Implications to K-12
November 17, 2005
TO: ACSA Leadership, all Members and Interested Parties
FROM: Brett McFadden, ACSA Lobbyist
RE: LAO Five-year Forecast - Implications to K-12
Yesterday, the Legislative Analyst's Office released their 11th annual
''California's Fiscal Outlook, 2005-06 through 2010-11.'' The report is
typically the ''warm-up'' to the upcoming budget deliberation process.
The following are highlights of the report:
About the report
For the past eleven years, the LAO has released their outlook report in
November as a way of providing the Legislature a ''heads-up'' regarding
the state's fiscal outlook for upcoming budget year and beyond. The
report includes independent assessments and projections regarding
California's economy, demographics, revenues and expenditures. The
projections reflect current-law spending requirements and tax
provisions. They are not predictions of future policy actions by state
policy makers. As such, the projections and actual expenditures are
subject to change based on policy outcomes.
California's overall fiscal condition
The LAO reports that the state's overall budget outlook has ''improved
considerably over the past year.'' Prior LAO reports argued that
California was not likely to grow its way out budget deficits. Recent
data, however, indicates that although the state will continue to face
shortfalls over the forecast period, the size of those shortfalls has
dropped considerably due to growth in the state's economy.
The LAO estimates that General Fund revenues exceeded the prior and
current-year estimates by as much as $3.9 billion. As a result, the
current year will end with a reserve of about $5.2 billion - up by
nearly $4 billion from the 2005-06 Budget Act estimate. This carryover
reserve should be enough to keep the 2006-07 budget balanced even though
the state will likely have an operating shortfall of nearly $4 billion.
The LAO cautioned that the state will continue to face operating
shortfalls for the remainder of the forecast period. LAO pointed that
policymakers will have to continue to stay on guard against new
spending. Corrective actions will be required to address these
shortfalls for most of the forecast period
K-12 funding
The LAO forecast assumes that Proposition 98 will be funded at the
minimum guarantee in 2006-07 (this will include the added spending
required by Proposition 49 - see below). Using this rubric, the LAO
estimates:
K-12 COLA - The LAO predicts the K-12 statutory COLA for 2006-07 will be
a whopping 5.2 percent.
Growth - ADA growth appears to be leveling off. The LAO did not make
any numeric estimates, but the amount is likely to remain at roughly 1
percent over the forecast period.
Proposition 49 - Remember this one? Proposition 49 was an before/after
school funding initiative adopted in 2002 and championed by Governor
Schwarzenegger prior to his election as Governor. The LAO predicts that
the statutory triggers of Proposition 49 will activate in 2006-07.
Absent corrective action, this will require a non-98 appropriation of
$428 million. That amount is added to Proposition 98 for 2006-07 but
must be utilized for before and after school programs.
The LAO notes that the Legislature and Governor have several options
available to either postpone or rescind the initiative's funding
requirements. Since Proposition 49 was Schwarzenegger's political baby,
that scenario might not be possible.
Possible Proposition 98 shortfall
The LAO predicts that Proposition 98 funding will increase by about $1.8
billion in 2006-07. Factoring the Proposition 49 appropriation, the
total increase in K-14 funding is about $2.2 billion (4.5 percent) in
2006-07 - however, $428 million goes to before/after school programs.
The LAO estimates that the Proposition 98 guarantee will grow
significantly over the long term, but its growth in 2006-07 will not be
sufficient to cover the unusually large COLA for K-12 apportionments. As
result, $731 million in addition revenue is needed to completely cover
the 2006-07 Proposition 98 guarantee in order to fully fund enrollment
and COLAs for K-14 programs in the budget-year. We will not go into
great detail regarding the cause of this possible shortfall, but it has
to do with an unusually small increase in the ''Test 2'' growth factor
for Proposition 98 and very large increase in the statutory COLA.
ACSA/CLUE/SSDA Budget Workshops - January 12 and 13, 2006
For additional information regarding the K-12 budget and the Governor's
January budget proposal, we encourage all K-12 stakeholders to visit
www.clueupdate.com These annual workshops are co-sponsored by
ACSA, Comprehensive Legislative Updates on Education (CLUE), and the
Small School Districts Association. Locations for the workshops will be
Sacramento, Santa Rosa, Redding, San Jose, Visalia, Ontario and San
Diego. These workshops have been greatly expanded and re-tooled to
provide K-12 management and governance teams with the earliest and most
accurate predictions for their 2006-07 budgets.
Additional budget updates and information to follow. Should you have
questions or comments regarding this report, please contact ACSA
Governmental Relations at 916.444.3216/800.890.0325.
Association of California School Administrators
1517 L Street, Sacramento, CA
tel. 916.444.3216/800.890.0325
fax. 916.444.3245