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Legislative Analyst predicts potential reductions in Proposition 98 guarantee 

In its annual analysis of the Governor’s proposed Proposition 98 expenditures and other key K-12 spending, the Legislative Analyst’s Office predicts that the guarantee could be reduced in the May Revision, and addresses the Proposition 98 certification process created in the current budget year.

Read the full LAO Proposition 98 analysis

Key points of LAO analysis of Proposition 98 proposal:

Lower guarantee in May: LAO predicts that economic conditions following the January proposal could result in a reduced Proposition 98 guarantee in the May Revision –- this aligns with projections that the overall budget situation will be tighter and not as robust as what was reflected in January. LAO recommends that the Legislature begin identifying proposals it would be willing to reduce or reject and investigate building a budget cushion. The current proposed Proposition 98 guarantee for 2019-20 is $80.7 billion.

Recommends against repeal of Proposition 98 “true-up” process: The current year (2018-19) enacted budget included trailer bill language that put into place a process for the annual certification of the Proposition 98 guarantee –- CSBA submitted a legal challenge to this process in August. As part of that process, in instances where a prior-year certification of the Proposition 98 guarantee resulted in the certification being below the actual budgeted amount, the guarantee could be reduced in later years, resulting in a reduction of funding to schools. CSBA is challenging this provision, known as the "cost allocation schedule," in court. While the Governor’s budget proposed to repeal this “true-up” process, the LAO recommends rejection of this proposal, stating that, “though the Governor’s proposal clearly offers a benefit for schools, it would make balancing the rest of the state budget during an economic downturn all the more difficult.”

Supports release of facilities bond funds: LAO has “no concerns” with the proposal to authorize the sale of $1.5 billion in Proposition 51 school construction and modernization funds, significantly increasing the release of the funds compared to the prior two budget years; “the faster pace would allow the state to clear the backlog of facility applications more quickly.” However, LAO recommends rejection of the proposed staffing increase of 10 new staff positions at the Office of Public School Construction to process facility applications, opining that OPSC already has the staff resources it needs, given recent shifts in audit responsibilities from OPSC to local auditors. CSBA is supportive of the Governor's proposed facilities allocations and is pursuing the release of even more funds than currently proposed.

Potential alternative to CalSTRS proposal: While the LAO does not recommend rejection of the Governor’s proposed
$3 billion investment in CalSTRS (a proposal supported by CSBA), LAO does suggest an alternative:

“Rather than providing districts with budget relief over the next two years, the state could modify the Governor’s proposal to provide budget relief during the next economic downturn. Under this alternative, the state would set aside funds for future district pension costs. Later, during a downturn, the Legislature could use the additional funds to pay a portion of district pension costs. Such an approach would provide districts budget relief at a time when they would be facing even more difficult budget choices.”

Click here for a recap of the 2019-20 Budget Perspectives workshops, covering key K-12 aspects of the January proposal.