Adjust Text Size

CASBO Home >  Advocacy > NewsBreak >

Copyright 2009 California Association of School Business Officials
2009-25

State crisis worsening
May 11, 2009
By Dennis Meyers, CASBO Assistant Executive Director, Advocacy & Policy

Signs of further deterioration of the state’s General Fund arose again Thursday with a new report from the legislative analyst regarding cash flow. The analyst summarized the worsening cash position of the state in a 16-page report of bad news.

Remember the good old days, two months ago, when the 17-month budget was adopted and the state’s cash position improved so much that the State Controller began paying bills again and the state Pooled Money Investment Board began releasing school construction money? The pendulum is now swinging back the other direction with a vengeance

For starters, what appears on the surface to be good news for the current year really is just a precursor to the rapid decline in the solvency of the state. While the state will end 2008-09 with $6.9 billion in what is called a “cash cushion,” that cushion is all in borrowable cash and represents no money being available in from the General Fund. That’s a huge turnaround from 2005-06 when the state ended the fiscal year with a cash cushion of $21 billion.

Once the state passes into July, however, the real cash crash begins. Recent revenue projections show that the state General Fund is going to be at least $8 billion short in 2009-10 based on the February budget. If the May 19 ballot measures all fail, the 2009-10 budget deficit could grow another $6 billion beyond that. And, if you add in the current year revenue shortfall of $2 billion to $3 billion the state could easily find itself $20 billion short in 2009-10. Even if the ballot measures all pass, the analyst’s report projects that in November, the state’s cash position could be a negative $11 billion.

Where does the state go to address its cash crisis? There aren’t that many options. In reality, the options are revenue increases, borrowing, spending cuts and payment deferrals. New revenue above what was adopted in the February budget will be very difficult to find given the political environment in the Capitol. Borrowing from the federal government will likely come with strings attached that state officials will not like. Borrowing from private investors is a likely option but will be expensive and limited to what the market will be willing to loan the state. Spending cuts and payment deferrals are a very likely option that will be looked at by legislators and the governor.

Where does this leave schools?

With the state’s cash crisis deepening, there is going to be even more pressure for the state to take the path of least resistance in order to ensure that the bills get paid. And as tough as we know it is going to be to get a two-thirds vote on additional revenue, the easiest path will be cuts and deferrals.

For schools, with a Proposition 98 guarantee dropping at least $3.6 billion in 2009-10 and the insatiable desire of legislators to lower funding to the guarantee, one can almost count on an immediate cut equal to about $600 per student. While that reduction will help the state’s cash flow throughout the fiscal year, it would do little to address the cash problem that the state will face between July and November. With that, we can count on the Department of Finance and legislators to be looking to schools for more deferrals. The legislative analyst isn’t shy about suggesting deferrals as an option. So while the state will be looking to balance its budget, it will also have the added burden of addressing its cash flow needs as soon as possible.

With the worsening budget deficit and cash crisis, schools must position themselves to survive not only through 2009-10, but even a couple of years beyond as it will take that long for California’s fiscal situation to start looking better. Remember, included in all of this bad news for 2009-10 is the likely prospect that the propositions on the May 19 ballot fail and $12.2 billion in revenue begins to sunset after the next fiscal year. Schools must continue to be diligent in:

• Managing cash flow: expect additional deferrals of apportionments and plan to mitigate those deferrals by maximizing the size of TRANS and reserves.
• Managing personnel: May 15 is a couple days away and there is incredible pressure to pull back pink slips issued to certificated personnel. LEAs must monitor and understand cash flow position through 2009-10 before making commitments to staff.
• Understand allowable uses of the one-time federal stimulus money: proceed cautiously when planning uses for the federal stimulus money. While the Obama administration has said that a priority use of the money is to save jobs and avoid layoffs, there are also allowable uses stated in the guidelines that could help mitigate other cuts and protect cash flow. It isn’t going to do anyone a bit of good to pull back a pink slip if there isn’t going to be enough cash available in 2009-10 to make payroll.

We’ll keep you posted.

All CASBO NewsBreaks are posted on the CASBO website at www.casbo.org. The legislative status indicated for the bills in this report reflect the location of each of these measures as of the day the report was posted. To get up-to-the-minute status of bills including additional information on bills, bill text, analyses, legislative vote records, and veto messages, log on to the state’s Official Legislative Information website at www.leginfo.ca.gov. For other questions regarding topics covered, you may contact Dennis Meyers, CASBO Assistant Executive Director, Advocacy and Policy, at dmeyers@casbo.org.