The purpose of the School Services of California, Inc.'s (SSC) Dartboard is to provide planning factors and recommendations for school agencies in California. It is most effective when the County Offices of Education and Fiscal Crisis and Management Assistance Team (FCMAT) agree with the planning factors developed by SSC. We revise the SSC Dartboard several times each year to reflect changes in the State Budget and other factors. Our latest version was provided in January 2011, in conjunction with the Governor's Budget Proposals for 2011-12. On the natural, our next revision would be to reflect any changes proposed in the May Revision, but we have repeatedly advised that we would change our recommendations if the Governor's plan changes. We are not willing to guess at what the Governor might do, but we will react to what he does do. We warn you right up front that this is a difficult and complex subject, and this will be one of the longest articles we have ever written-but please stay with us to the end.
Progress Toward the Governor's Plan
In January, our view was that the Governor's comprehensive plan for providing a long-term solution for California's chronic Budget problems was sound and would likely garner support. So far we have been half right.
The Governor's plan to solve approximately half the problem with permanent spending reductions on the non-Proposition 98 side of the Budget has shaped up nicely. If those cuts are made as enacted, going forward, the non-Proposition 98 side of the Budget will sustain cuts almost equal to those that education has already taken. The Legislature and the Governor deserve great credit for the enormous effort it took to enact those reductions.
But the other half of the Governor's plan, extension of the temporary taxes, has stalled. Without the taxes, the Governor has really only two choices left: first, to try to cut his way out of the entire problem, or second, to follow the path of the last two Governors and find temporary or one-time solutions to bridge the gap until a permanent solution can be found. We think neither path is easy nor should be assumed to be a sure thing.
We do not expect the Governor to give up on the taxes easily, but he is simply running out of time. At some point we expect the Governor to raise the level of pressure on the Legislature by focusing more on what an all-cuts Budget would look like, and he has already said it would be terrible for education and most other public services.
Will the Legislature Support an All-Cuts Budget?
Would the Legislature support an all-cuts Budget? The Legislative Analyst's Office (LAO) has pointed out the difficulties, legal and otherwise, with that approach. Beyond that, what would the message to the Democrats in the Legislature be? "You have led the successful effort to make far more cuts than you have ever made, but the Republicans will not let the people decide the tax issue, so your share of the solution is doubled to 100%." Are the Democrats likely to welcome such a message and step up to more cuts?
What about the Republicans? Are they likely to want to face the next campaign for reelection with their behavior characterized as depriving the voters of an opportunity to choose? "We are not going to let you decide the tax issue, we are going to kill it and you are going to take the cuts in services." Is this the message that serves the Republicans best?
Will the Voters Support the Tax Extensions?
And what of the voters? In January, polling showed that voters, tired of a never-ending Budget crisis, generally supported extending the taxes. But now, after three months of "politics as usual," the Governor's plan is losing momentum in the polls. It is now, in our view, much less likely that the tax extensions pass even if they get on the ballot. The Governor requested early approval of the constitutional amendment necessary for the taxes to be on the ballot in part to allow adequate time for a campaign. He requested bipartisan support to blunt the "vote NO on ANY taxes" that is sure to come. That bipartisan support is as of yet nowhere to be seen, and the time to run a campaign is slipping away.
We think the talk of an initiative campaign to put the taxes on the ballot in November is a non-starter to solve this year's problem; too little, too late for this year, but perhaps a solution for 2012-13 if temporary measures are employed for 2011-12. At that point, we would be talking "new taxes," not "tax extensions," yet another hurdle. In our opinion, talk of this solution may actually detract from efforts to extend the taxes now.
The Effect on Education
On the natural, we have pointed out that the expiration of the taxes, with no other action by the Governor or Legislature, lowers the Proposition 98 minimum guarantee by about $2.1 billion, or about $330 per unit of average daily attendance (ADA). In an all-cuts Budget, any cut beyond that level would require a suspension of Proposition 98, which still requires a two-thirds vote in the Legislature. If that were to happen, each additional billion dollars cut from education, over the first $2.1 billion, would result in an approximate loss of an additional $165 per unit of ADA.
The math is fairly easy, but the assumptions regarding the decisions that support the math are not. First, is it reasonable to assume that the Governor can reduce government spending, and attendant public services, by nearly one-third with no increases in revenue, no bipartisan support, and no referendum of the people? We are not convinced that can happen. We would offer as evidence the actions of the Legislature during the past seven years of continuous Budget crisis; rhetoric aside, the only major ongoing cuts have been to public education.
Second, various political figures have spoken of methods of reducing costs if education is cut further. Proposals have ranged from cutting a month off the school year, to increased flexibility in Tier I and II categorical programs, to removal of state-level restrictions on class sizes and other costly state requirements. Again, using the past as a guide, each time we have had deep cuts, we have been afforded at least some measure of compensating relief. Anything offered and utilized in this area has the effect of lowering the "net" effect of the additional cut. How much will we get this time, and will there be time to bargain any changes that might affect collective bargaining agreements? When will we know what is to be offered?
Third, we believe we would no longer meet the guarantees that California made as "assurances" to the federal government in order to meet eligibility requirements for stimulus funding. Even the natural loss of $2.1 billion to Proposition 98 would put the state below the assurances it provided. Has the state considered that the federal government might send California a bill for return of some of that funding?
Fourth, we see the distinct possibility that a cut of $2.1 billion would cause literally hundreds of school agencies to no longer be able to certify that they are in a positive financial position. Dozens of districts are likely to become candidates for state emergency loans. Cuts of double that size or more are likely to cause the number of candidates for state emergency loans to go into triple digits. Just the time necessary to negotiate another round of substantial cuts would exhaust the reserves of many districts. Is it beneficial for the state to make further cuts to education that cause many districts to turn to the state for loans?
Finally, we were nearly last in the nation in terms of spending power before the state reduced funding for education. We are currently over $2,300 below the national average of funding per student. The implications for California range from immediate impacts on quality and quantity of education provided, eroding the ability to attract and retain qualified staff, to long-term negative effects on the state's future economic growth.
Does all that mean the state won't cut education further? Don't bet on it; the state is in desperate straits and just like desperate people, desperate states do desperate things.
The Governor's Signing Message
In signing the Budget trailer bills that enact the mostly non-Proposition 98 cuts approved by the Legislature, the Governor once again mentioned the higher cuts that would be necessary if the taxes are not extended. For the first time publicly, he specifically stated that education would face a cut of $4 billion to $5 billion if the taxes are not extended. That comment is particularly worrisome in that we will not be able to determine if it was made as "electioneering," to put more pressure on those who oppose the taxes, or if he really thinks the Legislature would support cuts at that level.
Our pessimism over the prospects for continuation of the taxes, coupled with the Governor's more aggressive stance toward even deeper cuts to education, is ample justification for all of us to be worried.
What Happens Next?
This week is critical to resolution of the Budget. If the taxes go on the ballot, we remain on hold until the election. If the hope for taxes expires, we would expect the Governor to declare that fact and to announce a new spending plan. The dimensions of that plan could stretch far and wide and in any direction.
SSC will be engaged over the next couple of days with the County Offices of Education, FCMAT, and other influential people in the Legislature and the Administration to glean their insight into the next plan. As we asserted earlier, our recommendations to prepare two budgets, one with a cut of $19 per ADA and one with $349 per ADA, were appropriate for preparation of the Second Interim and for determining layoff notices. But those projections included extensions of the taxes and no suspension of Proposition 98. The next point at which districts need a defensible number is preparation and adoption of the 2011-12 district budget. If either of those factors changes, we will immediately reissue the SSC Dartboard to reflect the Governor's revised plan. That could happen as early as this week.
As always, we will bring all of the known information and our projections together at the May Revision Workshop, but we will not delay our advice if the course of action we recommend needs to be modified earlier. We appreciate your support and confidence in us as we jointly move through yet another sea of uncharted waters.
--SSC Staff