This is an attempt to explain in a few paragraphs what the Legislative Analyst’s Office (LAO) released two days ago in their annual Fiscal Outlook and the consequence of that report. The LAO is the non-partisan budget group that informs the legislature.  I will stay away from technical terms like Test 1 and Test 2 and maintenance factor and get right to the point.

In short, they have calculated a deficit of $25.4 billion for the rest of the 2010-11 fiscal year and the 2011-12 fiscal year: broken down this equals a $6 billion deficit for the current year and a $19 billion deficit for the budget year.   Some of the big numbers for the current year that caused this are a $3.5 billion overestimation of federal funds coming to the state, the passage of Prop 22 and 26 causing roughly a loss of $800 million in solutions.  The deficit for next year, the budget year, starts out down just over $8 billion because of the expiration of the temporary increases in sales tax, the vehicle license fee, and personal income tax.

Here is the huge issue with education.  With the reduction in general fund revenue, the $8 billion dollars in taxes stated above, Prop 98 is reduced $2 billion by its own formula.  The current year Prop 98 level is $49.7 billion, the LAO’s projection for next year is $47.5 billion. AND this does not include any solutions for the $25 billion dollar problem.  Based on the LAO’s forecasts, we do not return to 2007-08 Prop 98 funding level of about $58 billion until 2015-16.  On top of that, there are no new federal dollars in sight to help us out (don’t forget, over the last two years we have received both ARRA money and the Fed Jobs Bill money).  All total they have estimated a “Baseline Cost” for 2011-12 (what I translate to a programmatic cut) of $5.2 billion for Prop 98. 

Without any solutions, the LAO foresee a $20 billion shortfall each year for the next 5 years.  They have offered a few solutions to address these shortfalls which include both cuts and revenue increases.  Some of those solutions in education funding include no more deferrals just cuts and more flexibility for districts and colleges, although they do agree that there is not much more in terms of flexibility.  As with any forecasting they have to make assumptions.  Some of the major assumptions are a slow economic recovery and only using current laws to calculate expenditures and revenues.

On Dec 6, the day the new legislative session begins, the current Governor is scheduled to officially declare a special session.  This means that they will have 45 days to get a solution to the Governor, which will at that time be Gov Brown and will only need a simple majority vote to get it there. 

I know this isn’t happy news, but I wanted to keep you informed since I am sure many of you are in negotiations.  If you want to read the report here is the link.  Here is also a link to a Prop 98 Briefing.  As I hear more, I'll relay it on to you.