THE CAEAA THIRTEENTH ANNUAL STATE CONFERENCE

Legislative and Budget UpdateJanuary 29, 2010

B. Teri Burns

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GOVERNOR’S 2010-11

JANUARY BUDGET PROPOSAL

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Themes For This Year• Pitting groups against each other• Unrealistic optimism• Protecting education doesn’t mean no cuts

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Budget Theme“This budget amounts to a big pile of denial. The

Legislature will take a much more serious approach to closing the state’s budget deficit.”– Assembly Speaker Karen Bass

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•What is the fiscal picture???

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Source: Governor’s Budget Summary

California Revenues• Major components of the revenue decline:– Capital gains taxes ($8 billion)– Income tax on wages ($6 billion)– Taxes on other income ($7 billion)– Sales tax ($11 billion)– Corporate taxes ($2 billion)– Other taxes ($1 billion)• Pre-recession revenues are not expected to

recover quickly

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GOVERNOR’S PROPOSAL

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2010-11 Budget: $19.8 Billion Solutions

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Source: Governor’s Budget

Governor Declares Fiscal Emergency (Again)• Uses Prop 58 power to call session• The Governor has submitted proposed

amendments to the 2009-10 Budget• The Legislature is required to take action to

address the problem within 45 days of the special session being called (by Monday February 22nd) and may not take action on any other legislation during that time period

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2009 Budget Gimmicks“The vast majority of the new budget problem

we have identified for 2009-10 can be attributed to the state’s inability to implement several major solutions in the July 2009 budget plan…”

- Mac Taylor, Legislative AnalystNovember, 2009

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2009 Budget Gimmicks FailSome of the major gimmicks that failed to materialize from last year's budget:

•$2.4 billion related to the court decision which limits the state’s ability to use “spillover” gasoline sales tax and Public Transportation Account funds to reduce General Fund spending•$1.1 billion from costs for the corrections receiver that was not included in the budget•$1 billion from failure to sell the State Compensation Insurance Fund•$972 million from failure to achieve savings assumed in corrections•$1.1 billion in federal flexibility for Medi-Cal that was assumed in the budget, but did not occur

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Governor’s Proposal: 2009-10 Budget• No mid-year program cuts• Categorical sweeps – CSR funding (reversion)• Categorical flexibility remains unchanged• No other changes proposed

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Governor’s 2010-11 Budget• Relies on 2009-10 Prop 98 recalculation• $1.7 billion reduction to programs• Major policy changes (seniority, substitutes,

lay-off notices)• Promise of more “comprehensive reforms”• Negative COLA • No proposed change to Prop 49

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Governor seeks to undo “The Deal”• The budget package enacted in July 2009

included language that specifically certified the Prop 98 guarantee for 2008-09 as $49.1 billion.

• The Governor’s budget indicates that final revenues were substantially lower than estimated and the actual Prop 98 guarantee for 2008-09 should be $46.8 billion.

• The Governor proposes to lower the Prop 98 guarantee for 2008-09 and pay for $1.3 billion of school costs that year out of maintenance factor.

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Governor seeks to undo “The Deal”• By lowering the base, this would have the effect of

lowering the Prop 98 guarantee for 2009-10 and 2010-11.• This adjustment allows the Governor to claim he is

“protecting” education funding by maintaining roughly the same level of Prop 98 funding in each of 2008-09, 2009-10 and 2010-11.

• From a school perspective, the problem is that this “protects” schools at a base level that the Governor is proposing to reduce from what was already being provided.

• The Governor acknowledges that “all the proposed changes will require legislation”.

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Governor “Protects Education”?(Dollars in billions) 2008-09 2009-10 2010-11

Enacted $49.1 $50.4 N/A

LAO (Nov.) $49.1 $51.4 $51.0

Governor $46.8* $49.9 $50.0

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* Although the Governor says the Prop. 98 guarantee should be $46.8 billion for 2008-09, current law certifies the guarantee amount at $49.1 billion. The Governor proposes to reduce the 2008-09 guarantee by $82.9 million to bring the level down to the actual level of expenditures. He does not propose expenditure reductions for 2008-09, but does propose to account for $1.3 billion of those expenditures as counting against prior year “maintenance factor” amounts due.

$47.7

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Proposed 2010-11 Program Reductions• $202 million due to a negative cost-of-living adjustment (-.38%)• $1.2 billion from school district revenue limits “targeted to school

district central administration.” Department of Finance staff has indicated that the proposed budget language will specify the account codes from which expenditures may be reduced. This represents a revenue limit reduction of slightly more than $200 per ADA.

• $300 million from school district and county office of education revenue limits based on savings from eliminating “barriers to contracting out to enable school districts to achieve cost reductions.” This represents a cut of about $50 per ADA.

• $45 million from county offices of education, based on savings from the consolidation of services and functions through regional consortia (as yet undefined).

Total: $1.7 billion reduction to programs

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2010-11: Major Policy Changes Proposed• Change state law to give districts the flexibility to

layoff and rehire teachers without regard to seniority

• Eliminate the provisions in current law that require laid off teachers to receive first priority for substitute service and be paid at their rate prior to lay-off

• Change the lay-off notice for teachers to 60 days after the state budget is adopted or amended

• Promise of more “comprehensive reform” (TBA)

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2010-11: Revenue Limit Calculation• Negative .38% COLA is applied to base• Deficit factor remains unchanged• Proposed cuts are to base; does not increase

deficit factors• DOF notes totality of Governor’s cut is equal

to the one-time revenue limit cut in 2009-10

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Revenue Limit Reductions Are to Base, Not Deficit Factor

↓Down 4.1%

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Negative .38% COLA ADJUSTMENT2009-10

Average Revenue Limit* Cost-of-Living Adjustment

Elementary $6,134 -$23

Unified $6,417 -$24

High School $7,376 -$28

*Undeficited

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Revenue Limit Cut ProposedElementary USD HS

2009-10 Revenue Limit $6,134 $6,417 $7,376

Funded 2009-10 Revenue Limit 5,008 5,239 6,022

2010-11 Funded Revenue Limit* 4,797 5,014 5,763

Loss per ADA 211 225 259

(Lost COLA) (23) (24) (28)

(Policy Reductions) (188) (201) (231)

*Department of Finance

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2010-11: Categorical Program Funding• No new flexibility proposed and no other

revisions• Negative .38% COLA applied to Tier II and III• Tier I programs remain unchanged• $29.5 million included to fund new schools

established in and after 2008-09 impacted by Tier III and K-3 CSR limits – but Adult Ed is a “program”

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2010-11: Charter Schools• Rough estimates include same per ADA

targeted cut of $1.5 billion applied to school districts revenue limit

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PROP. 98

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• Prop 98 sets a minimum funding guarantee for K-14 education• Prop 98 does not guarantee what programs are to be funded

Prop 98 – The Basics

Prop 98 can be suspended by a two-thirds vote of the Legislature

What Establishes the Funding Guarantee? Test Factors

1 Fixed percentage of General Fund expenditures plus statewide K-14 property taxes

2 Statewide ADA and per capita personal income

3 Statewide ADA and per capita General Fund revenues

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Prop 98 – In Context• General fund revenue is key driver• Last summer: are schools in test 1 or test 2 for

2008-09? • Difference related to assertion that maintenance

factor goes away in test 1 scenarios• Ed community strongly asserted maintenance

factor does not go away when K-14 is subject to test 1 – DOF & LAO assert it does

• Conditions to July 2009 budget deal hinged on resolving the Prop 98 base funding for 2008-09 and status of maintenance factor obligations

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• Certified the amount of the Prop 98 minimum guarantee for 2008-09 at $49.1 billion, regardless of where the guarantee might end up

• Also certified outstanding Prop 98 balances from 2005-06 to 2008-09 at $11.2 billion

• Created an alternative statutory repayment plan to restore $11.2 billion to begin in 2010-11

Prop 98 – The Deal – The Law

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• 2008-09 General Fund revenues fell further after the July budget agreement, lowering Prop 98 calculation.

• Ignoring the “certification” of the Prop 98 base for 2008-09, the Governor asserts the drop in revenue puts Prop 98 in Test 1 for that year.

• That change would drop the Prop 98 base from $49.1 billion to $46.8 billion, enabling the cuts of $2.3 billion.

• The Governor additionally ignores the repayment schedule for the $11.2 billion by deferring the first year obligation to 2012-13.

• All of this requires a change in existing law.

Prop 98 – The Governor’s Version

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Gas Tax Swap• 2010-11: Governor proposes to eliminate the

current 16 cents per gallon state sales tax on gasoline

• Replaces it with excise tax of 10.8 cents per gallon• Transaction eliminates $1 billion required to be

spent on state transit programs• Because excise tax revenue would not count

toward the State General Fund calculation for Prop 98, minimum guarantee for 2010-11 reduced by $836 million

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Maintenance Factor• “Real” maintenance factor is projected to be $1.3

billion – funds still owed to schools as a result of 2007-08

• Governor’s proposal to redefine budget agreement from July 2009 would utilize some of his newly declared “over-appropriation” for 2008-09 and credits the state, wiping out the obligation

• Governor proposes to push “Maintenance factor like” payments off to 2012-13

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Where’s the Federal MOE Firewall?• Well into the 3rd Q. of 2009, DOF & LAO asserted

that the state was slightly above the minimum MOE requirements to protect ARRA funding

• Governor now says state is below MOE by $550 million and will seek approval from feds based upon criteria DOF says recognizes increased year-over-year funding

• If full waiver is required, it could be difficult for Governor to secure

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QEIA Fix: Back to Normal• Quality Education Investment Act funding

gimmick last year created huge political and fiscal problems for Governor & Legislature

• After State Commitment, QEIA schools almost left holding the bag

• Problem solved for 2009-10 with federal dollars by nearly every district in California

• Governor fully funds QEIA for 2010-11

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Prop 98 – K-12 Local and State SharesK-12 Proposition 98

2010-11 Governor's Budget($ in thousands)

2008-09 2009-10 2010-11

K-12 - GF Appropriations 30,259,567 30,844,175 32,023,222

K-12 - Local Revenues 12,726,126 13,237,433 11,950,487

42,985,693 44,081,608 43,973,709

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Source: Department of Finance

Education Funding: Recap1. Ongoing Major Funding Sources

Most Districts Receive Ongoing Revenue From the Following Major Funding Sources:

General Fund Ongoing Federal Title I, II, III, IV

State Categorical

Tiers I, II, and III

Local Bonds & State Match Programs for

Construction

2. One-Time Federal ARRA FundsState Fiscal

Stabilization FundsTitle I, IDEA

Formula FundsFacilities $ Direct to largest 100 Districts

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Analysis and Considerations Out of crisis comes opportunity.• Implement innovative solutions now to

generate/sustain revenues• Use flexibility options prudently and wisely• Don’t eliminate services that increase or

leverage revenues and efficiencies• Engage your community

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POLITICS

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Education Politics• Attacks on everyone galvanize education advocates,

not the opposite• Focus of the fight will be on defining the 08-09 base

and another “broken deal,” as well as gas tax shift that drops the base another $836 million

• Success on these issues removes the capacity for deep education budget cuts without suspension

• The Legislature must evaluate what challenges they bring by sticking with the July budget agreement

• Governor takes full “hit” for these ugly proposals – Could the Legislature reluctantly accept and simply place the blame at his door?

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Education PoliticsIf July Budget Deal Stays Intact:• Prop 98 base will be underfunded by $1 billion

requiring added dollars, another settle-up deal or suspension

• Sticking with “Maintenance Factor Like” repayment schedule of the $11.2 billion would require added dollars for K-14 in 2010-11

• Higher overall obligations can be leveraged for less fiscal impact to schools

• Invites another debate about Prop 98 Suspension• If suspension occurs, could cuts be deeper than

Governor’s proposals?

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State Political Backdrop• Election year – state and federal mid-term• Increased polarization• Speaker and leadership turnover– Experience deficit– Fight longer and harder

• No one power center• Recalls and Lt. Governor vacancy• Governor’s race• Ballot measures

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State Ballot Politics

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State Ballot Politics• Other ballot measures:– Higher ed vs. prisons – ballot box budgeting– Prop 1A do-over – League of Cities carves out

more– Gay Marriage & Abortion – drives who turns out– Props 10 and 63 changes – been here before

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State Political Backdrop• Governance reform – California Forward– Constitutional Convention

• SPI race impact• CTA v. EdVoice power struggle• Do Dems get 2/3rds in State Senate… does it

matter for school budgets?– Maldonado Senate seat– Benoit Senate seat

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WHAT’S NEXT?

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Where We Go From Here• January/February Budget Committee hearings• Feb: Legislature/Governor do something with

current year budget• May Revise• Expect late and contentious budget

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• Funding Flexibility!!!!

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What’s Happened with Flex So Far?

• SI&A 2009 survey of Adult Ed program status– Shared with Legislature, staff, LAO, DOF– Shared with Adult Ed programs– Shared with media– Shared with industry and labor groups

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Survey Data Fall - 2009• Adult Education Sites that are Cutting the Number of Classes that

they Offer• Nearly all adult education sites in California have cut the number of

classes offered in their programs. So far, four-fifths of all adult education sites in California have cut the number of classes that they offer.

• A little more than four-fifths of adult education sites in East Central California have cut the number of classes that they offer.

• Among the adult education sites in North West, North East, West Central, Southern California, and the L.A. area, nearly three-quarters have cut the number of classes that they offer.

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• Adult Education Sites that are Reducing the Breadth of Classes that they Offer

• So far, nearly two-thirds of all adult education sites in California are also reducing their breadth of classes.

• A little more than one-third of all adult education sites in North Eastern California are reducing their breadth of classes.

• A little more than 70% of all adult education sites in North West, West Central, East Central, Southern California, and the L.A. area are reducing their breadth of classes.

• Large sites are reducing breadth more than small.

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• Ratio of Reduction in the Number of Classes that Adult Education Sites Offer versus the Breadth of Classes that they Offer

• So far, among all adult education sites in California, about 30% more adult education sites are cutting the number of classes that they offer versus the breadth of classes that they offer.

• Among all adult education sites in East Central California, about one-tenth more adult education sites are cutting the number of classes that they offer versus the breadth of classes that they offer.

• Among all adult education sites in North East, North West, West Central, Southern California, and the L.A. area, about one-quarter more adult education sites are cutting the number of classes that they offer versus the breadth of classes that they offer.

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• Adult Education Sites Charging Fees for Classes• Nearly two-thirds of the adult education sites in

California are charging fees for classes.

• A little more than 40% of the adult education sites in East Central California are charging fees for classes.

• Among the adult education sites in North West, North East, West Central, Southern California, and the L.A. area, about 70% are charging fees for classes.

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• Adult Education Sites Considering Charging Fees for other Services

• Nearly two-thirds of all adult education sites in California are considering charging fees for other services.

• A little more than 40% of all adult education sites in East Central California are considering charging fees for other services.

• Among the adult education sites in North West, North East, West Central, Southern California, and the L.A. area, about 70% are considering charging fees for other services.

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• Adult Education Sites that Anticipate Losing Students due to Fees• A little more than 60% of all adult education administrators or

principals in California anticipate that they will lose students due to charging fees for classes and other services.

• Half of the adult education administrators or principals in the L.A. area anticipate losing students due to charging fees for classes and other services.

• Among the adult education administrators or principals in North West, North East, West Central, East Central, and Southern California, nearly two-thirds anticipate losing students due to charging fees for classes and other services.

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• Adult Education Sites that have had their Operating Funds taken for Flexible Use by their Respective Districts

• A little more than half of all adult education sites in California had none of their operating funds taken for flexible use by their respective districts.

• • A little more than one-third of all adult education sites in California had

less than 50%, but not 0% of their operating funds taken for flexible use by their respective districts.

• A little less than one-tenth of all adult education sites in California had 50% or more of their operating funds taken for flexible use by their respective districts.

• A little more than 40% of all adult education sites in California have had from 1 to 100% of their operating funds taken for flexible use by their respective districts.

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• Adult Education Sites that have had their Reserves taken for Flexible Use by their Respective Districts

• Nearly two-thirds of all adult education sites in California have had none of their reserves taken for flexible use by their respective districts.

• A little less than 5% of all adult education sites in California have had less than 50%, but not 0% of their reserves taken for flexible use by their respective districts.

• Nearly one-third of all adult education sites in California have had 50% or more of their reserves taken for flexible use by their respective districts.

• A little more than one-third of all adult education sites in California have had from 1 to 100% of their reserves taken for flexible use by their respective districts.

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NEW LEGISLATION

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AB 1374 – Brownley• BILL NUMBER: AB 1374 AMENDED BILL TEXT AMENDED IN ASSEMBLY

JANUARY 15, 2010 • LEGISLATIVE COUNSEL'S DIGEST AB 1374, as amended, Brownley. Adult

education: teaching credentials. (1) Existing law contains minimum specified requirements for the designated subjects preliminary adult education teaching credential. This bill would recast the adult credential for nonacademic and academic subjects and specify different requirements for nonacademic and academic subjects, as specified. (2) Existing law contains minimum specified requirements for the 5 year renewal of the preliminary designated subjects adult education teaching credential. This bill would recast the minimum requirements for the 5 year clear designated subjects adult education teaching credential, as specified. (3) Existing law provides specified minimum requirements for the clear designated subjects adult education teaching credential. This bill would repeal that provision. Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

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AB 1374 – Preliminary credential• THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

SECTION 1. Section 44260.2 of the Education Code is amended to read: 44260.2. The minimum requirements for the three-year primary preliminary designated subjects adult education teaching credential shall be all of the following:

• (a) For nonacademic subjects: (1) Three years of adequate, successful, and recent experience in, or a combination of experience and education in, the nonacademic subject to be named on the credential. (2) Possession of a high school diploma or the passage of an equivalency examination as designated by the commission.

• (b) For academic subjects: (1) A baccalaureate or higher degree from a regionally accredited institution of postsecondary education that includes a minimum of 20 semester units, or the equivalent quarter units, of coursework in the subject to be named on the credential. (2) Passage of the state basic skills requirement pursuant to Sections 44252 and 44252.5. (c) Satisfaction of the requirements for teacher fitness pursuant to Sections 44339, 44340, and 44341.

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AB 1374 – 5 year clear• SEC. 2. Section 44260.3 of the Education Code is amended to read:

44260.3. The minimum requirements for the five-year clear designated subjects adult education teaching credential shall be all of the following:

• (a) A valid three-year preliminary designated subjects adult education teaching credential.

• (b) Two years of successful teaching, or the equivalent, as authorized by the preliminary designated subjects adult education teaching credential. (c) A program of personalized preparation as approved by the commission. (d) The study of health education as specified in subparagraph (A) of paragraph (4) of subdivision (c) of Section 44259.

• (e) Completion of two semester units or passage of an examination on the principles and provisions of the United States Constitution, as specified in Section 44335.

• (f) The study of computer-based technology, including the uses of technology in educational settings.

• SEC. 3. Section 44260.8 of the Education Code is repealed.

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AB 1673 – Mendoza• AB 1673, as introduced. Adult education. • This bill, subject to an appropriation in the

annual Budget Act or another statute for these purposes, would require the Legislative Analyst's Office, by January 1, 2012, to report to the Legislature on various issues concerning adult education program funding, as specified.

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AB 1673 con’t• (a) The aggregate amounts and percentage of

categorical funds diverted from adult education for the purposes of supporting the school district's general fund.

• (b) Which, if any, adult education course offerings have been reduced or eliminated due to diversion of adult education funds.

• (c) The number of adult students, by district, and a demographic breakdown of these students, that were unable to enroll in adult education courses due to a reduction of program offerings or increased fees, or both.

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AB 1673 con’t• (d) The manner in which federal Perkins loan funds and

Workforce Investment Act of 1998 funds are being used by school districts.

• (e) Whether school districts are charging fees for courses to replace funds that have been diverted from adult education, and which courses are now fee-based.

• (f) The impact of adult education cuts on community college noncredit programs and private technical schools.

• (g) The impact on local employers resulting from fewer adult education students receiving training from career programs in adult schools due to program cuts, if applicable.

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