By John Fensterwald - Educated Guess

With some differences over details, the Legislative Analyst’s Office has commended Gov. Jerry Brown’s overall approach to school spending and what he’d do with the higher taxes he’s asking voters to approve. Where they disagree is over what should happen if the extra money doesn’t come and the state  budget has to be cut.

In an analysis of Proposition 98 spending released Monday, Legislative Analyst Mac Taylor agreed with the major elements that Brown is proposing, including those likely to become sources of contention:

• Deciding to pay off billions of dollars of deferrals owed to schools instead of creating new spending;

• Creating a new formula for funding schools;

• Eliminating most state education mandates and adopting a flexible approach to others;
• Canceling transitional kindergarten, a program for some four-year-olds that was to begin this fall (see accompanying story by Kathy Baron).

Here’s a summary of the issues that the Legislative Analyst examined and his recommendations:

2012-13 budget

Brown is expecting to raise $6.9 billion for the General Fund by raising the sales tax a half cent and the income tax on the wealthy for five years. The LAO is predicting that the tax will generate $2.1 billion less than that, but, assuming that Brown is right, Prop 98  spending would rise $4.9 billion next year to $52.5 billion.

Brown is proposing to use all of the new money to backfill money owed to schools and to pay off $2.4 billion in deferrals, money that the state owes school districts and community colleges in one year but delays paying until the next, a gimmick that forces schools to borrow in the interim.

Even though per-pupil spending would be down 9 percent next year compared with five years ago, with 10 percent fewer teachers in schools, the LAO approves of this approach ­ – and not increasing spending on programs or including a 3.1 percent cost of living adjustment to which schools are statutorily entitled. Since districts need to build budgets now, not knowing whether taxpayers will approve higher taxes in November, it’s wiser to plan on paying down deferrals instead of budgeting spending increases, only to face midyear cuts if the initiative fails, the LAO report said.

Drastic midyear cuts

If the tax initiative fails, Brown is proposing $5.4 billion in midyear cuts, with 90 percent, or $4.8 billion, coming out of Prop 98 spending – $2.4 billion more than needed. Brown would achieve this by shifting the responsibility for repaying school construction bonds, which had been a General Fund expense, to Prop 98.

The LAO questions the wisdom of doing this. (The Education Coalition is prepared to sue over the issue.) School debt obligations, it turns out, vary sharply from year to year, so Prop 98 would be subject to big fluctuations. “Absent a clear, compelling policy rationale, we question why the state would want to change its longstanding education facility funding practices, particularly when the change results in a significant reduction in funding for school and community college operations.”

Brown is also proposing to renege on including building back in $1.7 billion in sales tax revenues that he removed from Prop 98 last year. The LAO calls this tactic “risky.”

Budgeting for the coming year will be tricky for school districts and community colleges, because midyear cuts, if the tax initiative failed, would be problematic. The LAO recommends that lawmakers be specific as early as they can on how much schools can expect to be cut, and then give school districts a range of options. These would include removing additional categorical and mandate requirements, permitting a shorter school year (already down to 175 days), allowing larger class sizes, and potentially allowing for districts to lay off personnel after November, which is not currently allowed.

Wall of debt

After next year, Brown wants to keep rapidly paying off deferrals and other past obligations owed to schools while the temporary tax is still in effect. He would use all of the extra Prop 98 money over the next four years – and then some – to do this, instead of restoring past cuts in spending. By 2015-16, Brown would have paid off all $10 billion in deferrals owed to schools, $3.5 billion in reimbursements for state-mandated programs and $2.6 billion in past Prop 98 debts to schools and community colleges.

“We commend the Governor for developing a plan to retire several of the state’s existing school and community college funding obligations,” the LAO said, although it would slightly extend the repayment schedule another year out. Districts and community colleges, hungry for more money after years of cuts, will no doubt argue that they deserve at least a piece of the new money.

Mandates

The LAO has been clamoring for mandate reform for years. It has argued that some mandates are unnecessary; districts would adopt some other anyway; reimbursements that districts seek vary wildly; and there’s no incentive for districts to be efficient with costs. The state owes districts $3.6 billion in unreimbursed mandates.

Brown proposes to eliminate more than two dozen  mandates, including some related to truancy reporting, scoliosis screening, and pupil residency verification. He is proposing  a block grant of $200 million, including $22 million for community colleges, for two dozen remaining mandates. Districts would have to enforce all of them to get any of the money, including keeping immunization records, following the Brown Act, and doing criminal record checks of staff and volunteers. The LAO said that amount seemed right. “Overall, we find that the Governor’s proposal offers an attractive alternative to the current inefficient and burdensome mandate process,” the LAO wrote.

Weighted Student Funding

Brown wants to give districts more control over spending, and he’d create a simpler, clearer funding system that directs more money to districts with sizable numbers of low-income students and English learners. The LAO likes the concept: “Because the state’s current K–12 funding system is complex, inequitable, and inefficient, we recommend the Legislature adopt some version of the Governor’s proposal.”

It also expresses concerns. Brown would eliminate most categorical programs – separate funds for specified purposes – and use the money to fund weighted student formulas for disadvantaged students. The LAO estimates that about 60 percent of the state’s school districts have large concentrations of them.

Under Brown’s plan, districts could spend the money however they want, but they’d be held accountable for the results – however they’re measured. LAO is skeptical: “We are particularly concerned that districts would not be required to spend the additional funding generated by their disadvantaged student populations on services that benefit those students. A district could, for example, choose to spend that additional funding on providing an across–the–board increase to teacher salaries rather than on supplemental services for English learners and low–income students.”

Because the state accountability system lacks sufficient nuance or sanctions to keep on top of districts or help them improve, the LAO recommends that the Legislature impose requirements that extra dollars be spent on disadvantaged students or that money for them be placed in a few broad categorical funds with specified purposes.