The Governor called a special session of the legislature to address the general fund revenue shortfall of $11.2 billion. This is a combination of the 2007-08 shortfall of $567 million and the 2008-09 projected shortfall of $10.7 billion. A $13 billion shortfall is projected for the 2009-10 budget year. This is all due to a continuing downturn in the world, national, and state economies. It is important to note that we also don’t know what anticipated spending increases will be required beyond the $11.2 billion shortfall. Previous years has shown us that during down times, caseloads in safety nets and corrections programs increase.
The Governor believes that we must address this shortfall before November 30 in order to prevent a cash crisis that would jeopardize vital state services. His proposal includes a series of revenues and cuts to address the state’s fiscal crisis.
The following is a brief summary of the K-14 special session proposal:
Revenue Solutions:
- The Governor proposes a 1 ½ cent sales tax increase for a period of 3 years. ($3.54 billion)
- 9.9% Oil severance tax. ($530 million)
- Expands sales tax to certain services (i.e. golf fees, entertainment parks, veterinarian fees, vehicle repair, sporting events, furniture and appliance repairs). ($357 million)
- 5 cents a drink alcohol tax increase. ($293 million)
The total estimate of these taxes is $4.7 billion in new revenues.
Proposed Proposition 98 Reductions:
This proposal would reduce Proposition 98 for K-14 education by $2.5 billion. This would bring the Prop 98 base to $55.6 billion dollars for the 2008-09 budget. This amount exceeds the minimum guarantee level by approximately $111 million. The education portion is $2.5 billion because we are half the share of the $5 billion generated in revenues and therefore we are half the share of the cuts. As stated previously, the Governor’s proposal meets the minimum guarantee for Prop 98.
This proposal eliminates the $284.1 million or the 0.68% COLA for K-14.
This proposal reduces the school district revenue limit funding by $1.71 billion which is equivalent to a -4.9% which translates to a $367 reduction per ADA.
This proposal would also cut $205 million from child care programs.
The capturing of $71 million in prior year savings from several categorical programs due to underutilization. These reductions include: $28.6 million for K-3 CSR, $2.6 million for Principal Training, $3.3 million for Alternative Certification and $1 million for the Pupil Retention Block Grant.
This proposal reduces $292.4 million from the Community Colleges general purpose apportionments and provides categorical flexibility to transfer this amount to their General Fund.
K-14 cuts amount to $2.5 billion because the shortfall that will not come from revenues.
Proposed change with the Categorical Programs for 2007-08 and 2009-10:
The Governor proposes to provide school districts with almost complete flexibility on their categorical program funding for 2 budget years. The purpose of this flexibility is to help offset the cuts to the revenue limit. With the exception of Special Education and the QEIA program, school districts will receive their prior year categorical funding level for every other categorical program even if the district does not provide the services for that program. For example, if a school district decided to have 25 children in each K-3 classroom, they still would receive their K-3 class size allocation as if they maintained class sizes of 19 children. In addition, school districts will be able to transfer all their 2007-08 year-end categorical balances into their general fund.
Community Colleges also have a similar categorical flexibility proposal.
Please keep in mind, that the governor’s proposal is based on the assumption that the $4.7 billion in proposed cuts is based on the success of a 2/3s vote in the Legislature to pass the his proposed revenues.
The Legislative Analyst Office will be reacting to the Governor’s special session proposal by November 17.