the state budget: where are we now? presented by robert miyashiro vice president school services of...
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The State Budget:Where Are We Now?The State Budget:
Where Are We Now?
Presented by
Robert MiyashiroVice President
School Services of California, Inc.
2The State Budget: Where Are We Now?
The State Economy
The Political Environment
Policy Choices
3The State Economy
0
10
20
30
40
50
60
70
80
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
Fiscal Year
Day
s
?Number of Days the State Budget is Late
4State Economy
State Unemployment Rate(Percent Unemployed)
7.3%
5.9%
5.3%
4.8%
4.0%
5.0%
6.0%
7.0%
8.0%
12/06 6/07 12/07 7/08
Source: Department of Finance
5State Economy
California Employment(Jobs in Thousands)
15,213
15,172 15,171
15,117
15,100
15,150
15,200
15,250
12/06 6/07 12/07 7/08
Jobs
Source: Department of Finance
6Budget Gap
The ongoing demands of state programs, the loss of one-time prior-year Budget solutions, and weak revenues from a slowing economy have resulted in a $15.2 billion Budget gap
This estimate, however, is now four months old Some of the Budget solutions are foregone The economic outlook appears weaker
January 2008 Budget Gap -$ 14.5 billion
May Revision Adjustment -$ 7.7 billion
Special Session Solutions $ 7.0 billion
Remaining Budget Gap -$ 15.2 billion
7Political Environment
The Budget requires a two-thirds vote in both houses to pass
54 aye votes in the Assembly (there are 48 Democrats and32 Republicans)
27 aye votes in the Senate (there are 25 Democrats and 15 Republicans)
Legislative districts have been drawn to create safe Democratic and Republican seats making it more difficult to compromise
Term limits have shortened the time for Legislators to understand the issues and know their colleagues
The “Big 5” process forces many issues to leaders who are themselves new to their position
8Proposed Budget Solutions
The Governor has proposed No new revenues and across-the-board cuts in January Borrowing against Lottery growth, with a stand-by sales tax increase
in May A three-year 1¢ sales tax increase and a permanent ¼ ¢ reduction in
August Democrats Conference Committee Budget includes:
Higher revenues from increases in the income tax and corporation tax Restoration of cuts to K-12 programs, plus a 2% cost-of-living
adjustment (COLA) Restoration of Governor’s proposed cuts to other state programs
Republicans in the Legislature have proposed Borrowing from local governments and transportation funds Securitization of Lottery revenues Fund shift from redevelopment agencies
9The Education Budget
Legislators of both parties and the Governor have narrowed their differences on funding for K-12 education Year-over-year cuts to revenue limits and categorical programs have
been rejected Proposition 98 funding of $57.8 billion, but potentially higher if taxes are
increased Major unresolved K-12 issues
COLA 2% in Conference Committee Budget, but this assumes billions in
new ongoing revenues 0.0% in the Governor’s “August Revise,” the Senate’s Budget
proposal, and the Republican plan Lottery securitization and Proposition 98 base funding adjustments Local flexibility options
10How Will This End?
Financially complex and legally questionable Budget solutions often emerge when Budget stalemates continue. Recall:
“Off book loans” from Proposition 98 in the early 1990s
Borrowing from the PERS system earlier this decade
The “triple flip,” involving local sales tax, schools’ share of the property tax, and the state’s backfill to schools
In the end, all parties will have to compromise, but this is very difficult because the State Budget is not simply an accounting document, it is a reflection of our collective values
Management in theFace of UncertaintyManagement in theFace of Uncertainty
Presented by
Sheila VickersVice President
School Services of California, Inc.
12Management in the Face of Uncertainty
To understand where we might be headed, we need to revisit past state fiscal crises
Several years in the early 1990s of underfunded or no COLA
Deficit factor was invented, and eventually made whole ten years later
But not retroactively – the funding was lost in the intervening years
In the current decade, we have already seen cuts, no COLAs, deficit factors, and even mid-year cuts
Might we be headed for more of the same in the current state fiscal crisis?
What can you pull from your toolbox to cope with this if it happens again?
13Budget Update With No State Budget
Most districts have closed the books on 2007-08 School has begun and enrollment numbers are coming in for the current year Staffing decisions are solidifying for the current year
Recommendations: Update your beginning balance for 2008-09 to the actual ending balance
for 2007-08 Revise your estimated ADA for 2008-09 based upon latest enrollment
information Update 2008-09 and beyond for revised enrollment and ADA estimates:
Projected revenues Staffing budget
If declining in enrollment and had staffing reserve in place, evaluate usage of staffing reserve and possible redirection to other purposes –or the ending balance
14Categoricals With No State Budget
Governor’s May Revision contained a 6.5% cut for 2008-09
Conference Committee and others propose not to cut
The risk is that you could be spending dollars that may not be there in the end
Recommendations:
If books are still open for 2007-08, book Mega-Item and AB 825 Block Grant transfers where possible and appropriate
Continue to budget based upon SSC’s May Revision Dartboard (no COLA, 6.5% cut)
Delay and reduce spending where possible
Use SSC’s CATWizard to maximize use of funding available to you
Funding rates will be updated for all programs once State Budget is signed
15Flexibility With No State Budget
Flexibility may or may not be in the end game of the State Budget
If there is no COLA, flexibility proposals probably survive
If there is any amount of COLA, don’t count on flexibility too
Recommendations:
If books still open for 2007-08, manage program balances during closing to maximize ability to take advantage of proposed flexibility for 2008-09
If flexibility has been planned on in your 2008-09 budget, have a fallback plan if that flexibility is eliminated
If flexibility is in the end game – particularly in the transfer of restricted balances – plan to make the maximum transfer
You can always transfer it back if you need to
16Multiyear Projections
Multiyear projections are only as good as the assumptions behind them A funded COLA in 2009-10 and 2010-11 are as uncertain as ever
Economic projections change every day, but one thing remains constant Education is a big target when there is a huge gap in the State Budget
And the Governor’s 2009-10 January Proposal is less than four months away Recommendations: Take your updated 2008-09 budget and, using SSC’s Dartboard, rebuild
your multiyear projections as a “base projection” Then do a variety of “what if” scenarios and determine whether your
district will be in trouble if there are mid-year cuts in 2008-09 or unfunded COLAs in the out years
Have a backup plan if these scenarios come to fruition – do not wait until January
Have seniority lists ready before January in case the Governor’s January news is as bad as or worse than last January
17Cash Management With No State Budget
July 2008 Advance Apportionment will be received this month Significant apportionment funds are not being received due to the lack of a
State Budget: adult education, instructional materials, block grants, special education, etc.
K-3 Class-Size Reduction and Principal Apportionment funding for 2008-09 is to be deferred from February to April
Districts are receiving the statutory COLA of 5.66% in apportionment funding, when no COLA in the State Budget will require it to be paid back
And through all this your district is expected to make payroll and vendor payments on time Recommendations: Closely monitor cash flow Update cash flow actuals and projections as soon as the prior month
closes and inflows, outflows, and balance are known Evaluate whether internal or external borrowing is needed If you have issued TRANs, will that be enough?
18Collective Bargaining With No State Budget
Successful bargaining is about problem solving But it’s hard to solve problems that are undefined
What we don’t know: This year’s COLA or lack thereof This year’s categorical funding cuts – or not This year’s flexibility options – or not Whether next year’s COLA will be funded or not Whether there will be mid-year cuts this year Whether the Governor will propose in January cuts to 2009-10
Neither party to an agreement can count on new revenues
Recommendations: Talk to bargaining units about waiting until after January 2009 before
settling the current year If you must settle now, have a fallback plan if things get worse
Thank youThank you
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