Overview

Proposition 1B: Education Funding.  Payment Plan.

Proposition 1B creates a $9.3 billion supplemental education obligation that would be paid to schools and community colleges in lieu of any maintenance factor payment that would otherwise be required.  Payments would be made in annual installments beginning in 2011-12 from the Supplemental Education Payment Account that would be created if the voters approve Proposition 1A.  At the rate of 1.5 percent of General Fund revenue each year, it would take five to six years to fulfill the obligation. 

The first $200 million from this source would be used to make the third and final payment for revenue limit equalization.  The balance of the K-12 share would be used to increase school district revenue limits, and would be added to the Proposition 98 base. 

Proposition 1B has its genesis in a dispute with the Department of Finance (DOF) over the interpretation of Proposition 98.  Basically, the DOF had asserted that, since Proposition 98 would be funded at the Test 1 level next year, a maintenance factor is not accrued.  This interpretation defines away a $9.3 billion maintenance factor that would otherwise be restored to the Proposition 98 base over time. 

Although the DOF’s interpretation is legally questionable and is likely to be invalidated by the courts, Proposition 1B would render legal action unnecessary.  In addition, language in the measure strengthens the legal case against the DOF interpretation in case the measure fails at the ballot.

In order for Proposition 1B to take effect, Proposition 1A must pass because it provides the funding source for making the supplemental education payments.  If Proposition 1A passes but 1B does not, 1A will still take effect, but the Supplemental Education Payment Account would not be created.