What’s different for the grassroots movement to fund schools with a 2/3 legislative vote by extending revenues, now that the May revise has been released? In short, nothing. Keep calling State Senators and Assembly members, and visiting your legislators in their district offices. School funding is still at risk, because while the unanticipated tax windfall helps in school year ’11-’12, it doesn’t address the long-term funding cliff schools still face after June 30, 2011.
Let me back up. The “May revise” happens every year, when the governor reviews the state’s financial picture after spring tax collection, and reissues his statement on the budget before the books must be closed out at the end of the state’s fiscal year on the last day of June.
The Legislative Analyst’s Office has this to say:
The administration identifies a $9.6 billion remaining budget problem based on generally reasonable 2010-11 and 2011-12 revenue and expenditure assumptions. The Governor’s plan to address this shortfall and leave the state with a $1.2 billion reserve at the end of 2011-12 has many positive aspects.
Look at the graph below taken from the Sacramento Bee. See the “May deficit” number, $9.6 billion? That’s what we’re short now. The total amount we’re short is $10.8 billion because of some other things that were pending in the legislature and the governor also wants to try to build in a slight reserve.
California Department of Finance, via Sacramento Bee
This year, Governor Brown has been seeking to balance the budget with a combination of cuts and revenue extension — continuing certain taxes we already pay beyond the June 30 expiration date. In the graph above, cuts already enacted by the legislature equaled about $11 billion. The remainder that needs to be made up from continued revenue is about $12 billion. Because there was an unanticipated windfall of $2.5 billion from revenue received, and $4.1 billion from other taxes to be collected over the fiscal year, some legislators who advocated for an all-cuts budget said that there was no longer a need to cut K-12 school spending and no reason to extend taxes.
It’s tempting to say, “$9.6 billion – $6.6 billion = $3 billion shortfall, in the greater scheme of things, aren’t we pretty much at problem solved?”
No, and it’s because the previous governor ran up the equivalent of credit card debt. Here’s an explanation of what former Governor Schwarzenegger did while he was in office the past 8 years from 2003 onward:
…Schwarzenegger had plenty of help in running up the credit card — from his predecessor Gray Davis, from the Legislature and from the voters.
The borrowing began with Davis in 2003, the year the Democrat was recalled and replaced with the Hollywood action hero. The new Republican governor promised to “end the crazy deficit spending” and “live within our means.”
Instead, he went on a borrowing binge, joined by legislators of both parties and the California electorate.
Schwarzenegger’s first mistake was to cut the vehicle license fee, leaving a $4-billion budget hole that gradually grew to $6 billion annually.
To pay for the tax cut, he borrowed, persuading the Legislature and voters to sign off on a $15-billion bond issue to meet daily expenses. That’s like taking out a second mortgage to buy food and gas.
Schwarzenegger disingenuously called the note an “economic recovery bond.” And after that borrowing, he promised, he’d “tear up the credit card and throw it away.” But he got other cards.
That bond money is long gone. Only the debt payments remain — $1.3 billion annually, principal and interest. The state still owes $7 billion on the loan. At the current repayment pace, the bond won’t be paid off until 2016. Brown said Monday he wants to pay it off much sooner.
All of this is shown, rather confusingly, in the pie graph below. This is the “wall of debt” that Governor Brown discussed in his presentation of the May revise.
California Department of Finance, via Sacramento Bee
So the GOP holdouts who hold that “no taxes ever” position are misleading and wrong. We’ve been trying to get by on too little revenue for too long.
Here’s why: it’s like being short on the rent, and finding an extra $40 in your jeans pocket and as a result thinking, “Great! Rent problem solved! Everything is a-okay.” How will you make next month’s rent? You are already living in a modest apartment and have cut back on expenses. Reasonable people look for ways to bring in more money to comfortably cover your costs. Governor Schwarzenegger’s solution was to supplement California’s income with credit card borrowing. Now we’re burdened with interest payments on top of repayments.
The funding cliff schools face is like paying the rent — it’s a cost in your budget that needs to be met consistently over time. When June 30, 2011 arrives, and if the legislature has not extended taxes, schools will experience a sharp decline in the funding they receive from the state. They’ll go off the cliff. Year after year schools will be scrambling to make their budgets. By law, schools must budget three years out. But they cannot budget based on the hopes of stable revenue any more than a person can count on finding extra cash in their pants pocket every month to make the rent. Schools need assured revenue, which is why we need to extend existing taxes.
It’s true that some $2.5 billion of the $6.6 billion can be used to keep cuts to K-12 to a minimum — this year. But what about the following year, and the one after that? Here’s where we need to talk a little about Proposition 98. In addition to complex local, county, state, and federal money that funds schools, there are also many laws that regulate state school spending. Proposition 98 is one, and it addresses K-14 spending.
The graph above shows how the state has been struggling to meet school spending floors established by Proposition 98. Some, not all, of the unanticipated $2.5 billion in revenue can go toward meeting Proposition 98 guarantees, which sets a floor for what the state must spend on K-12 education every year based on the previous year’s level of payment. Taking into account the unanticipated revenue, for the coming year, ’11-’12, Prop 98 need not be suspended.
Suspension lifts the mandates on complex formulas that calculate this floor. Deferrals are an accounting trick the state uses to balance its books when it can not actually meet the legal obligation under Proposition 98, so it defers what it should pay to the next fiscal year. This is called the ‘maintenance factor.’ This is why schools are owed $10 billion dollars by the state, which the state has yet to pay or “settle up”. Remember the “wall of debt”?
But this Prop 98 floor is not an absolute floor, it’s a shifting floor. See how in the graph above even if we use some of our unanticipated state income to keep the school funding floor level, it’s still LESS than what the state spent on schools four years ago in ’07-’08?
Educated Guess/Thoughts on Public Education‘s John Fensterwald notes that Governor Brown did not lay out an all-cuts budget scenario in his presentation of the May revise. But it’s actually laid out in the written materials that accompanied Brown’s presentation. Fensterwald summarizes them:
However, on page 12 of his budget summary (pdf), [Brown] wrote that community colleges and K-12 schools, comprising 40 percent of the general budget, “would need to bear a heavy share of an ‘all-cuts’ budget.” [In an all-cuts scenario,] Proposition 98 would have to be suspended, he said. A cut of $5 billion to Prop 98 is the equivalent of lopping a month off of the school year and laying off 51,000 teachers, eliminating 52,000 courses at community colleges, and raising fees from $36 to $125 per credit.
State Senate and Assembly Republicans are hoping you’ll get lost in the weeds of complicated school funding formulas and laws, and that you’ll just buy their “See? I found extra money in the sofa cushions, no need for taxes” short-term thinking. But what our map tool shows is that school districts in the Republican State Senate and Assembly districts will be hurt just as much, if not more, by the out-of-state “no taxes ever” ideas these GOP legislators signed onto when they formed a “Taxpayer’s Caucus” months ago. And parents in those districts are starting to look past the idea of “no taxes ever” and at the reality that their kids will be hurt by an all-cuts budget. Given a choice between abstract ideology and a real-live kid’s education, what will parents choose?
Instead, we should double down on Governor Brown’s plan and urge our elected state representatives to pass the 2/3 vote needed to continue revenue that will reliably fund our schools for the next five years. Remember, it’s the funding cliff that an all-cuts budget and the “Taxpayer’s Caucus” has no answer for. Revenue extension gives our schools stability. And when we voted for Jerry Brown as our Governor, we rejected the all-cuts approach that his opponent tried to sell.
