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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