Reading The Tea Leaves
After reviewing the documents from the California School Boards Association, School Services of California and the Legislative Analyst Office analyzing the Governor’s 2012/13 budget it is time to read the tea leaves. It is clear even under the best outcomes, school boards have no reason to celebrate and even plan for the worse.
Prop 98 Guarantee
Prop 98 is a 1988 constitutional amendment which provides K-14 schools with a guaranteed funding source that grows each year with the economy and the number of students.
Ever since the 2008 recession, the State has been creatively working on ways to thwart the intent of the voters. Last year, over $2 billion was moved from the Prop 98 guarantee to fund the realignment of services to cities and counties.
The Governor’s 2012/13 budget continues to manipulate the Prop 98 guarantee in a number of ways. The Governor’s initiative to fund education through a temporary tax contains language to permanently move the questionable shift of monies from Prop 98 to cities and counties. In addition, the Governor is moving the burden of paying general obligation education bonds from the General Fund to the Prop 98 guarantee. The net effect of all handiwork is to keep K-14 funding flat despite being able to claim billion of dollars of increased spending on public education.
Trigger Cuts
Of the biggest concern for school boards is the proposal to activate $4.9 billion in trigger cuts to K-14 education if the Governor’s tax initiative fails. With over 70% of the trigger cuts aimed at K-14 education it is does not appear education is a priority for Sacramento.
So let’s recap. The average school district will receive $5,231 (down from $5,821 in 2007/08) per student in 2011/12. With the passage of the proposed budget and the November tax initiative, the average school district will receive $5,281 per student for 2012/13. If the tax initiative fails, the average school district will receive $4,921 per student.
Weighted Student Formula
With the best of intentions, the Governor is starting a conversation about simplifying the funding of K-14 education. His proposal to do a 5 year phase in of a weighted student formula is based on a paper from Michael Kirst (current chairman of the State Board of Education), Gordon Liu (current California Supreme Court justice) and Alan Bersin (former San Diego Superintendent).
However, the Governor’s proposal does not contain support for a “hold harmless” provision for school districts. As a result, there will be “winners” and “losers” if implemented as proposed. It is highly unlikely the Legislature will approve a redistribution of existing educational dollars and therefore weighted student formula is dead on arrival.
Mandate Block Grant
The Governor proposal’s continues the shift of categorical dollars (mandated programs) to local school boards control. For the past few years, local school boards have been able to use dollars for set of mandated programs for general operating purposes under something called Tier 3 funding.
The 2012/13 proposal goes further by eliminating nearly half of all existing mandates and suspending the remaining mandates. To encourage school boards to voluntarily participate in suspended mandated programs like California High School Exit Exam, Collective Bargaining, Immunization Records, Open Meeting/Brown Act, Prevailing Wage and the Stull Act, the Governor is proposing funding a Mandate Block Grant with $178 million for K-12 school districts.
Transitional Kindergarten
To save money, the cutoff date for entering kindergarten is moving from December to September in a three year phase. As a result, in 2012/13 student who turn 5 between November 1 and December 2 will not be considered kindergarterners. In 2014/15 students will need to be 5 by September to enter kindergarten. With less students eligible to enter kindergarten, the State saves money.
However, the enabling legislation turned around and created Transitional Kindergarten. It requires school districts to provide educational services for those children not able to enroll as kindergarteners.
The Governor’s proposal is recommending suspension of the transitional kindergarten mandate and taking the $232 million in savings and apply them to K-12 education funding.
Bottom Line
Last year when school districts were faced building budgets with the threat of trigger cuts, they planned as if the trigger cuts were going to happen. Since the actual 2011/12 trigger cuts were smaller, school boards would be smart to take those savings and apply them to potential 2012/13 trigger cuts. As a result, you can expect numerous school districts continue to issue March 15 notices and to go to the bargaining table to negotiate concessions in the event trigger cuts are implemented in January, 2013.
LAO Says
With the early release of the Governor’s 2012/13 budget, school boards can begin the difficult task of planning their school year. Unfortunately, the structure of the Governor’s budget does not give school boards the real opportunity to restore programs according to this Los Angeles Times news story. In fact, the news story suggests, school boards should be planning on reductions to educational funding.
What the LAO Says
State Revenues
The LAO forecasts are significantly lower than the Governor’s projections. As a result, even if the November tax initiative passes, 2012/13 state revenues will be not known under mid year 2013.
Restructuring
The Governor’s plan contains major restructuring of the school finance system and education mandates. The LAO thinks the Governor’s restructuring proposals in all these areas would overcome most widely recognized shortcomings of these current systems and institute lasting improvements.
Trigger Cuts
Though the Governor’s tax initiative would improve the financial outlook of public education over the next several years, his trigger plan would create significant uncertainty for schools in 2012-13. This uncertainty is likely to be particularly problematic for schools, as most will feel compelled to build their 2012-13 budgets assuming the trigger cuts will be implemented. This means schools in 2012-13 likely will implement most, if not all, of the reductions that many hope to avoid. Given this possibility, the Legislature needs to be very deliberate in structuring a workable trigger package. In particular, the Legislature will need to be careful in setting the size of the trigger reduction; determining the specific education reductions to impose; and designing tools to help schools respond to the trigger cuts.
Prop 98
The Governor’s budget contains so many “assumptions/sleight of hand/redirection” it is hard to estimate Prop 98 funding levels for 2012/13. The LAO points even the tax initiative passes, the Governor plans to pay down $2.4 billion of the $10.4 outstanding deferral payments. While it helps schools with cash flow, it does not provide any monies for programmatic increases.
Weighted Student Formula
To assist with local budget constraints, the state has temporarily suspended requirements for about 40 categorical programs. The Governor proposes to suspend requirements for up to ten additional programs—essentially phasing out most existing categorical programs beginning in 2012-13. (A few categorical programs—including special education, child nutrition, and the After School Education and Safety program—would remain.)
In lieu of the current revenue limit and categorical program model, the Governor proposes that all districts and charter schools receive an equal base per-pupil amount, plus additional general purpose funding intended to serve their disadvantaged students. Specifically, for every dollar districts/charter schools receive for a student, they would get an additional 37 cents if the student were poor and/or an English Learner. Districts/charter schools with large proportions of these disadvantaged student populations also would receive supplemental “concentration” funding. Perhaps as soon as 2013-14, the administration plans to add a performance component to the weighted student formula, which would provide fiscal incentives for districts to improve or sustain high academic performance. Districts would have local discretion as to how to spend weighted student formula funding. The Governor proposes to transition to the new formula over a five-year period, with implementation beginning in 2012-13.
Mandates/Block Grants
The remaining 26 education mandates would be suspended. Though suspended, school districts still would need to undertake these activities if they wanted to access the block grant funding. The Governor proposes to create a new, discretionary “mandate block grant.” His budget provides $178 million for school districts for the block grant. School districts that choose to receive block grant funding would receive a per-student allocation.
The Carrot and Stick Approach
However you characterize it, (carrot and stick, a ransom note or do not make me shoot this puppy) the Governor’s 2012/13 budget does not help local school boards make decisions for the foreseeable future. By creating a budget that relies November, 2012 election results, school boards are stuck between a rock and a hard place. The real possibility of $5 billion in trigger cuts becoming effective, January, 2013, all but forces most school boards to plan for the worse.
The Governor’s budget indicates that the trigger cuts to education would equate to 15 school days or approximately 8% of the school year. So what options do school boards have in planning for the 2012/13 school year? Option one would be assuming a successful passage of the tax initiative but negotiating with bargaining units to reduce salaries if the initiative fails. Option two would be calculating funding levels if the tax initiative fails and make the necessary reductions in District expenditures by cutting programs or negotiating salary reductions by March 15, 2012.
While most of the focus will be the impact of creating budget based on passage of tax initiative, the Governor has also proposed a significant changes in how school boards would be able to use educational funds in the future. While details remain sketchy, a five-year phase in of “weighted per-pupil funding” and elimination of numerous mandates and creation of a block grant for the remaining mandates signal an opportunity for school boards to begin to take control of their budgets. Of course the devil will be in the details and will take months to emerge.
More of the Same
As 2011 winds down, everyone looks to the new year in hopes that things will be better and happier. Unfortunately for school boards the outlook does not look promising. Despite indications from Governor Brown in his 2011 year-end review that there will be more money for K-12 education, it is clear those promised monies will be dependent on passage of a yet to be determined November 2012 ballot initiative.
The Thursday decision by the Supreme Court agreeing that the State Legislature had the authority to dissolve redevelopment agencies helps the Governor and Legislature. However, in real terms, it does not provide any new funds for schools. The State is obligated to provide education funds because of Prop 98 guarantees, so the transfer from redevelopment agencies to schools is simply shuffling monies around.
So what can school boards look forward to in 2012? Much like in 2011, K-12 funding will remain uncertain. The January Budget from Governor will have “more funds” for K-12 education but revenue assumptions will be shaky. As a result, most school boards will take a conservative approach and plan for little or no increase in school funding. For those school districts under fiscal pressure they will cross their fingers and assume revenue increases to avoid appearing “bankrupt” in their multi-year projections.
Advocates for public education best hope lies in the new “top two” primary system for legislative elections. With the possibility of candidates from the same political party making it to the November general election, candidates will need to balance the need to tow the party line (i.e. no new taxes) with the possibility of not getting elected.
Dangerous Precedent – Trigger Cuts
This week school districts received the “good” news that trigger cuts from the 2011/12 budget will be smaller than the initial LAO forecast from November. Transportation reductions of $248 million will severely impact rural school districts and large urban school districts that use busing for getting students to schools. The $80 million reduction in base revenue funding amounts to $13 to $15 per student for all school districts.
This new budget gimmick of using trigger cuts to pass a state budget is very dangerous. School districts make decisions about future staffing levels based on future revenue assumptions. When the state budget does not commit to a specific funding level for schools, staffing and program decisions are delayed. Last June, 95% did not restore programs or make staffing commitments due to this uncertainty.
Looking forward to 2012/13 budget cycle it is highly unlikely the Governor and the Legislature will not use trigger cuts as part of their budget. My guess is that trigger cuts will be tied to a November revenue initiative. If the initiative fails, the axe will fail on a number of programs including K-12 school funding. As a result, do not expect any commitments from school boards to fund restoration of programs or staffing.
Real Revenues for Schools
With the proposal by Governor Brown to place his own tax initiative on the November 2012 ballot, there could be as many four competing tax proposals to raise revenues for schools. Much more likely, the Governor’s people will attempt to work out a deal with other competing groups to allow the Governor’s proposal to move forward.
If supporters of public education want to raise revenue for public education the best path lies elsewhere. With redistricting the ability to elect super majorities in both houses of state Legislature exists. Rather then spend countless hours gathering signatures, collecting donations for an expensive campaign with a 50/50 chance of passing a tax ballot measure, focusing all of those resources on electing Democrats in swing districts is just as likely to be successful.
From a budgeting point of view, most school districts will end up adopting a 2012/13 budget that does NOT assume real increase in revenue. School districts can not hope the November election results will go their way. Over 90% of the school districts took the Governor’s 2011/12 promise to keep education funding intact and ignored it by planning for the upcoming trigger cuts.
Hopefully groups like the statewide PTA and Educate Our State will mobilize parents to focus on electing a super majority of Democrats. Then there will be a real chance to revenues for public education.
Hat Trick – A Third Tax Proposal for Schools
This week a third initiative for raising taxes to fund schools was submitted to Secretary of State. The Advancement Project proposes raising income taxes on a sliding scale to generate $10 billion for education. Two prior proposals, Children Now and Think Long also submitted their own ideas on how to raise revenues for California public education.
At the end of the week it looked like Governor Brown was going to submit his own proposal to raise taxes. However, it looks like he will wait.
With some many proposed tax increases being circulated it is possible they are creating a circular firing squad. This creates a significant problem for the Governor and the Legislature. In 2012/13, Prop 98 guarantees call for a $5 billion increase for K-14 education funding but current LAO estimates there will be only about $1.6 increases in revenues.
Think Long – Another Hat in the Ring
If you have been following California politics for the last decade then you know that California governance process is broken. From a recall of a Governor to annual budgets that do not solve underlying issues, California is surviving in spite of legislative gridlock.
Ever since the passage of Prop 13, California has relied on its growth to cover up unsustainable budgeting practices. However. the dot-com bust and the housing collapse have exposed the shortcomings of a legislative process that required 2/3 votes to pass a budget. As a result, various organizations have sprung up to propose solutions to California’s governance process.
From the Bay Area Council proposing a constitutional convention to incremental approaches from California Forward, the recommendations to solve California’s governance problem run the gamut. The latest group to throw its hat in the ring is the Think Long Committee for California.
In a 23 page report issued this week, the Think Long Committee is proposing a comprehensive set of measures to address revenue and governance issues. The three parts of their proposal are: 1.) Empowering Local Government and Regions, 2.) Citizen’s Council for Governmental Accountability and 3.) Broad Based Tax System.
The broad-based tax system would generate an $10 billion in revenues for California. According to their report $1 trillion of California’s economic output is not taxed due to an outdated tax code. K-14 education would receive $5 billion of the proposed tax restructuring.
However, the additional revenues does not come without proposed strings. Proposed changes to teacher tenure, teacher and principal evaluations, and non-seniority layoffs have led to the California Teachers Association opposition to the Think Long proposal.
Political Will and Shared Sacrifice
In this era of hyper partisan politics, it is encouraging to see the Rhode Island legislature tackle one of the thorniest issue facing elected officials throughout the country. Public employee pensions are a ticking time bomb. As taxpayer contributions continue to rise, dollars allocated to services like public education decline.
What makes Rhode Island’s legislative effort to deal with public employee problem unique is everyone will experience some sacrifice. Current retirees will see their benefits frozen with no cost of living increases for years. Current teachers take on more risk.
Other states continue to ignore these issues or have tried to address pension shortfalls through gimmicks or delays. Some, like Illinois, slashed the pensions of new teachers and will use the contributions of these teachers to subsidize current teachers and retirees — in effect robbing the future by making it more difficult to recruit new teachers. And others want to use shortfalls as an excuse to try to gut public employee benefits altogether.
No doubt the Rhode Island legislation will face significant legal challenges but no action only makes the problem worse.
Tilting Left, Moving Right – Election Day Recap
So as the winds of change blow from right, the ship tilts to the left to steer a course toward the middle. In reading the tea leaves from Tuesday’s elections across the country tells us what? Local taxes are acceptable, pensions need attention and outright attacks on bargaining rights will not work.
Local Taxes
In California there were 53 tax/bond measures on local ballots. 40 of the 53 passed with a resounding 75% or more. California City Finances provides a complete rundown of the preliminary results.
For local school districts, five of seven parcel tax measures were successful, though the communities were renewing current parcel taxes.
For those of you thinking that this local support will translate into support for a state-wide measure to raise taxes for education, I would urge caution. Voters have shown support and trust of local government and that support does not extend to state government.
Public Employee Pensions
Every day there seems to be a news story with proposals to reform public employee pensions. In the last seven days, Governor issued a 12 point plan to change pensions, the LAO issued a report on the Governor’s proposal and Republican legislators called for a special session on pension reform.
On Tuesday, voters in An Francisco and Modesto overwhelmingly supported advisory measures to change pension plans in their cities.
Clearly, public employee pension reform will dominate the political conversation leading up to the November, 2012 election.
Collective Bargaining
In Ohio reversed the attempts to eliminate the ability of public employees engage in collective bargaining.
However, Palo Alto voters overwhelmingly repealed a similar arbitration law Tuesday, as did voters in San Luis Obispo earlier this year. San Jose voters agreed to sharply limit arbitration last year.
Once again, public employees unions will be subjected to changes to their current agreements in the coming year. The public wants changes but they draw the line when those changes go too far.