September 23, 2008

Governor Signs 2008-09 State Budget

California’s school districts, charter schools and county offices of education provide instruction and a variety of programs and support services for pre-Kindergarten through grade twelve (K-12) students. These programs are designed to prepare students with the skills necessary to pursue higher education, obtain fulfilling employment, achieve career goals and develop as productive citizens. Programs and services provided to more than six million students annually include standards-based instruction, special education, English learner support, career preparatory programs, child care and development, remedial instruction and adult education.

The Budget Act includes $41.9 billion General Fund in funding for K-12 education and community colleges to fund the minimum Proposition 98 Guarantee in 2008-09. Total Proposition 98 funding for K-14 education programs will increase year over year by $1.5 billion.

Total expenditures from all sources for K-12 education programs in 2008-09 are projected to be $71.9 billion ($42 billion General Fund). Of this amount, $68 billion is state, federal and local property tax funding accounted for in the State Budget. Notable funding changes are described below.


ATTENDANCE
As a result of a steady decline in birth rates throughout the 1990s, attendance growth in public schools is declining. For 2007-08, K-12 average daily attendance (ADA) is estimated to be 5,947,000, a decrease of 6,400 from the 2006-07 fiscal year. For 2008-09, K-12 ADA will decrease by an additional 31,000 to 5,916,000.


PER-PUPIL SPENDING
Total per-pupil expenditures from all sources are projected to be $12,042 in 2007-08 and $12,152 in 2008-09, including funds provided for prior year settle-up obligations. This is an indicator of the relative level of spending in California for support of K-12 education programs and not the actual level of funding allocated to each school for a pupil.


COST-OF-LIVING ADJUSTMENTS
The Budget includes $244.3 million for a 0.68-percent cost-of-living adjustment (COLA) for school apportionments. Of this amount, $239.8 million is for school district revenue limits and $4.5 million is for county office of education revenue limits. No COLA is provided for categorical programs.


PROPOSITION 98 GUARANTEE
The voter-approved constitutional amendment, Proposition 98, guarantees minimum funding levels for K-12 schools and community colleges. The guarantee, which went into effect in the 1988-89 fiscal year, determines funding levels according to a multitude of factors including the level of funding in 1986-87, General Fund revenues, per capita personal income and school attendance growth or decline.

Proposition 98 originally mandated funding at the greater of two calculations or Tests (Test 1 or Test 2). In 1990, Proposition 111 (SCA 1) was adopted to allow for a third funding test in low revenue years. As a result, three calculations or tests determine funding for school districts and community colleges (K-14). The calculation or test that is used depends on how the economy and General Fund revenues grow from year to year.

For fiscal year 2006-07, the Proposition 98 Guarantee was $55.2 billion, of which the General Fund share was $41.4 billion. Local property taxes covered the balance.

Proposition 98 General Fund appropriations for 2007-08 are now $41.6 billion. Total Proposition 98 funding for 2007-08 is $56.6 billion.

The Proposition 98 Guarantee for 2008-09 is projected to grow to $58.1 billion of which $41.9 billion would be from the General Fund. With this additional investment, K-12 Proposition 98 per-pupil funding is $8,784 in 2008-09, up from $8,509 in 2007-08.

Property Taxes
The Budget reflects $14.4 billion in school district and county office of education property tax revenues in 2008-09, an increase of $1.0 billion over 2007-08. In general, increases in local property tax revenues decrease the amount of state General Fund costs for revenue limit apportionments. These estimates include the impact of redevelopment agency (RDA) pass-through provisions enacted with the Budget Act.

A recent report by the State Controller’s Office found that RDAs have not been passing through the full amount of property tax increment revenues to local taxing jurisdictions, including local education agencies, required under current law. As a result, legislation is included with the Budget requiring RDAs to report all payments and obligations to local taxing jurisdictions for fiscal years 2003-04 through 2008-09 to the county auditor for verification. RDAs are required to remit any outstanding obligations to local taxing jurisdictions, except that monies owed to schools that offset state costs for apportionments are to be deposited in the county Educational Revenue Augmentation Fund. This transfer is estimated to be $98 million in 2008-09.

This legislation also requires a one-time shift of $350 million from RDAs to the county Educational Revenue Augmentation Fund in 2008-09. The shift will generate a commensurate amount of Proposition 98 General Fund savings. Each RDA will shift an amount proportionate to its individual share of statewide RDA tax increment revenues. RDAs with insufficient liquidity to fund the shift may borrow from their low-moderate income housing funds, from their organizing city or county, or from a joint powers agency. 

Other Budget Adjustments
California State Lottery Funding for Education
Current law requires that at least 34 percent of lottery revenues be allocated to public education programs. Beginning in 2009-10, pending approval by the voters, the allocation of lottery revenues to public education will be replaced with annual appropriations from the General Fund. Each of the entities currently receiving lottery funding will be provided General Fund equal to the amount of lottery revenue it received in 2008-09, adjusted each year by the change in average daily attendance or full time equivalent students, as applicable, and by the change in California per capita personal income. This funding is estimated to be $1.1 billion in 2009-10. Essentially, a relatively flat funding source for education will be replaced with General Fund appropriations which will grow significantly over time.

Commencing in 2009-10, these General Fund appropriations for school districts, county offices of education, the State Department of Corrections and Rehabilitation, the State Department of Education State Special Schools, the State Department of Developmental Services developmental centers and the State Department of Mental Health state hospitals will be provided in addition to the minimum funding level required by Proposition 98 for K-12 schools and community colleges. The effect of this is to build the Proposition 98 minimum funding level by an estimated $1.057 billion in 2009-10, which will grow over time based on the Proposition 98 growth factors.

Local Educational Agency Corrective Action Assistance
Consistent with the requirements placed on the state and local educational agencies (LEAs) by the federal No Child Left Behind Act (NCLB), the State Board of Education, in March 2008, approved individually differentiated sanctions and technical assistance for 97 LEAs.

To ensure that this and future cohorts of corrective action LEAs have the financial wherewithal to implement these activities, the Budget includes $180 million federal Title I Set-Aside funds. LEAs will receive one-time funding to implement a variety of improvements and reforms aimed at improving student achievement. Specifically for this first cohort of LEAs, the budgeted resources will be used to fully implement a new curriculum that is based on state academic content and achievement standards, including providing appropriate professional development based on scientifically-based research for all relevant staff. Also, LEAs will contract with county offices of education, district assistance and intervention teams, or other assistance providers to analyze the fiscal, governance, and academic capacities of LEAs. These experts will make recommendations that should move these LEAs in a positive direction.

The funds provided in the Budget and the additional expertise should lead to better administrative and instructional systems aimed at the most important purpose, improving the educational achievement of California’s students. 

Emergency Repair Program
The Budget Act provides another $101 million transfer from the Proposition 98 Reversion Account to the Emergency Repair Account in satisfaction of the Williams settlement agreement. This increment of funding for the program will bring total transfers to $392 million for the purpose of funding school facility emergency repair projects.

Student and Teacher Longitudinal Data Systems
The Budget Act provides $25.4 million to support the development of the California Longitudinal Pupil Achievement Data System and related school information services workload. Total funding for these programs since 2006-07, including support for all districts in preparing for the transition to the longitudinal system in the summer of 2010, is $78.7 million. In addition, the Budget provides $1.2 million in federal funds to support development of the California Teacher Integrated Data System. The state is currently soliciting bidder proposals for implementation, and plans on initiating development in 2009-10.

Proposition 98 Settle-Up Payments
The 2008-09 Budget defers $150 million in settle-up payments that have traditionally been appropriated to reduce prior years outstanding K-14 unfunded reimbursable costs for mandated programs.

The Budget includes $402 million in settle-up funds to continue the Quality Education Investment Act of 2006. Over a seven-year period, nearly $2.7 billion will be spent in an effort to improve the quality of academic instruction and the learning environment at the lowest-performing schools in the state. These goals are to be achieved through reduced class size and improved teacher quality and training in schools at all grade levels, and improved counselor-to-student ratios in low-performing high schools. The program also creates a process for schools to calculate and report average experience of their teachers.