A Bumpy Ride for Public Education

What a year it has been – for our nation, state…and local school districts.

As we begin the new school year, district leaders are once again discussing the need for budget reductions and salary concessions, as though last year’s cuts made little or no dent in ongoing structural deficits.  How is it we are right back in the same place again?

Let’s  take a moment to better understand how school districts are impacted by the fiscal tsunami that hit our economy and state budget.  We will also assess the risks for additional reductions and see how public education fares compared to other spending areas in the state budget process.

The 2008-09 Crash

In the broadest sense, the explanation of the fiscal crisis facing our state and school districts must begin with an understanding of California’s extraordinary decline in General Fund revenues. One year ago, though far from rosy, California’s fiscal picture seemed more manageable. While there were emerging signs of a modest economic slowdown, in August the Department of Finance predicted that overall state revenues would increase slightly in 2008-09: $101.2 billion to $102 billion.

Then in October 2008, the housing bubble burst, our nation’s financial markets were turned upside down, and the Dow Jones Industrial Average started a slide that eventually resulted in a loss of over 40% of its value, declining from 11,400 (September 2008) to 6,500 (March 2009).

Most significantly, California General Fund revenue estimates for the 2009-10 fiscal year declined by 25%  -  $102 billion to $78 billion  – and the state’s two-year structural deficit went from $24 billion to $67 billion in a matter of months.*

California’s Response

Our Governor and Legislature responded to this fiscal emergency with two (February and July) budget corrections that provided a total $60 billion in solutions, including $31 billion in one-time and ongoing spending reductions.

Budget reductions to K-14 education came to just over $15 billion representing  48% of all budget cuts, despite the fact that K-14 spending represents only 40% of total budget expenditures.

A closer look at these cuts to K-14 education reveals the following:
• $5 billion (about $850 per student) in ongoing cuts to core classroom funding
• $4 billion in one-time reductions to core classroom and categorically funded special programs
• $6 billion in unfunded cost-of-living-adjustments (COLA) and deferrals

The 2009-10 School Year

The result of this national and state budget crisis is that California school districts started the current school year with, on average, $850 less per student than they received at the beginning of the 2008-09 school year.

In addition to these real year-to-year reductions, schools will not receive an expected 4.25% cost-of-living increase (approximately $260 per student) to cover fixed operating cost increases for utilities, employee health and benefit costs, property and liability insurance, as well as automatic step and column compensation increases provided to most employees. This will be the second year that no such cost-of-living adjustment has been provided to California school districts, despite the fact that their costs continue to rise.

Finally, in order to manage its own lack of cash, California is deferring payment of an additional $5 billion ($830 per student) owed to K-12 schools in the 2009-10 year into 2010-11.  This means school districts are receiving temporary IOUs rather than cash for some of this year’s apportionments from the state.

The Outlook

When he signed the latest budget correction package in July, Governor Schwarzenegger indicated “California’s budget situation is likely to remain challenging for some time because the state’s recovery, when it comes, will not be as robust as in past years,” and that many of the budget solutions used to address the budget crisis were “one-time, or of limited duration.”

The Governor acknowledged that further budget reductions may be required when he stated, “…preliminary revenue projections for 2009-10 suggest that the state will face a significant budget shortfall; perhaps in the $7 to 8 billion range, with even larger shortfalls projected in out-years.”

Since July, California has failed to see any real signs of economic recovery. In its most recent monthly Budget Update and Cash Report (issued in mid-September), the Department of Finance reported that overall General Fund revenues through the first two months of the fiscal year were $144 million or 1.3% below the estimates used to build the July budget.

Education: How Does It Fare Compared to Other Budget Sectors?

A close examination of budget expenditure decisions made by the California Legislature over the past decade shows that spending on K-14 education has not kept pace with all other major budget sectors. As mentioned above, K-14 education was given almost half of the $30 billion in spending reductions made by the Legislature since last September, though it represents only 40% of General Fund spending.

When comparing education spending to other budget sectors over the past decade, there is clear evidence that K-14 education, despite the strong support it receives from taxpayers and voters, has never been a high priority of Governors or the State Legislature. Since 2004-05 (Schwarzenegger administration), spending increases provided to K-14 education (7.2%) have been less than overall General Fund revenue growth (15.8%) and less than all other non-education spending (11.9%.)

Since 1998-99 (Davis and Schwarzenegger administrations) spending increases provided to K-14 education (43.2%), once again, have been less than overall General Fund revenue growth (57%) and all other non-education spending (71%) in the same time period.

The Bottom Line

What does this mean for our students?  Given that Sacramento has consistently sacrificed public education to other budget priorities, there is little reason to think that schools will be held harmless in the next round of cuts that are almost certain to come.  Prudent districts are planning now for reductions in 2010-11, acknowledging even as they do, that we may not yet know the full extent of the damage they will be called upon to manage.

Fasten your seatbelts, it’s going to be a bumpy ride.