Reforms > Local Control Funding Formula

Brown projects big increase in school spending in next state budget



budget-logo-school(This article has been updated with details on the proposed rainy day fund, and comments on the budget by the Legislative Analyst and School Services of California.)

Citing a “strong commitment to schools” after years of cuts, Gov. Jerry Brown on Thursday proposed to substantially raise K-12 spending in next year’s state budget and to use additional new dollars to wipe the last $6 billion of late payment to schools, known as deferrals, off the books. (See note below)

“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. The budget said per student spending would rise a healthy $725 per student – 8.6 percent on average, from $8,469 to $9,194 next year. However, in its analysis released on Jan. 12, the nonpartisan Legislative Analyst’s Office backed out the $6 billion that Brown would spend on wiping out deferrals, a one-time expense (see below) and calculated the increase as $788 or 10 percent, from $7,936 in the current fiscal year to $8,724 in 2014-15.

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 next year 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.

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 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.

Filed under: Local Control Funding Formula, State Education Policy

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6 Responses to “Brown projects big increase in school spending in next state budget”

  1. Mike McMahon said

    on January 9, 2014 at 8:43 am

    On a policy level, the push to implement TK is sound. Research has shown that the Early Childhood Education benefits especially for underserved populations outweigh the cost, so it is a good investment.

    However, from a state fiscal perspective it is disingenuous. During every recession during K-12 education suffers severe funding reductions and the Legislature lets local school districts to figure how to make program cuts. But once the economy recovers and revenues start to recover the Legislature steps in and begins to dictate how to spend those new revenues and does not give local school districts an opportunity to choose to restore cut programs. After the early 1990s recession, new monies were directed to Class Size Reduction. After the 2003 recession, new monies were directed to a Quality Education Initiative which only benefited certain school districts.

    In 2014, the proposal to direct new monies to TK is even more perplexing. The great recession of 2008 was the most severe reduction in K-12 funding ever. Only after the passage of Prop 30, a temporary tax hike has funding for K-12 stabilized. It will be 2015 before funding levels reach pre-recession levels of 2008. The Governor took the opportunity of projected future revenues to radically change how school districts through Local Control Funding Formula (LCFF). The central premise of LCFF is that local school districts will given greater local control. However, the transition to this new funding formula is planned to take eight years. After the Governor leaves office the taxes will expire, and there are no assurances there will be enough revenues to continue the transition. And now the Legislature is proposing to divert one billion dollars of ongoing cost away from the implementation of LCFF. Really!?

  2. Doctor J said

    on January 9, 2014 at 6:54 pm

    The Gov’s comment on not looking to the state to restore STRS’ solvency seems to “throw down the gauntlet” to the teachers that THEY, not the state, will pay more contributions to STRS. The sleight of hand in the Gov’s statement is that if the state requires the district, not the teacher, to contribute more to STRS, under Prop 98 the state would have to reimburse the district, which would in essence be a direct contribution by the state. So teachers should be prepared for a hefty increase in the retirement contributions, which will lessen their paychecks.

    • John Fensterwald replied

      on January 9, 2014 at 7:19 pm

      Doctor J: The LAO and Hoover Commission, after studying the issue have concluded that, based on court decisions, there are strict limits to how much the Legislature can raise the contributions of vested CalSTRS members. Legislators could raise the contribution rates of new teachers, but won’t get much savings from that for years.

      When Brown says districts and community colleges will bear the burden of added pension costs, he means it. Of course, the more districts have to contribute to CalSTRS, the less they may have for teacher raises and other benefits – and money for the classroom.

  3. Doctor J said

    on January 9, 2014 at 8:02 pm

    Thanks John for the explanation and link. Any increase in district contributions to STRS would have to come out of the finite amount of budget under LCFF funding — that is probably putting the fear of God into all of the districts that recently gave large raises to teachers — and now an increase in the district STRS contribution will have to result in cuts in other areas. Those districts who are still in labor negotiations will be faced with upset teachers who will be offered less in raises that other districts factoring in the increased STRS costs. Its pretty clear to me now why the CTA was pushing for fast, quick, and hefty raises before the “dust settled”.

  4. navigio said

    on January 10, 2014 at 3:27 pm

    hate to be the downer, but a couple points

    the first is i ignore graphs that dont reference the dollar scale (nominal? real?). I also tend to feel slighted by graphs that dont have a y axis that starts at 0. (because it feels like its done as an attempt to ‘adjust perspective’) ;-)

    gov; ““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.

    um, where was that statement during common core, sbac, 21st century learning, lcff, ditching the api, ditching csts, etc etc.. in other words, ‘really?’ When is the time? When we have a deficit? (Or maybe when reform steam starts condesating?)

    the other disturbing thing is that the tenor of the article seems to be about ‘new’ funds, when in reality, schools will probably have actually lost money in real terms when compared to historical values (at least for next year, and maybe for a few more).

    In addition, a bunch of this is deferrals. Thats not even normal new money, its old money that’s already spent (and in some cases has been borrowed to cover costs).

    Again, not necessarily saying its not better than the alternative, but i wish these discussions would not have such short-term perspective.

    • Manuel replied

      on January 12, 2014 at 2:43 pm

      Navigio, yeah, there’s a problem with not starting at zero. It tends to magnify the differences in columns, and drives the discussion into The SpinZone. I agree with you on that.

      Now, I am not trying to defend the Guv, but what you refer to are not new programs. They are replacement programs. So it is out with the old and in with the new. You know, 21st Century solutions. I don’t have the time to wade through the hour-and-twenty-minutes press conference so I’ll take John’s word that Brown seems to be referring to the proposed PreK-for-all which we would have now if 38 had passed and 30 had not. That’s a new program that does not exist and, while good to have because not everyone can afford a private PreK program (when my kids were little, it was $600/month; what is it now?), it will cost a good chunk of cash. And I have real concerns if this becomes a privately-run program paid for by state funds, in other words, following a charter school model. No doubt that kids that have a good PreK benefit from it, but where is the pedagogy and regulations that surely should go with it?

      Having said that, I share your concern that the announced $10 billion has been reported elsewhere to be mostly a payment on deferrals to school districts. It could be argued, as you do, that this money has already been spent. I doubt that is the case since districts all over the state reduced their costs by declaring furlough days as well as reducing expenditures at every single level (45 students in a high school class has been common at LAUSD, for example).

      As I mentioned once, I doubt many districts borrowed money to keep classrooms running because, to use my favorite dead horse, LAUSD did not include in any of its budgets funds that it received from borrowing. If nothing else, LAUSD has had an almost $1 billion carry-over every year (OK, last year it was “only” $657.7 million, but it was $853.8 billion in 2012-13 and it was $916 million in 2009-10, smack dab in the middle of the Great Recession). So if they are borrowing money instead of using this carryover they should all be fired and their salary clawed back.

      Anyway, if the money was never really spent, it will be “new” money that the districts will have in 2014-15. What are they going to do with that money if it is not to pay loans they have taken? And what are they going to do when those deferrals are finally paid? Will the allotments then be at the right level to allow them to continue the new expenditures?

      Also, John says the state “owes” CalSTRS $80 billion. I can only assume that this debt came about because the state “deferred” its state-law mandated contributions to CalSTRS [a measly 2.5% according to Ed Code 22954(b), but reduced by (c)]. [I know for a fact that LAUSD teachers contribute 8% of their salary, as required by Ed Code 22901(a) and that their local school budget contributes 9% if primary or 10% if secondary, more than the 8% that Ed Code 22950(a) requires. Maybe this difference is an LAUSD internal administrative fee, I just don't know. BTW, this doesn't jive with what CalSTRS' website say because there the "typical" contribution of employee/employer combined is given as 8%.] If that is the case, I don’t see why this should be any different than paying back the deferrals. The state is obligated to pay its debts, is it not?

      This has nothing to do with what the fund is supposed to pay its retirees. This has to do with the state meeting its contractual obligations to its employees. If the state does not want to do that, well, California is not Detroit, you know. (For the record, I did not check to see if the state is on the hook for the “unfunded shortfall.” I’ll leave that for another day.)

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