Budget Agreement

This from Erik Skinner, Vice Chancellor for Fiscal Policy at the State Chancellor’s Office, California Community Colleges:

Dear Colleagues:

The Senate and the Assembly, as anticipated, approved the final pieces of the 2008-09 state budget package. There were no surprises as the Legislature adopted changes to the budget package passed early Tuesday morning. The amendments reflect an agreement brokered with the governor in order to avoid a threatened veto. The specific changes are:
Further limitations on when the Legislature may spend “rainy
day” funds.

• Elimination of a proposal that would have “accelerated” tax receipts by increasing personal income tax withholding by 10 percent and then returning the over-collections to tax filers later in the year. The earlier version of the budget relied on this gimmick to generate $1.6
• billion.
• Increased penalties on corporations that underpay taxes.
• Reduction of the state’s reserve fund from $1.2 billion to $800 million.
• Cancellation of a tax amnesty program proposed in the earlier version of the budget.

Overall, the proposed state budget contains the following components:

• Makes $7.1 billion in cuts to numerous program areas.
• Relies on a grab bag of borrowing and one-time budget maneuvers totaling approximately $9 billion. These provisions include: accelerating payments for tax-filers individuals and corporations paying estimated taxes ($2.3 billion); a two-year suspension on net operating loss tax deduction ($1.9 billion); changing to an accrual accounting model ($2 billion); requiring limited liability corporations to prepay fees; and increased penalties on corporations that underpay taxes.
• Provides $58.1 billion for K-12 schools and community colleges
• under Proposition 98. This funding level just meets the Proposition 98
• minimum funding obligation.
• Lays the groundwork for securitization of State Lottery funds to provide $5 billion in each of the 2009-10 and 2010-11 state budgets. The Legislature adopted three separate measures, including Senate Constitutional Amendment 13 that will go before the voters at the next statewide election, to accomplish this change.
• Includes various budget reforms including: a strengthened rainy day fund; expanded authority for the governor to make mid-year budget cuts to state agencies; and expanded authority of the governor to temporarily suspend COLAs in the event of a fiscal emergency.

For the California Community Colleges no changes are reported. Budget highlights include:

• $38.9 million to provide a 0.68 percent COLA on general purpose apportionments (no COLA is provided for categorical program funds). K-12 schools also received this same level of COLA.
• Enrollment growth is funded at 2 percent
• Categorical programs are flat-lined at 2007-08 levels
• Student fees remain level at $20 per unit
• $75 million is provided to partially backfill a property tax shortfall for the 2007-08 fiscal year. The total property tax shortfall for 2007-08 was $92 million.
• A new deferral of apportionment payments was instituted in order to address cash flow concerns at the state level. Specifically, $250 million in general purpose apportionments that normally would be paid in January, February, and March will now be paid in April, May, and June.
• A $200,000 cut to the Chancellor’s Office budget. Earlier versions of the budget had proposed a $1 million cut.
• The Competitive Cal Grant program is sustained rather than eliminated as earlier proposed. This program, operated by the California Student Aid Commission, provides support to students in all segments of California public higher education.

Governor Schwarzenegger has indicated that he will sign the budget, most likely in the next two or three days. Because the budget funds K-14 education at the Proposition 98 minimum guarantee, it is unlikely that he will veto much from the colleges or schools. If he does, he would be required to set the funds aside for reallocation back to schools and colleges. We will provide updates on any vetoes.

The State Controller has indicated that he will expedite payments once the budget is in place. We are hopeful that the overdue July and August payments will be out to districts within a week of signing. As noted in earlier updates, System Office staff have ensured that all necessary paperwork has been submitted to the Controller in order to ensure rapid action.