BILL ANALYSIS AB 851 Page 1 Date of Hearing: April 22, 2009 ASSEMBLY COMMITTEE ON APPROPRIATIONS Kevin De Leon, Chair AB 851 (Brownley) - As Introduced: February 26, 2009 Policy Committee: Education Vote:11-0 Urgency: No State Mandated Local Program: No Reimbursable: No SUMMARY This bill requires, as of the 2010-11 fiscal year, existing school district revenue limit adjustments for Meals for Needy Pupils and minimum teacher salaries to be rolled into the base revenue limit per unit of average daily attendance (ADA) for each district. This measure also requires unemployment insurance (UI) funding and adjustments related to the Orange County bankruptcy proceedings and inter-district attendance to be calculated as a fixed adjustment and included in each school district's total revenue limit funding. FISCAL EFFECT 1)No direct fiscal impact. As proposed, this bill makes two different calculations for the purpose of rolling adjustments into school districts' base revenue limit funding. The main difference between these two calculations is that one set of adjustments historically has received a cost-of-living adjustment (COLA) (i.e., Meals for Needy Pupils and minimum teacher salaries) while the other set has not (i.e., UI, Orange County bankruptcy, and inter-district attendance). The issue of the COLA would generally factor into an increase in funding; however, because the calculation for UI, Orange County, etc. is made after the base revenue limit is calculated, increased funding will not occur. 2)The 2009 Budget Act reduces revenue limit funding by a total of 3% ($1.2 billion GF/98), including a 2.5% ($943.8 million AB 851 Page 2 GF/98) reduction in the current year (2008-09 fiscal year) that is carried forward. SB 4xxx (Committee on Fiscal Review), Chapter 12, Statutes of 2009, also eliminated the revenue limit COLA (.7% or $247 million) provided to school districts and county offices of education in the 2008 Budget Act. COMMENTS 1)Purpose . In December 2003, the Legislative Analyst's Office (LAO) released a report entitled: The Distribution of K-12 General Purpose Funds. This report states that on average, the adjustments to base revenue limits add a relatively small amount of general purpose funding. It further contends that because the distribution of funds provided by the adjustments is so uneven, the distribution of general purpose funds provided through the revenue limit formula varies considerably more than base revenue limits. The LAO report also demonstrated that all of the revenue limit adjustments play a role in the final amount of general purpose funds received by districts. High-funded districts usually receive large amounts through the base revenue limit, excess property taxes, or Meals for Needy Pupils. Low-funded districts tend to receive small amounts through all of the adjustments or have a large Public Employee Retirement System reduction. This bill attempts to simplify the distribution of revenue limit funding by rolling in specified revenue limit adjustments into the base. 2)Revenue limit funding is the single largest source of support for K-12 school districts and county offices of education, accounting for $34.3 billion in the 2009 Budget Act. Of this amount, $21.3 billion is GF/98 and $13 billion is local property tax funding. Revenue limits were initially developed 30 years ago as a means of constraining growth in high revenue districts. After Proposition 13, the state used the revenue limit system to establish state funding levels. AB 851 Page 3 There are approximately 11 elements of revenue limit funding, including the Meals for Needy Pupils program, and Minimum Teacher Salary program. 3)Previous legislation . AB 599 (Mullin), substantially similar to this measure, was vetoed by the Governor in September 2008, with the following message: "While this bill attempts to simplify an overly complex education finance system, this bill has several technical concerns in the way it was drafted. I am concerned that the consolidated "add-on" may not be revenue neutral, as the author intended, since various factors could result in unanticipated General Fund costs or savings in future years. Furthermore, the bill as crafted may diminish the incentives for districts to offer longer instructional time." The measure before this committee attempts to address the veto message by eliminating the consolidation of the instructional time incentives in revenue limit funding. Analysis Prepared by : Kimberly Rodriguez / APPR. / (916) 319-2081