Budget Update: Governor's Proposed Mid-Year Cuts
And 2003-04 Budget January 2003

The Governor's budget was released on January 10th. It proposes deep cuts in all parts of the state budget, including deep cuts to education. The Governor's proposal also includes additional mid-year educational categorical program cuts, as well deep cuts in education for the budget year (2003-04).

By this time you may have seen one or more general overviews of the budget. One good overall summary of the full budget proposal that you may wish to view was issued by the Legislative analyst Office (LAO) and is available on the Internet at www.lao.ca.gov. This summary does not try to provide the broad summary of the entire budget but focuses on the budget issues that are of special interest to charter schools.

Quick Summary of the Proposed 2003-04 Budget

* The Governor has proposed a total budget of $89.2 billion. This budget closes a budget gap of $34.6 billion. The proposal includes $20 billion in program cuts, $6.3 billion in funding shifts, loans and fund transfers, and $8.3 billion in revenue increases.

* While still benefiting from the protections of Proposition 98, K-12 education is scheduled for current and budget year reductions of more that $5 billion. Some of the major proposals are covered in this paper, including the following three items.

· Additional current year (2002-03) cuts to categorical programs: The Governor is now proposing an additional cut of 7.46% on top of the 3.66% cut proposed in December for most categorical programs, for a total cut of 10.82%.

· 2003-04: No COLAs for Prop. 98 programs, including revenue limits and categorical programs.

· Block granting of 64 categorical programs, with an additional reduction in funding of 1.28%. Included in this new categorical program is the current charter school categorical block grant.

Charter School Perspectives

The proposed cuts and reductions are as damaging to charter schools as they are for school districts. The major charter school provisions are:

Current Year Categorical Funds Cuts: The proposed cuts for categorical programs are as damaging to charter schools as they are for other public schools. The overall proposed cuts for the current year are equal to 10.82%. Some of these reductions will be taken directly from the charter schools categorical grants. Other reductions will come from separate programs, such as class size reduction, where charter schools must apply separately to participate.

Proposed Block Granting of Categorical Programs for 2003-04: The second major issue also deals with categorical funds. The administration is proposing the creation of a very large block grant for 64 categorical programs beginning in the 2003-04 year for school districts AND charter schools. Funding of this new block grant would consist of the total dollar amount of funding for the 64 categorical programs, after the 10.82% cut, less an additional reduction of 1.28%. The 64 programs include many substantial programs, such as EIA (Economic Impact Aid), SIP (School Improvement Program) and Adult Education. There are several key programs that are not included. Programs not included in the proposed mega block grant are Special Education, K-3 Class Size Reduction, preschool, nutrition and hourly instruction.

School districts have consistently called for more flexibility in the use of categorical funds. The recently released Master Plan for Education and the LAO support the idea of a block grant. Initially the response from some districts has been positive. However there has been backsliding from some districts and associations who don't want to face the opposition from supporters of the categorical programs.

The current charter school block grant is a critical and core part of the flexibility charter schools enjoy. We are examining this proposal very closely, and will track it closely as it is refined, modified and debated. We are analyzing if and how the proposed mega categorical block grant could improve upon our existing categorical block grant as well as investigating the potential problems that charter schools might face if included in this new categorical program.

Charter Schools Low Income Facilities Funding (SB 740 facility funding): Eligible charter schools are still awaiting receipt of reimbursement for their facility expenses from the 2001-02 school year. Ten million dollars was appropriated in 2002-03 for these facility grants, and the Governor has proposed reducing the amount available to $5 million. We have been informed that the payment for these expenses has been withheld by the CDE until the legislature acts on the mid-year fund cut proposals. CANEC and EdVoice have both been actively seeking the release of these long overdue payments. We understand the importance of these funds for the eligible schools. However we urge fiscal caution, as these funds remain at risk until actually released.

Equalization Funding: The proposed 2003-04 budget includes $250 million for equalization. Equalization brings the revenue limit of school districts that are below the state average closer to that statewide average. Indirectly these funds also increase the charter schools block grant. This is a high priority for Republicans, so may become a bargaining chip in discussions with Democrats.

Funding Deferrals: A major part of the budget strategy is the deferral of payments from one fiscal year to another. The 2002-03 budget includes $681 million in deferred payments. Further deferrals are being discussed for the 2003-04 budget. These delays in payments are expected to cause serious cash flow crises for many charter schools, as expenses, such as payroll and facility leases, are due this year, yet significant amounts of funding are being purposely delayed until after the school year. This problem is more severe for charter schools as they don't have access to the traditional cash flow management tools used by school districts.

Best Estimates of Immediate Impact on Charter Schools

All charter schools should be implementing expenditure reductions immediately. The Charter Schools Development Center (CSDC) has indicated that they will be releasing their estimates of funding rates for 2002-03 in the near future. We urge all charter schools to check the CSDC website at www.cacharterschools.org for additional information (under What’s New) and information about workshops they are scheduling for February. In addition, School Services of California (http://www.sscal.com/) has released their estimates. School Services is estimating a block grant for K-3 of $4,415, $4,473 for 4-6, $4,594 for 7-8, and $5,334 for 9-12. They have also estimated categorical grants of $177 for K-3, $182 for 4-6, $133 for 7-8, and $169 for 9-12.

Reductions in Class Size Reduction Grants: The largest source of categorical funding for most charter schools serving grades K-3 is Class Size Reduction. Estimates of the current year reduction range from at least $90 per student to as much as $125 per student.

CANEC strongly urges all charter schools to immediately revise their current year budgets to reflect funding levels similar to these estimated levels. In addition, CANEC strongly urges all charter schools to look very closely at their anticipated cash flow needs for the next 18 months and to take steps, as appropriate, to insure funds are available to meet expenses in the face of extended payment delays.

Strength in Unity

There is no mistaking it: the budget crisis is hurting charter schools, just like it is hurting the rest of public education. However the severity of the budget crisis makes it even more important that the charter community stay united and strong as we face these challenges. We must redouble our efforts in communicating the outstanding work charter schools are doing to improve the academic achievement of California's students. While other "reform" efforts are eliminated, charter schools continue as a critical means to improve the entire California public education system. CANEC is committed to being the strong and clear voice of the charter school community, with our work to make your voices heard by the legislature and the Governor. This is only possible through your continued support of CANEC’s advocacy activities and your continued CANEC membership.

• Most recent update: May 23, 2003

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