The Legislative Analyst’s Office is projecting another healthy year for K-12 schools, with an average increase of about $530 per student in 2016-17. That’s about half of the average $1,011-per-student increase for 2015-16, but this year’s increase was unusually large – about 11 percent.
Gov. Jerry Brown will release his proposed budget for next year in January. The LAO is projecting that the amount guaranteed to schools and community colleges under Proposition 98, the formula that determines school funding, will rise to $71.4 billion – 3.3 percent more than in 2015-16. Community colleges traditionally get about 11 percent of that amount, with K-12 schools receiving the rest.
The LAO estimated higher revenues for the current fiscal year than the more fiscally cautious Department of Finance assumed and the Legislature adopted in the 2015-16 state budget. With revenues already in line with its estimates four months into the year, the LAO, which released its annual budget projections on Wednesday, is sticking with its projections.
The LAO is projecting that additional revenue will generate $2.3 billion more for Prop. 98 spending than the state budgeted. Because school districts and community colleges have already built their budgets for this year, the extra money will be allocated next year – part of a projected $5.9 billion total increase in K-12 spending in 2016-17, according to the LAO.
If consistent with his past budgets, Brown will not commit all new revenue to ongoing spending; instead, he will use some of it for one-time expenditures, such as paying down what the state owes to districts for programs it mandated but didn’t fully fund.
Under the Local Control Funding Formula, each district’s funding varies, based on the proportion of English learners, low-income children and foster and homeless youths they enroll. The average district received unusually large spending increases each of the past two years as a result of surging state revenues, combined with increased revenue from temporary tax increases under Proposition 30. Because of the requirements of Prop. 98, nearly every dollar increase in general fund revenue has gone to repay schools for billions of dollars in funding cuts and deferred increases during the recession. The LAO projects that the last $195 million of the massive IOU, called the “maintenance factor,” will be paid off next year. It totaled $14 billion four years ago.
Spending increases in coming years will be modest, more in line with the overall growth in the economy. Between 2015-16 and 2019-20, the Prop. 98 guarantee is projected to increase by $8 billion, to $77.5 billion, with the largest increase, $3.2 billion, in 2017-18. But then, with the phase-out of Prop. 30, money for schools will increase only 1.6 percent ($1.2 billion) in 2018-19, followed by 2.2 percent ($1.6 billion) in 2019-20 – an amount that the LAO projects will be less than the rise in inflation, meaning that districts will have no money to expand programs.
On top of that, districts will contribute $3 billion more than they’re paying this year in pension costs for teachers and administrators by 2018-19, under the deal the Legislature passed in 2014. That would eat nearly 40 percent of the $8 billion growth in the Prop. 98 guarantee that the LAO is projecting – and could consume all of a smaller increase if the economy slows between now and then.
Fueling Prop. 30 debate
The LAO did not estimate the impact of extending Prop. 30, which will be on the November 2016 ballot. But supporters of the initiative will cite declining revenues and rising expenses after next year as evidence of the need to extend the tax. If the LAO projections are on target, the state won’t be able to fund its constitutionally mandated Prop. 98 obligations. If that is the case, the maintenance factor will once again build, accumulating to $6.3 billion by 2019-20 – creating a new cycle of debts owed to schools and community colleges.
On the bright side, when he was elected in 2010, Brown inherited a $25 billion state budget deficit. By the end of 2016-17, the LAO is projecting an $11.5 billion budget reserve, assuming that the Legislature doesn’t add new programs. About two-thirds of the surplus will be in the new rainy day fund created by Proposition 2, which voters passed in 2012. Prop. 2 includes provisions for a separate budget reserve for education, but the conditions for moving money into it are stringent, and the LAO is predicting that the requirements won’t be met for the next four years – the extent of its projection.
The LAO is projecting that total general fund spending, including education, will increase next year by $5.9 billion – 5.1 percent.
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