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Legislature Passes Budget, Agreement with Governor Still Pending - June 16, 2020

As expected, the Legislature passed an “on-time” budget today, despite not having a budget agreement in place with the Governor. The main budget bill, SB 74, as well as a small number of budget trailer bills, will now be submitted to the Governor. This action allows the Legislature to meet its Constitutional June 15th deadline to pass a balanced budget, but it does not mean that we have a final budget in hand. We won’t have that final budget until the budget negotiations between the two parties are completed and this budget is amended.
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Video Update - Budget, Politics and Technology - June 14, 2020

Dear Colleagues,

As you know critical decisions are being made in Sacramento this weekend by the legislature in order to finalize the budget by the deadline tomorrow. Kevin Gordon just sent this update and it is very helpful as it summarizes the key items facing education in the coming weeks.

I will be sending you updates as soon as they come in this week and throughout the summer.

Stay safe, be well,
Robin
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Video Update - Budget, Politics and Technology - June 5, 2020

This week’s video version of our update contains observations about the budget battle and other key issues this week. Hope you find it informative.

Click HERE to see the online video briefing.

Click HERE to view the request for support for E-Rate funding.

-Kevin

Kevin Gordon, President
Capitol Advisors Group, LLC
California’s Leading Advocates for Education
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LAO

This morning, the Legislative Analyst’s Office (LAO), the non-partisan budget advisor to the Legislature, released a Spring Fiscal Outlook looking ahead to the 2020-21 fiscal year. Although the LAO recognizes the dramatic economic impacts of the COVID-19 crisis, and corresponding deep budget deficits, their fiscal assessment is significantly less dire than the Fiscal Update that we wrote about yesterday, after it was released by the Governor’s Department of Finance (DOF). DOF projected a $54 billion budget shortfall, while the LAO projects the shortfall to be between $18 and $31 billion. It is important to note that these shortfalls assume no cuts to K-14 education – that is, continued funding at the 2019-20 level, adjusted for growth and COLA.

LAO acknowledges that we are in a deep recession, but also notes that we are facing large uncertainties about many factors – from how long the recession will last, and what its revenue effects will be, to the extent of federal relief aid. Because of this uncertainty, LAO approaches its estimates of the impending budget deficits by building two scenarios – a somewhat optimistic U-shaped recession scenario (where some recovery begins this summer, but faster recovery would begin in 14 months), and a somewhat pessimistic L-shaped recession (where gradual recovery doesn’t begin for 14 months, and full recovery isn’t until 2023).

Under the U-shaped scenario the state would have to address an $18 billion budget shortfall, while under the L-shaped scenario that shortfall would be $31 billion. In both cases those projected budget deficits fall mainly in the 2020-21 fiscal year. The LAO notes that California should have about $9.5 billion of federal funding from the CARES Act to address the deficit in 2020-21. The LAO also points out that under each scenario, the budget problem persists into the future at least until 2023-24. Over that entire recession period the total deficits will amount to $64 billion and $126 billion for the U-shaped and L-shaped scenarios, respectively.

Under the U-shaped scenario the LAO projects a significant decline in the Proposition 98 Guarantee equal to $13.3 billion lower over the three budget years (2018-19, 2019-20 and 2020-21) as compared to that projected in the Governor’s January Budget. Under the L-shaped scenario that decline would be $18.6 billion. In both cases these declines primarily occur in the 2020-21 fiscal year, which reflects the drop in General Fund revenues related to the recession.

LAO’s projections are based on a number of assumptions and projections:

2020-21 revenues and other resources fall by $26 billion and $39 billion, under the two scenarios, respectively
Direct COVID-19 costs amount to $7 billion, 75% of which is covered by federal relief funds
The state suspends deposits into the Rainy Day Fund for 2020-21
No cuts are made to K-14 funding in the current year, and flat funds schools in 2020-21 at that 2019-20 level adjusted for growth and COLA
Federal cost sharing for Medicaid programs saves the state $6 billion in costs
All discretionary funding proposals in the January budget are dropped

The LAO does enumerate additional actions that could be taken to reduce the size of the projected budget deficit, including:

Securing additional federal funds
Eliminating COLAs, including the K-12 statutory COLA
Funding K-14 at the Proposition 98 Guarantee level in 2020-21, rather than flat funding from 2019-20
Clawing back and reverting to the General Fund any funds appropriated in 2019-20 that have not been expended
Revising baseline spending in some areas of the budget, though this could result in a reduction in services

As noted above, the DOF’s release yesterday projected a much larger budget problem (a $54.3 billion shortfall) than is reflected in the LAO’s update. However, the primary reason for that is that DOF focused on gross changes in the budget as a result of revenue declines and cost increases, while the LAO projections focus more widely on the net effects of what we are facing. In addition, the LAO notes that the DOF is projecting:

Slightly lower revenues than even the LAO L-shaped scenario
Billions of dollars more in increased caseload-driven costs (e.g., social program costs related to the recession)
That the budget continues to include all of the discretionary funding proposals that the Governor included in his January Budget
That spending for Proposition 98 remains unchanged from the January Budget

The top take-aways from these two days of fiscal updates from LAO and DOF is that we are facing a budget year, and probably a series of years of budget deficits, where funding for K-12 education suffers to some degree as a result. However, it is also clear that we are facing an unprecedented level of uncertainty over the state’s economy, tax revenues and budget circumstances, and that uncertainty falls on us as we are trying to craft budgets going forward.

We will continue to keep you advised as the May Revision is released next week, and as budget discussions progress through the Legislature. We will have some idea about next year when the Legislature passes its budget by June 15, but we also know that the June 15 budget will not be the last word. As happened in 2008-09, we expect to see later budget revisions as more information becomes available with respect to both revenues and costs. Stay tuned for more information over the coming months.

Please feel free to contact staff at Capitol Advisors if you have any questions on this information or any other issues that you are dealing with.

Thanks,
Gerry

Gerry Shelton
Partner
Capitol Advisors Group
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Update - Politico: California schools and unions brace for coronavirus budget cuts.

We wanted to make sure you saw this article from Politico discussing the impending budget dynamics:

California schools, unions brace for coronavirus budget cuts
By Mackenzie Mays - April 17, 2020


SACRAMENTO — California school leaders are bracing for funding cuts during a coronavirus-fueled recession, and districts are already scrambling to reimagine budgets while teachers unions are pledging to fight any reductions.

The pandemic’s implications on the state budget will be dramatic, officials have warned, and would have a direct impact on schools, since about 40 percent of the general fund goes toward K-12 programs and community colleges under Proposition 98.
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LAO Projects Smaller State Budget Deficit, Highlights Budget Uncertainties

This morning, the Legislative Analyst’s Office (LAO), the non-partisan budget advisor to the Legislature, released a Spring Fiscal Outlook looking ahead to the 2020-21 fiscal year. Although the LAO recognizes the dramatic economic impacts of the COVID-19 crisis, and corresponding deep budget deficits, their fiscal assessment is significantly less dire than the Fiscal Update that we wrote about yesterday, after it was released by the Governor’s Department of Finance (DOF). DOF projected a $54 billion budget shortfall, while the LAO projects the shortfall to be between $18 and $31 billion. It is important to note that these shortfalls assume no cuts to K-14 education – that is, continued funding at the 2019-20 level, adjusted for growth and COLA.
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UC Publishes Updated IB Policy

Great news from Marie Vivas, Senior Development Manager IBO regarding the University of California System! She has been working on this policy for quite a while and UC is maintaining it's current policy for IB Credit! Many thanks to Marie!

UC will continue to award credit for designated IB subjects passed with scores of 5, 6 or 7, as well as extra units for the IB Diploma completed with 30 points or more.

HOW WILL UC AWARD CREDIT FOR IB SUBJECTS, THE IB DIPLOMA, AND GCE A-LEVEL SUBJECTS GIVEN THAT EXAMS HAVE BEEN CANCELLED?
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