November 13, 2008

Do Not Expect November Budget Action

Now that the Legislative Analyst has released his response to the Governor’s November Budget Revision proposals, the lame duck Legislature will have the fiscal and policy proposals in front of them. Do not expect any significant action. In a world of rising expectations Speaker Bass has commented that if the federal government bails out AIG, then they should also bail out states and protect programs for the poor. If the legislative leadership and the Governor want to wait until the federal stimulus package is completed and lobby for more funds for poverty programs, then November or December action is unlikely.

We believe waiting can make sense. The federal government could choose to meet a greater percentage of MediCal costs, increase support for unemployment insurance and take various actions that change the economic forecasts and anticipated state revenue. Neither the Legislative Analyst or the Governor have assumed that federal stimulus action could result in unemployment being only 9% (rather than the projected 10%) with some increase in taxable sales and personal income resulting from rapid (6 to 12 months) infrastructure projects. Before making significant mid-year cuts, it could be good fiscal policy to wait and see what really needs to be done and not react too quickly. The saying “act in haste; repent in leisure” could be an operative saying for the current situation.    

The following comment on the Legislative Analyst’s report was posted on the Small School Districts Association website at www.ssda.org.

LAO Special Session Report- Lower Cuts for Education

By David Walrath

The Legislative Analyst has released his analysis of the Governor’s proposed special session revenue and expenditure changes. While the Legislative Analyst’s Office (LAO) generally agrees with the Governor’s overall fiscal projections, the Analyst disagrees with the level of proposed expenditure cuts for education and the types of taxes that should be increased.

The LAO recommends that K-14 Proposition 98 funding be cut by $1 billion in 2008-09 and $2.1 billion in 2009-10. The LAO’s recommendation is significantly lower than the Governor’s proposed $2.5 billion cut in 2008-09 and the continuation of the $2.5 billion cut into 2009-10.  

The LAO also differs on how the cuts should be made. Specifically, the LAO rejects the deep cuts to the revenue limit (other than COLA) and instead proposes targeted cuts to categorical aid programs and elimination of unidentified categorical aid programs.  

The LAO recommendation also would essentially freeze Proposition 98 funding through 2009-10, with no funding for COLA.  

While better than the Governor’s proposal, the LAO proposal still leaves schools without the resources needed to maintain current programs.