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June 20, 2011
Dear Colleagues,
All eyes will be on the Senate when it convenes at noon today
to see if Pro Tempore Darrell Steinberg provides any hint of what will
happen next in the effort to reach a state budget. There were no
developments over the weekend, although the backchatter was mostly about
whether or not Controller John Chiang will pay legislators when June 30
payday arrives.
Chiang did announce that he has ceased weekly per diem checks
until he decides whether the Legislature has "passed" a "balanced"
budget pursuant to Proposition 25. KQED's John Myers has a great rundown
if you want to read more about this. If, like me, you'd prefer to
listen while you're on the treadmill, Myers teamed up on Friday with LA
Times reporter Shane Goldmacher and SacBee reporter Kevin Yamamura for
his weekly podcast (also on iTunes).
Let's take a reset of the budget fight.
Democrats on Wednesday replaced the governor's $9.4 billion in
temporary tax extensions with a mix of cuts, deferalls and smaller tax
increases. Some of these are "easy," such as the new $2.8 billion in
Proposition 98 that was in the January budget and generally planned on
by K-14 school districts. Others, however, such as selling state
buildings and assuming new federal revenues, have been tried repeatedly
and are essentially considered budgetary paste.
Taxes are essentially off the table for calendar year 2011, as
there is no political appetite for a September election, the governor
already dropped the personal income tax extension for this year, and you
can't retroactively collect a sales tax approved in a November
election. Even in the most optimistic scenarios about a tax extension,
at least $3 billion in solutions have been lost.
Thus, the "real" shortfall, assuming you continue the K-14
deferrals and can't get the taxes, is about $6 billion. This shortfall
can be whittled down by $815 milion, or let's say $1 billion, by
increasing revenue projections in account of the $408 million in revenues above projections in the month of May.
That leaves $5 billion as the legitimate sticking point.
Democrats closed this by sale of state buildings ($1.2 billion),
increased fees/sales taxes ($1.3 billion), cuts ($1.5 billion), and
assumed federal revenues ($700 million), and a few miscellaneous
actions.
While the governor's veto message
centered on his accusation that the Democrats' budget was not balanced,
the real issue is the "out year problem." The governor desparately
wants to end the annual budget shortfall, and most people believe the
Democrats plan leaves a $6-7 billion shortfall beginning in 2012-13. The
question is whether he wants to eliminate all of the structural
shortfall or, whether he's willing to sign a "workout plan" that phases
in budgetary balance. Fixing that structural shortfall will only happen
with ongoing spending cuts, ongoing tax increases (for a few years at
least), or a mix thereof.
However we get to the final budget, there will be more cuts than
included in the governor's May Revise. Whether they are limited to the
$1.5 billion in the Democrats' plan or deeper will depend on the
governor's willingness to (1) persuade Democrats to support a November
election on taxes that labor doesn't want and (2) accept some gimmicks.
Somehow, $5 billion in solutions have to be found.
At the end of the day for Proposition 98 and community
colleges, $2 billion is likely the maximum cut beyond the accounting
cut of the new deferral ($129m for community colleges). Thus, even in an
all-cuts scenario, Scenario B is likely the "worst scenario," although we'll continue to fight for Scenario A.
The bigger threat, however, may be a prolonged budget
fight that may, once again, force districts to scramble for reserves and
borrowed cash while Sacramento finds a solution.
Sincerely,
Scott Lay
President and Chief Executive Officer, The League
Orange Coast College '94
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