Schools, the May Revision, and the budget deficit explained

Governor Jerry Brown yesterday rolled out the May Revision to his 2012-13 State Budget proposal to address the now $15.7 billion deficit. He proposed to close the budget gap through a $4.1 billion increase in cuts to state employee compensation, welfare, health care, higher education, courts, and other government programs, for a total of $8.3 billion in cuts.

Gov. Brown attributed the higher level of budget gap to the January revenue forecast being too high by $4.3 billion, Proposition 98 spending increasing by $2.4 billion, and the federal government and courts blocking budget cuts $1.7 billion. Although the Governor’s May Revision reflects an increase in Proposition 98 funding, the growth is used to increase the deferral buy back and offset lower property tax estimates.

The magnitude of the state budget gap has increased, but the structure of the Gov. Brown’s proposal for K-12 education remains essentially the same: assumption of passage of a November tax initiative with increases in Proposition 98 used to maintain existing program and reduce deferrals. Failure of the tax initiative and its resulting loss of revenue will continue to fall largely on K-14 schools with proposed cuts of $5.5 billion and real programmatic reductions of $2.7 billion.

Policy Issues

Many of the main policy provisions from the Gov. Brown’s January Budget remain, with some modifications:

• Weighted Student Funding Formula
  • Increase the base grant from $4,920 to $5,421 per pupil
  • Require existing deficit factor reduction to be restored before the formula is fully implemented
  • Grade span adjustment (K-3, 4-6, 7-8, and 9-12) added to acknowledge cost differences
  • Weighting for English Learners and low-income students drops from 37% to 20% and these funds would be required to be spent on those students
  • Home-to-school transportation and Targeted Instructional Improvement Grant funds are add-ons to the formula
  • The continued phase in of the formula in 2013-14 would be contingent upon the creation of an accountability system
  • Phase in of the formula increases from five years to seven years
• Transitional Kindergarten—Brown retains his proposal to eliminate Transitional Kindergarten but acknowledges declining enrollment erodes the savings; this savings, which Brown now estimates to be $91.5 million, would be used to restore reductions to preschool programs
• Mandate Block Grant—Continues proposal to block grant mandate funding and distribute it on a per average daily attendance basis; the May Revision eliminates the ability for districts to use the current mandate claiming process and would repeal six of the highest-cost mandates
• Deferrals—Increase of $392.9 million for a total of $2.6 billion to reduce interyear deferrals from $9.5 billion to $6.9 billion

Trigger

If Gov. Brown’s tax initiative does not pass in November 2012, $6 billion in additional cuts will go into effect on January 1, 2013, of which $5.5 billion would be to Proposition 98 funding. The May Revision equates the funding decrease to the equivalent of the cost of three weeks of instruction. Schools will be provided flexibility to reduce the school year by a combined 15 days in 2012-13 and 2013-14. It is unclear how this school-year reduction would be applied, but it is fairly certain it would need to be negotiated at the local level.

The governor’s proposal to reduce deferrals by $2.6 billion would be eliminated if the trigger reduction is implemented. The remainder of the trigger cuts would come from continuing the January proposal to shift the cost of general obligation bond debt service for K-14 facilities into the Proposition 98 guarantee.

When asked how schools should react to the Governor’s Budget relying on the tax initiative, Brown recommended that districts “plan a prudent budget based on their understanding of what we’re trying to do.”

This report is published here courtesy of School Services of California.   It was written by Michelle McKay Underwood, Michael Ricketts, and Kathleen O’Sullivan, all of whom are on the firm’s staff.  

To get more reports like this one, click here to sign up for EdSource’s no-cost daily email on latest developments in education.