Over the last week, we have provided you with a lot of analysis on the impact of the state budget directly on our colleges, but there are some nasty details in another part of the budget that will hurt our students.
The governor’s budget proposes to cut Cal Grants by $302 million, and proposes to use $736.4 million in federal welfare funds for the program, reducing the amount of funds available for the social safety net.
Specifically, the major changes include:
Increase minimum GPAs
- impact: $131.2 million; 26,600 students
- Cal Grant A: raise GPA from 3.0 to 3.25
- Cal Grant B: raise GPA from 2.0 to 2.75
- Cal Grant Community College Transfers: raise GPA from 2.4 to 2.75
Reduce grants for students attending independent, non-profit institutions to the California State University maximum.
- impact: $111.5 million; 30,800 students
Reduce grants for students attending private, for-profit colleges to $4,000.
- impact: $59.1 million; 14,900 students
For community college students, we are most concerned about the changes to the GPA changes for Cal Grant B and Community College Transfers, and the cap on grants for independent, non-profit institutions. The reductions would eliminate about 30% of Cal Grant entitlement recipients. Most of these are community college students, with an average parental income of $19,184, who receive the grants to buy books and assist with living expenses. They are disproportionately African-American and Latino students.
The governor’s budget cites the increasing costs of the Cal Grant program for the need to dramatically change eligibility. Doesn’t that sound familiar? We have fought several battles to eviscerate Pell Grants at the federal level because record enrollments and skyrocketing fees are making students eligible for more aid.
Let’s be clear that this isn’t really about eligibility, but the consequence of a decade of disinvestment from higher education and a great recession that has citizens turning to education in place of non-existent jobs. And, the enrollment bubble was fully expected–this is the Tidal Wave 2 for which we were supposed to prepare.
Even under the rosiest budget scenario, the Cal Grant program will likely take some cuts. The proposed cuts, however, go too far and will eliminate access to many of our poorest students, both while they are studying in our colleges and after they transfer to a four-year institution. We will aggressively fight these cuts.
The Chancellor’s Office and the League are teaming up to conduct a webinar on the proposed 2012-13 state budget at 1:00pm today, January 11, 2012. Anyone can join by visiting www.cccconfer.org.
We will be using this presentation in the webinar.
Some of my best mentors have reminded me to "sleep on it" before responding. After a few hours of shuteye, here is a little more information on the state budget and its impact on community colleges.
The big picture
The state’s economy is improving, and much work has been done to reduce the structure deficit. Instead of a double-digit structural shortfall, we are down to $5.1 billion. Additionally, we are carrying into 2012-13 a $4.1 billion deficit from the 2011-12 (current) fiscal year. So, the starting point deficit for next year is $9.2 billion. Absent policy changes, that deficit dwindles to $1.9 billion by 2015-16.
The spending plan has $2 billion in combined cuts to CalWORKs, Medi-Cal and In-home Supportive Services, as well as deep cuts ($300 million) to Cal Grants, mostly to students attending proprietary and nonprofit colleges.
The governor’s tax plan
To address the structural deficit, the governor has proposed a temporary increase in the sales tax and personal income tax rates on higher income earners. According to the governor, this would bring in $6.9 billion in 2012-13. While earmarked for the "Education Protection Account," the increased revenue will only increase the Proposition 98 guarantee by $2.4 billion. The remainder of the new tax revenue will supplant existing Proposition 98 general fund dollars, making them available for new purposes.
The tax increases would be considered by the voters at the November 2012 general election.
The "triggers"
If the voters do not approve the tax plan, the governor proposes $5.4 billion in automatic cuts. Of these, $4.8 billion would be to Proposition 98 funding for schools and community colleges. While the guarantee would only drop by $2.4 billion, the governor proposes an additional back-door cut by shifting $2.6 billion in non-Proposition 98 general obligation bond debt service for schools and community colleges into the guarantee. This would allow for an additional $2.6 billion in cuts to schools and community colleges.
The community college budget
The governor proposes the following budget increases for community colleges, if the tax package passes:
- $218.3 million to partially "buy back" the accounting deferral on the state’s books. This would provide no additional program funds for community colleges in 2012-13, but could reduce district borrowing costs.
- $12.5 million to establish a block grant to reduce the backlog of state reimbursable mandates to community colleges
- additional accounting adjustments for shortfalls in student fee revenue and property taxes
Categorical flexibility
The governor proposes a massive overhaul of K-12 and community college categorical programs. For community colleges, this would take all eighteen categorical programs–from the smallest, the statewide Academic Senate, to the largest, EOPS–and place them in one block grant of $411.6 million.
Now, before you jump on the bandwagon, jump up and down screaming, or jump off a cliff–based on your perspective–we have not seen the language to implement this flexibility. Since the budget was released early, the budget bill language that we ordinarily see the day after budget introduction is not yet available. The governor’s budget summary provides:
The Budget proposes to consolidate nearly all categorical programs and provide flexibility to CCC to use “flexed” funds for any categorical program purpose. This proposal will improve student access and success and will provide the colleges with more local control, flexibility, and decision-making authority. The Administration will review the recommendations of the forthcoming Student Success Task Force report and explore other possibilities for expanding flexibility—including fee policy changes and loosening operational restrictions—for inclusion in the May Revision.
The triggers and community colleges
If the voters do not approve the temporary taxes, the community college budget would likely change as follows:
- The $218.3 million in new money for the "buy down" of the deferral would be cancelled.
- The $12.5 million in new money for the mandates block grant would be cut.
- An additional unspecified base cut of $300 million would also likely occur, as the community college share of the $2.6 billion in existing Prop. 98 money is used instead for general obligation debt service.
Thus, the total "at stake" for community colleges in the November tax plan is essentially 11% of $4.8 billion, or over $525 million.
*While the governor’s documents discuss the $2.6 billion cut as "equating" to a three-week reduction in the K-12 school year, it is very likely that community colleges will be expected to share in the reduction proportionate to their share of the guarantee.
Where are we?
This is my eighteenth state budget and I know to neither panic nor get too excited upon the opening salvo. The governor has met the legal responsibility of proposing a balanced budget. He has done with fewer gimmicks than we have been accustomed to and now it will be considered by the Legislature.
Republicans are going to balk at the tax assumptions in this budget and Democrats will be hard-pressed to support the deep cuts to health and human services programs, particularly given the election year.
Clearly, elements of this plan are problematic for community colleges. Does it really make sense to send the $338,000 used to support the statewide Academic Senate to 72 districts and then ask them to send it back up to maintain the state office, which has many legal functions? What about categoricals that make us eligible for matching funds or are locked up in district-specific contracts? Does it make sense to use almost all of the new money to "buy down" an accounting deferral, or would voters be more interested in supporting the temporary taxes if they knew community colleges would be able to serve more students?
There are lots of questions, and we will have time to have a dialog and advocate for the smartest plan possible for community colleges.
The Legislature returns on Monday for a four-week sprint to the end of session. While we don’t anticipate budget will be a serious subject of the session, members will certainly be talking about the bad news that came out yesterday–July revenues were $539 million below forecast. And, that was before the stock market turmoil that we have all been watching.
For this reason, we advise community college districts to prepare for mid-year cuts totalling $127 million, which is a deficit to the general apportionment of about 2.3%.
This accounts for the Tier 1 cuts ($30m), the Tier 2 cuts ($72m) and the anticipated structural apportionment shortfall of ($25m). While the former two are specified in the budget trailer bill, the latter could vary up or down, although is highly likely to be at least $25 million. This also assumes that we are successful in our efforts to change the student fee increase to summer 2012 to minimize enrollment disruptions and administrative burdens on the districts.
Now, into the weeds…
In July, the state’s corporate taxes came in $69 million (-19.3%) below forecast, sales taxes came in $139.4 million (-12.5%) below forecast. While personal income taxes came in $89 million (2.9%) above forcast. The bulk of the "miss" in July’s numbers was in "other revenues," mostly from city’s delaying the forfeiture or "ransom payment" of redevelopment funds. Thus, the headline number of July is illusory, although the underlying economics call the state’s anticipated revenue into serious question.
Personal income tax (PIT), even with the January 1 sunset of the temporary tax surcharge, outperformed collections in July 2010. However, non-agriculature employment was only up 1.1% between June 2010 and June 2011, which is not enough to explain the surge in PIT revenues. Rather, the revenues are largely a function of large wealth generation in the stock market and the high-tech sector. With the latest market roller coaster, this may not be sustainable, and we might actually have to "give back" some of that money if people decide to swap out capital gains for capital losses taken over the last week. As of right now, the market is off 14.8% from its spring highs.
While the market will bounce around, it is the uncertainty of the roller coaster that will likely hit California and will cause the budget triggers to be pulled when the $4 billion in new revenue doesn’t come in. Most of that $4 billion was speculative revenue that assumed that Facebook, Twitter, Zynga and a handful of other California-based high tech companies would go public this fall. However, in a market like this, all of these companies are reconsidering their plans and will push off their IPOs to the spring or even next fiscal year. The later in the state’s fiscal year an IPO occurs, the less likely the state is to receive PIT revenues from the IPO. (Insiders and venture firms are often prohibited from selling as part of the IPO contract with underwriters.)
Meanwhile, the non-tech economy and regional economies away from the Bay Area are in bad shape. The housing market continues to be abysmal with all three major indicators–median home price, sales, and new units–all down from a year ago. We are in a modest recovery, although the uncertainty of the stock market is shaking consumer confidence and is causing economists to bring up the most feared phrase–"double-dip recession."
In community colleges, it’s painful to prepare for another round of cuts. However, if we plan early for the 2.3% cuts that we know about, it’ll be much easier than a January surprise.
As expected, the Legislature passed the 2011-12 state budget last night in a majority-vote deal hammered out between the governor and Democrats. The spending plan for community colleges is as I wrote in yesterday’s e-mail.
We have posted new budget scenarios and district impacts reflecting the adopted budget.
It could have been much worse. In the "all cuts" scenario, we would see a $502 million reduction in general fund money. During the six-month budget fight, a cut as high as $900 million was discussed.
That said, the budget adopted last night cuts $1.7 billion from higher education, on top of the deep 2009-10 cuts. If the optimistic tax projections don’t come through, another $302 million would be on the chopping block. The California that I have grown up in and deeply love is not one that cuts higher education by $2 billion ever, let alone in one year.
When I graduated from UC Davis School of Law in 2000, fees were $10,000 per year. The fees for this fall are scheduled to be $45,000, and UC said yesterday that fees will go up further with the additional cut added to last night’s budget. I’ll be honest–I wouldn’t be in this job if I paid fees (accrued debt) like that, and fewer law graduates are looking to public interest and public service.
It is highly likely that the "Tier 1" cuts will be triggered, meaning a $30 million cut and a fee increase to $46/unit effective January 1. Regardless of your position on community college fees, you have to admit that it is absurd to ask students to come up with $150 after they have already registered and that it will be an administrative nightmare. Tens of thousands, if not hundreds of thousands, will likely demand refunds and walk away from their education.
In the short term, better days are ahead in California. The budget is much closer to balance. However, our priorities have fallen out of whack. Our long term viability as a vibrant and diverse economy that provides access to quality jobs for a cross-section of the population is seriously threatened by this divestment from higher education. In fact, most of the new projected tax revenues, if they materialize, will be from income from technology IPOs and directed to a mostly white and already wealthy segment of our population.
For now, thank you for your advocacy throughout the year, and let’s prepare for some larger fights next year to get California back on the right track.
The Assembly and Senate are expected to come in at 3pm and 4pm respectively to vote on the deal hammered out between legislative Democrats and the governor. As I wrote yesterday, the plan doesn’t increase taxes but projects $4 billion in new tax revenue associated with the economic recovery and expected initial public offerings of several prominent California companies. If the revenue does not come in, tiers of cuts would be enacted depending on the status of the revenues.
We fully expect enactment of the budget this afternoon or evening.
Here’s what we know for community colleges:
- Tier 0 (at least $3 of the $4 billion materializes): No cuts
- Tier 1 (between $2 and $3b of revenue materializes): $30 million apportionment cut, backfilled by an increase in fees of $10, to $46/unit
- Tier 2 (between $0 and $2b of new revenue materializes): Tier 1 cut and fee increase PLUS a $72 million additional apportionment cut (workload reduction assumed)
Obviously, the fee increase is a policy and practical nightmare. By the December 15 trigger date, many students will have already enrolled for spring term. We will work to fix this after the budget is enacted, even though it’s likely we will have to take the $30 million cut somewhere else.
The budget also assumes the $400 million apportionment cut, offset by $110 million in student fee revenue originally proposed in January, as well as the new $129 million deferral from spring 2012 until October 2012. We are working to make a technical adjustment to that deferral to assist districts in audit compliance.
We’ll keep you posted, and we’re regularly tweeting developments at twitter.com/ccleague.
Be flexible and prepare for rapid change.
That will be one of the ten advocacy points I give attendees at the Future Leaders Institute tomorrow. Only a few hours after talking to the Legislature and governor’s office about the need for advocacy on “Plan A” and asking you to hit the phones, Plan B has emerged.
At this hour, Democratic leaders and the governor announced a plan to approve a majority-vote budget that gives up on Republican budget votes and a vote to extended taxes. Instead, the plan likely to be voted on tomorrow will replace a handful of the more “creative” solutions included in the Democrats’ June 15 budget with higher revenues assumed with the state’s economic recovery. If the revenues do not materialize, $2.6 billion cuts to K-12, higher education public safety and in-home supportive services would be triggered.
While details are not being shared at this point, it is likely that the community college “risk” of the lower revenues could be around $150 million, or essentially moving community colleges from Scenario A to closer to Scenario B. We’re likely to have more details later tonight or tomorrow and we’ll post them to our Twitter stream at twitter.com/ccleague.
While the deal may leave us with a signficant out-year budget problem if the revenues either don’t materialize or are one-time (such as from a series of expected tech IPOs), it is much better than any of the “all-cuts” scenarios that have been considered throughout the year. Additionally, it is expected that initiatives will be put on the ballot next year to bring the long-term budget into balance unless revenue.
Again, thank you for your advocacy. It’s certainly not a “good” budget, but one that allows us to live to fight another day.
Good morning from Baltimore, where I’ll be sharing all your great advocacy efforts, and how they have helped our community colleges in California, at the American Association of Community College’s Future Leaders Institute. While at times it is difficult to measure our successes, we have had a lot of practice, and trust me, things could be a lot worse (and are in most states and among our UC and CSU brethren).
Nevertheless, now is not the time to rest on our laurels. The next five days could mean $2.5 billion over the next five years for community colleges, and deep, devastating cuts to the University of California and California State University systems that large numbers of our current students are counting on to complete their studies. We have one last shot at a balanced budget approach, or we’re likely going to see a mostly cuts budget.
I know you have wrote letters, made phone calls, and even visited your legislators’ offices. However, as typically happens down the budgetary stretch, things have gotten awfully quiet in the Capitol. But, with the suspension of pay to legislators, this year is like none other before, and we fully expect a budget, some budget, by the end of the week.
Will you join me and our counterparts in higher education in making one more advocacy push for a balanced approach?
We’ve made it easy, and you can make a huge difference by giving us 15 minutes of your time. If you can’t do it from work, how about using the commercials time during The Bachelorette tonight? It’s a two-hour show, so that’s LOTS of commercial time!
Again, thank you for your advocacy. While it has been fantastic during this six-month budget campaign and has likely taken the worst cuts off the table this year, significant threats remain and are almost certain to be resolved this week.
Despite widespread rumors that the governor was going to release a majority-vote budget alternative, his spokesman now says that such an alternative will not be released today.
The governor appears to be holding out on releasing his Plan B all-cuts budget to see if the $400/day average hit to each legislator forces a deal.
However, Republicans that had been negotiating with the governor for a tax election seem to be weaker in their interest than they were two weeks ago amidst a dramatically changing political environment (redistricting and top-two primary). The governor also probably doesn’t want to release an all-cuts budget that will only be criticized by the left, the right and the media as draconian.
As I wrote yesterday, there’s a legitimate $5 billion problem if you accept most of the Democrats actions with the "gimmicks" (i.e. state building sales, "single flip") stripped out.
That’s a lot of cuts for legislators to stomach and the governor can’t expect Republicans to jump to support an all-cuts budget.
And, with a majority of legislators hoping to win higher office as early as next year, they might just be willing to eat mac and cheese for a few weeks of forfeited pay rather than vote for all cuts (Democrats) or tax revenues (Republicans). Reporters are now reviewing legislators Form 700 Statements of Economic Interests (look up your member’s) to figure out who can hold out and who can’t.
Stay tuned to the League’s Twitter feed for the latest.
All eyes will be on the Senate when it convenes at noon today to see if Pro Tempore Darrell Steinberg provides any hint of what will happen next in the effort to reach a state budget. There were no developments over the weekend, although the backchatter was mostly about whether or not Controller John Chiang will pay legislators when June 30 payday arrives.
Chiang did announce that he has ceased weekly per diem checks until he decides whether the Legislature has "passed" a "balanced" budget pursuant to Proposition 25. KQED’s John Myers has a great rundown if you want to read more about this. If, like me, you’d prefer to listen while you’re on the treadmill, Myers teamed up on Friday with LA Times reporter Shane Goldmacher and SacBee reporter Kevin Yamamura for his weekly podcast (also on iTunes).
Let’s take a reset of the budget fight.
Democrats on Wednesday replaced the governor’s $9.4 billion in temporary tax extensions with a mix of cuts, deferalls and smaller tax increases. Some of these are "easy," such as the new $2.8 billion in Proposition 98 that was in the January budget and generally planned on by K-14 school districts. Others, however, such as selling state buildings and assuming new federal revenues, have been tried repeatedly and are essentially considered budgetary paste.
Taxes are essentially off the table for calendar year 2011, as there is no political appetite for a September election, the governor already dropped the personal income tax extension for this year, and you can’t retroactively collect a sales tax approved in a November election. Even in the most optimistic scenarios about a tax extension, at least $3 billion in solutions have been lost.
Thus, the "real" shortfall, assuming you continue the K-14 deferrals and can’t get the taxes, is about $6 billion. This shortfall can be whittled down by $815 milion, or let’s say $1 billion, by increasing revenue projections in account of the $408 million in revenues above projections in the month of May.
That leaves $5 billion as the legitimate sticking point. Democrats closed this by sale of state buildings ($1.2 billion), increased fees/sales taxes ($1.3 billion), cuts ($1.5 billion), and assumed federal revenues ($700 million), and a few miscellaneous actions.
While the governor’s veto message centered on his accusation that the Democrats’ budget was not balanced, the real issue is the "out year problem." The governor desparately wants to end the annual budget shortfall, and most people believe the Democrats plan leaves a $6-7 billion shortfall beginning in 2012-13. The question is whether he wants to eliminate all of the structural shortfall or, whether he’s willing to sign a "workout plan" that phases in budgetary balance. Fixing that structural shortfall will only happen with ongoing spending cuts, ongoing tax increases (for a few years at least), or a mix thereof.
However we get to the final budget, there will be more cuts than included in the governor’s May Revise. Whether they are limited to the $1.5 billion in the Democrats’ plan or deeper will depend on the governor’s willingness to (1) persuade Democrats to support a November election on taxes that labor doesn’t want and (2) accept some gimmicks. Somehow, $5 billion in solutions have to be found.
At the end of the day for Proposition 98 and community colleges, $2 billion is likely the maximum cut beyond the accounting cut of the new deferral ($129m for community colleges). Thus, even in an all-cuts scenario, Scenario B is likely the "worst scenario," although we’ll continue to fight for Scenario A.
The bigger threat, however, may be a prolonged budget fight that may, once again, force districts to scramble for reserves and borrowed cash while Sacramento finds a solution.
