Stock market surge gives big boost to school revenues

Stock market surge gives big boost to school revenues

(Calif.) The state’s minimum funding guarantee to schools would grow from $63.2 billion in 2014-15 to $74.5 billion by 2019-20 under a revenue forecast released Wednesday by the non-partisan Legislative Analyst’s Office.

The LAO’s annual fiscal outlook carries caveats this year given uncertainties within the state and national economies as well as potential policy changes that could significantly alter actual results. But the main scenario – what the LAO called their ‘best estimate’ – offers a lot of good news for K-12 schools, even to the detriment of other state services.

Mac Taylor, who leads the Legislature’s top budget agency, said the state will receive about $2 billion more this year in general fund money than expected under assumptions made in June – with schools getting virtually all of it because of the Constitutionally-protected Proposition 98 spending guarantee.

“Because of the higher revenue [Prop. 98] obligations go up by a similar amount,” Taylor said at a news conference in Sacramento. “So there’s not a lot of money left over for the rest of the budget or doing other things.”

Expectations are that economic growth in 2015-16 will be moderate, with the Prop. 98 guarantee – which supports both K-12 schools and community colleges – climbing by about $2.6 billion or 4.1 percent.

The LAO noted that prior obligations to schools known as the maintenance factor will stand at about $2.7 billion as of the end of the 2014-15 fiscal year.

Because state revenues are highly sensitive to swings in taxes paid on stock market winnings, the LAO’s primary forecast scenario estimates that capital gains will account for $12.8 billion in taxes this year. But the report also points out a “significant possibility” that personal income taxes will be even higher – a revenue surge that while good for schools under Prop. 98 will pose problems for lawmakers as they try to fund other programs.

Even if the windfall is modest, the LAO recommends that the Legislature use some of those dollars next year to pay off one-time debts – something Gov. Jerry Brown has also made a priority.

Lawmakers paid down a big share of the appropriation deferrals in the current budget adopted in June and the LAO suggested they turn their attention to unpaid education mandate claims in the 2015-16 spending plan – something Brown has also said he wants to do.

The LAO estimates that the state owes $4.3 billion in unpaid mandates – most of it $3.9 billion to K-12 schools.

Taylor’s news conference, which traditionally marks the beginning of a new budget year, also provided the LAO an opportunity to publicly lay claim to being the state’s top revenue forecaster. Last spring, the LAO was reasonably aggressive in projecting state income to run about $2.5 billion higher than estimates from the governor’s Department of Finance.

Democratic lawmakers that wanted to use some of that money to restore funding to social services programs used the LAO’s forecast as a foil against Brown, who wanted to keep a lid on spending.

Although Taylor didn’t make an issue of the fact that his office was pretty much on target, he did note it for the record at the outset of the news conference.