February 19, 2009

State Budget Update

This morning the State Senate and Assembly completed action on both the 2008-09 mid-year budget adjustments and the 2009-10 State Budget including education funding and appropriations.  While there were some adjustments in tax revenues, it appears that those adjustments will have a minor affect on Proposition 98 guarantee and education funding.  The provisions outlined below are the structure of the budget agreement and can be used for developing school district and county office budget plans for March 15 notices. 

The agreement includes special election provisions outlined below, as well as a new provision for the 2010 election, that provides for an open primary and assurances that legislators cannot receive a pay increase during years when there is a state budget deficit. 

The overall changes were to delete the $.12 gasoline tax increase and delete the 5% income tax surcharge with an alternative of a .25% increase in general income tax rates using federal stimulus funds and a commitment from the Governor to make $600 million worth of line-item vetoes.

While basic aid districts will not be affected by the revenue limit deficits, and will not be required to make additional categorical program cuts equal to the revenue limit deficits of equalization districts, basic aid districts will not be eligible for the federal stimulus revenue limit backfill.  After the federal stimulus revenue limit backfill, it is believed that basic aid and equalization aid districts essentially will be in the same position.

Assembly Bill 4 of the Third Extraordinary Session

Assembly Bill 4 of the Third Extraordinary Session is part of the budget compromise. The following are the provisions of the bill:

Statutory Revenue Limit

Deficit Factors

Settle-up

Uses $1.1 billion in settle-up funds for 2008-09 school funding.  This is not a cut in funding, but is one-time funding that must be replaced in 2009-10.

Revenue Limit Equalization Funding Methodology  

Authorizes a methodology for the apportionment of $200 million in K-12 revenue limit equalization funding in 2011-12, which will be paid only if the voters approve a state constitutional amendment that provides approximately $9.3 billion in supplemental education payments to K-12 schools and community colleges over several years, beginning in 2011-12.   

Deferral

Defers $2.6 billion in February 2009 principal apportionment to July 2009 and makes the same deferral for all future years. Deferral is $1.0 billion in K-12 apportionments from July to October 2009 AND $1.5 billion from August to October. 

Extension Authority for Budget Year Payment Deferrals

Extends the encumbrance of funds by one month for categorical program payments deferred from June to July 2010.    

Flexibility 

Routine Maintenance Reserves

Reduces the amount that school districts are required to set aside in "routine restricted maintenance accounts" from three to one percent of their general fund budgets.  This requirement would be in effect for five years, beginning in 2008-09.  

Deferred Maintenance

Eliminates the requirement that school districts that fail to set at least a half percent of their current-year revenue limit average daily attendance funding for maintenance of facilities must submit a related report to the Legislature.  This requirement would be in effect for five years, beginning in 2008-09.   

Funding for Emergency Repair Program 

Suspends any transfer of funds from the Proposition 98 Reversion Account into the School Facilities Emergency Repair Account for the 2009-10 fiscal year.  Limits funding for the Emergency Repair Program to no more than $101 million in 2008-09.  Prohibits school districts from using School Facilities Emergency Repair Account funds to supplant state funds provided for deferred maintenance, and from depositing these funds into district deferred maintenance accounts.   

Class Size Reduction Penalties

For four years, beginning in the 2008-09, reduces the penalties for exceeding the maximum class sizes allowable under the class size reduction incentive program. 

SEC. 17.   Section 52124.3 is added to the Education Code, to read:   

52124.3.  (a) For the 2008-09, 2009-10, 2010-11, and 2011-12 fiscal years only, the amounts deducted pursuant to subdivision (d) of Section 52124 shall be as follows:  

(1) Five percent of the amount to which the school district would otherwise be eligible for each class for which the annual enrollment determined pursuant to Section 52124.5 is greater than or equal to 20.5 but less than 21.5.  

(2) Ten percent of the amount to which the school district would otherwise be eligible for each class for which the annual average enrollment determined pursuant to Section 52124.5 is greater than or equal to 21.5 but less than 22.5.  

(3) Fifteen percent of the amount to which the school district would otherwise be eligible for each class for which the annual average enrollment determined pursuant to Section 52124.5 is greater than or equal to 22.5 but less than 23.0.  

(4) Twenty percent of the amount to which the school district would  otherwise be eligible for each class for which the annual average enrollment determined pursuant to Section 52124.5 is greater than or equal to 23.0 but less than 25.0.  

(5) Thirty percent of the amount to which the school district would otherwise be eligible for each class for which the annual average enrollment determined pursuant to Section 52124.5 is greater than or equal to 25.0.  

(b) A local educational agency is eligible to receive funding pursuant to this section only if it was participating in the K-3 Class Size Reduction Program as of December 10, 2008. An eligible local educational agency may only receive funding for the grade level or levels for which it had applied to receive funding as of December 10, 2008.  

One-Time Only: Ending Fund Balances for Restricted K-12 Programs

For the current and budget years, authorizes LEAs to use ending fund balances as of June 30, 2008, in most restricted, categorical program accounts, to backfill program reductions.  Districts would not be able to access ending balances for Economic Impact Aid, Targeted Instructional Improvement Grants, Instructional Materials, Special Education, Quality Education Investment Act, CAHSEE (California High School Exit Exam) Supplemental Instruction, and Home-to-School Transportation.  Requires LEAs who elect to use this authority to submit a related report to the Superintendent of Public Instruction (SPI), and requires the SPI to compile those reports and submit the information to the Legislature by October 31, 2009.  

Ongoing Flexibility for Ongoing Categorical Program Funds

(Program listings from Strategic Education Services)

Programs with no cuts and excluded from transfers to the General Fund:  

• Advancement Via Individual Determination (AVID)
• After School Programs
• Child Development
• Child Nutrition
• Economic Impact Aid
• Home-to-School Transportation
• K-3 Class Size Reduction
• QEIA
• Special Education

• Adults in Correctional Facilities
• Agricultural Vocational Education
• Apprentice Program
• Charter School Facility Grant Program
• English Learner Student Assistance
• Foster Youth Programs
• K-12 Internet Access
• Partnership Academies
• Student Assessment Testing
• Year Round Schools

• Adult Education
• Advanced Placement Programs
• American Indian Early Childhood Education Centers
• American Indian Education Centers
• Arts and Music Block Grant
• Bilingual Teacher Training
• CA Association of Student Councils
• CA High School Exit Exam-Instructional Support and Services
• CA School Age Families Education
• Certificated Staff Mentoring
• Charter School Categorical Block Grant
• Chief Business Officers Training Program
• Child Oral Health Assessments
• Civic Education
• Class Size Reduction - 9th Grade
• Community -Based English Tutoring Program
• Community Day Schools
• County Office of Education - Williams Audits
• Deferred Maintenance
• Gifted and Talented
• High Priority Schools Grant Program
• Instructional Materials
• Local Assistance - Commission on Teacher Credentialing
• Math and Reading Professional Development
• National Board Certification Incentives
• PE Teacher Incentive Program
• Peer Assistance and Review
• Principal Training Program
• Professional Development Block Grant Program
• Pupil Retention Block Grant Program
• Reader Services for the Blind
• Regional Occupational Centers and Programs
• School and Library Improvement Block Grant
• School Safety Block Grant (8-12)
• School Safety Competitive Grants
• Specialized Secondary Program Grants
• Supplemental Instruction
• Supplemental School Counseling Program
• Targeted Instructional Improvement Block Grant
• Teacher Credentialing Block Grant
• Teacher Dismissal Apportionment

SPI Implementation of K-12 Program Reductions

Gives the SPI the authority to reduce principal apportionments to school districts in order to implement program reductions enacted by this bill if (a) the State Controller has already disbursed funds for programs reduced, and (b) the SPI has determined there is no other way to recover these disbursed funds.   

Special Election May 19, 2009?

The State Budget agreement depends upon voters approving a series of constitutional and initiative changes. The spending cap, lottery securitization, use of Proposition 10 (First Five) funds, use of Proposition 63 (mental health funds) and the Proposition 98 $9.3 billion dollar maintenance factor will be on the ballot.

Assembly Bill 11 of the Third Extraordinary Session calls for a special election on May 19, 2009 to include these provisions. This bill has passed both the State Senate and the State Assembly. It is awaiting the Governor’s signature.

Because of the early May 19 date, or even if it is extended to May 26, it will be almost impossible for school districts to place local school bonds and parcel taxes on this ballot if they have not already been placed for the next statewide election.

~Dave Walrath

dwalrath@m-w-h.com