Legislative Analyst's Office, September 1995

State Spending Plan for 1995-96
The 1995 Budget Act and Related Legislation

Chapter 3 -- Major Features Of the 1995 Budget Plan (Part I)

Major Features Of the 1995 Budget Plan

This chapter provides a description of the major features of the 1995-96 budget plan. It includes individual discussions of the budget actions within each of the major program areas, as well as discussions of the budget actions that affect revenues.

K-12 Education

In this section, we describe the major features of the budget package as they relate to the Proposition 98 minimum funding guarantee and K-12 schools. Most of the package's education provisions are contained in the education trailer bill--Ch 308 95 (AB 825, W. Brown).

Proposition 98 Provisions

Proposition 98 provides K-12 schools and community colleges a guaranteed minimum level of funding. The Proposition 98 portion of the budget package:

Proposition 98 Funding. The budget provides $26.2 billion ($16.1 billion General Fund) in Proposition 98 funding for K-14 programs in 1995-96. This exceeds the amount provided in 1994-95 by $1.1 billion ($925 million General Fund, $125 million local property taxes). This amount is the minimum needed to fully fund the Proposition 98 funding guarantee in 1995-96.

Figure 1 summarizes for 1994-95 and 1995-96 the effect of the budget package on the three major recipients of Proposition 98-- schools, community colleges, and other agencies. As the figure shows, the funding level for K-12 schools is $4,309 per pupil for 1994-95, which is $92 per pupil more than was provided in the 1994 Budget Act. These additional funds resulted from an increase in the Proposition 98 funding guarantee due to higher-than-projected General Fund revenues during 1994-95.

The 1995 Budget sets average per-pupil funding for 1995-96 at $4,435, or $126 above the adjusted per-pupil funding level provided in 1994-95.

As Figure 1 also displays, community college funding in 1995-96 increases by $103 million from the adjusted level provided in 1994-95. We discuss the community college's budget in the higher education section of this report.

CTA v. Gould. The amounts contained in Figure 1 for 1995-96 include $360 million that will not be immediately available to school districts. This is because these funds are appropriated contingent upon settlement of the CTA v. Gould lawsuit, which contests the legality of $1.8 billion in Proposition 98 loans made in the 1992 and 1993 Budget Acts. A tentative settlement of the lawsuit was developed during budget discussions. If the lawsuit is settled, the $360 million will be distributed to schools in August 1996.

Under the proposed settlement:

K-12 Program Impacts

General Purpose Funding. The budget provides a total of $17.7 billion ($9.2 billion General Fund) for general purpose funding to school districts and county offices of education in 1995-96. This represents an increase of $157 per pupil from the amount provided in 1994-95. Figure 2 displays the major actions that result in the 1995-96 increase. As the figure illustrates, in addition to providing a 2.7 percent COLA, general purpose funding is increased for all districts by an average of $33 per pupil (0.9 percent). The budget also includes an equalization payment for "low wealth" districts which will narrow the differences in per-pupil funding among school districts.

Categorical Programs. The 1995 Budget Act also increases funding for K-12 categorical programs by more than $360 million (see Figure 3.) The largest amount ($160 million) was provided for growth and COLA funding for certain categorical programs that are not part of the categorical mega-item (such as child development and adult education). An additional $136 million was provided in the form of a categorical block grant, $26 million set aside for a new state assessment program, $20 million for expansion of the state preschool program, and $20 million for expansion of the Healthy Start Program.

The categorical block grant generally provides growth and COLA funding to programs that are supported through the categorical mega-item. The growth and COLA funds, however, are not appropriated to specific programs. Instead, the funds are provided as a block grant that will permit school districts flexibility to allocate the additional funds to programs funded through the mega-item. The funds are distributed in an equal amount per ADA, rather than in proportion to the amount of categorical funds each district receives.

1994-95 Funding Increases. As discussed above, funding for schools in 1994-95 increased by $92 per pupil due to increased General Fund revenues as part of the education trailer legislation. The most important of these actions was the creation of a $280 million block grant that provides K-12 districts $50 per pupil for any one-time purpose. An additional $60 million was appropriated for deferred maintenance, instructional materials, and education technology.

K-12 Funding From All Sources

In 1995-96, funding available for expenditure on K-12 education from all sources--including both Proposition 98 and non-Proposition 98 funding--will total $30.4 billion (see Figure 4). This amount represents an increase of $1.1 billion, or 3.8 percent, over what was available in 1994-95. Of the $30.4 billion in total funding, 90 percent is from state and local sources--77 percent provided under Proposition 98 and 13 percent from non-Proposition 98 sources. Non-Proposition 98 funding from state and local sources includes primarily (1) state General Fund payments to the State Teachers' Retirement System and for debt service on school construction bonds and (2) local revenues from such sources as developer fees, sales of equipment and supplies, cafeteria revenues, and interest income.

Other major sources of funding are:

Figures 5 and 6 show total K-12 funding per unit of average daily attendance (ADA)--in both current and "constant" (inflation-adjusted) dollars--for the years 1986-87 through 1995-96. They show that per-ADA funding in inflation-adjusted dollars has basically held steady, decreasing 1.6 percent during the ten-year period. While the budget significantly increases funding per student, Figure 6 shows that, after adjusting for inflation, per-ADA funding from all sources has continued to decline.

Higher Education

Figure 7 shows funding for each major segment of higher education for 1994-95 and 1995-96 from selected fund sources. After adjusting for one-time funding, ongoing support for higher education increases moderately. Of the three major higher education segments, the University of California experienced the largest increase (5.3 percent). Funding support for the CSU (adjusted for one-time funding in 1994-95) increased by 4.4 percent, while community college support increased by 3.6 percent.

The budget package assumes there will be no undergraduate student fee increases. (See Figure 8.)

The University of California (UC)

The 1995 Budget Act provides $90.1 million (4.9 percent) more in General Fund support for the UC in 1995-96 compared to 1994-95. The Legislature rejected the administration's proposed $380 (10 percent) general fee increase and instead provided $28.5 million from the General Fund to backfill 75 percent of the net amount that would have been collected through the higher fees ($38 million). The Legislature approved fee increases of up to $2,000 for new students enrolled in professional programs (law, business, medicine, dentistry, and veterinary medicine), as proposed by the UC. Including funds available as a result of the professional student fee increases, the UC will experience an increase of $95.9 million, or 5.3 percent, above 1994-95.In addition, the 1995-96 budget plan for the UC:

The Legislature's plan also includes an unspecified reduction of $9.5 million related to the partial backfill of the fee revenues.

We anticipate UC student enrollment to increase slightly--to approximately 151,000--in the budget year to reflect slight increases in the Master Plan eligible student population. The Legislature expressed its intent in the Supplemental Report of the 1995 Budget Act for the UC to continue to accept all applicants who are fully eligible under the Master Plan in 1995-96 and 1996-97.

The California State University (CSU)

The 1995 Budget Act provides $24.3 million (1.5 percent) more in General Fund support for the CSU in 1995-96 compared to 1994-95. The increase understates actual budget-year growth, as 1994-95 expenditures included $41 million in one-time spending.

The Legislature rejected the administration's proposed $156 (10 percent) general fee increase and instead provided $22.5 million from the General Fund to backfill 75 percent of the net amount that the higher fees would have generated ($30 million). The Legislature also rejected an additional $90 fee increase proposed by the CSU for graduate and post-baccalaureate students. However, the Legislature provided no backfill for the estimated $2.1 million in foregone fee revenues. Excluding the one-time funding in 1994-95, the CSU budget-year increase is $67.8 million or 4.4 percent.

The 1995-96 budget plan for the CSU also:

The Legislature's plan also includes an unspecified reduction of $7.5 million related to the partial backfill of the fee revenues.

California Community Colleges (CCC)

The 1995 budget package increases funding for community colleges local assistance by $99.2 million (3.6 percent) compared to the revised 1994-95 appropriation. The Legislature's budget actions also increase the community colleges' 1994-95 General Fund appropriation by $73 million--$47 million to backfill a local property tax shortfall and $26 million for deferred maintenance and instructional equipment.

As Figure 8 shows, the Legislature rejected the administration's proposed $2 per credit unit fee increase. This leaves community college fees at $13 per credit unit, or $390 per full-time student. The Legislature provided almost $20 million to backfill the net amount that would have been collected through the higher fees. The Legislature also rejected the administration's proposal to extend the differential fee for BA degree holders--$50 per credit unit--which will expire on January 1, 1996. However, the Legislature provided no backfill for the estimated $5 million loss in differential fee revenues. The Legislature approved the administration's proposed reduction of $15.2 million related to past-year declines in the enrollment of BA degree holders.

Based on current estimates of local property tax revenues by the Department of Finance (DOF), the funding provided to community colleges for 1995-96 is sufficient to fund a 3.07 percent COLA and 1995-96 enrollment growth of 1.17 percent. This would translate into a total FTE of about 880,000. The Community Colleges Chancellor's Office, however, has expressed concern that property tax revenues may not reach the level projected by the DOF. To the extent that property tax revenues are less than the amount estimated, the Chancellor's Office indicates that funding for enrollment growth in 1995-96 will be reduced accordingly.

The Legislature adopted supplemental report language directing the CCC Chancellor's Office to identify outcome measures and performance standards which can be used to assess the performance of individual colleges and the community college system as a whole. The Chancellor's Office must report these measures and standards to the Legislature by November 30, 1996.

Student Aid Commission (SAC)

Figure 7 shows an increase of $4.4 million (1.9 percent) in Cal Grant funding. Of this amount, $3 million is to fund changes in the college attendance patterns of Cal Grant students and $1.4 million is to backfill a loss of federal funds.

The Legislature adopted Budget Act language requiring the commission to contract with the Bureau of State Audits for reviews of the extent to which the SAC has (1) addressed concerns raised in an independent review of the automated Financial Aid Processing System (FAPS) and (2) ensured competition in a request for proposal the commission intend to release to procure a maintenance contractor for FAPS. The Legislature also expressed its intent in supplemental report language that the SAC develop a strategic plan for addressing the impact that various changes (including the phase-in of direct lending, the implementation of federal law changes, and improvements in information technology) are having on the ability of the SAC to function in a competitive loan guarantee environment.

Continue Chapter 3 Part III

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