January 26, 2011

Governor Brown's Proposed State Budget

Governor Brown’s proposed 2011-12 State Budget and its implications for the next five years is a challenging budget for education.  It is also probably the best budget schools could expect given the state’s fiscal situation.   The budget does cut cash flow to schools, puts schools at-risk for an additional $2 billion cut in June, and potentially puts schools at-risk five years from now even if the tax increases are approved. 

The economy is unlikely to grow sufficiently to make up for the structural deficit.  The budget does not propose additional payments from the settle-up account, nor does it address the longstanding maintenance factor.  Those issues will be subject to future budgets as the state’s economy improves; but education funding restoration from economic growth revenue will be subject to fierce competition to restore the health and welfare programs proposed to be cut starting in 2011-12.

School Cash Flow Cut

New $2.2 billion deferral from 2011-12 to 2012-13 ($2.0 billion for K-12 and $0.2 billion for community colleges) in addition to all other deferrals including the continuation of the $1.9 billion ($1.7 billion for K-12 and $0.2 billion for community colleges) from 2010-11 to 2011-12.  Effectively, schools are cut the $2.2 billion for 2011-12 and recover the money the next year and lose it again to another deferral.  For now the budget assumes all of the new $2.0 billion K-12 deferral will be from revenue limits, but that is open for negotiation.

School Funding Dependent on Tax Increase

Schools will be cut an additional $2.0 billion in June if the proposed tax increase fails.  The tax increase is a consolidated tax increase so voters will not be able to vote only to protect schools.  They will also have to vote to fund realignment if they want to protect schools from the June $2.0 billion cut.  Voters might not want to approve $6 billion in taxes for health, welfare and local jails as the price for protecting schools.

Voters also will have to approve continuing the tax for five years.  This could mean the tax will end at the beginning of the next recession.  We are about two years out of the last recession and business cycles tend to be from 5 to 9 years in duration.

I recommend that schools budget based on this year’s funding level less four percent to reflect the possible June cuts.

Mental Health

The budget proposes that Proposition 63 (the millionaire tax for mental health services) be amended to allow counties to use Proposition 63 funds for school AB 3632 mental health services.  This would not address the current year (2010-11) funding issue, but would solve the funding problem for 2011-12 and thereafter.  The proposal requires a 2/3 vote from the Legislature, but does not require a separate vote as a ballot proposition.

School Facilities

There is no proposed school bond sale for Spring 2011.  Consequently, school districts that do not have an already approved project could have to wait until August or September for state matching funds.

The proposal does not include a 2012 school bond.  Because the state School Facility Program probably will not run out of money until 2012, the school bond issue could be deferred until the 2012-13 budget proposal.

The Emergency Repair Program is funded at $53.6 million, of which $10 million is from one-time funds and $43.6 million is from ongoing funds.

Flexibility

The flexibility continuation did not list continuing the 175-day school year provision.  The Department of Finance stated they are still working on language for this issue.

Mandates

The three mandates that were suspended, stay suspended.  They are not part of the $89.9 funding proposed for reimbursement of audited actual claims in 2011-12.  The Mandate Working Group is expected to propose a new mandate funding process for 2012-13 and thereafter.

Special Education

The special disproportionate impact funding discontinues in 2011-12 pursuant to the 2010-11 budget agreement, but a new formula will be required for 2011-12.

Economic Impact Aid

The budget proposes to rebench based on actual spending.  This results in a reduction of $54 million.  While the budget claims this is a technical adjustment, the effect could be deficiting school claims if they increase as expected.

CalSTRS

The budget funds fully the required state contributions.  No new program changes are proposed.

Redevelopment Agency Funds (RDA)

The process for winding down and eliminating redevelopment agencies and enterprise zones is still being developed. 

For 2011-12 the budget proposes $1.7 billion in redevelopment agency funds would be transferred to counties for health care.  The transferred funds would offset state health care expenditures and would result in state General Fund savings.

In 2012-13 and thereafter, the RDA taxes would be distributed to cities, counties, special districts and schools pursuant to the current regular property tax distribution percentage.

For schools, the funds could be in addition to the Proposition 98 minimum guarantee

Proposition 10

The budget proposes to tap into $1 billion of First 5 funds similar to Governor Schwarzenegger’s proposal.  This will be a separate ballot proposition.

Conclusion

The Governor’s proposed 60-day budget process will not include K-12 schools directly.  The 60-day proposal will affect community colleges on fee increase, health and welfare programs and the statutory changes necessary to implement the realignment, enterprise zone and redevelopment agency proposals. Finally, the 60-day proposal would include the actions needed to place approximately $9 billion in taxes on a June special election ballot. 

The K-12 school budget should go through the normal budget hearing processes but it will not be finalized until after the June tax election.  Consequently, schools will need to follow the direction from their county offices on how best to budget for the remainder of 2010-11 and plan for the 2011-12 and 2012-13 school years.

There will be more detail coming from the Administration and the Legislature during the next 60 days.  That detail will help shape the school funding parameters not only for the remainder of this year, but at a minimum the next two years and thereafter. 

Click here to access the Governor's Budget.

~Dave Walrath