and the Legislature passed a budget that cut more than
$680 million from community colleges, and raised student fees from $20 per unit
to $26.
Both the Governor and the Legislative Analyst’s Office say California is again
facing a similar problem.
Governor Schwarzenegger put the shortfall in the current budget between $5
billion to $7 billion, plus another $7.4 billion deficit in the 2010-11 budget
year that begins July 1. He told reporters, “I think there will be
across-the-board cuts again,” and “we are not going to go and pick and choose”
between programs. “I think that we always have to go and cut across the board.”
On November 19, the Legislative Analyst’s Office (LAO) released its annual
Fiscal Outlook and predicted an even bigger budget deficit. The report does
bring some good news about state revenues and economic performance. But the
bottom line is that California still faces a budget crisis because of continued
structural shortfalls.
Below is a summary of the report prepared by the California Community Colleges
Chancellor’s Office:
Highlights
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California faces a projected $20.7 billion budget
shortfall over a two-year period (fiscal years 2009-10 and 2010-11).
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This shortfall results primarily from increases in
projected expenditures compared to the enacted State Budget.
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Sluggish State General Fund revenues represent a
relatively small part of the problem.
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While still lagging the nation, California’s economy
has likely hit bottom and is beginning a recovery. LAO points to slowing job
loss and rising home prices as indicators that California’s economy is
beginning to turn around.
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LAO states that “Addressing this large shortfall will
require painful choices—on top of the difficult choices the Legislature made
earlier this year.”
Proposition 98
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Despite the state’s worsening budget outlook, the
2009-10 Proposition 98 minimum guarantee has increased by $1 billion since
the 2009-10 State Budget was enacted. The 2009-10 State Budget provided a
total of $50.4 billion for K-12 schools and community colleges. Due to
changes in the factors used in the Proposition 98 calculation, the state’s
constitutional funding obligation is now $51.4 billion and, as a
consequence, the state owes community colleges and K-12 schools $1 billion
more than provided in the 2009-10 State Budget.
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This counterintuitive increase in the Proposition 98
minimum guarantee is the result of a downward adjustment in 2008-09 State
General Fund revenues. Because the Proposition 98 calculation drives off the
year-to-year change, a downward adjustment to the 2008-09 revenue figures
made the funding guarantee increase.
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LAO recommends that the Legislature wait until May to
decide how to address the $1 billion increased obligation. LAO justifies
that recommendation on the grounds that the Proposition 98 calculation will
likely change again once revenue estimates are update in April. If the $1
billion obligation is still in effect at that time, LAO suggests that the
Legislature could suspend Proposition 98, negotiate a multi-year payment
plan for the funds, or simply provide the funds in the current year.
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Given the magnitude of the state’s fiscal woes, it
seems unlikely that the $1 billion would be paid to schools and colleges
this year. Perhaps the biggest benefit of this increased obligation is that,
with the state already spending less on Proposition 98 than required by the
State Constitution, it will be politically more difficult for the
Legislature or Governor to propose mid-year cuts to community colleges and
K-12 schools.
Current-Year Budget (2009-10)
2010-11 Budget
2011-12 through 2014-15
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LAO forecasts that, absent state action, operating
shortfalls will increase in 2011-12 and persist into 2014-15. Projected
shortfalls are as follows:
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2011-12 $21.3 billion
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2012-13 $23 billion
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2013-14 $20 billion
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2014-15 $18.4 billion
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The large increase in operating shortfalls beginning in
2011-12 is due to the expiration of temporary tax increases adopted as part
of the February budget deal (some of the tax increases sunset at the end of
the 2009 tax year).
The report offers a sobering assessment of California’s
fiscal condition. State leaders will face tough choices to bridge the $21
billion budget gap. As noted above, the one-time fixes and accounting maneuvers
are only stop-gap fixes for long-term structural problems.
All signs point to another year requiring consistent, coordinated, and vocal
advocacy on the part of all community college constituents – faculty, staff,
students, administrators, trustees, alumni and community partners. As the
necessary details are filled in, and resulting strategies developed, we will
call upon you to help. Together we can ensure the Governor and the Legislature
understand the vital role community colleges must play in California’s economic
recovery. An investment in our students is an investment in our state’s future.
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