Chancellor's budget message: Governor's May Revision
THE CALIFORNIA BUDGET 2020-21 - NAVIGATING A NEW STORM
In 300 BCE, when Pharaoh/King Ptolemy II Philadelphus commissioned the great lighthouse of Alexandria, Egypt, it was recognized as a remarkable achievement. To this day, the Lighthouse (or Pharos) of Alexandria is still categorized as one of the Seven Wonders of the Ancient World.
In modern times, lighthouses, like the one in the photograph, still captivate our imagination, and still perform the essential function of guiding ships away from danger and toward safe shores. Lighthouses are of greatest value in darkness or in dense fog. As Francis Bacon observed, “In order for the light to shine so brightly, the darkness must also be present.”
In my view, educational institutions, especially community colleges, perform exactly that function, lighting the way to a better future. Education is needed now more than ever, as all of us continue to struggle with the ravages of the coronavirus/COVID-19 crisis and are sailing into another state budget storm of enormous proportions. As we deal with all of this, it is important to remember that our true beacon always has been and still is our belief in our enduring mission to transform lives through the education we provide. Our imperative of putting students first in everything we plan and do has served us well over the years. If we keep that beacon before us as our guide, we will get through this latest struggle.
The Governor’s May Revision Budget
On May 14, California Governor Gavin Newsom presented his May Revision Budget (also known as the May Revise), representing his best budget projection since the release of his January Budget Proposal. Unlike most years, when state revenues normally increase during this interim period and the budget outlook is invariably more positive, this time the situation is very different. The governor’s new budget proposal for FY 2020-21 is $134 billion, which represents a $54.3 billion shortfall. The cause of this extreme budget problem is the COVID-19 crisis, which, in addition to affecting people’s health and lives, has had a huge impact on the United States economy. This crisis has also massively affected three of California’s four major sources of revenue funding: personal income tax (due to high unemployment); sales tax (due to the closure of most businesses); and corporate tax (due to the loss of business income). The fourth source, property taxes, has yet to be confirmed due to late returns.
The governor proposed to address this shortfall by tapping three reserves (the Rainy Day Fund, the Safety Net Reserve, and another fund), by using the federal CARES Act income, by not proceeding with a number of initiatives, and by significant budget reductions. These reductions will affect almost all agencies of the state, and will reduce ongoing funding for the California Community Colleges by $1.1 billion compared to the governor’s January proposal. Normally, community colleges (and K-12) would be insulated from major reductions due to the protections afforded by Proposition 98. However, Proposition 98 has a $19 billion deficit, and the mitigations proposed by the governor will only have a partial benefit. Thus, it is anticipated that local community college districts will face a 10% reduction (including the elimination of the planned Cost-of-Living Adjustment or COLA) to the Student Centered Funding Formula (SCFF) apportionment funding of $593 million.
The governor spoke remorsefully about the fact that these reductions will mean that “dreams are being torn asunder” and that such numbers have not been seen “since the Great Depression.” Governor Newsom was also quick to point out that this dire financial situation could be significantly eased if the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, another stimulus package being considered by Congress, is passed and signed into law. Of course, that item is very much a political football at the present time.
The next step in the state budget process is legislative review, in which both houses of the legislature will now engage in order to come to an agreement with the governor on a final budget by June 15 in order to comply with the Constitutional requirement of adopting a state budget by July 1. Further complicating this scenario is the fact that final revenue figures may not be known until August, when a new budget revision will be made, and adopted budgets may be delayed until October. In the meantime, during the period leading up to the June 15 deadline, strong advocacy efforts will be made to shape directions in the budget and to mitigate the impact of reductions. Many of us in the San Diego Community College District (SDCCD) will be actively engaged in these efforts.
Impact on the San Diego Community College District
Normally, this section of my budget report presents primarily positive decisions and outcomes. Now, however, my focus is on reductions.
Ongoing Funding Reductions:
Cost-of-Living Adjustment - Zero as compared to the 2.29% rate anticipated for 2020-2, amounting to $5.9 million to cover increase operating costs, will not be received by SDCCD.
Base Apportionment Reduction – SDCCD represents 3.51% of the California community colleges system budget. Therefore, the $593 million reduction would result in an approximately $20.8 million revenue reduction to SDCCD.
SDCCD’s Resource Allocation Formula (RAF) prescribes how changes to continuous and one-time state revenue funding are allocated to cover the increased costs each year of operations, including employee units.
State’s Cash Flow Management Plan:
The governor proposes to manage the state’s cash flow through deferrals as it did during the 2009 “Great Recession”, which does not permanently reduce apportionment revenue but rather defers the June 2020 monthly apportionment payment of $330 million to all community colleges to July 2021. For the SDCCD, this is anticipated to be $11.5 million that will result in a delayed payment from the state to cover our monthly obligations
In addition, the June 2021 payment will be deferred to July 2022 in the amount of $662.1 million. For the SDCCD, that amounts to $23.2 million that will result in a delayed payment from the state to cover our month obligations.
While a payment deferral is definitely better than additional reductions, it places great pressure on the District with regard to ensuring that there is adequate cash to meet our monthly obligations.
Other State Proposed Reductions to Proposition 98 General Fund:
The May Revision budget includes the elimination of $31.9 million in enrolment growth funding for the system; a decrease of $135.6 million to California Community Colleges Strong Workforce Program; a decrease of $68.8 million for the Student Equity and Achievement Program (SEA); a decrease in support for Part-Time Faculty Compensation/Part-Time Office Hours; and a reduction in funding for the Academic Senate of the California Community Colleges of $7.3 million.
Mandated Block Grant funding per full-time-equivalent students (FTES) is anticipated to result in approximately $1.1 million for the District in 2020-21.
Governor Newsom’s May Revise also proposes some statutory changes to assist California’s community colleges in their recovery from the COVID-19 pandemic to include plans to:
- Exempt COVID-19 related expenses from the 50% law. This would not include revenue declines.
- Revise the 2019-20 Student Centered Funding Formula rates.
- Utilize past-year data sources within the SCFF that have not been impacted by COVID-19.
- Extend SCFF “hold harmless” provisions by another two years and require reductions to the SCFF to be proportionally applied to all California community colleges by reducing rates, stability, and hold harmless provisions in the formula.
The May Revise also calls for sustaining support for two years of free community college tuition for eligible students, the Student Success Completion Grants, a number of categorical programs at current funding levels, including Educational Opportunity Programs and Services (EOPS) and DSPS Disabled Students and Services Program (DSPS); and provides $10 million ongoing t support immigrant legal services.
As I mentioned earlier, the Governor’s May Revision Budget is not the final step in the budget process, and it is indeed a sobering prospect. While we all understand the need to adapt to the fiscal realities of the COVID-19 environment and respect the difficult choices confronted by our governor, we are disappointed by the enormity of the reductions assigned to education. We will work hard to seek mitigation of these cuts, while also planning to address them in our budget planning for FY 2010-21. The Chancellor’s Cabinet and Campus Presidents, the Districtwide Budget Planning and Development Council, and all governance groups will be part of the planning process. The Board of Trustees and I welcome all suggestions.
I think all of us will remember 2020 as one of the most difficult years we have lived through. It is certainly thus far the most difficult year I have experienced in my career. Between the coronavirus pandemic and the quick transitions we have had to make and now the enormous budget reductions that lie ahead, we have been and will be challenged to provide the best service we can for our students, which is always our top priority. We have weathered other storms and we will use our best thinking to weather this newest one. A heartfelt thank you to everyone for your enduring support, hard work, and optimism.
Stay tuned ...
Dr. Constance M. Carroll
Chancellor of the San Diego Community College District