Printable View   Bookmark and Share       sign in

NewsroomThe latest CSBA news, blog posts, publications, research and resources for members and the news media

Prop 98 payments, one-time money and facilities funds are key concerns in May Revision 

CSBA has identified three key issues of concern in the May budget revision — background information and analysis on each issue is included below. CSBA members are encouraged to discuss these three issues with legislators in May and June:

Suspension of Proposition 98 Test 3B payments

CSBA opposes suspension of Proposition Test 3B payments proposed in the May Revision through the 2020-21 fiscal year. 

Delay of one-time funds until May of 2019

CSBA opposes delaying the release of one-time money; the May Revision proposal leaves local education agencies unable to budget for utilization of these funds.

Release of school facilities money pursuant to Proposition 51

CSBA opposes any further delay in the release of voter-approved Proposition 51 funds.

More Info: LAO Analysis of May Revision Education | Budget Summary

Click here to register for the free Budget Perspectives Workshops, presented statewide by Capitol Advisors, CSBA, ACSA and others.

 Background on May Revision and proposed Proposition 98 adjustments

The Governor’s initial January budget included a proposal to defer $859 million in Proposition 98 payments from June 2017 to July 2017, essentially shifting this money from the current budget year to the next, and in turn artificially deflating the total Proposition 98 guarantee by approximately $1.7 billion.

The proposed deferral sought to offset a projected $5.77 billion shortfall over a three-year period, with a $1.6 billion shortfall at the end of 2017-18; the Governor declared that the intent of the deferral was to safeguard against “overappropriation” for education, as slowdowns in state revenues have been consistently predicted in coming years.

CSBA and a number of other education groups opposed this deferral. Further, the notion of “overappropriation” for public education remains a concern, especially in a year where revenues continue to grow and with California continuing to rank in the bottom nationally in per-pupil funding.

Good news in the May Revision is that the proposal for the $859 million deferral was eliminated, and the budget proposes to add additional funding of $1.1 billion to the Proposition 98 guarantee over the January proposal (which in 2017-18 exceeds the guarantee by $601 million). LCFF sees an increase of $661 million for 2017-18, which brings the formula to 97 percent of its full implementation target. CSBA is appreciative of these allocations.

However, while the originally proposed deferral is gone, a new proposal is in place to suspend supplemental Proposition 98 payments, known as “Test 3B” appropriations, which would otherwise be required by statute in coming budget years and would reduce overall funding for K-12 education. The proposed suspension would run through 2020-21.

 Suspension of Proposition 98 Test 3B payments

On page 16 of the budget summary, there is a proposal to “suspend the statutory Proposition 98 Test 3B supplemental appropriation in 201617, as well as the 201819 through 202021 fiscal years.” The goal of the proposal is for the state again to safeguard against what it views as overappropriation.

There are three levels to the Proposition 98 guarantee – Test 1, Test 2 and Test 3 – each of which trigger different criteria for calculating the total required level of the Proposition 98 guarantee based on economic conditions. A Test 3 year typically occurs when state revenues are stalled or growing at a slower rate, allowing a lower level of funding for K-12 education.

Test 3B supplemental appropriations are required by law to be issued by the state in Test 3 years to ensure that the Proposition 98 funding level runs evenly with the rest of the state budget. According to the Legislative Analyst’s Office (LAO), there has only been one instance of the state denying Test 3B appropriations, in 1993-94.

2017-18 was projected as a Test 3 year, but due to the increase in the Proposition 98 guarantee (as noted above) in the revision, it is now a Test 2 year. 2016-17 is a Test 3 year but funding is likely to exceed the guarantee, and the 2018-19 through 2020-21 budget years are all projected as Test 3 years as well, meaning that Test 3B supplemental appropriations would be required by the state for each of those years. The real concern is budgeting into the future a mechanism to potentially suppress school payments. It is the future suspension of Test 3B that causes the greatest concern.

Any Test 3B funds not allocated to schools during Test 3 years would be added to the maintenance factor and ultimately reduce the amount of money that schools, by law, should receive. This money would not be available to schools until specifically appropriated in a future budget act as part of a maintenance factor payment.

The LAO estimates that suspending these payments would reduce required Proposition 98 spending by a total of $850 million in coming years: $450 million in 2018-19, $290 million in 2019-2 and $110 million in 2020-21. These are estimates based on today’s conditions.

CSBA opposes suspension of Proposition 98 Test 3B payments.

 Delay of one-time funds until May of 2019

The initial January allocation of one-time funding for education was approximately $290 million. In May, $750 million was added to bring the total to just over $1 billion, but it comes with a catch: these funds will not be released for use until May of 2019, a full two years from now. While certain exceptions could occur, it is more probable that no one-time funds will be available in 2017-18.

This proposal essentially holds this $1 billion in a reserve account as another safeguard against a possible overappropriation, with per-pupil funding, if needed, being drawn down dollar-for-dollar to keep the state at the minimum Proposition 98 guarantee.

Therefore, it is possible that the entire $1 billion could be available to schools in 2019, and also possible that the entire sum could be consumed by the state and never reach the classroom. There is no way to know how much of this sum would be available should the Proposition 98 guarantee go below the budgeted level, leaving LEAs unable to budget for use of these funds.

This method of delaying one-time money creates unprecedented budgeting issues for LEAs. The January proposal included $283 million in one-time money, and LEA budgets were being built on that expectation. But the May Revision proposal to sequester that money and about $750 million more until May 2019 (with a very real chance that the money gets drawn down) makes it impossible to know how to account for it in the 2017-18 fiscal year — not to mention the pressure that will be applied to spend the money in 2017-18, betting that it will all be released in 2019.

CSBA opposes delaying the release of one-time money

 Release of school facilities money pursuant to Proposition 51

In the revision, the Governor reiterated his call from the January proposal to revise audit guidelines for LEA facilities expenditures and to design additional accountability measures in the form of a grant agreement that LEAs would have to adhere to as a condition of receiving facilities money pursuant to Proposition 51, which was approved by voters in November. Budget trailer bill language would be used to add both of these conditions to statute. There are very real concerns that the conditions in the grant agreement go far beyond existing program rules and impose significant limitations on how LEAs spend facilities bond funds.

There is currently a massive backlog of projects in the school facilities “pipeline” which totals around $2.4 billion, including around $380 million “approved as unfunded” and $2 billion “acknowledged.” This list therefore also represents more than $2.4 billion in local matching funds — as the local share of facilities projects often exceeds the state contribution — that have already been spent.

The governor is seeking to make the new accountability measures retroactively applicable to these projects. Many of these projects would not meet those standards and could therefore be denied reimbursement from the state using Proposition 51 funds. Proposition 51 was expressly written so that allocations of its bond revenues would be made based on the law as written on January 1, 2015. Further, projects which would be made retroactively applicable to yet-to-be-signed trailer bill legislation could be made to use Proposition 98 funds for recovery.

CSBA is opposed to any further delay in the release of Proposition 51 funds.

 Additional details of the May Revision:

County LCAP oversight: No additional funds are provided in the May Revision to reimburse costs incurred by California’s 58 county offices of education for their critical role in LCAP oversight.

CalPERS payments: The May Revision proposes a one-time $6 billion supplemental payment to CalPERS, aimed at cutting into the system’s $59.5 billion unfunded liability. The payment is designed to help mitigate the state’s contribution rates as an employer, the proposal would have no impact on school employer contribution rates, which are projected to more than triple over a 10-year period.

Home-to-school transportation: The budget remains silent on funding for home-to-school transportation, which has not seen a rate increase or cost-of-living adjustment since 2012; CSBA is sponsoring Senate Bill 527 (Galgiani, D-Stockton) to add a statutory transportation COLA.

CSBA will continue to address these issues in state budget discussions.