May Revise–Little Change for Education, Despite More Than a Billion in New State Revenues
Education, despite being the largest program in the state’s budget, received a relatively small share of the new state revenues in Governor Schwarzenegger’s 2005 May Revise budget proposal.In fact, the Governor is taking credit for leaving Proposition 98 funding for 2005-06 at the same level as proposed in January, even though the minimum guarantee has fallen by $509 million. But that drop in the Proposition 98 minimum guarantee is an artifact of the Governor’s refusal to allocate more funding for 2004-05 to honor his $2 billion “Deal”–last year’s agreement to suspend Proposition 98 funding but limit the cut to $2 billion. Had that deal been honored, Proposition 98 funding would be higher than the level proposed in the May Revise by about $1.8 billion in 2004-05 and by about $1.4 billion in 2005-06.
The following summarizes the major components of the May Revise for community colleges:
Statutory COLA of 4.23% is fully funded (including selected categorical programs)
Apportionment growth at 3% for an additional 34,000 FTES
Growth for selected categorical programs of 1.76%
$40 million for equalization
Increase of $12.9 million to reflect a revised estimated of student fee revenues
Restoration of $31.4 million in Partnership for Excellence funds
Increase of $17.4 million for the Governor�s Career-Technical Education Initiative (for a total of $37.4 million)
Increase of $2 million for Board Financial Aid program to reflect adjustments in student fee revenues
No changes in non-credit programs
There is no evidence of a change proposed for the State Teachers� Retirement System (STRS) shift that has school agencies paying an additional 2% contribution for their STRS employees
Programmatic Issues
While detail is slight in May Revision documents released initially, the Governor is proposing numerous new programs for K-14 education, as well as expansions or revisions to existing ones. Of particular note�virtually all the new funding for these proposals is one-time in nature, provided to settle up the state�s Proposition 98 obligation from the mid-1990s (meaning they don�t ratchet up the base), but leaving open the issue of ongoing priorities once the one-time dollars are gone. Following are the major new programs affecting community colleges:
Career-Technical Education Initiative
The pot of prior-year settle-up dollars were tapped in the Governor�s January Budget in the amount of $20 million for the Governor�s Career-Technical Education Initiative, and the May Revision increases this by $17.4 million, for a total of $37.4 million for this program.
Nursing Programs
The May Revision also taps the prior-year settle-up dollars to provide $10 million to community colleges to increase enrollment capacity in nursing programs or to meet equipment and other one-time needs within these programs.
May Revise Acknowledges Higher Current Year Revenues, But Little Increase Next Year
The Governor�s May Revise projects an increase in current year General Fund revenues of $1.276 billion, an increase of 1.6%, over the January Governor�s Budget forecast. For 2005-06, however, the May Revise calls for a minor adjustment of $95 million to the January forecast. Over the two-year period, revenues are up $1.371 billion.
The Administration�s forecast reveals several interesting developments. The current-year increase is largely due to strong capital gains and stock option income, which has resulted in an increase in the personal income tax of $2.367 billion, or 6%, over the January estimate. However, partially offsetting this increase is an accounting adjustment for the corporation tax that takes away $1.117 billion. This accounting adjustment is related to the tax amnesty program, which in March took in more than $3 billion that was not anticipated. The May Revise documents do not make clear how this accounting adjustment will affect revenues in future years.
The May Revise also anticipates a slowing national economy, with the gross domestic product expected to fall from 4.4% growth in 2004 to 3.0% in 2006. California �s economy is expected to see a slowdown as well, although not as steep as the nation�s. California personal income is projected to slow from a 6.1% rate of increase in 2004 to 5.8% in 2006. The May Revise also points to higher energy prices, rising interest rates, and a lack of fiscal stimulus as factors that will hold down growth in 2005-06.
Budget Conferees Named
After each house of the Legislature has adopted its version of the State Budget, a six-member conference committee is convened to work out the differences between the two houses and adopt a budget that can be voted on by the Legislature. According to the State Constitution, the Legislature is supposed to submit a budget to the Governor by June 15.
The members of the conference committee are:
� Senator Wes Chesbro (D-Arcata)�chair of the Senate Budget Committee
� Senator Denise Ducheny (D-San Diego)�chair of Budget Subcommittee #3
� Senator Dennis Hollingsworth (R-Murrieta)�vice chair of the Senate Budget Committee
� Assembly Member John Laird (D-Santa Cruz)�chair of the Assembly Budget Committee
� Assembly Member Rick Keene (R-Chico)�vice chair of the Assembly Budget Committee
� Assembly Member Judy Chu (D-Monterey Park)�chair of the Assembly Appropriations Committee
Even if the conference committee completes its work prior to June 30, don�t expect an on-time budget. The apparent inability of the Democrats and Governor to negotiate in good faith and the possibility of a November special election will likely minimize the chance for an on-time budget.
Financial Projection Dartboard�May Revise Version
Our Financial Projection Dartboard, updated for the Governor�s May Revise proposal and recent economic forecasts, appears as Attachment B. This updated Dartboard now shows the 4.23% statutory cost-of-living adjustment (COLA) as well as current projections for the statutory COLA for future years that are all higher than those forecast in our January 2005 Dartboard. For example, the statutory COLA for 2006-07 is now projected to be 3.8% versus the 3.2% forecast made in January.
Education Budget Subcommittees Complete Work
The Education Budget Subcommittees sprinted through their work in the days following the May 13, 2005, release of the May Revise, completing business in less than a week. Of course, �complete� can be a somewhat subjective term, and perhaps the work was expedited by the general acknowledgement that the final Budget could look substantially different than the precursors, particularly because most of the major actions were approved by Democrats alone, and Republican voters will eventually be needed to pass a budget.
Senate Actions
The Senate Budget Subcommittee #1 (�Sub One�) kicked things off with a bang May 16 by rejecting the Administration�s proposed $469 million transfer to Proposition 98 of the cost of the 2% employer�s contribution to the State Teachers� Retirement System (STRS).
For good measure, Sub One added $2 billion to the pot for funding schools in 2005-06, although the source of that money was never identified and, even to the end, the expenditure of the money was never specified beyond general priorities. It was specified that community colleges would receive $209.2 million of this augmentation. Along the way, Sub One rejected virtually every one of the new educational program proposals floated in the May Revise.
Other major Senate actions included:
Providing an additional $17.4 million in one-time funds for the Career-Technical Initiative (for a total of $37.4 million), as proposed in the May Revise
Providing $10 million in one-time funds for nursing programs, as proposed in the May Revise
Providing $40 million in equalization funds, to be allocated according to existing law
Providing $1 million to the Cal-PASS program (as opposed to the May Revise amount of $500,000), removing the matching funds requirement
Providing $208.8 million in mandate funding for prior-year unfunded mandates, with the intention of spending these dollars on a per-ADA/FTES basis
Providing $33 million to backfill the current-year property tax shortfall
Providing $31.4 million to restore the Partnership for Excellence funding, as proposed in the May Revise
Assembly Actions
The Assembly Budget Subcommittee #2 (�Sub Two�) likewise rejected the STRS hit and most of the Governor�s reforms.
Sub Two invested most of the dollars resulting from the Governor�s proposals as follows:
Rejected the $37.4 million for Career-Technical Education and used $33 million for the current year property tax backfill
Rejected the $10 million augmentation for nursing programs and redirected the funds to cover unpaid mandate claims
Rejected the $40 million in equalization funds and redirected $20 million for noncredit rate enhancement and $20 million for enrollment growth for districts that are over cap
Approved the restoration of the $31.4 million in Partnership for Excellence funds
In contrast to its Senate colleagues, Sub Two did not augment the basic funding level proposed in the May Revise for Proposition 98.
Issues left unresolved between the two houses will need to be resolved by the two-house conference committee.
What This Means
The subcommittee actions this year are probably more preliminary than�and less indicative of�whatever the final resolution may be.
The Administration and the Legislature are at loggerheads on virtually everything, ranging from how much should be spent on education to how it should be spent. The two houses of the Legislature are not even aligned.
As a result, there is little that can be counted on except for the �vanilla� items�growth and COLA. We expect the conference committee this year to be �open,� as has been recent custom, meaning that everything is open for negotiation�or renegotiation.
As complex as this Budget puzzle is, it is complicated still further by external issues, such as the heightening feud between the Governor and the Education Coalition, and the specter of a possible special election just over the horizon�an election that, if it happens, will serve to polarize still further the fractured Capitol of a fractured state.
Assembly and Senate Appropriations Committees Address Suspense Files
The Senate and Assembly Appropriations Committees took action on their respective suspense files this week. The appropriations suspense files include legislation which generate a cost to the state of more than $150,000. The committees previously heard testimony on and have debated these bills, so this week�s actions were primarily an up or down vote on each bill.
These measures were approved and will move on to the respective floors for consideration by the full house:
� AB 23 (Liu, D- La Canada Flintridge), which would express legislative intent to replace the current program-based distribution of funds to community college with a simpler, more equitable method starting in the 2009-10 fiscal year
� AB 162 (Leslie, R-Tahoe City), which would require the Department of General Services to provide a review of community college facility plans at appropriate stages
� AB 196 (Liu, D-La Canada Flintridge), which would create a California Postsecondary Education Accountability (CPSEA) structure to assess the progress of the higher education systems in meeting statewide learning goals and efficiencies.
� AB 318 (Dymally, D-Compton), which would increase district growth rates by FTES served in excess of 102% for the preceding three fiscal years, up to a maximum increase of 8%
� AB 473 (Liu, D-La Canada Flintridge), which would keep the student enrollment fee to $26 per unit through 2006-07. Then, starting in 2007-08, the Board of Governors would be responsible for adjusting fees. This bill also allows districts to require additional student fees for particular local needs and prioritie.
� AB 702 (Koretz, D-West Hollywood), which would create a statewide Registered Nurse Educator Scholarship Program to expand nursing education curriculum and opportunities, under the auspices of the Office of Statewide Health Planning and Development
� AB 1088 (Oropeza, D-Long Beach), which would require higher education systems to provide all incoming students with information on the incidence of violent crime on campus (particularly sexual assault), prevention measures, and victim resources
� AB 1137 (Dymally, D-Compton), which would establish additional provisions for when the Board of Governors appoints a special trustee to manage a district in fiscal crisis
� AB 1280 (Maze, R-Visalia), which would allow rural community colleges located more than 50 miles from the nearest CSU campus to grant baccalaureate degrees
� SB 361 (Scott, D-Altadena), which includes provisions for the system�s new funding formula
� SB 652 (Scott, D-Altadena), which would require the UC system to create a standardized system of lower division transfer requirements to ease the transfer process between the CCC and UC systems.
Because this is the first year of a two-year legislative cycle, bills held by the committees automatically become two-year bills and may be taken up again next year. Following are the measures that were held:
� AB 317 (Dymally, D-Compton), which contains $80 million for equalization of dollars per credit FTES, allocated the same way as for 2004-05 equalization funds
� AB 870 (Bermudez, D-Norwalk), which would have set a cap on higher education fee increases, based on the fees required the previous fiscal year
� AB 1402 (Blakeslee, R-San Luis Obispo), which would have required county tax auditors to supply the Board of Governors with estimated and actual tax receipts in both November and April of each year
� AB 1425 (Daucher, R-Brea), which would have expanded the California Community Colleges Economic and Workforce Development Program
� AB 1436 (Baca, D-Rialto), which would have expanded Cal Grant program eligibility to military veterans
� AB 1604 (Saldana, San Diego), which would have allowed community colleges to continue receiving the prior fiscal year�s budget allocations should the State Budget not be passed by July 1 of each year (the �continuous appropriation� provision)
� SB 160 (Cedillo, D-Los Angeles), which would have expanded the eligibility for students to all available financial aid programs if they qualified for the nonresident tuition exemption
The following bill was gutted and amended from the Assembly Appropriations Committee and now moves to the floor:
� AB 232 (Arambula, D-Fresno), which would have made an appropriation for the creation of a Workforce Investment Board for registered nursing programs. This bill was amended to instead include a requirement for the California State University system and the CCC system to establish agreed-upon prerequisite requirements for registered nurses.
Governor Declares He Wants A Special Election In November
According to recent newspaper articles and statements made by Governor Schwarzenegger, the California electorate can start making plans to vote in a special election on November 8, 2005.
In his strongest terms yet, the Governor said he would hold a special election in November �no matter what,� saying the magnitude of the changes he is seeking are almost certain to require voter approval. In public statements, the Governor has guaranteed a special election this fall, stating, �I cannot think of a compromise that I can come up with that will make us happy because in order to change the budget one has to literally have the vote of the people. In order to change redistricting the way it is right now, we need a vote of the people.�
The Governor has not signed an official proclamation calling for the special election, which could cost more than $70 million, at this time. Although he has indicated he remains interested in negotiating with lawmakers, his options for doing so are dwindling as a June 13 deadline approaches. This is the date by which Schwarzenegger must call for a special election if he wants one to be held on November 8.
The Governor�s comments come as his Administration and the Democrats who control both houses of the Legislature embark on a war of words over the need for a special election and the prospects for compromise. Democrats say the issues the Governor wants to address could be handled through negotiations or at the ballot box next year, rather than in a special election. The next regular statewide election is scheduled for June 2006.
In yet another sign that the Governor is serious about promoting his �reform agenda,� he recently embarked on an out-of-state fundraising trip. He is scheduled to make stops in Florida, Illinois, and Texas, with the intent of raising at least $50 million to support his special election campaign.
Two of the Governor�s proposed initiatives�redistricting and the budget spending cap (the �California Live Within Our Means Act�)�would change the State Constitution and require voter approval. Both proposals are currently in the signature-gathering process. If and when enough signatures are collected (598,105), the petitions must be submitted to the Secretary of State�s Office for verification. Once the verification is complete, the initiatives will appear on the next statewide ballot�special or otherwise. Even in the unlikely event that the Democrats and the Governor come to an agreement on these two issues and the Governor chooses not to move forward with his proposals (even more unlikely), any legislative agreement would need to be ratified by a vote of the people.
Political games abound on this matter�if the Governor calls a special election and loses the majority of his initiatives�his chances for reelection in 2006 would be severely damaged, if he chose to run. If the governor wins, he is in the driver�s seat for the next four years.
Lottery Projections Up 12%
2004-05
The California Lottery Commission has increased its projected sales for the 2004-05 fiscal year by $400 million over previous projections. The distribution of funds to education increased by approximately $126 million. This latest update provides for an overall increase of $15 per ADA/FTES. We are projecting $118 per ADA/FTES for unrestricted and $20 per ADA/FTES for restricted (Proposition 20). This is a 12.2% increase over the January Governor�s Budget projections, and can be attributed to several large jackpots earlier in the fiscal year than in prior years. We have seen increases in prior years to a lesser extent with the larger jackpots at the end of the fiscal year.
2005-06
The Commission is rolling out a new game approximately mid to late summer 2005. This new multi-state Mega Millions game could potentially produce an increase in sales. However, there is no guarantee of the impact on the sales of other games. That is, will the higher sales for Mega Millions come from decreased sales for scratchers and Super Lotto?
Lottery sales for 2005-06 are estimated at $3.3 billion, providing an anticipated allocation for education of $1.154 billion. This equates to less than a 1% increase, roughly parallel to the growth in K-12 ADA and higher education enrollment. This forecast thus leads to an overall per-ADA/FTES distribution that would be static at $138 per ADA/FTES, but split $117 per ADA/FTES in unrestricted and $21 per ADA/FTES in restricted (Proposition 20) funding. The shift to more being restricted under Proposition 20 is due to the fact that 50% of the total allocations to education (not per-ADA/FTES amounts) above the 1997-98 amount are distributed for Proposition 20, leading to an increase in Proposition 20 funding and a decrease in unrestricted funding.
Latest PPIC Poll Shows Major Support for Education Funding
A Special Survey on the California State Budget released on May 26, 2005, by the Public Policy Institute of California (PPIC) shows that, while Californians remain split in their opinion of the Governor�s proposed State Budget, they clearly support using some of the increased state revenues for education and are opposed to eliminating Proposition 98 minimum spending requirements.
The poll, which took place following the release of the Governor�s May Revise, shows that 76% of those polled would use increased state revenues to support education, compared to reducing the state debt (70%) or providing more funding for transportation (53%). The poll reflects on how the Governor�s revised Budget instead focuses on debt reduction and transportation projects, which could be a factor in the Governor�s overall ratings continuing to drop, with more Californians now disapproving of his performance (49%) than approving it (40%).
On the State Budget front, the survey shows that there has been only a minimal change in the public perception of the state�s fiscal situation, with 71% viewing the gap between revenues and spending as a big problem compared to 70% in January. Fewer Californians, however, approve of the Governor�s handling of the State Budget (from 48% to 37%), and 53% now disapprove of his handling of education (with only 29% approving).
The possibility of holding a special election has lost popularity with the voters, with 62% of those polled indicating it would be better to wait until the next scheduled statewide election in June 2006.
The poll showed that 62% of likely voters think eliminating minimum spending requirements for state programs such as education is �a bad idea� (compared to 29% in favor), but support is divided for an initiative that would limit state spending. The �California Live Within Your Means� initiative is now polling at 43% yes and 37% no, with the remaining 20% undecided.
Overall, the poll showed that the economy (20%) and education (19%) continue to rank as the most �pressing� issues. Forty-three percent of likely voters favor a mix of spending cuts and tax increases to solve the budget gap; however, when asked if tax increases should have been included in the Governor�s budget plan, voters are split, with 46% indicating �yes� and 47% �no.� And finally, when asked which approach should be used in making long-term budget and governmental reforms in California�with the choice between the Legislature/Governor or by voters at the ballot box, 72% of those polled indicated that the voters should make the decision. A copy of the poll can be obtained on the PPIC website: www.ppic.org.
Ask Arnold. . .
Q. Our classified bargaining unit has signed a tentative agreement for 2004-05. I know that we have 45 days to make budget revisions, but is there a code section that speaks to a timeline for payment of retroactive salary (i.e., next payroll period, 30 days, 60 days, etc.)?
A. Congratulations on settling. While Education Code Section 450548(d) specifies time of payment for certificated employees, there is no code section that specifies how long you have to make up the retroactive salary payment for classified employees. And payroll systems and processes are different in every county. Some counties require that you run one regular payroll at the new rates, then a separate check for the retro. Others can do it all at once. Some have one input for both and some require separate district input of the regular and retro rates.
So usually the district simply agrees to do the retro as quickly as the payroll system and the work load allow. An undue delay might get you some grievances and perhaps an �unfair� ruling, but most often districts just tell the union what time frame is reasonable and the employees plan accordingly.
By the Way . . .
2005-06 PERS Rate Set At 9.116%. The Public Employees Retirement System (PERS) Board set the employer rates for 2005-06 on May 18, 2005. The rate for school employers is 9.116%, down from the current-year rate of 9.952%. It is interesting to point out that PERS has a new process of Rate Stabilization that is intended to smooth out big swings in the employer rate from year to year. In the absence of this process, the 2005-06 school employer rate would have been 9.968%, or almost exactly the same as 2004-05.
