Budget Information

Budget Information

State Leaders Fail to Implement a Budget Solution by End 08-09 Fiscal Year

From: Skinner, Erik
Sent: Thursday, July 02, 2009
Subject: Budget Update--July 2, 2009

Dear Colleagues:
Having failed to implement a budget solution prior to the close of the 2008-09 fiscal year, it appears state leaders have missed out on the opportunity to secure approximately $3.3 billion in budget savings from the now prior year. As a result, they will be forced to revise their budget proposals to solve the entire shortfall in the 2009-10 fiscal year. In my update from yesterday, I outlined some of the considerations and challenges they will face as they do so.

Yesterday, Governor Schwarzenegger unveiled his proposal which he called the “July 1 Revision.” In this proposal, the Governor indicated that the state’s budget problem has grown from $24.3 billion to $26.3 billion as a result of the failure to enact 2008-09 solutions. The largest element in this increase is the failure to reduce Proposition 98 expenditures by $1.6 billion in 2008-09, which results in a Proposition 98 funding requirement that is $1.6 billion higher for 2009-10. To address this increased problem, the Governor proposed the following:

1) Suspend Proposition 98 for 2009-10. The Governor proposes funding Proposition 98 at a level that is $3 billion below the new minimum guarantee. This level is $1.4 billion below the spending level previously proposed by the Governor for 2009-10. The July 1 Revision does not describe how this $1.4 billion in Proposition 98 cuts for 2009-10 would be structured. Because the state was already at the minimum funding level allowed under federal stimulus package maintenance of effort provisions, it may be that the state is not able to cut community colleges below the level already proposed. As more details are provided, we will share them with you.

2) Furlough State Workers three days each month. This action would save the state an additional $425 million annually. Most state workers have been furlough for two days a month since February.

3) Retroactive Enactment of $1.4 billion in 2008-09 Cuts to UC and CSU. The July 1 Revision indicates that UC and CSU have both agreed to keep their books open and score these cuts toward the 2008-09 fiscal year. Because these higher education segments are not funded under Proposition 98, this maneuver is not subject to the same legal challenges as would apply for K-12 schools and community colleges.

Under the Governor’s proposal, it appears that the 2008-09 solutions, including $85 million in cuts and $115 million in funding deferrals for the community colleges, appear to have been withdrawn. I would caution that we have not received the full detail behind the Governor’s plan so we don’t know what may be hidden in the fine print. In addition, the Legislature has not provided any indication of how they will react to this new proposal. As noted in my update from yesterday, there are budget experts in the Capitol who contend that it would still be possible to reduce Proposition 98 appropriations after the end of the fiscal year. We will provide more clarification on this issue as additional information becomes available.

So far, legislative leaders have not publicly responded to the Governor’s new budget proposal. Both houses of the Legislature have adjourned for the holiday weekend, but are on notice that they may need to return to the Capitol over the weekend to deal with budget-related legislation. However, most folks in the Capitol feel that it is highly unlikely that any weekend sessions will occur. Perhaps what state leaders need most right now is  a few days to catch up on sleep and let tempers subside.


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

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Last Updated: 7/6/09