Legislature approves $800 million advance to schools; could be a long summer for the budget
Analysis from CSBA's Governmental Relations Department
Published: June 22, 2010
In a rare move, the Legislature is poised to approve a measure—Assembly Bill 191—that would provide an $800 million "early" payment to school districts and county offices by actually making an on-time payment.
The state has deferred the June to July second principal apportionment since 2003, when it was enacted as a means to reduce the Proposition 98 guarantee; however, only $1.1 billion of the total deferral was ever counted as a reduction to the guarantee. This tactic was repeated three times last year when the state approved the additional deferral of $4.5 billion dollars. There was no process provided for seeking a waiver if the deferral would cause insolvency for school districts.
In May, numerous charter schools sought a waiver from the deferrals, but the State Board of Education rejected their requests. A number of districts were prepared to seek waivers as well. In acknowledgment of the serious fiscal implications, the governor's May Revision provided $15.7 million to provide the June apportionment payments to local education agencies that would be unable to make essential payments because of the deferral.
But in hearing the issue last week, the Budget Conference Committee reported that it would take an even bigger step by advancing $800 million for all school districts and county offices of education. Authorizing legislation is expected this week. Efforts are already underway by the California Department of Education and the State Controller's Office to ensure that districts receive the payments before the end of June.
Other budget news
Over the last two weeks the Budget Conference Committee, composed of legislators from both houses and parties, has made its first pass at reconciling the various budget proposals. To date, however, significant action has not been taken, and it is not clear when or how all the sides will come together.
In part this is because the two proposals by the Democrats are vastly different. The Assembly plan, known as "The California Jobs Budget," is based on myriad interconnected parts that include suspending the corporate tax reductions approved in September 2008, an oil severance tax, a swap of the state sales tax, and securitizing the beverage container recycling fund. The Senate plan also suspends the corporate tax loopholes, extends a temporary income tax increase, increases the vehicle license fee and raises taxes on alcoholic beverages.
While they have heard the budget proposals for each program, the Conference Committee has not heard the details of the overall spending plans and how the resources would be generated. A wrench was also thrown into the mix when Attorney General Jerry Brown issued a legal memo calling into question whether the Assembly plan violates the terms of Proposition 58, approved by voters in 2004, which prohibits the use of one-time funding for ongoing programs. Assembly Speaker John Perez believes a plan can be crafted that would withstand a legal challenge.
For education, the Budget Conference Committee's primary task is to agree on the level of funding provided under Proposition 98, ranging from $48.9 billion under the governor's May Revision to $54 billion in the Assembly plan, with the Senate in between at $51.2 billion. The committee cannot settle on a number until the overall general fund revenues are determined, including how much, if any, new revenues are to be raised.
In turn, the Proposition 98 funding level will drive how much, if anything, will need to be cut from district and county office budgets. The cuts could range from $3.8 billion—including the elimination of child care—under the governor's budget, to an increase of $6 billion in ongoing and one-time funds in the Assembly plan. The Senate plan restores the governor's child care cuts and part of his proposed cut to revenue limits.
Suspension of Proposition 98
There has been some discussion about whether to suspend Proposition 98 in 2009-10 and 2010-11. The Legislative Analyst broached the idea in February, as a suspension would allow the state to decide the level of funding regardless of Proposition 98 formulas and any other revenue proposals. The LAO argues that it would also eliminate the question of whether maintenance factor payments need to be made in those years.
The LAO believes, based on the certification of Proposition 98 for 2008-09 and the establishment of an $11.2 billion maintenance factor, that the state needs to begin making those payments to schools. The governor claims that the amount owed to schools can be delayed without suspension, as it was established legislatively with the July 2009 budget in an effort to avoid a legal battle. The administration views this "in lieu" maintenance factor differently than one based on Proposition 98 calculations.
So far neither the Assembly nor the Senate have taken action on this, though the Senate plan implies that there would need to be a suspension. The clock is certainly ticking for suspension in 2009-10, as it must occur before June 30.
Other issues
In addition to the overall level of funding the following issues are being debated by the Conference Committee:
Special Disabilities Adjustment and Behavioral Intervention Plans: There is a plan approved by the Senate that would eliminate funding for the Special Disability Adjustment, which is a special formula to provide additional resources for high cost, low-incidence students. Under the Senate plan those Special Education Local Plan Areas that currently receive the SDA would get the same level of funding in 2010-11; however, it would count toward the amount owed them for the Behavioral Intervention Plans mandate.
This issue arose this year because the SDA funding went out to the SELPAs without authorization, so the Legislature was considering whether it should take the funding back and not provide the funding for 2010-11. Further, it is unknown whether the current formula is in line with needs throughout the state.
CSBA supports the action taken by the Assembly to provide the funding for the SDA in 2009-10 and 2010-11 and calls for a working group to reevaluate the formula and make any adjustments in 2011-12 to ensure the funding is directed appropriately. This ensures that SELPAs and districts receive funding for which they have already budgeted and puts them on notice that there will likely be changes in the future.
CSBA adamantly opposes having the funding that would go to SELPAs under the SDA formula be counted as prior-year BIP. While the Senate proposal doesn't directly link the two, the intent is to maintain funding for one program while counting it toward prior amounts owed for a separate mandate.
Further, CSBA's Education Legal Alliance, along with the districts and county offices that filed the initial test claim for the BIP mandate, has been engaged in a legal battle with the Department of Finance. The DOF challenged the finding by the Commission on State Mandates that the BIP requirements are in fact a state mandate. A settlement agreement was reached in 2008 to provide ongoing funding for the mandate as well as reimbursement to districts dating back to 1993 when the requirements were imposed. The Legislature needs to approve the terms of the settlement and authorize the funding in order for the agreement to implemented; however, legislators have been opposed to doing so and the issue remains unresolved.
Mandates: In the May Revision, the governor continued his proposal to suspend all but three mandates. This differs from the past practice of deferring mandates, whereby districts must perform the mandate requirements, but with funding for them deferred to a future time. The Senate took action to fund 13 mandates, eliminate five and suspend the remaining mandates through 2012-13 to coincide with the end of the flexibility period for categorical programs. The Assembly's action continued the practice of deferring all K-12 mandates.
CSBA's Education Legal alliance is currently involved in a legal challenge about whether the state can defer mandates. A lower court ruled in 2008 that such action violated the state constitutional provisions requiring payment for mandates. The state appealed that action, thus allowing the current practice of deferring mandates to continue.
New schools and categorical flexibility: One proposal before the Conference Committee is an attempt to address a problem regarding funding for a limited number of new schools established since 2008-09 (estimated at 125-150). However, the proposal would affect the 10,000 schools in the state, as it would redistribute the funding for Tier III programs on the basis of average daily attendance.
Mental health services for students (AB 3632): The governor proposes to save $52 million by suspending AB 3632, which requires necessary mental health services for children with disabilities. The $52 million is outside Proposition 98 and appropriated to counties that provide the services. The governor's proposal would transfer the responsibility to local schools without sufficient funding to provide the services. Both the Senate and Assembly have rejected the proposal. CSBA opposes the governor's proposal and supports the action by both houses to reinstate the funding for these services.
Next steps
At the moment, the Conference Committee doesn't have any hearings set for this week and it is uncertain when they will be prepared to take any significant action. Assembly and Senate leaders have been meeting and will need to reach an agreement that their respective caucuses can support before they can move closer to adopting a budget. At this point, expectations are that it will be a long, drawn-out summer without a budget.