May 17, 2011

Governor Proposes No Proposition 98 Suspension

State Revenues Are Up By $6.6 Billion

Governor’s May Revision recognizes increased state General Fund revenues and an increased commitment to Proposition 98 because of those revenues. 

The May Revise proposes to use most of the new Proposition 98 funds to accomplish the following goals. This is good news; however, it does not mean you should rescind notices or rehire.  It is way too early.

• 1.                   No $330 per ADA revenue limit cut if taxes fail.
• 2.                 Eliminates the enacted new $2.1 billion deferral.  This was part of the January budget proposal that was adopted in the signed March State Budget legislation.  In programmatic terms, this reduces borrowing and, therefore, borrowing costs.  It does not increase programmatic funding above the level anticipated in the January budget.
• 3.                 Uses $434 million to reduce other deferrals. While this part of the May Revision is unclear on whether this reduction will be from existing revenue limit apportionment deferrals or categorical aid deferrals, the effect should be approximately $70 per ADA in real one-time money.
• 4.                 Transfers mental health costs and residential costs from counties to school districts and provides General Fund support for those costs.
• 5.                 Increases the 2009-10 Proposition 98 minimum guarantee by $1.6 billion which results in a settle-up account increase. These funds will have to be paid in some subsequent year, but not in 2011-12.   
• 6.                 Increases the estimate of annual property tax revenues which offset state General Fund revenue limit costs.

~Dave Walrath