News Update

Perhaps no obligation to pay K-14 schools an extra $8 billion after all

Don’t count on an extra $8 billion that Gov. Gavin Newsom promised last month in his May revised state budget proposal would go to community colleges and K-12 districts. The unexpected gift to education would be the price that state government pays to comply with a Proposition 13-era initiative designed to limit the growth of government.

But Assembly and Senate budget leaders deftly calculated an end-run around the 1979 Gann Limit and expunged the state’s obligation from their joint budget proposal that they announced this week. There’s a good chance it may not surface in the final state budget that they negotiate with Newsom later this month.

The Gann Limit, which voters modified in1990, restricts the annual growth of government spending to the combination of population growth and the per capita growth in personal income. When state revenue exceeds that two straight years, half must be rebated to taxpayers and half to schools and community colleges.

The Gann Limit has come into play only once before, in 1987, but Newsom’s finance officials calculated that an explosion of tax receipts from the capital gains of the wealthiest taxpayers would trigger it next year. Half of the excess $16 billion would be distributed in 2021-22 as the Golden State Stimulus 2, payments of up to $1,100 for those earning up to $75,000 per year, and the other $8 billion would go to schools and community colleges in 2022-23, under Newsom’s revised May budget proposal.

But a semantical distinction apparently would apparently make a difference. By classifying the Golden State payments as tax cuts, not tax rebates, the Assembly-Senate budget would raise spending and decrease revenues. And the Legislature’s proposed budget would make other accounting changes suggested by the Legislative Analyst’s Office in an April report that would bring the state under the Gann Limit. Thus, there would be no requirement for a one-time payout to schools.

With more than $30 billion in federal and state stimulus and Covid relief coming their way, school districts can’t claim they’ll be short of cash over the next few years. But that $8 billion could provide a cushion for a slowdown in revenue or a recession, whenever that happens.

It’s not clear yet whether Newsom will contest the legality of the Legislature’s approach and what position organizations representing school districts will take.