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In the first glimpse at a dark financial forecast, the Legislative Analyst’s Office reported Friday that the next California state budget will likely face a three-year $58 billion deficit, on the magnitude of the impact of Great Recession in 2008.
What that will mean for schools and community colleges will become clearer later this week, when the LAO releases a full analysis of revenues and possible actions Gov. Gavin Newsom could take. As a rule of thumb, TK-12 and community colleges receive about 40% of the general fund through Proposition 98, the formula that determines their allocation. Their portion of the budget gap would be roughly $23 billion, more than double the amount that schools and community colleges have stashed away for fiscal emergencies in the state rainy day fund.
Newsom will release his proposed 2023-24 budget in early January.
The LAO and Newsom’s advisers had been warning for a year that an economic downturn, if not a full-blown recession, was likely, with budget repercussions. What they didn’t realize was that it was already happening. Because of the impact of storms that devastated parts of California and the nation last winter, the deadline for paying 2022 federal taxes was delayed from April 15 to Nov. 16. That meant legislators had an incomplete picture of 2023-24 revenues when they passed the budget in June.
The LAO reported that the 2022-23 budget ended $26 billion in the red, and that shortfall will carry over to 2023-24 and 2024-25 for a total of $58 billion. The LAO reported total income tax returns fell by 25% in 2022-23, and, due to the Federal Reserve’s increases in interest rates to temper inflation, home sales declined by half, and the state’s unemployment rates rose from 3.8% to 4.8% in 2022.
The LAO also predicted that the cost of living adjustment, derived from a federal formula, will increase next year for the Local Control Funding Formula, special education and other ongoing programs by only 1.27%, which is only about $1.3 billion in new money. That compares with 8.22% in the current budget.
“In the first glimpse at a dark financial forecast, the Legislative Analyst’s Office reported Friday that the next California state budget will likely face a three-year $58 billion deficit…”
Hey– wasn’t Newsom just recently loudly announcing- and taking credit for- historic State surpluses? What happened to all that dough under his Administration?? Too many dinners at his buddies’ wineries in Napa and Sonoma?
Mr Hispanic Causing Panic:
Last years surplus was cause by one-time Federal Covid payments
Any Sophomore Accounting student would know to call out the “Revenue” as a special one time event and correctly represent the surplus or deficit without the one time special event.
Instead they chose to use it for political gain.
To make it seem like they have superior budgeting skills (not)
This illustrates how our politicians mis-lead and mis-represent their actions.
The next steps are for the States (both CA and Illinois) to call for a Federal Bailout. States are required to run a balanced budget. Only the Federal Government is allowed to create money out of thin air (Operations between the Federal Reserve Bank, US Treasury, and Major Banks). They do this by issuing debt in the form of US Treasury Bills/Notes. But the US is now paying astronomical sums of money to service the Federal Debt; it now exceeds the DoD budget. And crowds out the loan requirement of the private sector. The usual buyers of US debt no longer wants it, as it is a devaluing asset. Take Away: All this money sloshing around is not free, and there are consequences (Even though our politicians act like there are no consequences)
California’s state budget is around $300 Billion each year and this deficit comes across two fiscal years, i.e. 2022-2023 as well as 2023-2024 at around $26 Billion in each year. The budget for the current year was already cut in anticipation of a shortfall or the situation would be worse. However, it’s not as bad as it sounds. The reason it affected last year was that the IRS disaster declaration which California matched for income tax collections delayed due dates for 2022 taxes until November of 2023! That meant they had to guess how much money would be coming in for the 2022-2023 fiscal year.
California has $30 Billion in reserves that it can tap to cover budget shortfalls and it’s expected to use part of that for the current situation. However, it’s important to note that for 2023-2024, theres’ still time to cut spending to match the reduced revenues. Among other things, the number of students in schools has declined this year compared to last year. The payments are largely based on the number of students attending so they will automatically go down compared to what was budgeted. For all these reasons it’s unlikely there would be any need for a Federal bailout, to say the least….
Because the funding drop affected two different tax years about equally, the 40% to which schools are entitled can only be $12 Billion, for the current year. No way to cut back on last year retroactively. Likely it mainly will affect next year budgeting, The schools will get what they are expecting this year for the most part. Funding per pupil has gone up tremendously over the last few years, even during the pandemic. The schools are in a good position to absorb some reduction in income.
The devil’s in the details really.
“What that will mean for schools and community colleges will become clearer later this week, …”
At the local elementary school district this week the answer was [this will mean] ‘not very much because MVWSD is a “Basic Aid” (‘community funded’) district and mostly funded by local property taxes rather than state Budget revenue. Same for the wider high school district, Mountain View Los Altos, and for the Los Altos district schools (includes Springer within our city and Santa Rita serving NorthEast MV students).
(MVWSD Board Meeting 7/Dec/2023- Trustee Chiang’s question to Chief Budget Officer when the Trustee brought the Interim Budget out of Consent Agenda to specifically ask 2 questions)*
The MVWSD also has a Massive General Fund leftover budget Reserve (unallocated) that is so far in excess of the minimum 3% and so far above the state or Board Policy % that the Board needs to get an ‘excess reserves’ waiver from the County Office of Education. = MVWSD not in any bad position
* at 52:50 video of MVWSD Regular Board Meeting
https://www.youtube.com/watch?v=C-UAWr0YBno
@ LongResident no “devil” is in the MVWSD’s details, really! 🙂
correction
Santa Rita serves North WEST MV City students.
I don’t know why Santa Rita serving Mountain View students matters. LASD allocates residents of Mountain View north of El Camino Real but within LASD’s boundaries to Three different elementary schools which include Santa Rita. A lot of MV residents also attend Covington Elementary School and Almond Elementary School and of course Egan Jr High. It’s roughly an even three way split. Only those on the Palo Alto side of San Antonio Road attend Santa Rita, which also serves the Monroe Park area of Palo ALto.
LASD, a good example of a school district with gerrymandered attendance areas!
The enrollment of the 3 elementary schools mentioned above would be absurdly small without the Mountain View students. They are TK-6 schools, and the numbers would be around 200-300 students if only serving Los Altos. Virtually all of the new housing added to LASD territory has been in this part of Mountain View (So Far). It has reduced the amount of enrollment shrinkage due to age group population declines.