(This article has been updated with details on the proposed rainy day fund and School Services of California’s budget analysis.)
Citing a “strong commitment to schools” after years of cuts, Gov. Jerry Brown on Thursday proposed raising K-12 spending in next year’s state budget a healthy $725 per student – 8.6 percent on average – and to use additional new dollars to wipe the last $6 billion of late payment to schools, known as deferrals, off the books.
“The good news is that we’re putting $10 billion into the schools of California. After years of drought and cutbacks and pink slips for the teachers, we’re finally being able to provide a substantial amount of new money for all the schools of California,” Brown said at a news conference in Sacramento. But at the same time, he said that paying down $354 billion in long-term state liabilities should take priority over expanding or adding new programs.
“Many programs are attractive and may have value but when we have long-term liabilities, now is not time to embark on a raft of new initiatives,” he said.
Senate Democratic leaders this week proposed expanding the state’s pre-kindergarten program, making it available to all 4-year-olds. Fully phased in, it would cost about $1 billion a year. Brown’s budget does not include additional funding for early education, although the governor said he would consider whatever legislative leaders brought to him.
Responding to the governor’s budget message, Senate President pro Tem Darrell Steinberg said, “I appreciate the governor’s aggressive approach to more than double the reserve and pay down debt even more quickly than we had hoped. At the same time, we must invest in the people of California, especially those living in the economic margins.”
Senate Republican Leader, Bob Huff, R-Diamond Bar, countered in a statement, “Ramping up state spending before making sure we’re on solid fiscal ground is a recipe for disaster. What’s the good of building up programs only to tear them down in a couple of years?” The big question is, he said, “can the Governor hold strong against the spending demands made by his fellow Democrats.”
Brown also preempted suggestions of a big school construction bond this November by stating that educators and legislators first must redesign a smarter and fairer way to fund school construction. The budget message criticized the current system for being overly complex, encouraging overbuilding and awarding money on a first-come basis – giving larger districts an advantage. However, next year’s budget does include $188 million from Proposition 98, the voter-approved school funding guarantee, for emergency facility repairs targeted to low-performing schools.
$10 billion boost
The budget projects an unprecedented extra $10 billion next year under Prop. 98, the main formula for determining K-12 and community college revenue. The Prop. 98 guarantee would rise to $61.6 billion next year and reach $69.6 billion in 2017-18. The Legislative Analyst’s Office, in its Prop. 98 projections six weeks ago, predicted $600 million more next year and $70.7 billion – $1.1 billion more – in 2017-18.
In its analysis of Brown’s proposal, School Services of California, a Sacramento-based consulting and advocacy firm, said, that “any way you slice it, education would experience the highest level of recovery funding ever experienced.” Proposition 98 was written to ensure that K-12 schools and community colleges are repaid money owed to them when revenues return after a recession. “While the California economy as a whole improves at a very moderate rate, and tax revenues increase at a somewhat better rate, education’s Proposition 98 entitlement skyrockets. This creates a window of opportunity unlike any we have had before,” School Services wrote.
About two-thirds of the additional $10 billion next year would come from an actual increase in this year’s guarantee; one-third reflects more money from recalculating the Prop. 98 guarantee for the current and the previous year. Brown is proposing to split the new money between making one-time expenditures and awarding school districts more dollars for ongoing spending.
Proposition 98 spending in 2014-15 would be $14.3 billion or 30 percent more than three years ago but less than 9 percent above the pre-recession level of $56.6 billion. Source: Governor’s Budget Summary for 2014-15.
Nearly $4.5 billion of the new money next year will go toward implementing the dramatic reforms of the state’s school funding system that Brown championed, the Local Control Funding Formula. That amount is more than double the $2.1 billion in the current state budget for LCFF’s initial year of funding. The increase would raise the base funding per student from $6,955 this year to $7,705. The funding formula steers additional dollars to low-income students, English learners and foster youth.
Channeling so much additional money to LCFF “sends a strong signal to local governing boards that the state will remain committed to the implementation of the new funding formula,” Josephine Lucey, president of the California School Boards Association and a board member in the Cupertino Union School District, said in a statement.
The Department of Finance has projected it would take eight years to implement the formula. Between this year and next year, LCFF already would be about 36 percent of the way to full funding. However, Nicolas Schweitzer, an analyst with the state Department of Finance, cautioned that state revenue increases are expected to taper off after next year.
Common Core
Last year, Brown was persuaded to include $1.25 billion in one-time money to help school districts prepare for the Common Core State Standards, and education groups had hoped the governor would do the same next year. But Brown wants to provide only $46 million more for Common Core, to pay for new assessments. Instead, he wants to channel nearly $6 billion to eliminate the late payments to districts now, rather than over several years, as he had suggested in last year’s state budget.
Lucey said the the school board association will continue to push for additional money for Common Core; districts need about $2 billion more to be ready for the new standards, she said, citing state Department of Education figures.
And Assemblyman Al Muratsuchi, D-Torrance, who chairs the Assembly Budget Subcommittee on Education Finance, said Thursday that he also is hearing from educators that Common Core is a priority. Saying he strongly agreed with Brown’s priority for paying off debt and putting more money into a rainy day fund – “stability first and foremost” – he also said that Brown’s proposal is “just the initial volley, with discussion to come.”
Deferrals have disproportionately affected districts with low-income children and low property wealth, forcing them to pay interest on borrowed money, or, if denied access to loans, to cut programs. During the recession, deferrals totaled nearly $10 billion, and comprised more than 30 percent of the money that the state owed some districts.
Paying off deferrals has a double bonus of relieving a financial burden on districts and freeing up Prop. 98 dollars in subsequent years.
Per pupil spending in 2014-15 from all revenue sources would rise 7 percent or $848 to $12,833. Source: Governor’s Budget Summary for 2014-2015.
Per-pupil spending for the state’s 6 million K-12 students would be $9,194 next year, compared with $8,469 this year. While the total Prop. 98 minimum guarantee of $61.6 billion for K-12 schools and community colleges would be $14.4 billion, or 30 percent higher than only three years ago, it still would be less than 9 percent above the 2007-08 guarantee of $56.6 billion, preceding the Great Recession.
Fiscal restraint
In his budget message, Brown tried to deflate expectations that big jumps in general fund revenue will once again be the norm.
Temporary tax increases under Proposition 30, approved by voters in November 2012 to fund education, will expire by 2018. Brown further cites the threat of an economic recession, unpredictable actions by Congress, volatility in revenue from capital gains and the state’s huge unfunded liability for retiree health benefits and teacher pension obligations as reasons for “fiscal discipline so that the state maintains the capacity to weather (risks and pressures) that do materialize.”
The biggest state liability is $80 billion owed to keep the teacher pension program, CalSTRS, solvent; the budget message quotes CalSTRS estimates that additional annual contributions of as much as $4.5 billion would be needed to fully cover retirement benefits it promised teachers and administrators over the next 30 years. Brown is counting on negotiating a deal with lawmakers this year and to increase contributions in 2015-16. But in a direct warning not to look to the General Fund for answer, he said, “Because retirement costs are part of total compensation costs, school districts and community colleges should anticipate absorbing much of any new CalSTRS funding requirement. The state’s long-term role as a direct contributor to the plan should be evaluated.”
A constitutional amendment, ACA 4, to tighten an existing rainy-day fund that would steer some state revenue from fat years into a reserve for fallow years is already planned for the November ballot. But Brown wants to strengthen it further and double the size of the rainy day fund from 5 percent to 10 percent of state revenues. The money would be tied to big jumps in tax revenue on capital gains and would “smooth school spending to prevent the damage caused by cuts,” Brown’s budget summary said. It would basically create two rainy day funds, one for Proposition 98 and one for the rest of the budget.
Schweizer, of the Department of Finance, said the state has not run scenarios yet, but the rainy day fund would be large enough to prevent the $9 billion in cuts to schools that occurred between 2007 and 2011 and eliminate the need for deferrals, in which the state borrows money from schools to meets its bills. The rainy-day provisions would not affect calculations for the Prop. 98 yearly guarantee.
John Fensterwald covers state education policy. Contact him and follow him on Twitter @jfenster. Sign up here for a no-cost online subscription to EdSource Today for reports from the largest education reporting team in California.