BILL ANALYSIS �
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Date of Hearing: August 14, 2013
ASSEMBLY COMMITTEE ON EDUCATION
Joan Buchanan, Chair
ACA 2 (Nestande) - As Amended: August 7, 2012
SUBJECT : Education finance: payment of state apportionments
SUMMARY : Amends the California Constitution to establish new
requirements regarding the K-14 minimum funding guarantee and
the timing of apportionments of state aid to school districts,
county offices of education, charter schools, and community
college districts. Specifically, this constitutional amendment :
1)Contains findings and declarations regarding the hardship that
apportionment deferrals have imposed on school districts,
county offices of education, charter schools, and community
college districts (K-14 local education agencies).
2)Requires the minimum Proposition 98 funding amount as
estimated at the time of the enactment of the Budget Act to be
set forth in the Budget Bill and apportioned to K-14 local
education agencies pursuant to statute during that fiscal
year, unless Proposition 98 is suspended.
3)Requires that apportionments of state aid to K-14 local
education agencies be made no later than the statutory
apportionment schedule that was in effect during the 2000-01
fiscal year, except that the Legislature may require by
statute that apportionments be made earlier in the fiscal
year.
EXISTING LAW establishes a constitutionally-required minimum
level of funding for K-14 local education agencies (Proposition
98), which may be suspended with a two-thirds vote of the
Legislature, and specifies a statutory schedule for the
apportionment of funds.
FISCAL EFFECT : Unknown
COMMENTS : According to the author's office, the purpose of
this measure is to prohibit the deferral of cash apportionments
to K-14 local education agencies. In recent years, two types of
deferrals have been used-cross-year deferrals and intra-year
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deferrals.
Cross-year deferrals. Cross-year deferrals (also referred to as
inter-year deferrals) delay apportionments from one fiscal year
to the next. The first cross-year deferral occurred in 2001-02.
In that year, the dot-com bust resulted in a drop in General
Fund revenue from budget estimates and a corresponding reduction
to the Proposition 98 minimum funding guarantee. The fall-off
in revenues forced the state to make mid-year spending
reductions. However, rather than make budgetary and
programmatic K-12 reductions in the middle of the year, the
state deferred $1.1 billion of apportionments from June to July
2002, i.e., from the 2001-02 fiscal year to the 2002-03 fiscal
year. Districts were statutorily instructed to book the
deferred apportionment in the fiscal year that ended July 30,
2001 and use the funds for 2001-02 expenses, while the state
credited the deferred apportionment toward its Proposition 98
obligation for the fiscal year starting July 1, 2002.
In other words, the Proposition 98 guarantee in 2001-02 fell
below the amount budgeted for that year. Even after fully
funding Proposition 98 in that year, the level of funding was
below the amount needed to fund ongoing programs at the level
budgeted. In order to avoid making mid-year cuts to school
funding and forcing programmatic cuts, the state essentially
borrowed from the next year's Proposition 98 guarantee to
maintain programmatic funding. This action fully funded the
reduced Proposition 98 guarantee and avoided mid-year funding
cuts to schools and community colleges
Beginning in 2008-09, weak General Fund revenues continued to
result in years in which the Proposition 98 guarantee was not
sufficient to maintain on-going programs. To minimize
programmatic cuts, cross-year deferrals increased in size and
stretched deeper into the next fiscal year. By 2011-12,
Proposition 98 deferrals totaled $10.4 billion, approximately
21% of total Proposition 98 funding. However, cross-year
deferrals are now being reduced. AB 86 (Committee on Budget,
Chapter 48, Statutes of 2013), the education budget trailer
bill, reduced K-14 cross-year deferrals in 2012-13 and 2013-14
by a total of $4.3 billion, leaving less than $6.2 billion in
outstanding cross-year deferrals.
Intra-year deferrals. Intra-year deferrals delay apportionments
within a fiscal year and have been used by the state to manage
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its cash flow when cash reserve run low. Schools and colleges
receive monthly apportionments throughout the year following a
statutory apportionment schedule. Due to critical cash
shortages at the state level, the state began deferring
apportionments within the fiscal year in 2008-09. The deferral
schedules change from year to year. In 2012-13, the intra-year
deferral schedule was as follows:
-----------------------------------------------------------------
| 2012-13 K-12 DEFERRAL SCHEDULE |
-----------------------------------------------------------------
-----------------------------------------------------------------
| | Deferred: |
| Amount | |
-----------------------------------------------------------------
|---------------------+---------------------+---------------------|
| | From | To |
|---------------------+---------------------+---------------------|
| | | |
| $700 million | July 2012 | September 2012 |
|---------------------+---------------------+---------------------|
| | | |
| $500 million | July 2012 | January 2013 |
-----------------------------------------------------------------
| | | |
| $600 million | August 2012 | January 2013 |
|---------------------+---------------------+---------------------|
| | | |
| $800 million | October 2012 |January |
| | |2013 |
-----------------------------------------------------------------
-----------------------------------------------------------------
| 2012-13 COMMUNITY COLLEGE DEFERRAL SCHEDULE |
-----------------------------------------------------------------
-----------------------------------------------------------------
| | Deferred: |
| Amount | |
-----------------------------------------------------------------
|---------------------+---------------------+---------------------|
| | From | To |
|---------------------+---------------------+---------------------|
| | | |
| $150 million | July 2012 | December 2012 |
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-----------------------------------------------------------------
| | | |
| $50 million | September 2012 | January 2013 |
|---------------------+---------------------+---------------------|
| | | |
| $100 million | October 2012 |January |
| | |2013 |
| | | |
-----------------------------------------------------------------
As a result of these deferrals, many school and community
college districts have had to borrow funds, often in the form or
Tax Revenue Anticipation Notes (TRANs), to meet their cash
needs. The cost of borrowing is borne by the district.
By constitutionally requiring apportionments to go out no later
than the statutory schedule that was in effect in 2000-01, this
measure prohibits the use of intra-year apportionment deferrals.
This would save districts the cost of borrowing. However,
deferrals have been used because-as a result of the decline in
General Fund revenues during the recession-the state was
dangerously low on cash reserves. If the state does not have
the option of deferring apportionments during such times, and
has insufficient cash to make the required apportionments, then
the only other option would be to suspend the minimum funding
requirement of Proposition 98, resulting in a reduced level of
K-14 funding. By removing the option of a deferred payment,
this measure may force spending cuts, which could be more
disruptive than a deferral of K-14 funding. The committee may
wish to weigh the relative advantages and disadvantages of
reducing the Legislature's flexibility to deal with future cash
shortages.
Some deferrals may be waived. The findings and declarations of
this measure note the fiscal hardship that deferrals can impose
on schools and community colleges due to the need to borrow
money to manage cash flow. However, school districts and
charter schools can apply for an exemption from some deferrals
if the deferral would render them unable to meet their
expenditure obligations. In 2012-13, the June 2013 deferral
could have been waived up to a statewide total of $300 million.
According to data from the CDE, 11 school districts and 167
charter schools obtained waivers totaling $44.4 million from the
June 2013 deferral, leaving $255.6 million of waiver capacity
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unused. According to the CDE no waiver request was denied.
Cross-year deferrals do not underfund Proposition 98 . The
findings and declarations in this measure state, "Approximately
six billion dollars is now used as a budget mechanism to fund
other government programs by withholding funds for our public
schools and community colleges and not paying what is owed to
them under constitutional K-12 and community college funding
guarantees," and "Cross-year deferrals?have led to inadequate
course offerings, unreasonable class sizes, the deterioration of
education facilities for lack of maintenance funding, and the
depletion of reserves for economic uncertainty because of
accumulated annual funding losses." This is not correct.
"Withholding" Proposition 98 funds to K-14 local education
agencies is unconstitutional unless the provisions of
Proposition 98 are affirmatively suspended. As explained,
cross-year deferrals have not been used to underfund Proposition
98. Rather, they have been used to maintain programmatic K-14
funding when the Proposition 98 guarantee falls short.
Cross-year deferrals have minimized, rather than contributed to,
the reduction of K-14 programs during the recent recession. The
deferral of funds has resulted in increased borrowing costs for
many districts, but this has been widely accepted in the
education community as preferable to funding cuts. Because
Proposition 98 funds are not deferred across fiscal years, the
provision of this measure prohibiting cross-year deferrals of
Proposition 98 funds is not necessary.
Unintended consequence. This measure may substantively change
the funding guarantee. Specifically, it constitutionally
requires the total amount of the Proposition 98 guarantee "as
estimated at the time of the enactment of the Budget Act" to be
allocated in that year. The calculation of the guarantee
requires a number of factors, such as average daily attendance
and General Fund revenues that are never known at the time the
budget is enacted. As a result, the final calculation of the
guarantee is never the same as the Budget Act estimate, and
existing law provides for a final certification of the guarantee
after all of the factors are known. The language in this
measure, however, could be interpreted to mean that the Budget
Act estimate of the guarantee is the guarantee for minimum
funding purposes. That is, the Budget Act estimate of the
guarantee could replace the final calculation of the guarantee
as the constitutionally required minimum level of funding. The
Committee may wish to consider whether this may provide an
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incentive to "low-ball" the Budget Act estimate in order to
avoid overfunding, or even fully funding, the final calculated
amount of the guarantee.
REGISTERED SUPPORT / OPPOSITION :
Support
The Advancement Project
EdVoice
Los Angeles County Office of Education
Manhattan Beach Council of PTAs
Oakdale Joint Unified School District
Waterford Unified School District
Opposition
None received
Analysis Prepared by : Rick Pratt / ED. / (916) 319-2087