CDE Analysis of Governor's budget for schools

February 26, 2013

Dear County and District Superintendents, Direct-Funded Charter School Administrators, and County Chief Business Officers:

GOVERNOR’S BUDGET FOR 2013–14

On January 10, 2013, Governor Edmund G. Brown Jr. released his proposed budget for the 2013–14 fiscal year. This letter, prepared by the California Department of Education (CDE), provides information on the Governor’s proposals that affect K–12 education and child development programs.

Copies of this document, as well as other budget-related documents, are available through the CDE Education Budget Web page at http://www.cde.ca.gov/fg/fr/eb/. Official state budget documents, including proposed trailer bill language, are available through the Department of Finance Web site at http://www.dof.ca.gov. The budget bills are Assembly Bill (AB) 73 and Senate Bill (SB) 65.

Overview

The 2013–14 Governor’s Budget reflects a significant improvement in the state’s finances due to the economic recovery and voter approval in the November 2012 election of temporary increases in sales and use tax and personal income tax (Proposition 30) as well as increased corporate income taxes for multistate businesses (Proposition 39). The Governor’s budget summary document indicates that economic recovery has begun and provides a plan to reduce the “wall of debt” the state has accumulated after years of deficits.

For the first time since 2008–09, the state does not face a multi-billion-dollar deficit. The Governor’s budget projects General Fund (GF) revenues and transfers of $98.5 billion and proposes $97.7 billion in GF expenditures. These budget figures include an estimated $1 billion reserve and would result in an $851 million operating surplus at the end of 2013–14. Including all fund sources, the spending plan proposes $138.6 billion in GF and special fund expenditures, up 4.5 percent from 2012–13.

Proposition 98 Changes

For 2012–13, the Governor’s Budget estimates the minimum funding level for kindergarten through grade twelve (K–12) education and community colleges under Proposition 98 to be $53.5 billion. Various changes in average daily attendance (ADA) and other factors have resulted in an over-appropriation of $162.8 million in 2012–13. To align the expenditures with the Proposition 98 amount, the budget proposes to reclassify $162.8 million in appropriations as meeting the Quality Education Investment Act funding obligation.

For 2013–14, the Governor’s Budget proposes Proposition 98 funding at $56.2 billion ($49.7 billion K–12), an increase of $2.7 billion ($2.1 billion K–12), or 5 percent, over the 2012–13 revised funding level. An additional $2.1 billion is available for K–12 schools because funds for deferral paydowns in 2012–13 are freed up for ongoing expenditures. Major components of the increased funding for K–12 schools in 2013–14 include:

•                Paydown of deferrals: $1.8 billion


•                Implementation of a new Local Control Funding Formula (LCFF): $1.6 billion


•                Implementation of Proposition 39, the California Clean Energy Jobs Act: $400.5 million


•                Increase in funding for the mandates block grant to reflect the addition of two programs: $100 million

Proposition 98 funding under the budget proposal would be $8,304 per ADA, up from $7,967 in 2012–13. Including all funding sources, excluding bond funds, the total proposed 2013–14 funding would be $11,742 per ADA, up from $11,455 in 2012–13.

Proposition 30: Schools and Local Public Safety Protection Act

With the passage of Proposition 30, schools were spared billions of dollars of mid-year 2012–13 trigger cuts. The measure imposes a temporary (four-year) 0.25 percent increase in the state sales tax and a temporary (seven-year) increase on annual earnings over $250,000 and guarantees that local governments will receive tax revenues for responsibilities transferred to them in 2011.

Proposition 39: California Clean Energy Jobs Act

The budget estimates that Proposition 39 will increase GF revenues by $900 million in 2013–14 and that the Proposition 98 minimum funding level will increase by $526 million. Under the measure, $450 million of the revenues generated in 2013–14 will be transferred into a special fund for energy efficient projects. All of these funds are proposed to be allocated to K–12 schools ($400.5 million) based on ADA and community colleges ($49.5 million) based on full-time equivalent students.

Local Control Funding Formula

The Governor’s Budget proposes to replace the current K–12 finance system with a new LCFF. For school districts and charter schools, the proposal creates base, supplemental, and concentration grants in place of most existing K–12 funding streams, including revenue limits and most state categorical programs.

The base grant varies by grade span. According to the proposal, the average base grant, when fully phased in, will be equal to the current average undeficited school district revenue limit. The base grant funds may be used for any local educational priority.

Supplemental grants, equal to 35 percent of the base rate, would be generated based on the proportion of pupils who are English learners (ELs), eligible for free or reduced-price meals (FRPM), and/or in foster care (unduplicated count). Concentration grants, equal to 35 percent of the base rate, would be provided for each eligible student above a 50 percent threshold. Supplemental and concentration grants would be available for any educational purpose that “substantially benefits” the students generating the funding.

Additional funding would be provided to the K–3 and 9–12 grade spans. The K–3 adjustment would be provided to support K–3 class size reduction (CSR) at a ratio of 24:1 unless a collectively bargained alternative is agreed to by the school district. As a condition of the receipt of these funds, school districts would be required to demonstrate progress toward maintaining a ratio of 24:1 until the LCFF is fully implemented. The funding for this adjustment would be equivalent to 11.23 percent of the K–3 base grant. A funding adjustment would also be provided for grades 9–12, at an amount equal to 2.8 percent of the 9–12 base grant, for career technical education (CTE). The proposed LCFF trailer bill contains language requiring school districts, as part of new local control and accountability plans, to identify how LCFF funds will be used to increase the percentage of students who have successfully completed CTE programs.

What’s Next?

The Governor’s Budget proposal contains significant education reform proposals –the local accountability proposal- that will undoubtedly be the subject of debate and discussions throughout the spring. The deadline for final legislative action on the budget is June 15. The budget takes effect on July 1, 2013.

If you have any questions regarding the 2013–14 Governor’s Budget, please contact the Government Affairs Division by phone at 916-324-4728. You may also contact Carol Bingham, Senior Fiscal Policy Advisor, Fiscal Policy Office, by e-mail at cbingham@cde.ca.gov.

Sincerely,

Tom Torlakson