BILL ANALYSIS �
SENATE COMMITTEE ON BUDGET AND FISCAL REVIEW
Mark Leno, Chair
Bill No: AB 1476
Author: Committee on Budget
As Amended: June 25, 2012
Consultants: Kim Connor and Kris Kuzmich
Fiscal: Yes
Hearing Date: June 25, 2012
Subject: Budget Act of 2012: K-12 and Higher Education.
Summary: This measure makes various changes to state laws
regarding K-12 and higher education, including financial
aid programs, necessary for the implementation of the
Budget Act of 2012.
Proposed Law: This bill includes the following provisions:
1.K-14 EDUCATION CROSSCUTTING ISSUES.
A. 2011-12 Overappropriation. Assumes an $893 million
over-appropriation of the 2011-12 Proposition 98
guarantee. Scores up to $672 million of the 2011-12
over-appropriation in satisfaction of the state's
"obligation" resulting from the settlement of CTA v
Schwarzenegger (which created the QEIA program),
including a $450 million prepayment for 2012-13 and a
$222 million prepayment for 2013-14. Eliminates the
remaining over-appropriation by reducing various
2011-12 Proposition 98 appropriations, which are
backfilled by one-time Proposition 98 savings.
B. Quality Education Improvement Act (QEIA) Funding in
2012-13. Appropriates $361 million in Proposition 98
funding - instead of state General Fund -- for the
QEIA program in 2012-13. Of this amount, $313 million
is appropriated for K-12 education and $48 million is
appropriated for the community colleges.
C. 2011-12 General Fund Savings. Reduces 2011-12
appropriations for several K-12 Proposition 98
programs by approximately $221 million to reflect
lower expenditures and offsets from prior year savings
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in order to achieve state General Fund savings.
D. Trigger Cuts. The overall 2012-13 budget
architecture relies on state revenues that would be
raised only if approved by voters in November 2012.
The Constitution requires that the annual state budget
be balanced, and this uncertainty requires that the
Legislature adopt contingency plans for addressing the
$8.5 billion in revenue that would not be raised if
the revenues are not approved by the voters or if the
initiative is approved but its provisions that
temporarily modify personal income tax rates do not
become operative due to a conflict with another
initiative measure that is approved at the same
election and receives a greater number of affirmative
votes. The Governor has proposed "trigger reductions"
effective January 1, 2013, as the contingency plan,
including a total of approximately $5.4 billion for
K-14 education. The provisions of this bill implement
reductions to K-14 programs if the trigger is
implemented as follows:
i. Eliminates approximately $2.3 billion in
repayments of deferrals being made as part of the
2012-13 budget package, with about $2.1 billion
and $210 million of that total attributed to K-12
schools and community colleges, respectively;
ii. Enacts programmatic reductions of
approximately $3.1 billion by paying general
obligation debt service and the Early Start
Program from the Proposition 98 guarantee, with
approximately $2.7 billion and $340 million of
that total attributed to K-12 schools and
community colleges, respectively (under current
law, both of these obligations are paid for with
non-Proposition 98 General Fund);
iii. Authorizes K-12 schools to reduce the
school year by an additional 15 days - beyond the
five days currently authorized - in 2012-13 and
2013-14. This would allow schools to reduce the
instructional year to 160 days in each of these
two years; and
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iv. Authorizes the Chancellor of the
California Community Colleges, as approved by the
Department of Finance, to reduce community
college district enrollment levels in proportion
to the programmatic reduction. States
legislative intent that districts, to the
greatest extent possible, implement any necessary
reductions in courses and programs outside of
those needed for students to achieve their basic
skills, workforce training, or transfer goals.
Requires the Chancellor to report by October 15,
2013, on the implementation of this provision.
E. K-14 State Mandate Reform: Makes the statutory
changes necessary to implement a block grant funding
mechanism for the majority of K-14 state mandates.
The Budget Act of 2012 includes nearly $200 million to
fund this block grant, split between K-12 and
community college districts based on the amount of
historical claims for each over the past five years.
This bill specifies a per pupil/student funding amount
as follows: (1) K-12 districts, $28 per pupil; (2)
community college districts, $28 per student; (3)
charter schools, $14 per pupil; and (4) county offices
of education, $28 + $1 "extra" per pupil. Under the
block grant, and per the provisions of this bill, a
school district, county office of education, charter
school, or community college district will choose to
either participate in the block grant or to pursue the
state mandate claiming process. LEAs participating in
the block are also required to meet specified annual
reporting requirements.
F. Repeal Gas Tax Rebenching. Eliminates statute
requiring the Proposition 98 guarantee to be held
harmless from the effect of the gas tax swap
previously adopted by the Legislature, which
eliminated the sales tax on gasoline (previously
included in the Proposition 98 calculation) and
replaced it with an excise tax on gasoline (excluded
from the Proposition 98 calculation). With the
hold-harmless rebenching, the minimum guarantee was
unaffected by the gas tax swap.
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G. Repeals RDA Rebenching. Repeals language from the
2011-12 budget that authorized rebenching of the
Proposition 98 guarantee (to reflect receipt of funds
that formerly flowed to redevelopment agencies) only
in 2011-12, thus continuing the rebenching for roughly
$2.7 billion in General Fund savings.
H. Authorize Proposition 98 Split. Suspends the
statutory division of Proposition 98 funding among
K-12 educational agencies, community colleges, and
other state agencies, and instead conforms the
division of funding to actual appropriations in the
2012-13 budget .
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2. K-12 EDUCATION.
A. Offsets for Education Protection Account Funds.
Scores funds provided to school districts, county
offices of education, and charter schools from the
Education Protection Account - pursuant to passage of
the Schools and Local Public Safety Protection Act of
2012 by state voters - in satisfaction of the
Proposition 98 guarantee.
B. Offsets for Redevelopment Agency (RDA) Related
Funds. Scores funds provided to school districts,
county offices of education, and charter schools from
RDA related property tax increments and liquid assets
in satisfaction of the Proposition 98 guarantee.
C. RDA Adjustments for K-12. Appropriates $19 million
for special education in 2011-12, if needed, to
backfill any loss of anticipated local property tax
revenue that previously flowed to RDAs. Appropriates
an unspecified amount for special education in 2012-13
for the same purpose.
D. Revenue Limit Adjustments and Deficit Factors.
Establishes a county office of education revenue limit
deficit factor of 22.549 percent and a school district
deficit factor of 22.272 percent to reflect revenue
limit adjustments in 2012-13. Revenue limit
apportionments provide general purpose funding to
school districts, county offices of education, and
charter schools. Revenue limit deficit factors keep
track of base reductions and foregone COLA increases
in recent years, so they may be restored in future
years when state funds are available.
E. Deferrals:
i. Inter-Year Deferral Payment Buydown.
Reduces inter-year deferrals for K-12 school
districts, county offices of education, and
charter schools by approximately $2.1 billion
contingent on passage of the Schools and Local
Public Safety Protection Act of 2012.
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ii. Intra-Year Deferral Adjustments.
Specifies adjustments in the schedule of
intra-year deferrals to reflect additional
funding if the Schools and Local Public Safety
Protection Act of 2012.
iii. Ongoing Inter-Year Categorical Program
Deferrals. Continues up to $906 million in
inter-year categorical payment deferrals from
June to July of 2013. This amount is offset by
no more than $570 million in 2012-13 CSR deferral
payments made in 2013-14. Extends the period of
availability of deferred K-12 funds by one month,
consistent with the continuing one-month deferral
authorized in this bill.
A. Reappropriation of Proposition 98 Savings for
Selected Programs. Reappropriates approximately $221
million in one-time Proposition 98 savings to offset
other Proposition 98 expenditures in 2011-12 in order
to achieve state General Fund savings.
B. Statutory Appropriation for K-3 Class Size
Reduction (CSR) Program. Continues statutory
authorization for an unspecified amount of funding for
the K-3 CSR program in 2012-13, as determined by the
Superintendent of Public Instruction. This statutory
appropriation is provided in lieu of a budget act
appropriation for this program in 2012-13.
C. Suspends Cost-of-Living Adjustments (COLA) for K-12
Programs. Establishes a zero percent COLA for K-12
programs - revenue limits and categorical programs -
in 2012-13.
D. Continues "Fair Share" Reductions for Basic Aid
Districts. Authorizes reductions to categorical
funding for basic aid districts, proportional to the
revenue limit reductions applied to non-basic-aid
districts in 2012-13. Basic Aid districts are defined
as districts that do not receive state funding for
revenue limits.
E. Suspends Funding Emergency Repair Program.
Suspends funding for the Emergency Repair Program in
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2012-13. This program was created as a result of a
settlement agreement for the Williams v. California
case in 2004.
F. Special Education Workability Program Eligibility.
Specifies that state special schools, charter schools,
and nonpublic, nonsectarian schools, as well as,
school districts and county offices of education are
eligible to apply for state Workability Program grants
to provide work transition services for students with
disabilities.
G. Special Education Maintenance of Effort. Scores
$12.133 million of 2011-12 special education funding
toward satisfaction of the state's 2008-09 federal
'maintenance of effort' requirement.
H. Developer Fees. Temporarily suspends Level III
developer fees, which could soon be triggered if
remaining school facility bond funds are exhausted.
I. Categorical Program Flexibility "Cleanup". Makes a
technical correction to the previously-approved
extension of K-12 education funding flexibility.
J. Charter Schools:
i. California School Finance Authority (CSFA).
Conforms statute to current practice by authorizing
the CSFA to refinance (not just finance) revenue
bonds issued for school facilities working capital
and capital improvements. Makes other
technical/cleanup changes to related statute.
ii. Charter School Revolving Fund. Authorizes the
Department of Education, with Department of Finance
approval, to transfer funds from the Charter School
Security Fund to the Charter School Revolving Loan
Fund to the extent necessary to replace funds lost
due to loan defaults.
iii. Access to External Borrowing. Authorizes --
but does not require -- county or city and county
boards of supervisors and county superintendents of
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schools to make short-term loans to charter schools,
as they currently can make to school districts.
Authorizes county offices of education to borrow
funds or issue Tax and Revenue Anticipation Notes
(TRANS) for the purpose of providing temporary
revenue-backed loans to charter schools.
iv. Deferral Waiver Process. Authorizes charter
schools to seek hardship deferral waivers from the
Superintendent of Public Instruction and Department
of Finance rather than their local authorizers.
v. Lease or Purchase of Surplus School Property.
Requires school districts to offer surplus property
for sale or lease to charter schools before selling
or leasing surplus property to other parties in
2012-13.
3. CHILD CARE AND DEVELOPMENT.
A. Aligns state preschool eligibility to new
kindergarten cutoff dates. Specifically, defines that
state preschool programs are designed to facilitate
the transition to kindergarten for 3- and 4-year olds
children who have their 3rd or 4th birthday,
respectively, on or before November of the 2012-13
fiscal year, October 1 of the 2013-14 fiscal year, and
September 1 of the 2014-15 fiscal year and each fiscal
year thereafter.
B. Clarifies distinction between part-day preschool
slots (funded with Proposition 98) and supplemental
wraparound care for preschool-age children from
families who need full-day care (funded with the
General Fund-supported General Child Care program).
C. Requires fees to be assessed and collected for
families with children in part-day preschool programs
and/or families receiving wraparound child care
services.
D. Effective for fiscal year 2012-13, the family fee
schedule for child care and development services that
was in effect for the 2011-12 fiscal year shall remain
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in effect, and continues existing policy that the
family fees cannot exceed 10 percent of the family's
total income.
E. Repeals specified components of the
Pre-Kindergarten Family Literacy Program and
consolidate these provisions into the state preschool
program, for preschool classrooms that apply for and
receive a family literacy supplemental grant.
F. Codifies in statute that the maximum allowable
family income to receive subsidized child care and
development services is 70 percent of the State Median
Income.
G. Implements across-the-board budget reductions of
$80 million for child care programs in 2012-13 by
decreasing funding for the General Child Care Program,
the Migrant Day Care Program, the Alternative Payment
Program, the CalWORKs Stage 3 Program, and the
Allowances for Handicapped Program by 8.7 percent,
effective July 1, 2012. Requires the Department of
Education to reduce the maximum allowable contract
amounts for each of these programs. Allows the
department to consider the contractor's performance or
whether the contractor serves children in underserved
areas when determining contract reductions as long as
overall reductions for each program match budget
appropriations.
H. Extends authorization of a San Francisco child care
pilot program by one year to allow the City and County
of San Francisco to implement an individualized county
child care subsidy plan until July 1, 2014. Requires
the city and county to phase out the plan and
implement the state's requirements for child care
subsidies as of July 1, 2016. A final report shall be
submitted by the city and county on or before June 30,
2014.
I. Suspends the cost of living adjustment for child
care and development programs for fiscal years
2012-13, 2014-15, and 2014-15.
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J. Allows the Department of Education to implement the
changes to child care authorized in this bill through
management bulletins and similar instructions.
Specifies that the child care changes in this bill are
not subject to appeal by the agencies holding child
care contracts.
4. HIGHER EDUCATION: CALIFORNIA COMMUNITY COLLEGES
Background: Apportionment funding, which community
college districts use for general purposes, comes from
three main sources: (1) enrollment fee revenues; (2)
local property taxes; and (3) the General Fund (GF), with
local property taxes and the GF accounting for districts'
funding under Proposition 98. In addition to the
"regular" local property tax, and due to the dissolution
of Redevelopment Agencies (RDAs), local property taxes
will also now include ongoing RDA property tax (i.e.,
increment) and one-time RDA property tax related to the
recovery of "liquid assets." Unlike K-12 education, the
community colleges do not have an automatic GF backfill
if property tax or enrollment fee revenues fail to
materialize in a given year. It is a reasonable
expectation that there will be increased local property
tax revenues in 2012-13 (and ongoing) from the
dissolution of RDAs. There is still uncertainty with
these estimates; when coupled with the lack of a
guaranteed backfill, the community colleges have
legitimate concerns about budget estimates related to RDA
revenues.
A. 2011-12 General Fund Offset for Increased RDA
Revenues, Including Hold Harmless Language. Reduces
2011-12 apportionment funding by $116.9 million to
reflect an identical increase in offsetting local
property taxes available to districts due to the
dissolution of RDAs. Should these RDA-related
revenues not materialize on or before June 30, 2012,
and other funding adjustments do not offset the loss,
requires the Director of Finance to provide a backfill
of necessary funds from the GF.
B. 2012-13 General Fund Offset for Increased RDA
Revenues, Including Backfill Provisions. The 2012
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Budget Act estimates that community college districts
will receive $451.1 million in additional local
property tax revenues from the dissolution of RDAs,
thereby reducing GF support by a like amount. The
total includes roughly $211 million from one-time
recovery of "liquid assets" and $239.7 million from
local property taxes (i.e., increment), both from the
dissolution of RDAs. Of the $239.7 million in
RDA-increment revenues, roughly $98 million is
attributable to 2011-12 that is expected to be
received in 2012-13. The provisions of this bill
provide for a guaranteed GF backfill to the extent
that these RDA-related revenues do not materialize by
June 30, 2013.
C. Deferrals. Repeals the current statutory schedule
for community college deferrals, which total $961
million. Contingent on the passage of the Schools and
Local Public Safety Protection Act of 2012, provides
that $159.9 million of that total deferral will be
"bought down" in 2012-13, specifies a schedule for the
remaining $801.1 million in deferred funds, and
provides $50 million to the community colleges as
growth funding. Provides that should the voters
reject the Schools and Local Public Safety Protection
Act of 2012, a total of $961 million will again be
deferred per the schedule specified in this bill.
D. Neighboring State Student Fees. Increases student
fees for qualifying neighboring state students that
attend a CCC based on reciprocal state attendance
agreements to an amount that is twice the California
resident student fee effective with the enactment of
the bill. Effective July 1, 2013, and ongoing,
institutes a fee level for qualifying neighboring
state students that is three times the California
resident student fee.
5. CALIFORNIA STUDENT AID COMMISSION: CAL GRANT PROGRAM.
A. Maximum Cal Grant A and B Tuition Award Amounts for
Private For-Profit and Independent Non-Profit
Institutions Reduced Beginning in 2013-14. Implements
reductions in maximum tuition award levels beginning
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in 2013-14 as follows: (1) for new recipients
attending independent non-profit institutions and
private for-profit, Western Association of Schools and
Colleges (WASC)-accredited institutions as of July 1,
2012, maximum grant awards will be reduced by 6.5
percent, from $9,708 to $9,084.; and (2) for new
recipients attending all other private for-profit
institutions, maximum grant awards will be reduced by
59 percent, from $9,708 to $4,000. In 2014-15, new
maximum tuition awards at non-profit institutions and
WASC-accredited for-profit institutions will be
reduced by an additional 10.5 percent, from $9,084 to
$8,056 (maximum awards for all other for-profits
remain at $4,000). In 2013-14, these changes are
estimated to result in $16 million in program savings
with increased savings in the following years.
B. Institutional Eligibility, Renewal Awards, and
Notification to Students. Implements a maximum cohort
default rate (CDR) of 15.5 percent and a minimum
graduation rate of 30 percent for institutions to be
eligible to participate in the Cal Grant program. For
institutions with a CDR of less than 10 percent and
graduation rates between 20 and 30 percent, provides
five years for these institutions to increase their
six year graduation rates to the 30 percent threshold.
In 2013-14, eliminates renewal awards for recipients
who choose to remain at ineligible institutions (under
current law, maximum awards are reduced by 20 percent
for students who choose to renew their award and
remain at ineligible institutions). Also requires
additional notification and disclosure to students
attending institutions that become ineligible. These
changes result in savings of $55 million in 2012-13
and savings of $87 million in 2013-14, with increased
savings in the following years. Consistent with
current law, these changes will not apply to any
participating institution with 40 percent or fewer of
its students borrowing federal student loans to attend
college. These proposals expand upon 2011 Budget Act
changes, which instituted new restrictions on
institutional eligibility for the Cal Grant program,
excluding institutions if more than 24.6 percent of
their former students default on federal student loans
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within three years of loan repayment, as defined and
calculated by the federal government.
C. Cal Grant B to Cal Grant A Switches upon Renewal.
Corrects an unintended consequence of Chapter 7,
Statutes of 2011 (SB 70), which established tighter
eligibility criteria for Cal Grant renewals, by
ensuring that co-eligible students can switch from Cal
Grant B to Cal Grant A if they meet all eligibility
requirements for Cal Grant A awards upon renewal.
Under Chapter 7, a co-eligible student who is assigned
a Cal Grant B may become ineligible for a renewal
award due to increased family income, even if that
student remains well within the eligibility range for
Cal Grant A. Current law is not clear that students
could switch to a different award type once they have
received a grant payment. This is an unintended
consequence of the new Chapter 7 requirement resulting
from a technical issue that was not evident when the
Legislature approved the policy.
D. California Community College (CCC) Transfer
Entitlement Award Eligibility. Reverses the recent
California Student Aid Commission decision to expand
access to CCC transfer entitlement awards, thereby
avoiding $70 million in new GF costs for the Cal Grant
Program in 2012-13. Current practice requires
students to begin university studies in the academic
year immediately following community college
enrollment to qualify for the transfer award. The
CSAC decision would have allowed an interruption in
studies prior to transferring. Also allows, for the
2011-12 student cohort only, an additional year of
eligibility because of the possibility that this group
of CCC students will have limited public four-year
institution transfer options.
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6. FINANCIAL AID: MISCELLANEOUS.
A. Scholarshare Investment Board: Reverts to the
General Fund Excess Funds from Governor's Scholarship
Program. Reverts $63.1 million to the General Fund of
moneys previously set aside for the now-defunct
Governor's Scholarship Program. These are unused
funds from scholarship grants provided to high school
students for performance on standardized tests in 2000
through 2002. The grant program was repealed in 2003;
recipients have access to disbursement through age 30,
after which time their funds revert to the state
General Fund. This provision results in $20 million
remaining in the reserve to assure funding for
participants thereby ensuring the state continues to
honor program obligations for tests taken in
2000-2002.
Support: Unknown
Opposed: Unknown
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