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02.26.10: Legislative Analyst's Office Update - Part II

The Governor’s Budget proposal for child care and development programs included $316 million in savings ($147 in Proposition 98 and $169 million in federal funds) from reimbursement rate cuts, reduction in funded slots and various fund swaps.

The Legislative Analyst’s Office (LAO) proposes $217 million in savings ($68 million in Proposition 98 and $149 million in federal funds) from reimbursement rate reductions and fund swaps.  The LAO recommends that the proposed 18,000 reduction in service slots should be rejected.  The other major differences are: 1) to use more recent data to reduce reimbursement rates; and 2) reduce non-CalWORKs child care eligibility ($115 million savings) and redirect some ($55 million) to other program waiting lists for serving more children from lower income families.

The LAO report is used to begin the State Budget hearing process.  Normally, the LAO report works within the budget structure proposed in the Governor’s Budget.  In a break from this tradition, the LAO recommends the Legislature reject the Proposition 98 budget structure proposed in the Governor’s Budget.  This break then allows the LAO to essentially recommend an alternative budget based on the Proposition 98 suspension.  Rather than make recommendations to change specific budget proposals and include Proposition 98 suspension as an option the Legislature should consider, the LAO report essentially tells the Legislature they have no choice but to suspend Proposition 98.

While the LAO has not released updated state revenue projections, the released increase in the Proposition 98 minimum guarantee indicates that the LAO will release projections that are equal to or greater than the state revenues projected in the Governor’s Budget.  Because of how Proposition 98 works, it is possible almost all of the new revenue would be owed to schools and would not be available for other state programs.  The Proposition 98 suspension would allow more of the revenues to be used for other programs.

With the LAO’s recommendation and the proposed budget cuts to health and social services programs, I expect Proposition 98 suspension will be the central K-12 state budget fight. The following are my initial thoughts on some of the dynamics that could lead to suspension and some of the dynamics that could lead to suspension rejection.

• Factors Leading to Suspension