Benefit from ‘Trump Bump’ limited for schools

Benefit from ‘Trump Bump’ limited for schools

(Calif.) After waiting more than a year for the so-called “Trump bump” to begin filling state coffers, school officials got the disappointing news last week that even if tax revenues surge further that their share will likely be limited.

At issue is Proposition 98 and its vexing set of formulas used to determine the minimum funding guaranteed K-12 districts and community colleges.

According to the non-partisan Legislative Analyst, a further upswing in revenues will trigger the Test 2 formula, and a restriction on how much more of the general fund must be shared with K-14 schools.

“We believe there will be some additional revenue and not an insignificant amount,” said Ken Kapphahn, senior fiscal and policy analyst at the LAO. “But it won’t be like it has been in the recent past, where schools will be getting billions of dollars in additional revenue.”

Gov. Jerry Brown’s proposed budget unveiled last week would provide $6.3 billion in new Proposition 98 spending–some of it adjustments going back to 2016-17, some to the current fiscal year and some assigned to next year.

This additional money comes as Wall Street investors are increasingly taking profits after the record-setting bull market that started after the election of President Donald Trump.

Because state revenues are closely tied to capital gains taxes, there had been expectations of higher revenues to the state for most of the past year. But those taxes didn’t really start to materialize until Trump and Congressional leaders came to an agreement at the end of 2017 on taxes.

Collection of personal income taxes in December, for instance, came in $4 billion ahead of projections.

The LAO said earlier this month that because the governor’s January spending plan had to be prepared well ahead of the end of the year, it was unlikely that the administration was able to anticipate agreement on the federal tax law and the subsequent flurry of tax payments before the end of 2017.

As a result, the LAO said Brown’s budget probably underestimates revenues for both 2017-18 and 2018-19—perhaps by billions of dollars.

If so, that is good news for schools, which under Proposition 98 are guaranteed a share of all new money—although not always the lion’s share.

According to the LAO, Brown’s budget proposal properly employed the Test 3 formula to determine school funding.

Under this scenario, K-12 and community colleges will receive at least the same amount of state funds and property tax support as was provided last year with adjustments for changes in attendance and per capita general fund revenues.

That last element is important because if Wall Street investors follow through as expected in taking profits this year and pay capital gains, then general fund revenues will spike. If they do, the LAO said, then the school funding guarantee instead will be governed by Test 2.

Under Test 2, the minimum funding guarantee is also based on what schools got the prior year with adjustments for attendance. But Test 2 funding is also tied to growth in per capita personal income, which is expected to remain steady at about 4 percent next year.