May Revision’s fiscal restraint includes surprise CalSTRS increase
Analysis from CSBA Governmental Relations
Published: May 20, 2014
Last week’s release of the governor’s May Revision budget provided a modest increase in K-12 funding and threw a curve ball at governing boards who are finalizing their budgets and Local Control and Accountability Plans (LCAPS): a mandatory increase in their contributions to the California State Teachers’ Retirement System (CalSTRS). While Gov. Jerry Brown proposed the increase to set the state on the path to address the pension’s $74 billion unfunded liability, local boards have less than two months’ notice to rework their budgets and revise LCAPs in order to accommodate the proposed rate increase, which is effective July 1.
According to the governor’s proposal, LEA contributions to CalSTRS will rise from 8.25 percent to 19.1 percent of payroll over seven years. The increased contributions are to be paid from existing funding sources, which encroaches on the budget’s meager increase to K-12 funding.
“Governing boards are finalizing their budgets and LCAPS—they have been working in good faith to engage their local communities, including teachers, principals and parents, developing LCAPs that will improve student outcomes and close achievement gaps,” said Legislative Advocate Andrea Ball. “The governor's proposed CalSTRS rate increase, to go into effect in the next fiscal year, may cause them to re-evaluate their ability to fund services and programs.”
CSBA advocates using a portion of the funds that would be available from not paying off all deferrals in 2014-15 to provide a source of funding to cover CalSTRS and CalPERS rate increases in 2014-15. While there is a lot of attention being paid to the governor’s proposal on CalSTRS, rate increases for the California Public Employees Retirement System are also in play, although they have been known for a longer period of time and are already factored into LEA budgets.
Legislative Analyst’s review of May Revision sets stage for deliberations
The Legislative Analyst’s Office (LAO) review of the revised budget proposal commends the governor for his fiscal discipline. The LAO projects higher revenues for the state but does so with caution. As the Legislature begins accelerated deliberations to craft a budget bill to send to the Governor, it’s not clear how much of the LAO’s revenue projections and recommendations the Legislature will use.
Implications of Deferrals and other One-Time and Ongoing Allocations:
Continued need for additional funding for Common Core, Home to School Transportation and addressing the CalSTRS contribution increase.
CSBA continues to support the governor’s original proposal to pay off the deferrals over the next two years: 2014-15 and 2015-16. The governor maintains the January proposal to eliminate all deferrals by the end of 2014-15, and the May Revision uses additional current year one-time funds and about $1.5 billion in 2014-15 ongoing funds to do so.
A two-year schedule to eliminate the deferrals will “free up” funds for allocation in the budget year for critical priorities, including another round of funding for local implementation of the Common Core State Standards (CCSS) and to improve funding for Home to School Transportation. The CalSTRS proposal’s higher employer and employee contribution rates in the budget year give added impetus to the need to identify ongoing funds to address those costs rather than accelerating payoff of deferrals.
Continued Commitment to Local Control Funding Formula
The May Revision continues to put $4.5 billion for implementation of LCFF for districts, another 28 percent of the gap to district targets, and $25.9 million for county offices, which would enable counties to reach their targets in 2014-15.
A new proposal in the May Revision is one for which CSBA advocated and we appreciate the administration addressing. It is language regarding the issue of counts of low-income students in schools that participate in the Provision 2 and 3 options of the federal school meals program. These are schools with historically high levels of poverty. The program options allow all students to receive free meals; the school gets federal meal reimbursement based on counts done on a prescribed cycle, usually every 3 or 4 years. The May Revision language:
- authorizes schools participating in Provision 2 or 3 options to establish base-year student eligibility for free or reduced price meals no less than once every 4 years, if they provide annual updates to newly enrolled or dis-enrolled students in intervening years
- requires the State Superintendent of Public Instruction to revise the 3-year rolling average unduplicated enrollment percentage using 2014-15 data in place of 2013-14, if doing so increases the LEA’s rolling average
It remains to be seen whether the Legislature will adopt this language. CSBA will continue our work with member districts, the California Association of School Business Officials, California Food Policy Advocates and the California School Nutrition Association to highlight the challenges of Provision 2 and 3 schools in obtaining annual income verification of students and the conflict the annual verification poses with the federal meals program options.
On time budget expected
We expect a budget by mid-June and it will be interesting to see how negotiations unfold: The governor is heading to an expected re-election in November; this will be the final budget negotiation for the Senate leader, President pro Tempore Darrell Steinberg, and the first for newly named Assembly Speaker Toni Atkins.
Please check CSBA’s Legislative News webpage for continued updates.