December 3, 2009

LAO Predicts Negative Cost-of-Living Adjustment (COLA)

For the first time since the adoption of the current COLA formula, school districts and county offices of education are facing a negative COLA that could be almost 1.0 percent.  The current formula (in Education Code Section 42238.1) is based on the Implicit Price Deflator for state and local government purchasing goods and services for the United States, as published by the United State Department of Commerce.  Because state and local governments have experienced significant revenue losses and because goods and services have become less expensive, the effect from the formula is a probable negative COLA.  The LAO estimated a -0.35 of one percent. I have predicted a -1.0 percent.

If there is a negative COLA, the Legislature has the option to “spend the savings” by reducing the revenue limit and categorical aid deficits, reducing deferrals, or to leave the deficits and deferrals and spend the savings on new programs in an election year.

~Dave Walrath