State budget trick forces more schools to borrow
First, the good news for California schools: This year's budget cuts don't seem to be as deep as expected. Now, the bad news: The state still isn't paying all the money legally owed to education. The tricks used to stitch the budget together may well fail and require midyear cuts. And major chunks of the money -- $7 billion -- will arrive late.
It's all part of the accounting sleight-of-hand the Legislature employed to break a stalemate and produce a budget early Friday. Lawmakers spent more than 20 hours in chambers before finally passing the latest budget in state history. While the vote was expected to be easy, given that the $125 billion spending plan would keep state services at the status quo with modest trims to health programs, there were arguments about such weighty matters as whether electronic highway billboards should have advertisements and whether the state needs a paid secretary of volunteerism.
One thing that's not in dispute: the budget pushed tough decisions into the future, papering over most of the $19 billion deficit with clever accounting. The plan assumes billions of dollars in federal aid that most experts agree will never materialize and relies on loans and bookkeeping maneuvers such as deferring payments to schools.
The state has deferred such payments for several years, as the economy has lurched from boom to bust and Republicans have held the line against new taxes. "100 days late is better than never," Tim McClary, deputy superintendent of San Jose's Franklin-McKinley School District, said about the budget deal. "But if they don't give us the cash, we'll have difficulty paying bills."
The 2010-11 budget funds schools at $44.4 billion, not including money from the state lottery -- a higher level than in 2009-10, according to the Legislative Analyst's Office. But last year, Uncle Sam helped rescue schools with billions in stimulus finds; this year's federal infusion will be considerably less -- about $2.4 billion.
Calculating how much schools will get depends on a complicated formula, but the bottom line is, "we reduced the badness," said Ann Hern of School Services of California, which advises school districts on financial matters. Legislative Democrats expressed pride that they had held the line on program cuts, after state services have been battered by round after round of multibillion-dollar reductions.
Republicans boasted that there were no tax increases. Gov. Arnold Schwarzenegger cited as major victories provisions to cut some of the generous pension plans the state offers its workers and to place some proposed new spending controls on the 2012 ballot. Schwarzenegger flew to San Jose on Friday morning to hail his final budget deal as a major step in rolling back government pensions.
Flanked by Mayor Chuck Reed, who has made pension reform a key target in his city, the governor said the multiplying costs of government retirements have drained public coffers and outraged voters. "We're spending more this year on pensions than we are on higher education," Schwarzenegger said.
The budget rolls back pension benefit increases for state workers, which were approved in 1999 at the height of the dot-com boom. It increases the age of retirement eligibility from 50 to 55 for future public safety workers and from 55 to 60 for other new hires. Existing and future employees would have to pay 2 to 5 percent more toward their retirements, and their pensions would be based on their average salary in the last three years rather than the most recent year to limit "pension spiking."
There also would be new transparency rules to disclose the potential public costs of pensions. Meanwhile, in an issue closely watched by environmentalists, the new budget ditched a proposal that would have allowed Chevron an exemption from environmental laws as part of its plans to modernize its oil refinery in Richmond.
After Richmond city officials approved the project several years ago, environmental groups sued, saying that the oil giant had not clearly explained whether it was going to be processing heavier grades of crude oil and at what levels of pollution the retooled refinery would be emitting over Bay Area communities. A district court judge halted the project, and in April, a state appeals court also sided with environmentalists. In August, Assemblyman Pedro Nava, D-Santa Barbara, sent a memo to state lawmakers warning that Chevron was asking for a waiver from the California Environmental Quality Act, which requires that developers publicly state how much traffic, noise and pollution large new projects will create.
On Friday, Nava said attention from the media and environmental groups made lawmakers think twice about cutting a deal for Chevron. The oil company made more than $4.1 million in donations to state lawmakers in the past two years. "We were able to ensure that there were lots of witnesses on this issue," said Nava, a former prosecutor. Chevron officials said they continue to work on talks with environmentalists, labor leaders and politicians on a compromise. "We've reviewed a number of options and found that it's best to focus on mediated discussions," company spokesman Brent Tippen said.
To the extent that there was any optimism coursing around the state in the wake of the budget deal, expect it to be short-lived: Two-thirds of California's $18 billion deficit was bridged by one-time fixes, according to the Legislative Analyst. That means significant cuts are expected next year, just as federal education stimulus funding evaporates. Vinod Sharma, Santa Clara County's controller and treasurer, called the funding plan for schools "irresponsible."
By deferring more payments, the state has pushed more school districts toward borrowing, he said. Sharma said 16 of the roughly 35 K-12 and community college districts in the county are issuing short-term bonds to weather the delays in state funding. "Instead of spending their resources on educating kids," he said, "now schools are wasting energy on figuring out how to survive."
Mercury News staff writers Paul Rogers and John Woolfolk and the Los Angeles Times contributed to this report. Contact Sharon Noguchi at 408-271-3775.