Barrett Snider
Legislative Advocate
School Innovations & Advocacy
1201 K St, Suite 710
Sacramento, CA 95814
916-669-5425
E-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

California’s Fiscal Outlook

On November 18, 2009, the Legislative Analyst’s Office (LAO) released their report California’s Fiscal Outlook:  The 2010-11 Budget.  The following comments are based on that written report. 

Overall, the report projects a budget shortfall of $20.7 billion over the two years:  2009-10 and 2010-11.  The specific projected shortfalls across the two years are $6.3 billion in the current year (2009-10) and $14.4 billion in 2010-11.

The LAO attributes the “vast majority” of the budget problems to the state’s inability to implement several major solutions in the 2009-10 budget, notably:

• The inability to achieve “billions” of dollars in projected savings in prisons and MediCal
• Inability to sell the State Compensation Insurance Fund (the budget assumed $1 billion in revenues from that sale)
• Loss of a court case over the ability to use $800 million in transportation funds.

According to the LAO report, the problem is NOT caused primarily by revenue shortfalls.   The LAO header reads “Revenues Are Basically on Track”.  There are problems, however, as follows:

• 2008-09 revenues came in $496 million below the amount assumed in the 2009-10 budget.
• 2009-10 revenues are projected to be $451 million lower than planned in the budget.  [Note:  some figures may use a shortfall figure of $1.5 billion, but $1 billion of this amount is due to the failure to sell the State Compensation Insurance Fund.  Revenues, in the form of taxes, are down less than $500 million]
• The LAO projects basically flat revenues for 2010-11.  Actually, the LAO projects a $296 million (.3 percent) decline.   The LAO notes that the economy will actually generate a “baseline” revenue increase, but various actions in the budget to accelerate revenues into 2009-10 have the effect of reducing net revenue growth in 2010-11.

Proposition 98

•  Ironically, the decline in 2008-09 revenues means that the year-to-year revenue growth from 2008-09 to 2009-10 is greater than expected—resulting in a higher Proposition 98 guarantee for 2009-10 (the current year).  The LAO estimates that the state owes Proposition 98 approximately $1 billion for 2009-10.
• For 2010-11, the LAO projects a slight decline in the guarantee of $334 million.

Comments:

1. A higher Proposition 98 guarantee would appear to prevent mid-year cuts to education this year.
2. Don’t expect additional funding in 2009-10 just because the projected guarantee is higher.  The state can pay this amount, if the figure is accurate, as “settle-up” money in a subsequent year.
3. Don’t plan on a cost-of-living adjustment for 2010-11.  First, the Prop. 98 guarantee is projected to actually decline slightly.   Second, the overall budget is in trouble and it is difficult to imagine obtaining a cost-of-living adjustment in that environment.
4. The relatively flat guarantee figures should help protect schools from significant new cuts.   Most importantly, it appears the Legislature and Governor will need to suspend the Proposition 98 guarantee to make deep cuts.   Further, the LAO notes that there are federal maintenance of effort provisions that impose significant constraints.
5. The LAO projections are only estimates.   Budget planning will be based on the figures released by the Governor and the Department of Finance in January.