Billions in unanticipated funding for CA schools

Billions in unanticipated funding for CA schools

(Calif.) Applauding the best fiscal outlook for state government in more than a decade, the nonpartisan Legislative Analyst reported Wednesday the minimum funding guarantee for schools next year is likely to be $8 billion higher than current spending.

In its annual assessment of the state’s economy and the status of next year’s state budget, the LAO almost gushed that a combination of last year’s tax hike, a recovering housing market and slowly-improving economy would leave the state with an operating surplus that would hit nearly $10 billion by 2017-18.

Still, Mac Taylor, the top executive at the LAO, cautioned lawmakers to be judicious in spending the additional funds – suggesting one-time projects and existing debts should be priorities before new programs or service expansions are considered.

Among the current obligations that should be at the top of the list, he said, are  those owed to schools – the $6.2 billion in appropriation deferrals and $4.8 billion in unpaid mandate claims.

“We do caution that things can change quickly,” Taylor said at a Sacramento news conference, noting detail in the report showing how a moderate downturn could throw some of the surplus years into the red.

“We’re not predicting that sort of downturn in the near future,” he said. “But it is possible and the last thing we would want the Legislature to do is repeat what we did in 2008, which was when we went into the great recession with no reserves and an underlying budgetary problem.”

Taylor noted that the current budget relied on a revenue forecast for 2013-14 that was far less optimistic than the more accurate forecast his office offered. Thus, the state’s coffers will conclude the two-year budget period ending July, 2014 with $6.4 billion more in revenue than projected.

Most of those unanticipated dollars will be going to K-12 schools and community colleges as required under the Proposition 98 minimum funding guarantee.

As a result of the escalating revenue picture, the minimum school guarantee for the 2013-14 year will need to be adjusted upward to $58.2 billion or $2.7 billion more than allocated in the current budget. When considered with the expected revenue growth next year, the two-year increase in the minimum funding guarantee is likely to be $4.4 billion more than expected when this year’s budget was signed early last summer.

The LAO also reported that under the complex school formula, the state will also be required to make a large repayment for prior reductions in education spending – the so-called maintenance factor. Expectations are that the state will be operating under Test One of the funding program and thus be required to make a $3.6 billion repayment.

A key element of the state’s recovery, the LAO notes, comes from the upswing in the housing industry – a spike that is not likely to carry forward much longer.

From its peak in 2006 and 2007, housing prices statewide fell about 50 percent with the median price going from about $600,000 to $245,000.

Many neighborhoods have since rebounded at least part way with the average price of a single family home in California climbing about 25 percent just since 2011.

Although the economy has improved and there is some job growth – much of the improvement in the housing market is the result of constricted supply, the LAO said. They expect inventories to grow as confidence returns to more homeowners about selling, and new construction expands.

Still, the LAO is forecasting a healthy bounce in property taxes over the next six years – enough so that it will help to drive down the obligation to schools from the general fund.

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