LAO calls for cuts to Prop 98, says Brown’s debt repayment unworkable

The nonpartisan Legislative Analyst called into question Thursday Gov. Jerry Brown's plan for paying back next year some of the billions owed schools as the result of previous cuts made to the Proposition 98 funding guarantee.

In a new report to lawmakers, the LAO suggested that under the governor's plan, schools would soak up a disproportionate share of overall state revenue in 2012-13 and beyond.

LAO Mac Taylor recommended that legislative leaders reject the proposal and instead use an alternative funding method for paying back the state debt - known as the maintenance factor' - which he argues would produce a more balanced plan going forward.

School officials have argued that the LAO's plan would cut education funding next year by $1.7 billion.

H. D. Palmer, spokesman for the Department of Finance, said the LAO's proposal is not constitutional and would take billions of dollars from schools.

The analyst has made a mistaken and theoretical interpretation of school funding that fails to comport with the constitution," he said in a statement. "While this approach would be convenient for balancing the budget, it is unconstitutional."

At issue are the arcane funding formulas and payment requirements mandated under the landmark 1988 Proposition 98 funding measure, later revised by Proposition 111 in 1990.

The funding guarantee sets a minimum amount of money that goes to K-12 schools and community colleges based on several economic factors.

For the purposes of the 2012-13 budget, Brown determined the amount of money owed schools by using Test 1' - a rarely used formula that provides schools with about 41 percent of the general fund and generally reflects an improving economy.

The governor also proposes making a $2.9 billion maintenance factor payment on top of the Test 1 allocation.

The LAO argues that the combination will raise the Proposition 98 base - that is, the minimum the Legislature will have to pay in future years - too quickly, thus squeezing out funding for virtually all other state services.

"As a result of the governor's maintenance factor treatment, school funding grows from 38 percent of the state general fund budget in 2011-12 to 44 percent in 2014-15, with a matching decrease in the share of the budget available for other state programs," the LAO said.

Instead, Taylor recommends that the Legislature base next year's Proposition 98 funding on Test 2 - the most commonly-used option under the current funding structure - which requires that the state provide schools with at least as much money as last year, adjusted for changes in attendance and per capita income.

Under the LAO plan, the Proposition 98 guarantee would drop $1.7 billion in 2012-13 from what the governor has proposed - from $53.7 billion to $52 billion. The same $2.9 billion maintenance factor would also be paid on top of the Test 2 allocation, under the LAO plan.

The difference is that the money generated under Test 2 will be far less than under Test 1 next year.

Palmer said the state constitution clearly states that base funding and maintenance factor under Proposition 98 are two separate and distinct requirements that cannot be merged. "The analyst's interpretation would take billions of dollars in critical funding away from our classrooms," he said. "The governor is committed to reinvesting in education and paying schools what they are owed."

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