August 23, 2011
To: Chapter Presidents, State Council, Service Center Council Chairs
From: Dean Vogel, President
RE: AB 114 and Budget Triggers
I know many of you are reading news reports or hearing from your local school districts about how state revenues are coming in lower than expected and will that “trigger” additional state budget cuts. Since early August, we have all witnessed the extreme volatility of the stock market. It is normal to be anxious about how this will affect our lives, the California economy, the generation of tax revenues, and the funding of public education and other essential services. So I wanted to provide you with some additional background information on the state budget bill and how the triggers were written into law. A quick fact sheet is attached. In short, AB 114 – the education budget trailer bill - attempts to stabilize school funding for 2011-12 and stop the hemorrhaging of state budget cuts. However, the approved state budget also “triggers” budget cuts if projected revenues don’t materialize. Elements of AB 114 and the budget triggers have generated a hue and cry bordering on hysteria from some individuals and school business organizations. As leaders, members and staff of the California Teachers Association and its local chapters, we must counter the panic and advocate for and pursue our mission on behalf of our students, our members, public education and our communities. We must carefully examine the world around us to understand the likelihood of this ‘what if’ and we must be prepared to be the voice of calm during this period. The market, tax revenue reports and the underlying economy In early August, the stock market witnessed daily triple digit swings creating panic around the world. While it is a cause for serious concern, the market’s volatility is not necessarily directly or immediately linked to what’s going on in the underlying California economy and the structures funding public education. When the state budget was passed in June, it was built on the projection that tax revenues would be $4 billion greater than those contained in the Governor’s May Revision. At that time, revenues were already ahead of projections by $1.3 billion. On August 9, State Controller John Chiang released his monthly report covering California's cash balance, receipts and disbursements in July, showing revenues were down $538.8 million. This was followed by two other reports – one by the State Board of Equalization (BOE) and the other by the Department of Finance – that saw these projections move yet again. The BOE contends the state received $1.64 billion in sales and use tax revenues for the month of July, although the Controller recorded only about $1 billion. The discrepancy comes from the different ways that state agencies account for revenue. So what’s it all mean? Who to believe? What to do? First, we must not overreact to daily ‘factoids’ but should keep an eye on the trends in state revenue between now and December 15.December 15 is the date when the Department of Finance must determine whether subdivision (c) of Section 3.94 of the Budget Act of 2011 is operative or if state revenues have met the necessary projections. Second, we must not rush or be pushed into acting prematurely. Trends in state tax revenue will be clearer by early November. Third, we must remember that the triggers are tiered and reductions are bargained.
To: Chapter Presidents, State Council, Service Center Council Chairs
From: Dean Vogel, President
RE: AB 114 and Budget Triggers
I know many of you are reading news reports or hearing from your local school districts about how state revenues are coming in lower than expected and will that “trigger” additional state budget cuts. Since early August, we have all witnessed the extreme volatility of the stock market. It is normal to be anxious about how this will affect our lives, the California economy, the generation of tax revenues, and the funding of public education and other essential services. So I wanted to provide you with some additional background information on the state budget bill and how the triggers were written into law. A quick fact sheet is attached. In short, AB 114 – the education budget trailer bill - attempts to stabilize school funding for 2011-12 and stop the hemorrhaging of state budget cuts. However, the approved state budget also “triggers” budget cuts if projected revenues don’t materialize. Elements of AB 114 and the budget triggers have generated a hue and cry bordering on hysteria from some individuals and school business organizations. As leaders, members and staff of the California Teachers Association and its local chapters, we must counter the panic and advocate for and pursue our mission on behalf of our students, our members, public education and our communities. We must carefully examine the world around us to understand the likelihood of this ‘what if’ and we must be prepared to be the voice of calm during this period. The market, tax revenue reports and the underlying economy In early August, the stock market witnessed daily triple digit swings creating panic around the world. While it is a cause for serious concern, the market’s volatility is not necessarily directly or immediately linked to what’s going on in the underlying California economy and the structures funding public education. When the state budget was passed in June, it was built on the projection that tax revenues would be $4 billion greater than those contained in the Governor’s May Revision. At that time, revenues were already ahead of projections by $1.3 billion. On August 9, State Controller John Chiang released his monthly report covering California's cash balance, receipts and disbursements in July, showing revenues were down $538.8 million. This was followed by two other reports – one by the State Board of Equalization (BOE) and the other by the Department of Finance – that saw these projections move yet again. The BOE contends the state received $1.64 billion in sales and use tax revenues for the month of July, although the Controller recorded only about $1 billion. The discrepancy comes from the different ways that state agencies account for revenue. So what’s it all mean? Who to believe? What to do? First, we must not overreact to daily ‘factoids’ but should keep an eye on the trends in state revenue between now and December 15.December 15 is the date when the Department of Finance must determine whether subdivision (c) of Section 3.94 of the Budget Act of 2011 is operative or if state revenues have met the necessary projections. Second, we must not rush or be pushed into acting prematurely. Trends in state tax revenue will be clearer by early November. Third, we must remember that the triggers are tiered and reductions are bargained.
- If revenues are $500 million below projections nothing will happen.
- If revenues are more than $500 million but less than $2 billion below projections nothing will happen to K-12 education funding.
- Any cuts to public education are proportional. If revenues are more than $2 billion below projections, any changes will be determined by how much revenues fall below the projection. (Remember at the time the budget was passed, the state was already $1.3 billion of where revenues needed to be to insulate K-12 spending from any reduction.)
- Any reductions in the length of the school year must be bargained locally. February 1, 2012 is the date when the ability to bargain a reduction of up to 7 days becomes operative. It closes for all practical purposes by mid-June and negotiations should be concluded by June 30, 2012.
Copyright© Vista Teachers Association, All Rights Reserved
