Despite promises to protect education funding, California’s schools could face an $8 billion shortfall starting July 1 depending on the resolution of an unprecedented, and likely unconstitutional, shift in the budget.
In its January budget proposal, the Newsom Administration proposed a budget “maneuver” that would potentially shield transitional kindergarten (TK) through grade 12 (TK-12) schools and community colleges from billions of dollars in cuts. While it hasn’t received sufficient scrutiny, it could determine the fate of school districts and whether they face teacher layoffs and program cuts over the next 18 months.
How We Got Here
Approved by voters in 1988, California’s Proposition 98 provides a constitutional minimum funding guarantee for TK through grade 12 schools and community colleges. That guarantee adjusts annually based on state revenue information received in April and May, and usually occurs when the budget is adopted in June. In 2023, however, the income tax filing deadline was delayed from April to November, meaning how much the state had to spend wasn’t known until then, well after the budget was adopted. Since those 2022 tax revenues ended up significantly lower than expected, the state ended up spending $8 billion more in the 2022-23 school year than provided by the constitutional minimum (which was great – Prop 98 was never intended to be a ceiling, but a floor).
To address this re-calculation, the Administration proposed its risky plan. Rather than retroactively cutting education funding, the Administration proposed schools maintain their 2022-23 spending level. However, instead of funding the extra $8 billion from Proposition 98, the state would use a budget maneuver that would record the cost of the $8 billion outside of Proposition 98 and spread it over 5 years, starting in 2025-26. (See detailed explanation here).
Experts on Proposition 98 believe the proposal is unconstitutional because the $8 billion would fund schools and community colleges, and thus should count as part of the minimum guarantee calculation which wouldn’t happen under the maneuver. So under the maneuver, $8 billion in spending on schools wouldn’t count as spending on schools, and by not counting this spending, it likely lowers the minimum guarantee obligations for schools in the 2023-24, 2024-25, and beyond.
Clearly, this is a risky proposal – and one that shortchanges kids (especially as California hovers around the national average in per capita education spending).
What Other Options Do We Have?
Use Rainy Day Funding. The Legislative Analysts’ Office recommends an $8 billion withdrawal from the Proposition 98 Rainy Day Fund to fund the previous year budget problem. This would drain the Rainy Day Fund and leave the state with no reserves to address revenue declines this year and beyond – likely forcing cuts to education spending this year and next. The Administration’s budget plan relies on spending $4.6 billion in Rainy Day funds to maintain programs in 2023-24 and 2024-25, and under this option those funds wouldn’t be available.
Maintain 2022-23 Spending and Increase 2023-24 and 2024-25 Minimum Guarantee. This is recommended by the California Teacher Association (CTA), which also recommends rejecting Newsom’s risky maneuver. By maintaining the spending level, CTA believes that the extra spending in 2022-23 would actually increase the minimum guarantee requirements for 2023-24, 2024-25 and beyond by several billion dollars. The CTA and the Department of Finance disagree on a technical provision in the Proposition 98 formula that would determine whether additional funding would be required for 2023-24 and 2024-25.
Suspend the 2023-24 Guarantee. This option means continuing to provide the $8 billion above the guarantee for 2022-23 and suspend the minimum guarantee for 2023-24, then provide a lower amount than would otherwise be required with the guarantee in place. However, a suspension of the Proposition 98 guarantee would create a budget obligation called the “maintenance factor” (essentially an IOU), which would require the state to make billions in extra payments to schools in the future that are above the Proposition 98 minimum guarantee. And what does it say about our priorities if our state leaders suspend a voter-approved measure that seeks to ensure a minimum amount of funding for education?
Children Now’s Recommendation
The short term option that protects kids and passes constitutional muster is maintaining the 2022-23 spending level. The Proposition 98 guarantee should not be suspended for 2023-24. Children Now strongly advocates to protect and preserve education funding so that California does not balance its budget on the backs of kids. This is the most reliable way to achieve that goal this year. But we continue to urge state leaders to support revenue increases focused on education (early childhood, TK-12 and higher ed) where California should be a national leader.
