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Governor Gavin Newsom unveiled the revised 2024-25 state budget at a press conference in Sacramento on May 10.
Source: AP Photo/Rich Pedroncelli)
The Newsom administration has resolved disagreements with K-12 education groups over multiyear funding that would provide nearly all of the money the groups have requested, although it has deferred and delayed billions of dollars for at least a few more years.
Pending legislative approval, a compromise negotiated by the California Department of Education with the California Teachers Association (CTA) would remove a hurdle to solving the 2024-25 state budget by the June 15 deadline.
The deal would preserve Gov. Gavin Newsom's promise to exempt TK-12 schools and community colleges from significant funding cuts that other areas of the state budget would face, including the California State University and the University of California.
The proposal also meets the statutory requirements of Proposition 98, a 40-year-old formula for calculating the minimum portion of the General Fund that must be spent on education. Newsom's original January budget plan was to scale back future Proposition 98 growth while sparing immediate cuts to schools and community colleges. This prompted the CTA and the California School Boards Association to threaten to take Newsom to court in what could reasonably be expected to be a lawsuit. Victory.
“This is a good deal for public schools. In the simplest terms, this agreement will protect the state’s core TK-12 investments, such as the local control funding formula and the new Whole Child program,” said Derick Lennox, senior director of government relations and legal affairs for the California County Superintendents Association. said. I was briefed on the details of the negotiations on Tuesday. “If approved by the Legislature, the Governor will be able to keep his promise to protect school funding even during difficult budget times.”
Challenging is an understatement. Because the state is short on overall funding for this year, 2023-24, the Legislature will suspend Proposition 98 by $5.5 billion for the first time since the height of the Great Recession in 2010-11. The money owed, an IOU called a “maintenance component” under Proposition 98 terminology, would be repaid over several years as determined by increases in state revenue. Repayments will begin at $1.3 billion in 2024-25.
The deal would reintroduce, albeit on a smaller scale, another accounting strategy from the Great Recession: deferred financing. Unlike funding cuts, deferrals are delinquent payments that require the Legislature to move funds in increments of days or months from one fiscal year to the next and raise money that districts have already spent.
The agreement calls for a three-year delay ranging from $1.3 billion to $2.6 billion from 2023-24 to 2025-26. The final deferral amount, $2.4 billion, would represent about 2% of funding for community colleges and school districts. Taken together, the three deferrals should not have a significant impact on school and community college budgets, but repaying them would require $2.4 billion in future school funding. The accounting transition occurs from June, the last month of one fiscal year, to July, the first month of the next fiscal year.
“The agreement reached with the Governor to protect public school funding is an important step forward for California’s schools and communities,” said CTA President David Goldberg. “It ensures that students, educators and families are not impacted by classroom reductions and also includes protections against further layoffs of educators.”
The revenue challenge reflects a slow rebound from unexpected declines in state revenues following the coronavirus pandemic. Due to winter storms in early 2023, the federal government and California delayed tax filing dates by six months. Without precise revenue estimates when setting the 2023-24 budget in June, Newsom and the Legislature set aside $8.8 billion more than the Proposition 98 minimum.
Because TK-12 and community colleges have already been budgeted and spent money, Newsom promised to hold them harmless. But in his first budget proposal in January and his revised bill in May, Newsom proposed treating $8.8 billion as a one-time, off-the-books overpayment. The CTA and school groups viewed it as an ongoing obligation that would serve as the basis for next year's minimum coverage level, as stated by voters when they approved Proposition 98.
“They reached a solution that provides short-term budget flexibility to the governor and legislature while complying with state constitutional provisions related to minimum funding for schools,” said education consultant Kevin Gordon. “A negotiated halt to Prop. 98 has been the obvious solution since the debate began.”
Here's how the deal negotiated over the three years covered by the budget resolves the dispute.
2022-23
Original proposal: Newsom proposed an unusual measure, not Proposition 98, that would hold the general fund responsible for paying the $1.8 billion annual shortfall over five years from 2025 to 2026.
compromise: Shifts $2.6 billion in unallocated one-time funding from 2022-23 to 2023-24. This would lower the ongoing Proposition 98 increase from $8.8 billion to $6.2 billion. The effect would be to reduce general fund repayments by $500 million to $1.3 billion per year over five years. And the calculation for next year's Proposition 98 minimum amount will also be lowered.
2023-24
The state will pull $8.4 billion from the Proposition 98 reserve fund built up over the past five good years to repay ongoing Proposition 98 shortfalls, including $2.6 billion deferred to 2022-23.
compromise: A $6.2 billion increase in the Proposition 98 base amount in 2022-23 would increase the Proposition 98 minimum amount by $4.2 billion. Lacking funds to pay for the costs, Congress will withhold $5.5 billion of Proposition 98's base with a two-thirds majority vote. This includes the first installment of the maintenance component, $1.3 billion, to be repaid in 2024-25. The $5.5 billion suspension would lower Proposition 98's base amount to $101.3 billion.
2024-25
The level of Proposition 98 is determined by a number of factors, called “tests,” related to changing economic conditions, such as increases in state spending or personal income or base increases from previous years. The 2024-25 Proposition 98 level under Test 1 is set at about 39% of the General Fund, or about $110.6 billion. This includes repaying the maintenance component of $1.3 billion.
“Overall, the agreement provides stability for schools in the short and long term,” the Treasury says.
This is true as long as the Governor's revenue projections for the next two years hold. But if there is a shortage, expect further delays or cuts without state emergency funding to cushion the impact. Many regions have already had to reduce local clearing funds this year. And in 2025-26, the state will still have to pay $4.5 billion in maintenance costs to school districts and community colleges, an IOU with no immediate repayment due.
“It’s encouraging that the administration has found a way to address the constitutional concerns, and this may be the best funding package schools can hope for in this budget environment,” said Rob Manwaring, senior counsel at the nonprofit Children Now. “At the same time, it is difficult to support ending guaranteed constitutional funding when California schools still rank in the bottom five states in terms of student-teacher ratios and other workforce support.”