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Published in Print: September 17, 2008, as California Schools Squeezed in Fiscal Vise

California Schools Squeezed in Fiscal Vise

California Senate President Pro Tem Don Perata reacts Sept. 8 during debate over a Republican plan for the state’s budget, now more than two months late. Senate Democrats later defeated the GOP proposal.
California Senate President Pro Tem Don Perata reacts Sept. 8 during debate over a Republican plan for the state’s budget, now more than two months late. Senate Democrats later defeated the GOP proposal.
—Photograph by Rich Pedroncelli/AP

Fallback Plans Readied Amid Budget Stalemate

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The failure of California lawmakers to enact a budget more than two months after it was due has schools operating in what one official called a “very bizarre, unknown place” and contemplating drastic steps to cope with the fiscal crisis.

Without a state budget, districts will have to do without more than $3 billion for programs such as special education, remedial and gifted instructional programs, professional development, and school transportation.

In anticipation of a funding cutoff, some districts already are canceling bus routes, increasing class sizes, raising school lunch fees, and dipping into reserve accounts to operate schools.

Payments for certain targeted programs—including child-care centers—have been put on hold because of the stalemate between Democrats and Republicans in the legislature over how to make up a $15.2 billion deficit in the $101 billion state budget.

See Also
See other stories on education issues in California. See data on California's public school system.

If a budget is not enacted soon, schools, hospitals, and other human-service agencies will have lost a total of more than $12 billion since the new fiscal year began on July 1, state Controller John Chiang has announced. Although the agencies may get some of that back once a new budget is passed, the amount would depend on what shape the final fiscal 2009 package takes.

The situation is likely to create cash-flow problems for some districts and force others to consider borrowing money to cover their expenses.

“People are planning for the worst and hoping for the best,” said Scott Plotkin, the executive director of the California School Boards Association. “On our advice and others’, they are spending very conservatively because we don’t know what the final numbers will be.”

The crisis has consumed the attention of state and local officials for months, and even generated a threat by the California Correctional Peace Officers Association last week to seek the recall of Gov. Arnold Schwarzenegger.

Education officials, including state Superintendent Jack O’ Connell, initially supported a conference committee bill in July that restored much of the $3.9 billion in cuts to education that the governor proposed in May for fiscal 2009. But that bill stalled in both houses of the legislature, failing to receive the two-thirds vote in each house required by law.

The Republican governor, in August, then recommended a compromise plan that includes a temporary 1-cent increase in the state sales tax, bringing it to 8.25 cents on the dollar. His compromise proposal included an additional $2 billion in statewide spending cuts on top of the $10 billion recommended by the conference committee.

Gov. Schwarzenegger’s August plan also called for a permanent quarter-of-a-cent reduction in the sales tax after three years.

Senate Democrats then tried, but failed, to pass their own version of a budget plan that included the tax increase, but did not include the later rollback. As a result, Republicans in the Senate rejected it.

The Senate plan also included a large “rainy day” fund that could grow to as much as 12.5 percent of the state’s general fund and give greater authority to the governor to make midyear spending cuts if revenue decreases in the future.

Meanwhile, the Senate last week defeated a Republican budget proposal—opposed by the Republican governor—that relied more heavily on cuts and borrowing to close the deficit.

State affiliates of the American Federation of Teachers and the National Education Association also criticized the plan.

David A. Sanchez, the president of the California Teachers Association, a National Education Association affiliate, said in an Aug. 30 statement that the plan was “filled with smoke, mirrors, and risky borrowing schemes,” and “would be a disaster for students, public schools, and colleges.”

District-Level Impact

Gov. Schwarzenegger says he remains hopeful that his plan will get consideration.

“What I have proposed is truly a compromise budget, because it includes elements that both parties want but also requires that everyone come out of their partisan corners and give something up—myself included,” he said in a Sept. 8 statement.

Districts, meanwhile, have to pass their own budgets without knowing how much they will receive from the state for the fiscal year. The uncertainty has led to a number of pre-emptive budget decisions.

While most of the more than 14,000 California teachers who received pink slips in March were ultimately not laid off, Mr. Plotkin said it’s likely that many are working on “temporary contracts.”

While state law provides districts with another deadline by which they can cut positions before the beginning of the school year, that would have required the state budget to be adopted by Aug. 15.

In addition to public schools, state-financed preschool classrooms and other child-development programs operated by child-care centers are not receiving payments as long as the budget impasse continues.

“There are 792 child-care agencies across California, and these centers provide a range of services to about 500,000 children, but without a budget in place, we do not have the authority to pay these agencies for services rendered,” Mr. O’Connell said in a press conference in July.

He added that while such agencies are encourage to have reserves, “it is difficult for agencies to manage the fiscal burden of operating a program over an extended period of time with no income to cover costs.”

Credit Crunch

Many child-care and preschool providers are used to having to get short-term “bridge” loans when budgets are delayed, but restrictions from banks on borrowing have increased because of the recent credit crunch, said Sandra Giarde, the executive director of the California Association for the Education of Young Children.

Some agencies she knows of were able to secure funding for July and August but expected a state budget to be in place by September. The delay has her and other advocates worried.

“Many of these centers who were already on the financial brink of disaster are going to go over the side,” said Dennis Vicars, the president of the Sacramento-based Child Development Policy Institute, an advocacy organization. “We’re not going to get a lot of those schools back. Those centers are going to be closed.”

Mr. Plotkin, of the state school boards’ group, predicted that most districts won’t run out of money this school year, but that they will have “depleted their reserves.” If the economy doesn’t improve, “it’s next year that people are worrying about,” he said.

While the late budget has overshadowed most other policy matters this year, the state was able to take a step toward continuing to improve its student-data system, a move that researchers and other experts have repeatedly warned is necessary if the state is going to accurately target students’ instructional needs.

Vol. 28, Issue 04, Page 16

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