Credit: 401kcalculator.org

Gov. Jerry Brown won’t have key education groups helping him make the case to voters for a bigger and more restrictive state rainy day fund. The most he can count on is that they won’t actively campaign against it.

Organizations representing school district financial officers (California Association of School Business Officials) and school superintendents and principals (Association of California School Administrators) voted during the summer to officially oppose Brown’s Budget Stabilization Account, which will appear on next month’s ballot as Proposition 2. And at a meeting in late September, the board of the California School Boards Association voted not to take a position on the proposition. That decision was actually good news for the governor, since at a press conference in May, association President Josephine Lucey vowed to push her board to fight the proposal.

The states’ two teachers unions – the California Teachers Association and the smaller California Federation of Teachers – also voted to go neutral on Prop. 2. The CTA’s 700-member delegates assembly made that decision in June.

Shy of majority support

Brown could use some help to get Prop. 2 passed. A poll by the Public Policy Institute of California** in September showed voters favoring the proposition 43 to 33 percent, still shy of the majority needed to pass. A quarter of voters remain undecided. A campaign committee formed to promote the measure has been awaiting orders from the governor and done little. The Yes on Propositions 1 & 2 Campaign – which includes the $7 billion water bond, Brown’s other proposition – has only $3 million, but the governor is expected to spend a chunk of his own $24 million campaign fund pushing the propositions or to transfer the money to the ballot measure campaign. (Update: Brown’s first ads for Props. 1 and 2, two 30-second spots, went on the air today, Oct. 8.)

Prop. 2, which both the Senate and Assembly passed unanimously, has no shortage of endorsers: the state Chamber of Commerce, state Republican and Democratic parties, the League of Women Voters, taxpayer groups and most of the state’s biggest newspapers. They’ve focused on the main feature of the plan: to require moving 1.5 percent of state revenue annually – and a lot more when the capital gains tax revenue overflows – into a tightly restricted General Fund reserve they say will create financial stability.

The heads of the education groups say they understand the need to put aside more money to better protect against the state’s boom and bust cycles. But they have qualms with Prop. 2’s creation of a separate savings account for Prop. 98, the main source of state funding for K-12 schools and community colleges. They say the state is near the bottom nationally in per-pupil spending, so the priority should be spending, not saving. Like the General Fund reserve, the Prop. 98 reserve would squirrel away a portion of capital gains revenue in above-average years and replenish money for schools and community colleges in those years in which Prop. 98 funding is less than the previous year, adjusted for inflation and student enrollment.

Cap on district reserves is main complaint

Lucey and the heads of the administrators and business officials organizations said they are most upset with Brown’s inclusion in the state budget of a provision that would force districts to spend down their unrestricted budget reserves whenever the state puts money into the new rainy day kitty for education. They said they were caught by surprise by the provision – a “backroom, last-minute deal” that Brown made with the CTA, Lucey said, which would lead to more money on the bargaining table for teacher raises. At the press conference, she and the others called it reckless policy that intrudes on the principle of local control.

But because the new cap on district reserves is a statute, not part of the wording of Prop. 2, the Legislature can change the provision without a constitutional amendment. The three education management organizations hope they can persuade Brown to agree to changing – or dropping – the provision, so they’ve decided not to confront him.

“Prop. 2 is not our issue,” Lucey said last week. “Our leadership decided that a proactive approach on the reserve issue would be more constructive.”

Wes Smith, executive director of the administrators association, said that he and leaders of the other organizations received a “commitment from the governor’s staff to resolve” the disagreement over the reserve statute. Their meetings included Michael Cohen, director of the Department of Finance, and Brown’s education advisor, Karen Stapf Walters, he said.

The three education management organizations hope they can persuade Brown to agree to changing – or dropping – the provision, so they’ve decided not to confront him.

Even though the CTA scored a big win with the cap on district reserves, delegates representing the 300,000-member union decided Prop. 2 is not their priority either, said CTA Vice President Eric Heins. “There are good and bad aspects about it,” he said, and the delegates didn’t spend long debating it. “The governor would love to have our support, but our priority is re-electing (State Superintendent of Public Instruction) Tom Torlakson.”

The one group that is campaigning against Prop. 2 is Educate Our State, a small but active parents group based in San Francisco that wrote the opposition argument in the official ballot summary and created a 2badforkids.org website. But the group has little money to fight the measure.

Prudent or ‘obscene’ level of reserves?

Many school districts built up substantial reserves after experiencing $7 billion in cuts during the recession in 2007-08. In some cases, the reserves were far in excess of the required minimum of 1 percent for Los Angeles Unified to 5 percent for smaller districts. They stockpiled money after Brown threatened to cut school budgets $6 billion more if voters failed to pass temporary taxes under Proposition 30. After Prop. 30 passed, they were uncertain how they’d fare under the new Local Control Funding Formula. Now that funding has improved, some districts’ unrestricted reserves are still 20 to 30 percent of their budgets or more. Heins said those are “obscene levels,” as some districts continue cutting programs.

“Districts are not banks; the money is intended to be spent on the education of children,” he said.

The new district caps would be 3 to 10 percent, averaging about 5 percent, and would go into effect in a year in which the state shifts any amount of money – whether $1 or $1 billion – into the Prop. 98 piece of the rainy day fund.

Supporters and opponents acknowledge that wouldn’t happen often because of the conditions that Brown agreed to. Past Prop. 98 obligations to districts would have to be paid off, which is expected to take five to seven years. Prop. 98 revenue would have to be higher than the year before, and districts would have to be paid on time and in full (no deferrals or IOUs) in order to transfer money to the K-12 reserve. And it would have to be during what’s known as a Test 1 year, a rare a set of circumstances under the Prop. 98 formula in which schools and community colleges are guaranteed a certain percentage – usually about 40 percent – of the General Fund.

“In short,” said a recent analysis by the nonprofit California Budget Project, “by narrowly limiting the circumstances under which transfers to the (education reserve) could occur, Proposition 2 makes it unlikely that the state would set aside revenue that could be used for education funding in future years.”

School districts also could request that their county offices of education, which oversee district budgets, grant a waiver from the reserve caps.

For all of these reasons, Chris Steinhauser, superintendent of the Long Beach Unified School District, said that opponents are “making a mountain out of a mole hill.” Education groups are overlooking the more important value of stability in funding that the reserves will provide, he said. And, he said, districts have the ability to create restricted reserves for obligations they will face, whether higher pension and health care costs or textbooks they know they’ll have to buy.

But opponents argue that small districts in particular need larger reserves because they’re vulnerable to unforeseen circumstances – leaky roofs, unpredicted special education costs, a broken bus. School boards and superintendents, not legislators, know what their specific needs are, they say.

Brown talks about local control and so should defer to their judgment, Lucey said. “Locals have the best ability to decide the level of reserves to maintain solvency, given their tax bases,” she said.

The Prop. 98 reserve would be “a lousy use of money,” Educate Our State argues on its website. “Better to disperse it to schools to use in managing their own cash flow, to bolster their own local rainy day reserves … than to paternalistically assume it (the Legislature) is making better use of the money.”

** Correction: An earlier version of the article incorrectly said that the Field Poll conducted the voter survey.


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  1. Gary Ravani 2 years ago2 years ago

    Please note that both teachers' unions have take "neutral," and not stands in opposition to the initiative. An accurate description of the current state of education funding in CA is not best characterized with a term like "rainy day," it is tsunami. The chronic underfunding of schools has devastated the ability of the schools to deal with a student population with some of the highest poverty numbers in the nation and a population of second language … Read More

    Please note that both teachers’ unions have take “neutral,” and not stands in opposition to the initiative.

    An accurate description of the current state of education funding in CA is not best characterized with a term like “rainy day,” it is tsunami. The chronic underfunding of schools has devastated the ability of the schools to deal with a student population with some of the highest poverty numbers in the nation and a population of second language learners that exceeds the rest of the nation.

    Recall that CA’s funding per child for education was near the top of the bottom 40 states in the nation before the recession and has now sunk to near the bottom of the bottom 40. The problem is CA’s revenue stream negatively impacted by Prop 13, reductions in auto registration fees, and tax breaks to the wealthy and corporations made under duress during the time before Prop 25 when the minority party could muscle unwise tax breaks into the budget settlements.

    School districts, in many cases, are sitting on reserves of 10% and 20% (or more) and that is not tenable. The state needs to fix its revenue problems and districts need to prudently fund district programs. That is the appropriate role of districts, not solving stewed issues. And, since personnel make up the major part of district expenses (why would it be otherwise?) it is prudent to expend it there. School personnel in CA have endured a seven year stretch of cuts to their numbers as well as to compensation (furloughs) and little to no increases otherwise which, even in times of low inflation, result in further declines in buying power.

    District finance officers often seem to act like Donald Duck’s Uncle Scrooge who liked to go to his basement and roll around in all the piles of money he stored there. That is not a productive use of resources. School district resources need to go to support school district personnel who support the actual instruction and safety of school children.

    Pressure needs to be brought upon the state to correct its chronic revenue problems and abysmal levels of school funding and all stakeholders including, parents, administrators, school board members, and the general public need to be involved.

    Vote yea or nay on the “rainy day fund.” It does not get to the heart of school funding issues in the state.

  2. Don 2 years ago2 years ago

    OK, the CTA lobbies its historical governmental partners to limit local district reserves to the benefit of its local chapters where more ed dollars are on the table when collective bargaining takes place, but it chooses not to lobby its same partners to restrict or deny a state reserve/ rainy day fund which would, if not enacted, benefit district reserves. It's a good thing for the CTA and the CFT … Read More

    OK, the CTA lobbies its historical governmental partners to limit local district reserves to the benefit of its local chapters where more ed dollars are on the table when collective bargaining takes place, but it chooses not to lobby its same partners to restrict or deny a state reserve/ rainy day fund which would, if not enacted, benefit district reserves. It’s a good thing for the CTA and the CFT that they get their finds from their locals. Apparently, what’s good for the goose ain’t very good for the gander unless you can cut a deal and save some money in the process to use for the reelection of Mr. Smith who’s gone to Sacramento instead of Washington under the name of Torlakson.

    Replies

    • Don 2 years ago2 years ago

      I should add at the middle of my third line – ….benefit district reserves … and put more money on the table to the advantage of the union when collective bargaining.

      • FloydThursby1941 2 years ago2 years ago

        They want to strike to pressure the district to be irresponsible and have layoffs again, of course based only on seniority.

  3. el 2 years ago2 years ago

    The cap on district reserves is extremely troublesome to me. I have no problem with creating more sunshine on that, so that all the players - teachers, community, parents, administrators - know what the actual reserve is and why the number was chosen. But small districts in particular have enormous uncertainty in their budgets and sometimes this works out for the good, and sometimes for the bad. Ten kids moving in or out - which … Read More

    The cap on district reserves is extremely troublesome to me. I have no problem with creating more sunshine on that, so that all the players – teachers, community, parents, administrators – know what the actual reserve is and why the number was chosen. But small districts in particular have enormous uncertainty in their budgets and sometimes this works out for the good, and sometimes for the bad. Ten kids moving in or out – which could be only two or three families in a rural unified district – will leave the district plus or minus the funds for a full time teacher position. Ten kids moving out AND the bus needing a new engine could certainly happen in the same year.

    Conversely, ten kids moving in and the state not cutting money they said they would could also happen. This is good news. But the locals know better than the state whether it’s best to spend down this windfall in one year or five, or whether next year looks like it may be lean and scary again.

    Rules like this, if invoked, only make budgeting more challenging and either cause more boom-and-bust spending or clever budget masters to hide the projections in new and unexpected ways. Neither is a good outcome.

  4. Jennifer Bestor 2 years ago2 years ago

    Could I encourage any reader who is thoughtful enough to have made it to here: when you go to your Voters Guide, please read the Prop 2 LAO summary AND the actual text. Then, ask yourself, will this help or hinder California school funding? Or add another twist to its Gordian knot? First, look at the extraordinary new complexity. Ask yourself, does this added complexity make it more or less likely that education … Read More

    Could I encourage any reader who is thoughtful enough to have made it to here: when you go to your Voters Guide, please read the Prop 2 LAO summary AND the actual text. Then, ask yourself, will this help or hinder California school funding? Or add another twist to its Gordian knot?

    First, look at the extraordinary new complexity. Ask yourself, does this added complexity make it more or less likely that education will get a nickel more than the Prop 98 minimum guarantee (which, of course, was supposed to be a floor)?

    Second, think about the numbers:

    Only $1 billion a year will flow into the revised BSA. Three years = $3 billion. Nothing into the schools’ account. $3 billion is not peanuts, but it is not going to save California in the next $15 billion downturn any more than the existing BSA of $1.6 billion did during the last one.

    Compare: $1.6 billion flowed into the BSA this year (and $1.6 billion paid down state debt) under the old BSA rules. So, while we’re getting strength-of-purpose out of the new rules, they don’t actually save any more money than the existing one. (Of course, if you want a real money-minting mind-twister, take a look at the Michael Cohen link above … somehow, he has Prop 2 creating about $27 billion and solving the last recession. This fabulism boggles the imagination, especially coming from the Director of Finance of this state.)

    Third, think about risk to schools. 16% — two months’ — is a governmental organization gold standard for MINIMUM reserves. Independent of any pressure, this is what school boards have actually done across our state. (Long Beach, at 13%, is typical of very large districts with financial staffs and lobbying power — which may shrug at being reduced to 4% and hiding reserves in ‘restricted’ categories … but one looks forward to seeing it absorb $67 million in late payments on a $26 million

    At Educate Our State, we deeply appreciate the legislative work that the CSBA, CASBO, ACSA and CTA do to move our elected officials towards more equitable and adequate funding for our schools.

    But note that we are ranked 43rd nationally in the percent of combined local and state taxes going to K-12 education. We spend under 32%, the nation averages 48%. When Joe American pays his property and state income tax, almost half flows to his local K-12 schools. When Jane Californian does, less than a third goes to hers.

    We keep accepting deals that put our schools’ funding at risk — then are surprised to find we’ve lost it. Go figure. And once you’ve run the numbers and read the text, please join us wonky parents in voting NO on Prop 2.

    Replies

    • David B. Cohen 2 years ago2 years ago

      Jennifer's comment about the complexity of Prop. 2 carries a lot of weight with me. I've been following this somewhat closely for a while, and every time I hear or read more about it I find something I didn't know before, or something I had misunderstood. When I think about ballot measures in general, my usual approach is "if in doubt, vote no." Also troubled by the shift in Brown's thinking about "subsidiarity" - as … Read More

      Jennifer’s comment about the complexity of Prop. 2 carries a lot of weight with me. I’ve been following this somewhat closely for a while, and every time I hear or read more about it I find something I didn’t know before, or something I had misunderstood. When I think about ballot measures in general, my usual approach is “if in doubt, vote no.” Also troubled by the shift in Brown’s thinking about “subsidiarity” – as this removes local control. Not to suggest that local decisions are necessarily better, but improving local governance is a separate issue.

      • Jeff Camp 2 years ago2 years ago

        Educate Our State's volunteers deserve a lot of credit for being relentless about making people look hard at the ugly, dull details. Jennifer and David, thanks for your practical outlook regarding the risks of making the system even more complex and state-centered. It seems I should reflexively WANT the state of California to have a rainy day fund for schools, but maybe I should want even more for the school districts of California to have … Read More

        Educate Our State’s volunteers deserve a lot of credit for being relentless about making people look hard at the ugly, dull details.

        Jennifer and David, thanks for your practical outlook regarding the risks of making the system even more complex and state-centered. It seems I should reflexively WANT the state of California to have a rainy day fund for schools, but maybe I should want even more for the school districts of California to have rainy day funds of their own. I appreciate the openness of this discussion.

        I also appreciate EdSource for having faith in its readers. EdSource is California’s most important water cooler for education leaders, formal and informal, current and future. Thank you, EdSource funders and supporters!

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