Governor's January 2010-11 Education Budget Shifts K-12 District Funding in Some Categories

By Vernon Billy - January 12, 2010

Last Friday, Governor Schwarzenegger released his budget proposal for 2010-11. The Governor’s budget attempts to close a $19.9 billion budget deficit. About $6.9 billion of the deficit is in the current budget year (2009-10) and $12.3 billion is attributed to the 2010-11 budget year. The Governor also includes the need to have a $1 billion reserve in the $19.9 billion deficit figure.

The chart below outlines the factors contributing to the $19.9 billion two-year deficit and the Governor’s proposed solutions over the same period.

Comparison of Budget Deficit Factors vs. Governor’s Proposed Solutions (in billions)
Budget Deficit Factors	Proposed Solutions
$3.4B Decline in Revenue	$8.5B Expenditure Reductions
$4.9B Court Actions	$6.9B In Increased Federal Funds
$2.3B Eroded Budget Solutions	$3.9B Alternative Funding
$1.4B Caseload Growth	$0.6B Fund Shifts / Other Revenues
$1B Reserve
$6.9B Current Year Shortfall (includes projected 2011 reserve)
TOTAL: $19.9 Billion	TOTAL: $19.9 Billion

The Governor’s proposed solutions rely heavily on a $6.9 billion increase in federal funds, which most budget and political observers do not believe is realistic. The Governor, also recognizing that receiving $6.9 billion in new federal funds may be too optimistic, includes contingency cuts that would be triggered if the state does not receive an additional $6.9 billion. The Governor’s trigger cuts would impose one dollar of additional cuts (or revenue) for every federal dollar not received from the $6.9 billion request.

The cuts that the Governor would pursue based on the trigger are basically comprised of cuts in health & welfare, the courts, and higher education. We categorize these cuts as follows:

$3.159 billion from health & welfare
$380 million from courts
$508 million from state employee salary reductions
$226.9 million from higher education

As a part of the trigger, the Governor also proposes $2.4 billion in revenue by
extending the suspension of certain tax cuts and delaying the enactment of certain deductions for businesses.

K-12 Education

The Governor’s budget states Proposition 98 is in a Test 1 year and reduces funding for K-12 education by enacting a number of funding shifts, manipulations and reductions. As a result of these manipulations, Proposition 98 is reduced in the current year by $567.5 million to $49.9 billion. In 2010-11, the Governor funds Proposition 98 at $50.4 billion.

To achieve significant savings in the current and budget year, the Administration asserts that the 2008-09 Proposition 98 minimum guarantee was $2.3 billion lower than the amount actually certified, and therefore, the minimum guarantee was over-appropriated by an equal amount. The Administration proposes using some of this over-appropriation to pay for the outstanding maintenance factor of $1.3 billion (note: this is separate from the $11.2 billion “in-lieu” Maintenance Factor payments). By applying this over-appropriation to the outstanding maintenance factor, the minimum guarantee is reduced in 2009-10 by $800 million and again the next budget year.

In addition, the Administration is proposing a funding swap between transportation sales tax dollars and the fuel excise tax dollars which results in reducing the state general fund support that is used to calculate Prop 98 by approximately $836 million in the budget year. Here again, the Administration manipulates funding formulas to achieve savings, while still claiming to protect education and avoiding “mid-year cuts”.

Compounding the Administration’s funding manipulations is the negative (-).38% COLA which results in a $202.2 million reduction to education funding and the Governor’s decision to delay payments to school districts for the $11.2 billion In-Lieu Maintenance Factor slated to begin in 2010-11 to 2012-13.

Finally, the Governor’s budget proposes real cuts to education funding that will directly impact school districts. Below is a list of the major reductions included in the 2010-11 budget for education.

2009-10 & 2010-11 K-12 Funding Reductions

Average Daily Attendance (ADA). Reduces revenue limits in 2009-10 by $229.3 million to adjust for a decrease in ADA, followed by another net decrease of $27.3 million in 2010-11 for reduced ADA.
Mandates. Suspends “all” K-14 mandate payments, except costs for interdistrict & intradistrict transfers ($7.7 million increase) and the CAHSEE ($6.8 million increase). The Governor does also provide $65 million for the Behavioral Intervention Plan mandate.
School District Administrative Reductions. 10% reduction ($1.2 billion) to school district and county office administration and overhead costs. Districts will be limited on the amount of funding they can spend on central administration. Districts will also be prevented from shifting central administrative costs to school sites. This cut will be made to district revenue limits. The Administration’s intent is to make these reductions from specific account codes and to make waivers available to districts if they are at risk of becoming insolvent. Interestingly enough, it does not appear that the Administration is making a similar proposal for other local governments.
Contracting Out. A $300 million reduction to school districts and county offices of education by eliminating barriers to contracting out services. The Governor’s contracting out proposal faces an uphill battle and is simply a budget maneuver to reduce school district revenue limits in order to achieve State-level savings.
Class Size Reduction. The Administration projects a $340 million savings in 2009-10 and a $550 million projected savings in 2010-11 in class size reduction due to declining participation in the program and many districts’ decisions to increase class size.
COE Administrative Consolidation. A $45 million savings by requiring county offices of education to consolidate administrative functions.
CalWORKS Stage 3 Child Care Funding. The Governor proposes a $122.7 million reduction to achieve additional ongoing Proposition 98 General Fund savings by reducing eligibility for Stage 3.
Child Care Reimbursements. The Governor proposes a $77.1 million reduction to reduce reimbursement rates for licensed‑exempt providers from 90 percent of the ceilings for licensed family child care homes to 70 percent. This proposal affects all voucher programs, including the Alternative Payment Program ($12 million), and CalWORKs Stage 2 ($37 million) and Stage 3 ($28.1 million) programs.

New Proposals

Teacher Layoff Notification – The Governor proposes to change the teacher layoff notification window to 60 days after the state budget is adopted or amended.

Teacher Seniority – The Governor proposes to change state law to allow school districts to layoff, reassign, transfer or rehire teachers based on skill and subject matter needs, without regard to seniority.

Substitute Costs – The Governor proposes to eliminate provisions in state law that require teachers who have been laid off to receive first priority for substitute assignments, and proposes elimination of the requirement that these substitutes be paid at the rate they received before they were laid off if they work more than 20 days within a 60-school day period.

School Year – The Administration continues to call for allowing districts to reduce the number of instructional days by up to five days without losing any incentive funding.

Comprehensive Reforms – The Administration is considering additional reforms to the public school system that focus on removing statutory and regulatory barriers that impede a school districts’ ability to improve student achievement. (These proposals will be outlined during the legislative process).

Editor's Note: Vernon M. Billy is president of Governmental Solutions Group, LLC (GSG) a Sacramento-based consulting and legislative advocacy firm. GSG serves public and private education organizations, non-profit organizations and private sector companies.