February 6, 2012

LAO responds to Governor’s Budget Proposition 98 Proposals

Today, the Legislative Analyst released his recommendations regarding the Governor’s proposed 2012-13 State Budget for K-12 education. Following is the Executive Summary:

“Governor’s Basic Budget Plan

“Paying Down Deferrals Makes Sense. The largest component of the Governor’s basic plan is to pay down $2.4 billion in K-14 payment deferrals. If the state has additional Proposition 98 resources to spend in 2012-13, we think paying down these deferrals is reasonable. This would not only help reduce the significant cash management challenges now facing districts but also would be less disruptive than programmatic cuts were the tax measure to fail.

“Major Policy Proposals

“Recommend Replacing Seriously Flawed Mandate System With Block Grant. The Governor’s budget proposes to eliminate more than half of education mandates and fund remaining mandated activities within a $200 million discretionary block grant. The state’s existing mandate system has serious flaws, and we think a block grant approach would help overcome many of them. We recommend the Legislature adopt the block grant approach and create a working group to address implementation details over the next few months.

“Recommend Fundamental Restructuring of State’s K-12 Funding Model. The Governor proposes major changes to the way the state allocates funding to districts. Because the state’s current K-12 funding system is complex and inequitable, we recommend the Legislature adopt some version of the Governor’s proposal. While we think his specific proposal for a weighted student formula has many strengths, we believe the Legislature should consider some modifications to ensure fundamental state priorities are preserved. Most importantly, we recommend the Legislature preserve some assurances that districts dedicate additional resources toward their disadvantaged students.

“Recommend Package of Changes to Transitional Kindergarten (TK) and Preschool Programs.

“The Governor proposes canceling initiation of a new TK program. He also proposes to notably reduce funding and slots in the state’s preschool program. Because some of the affected populations would be the same, we believe the Legislature may want to consider these proposals in tandem.

“We recommend the Legislature focus limited resources on serving the four-year olds who could most benefit from a state-subsidized preschool program. This includes immediately adopting the Governor’s proposal not to initiate the TK program, but preserving—to the degree budgetary resources allow—the state’s current investment in providing preschool services.

“Multiyear Plan to Retire Education “Wall of Debt”

“Governor’s Plan Is Solid Starting Point. The Governor’s package contains a multiyear plan for retiring certain education obligations. We think building such a plan is a prudent practice.

“We recommend, however, the Legislature consider extending the payment period, scheduling out payments more evenly, designating settle-up funds be used for mandates or deferrals, and redirecting Quality Education Investment Act program savings (with first call to retire Emergency Repair Program obligations). Although the Legislature will need to modify this plan if conditions change, having a plan in place is critical to ensure progress in retiring such large outstanding obligations.

“Back-Up Budget Plan

“Two Notable Concerns With Governor’s Back-up Plan. If the Governor’s tax measure is not approved by voters, the Governor proposes $5.4 billion in midyear trigger cuts. Of this amount, $4.8 billion, or 90 percent, would come from Proposition 98 cuts. To achieve these savings, the Governor begins funding K-14 debt service payments within Proposition 98. We have serious policy concerns with this proposal. Because debt service payments are volatile, the proposal would result in notably greater volatility for education programs. Absent a clear, compelling policy rationale, we question why the state would want to change its longstanding facility funding practices, particularly when the change results in a significant cut in programmatic funding. The Governor’s back-up plan also excludes the 2011-realignment related sales tax revenue from the Proposition 98 calculations.

“We believe such treatment is risky. If the realignment revenues were to count toward the guarantee, the guarantee would increase roughly by $1.7 billion. As a result, the Governor’s back-up plan would need to be modified—either by suspending the guarantee or by funding the higher guarantee and implementing $1.7 billion in reductions in other areas of the budget.

“Consider Several Factors When Developing Back-up Plan. Most districts likely will base their local budgets on the state’s back-up plan. Given this, the Legislature needs to be very deliberate in developing such a plan. If the Legislature decided to enact midyear cuts, it would need to identify a target level of savings, decide how best to allocate cuts among education and non-education programs, determine the specific K-14 cuts to impose, and design tools to help districts respond.

“Alternatively, the Legislature could adopt a plan that made cuts up front and then provided midyear spending increases if the tax measure passed. It could designate the new revenues for one-time investments in 2012-13 and then build them into the base budget in 2013-14.

“Provide Districts More Flexibility Given All the Uncertainty They Face in 2012-13. We recommend the Legislature give districts some flexibility tools (effective July 1) for the coming year.

“We offer a number of options, including removing additional categorical and mandate requirements, shortening the school year, suspending the number of full-time faculty that community colleges must employ, and allowing for a special post-election layoff window.”

Click here for more detail.

~Dave Walrath