Funding for California schools through Proposition 98 is heading up, even though the state’s general fund will still be facing a small deficit over the next couple of years. That’s according to the latest budget forecast released yesterday by the Legislative Analyst’s Office (LAO).
“Our numbers reflect growth in Proposition 98 of a couple of billion each year, even more in the out years,” said Legislative Analyst Mac Taylor during a press conference in Sacramento.
Passage of Proposition 30 is a significant part of that, said Taylor, along with budget cuts in recent years and the state’s economic recovery. Proposition 30, which temporarily raises the sales tax and increases income taxes on the wealthiest Californians, is expected to raise the Prop. 98 guarantee by about $3 billion a year.
It’s a different story for the state’s general fund, which will have a $1.9 billion shortfall over the next two fiscal years, instead of the slight surplus initially estimated by the LAO. “I think it’s a little bit of a tale of two budgets there,” Taylor said.
But by 2014-15 the LAO predicts a small operating surplus in the general fund, too. Referring to a chart in the forecast report [see figure 2] that illustrates the budget moving from a deficit to nearly $10 billion surplus by 2017-18, Taylor flashed a congratulatory smile and remarked, “this is one of the first non-red bars that we’ve shown in in this document for quite a while.”
Jonathan Kaplan, a senior policy analyst with the nonprofit, nonpartisan California Budget Project, said the passage of Proposition 39 also gives a boost to the general fund and therefore to the Prop. 98 minimum guarantee. Prop. 39, the ballot initiative that changes tax law for multistate businesses operating in California, is expected to increase revenues by about $450 million this year, with most of that going to schools. Beginning in 2013-14, it’s expected to generate about $1 billion a year. Half of that will go into clean energy research and development, and the remainder will go into the general fund; Prop. 98’s share of that would be around $200 million.
“The big question is where do you put those dollars? Where are you going to spend this increase in the Proposition 98 guarantee?” said Kaplan.
Under the current budget, $2.2 billion of Prop. 30 money immediately goes to paying down the nearly $10 billion in deferred payments to schools and community colleges that the state has racked up during the recent dry years. Looking ahead to next year, there will be demands from cash-strapped schools that have had to lay off teachers and classified staff, close libraries and cut extracurricular activities.
“The very simplistic way of framing that is do you pay back the deferrals or do you increase programmatic funding?” said Kaplan,
noting that Gov. Jerry Brown has already signaled his preference is for fiscal prudence. The Legislature, on the other hand, may be under pressure to let schools rebuild programs and staff.
Deputy Legislative Analyst for education Jennifer Kuhn said there’s likely to be enough growth in Prop. 98 funds next year to both retire the deferral – and other one-time obligations, such as the years of unpaid mandates – and to build up the base for schools. She pointed out that decreasing the deferral by $2.2 billion this academic year frees up that money so it can be used to pay down another $2.2 billion next year and the year after, until it’s paid off. “It’s like a built-in payment plan,” said Kuhn.
Given all the options, she said, “it’s all the more important for the Legislature to be thoughtful and deliberative” about what to do with the rest of the Prop. 98 money.”
Of course, this all assumes that the state Legislature doesn’t go on a spending spree to restore other non-education programs also cut, such as social services and health. In addition, said Taylor, it also assumes that “the moderate economic recovery will continue.” He said about half of the optimistic forecast can be attributed to Prop. 30 passing and about half to economic improvements, so it’s possible the scenario could change, although he doesn’t expect a significant downward shift in California’s outlook.
“This is a much much more positive situation that we’ve faced in many, many years,” said Taylor. “It’s on the whole pretty good news.”