Just yesterday the State Controller John Chiang said that the things are on a “downward spiral.” Every day of inaction is making matters worse and no one expects an agreement any time soon.
So with that good news out of the way, here is how this mess in Sacramento will effect this community and your children.
Associate Superintendent Bruce Colby presented his non-budget budget talks. No PowerPoint slides this time because, well, we don’t have actual numbers because there is no real proposal to work with. And as was made clear by Linda Legnitto from the Yolo County Office of Education, the district is going to have to come up with a budget by March 15, 2009 regardless of whether there are actually real numbers to work with. People are going to be given pink slips. Students are going to protest. 2008 is going to repeat itself.
The district because of strong fiscal management and the passage of Measures Q and W is in better shape than it was in 2008, but not by as much as we would hope.
Mr. Colby told the district:
“The biggest thing to note and the big headlines out there is that the state is running out of cash. If they don’t do anything and get a budget for this year, they are out of cash on February 1. After February 1, they start issuing IOUs to state employees, to vendors, and people they send checks to.
There is a question as to whether they have to legally fund and give apportionments to schools. The apportionments for revenue are actually in the constitution so there is a question with the constitution if they have to pay us in cash, the question if they don’t have the cash, do they not have to pay the cash?
So the big question is what’s going to happen on February 1 when they run out of cash?”
And this is the real problem—no matter how good a job the District has done managing its money, if the state ends up defaulting on its commitments to school districts we are in a world of hurt.
Mr. Colby continued:
“So we’re back to not just deficits and fund balance and all this accounting, we’re now in the cash mode for the state level and the district level.”
Ms. Legnitto however held out the hope that due to Title 16, the schools would get their money.
She told the board:
“Hopefully Title 16 will protect the ongoing apportionment and we’ll be able to squeak through… There is at least some law on our side to get that apportionment. My recommendation is for people to conserve as much cash and be as conservative as possible in the event that the state really does default on that.”
Title 16 is the statute that makes the apportionment of money to schools a priority for the state. That statutory requirement occurs whether there is a budget or not. So if there is money, schools would get it first. But is there money? That is the open question that is going to keep many people up all night as February 1 marches upon us. More on Ms. Legnitto’s comments shortly.
Assuming we have cash, what is our cash position?
Bruce Colby projects that in the current year the state funding will fall somewhere between $2 and $2.5 million short of that which was budgeted. It gets worse. Next year we will face a $2 million ongoing deficit plus an additional $1 million to $1.5 according to governor’s proposal.
“That we do know, we’re going to have that kind of range. It gets bigger every time they look at it.”
“The real question is not really how much at this point; it’s really where the cuts are going to come from. There are big philosophical differences with the Democrats wanting to be more controlled on the categorical side. The Governor’s plan wants to be more flexible and takes away the wall between categorical and restrictions… He threw a volley about taking away all state mandates… He is actually volleying out there saying that we don’t have to do that any more.”
In previous discussions, Bruce Colby indicated that from the district’s perspective, more flexibility was better.
As mentioned previously, the prognosticators believe that the budget situation will not be resolved any time soon.
“Talking to those in the know… the feeling in Sacramento was that he doesn’t see a short-term closure on this where people come together. In fact what he sees is that there will be just as prolonged a budget process this year as last year. So we’re probably sitting at the same place we were last year with the January revise that we have to then march through all the progressions and deadlines for that. We don’t know how that’s going to come together.”
The uncertainty makes it even more difficult to plan for next year. Mr. Colby said that he will be at a workshop next week and will understand the Governor’s plan at that point, but the problem is that it’s the governor’s plan and who knows exactly what the actual plan will look like. There is quite a distance between the governor’s plan, the Democrat’s plan, and the Republican’s plan.
The bottom line is that the district knows that we have to plan for cuts from the general fund and get ready for what comes down the pike.
Bruce Colby then addressed the end year fund balance of $10.8 million—a figure unfortunately that is quite misleading in terms of the actual district’s position.
“When we closed out the year last year, we had $10.8 million of fund balance. That’s an accounting fund balance. It’s not necessarily cash in the bank. That was split between categorical and unrestricted account ledger. $5 million was restricted categorical.”
How much of this would be available if there were additional flexibility in the budget from the governor?
“The numbers are down to about $4.4 million of that would be available at the end of this year. So there’s not $10.8 million available. Some of that has already been spent because we are deficit spending. We already had plans for some of that money and it has been spent already. When we did the budget, only $4.4 million of that is available. We don’t have $10.8 million to play with, we have what’s ever left at the end of this year’s budget. The midyear cuts in the $2 to $2.5 million range will come out of that.”
The $4.4 million includes categorical—so the district would need to gain the categorical flexibility in order to even use this.
However as Mr. Colby cautioned, the categoricals have been built up over years of legislation that has set aside money for specific purposes. Full flexibility means wiping out years of legislation and programs.
“We’d like to have as much flexibility as possible; the question is how much that’s going to happen.”
Also these bad numbers are reliant on the eventual agreement by the state to raise tax.
“The other thing I forgot to put on here is that all of these plans are dependent on new taxes. The Republicans who are the minority, but hold the swing vote, their stance is no new taxes.”
One proposal is to cut the school year by five days. Right now the requirement is for 180 days, this would cut it to 175 days. According to Mr. Colby, that would save the district around $1 million for the five days in staff compensation alone.
Linda Legnitto of Yolo County Office of Education was asked about the County’s fiscal condition.
“We are as dependent on the state revenue as the districts. In fact, I put a spending freeze in place a month ago to try to conserve our cash, in a worst case scenario, just in case the state defaults on their apportionments that we could possibly make it through the year. I’ve also had some preliminary discussions with the County of Yolo, but if you’ve read anything about their budget it’s unlikely that they are going to have sufficient revenue to really make loans either.
Once again, she laid out how bad things look:
“The state budget crisis is very real. A $40 billion deficit is nothing to take lightly. Traditionally schools base their budget projections on the Governor’s January proposal. In this his may be the best case scenario. If in fact no revenue is included in the budget solution the cuts would be greater than what he has proposed. You have to prepare for that. And unless they actually give zero COLA, you have to reach that March 15 deadline. Traditionally they give the COLA and then deficit it back to zero. That is to your benefit because when they do that, that COLA is eventually restored. It’s an obligation for the state to bring Prop. 98 back up to that at some point. If they actually give zero, it’s never restored.”
The bottom line here appears to be as follows. First, the uncertainty of the budget situation is probably worse than the actual budget. But if the current proposal is the best case scenario, we are not going to have a good time this spring.
Second, the district is in far better shape than last year. I will say that members of the Davis Schools Foundation were at the meeting. They will be working hard again to raise money, but it is a very different economic climate than a year ago.
Bottom line, it looks like no matter what, the district will be fine this year as long as the state does not start giving schools IOUs. If they do, I do not know what happens. It would be devastating. Hopefully we do not find out what happens. Next year, it looks like if the state gives the districts categorical flexibility, and if the state perhaps cuts the number of school days by five (which is not a good thing but perhaps necessary), the district should be able to use that $4.4 million to soft land us. If that scenario pans out, then we can plan for another $2 million for 2010-11 and hopefully get us through this crisis relatively unscathed.
However, that rosy scenario depends heavily on the state getting a budget passed and fixing the $40 billion hole before it gets worse and it depends on them not defaulting on money to schools.
—David M. Greenwald reporting