State Budget Update from California Community Colleges' Vice Chancellor Erik Skinner - 7/13/2009:

Dear Colleagues,

State budget talks are at an impasse. In recent days, the political rhetoric has taken a marked turn toward the negative and personal. Assembly Speaker Karen Bass has used a barrage of press conferences and media releases to criticize the governor for his "lack of desire to close out this budget" and his willingness to "eliminate the safety net for vulnerable Californians." Governor Schwarzenegger in turn has criticized legislative Democrats, and Assemblymember Bass in particular, for "failing to come to terms with the severity of the state's budget crisis" and "lacking the resolve to make tough decisions."

The political rhetoric is heating up from outside the Capitol as well. Today the California Teachers Association launched a television ad campaign criticizing Governor Schwarzenegger for proposing cuts to education and suspension of the Proposition 98 minimum guarantee. This could be sign that key interest groups are locking in for a more protracted budget battle.

While there continue to be periodic meetings of the Big 5 and senior budget staff, most of the dialogue seems to be occurring through the bullhorn of the press. It is anyone's guess as to when this impasse will end. The Legislature has cleared out of town for the weekend, but remains "on call" in case a budget deal comes together.

The state's cash crisis remains the biggest pressure point for state leaders to resolve the budget impasse. So far, the most concrete impact of the cash shortage has been the IOUs, or registered warrants, issued by the state starting July 2. So far, community colleges have avoided IOUs due to the Constitutional protection afforded funding for community colleges and K-12 schools. The state would only issue IOUs to the colleges in the event that state cash reserves were completely exhausted-something that the State Controller has indicated would likely not occur unless the budget impasse ran into September.

In another sign of the state's lack of cash reserves, deferred payments to community colleges and K-12 schools scheduled to go out on July 10 have been pushed back to July 30. These payments reflect funds owed to the colleges and schools for the 2008-09 fiscal year that were deferred as part of a budget gimmick used to provide a partial solution to the state's budget squeeze. For the colleges, the deferred amount totals $540 million. The State Controller is within his authority to delay these payments as current law only requires the funds be paid sometime during the month of July. Clearly the delay of this significant sum will create additional cash flow problems and borrowing costs for our colleges.

While the cash crunch may be the biggest pressure point, a more petty and selfish consideration may force state leaders into a compromise. Namely, the beginning of the Legislature's summer recess-scheduled to commence on July 17-has the potential to bring state leaders together. In the past, the draw of vacation plans has managed to inspire a spirit of collaboration. We shall see.

More updates to follow as the situation develops.

Regards,

Erik Skinner

Vice Chancellor for Fiscal Policy
California Community Colleges,
State Chancellor's Office