Analysis of the 2008-09 Budget Bill: Education

Proposition 98 Priorities

This section lays out an alternative to the Governor's Proposition 98 budget proposal. Under the alternative, K–12 schools and community colleges would receive roughly the same amount of ongoing program support in 2008‑09 as in the current year ($57.7 billion). Relative to the administration’s plan, the alternative would provide about $2 billion more in ongoing Proposition 98 funding and result in a Proposition 98 suspension of about $800 million (rather than $4 billion). As part of the alternative, we recommend funding certain core costs while obtaining savings from programs that are duplicative, poorly structured, or technically overbudgeted. In addition, to help schools and community colleges respond to a potentially tight budget, the alternative includes a major categorical reform component—collapsing more than 50 K–14 categorical programs into a few large block grants.

In this section, we provide an alternative Proposition 98 spending plan for the Legislature’s consideration. This is one piece of the overall budget alternative we lay out in The 2008‑09 Budget: Perspectives and Issues. The Proposition 98 alternative, as the overall state budget alternative, is intended to give the Legislature more options in developing its 2008‑09 budget package.

Alternative Takes Different Approach to Building Proposition 98 Budget

Figure 1 summarizes our alternative. As shown in the figure, the alternative would provide $57.7 billion in ongoing Proposition 98 funding for K–14 education in 2008‑09, or $2.1 billion more than under the Governor's budget. The amount provided under our alternative is roughly the amount needed to support existing programmatic spending—essentially resulting in a flat year–to–year budget.

Takes More Selective, Strategic Approach. Whereas the administration proposes across–the–board cuts that reduce virtually all K–14 programs, our alternative takes a more strategic approach. It does so by making selective adjustments—weighing the merits of various programs and funding certain core costs while obtaining savings from programs that are duplicative, poorly structured, or technically overbudgeted.

Restores Ongoing Funding for Ongoing Programs. As shown at the top of Figure 1, we restore ongoing funding for programs that were funded with one–time monies in the current year. In 2007–08, the state funded substantial portions of the Home–to–School Transportation, High Priority Schools, and Deferred Maintenance programs with one–time funds. Maintaining these programs in 2008‑09 requires backfilling with a like amount of ongoing funding. As part of our current–year alternative, we also recommend capturing substantial unspent monies from child care and development (CCD) programs. Although those monies are not needed in 2007–08, the CCD budget would need to be partly restored in 2008‑09 to ensure no reduction in service.

Funds Growth but No COLA. The alternative would make various growth adjustments. Specifically, it would fund 0.7 percent growth for child care programs, reflecting projected growth in the number of children under 5 years of age, and 1.7 percent enrollment growth at the California Community Colleges (CCC), reflecting projected demographic growth in the underlying student population. (Part of community colleges’ enrollment growth costs would be covered by increased student fee revenues.) In addition, the alternative recognizes savings from a projected decline of 0.5 percent in K–12 average daily attendance (ADA). The alternative would not fund a cost–of–living adjustment (COLA). For 2008‑09, providing a COLA to all K–14 programs (including apportionments) that typically receive one would cost about $3 billion.

Covers Additional Ongoing Cost of K–14 Mandates ($205 Million). The alternative would fund the estimated full–year cost of already approved K–14 mandates. In contrast, the Governor's plan includes only $4 million for the annual ongoing cost of CCC mandates and virtually nothing for the ongoing cost of K–12 mandates (although it does include $150 million in one–time funds to pay prior–year costs). For many years, we have recommended the Legislature fund mandated local activities. (See the “Mandate” section of this chapter for a discussion of recently approved education mandates.)

Alternative Achieves More Than $200 Million in Program Savings

To cover the various costs described above, the alternative would make various targeted reductions totaling almost $200 million. Figure 2 lists these reductions. The reductions are recommended for one of the following three reasons.

Aligns Funding With Expected Spending. After reviewing the account balances of many K–12 categorical programs, we identified several programs that routinely end the fiscal year with unspent monies. Thus, we recommend a one–time correction to realign the budgeted funding level to the anticipated spending level. Some of these programs have savings because of declines in K–12 ADA whereas others routinely have less–than–expected participation. Similarly, we recommend reducing funding for adult education to align the program’s budget with growth in the adult population. (See the “Adult Education” section of this chapter for further discussion.)

Eliminates Programs That Are Poorly Structured, Duplicative, or Have Significantly Reduced Participation. We recommend eliminating the Physical Education Incentive Grant program because it is poorly structured and the School Safety Consolidated Competitive Grant program because it is duplicative of a larger school safety program. Similarly, we recommend eliminating the corrective action component of the High Priority Schools program because it is duplicative of a federal program. Finally, we recommend phasing out the Year Round Schools program because these types of schools are becoming less common. (See the “Other Issues” section of this chapter for further detail on the rationale behind several of these reductions.)

Reduces Funding for CCC Program. We recommend reducing funding for the economic development program offered by community colleges, as it is not directly related to CCC’s core mission of providing educational services to students. (See the “California Community Colleges” section of this chapter for further discussion.)

Alternative Taps Other K–14 Savings

To support the ongoing Proposition 98 funding level under our alternative, we identify additional savings elsewhere in the K–14 budget. Specifically, the alternative would achieve additional savings in the current year, use current–year funds to prepay a budget–year obligation (thereby yielding budget–year savings), and suspend a $450 million appropriation associated with a K–14 program expansion.

Recap of Current–Year Alternative. We continue to recommend the Legislature achieve as much savings as possible in the current year by identifying funds that likely will not be spent by the end of the fiscal year. We have identified almost $1 billion in existing Proposition 98 funding that is not expected to be needed before the close of the fiscal year. (This is about $600 million more in current–year savings relative to the Governor's plan.) These funds can be used to reduce spending that counts toward the Proposition 98 minimum guarantee without affecting schools’ current operations.

Using Settle–Up in Current Year Has Multiple Benefits. Another piece of our current–year alternative involves “settle–up” funding. A settle–up obligation is incurred when the minimum guarantee exceeds the funding level of the enacted budget. When this happens, the state is required to provide more funding to meet the higher funding requirement (to settle up). In contrast, when the reverse happens (as in the current year), and the minimum guarantee falls after the budget is enacted, the state has no automatic tool for reducing spending (to settle down). In the current year, we recommend designating some funding already going to schools as payment toward an existing settle–up obligation. Such action would avoid midyear cuts to schools. It also would ensure the state meets the requirements of Proposition 98 for prior years before exceeding the requirement for the current year. Using settle–up in this way has the added benefit of allowing the state to prepay the settle–up payment scheduled for 2008‑09 ($150 million), thereby yielding additional budget–year solution.

Suspends Quality Education Investment Act (QEIA). Our alternative suspends QEIA, a program established pursuant to Chapter 751, Statutes of 2006 (SB 1133, Torlakson). Chapter 751 appropriates $450 million in 2008‑09—$402 million for a class size reduction program for K–12 schools and $48 million for community colleges, most of which is designated for career technical education (CTE). Although little information is available on how much the 488 K–12 schools participating in QEIA are spending in 2007–08, virtually none of the community college CTE funding has been awarded to date. To ramp up such a program in the budget year while at the same time not providing a COLA to existing core programs (such as revenue limits, special education, Economic Impact Aid, and existing CTE programs—programs that also serve QEIA schools) would be counterproductive. Rather than take such an approach, we recommend suspending the program until more ample resources are available. (Suspending by a year also would allow the Legislature to consider possible program improvements, such as better integrating QEIA with other state and federal programs that focus on low–performing schools and districts.)

Alternative Includes Major Categorical Reform Component

To help districts respond to a tight fiscal year, our alternative includes recommendations that would provide districts with greater fiscal flexibility. Specifically, we recommend consolidating 43 K–12 categorical programs into one base grant and three supplemental block grants. For the base grant, we recommend consolidating revenue limits with five revenue limit “add–ons” and two class size reduction programs. For the supplemental block grants, we recommend consolidating 8 existing programs into a special education block grant, 11 other programs into an “Opportunity to Learn” block grant centered around at–risk students, and 16 other existing programs into a school improvement block grant largely centered around teachers. (See the “Categorical Reform” section of this chapter for further discussion.) For the community colleges, we recommend consolidating ten categorical programs into two block grants—six existing programs would be consolidated into a “Student Success” block grant and four programs would be consolidated into a faculty support block grant. (See the “California Community College” section of this chapter for further discussion.)

Categorical Reform Offers Districts Multiple Benefits. Reforming the state’s existing system of categorical programs has several very important benefits for schools and districts. Perhaps most relevant in tight fiscal years, categorical reform offers greater flexibility to use available funds to address local needs. Given such needs can differ substantially across the state, categorical reform offers districts latitude to identify and resolve the most pressing local problems. Such an approach also creates incentives for districts to develop local capacity to respond to local issues. Streamlining the finance system—a byproduct of categorical reform—also reduces confusion among parents, teachers, and administrators about the level of resources provided by the state and the method used to distribute those resources. This, in turn, enhances transparency and fosters stronger incentives to distribute resources equitably. Lastly, categorical reform allows districts to focus less on complying with state rules and regulations and more on student success.

Various Factors Affect Minimum Guarantee in Budget Year

Below, we describe the ways in which revenue proposals and current–year spending levels affect the Proposition 98 minimum guarantee in 2008‑09. As shown in Figure 3, the Proposition 98 minimum guarantee in 2008‑09 under our alternative package is estimated at $58.5 billion—more than $1 billion lower than the estimate of the guarantee under the Governor's plan ($59.6 billion).

Minimum Guarantee Affected by Revenue Proposals. Whereas the Legislature typically funds the Proposition 98 minimum guarantee, the large projected budget deficit makes funding the guarantee in 2008‑09 especially difficult. Neither the administration’s plan nor our alternative meets the Proposition 98 minimum guarantee (suspending by $4 billion and $800 million, respectively). Even raising taxes in 2008‑09 would not make meeting the Proposition 98 guarantee easier. This is because higher revenues in 2008‑09 result in a higher Proposition 98 guarantee—meaning efforts to find overall budget solution work at cross–purposes with trying to fund the Proposition 98 guarantee. For example, if the state were to raise an additional $4 billion in General Fund tax revenue, the Proposition 98 spending requirement would increase by $2 billion—leaving only $2 billion in budget solution.

Minimum Guarantee Also Affected by Current–Year Actions. The interaction between revenue proposals and the Proposition 98 minimum guarantee in the budget year underscores the significance of funding at the minimum guarantee in the current year. Given that revenue proposals will drive up the Proposition 98 minimum guarantee and the budget–year guarantee drives off the current–year spending level, the starting point is especially important. If spending were adjusted all the way down to the minimum guarantee in the current year, then the minimum guarantee in 2008‑09 would be more than $1 billion lower than under the Governor's plan. Indeed, under our alternative, the minimum guarantee is lower and the suspension is smaller almost entirely because we assume current–year spending has been adjusted all the way down to the guarantee.

Conclusion

In sum, our alternative would provide schools and community colleges roughly the same amount of ongoing program support in 2008‑09 as in the current year ($57.7 billion). Within that funding level, it would support growth in child care programs and enrollment growth at community colleges. It also would cover the ongoing costs of mandated education activities. It would not provide a COLA, and it would make targeted reductions to programs that are poorly structured, duplicative, experiencing notable drops in participation, lower priorities, or working at cross–purposes with funding districts’ core program. The alternative also includes a major categorical reform component that would maximize districts’ flexibility in responding to a potentially tight budget.