Volume I, No. 12

February 5, 2009

LAO Releases Recommendations on Proposition 98

By David Walrath -- dwalrath@m-w-h.com

The Legislative Analyst’s Office (LAO) released their 2009-10 Budget Analysis Series:  Proposition 98 Education Programs.  The LAO cannot make specific recommendations because of the uncertainty surrounding Proposition 98 guarantee.  That uncertainty includes the current year level, the budget year general fund revenues, as well as the interpretations of the Test 1 calculation and maintenance factor obligations.  

All of these factors are unknown at this time because the current year budget has not been resolved nor have the differing interpretations.  The LAO does present three tiers of cuts for legislative consideration.

Tier 1: Recommended Reductions

Tier 1 identifies $1.1 billion in Proposition 98 reductions and $152 million in non–Proposition 98 reductions—for total K–14 General Fund savings of $1.3 billion.

Tier 2: Reductions With Some Programmatic Effects

Tier 2 identifies $1.8 billion in Proposition 98 reductions and $450 million in non–Proposition 98 reductions—for total K–14 General Fund savings of $2.3 billion.

Tier 3: Reductions With More Significant Programmatic Effects

Tier 3 identifies $2.2 billion in additional K–14 reductions (all Proposition 98 savings). When combined with the other tiers, cumulative General Fund savings would be $5.7 billion ($5.1 billion Proposition 98 and $652 million non–Proposition 98).

The LAO also recommends the creation of new categorical block grants and categorical aid program flexibility.

Consolidate Most K–12 Categorical Programs Into Thematic Block Grants. Specifically, we recommend the state consolidate 42 existing K–12 categorical programs into three large block grants focused on instructional support, at–risk students, and special education students.

Create Instructional Support Block Grant. We recommend consolidating 22 programs and $4.2 billion into a new Instructional Support block grant.

Create Opportunity to Learn Block Grant. We recommend consolidating 12 programs and $3.2 billion into a new OTL block grant.

Create Special Education Block Grant. We recommend merging base special education apportionment funding (commonly called AB 602 funding) with three apportionment “add–ons” and four stand–alone special education programs.

Education Mandates

The LAO’s analysis highlights the fact that the Governor proposes to suspend most K-14 mandates, and so would not require LEAs to perform the mandated activities so the state would not incur any fiscal liability now or in the future.  The LAO argues that the Governor misses the opportunity for reform and pushes off important decisions, and recommends reviewing each mandate on a case-by-case basis. 

Cash Management

The LAO’s analysis highlights the fact that, due to the State’s recent difficulties balancing the budget, the State deferred several large payments in 2008-09 with the largest deferrals coming from Proposition 98 payments.