Volume I, No. 9

January 15, 2009

Maintenance Factor

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

The Governor’s budget proposal includes approximately $5.3 billion in permanent reductions from what schools would have otherwise received from Proposition 98 and the State Lottery. 

The education community has always believed that when state revenues decline and Proposition 98 Test 3 goes into effect, the difference between the ongoing Proposition 98 funding level of Test 2 and the short-term lower level of Test 3 would be made up through what is called the maintenance factor.  The ongoing Test 2 Proposition 98 level for 2009-10 is approximately $60.3 billion.  The Governor’s budget proposes a Proposition 98 Test 1 level of $55.9 billion (including lottery) as the Proposition 98 minimum guarantee.  The Department of Finance (DOF) has interpreted the minimum guarantee to essentially reset at this level. 

Schools believe they are owed the difference between the $55.9 billion (including lottery) in the budget proposal and the $60.3 billion ongoing Test 2 plus $900 million of lottery.  This difference is $5.3 billion.  The DOF, however, believes in their interpretation of Proposition 98 that the $55.9 billion is the new ongoing base and therefore the $5.3 billion is not owed to schools as maintenance factor and does not need to be paid in the future.

If the DOF interpretation were to be adopted, the effect would be schools could not plan on the restoration of the unfunded COLAs, or the restoration of the Governor’s proposed revenue limit cuts.

The education community will strongly advocate that the historic interpretation of the maintenance factor should be adopted rather than the DOF new interpretation.