Brown’s Prop 98 contortion

Shifting debt to Prop 98 would harm schools
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Governors and legislatures have shifted programs and revenues in and out of Proposition 98 – based on policy and expediency – ever since the school funding law was created two decades ago. But what Gov. Jerry Brown is proposing in the event voters reject his tax increase in November is unprecedented in terms of impact on K-12 schools and community colleges – and brazenness.

If the 5-year, $6.9 billion sales and income tax** increase fails, Brown would cut K-14 education by $4.9 billion. Half of that would reflect the drop in Prop 98 obligation (more on that shortly). But the other $2.4 billion would come from saddling Prop 98 with the responsibility for repaying general obligation education bonds – a burden that until now was handled through the General Fund. The effect would be to cut school funding by $2.4 billion without going through the formal process of suspending Prop 98.

The rationale is done through “rebenching,” and it’s one reason that education groups and district officials are reacting ambivalently to Brown’s budget.

Proposition 98 was passed to create a minimum funding level for K-12 and community colleges of about 40 percent of the General Fund, though the amount will vary yearly based on various “tests.” Whenever the Legislature moves items in and out of Prop 98, it goes through an adjustment process to weigh the impact on the Prop 98 obligation. It’s called rebenching, but Rick Simpson, deputy chief of staff for Assembly Speaker John Perez and key adviser to the Legislature for decades, reminds me that it’s a term of art, not found in Prop 98. The courts have not yet ruled on the legality and methods for rebenching, although the California School Boards Association is suing the state over a related move by Brown and the Legislature this year (more on that, too).

Tradition of holding schools harmless

Usually, when the Legislature moves programs in or out of Prop 98, it creates a neutral impact, holding schools and community colleges financially harmless. They did this when they moved child care out of Prop 98, deciding it was not a K-12 expense; when they put Prop 49 after-school activities into Prop 98; and when they shifted the responsibility for funding children’s mental health care.

One method to calculate the impact of rebenching is to go back to 1986-87, when Prop 98 was written, to determine what a program was costing the state at the time and then make certain adjustments to determine the current value. That’s the method that Brown and the Department of Finance have chosen for jamming school bond payments into Prop 98, because, frankly, it works to their benefit. The state was paying several hundred million in interest and principal on school bonds in 1986-87; today, as a result of $23 billion in school bonds that state voters approved in 2002 and 2006, it’s paying $2.6 billion yearly. Subtract about $200 million that Brown would add in new revenue under rebenching, and the net loss to schools – money they won’t get to run programs – is $2.4 billion.

“If the Governor and Legislature can arbitrarily move billions of dollars out of the General Fund to provide a specific government service and at the same time reduce the Proposition 98 guarantee, then they can manipulate the minimum guarantee to be whatever they want,” Robert Manwaring, a former deputy analyst for education for the Legislative Analyst’s Office, told me. “At that point, the constitutional guarantee becomes meaningless.”

On that point, Robert Miyashiro, vice president of the consulting firm School Services of California and another budget expert, agreed. There have been so many contortions of Prop 98 over the years that Miyashiro  has called for abolishing the law and replacing it with a simpler, more comprehensible funding system.

Dennis Meyers, assistant executive director of the California School Boards Assn., says CSBA believes that the school bonds shift, if it happened, would be illegal.

Illegal or not, whether you think it’s necessary depends on your view of the total budget. By cutting K-14 funding an additional $2.4 billion, Brown can avoid further cuts to social services, child care, Medi-Cal and higher ed.

Skirting Prop 98 suspension

But in doing the cutting this way, Brown avoids having to formally vote to suspend Prop 98, which is what voters intended in passing it. Suspension requires a two-thirds majority vote of the Legislature – never easy for a governor to obtain and even harder since voters OKed passage of the total budget by a simple majority. (Refusing to suspend Prop 98 is one of the few remaining levers that the Republican minority still has.)

If Proposition 98 were suspended, the Legislature would have to eventually pay back the $2.4 billion that Prop 98 was shorted, an amount called the maintenance factor. But Brown and the Legislature – assuming it goes along – would not have to pay anything back by rebenching.

Dispute over realignment money

There’s another big reason Meyers says there is “very little to like” about the governor’s budget for education.

In the current budget, Brown and the Legislature moved some state services to counties and cities. To pay for this realignment, they diverted revenue from 1.06 percent of the state sales tax, worth $5 billion, from the General Fund. Doing so also subtracted $2 billion that would have gone to Prop 98. CSBA has sued over this point.

Brown didn’t cut $2 billion for schools, per se. He deferred payment of it until the 2012-13 budget, which allowed school districts to count the money in their budgets this year. And, in the budget trailer bill, AB 114, Brown and the Legislature promised to pay the money back to schools if a tax increase passes – and to find some other way to handle realignment if it doesn’t.

But now Brown is saying that if the tax fails, the $2 billion would stay with the locals, and the schools would be out the money.

CSBA, along with two dozen education and community groups who signed a letter last week, has withheld support of the governor’s tax initiative. There would have to be changes – including a steady, sure source of money for schools – for CSBA’s backing, Meyers said.

** This week, the LAO forecast that the tax initiative would raise only $4.8 billion – $2.1 billion less than the Department of Finance’s projection.

20 Comments

  1. Kind of like more smoke and mirrors!
    John: What advice are school districts being offered about the percentage cuts to make for the 2012 – 13 school year? Since prudent financial planning was technically suspended with AB 114, I am curious as to how schools are to balance their books for this year as they: accept that they don’t have payback on the deferrals, cope with the inequitable loss of bus funding, still pay for STEP and Column raises, etc., while awaiting dollars from a  November proposition.  When I budget I like “real” numbers!!!

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  2. John, here’s my question: In light of CA’s financial “contortions,” how do you figure we’ll pay the $2 billion for the Common Core standards?  I’m asking this now, not as a partisan “gotcha”, but as an actual budget question.  How will CA pay the estimated $1.6- $2 billion for the federal standards?

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  3. “Brown can avoid further cuts to social services, child care, Medi-Cal and higher ed.”
    Well, there it is in black and white……Let’s destroy Education in this State for the sake of Welfare……..Throwing the future generations aside for the present benefits to the “Poor”
    Yeah, that makes a lot of sense…….This is what happens when they run out of money…….Clamor for tax increases so they can continue to throw it away in the wrong places.
    Moonbeam should be real proud of himself…….

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  4. Sue: You have raised a critical point, since under state law, teachers must be given notice of layoffs on March 15, based on budget projections for the year starting July 1. How do districts prepare then for a possible failure of a ballot issue in November with a huge midyear cut in December? Gov. Brown, in his budget summary, said that he would make recommendations to the Legislature to deal with this dilemma. So stay tuned …

     

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  5. JimH, for whatever it’s worth, many of those services serve children also. There are no easy answers in the budget, which in actual dollars has been shrinking the past couple of years even as population grows.
     
    That said, I think shorting owed money is pretty bad too. The worst thing, though, is even if that money is paid back, it can’t be used for kids who were owed it initially – they’ll never get that kindergarten, or 5th grade year, or freshman year, or senior year back.
     
    Sue: my guess is that School Services will continue to tell districts to be as conservative as possible and to plan to take the hit of the largest proposed cut. I’d also guess that this next round of uncertainty is going to be a lot more dangerous and disruptive as districts are getting to the end of their reserves, not to mention cash flow with all the deferrals. Initial projections were that budgets might turn around in 2013-14, but that’s looking a lot less plannable these days. Being solvent 3 years out is going to be pretty harsh on the next budget year with those assumptions.

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  6. Sue: I heard a story out of KMUD about the disastrous situation with transportation funding in Southern Humboldt, where 91% of kids take the bus and many are an hour or a bit more away from their school. The kids are mostly low income, so there’s no real option to charge for a bus pass, and for those of you unfamiliar with the area, there are no other transit services in this area of the north coast. They are seriously having to consider dropping all bus service as of the end of February.
     
    For anyone interested in hearing it, it’s archived on their site. It’s the January 6 edition of the KMUD local news, 6pm edition. http://kmud.org/index.php?option=com_wrapper&view=wrapper&Itemid=83

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  7. John, I can appreciate that you may not want to deal with Common Core in a Prop. 98 discussion.  Could I suggest a future column in which you go over the options the state faces in paying for the Common Core standards?  EdSource, considered non-partisan, estimates implementation at $1.6 – $2 billion.  To the best of your knowledge and information, where will that money come from?

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  8. Thanks El, I will look for the story. We are in Northern Humboldt, so not as dire as the area you are referring to. The SES issues in this entire area are worsening, and I agree that the students in Southern Humboldt are in the most terrible straits. In earlier articles I have mentioned sliding scale for buses in the hope that those who can pay might be a finger in the proverbial dike. Frankly, that is where we are at!
    In reference to other posts, there are many, many districts that cannot get through this year. Just look at the growing list of districts that are in financial straits already, and many are rural, low-SES, and so on. Being conservative is not enough when the cash is not flowing and there are more deferrals. I don’t see any turnaround until 2015 at the earliest. What is the plan out of the legislature when districts default and the banks won’t lend?
    Does anyone have a ballpark “amount” per student cut that schools should be budgeting for?
    Thanks.

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  9. Doug:  As I noted in a comment earlier this week, Mary Perry of EdSource acknowledged to me that the $1.6 billion to $2 billion was a worst-case scenario that assumed the no overlap between Common Core and California’s English language arts standards. It was written before the state adoption last summer.

    No one is saying there won’t be significant costs of adoption. But  superintendents of the seven districts  that have banded together to start working on Common Core now –including Christopher Steinhauser of Long Beach Unified and Jonathan Raymond of Sac City – have concluded that EdSource’s figure and Superintendent Tom Torlakson’s projection are way high.

    The estimates are based on the projected costs of textbooks, teacher training and administering new computer-based tests. The materials costs are based on the traditional, formal state-based textbook adoption process. Common Core adoption will likely be a different process. California districts can take advantage of digital materials that other states are creating; they will be developing their own lesson plans. And I would expect there will be some savings in buying materials for national standards. The Department of Education also will have an interim adoption process as a transition to Common Core, and there will be materials designed to fill in gaps, not totally replace current textbooks, for now.

    It’s not as if districts are starting from scratch. They annually receive $268 million in Title II professional development dollars from the federal government now, and could channel some of that into Common Core training for teachers. And teachers will take advantage of the  Internet for webinars,  sharing knowledge and advice on their own and through formal programs.

    The cost of the new tests is a worry, especially for those districts without the bandwidth and enough computers. But some are predicting that computer-based adaptive tests will have to be phased in to accommodate states’ finances.

    The State Board will discuss Common Core today (Thursday).  You’ll be able to follow it on the CDE website. You’ll be pleased to learn that we will have a “Yes, but … “forum on Common Core on Monday. Feel free to join in the conversation then. You clearly feel strongly about this.

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  10. Let me make my question a little more grounded and specific.
     
    I can’t help but notice, browsing Amazon’s Kindle store, that most Kindle editions cost more than a paperback and they can only be lent once, for a maximum of two weeks. I find the assumption that digital materials will be less expensive over time (especially when you consider the infrastructure) to be somewhat at odds with current practice.
     
    That’s not a reason not to use digital materials. I probably come off as more skeptical than I am. Indeed, I think they can be a dramatically powerful tool to provide more educational opportunities and better learning experiences. But I don’t think those outcomes are consistent with cost savings.
     
    And I know I’m a broken record on this, but the cost and the effort to bring broadband to EVERY school has to be part of the conversation.

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  11. I also think, in the discussion of the cost of Common Core, we have to be going back to our first principles, which is that the first priority for money spent is to ask if it is the most beneficial use for our kids at this moment.
     
    $2 billion is an abstract number. It’s easy to say to oneself, “Oh, yes, that’s worthwhile, and if $2b is what it costs, then so be it.” And in a normal budget year (will we ever have those again?) that might be the right way to look at it.
     
    But right now, every expenditure is a zero sum game. That $2b is going to come at the expense of some other program. How many days of school does $2b buy, and is it better for this year’s 5th graders to have their year be about Common Core adoption or is it better for them to have those school days that would be cut? Is Common Core more important than school buses? Is it more important than pull-out reading programs for the primary grades? Etc. That’s how we have to weigh new (unfunded) expenses.
     
     

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  12. If you are free (now 10:30 am), check out the State Board webcast – http://www.cde.ca.gov/be/ag/ag/sbelivestream.asp – for an update on California’s status with regard to Common Core

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  13. Thanks for the link John. This discussion does not inspire confidence.
    The portion of the discussion I have watched thus far has seemed to focus on two possibilities:
    - getting a waiver so we can more easily divert federal money away from disadvantaged kids in order to pay for ccc.
    - give up on the current plan (ie extend the timeline) because unfunded mandates of this magnitude are simply unacceptable.
     
    Maybe we should agree to the waiver under one stipulation: the feds pay for common core implementation, and that money comes on top of our existing esea funding.  :-)
    I also think it would be useful to look at districts that have (at last partially) already moved to common core, and how that has impacted their finances. I believe LAUSD falls into that category… ?

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  14. By the way, here is a text article about Southern Humboldt’s situation:
    http://www.redwoodtimes.com/garbervillenews/ci_19720760
    They are losing $240,000 in transportation money on a $5.2 m budget, which is nearly 5% of the total district budget.

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  15. Navigio: Give up on making demands on the feds. The realistic view of superintendents is to give them the waiver so that they have flexibility to use the 20 percent of Title I money as they see fit — not to hire outside tutors or transport kids to non-PI schools. Not to be stuck with the feds’  rigid school improvement plans but their own. In Sac City Unified, Common Core is being piloted in the lowest performing school as instruction strategy. English teachers I spoke with say they far prefer Common Core to state standards.

    I agree with you about the discussion on Common Core at the State Board. Very abstract, detached from realities schools and teachers face.

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  16. thanks John. the feds are in a position of powerlessness though. Education is a state issue and the only way they can get states to do anything is to bribe them. If states push back hard enough (and in concert) we can demand things of them. (I am convinced Gobama is not paying attention to the Education issue and instead is leaving it up to Dunce-an. At some point he will wake up. Here’s to hoping! :-)  Coupled with that is the only thing that seems to get congress off their duffs is seeing the executive branch usurp the leg’s authority. Congress almost came up with a plan just because waivers were announced. Something has to happen and as long as we remain quiet and give up on demanding of them, nothing will happen. IMHO, of course. :-)  ).
    Some anecdotes: I know of schools that were already using the same amount of funds for PD before they went into PI, so no change for them there. I know of schools that have been in PI for the better part of a decade. None of the punitive ‘reform’ punishments have been imposed on them (and for good reason). Districts that have both PI and non-title 1 schools sometimes have their non-title 1 schools filled and are in high-demand, in other words there are no non-PI options actually available, and thus no or minuscule cost to the district. In many cases, non-PI schools are only that way by chance and people will choose to stay in a PI school instead of move to an actually worse non-PI school. Remember, PI is entered as a result of any subgroup failing to meet AYP (with other stipulations). It has to be statistically significant, but it doesnt have to mean that anywhere near a large group of the rest of the kids are failing. As more schools enter PI this will become even more so. But of course, things are different everywhere.
    In addition, I believe waivers may end up forcing changes that depress the quality of education even while giving a bit of extra freedom on a few percent of revenue. Its just more and worse of the same in my book. IMHO, of course..  :-)

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