News: Budget, critical cash flow news, and pension update
Friday marks the constitutional deadline for the Legislature to adopt the 2012-13 budget. While historically a trivial date, with the passage of Proposition 25, the deadline now requires a budget to be passed by the Legislature for lawmakers to continue to receive salary and per diem payments. (This doesn't require the budget to be signed by the governor and enacted, however.)
For those of you who have been following the community college budget story for years, you may wonder why there is so little information. Frankly, the "Post-Proposition 25 world," which at least for now makes the budget a purely partisan exercise, means a lot more decisions are made behind closed doors. League staff has been in the Capitol daily, and depending on who you talk to and when, the budget predictions can be very different.
What we know so far is that the Legislature has rejected proposals to make the entire community college funding formula, including categorical funding, flexible. We also believe that there is willingness in the Legislature to adopt a "positive trigger" that can make programmatic investment in community college access and success, while still paying off some deferral "debt," in the event the tax measure passes.
Saturday brought a new Field Poll on the governor's compromise tax measure. The poll found 52% of registered voters supporting it, 35% opposing, and 13% undecided. I'll be candid that, particularly with a registered (rather than likely) voters poll, the support number is not cause for optimism.
The Legislature and governor are about $2 billion apart on proposed cuts to CalWORKs, In-home Supportive Services, Child Care and Cal Grants, although I expect a resolution to the disagreement by the end of the week. In the end, the Legislature may include more optimistic revenues and a lower reserve, leaving the governor to decide what to veto.
Cash Flow Uncertainty
We also received word late Friday that the governor's Department of Finance is seeking major changes in cash payments to schools and community colleges this year. This is part of the contingent spending and "triggered" cuts for schools that are associated with the November tax measure.
The Department of Finance's maneuver ensures that there is enough money to cut schools and community colleges the $5.9 billion "trigger cut" that would be the difference between the amount expected to be appropriated in this week's budget and the cuts proposed if the ballot measure fails.
For community colleges, the new cash flow and intra-year deferrals plan would provide community colleges between $577 million (-33.5% -- ballot measure fails) to $717 million (-41.7% -- ballot measure passes) less in the first seven months of the year (through January) than we received in through January of the current fiscal year. The amount is greater if the ballot measure fails because of a balloon payment of proceeds of the tax measure in June 2013.
I'll be candid that the cash flow plan worries me deeply. As you see in the above chart (available here if it doesn't show in your e-mail - source data (2011-12/2012-13)), the Department of Finance proposes providing schools and community colleges $8 billion in June 2013 compared to $1 billion in June 2012. This is because the anticipated revenues from the governor's tax measure, if successful, are not expected to come in until April's personal income tax deadline.
What worries me is, even if the tax measure passes, that if the new tax revenue generated does not meet expectations, the state may not have enough cash to make that large June payment. Similarly, if the tax measure does not pass, the state may be short on cash even with the triggers. And, the Legislature may be unwilling to accept the $2.4 billion in trigger cuts proposed to shorten by three weeks the current K-12 school year and may look to other areas of the budget, including community colleges for deeper cuts.
The League is helping seventeen districts with cash flow needs through our tax and revenue anticipation notes (TRANs) pool, and we will likely facilitate mid-year borrowing as well. This year is perhaps more important than ever to ensure that your cash flow is secure early, particularly with the uncertainty of the global markets and the market response to decision by voters on the tax plan in November.
It is essential that local districts recognize the imperative to meet contractual and financial commitments amidst this uncertainty. While disappointing because it means fewer services to our students and communities, the cash flow uncertainty may require more conservative than ordinary operations through the fall until the outcome of the November ballot measure is known.
STRS Post-Retirement Employment Update
As you may know, the ability for employees who retire under the State Teachers Retirement System (STRS) to accept employment would be significantly curtailed on July 1. Current law allows for employees to work up to $31,020 per year, and many retired faculty and academic administrators continue to be of service to community colleges after retirement.
We believe there is a breakthrough as the July 1 "sunset date" approaches via AB 178 (Gorrell and Ma). While the bill has not been amended into the current agreement yet, we believe it will address some of the biggest concerns facing education employees. Most importantly, the ability for retirees to continue to work appears to be agreed to, with a maximum compensation at one-half the median compensation of all employees who retired from STRS the previous year (believed to currently be $40,000-$44,000).
Stay tuned, as it is going to be a very busy couple of weeks!
President and Chief Executive Officer, The League
Orange Coast College '94
Release Date: 06/12/2012
Contact: Juan Gutierrez , Director Public Relations
Phone: (626) 585-7264