Proposition 98 Forecasting and Finagling

Dear aspiring school business leader,

My recent post on California’s Proposition 13 was for you. This post is about Proposition 98.  Together, these represent the two voter initiatives that you MUST understand.  Start with the Wikipedia entries for both. This gives you a general overview.  Then read the Legislative Analyst’s Prop 98 Analysis.  If you find this intolerably dull, then please reconsider your career aspirations.  It is going to be you to whom the board and superintendent turn when they want to know “What’s all this talk about putting Prop 39 under Prop 98?  What does that mean for us?”

Proposition 13 limited the amount of funding available to schools and counties and other local entities, which in turn placed huge pressures on the state to backfill the lost funding.

Quote attributed to Bruce Fuller, UC Berkeley

Photo source:  QuoteHD.com – Quote attributed to Bruce Fuller, UC Berkeley

Proposition 98 prescribes that a certain percentage of the state’s General Fund revenue be directed towards schools and community colleges (K-14).

The actual calculation for Proposition 98 is ridiculously complex.  The Department of Finance (DoF) will do it.  School Services of California will no doubt check it, and work with the state to remedy rare mistakes. You don’t need to be able to do the calculations.  It is the implications of these propositions that are most important for you to understand.

Here’s what you need to know.  Proposition 98 guarantees a certain level of funding to schools.  When the governor announces X billion more dollars to schools, this is generally not because he is proposing a greater percentage of the state budget be devoted to education.  It means the DoF has come up with a forecast of future state revenues.  Its Prop 98 calculation then yields a particular amount of school funding.

Carefully read any newspaper reporting of the recently announced governors budget.  These news articles will say something like “Governor projects billions more in funding to schools”, not “Governor proposes…”

Proposition 98 was supposed to be the floor (no less than) but is now regarded as the ceiling (this amount only) due to demands from other sectors, such as Health and Human Services.

There are several ways that Proposition 98 can be (and has been) tinkered with.

1.  Stretch the dollars to cover more activities. Redefine what K-14 is.  Include libraries, childcare, or other activities. The most recent version of this is to include Proposition 39 payments to schools.  If this passes the legislature, expect a lawsuit.  Prop 39 provides funding to schools for green energy projects.  The governor wants to fund it with zero extra dollars, by carving it out of the Prop 98 guarantee.

2.  Redefine the revenue base.  Exclude certain General Fund revenues from the calculation.

3.  Shift local property taxes from counties to schools.  This gives schools more local funding, requiring the state to kick in less.  To be clear, schools receive no additional funds overall. This explains the category of local taxes called ERAF (education revenue augmentation fund), otherwise known as “sorry counties, you lose”.

The most recent governor’s budget proposes to use some Proposition 98 funding to pay off deferrals.  This counts under Proposition 98, but actually generates no added funding to schools.

The governor also proposes to use some Proposition 98 funds to put away for a rainy day so that the drop in funding during an economic downturn will not be so severe.

While I favor both actions as prudent, it means that school funding in 2014-15 will be less than it otherwise might have been.  Schools will dig out of the funding abyss more slowly.  Maybe just in time for the next economic downturn.

So what is the actual formula for school funding?

Dodgy revenue forecasts + Prop 98 finagling = Funds to schools.

You can take that to the bank.

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