LAO hits Brown’s downbeat revenue projections again

LAO hits Brown’s downbeat revenue projections again

(Calif.) The non-partisan Legislative Analyst has once again expressed skepticism about Gov. Jerry Brown’s extremely conservative revenue forecasts.

In a detailed review of the administration’s K-12 budget plan, the LAO noted that economic conditions do not appear to support Brown’s assumption that fewer tax dollars will be collected this spring than estimates made last summer. As a result, the LAO said the Legislature should exhaust other options before agreeing to Brown’s plan to hold back a $859 million payment to schools from June to July.

The LAO is also concerned about an idea broached by the administration to send special education money directly to local educational agencies instead of the existing system where regional panels manage the funding.

Finally, the LAO is not supportive of the governor’s proposals to change preschool and transitional kindergarten, nor his ideas about the use of school construction bond money.

With the June 15 deadline for adopting a new budget looming on the horizon, the theme of the negotiations for the 2017-18 spending plan has been well established–that is, whether anyone in the Legislature will buy into Brown’s pessimistic take on the economy.

Based on the fact that all three of the state’s largest tax sources failed to meet estimates made last July, Brown’s January budget proposed providing about $733 million less in Proposition 98 funding than had been anticipated.

But there is some evidence that the drop in tax collections–especially for the unpredictable and volatile personal income tax–was only a delay.

That is, some savvy Wall Street investors living in California appear convinced that a tax reform package will eventually emerge from Congress in 2017 and thus, held off paying capital gains in December rather than sometime later this year when the rates might be lower.

Given the direction of the stock market since the November presidential election, the LAO, along with many observers, believe that when the governor gets ready to release his revised budget in May, the estimates made last July for how much the state will have to spend are likely to be a lot closer than the ones Brown forecast in January.

“As discussed in our recent Overview of the Governor’s Budget report, we believe the administration’s estimate of state revenue is low given its other economic assumptions,” the LAO said. “By May, General Fund revenue in 2017-18 could be significantly higher than assumed in January.”

Perhaps in response to the LAO’s optimism, Assembly Speaker Anthony Redon, D-Paramount, has already put into motion groundwork aimed at spending some of that additional money to improve services to early learners.

One of the governor’s other major education policy proposals contained in his budget calls for stakeholder meetings to consider restructuring management of some $4 billion state and federal funding for special education.

Currently, that money goes to regional bodies and Special Education Local Plan Areas, or SELPAs. In his January budget, Brown expressed some concern that the autonomy of the SELPA structure works against the state’s new approach in promoting local control over education decision-making.

The LAO said that the governor has indicated an interest in rolling the special education money into the Local Control Funding Formula, which would deliver the money directly to school districts.

At this point there are no details about how exactly that might work. But the LAO did caution lawmakers about moving too quickly on this plan. They noted that the LCFF doesn’t contain a maintenance of effort clause, but federal law does when it comes to special education.

“By eliminating most state categorical programs and folding associated funding into LCFF, the state effectively freed up funding for districts’ local priorities,” the LAO said. “Eliminating special education categorical programs and folding associated funding into LCFF, however, would not allow districts that same flexibility.

“This is because federal law requires districts to spend at least as much on special education each year as they spent the previous year,” the LAO continued. “Consequently, districts would be unable to repurpose the increase in their LCFF funding to support other local programs and priorities.”

The LAO’s reaction to Brown’s ideas for changing preschool programs and transitional kindergarten appear to be in line with Speaker Rendon, who has convened a blue ribbon panel to hold hearings and make recommendations on how to improve services to early learners.

“Though (Brown’s) intent is to more closely align State Preschool and Transitional Kindergarten programs, we recommend rejecting most of these proposals, as we believe many elements of the proposals would add greater complexity to an already complex system,” the LAO said.

Instead they recommended the Legislature “consider how best to serve four-year olds, particularly those from low-income families, including what eligibility criteria, program standards, and funding levels it desired for these children.”

In a similar approach to the use of school bond money next year, the LAO said lawmakers should hold hearings and gather more information from the administration about how to address the $2.4 billion in existing school construction needs before moving forward.