03.13.09: The Bad News Keeps Coming
By David Walrath
Today the Legislative Analyst’s office (LAO) released their revenue and expenditure projections updated from the February budget passage. The following quote from that report includes the LAO comment that under their revenue estimates, Proposition 98 will decrease by $3 billion for the 2009-10 fiscal year. The LAO directly states their recommendation that the Proposition 98 guarantee be cut, that the state save those funds and use the new federal stimulus money to backfill those savings.
However, what the LAO does not include in their write-up is that the $3 billion cut would never be restored. It would be a base Proposition 98 reduction that would be a $3 billion cut each and every year for all subsequent years. This occurs because the Proposition 98 maintenance factor is defined by Proposition 1B to be $9.3 billion. A $3 billion increase in the maintenance factor would not happen because Proposition 1B has already been drafted and is already on the ballot. Consequently, instead of having the maintenance factor increase from $9.3 billion to $12.3 billion, schools would be capped at the $9.3 billion level. The effect of the LAO recommendation is what would have been the maintenance factor will be forever lost. The following is the direct quote from the LAO report:
“Under our current projections, the minimum guarantee in 2009–10 will fall $3.6 billion below the level in the enacted budget. The state could reduce state spending by roughly this amount (spending must remain above the state’s 2005–06 level of spending) by swapping out currently budgeted General Fund dollars for federal funds. While the specific amounts will depend on revised estimates developed in May, we recommend that the Legislature take this general approach for the Proposition 98 budget. This will generate roughly $3 billion in new budgetary solutions (the enacted budget had already counted on $510 million of offset) while preserving education programs at the level envisioned in the February package (as opposed to requiring additional reductions). By far, we believe this is the most significant step that the Legislature can take to optimize its use of federal funds in the context of this year’s state budget.”
We have advised school districts to be cautious in making expenditure commitments for the federal stimulus funds. We continue to recommend the caution based upon this report.
