State Budget Update: Proposals Address Decline in Revenue

Mar 18th, 2017 | By | Category: Advocacy, News
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Jeff Frost

By JEFF FROST

—Budget Overview

On January 10, Governor Jerry Brown released his 2016-2017 budget proposals. The governor began his press conference by reporting that state revenue collections over the past six months indicate the “tide has begun to turn.” More specifically, while state revenues continue to increase, “the trajectory of General Fund revenue growth” has declined from estimates used by the administration last June when the 2016-2017 budget was enacted.

The governor’s budget summary reports that the revenue forecast for the three-year period 2015-2016 through 2017-2018 is now $5.8 billion, or 1.6%, lower than projected last June. The administration provides two major reasons for the revenue projection downgrade. First, reduced overall wage growth in California is a result of lower-income workers’ making up a much larger share of new workers entering the labor force. Second is reductions in General Fund tax collections since June—five of the past seven months have fallen short of monthly revenue estimates.

The governor points out that as a consequence, the current 2016-2017 budget, absent corrective action, would face a deficit of almost $2 billion. Accordingly, Governor Brown proposes a number of one-time spending adjustments, delays, and suspensions to General Fund spending commitments in order to “rebalance the budget,” including a $1.7 billion downward adjustment of K-14 (Proposition 98) spending levels over a three-year period. Other major “budget solutions” to allow the state to manage the lower revenue collections include:

  • Eliminating the $400 million set‑aside for affordable housing that was never allocated;
  • Eliminating a $300 million spending transfer to modernize state office buildings;
  • Delaying $226.8 million in scheduled child-care rate increases until 2018-2019;
  • Eliminating Middle Class Scholarships to new students; and
  • Postponing “a variety of spending proposals (including those to implement new legislation) from state departments that otherwise were justified.”

The Trump administration has suggested it will pursue significant policy changes to Medicaid, trade, immigration, and tax policy that will affect California. The governor’s budget, however, assumes a continuation of existing federal policy because: “At this point, it is not clear what those changes will be or when they will take effect.” The governor’s budget summary does acknowledge that “many of these proposed changes being discussed by [Trump] could have serious and detrimental effects on the state’s economy and budget.”

The governor proposes expanding the state Rainy Day/Budget Stabilization Fund by $1.156 billion in 2017-2018 to bring the total balance in the reserve fund to $7.9 billion or 63% of the constitutional target.

Major K-12 Budget Adjustments

The 2017-2018 budget proposes the following significant adjustments:

School District Local Control Funding Formula (LCFF)—The budget proposes additional growth of more than $744 million in Proposition 98 General Fund for school districts and charter schools in 2017‑2018 to continue their transition to full implementation of the Local Control Funding Formula.

One‑Time Discretionary Funding—The budget proposes an increase of $287 million in one‑time Proposition 98 General Fund for school districts, charter schools, and county offices of education to use at local discretion. This allocation builds on the more than $4.9 billion in combined one‑time funding over the last three budgets, providing substantial resources to local schools to support critical investments such as content standards implementation, technology, professional development, induction programs for beginning teachers, and deferred maintenance. All of the funds provided will offset any applicable mandate reimbursement claims for these entities.

Career Technical Education Funding—The budget provides $200 million for the Career Technical Education Incentive Grant Program, the final installment of funding for this three‑year program initiated in the 2015 Budget Act. Commencing with 2018‑2019, schools will support the full cost of these programs within their Local Control Funding Formula allocations.

One‑Time Local Control Funding Formula Cost Shift—The budget proposes to shift $859.1 million in Local Control Funding Formula expenditures from June 2017 to July 2017. This deferral is necessary to maintain 2016‑2017 programmatic expenditure levels in light of the reduction to Proposition 98 funding for 2016‑2017 compared to the 2016 Budget Act. The budget proposes to immediately repay this deferral in 2017‑2018.

Shift in One‑Time Discretionary Funding—The budget proposes to shift $310 million of one‑time discretionary funding expenditures attributable to the 2015‑2016 fiscal year to 2016‑2017 as a result of the reduction to the Proposition 98 guarantee in 2015‑2016.

Instructional Quality Commission—To prioritize funding for other purposes, the budget delays the current deadlines for the commission to revise the content standards for visual and performing arts and world language, develop standards for computer science, and create a model curriculum in ethnic studies. Further, the budget delays the current deadline for the superintendent of Public Instruction to convene a computer science strategic implementation advisory panel.

Special Education—The budget makes a decrease of $4.9 million Proposition 98 General Fund to reflect a projected decrease in special education average daily attendance.

Local Property Tax Adjustments—There is a decrease of $149.2 million Proposition 98 General Fund for school districts and county offices of education in 2016‑2017 as a result of higher offsetting property tax revenues. A decrease of $922.7 million in Proposition 98 General Fund for school districts and county offices of education in 2017‑2018 is a result of increased offsetting local property tax revenues.

School District Average Daily Attendance—There is a decrease of $168.9 million in 2016‑2017 for school districts as a result of a decrease in projected average daily attendance from the 2016 Budget Act, and a decrease of $63.1 million in 2017‑2018 for school districts as a result of a further projected decline in average daily attendance for 2017‑2018.

Cost‑of‑Living Adjustments—The budget proposes an increase of $58.1 million Proposition 98 General Fund to support a 1.48% cost‑of‑living adjustment for categorical programs that remain outside of the Local Control Funding Formula, including Special Education, Child Nutrition, Foster Youth, American Indian Education Centers, and the American Indian Early Childhood Education Program. Cost‑of‑living adjustments for school districts and charter schools are provided within the increases for school district Local Control Funding Formula implementation noted above. The budget also proposes to forgo COLA increases for child-care providers.

Proposition 39—Proposition 39 was approved in 2012 and increases state corporate tax revenues. For 2013‑2014 through 2017‑2018, the measure requires half of the increased revenues, up to $550 million per year, to be used to support energy efficiency. The budget proposes $422.9 million to support school district and charter school energy-efficiency projects.

Mandate Block Grant—There is an increase of $8.5 million Proposition 98 General Fund to reflect the addition of the Training for School Employee Mandated Reporters program.

Proposition 47—Proposition 47 was approved in 2014 and reduced the penalties for certain nonserious and nonviolent property and drug offenses. It also requires a share of any resulting state savings to be invested into K‑12 truancy and dropout prevention, victim services, and mental health and drug treatment. The budget provides $10.1 million to support investments aimed at improving outcomes for public school pupils in K‑12 by reducing truancy and supporting pupils who are at risk of dropping out of school or are victims of crime, consistent with the provisions of Proposition 47.

Proposition 56—Proposition 56 was approved in 2016 and increases the cigarette tax by $2 per pack of cigarettes and an equivalent increase on other tobacco products. After making specified allocations, Proposition 56 requires 2% of the remaining revenue to be used for school programs that prevent and reduce the use of tobacco and nicotine products by young people. The budget provides $29.9 million to support tobacco and nicotine prevention and reduction programs at K‑12 schools.

Summary

The January budget launches the six-month process of enacting a new state spending plan for 2017-2018. Aside from a larger-than-anticipated reduction in state revenue projections and a resulting rebenching of K-14 spending levels, the governor’s budget contained few surprises for school leaders. The governor maintained his commitment to fiscally conservative revenue projections and resistance to new policy priorities that would create additional spending pressure. The governor continued to prioritize LCFF implementation and refused to propose new education programs.

The legislative analyst has indicated that its forecast indicates significantly more revenue will appear by the time the May Revision is released. That is the good news. Unfortunately, the most sobering feature of the January budget was the governor’s acknowledgment that if the policy and budget reforms embraced by the Trump administration become a reality, the impact on California could be serious and detrimental.

We will continue to monitor the budget process and keep all CATESOL members informed.

Jeff Frost is CATESOL’s legislative advocate.

 

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