Budget Update

11/17/2011

LAO Analysis of State Budget: Some Triggers Likely

By:  Barrett Snider, Director - Governmental & Public Affairs
SCHOOL INNOVATIONS & ADVOCACY

On November 16, the non-partisan Legislative Analyst’s Office (LAO) released their report on the state’s budget.  The analysis shows the state’s slower than expected recovery will yield $3.7 billion less revenue than was assumed in the 2011-12 budget. Under the “trigger” provisions included in the 2011-12 budget, this would require the Department of Finance (DOF) to implement all of the higher education and health care reductions in addition to some of the reductions to K-12 schools. In total, the triggers would yield $2 billion in reductions ($1.5 billion from Prop 98). The state would still end the year with a $3 billion deficit that would balloon to $13 billion on the first day of 2012-13.

Impact to Schools
Under the LAO’s analysis, all Tier I and II Prop 98 reductions would be triggered. However, only 3.3% of revenue limit funding would be reduced (down from a maximum of 4%). Operating from the statewide average of $250 per student at 4%, the new revenue limit cut would be approximately $181 per student. Keep in mind this cut would not be a per ADA reduction, it would be 3.3% of the state funded revenue limit, meaning the actual cut will be greater for high school districts and lower for elementary districts.
 
Also, per AB 114, the trigger reductions would also create the authority for schools to further reduce the number of school days to 168.

 
LAO Creates New, Better Worst Case Scenario
Because the trigger language in the budget requires the DOF to implement reductions based on the better estimate between the LAO and the DOF, schools can rest assured that the mid-year reductions laid out by the LAO are the new worst case scenario for schools under the budget’s trigger provisions.
 
The news could get better on December 15 when the DOF will release their analysis of the budget. Remember that the Director of Finance is a political appointee of Governor Brown, who has a track record of protecting schools relative to the overall level of cuts in his budget proposals. 2012 will be a hyper-political election year with new legislative districts for members of the State Senate and Assembly. Public opinion polls continue to show voters are through with cutting schools and are actually inclined to support revenue initiatives to begin rebuilding our education system. We expect this reality to play directly into the Governor’s January Budget plan and potentially his office’s remarks on December 15.

LAO: Prop 98 Growth Expected
According to the LAO, the Prop 98 minimum guarantee increases by $4 billion in 2012-13.  This increase would provide more than is needed to fund COLAs in out years.  This would occur at a time when the state faces a $13 billion shortfall beginning in 2012-13. The silver lining is this creates a scenario where schools would be put in the driver’s seat of negotiations with the governor and legislature as they would likely need to seek a compromise to suspend Prop 98 in an election year.
 
The full LAO report can be found here <http://www.lao.ca.gov/reports/2011/bud/fiscal_outlook/fiscal_outlook_2011.pdf> .