by Adonai Mack, Legislative Advocate
January 5, 2012

In a truly surprising move, Governor Brown released his January Budget Proposal.  It is rumored that the budget was posted by accident and the administration decided to move forward with a press conference.  Given the untimely release, the following is a very short summary of the governor’s budget proposal.  ACSA will provide a more thorough analysis of the budget in the coming days.

Overall Budget

The governor is projecting that the 2012-13 fiscal year will end with a budget deficit of $9.2 billion without corrective action.  The deficit is due to the following items:

• The problem left over from the prior year is $1.9 billion worse than expected in June of 2011.
• Court orders and delayed federal approval related to several budget‑balancing cuts in the health and human services area have increased costs by nearly $2 billion.
• National and international economic developments have pulled state revenues downward for 2011‑12. This revenue loss is partially offset by lower costs for Proposition 98 and the implementation of “trigger” spending reductions in the current year.
• The elimination of redevelopment agencies, recently validated by the California Supreme Court, results in less General Fund savings in 2011‑12 but significantly greater savings going forward, beginning in 2012‑13.

Proposition 98

The governor has proposed a ballot initiative for the November Presidential Election that provides $6.9 billion in temporary tax increases.  The tax increases include an increase on the personal income tax of the state’s wealthiest taxpayers and a one-half percent increase on sales tax. The governor’s proposal assumes the passage of the initiative and adjusts the Proposition 98 minimum guarantee accordingly.  The minimum guarantee is funded at $52.5 billion which is approximately $5 billion higher than the current year funded level of $47.6 billion. 

The budget also provides several Proposition 98 adjustments or rebenching.  These include a reduction of $375 million due to (1) the elimination of the policy to rebench the guarantee due to the elimination of the gas tax from the Proposition 98 calculation; (2) the inclusion of AB 3632 mental health services; and (3) the exclusion of child care from Proposition 98. 

The proposal once again includes budget “triggers” in case the initiative fails.  The trigger includes a reduction of $4.8 billion to Proposition 98 which becomes effective on January 1, 2013. The Proposition 98 guarantee will drop by $2.4 billion in 2012‑13 due to the natural decline of the guarantee without the additional revenues. In addition, Proposition 98 will be rebenched to shift K‑14 General Obligation Bond debt service costs into Proposition 98, resulting in an additional cut of $2.4 billion.  (It is unclear at this time whether this is a legal manipulation of the minimum guarantee).  The administration notes that this reduction equates to cutting the school year by 3 weeks.

Other items

The governor’s budget proposal includes several budgetary adjustments.  These changes are as follows:

• K-12 Deferral Elimination – the governor proposes to eliminate $2.2 billion in Proposition 98 General Fund inter‑year budgetary deferrals. However, this deferral is restored if the ballot initiative fails.
• Eliminates Transitional Kindergarten — This saves the state $223.7 million Proposition 98 General Fund dollars. Additionally, the kindergarten start date is moved up to September 1.
• K‑14 Mandates Funding — An increase of $110.1 million to support a new block grant program for K‑12 and community college mandates as discussed further below.

Policy Changes

The governor’s budget proposal includes several policy changes.  These include the following:

• Total flexibility in categorical funding/weighted student formula – The governor proposes to eliminate all categorical program funding with the exception of special education, school nutrition and Proposition 49 after school programs.  These funds would then be distributed to school districts through a weighted student methodology.  The funds would be targeted or weighted based on specific student populations.  The student populations include English language learners and students that receive free and reduced priced meals.  The formula will be phased in over a period of five years.  This proposal also includes a system of accountability measures that will be the basis for evaluating and rewarding school performance under this finance model. These measures will include the current quantitative, test‑based accountability measures, along with locally developed assessments and qualitative measures of schools.
• Reform K‑14 Mandates/Mandate Block Grant — The Budget provides a total of $200 million to fund a mandates block grant incentive program for K‑12 schools and community colleges. The governor proposes to eliminate almost half of all current K‑14 mandates and create incentives for schools to continue to comply with the remaining mandated activities. Eliminated mandates include Graduation Requirements (Second Science Course) and Behavioral Intervention Plans. Alternatively, the governor’s proposal plans to make those mandates that are not eliminated optional.  The budget creates a block grant to encourage schools to continue meeting these requirements. Receipt of funding from this block grant will be conditioned on schools complying with these provisions. The proposal will sustain core programs, including school and county office fiscal accountability reporting. It will also continue to support sensitive notification and school safety functions like pupil health screenings, immunization records, AIDS prevention, School Accountability Report Cards, and criminal background checks.

ACSA Perspective

There are several other items that ACSA is still reviewing and analyzing in the governor’s budget proposal.  Some of these include the economic conditions, the revenue estimates, Proposition 98 shifts, child care and overall government reductions.  Once this analysis is fully vetted, ACSA will provide a more in depth analysis of the overall budget for your review.