Legislative Analyst's Office Analysis of the 2002-03 Budget Bill

Discretionary Funds

We recommend that, to the extent funds are available, the Legislature provide budget-year funding to continue revenue limit equalization ($42 million) and a reduced Public Employees' Retirement System (PERS) offset to revenue limits ($36 million) because these programs (1) provide general purpose funds to local education agencies (LEAs) and (2) meet important legislative priorities. (Add new Item 6110-223-0001 of $78 million.)

The Governor's November Revision included proposals to eliminate three current-year appropriations that provided either fully or partially discretionary funds to LEAs. These were the K-12 per-pupil block grant ($68 million), revenue limit equalization ($40 million), and a reduced PERS offset to revenue limits ($35 million). The Governor's budget proposes to repeat these cuts in the budget year as well. The Legislature acted in the 2001-02 Third Extraordinary Session to maintain the current-year funding for these three programs, but left "open" the question of funding the programs in the budget year. We have particular concerns with the absence of funding in the 2002-03 budget for equalization and a reduced PERS offset, given the general purpose nature of the funding provided by these two items and the clear legislative priority assigned to them.

Figure 1 shows general purpose funding as a percent of total K-12 Proposition 98 funding. It shows that over the last 15 years the proportion of discretionary funds has declined. Especially, given the fiscal situation districts face, we think that the Legislature should provide districts with more general purpose funding than proposed in the budget. Moreover, greater local discretion over spending is essential in the context of the state's new accountability framework. The accountability framework constructed by the Governor and the Legislature puts into place a means for assessing desired educational outcomes and creating incentives for achieving them. To maximize the chances for improving educational results, however, the state must give local school districts and school sites more flexibility to fit budgetary resources to local circumstances and needs.

Accordingly, we recommend that, to the extent funds are available, the Legislature provide budget-year funding to continue revenue limit equalization and the PERS offset. The amounts required, given the statutory cost-of-living adjustment and enrollment growth, are $42 million for equalization and $36 million for the PERS offset.