Budget Information

Budget Information

State Budget Update - Feb. 23, 2010

From: Skinner, Erik <eskinner@CCCCO.EDU>
Sent: Tue Feb 23 2010
Subject: Budget Update--February 23, 2010

Dear Colleagues:

Yesterday the State Senate and State Assembly were busy debating and voting on roughly a dozen hastily drafted bills aimed at chipping away at the state's estimated $20 billion budget deficit. The legislative proposals under deliberation contained an estimated $5 billion in budget solutions and represent Democratic legislators' response to Governor Schwarzenegger's special session proposals. As of last night, most of the proposals still lacked the necessary votes in both houses needed for passage. At this point no floor session is scheduled in either house, so it is unclear when deliberations will resume.
The package of bills contains a broad range of proposals, from a complex swap of gasoline sales tax revenues to a measure that would aid in the collection of sales tax on Internet purchases. Nearly all the bills are crafted in a manner that avoids a two-thirds vote requirement (necessary for tax increases) and thus can be passed by Democrats without the need of any Republican votes.

Assembly Bill 8X 5--Funding Deferrals
The bill with the greatest potential impact on the community colleges is Assembly Bill 8X 5 which contains funding deferrals for the California Community Colleges, University of California, California State University, K-12 schools, and other state and local agencies. This bill, crafted behind closed doors by officials from the State Controller's Office, Department of Finance, and State Treasurer's Office, and legislative staff is intended to improve the state's cash flow position during projected lean periods. The bill received no public deliberation prior to showing up in print.

Provisions affecting the community colleges are as follows:
New Current Year Deferral (2009-10). In addition to the roughly $1 billion  in existing funding deferrals ($703 million intra-year and $300 million inter-year) that were included in the 2009-10 State Budget, this proposed legislation would authorize the deferral of nearly the entire March payment to community colleges until as late as May 1. The March payment, scheduled to total $143 million including both general apportionments and categorical payments, would normally be distributed to districts on approximately March 29. Under the proposal, the payment could potentially be deferred by a little over a month using a rather convoluted process:

  • Prior to delaying the March payment, the Controller, Treasurer, and Director of Finance shall jointly review and compare the state's cash position to determine if the deferral is in fact necessary. If the state's projected cash flow is sufficient to cover its needs, then the deferral would not occur.
  • If the deferral does occur, the Controller, Treasurer, and Director of Finance are required to jointly assess the state's cash position on a daily basis beginning April 1 and if at any point these parties agree that the state will have sufficient cash on hand to cover obligations through April 15, then the deferred payments will be paid to community college districts.
  • In any case, the deferred payment must be made by May 1.
  • Budget staff involved in the negotiations indicate that the current cash estimates suggest a nine day payment deferral (repayment around April 9); however, that is not a guarantee.
  • All but $12 million of the March payment would be deferred. The remaining $12 million would be available for distribution to districts facing severe fiscal hardships. No definition of hardship provided, nor is a process for allocating the funds described. Presumably, the State Chancellor's Office would survey districts to determine greatest need and allocate available funds in a manner to mitigate as much hardship as possible.

No Change to Budget Year Deferrals (2010-11)

For 2010-11, the bill proposes the same deferral structure that is in place for the community colleges for 2009-10. Specifically, the bill would repeat the $300 million in intra-year deferrals that were added for the first time in 2009-10 ($200 million deferred from July to October and $100 million deferred from March to May). The $703 million in inter-year deferrals will also be repeated; however, they will be handled in trailer bills at the time the 2010-11 State Budget is adopted. The newly proposed delay in the March payment (described above) is not proposed to be repeated, at least at this point. For the budget year deferrals, the bill allows a waiver process for cases in which the funding deferral  is determined to present an imminent threat to the fiscal integrity and security of a community college district. Waiver requests would need to be submitted by May 17, 2010. This determination must be jointly made by the State Chancellor's Office and the Department of Finance.
Full text of the measure can be found at: http://www.leginfo.ca.gov/pub/09-10/bill/asm/ab_0001-0050/abx8_5_bill_20100219_amended_sen_v98.pdf
Clearly the proposed current year deferral of the March payment is a matter of concern for the following reasons:
1.      The community colleges are already juggling over $1 billion in deferrals, making local cash management an extreme challenge.
2.      The proposed deferral of the March payment provides little advance notice to districts.
3.      Most districts already have reduced cash reserves in March and April, because spring property tax payments have not yet been received.
4.      Many districts have obligations pertaining to Tax Revenue Anticipation Notes (TRANs) that will require having cash on hand in April. Failure to meet these requirements could result in default.

Yesterday we quickly voiced these concerns regarding the proposed new deferral to the Legislature and the Administration. Today we are continuing our efforts to have the community college provisions eliminated or modified. In a separate email message, I have requested feedback from community college district CBOs on the likely fiscal impacts of the proposal in order to inform our advocacy efforts.

Proposed Suspension of Competitive Cal Grants Defeated
On a more positive note, the package of bills being heard in the Legislature rejects a proposal made by the Governor to suspend new Competitive Cal Grant awards effective fall 2010. In contrast to the funding deferral proposal, the Cal Grant proposal was heard in several legislative committees and significant public input was taken. This public comment, most notably statements by community college student leaders, was pivotal in ensuring that this proposal was defeated.
More updates will follow as new developments occur.

Erik Skinner
Vice Chancellor for Fiscal Policy
California Community Colleges,
Chancellor's Office
1102 Q Street
Sacramento, CA  95811-6549
direct line:  916-323-7007
fax: 916-323-8245

Budget Information
email Email:
Pippa Gibson
Phone: 408.864.8936

Last Updated: 3/2/10