Has Education Been a Budget Priority?

Everyone hears that education is a priority for California budget drafters, but is it really?  A closer look at the 2011-12 and 2012-13 budgets finds that:

  • Despite increasing revenues, schools saw their funding drop year over year in 2011-12 while newly realigned health and welfare spending grew by $3 billion.
  • In 2012-13, the Governor estimates that "Big 3" revenues (sales, income and corporate taxes) will increase by $4.8 billion, even if the voters reject the Governor's newest tax increase.  But schools will still take a $2.8 billion programmatic hit under the Governor's plan.  Health and welfare spending will continue to grow, particularly in light of a recent court case that rejects $5 co-pays for Medi-Cal recipients. 
  • Education has been the main target of trigger cuts adopted in the 2011-12 budget and proposed in the 2012-13 budget.  Education makes up 97% of the program cuts under the 2012-13 trigger cuts, despite the fact that education represents 50 percent of General Fund expenditures.  Health and welfare is virtually untouched in the Governor's 2012-13 trigger cuts, even though health and welfare costs continue to grow and represent about 30 percent of General Fund spending.

2011-12 Budget

In January of 2011, Governor Brown's budget proposal predicted that state revenues would drop by $10.7 billion if the tax increases imposed in 2009 were not extended.i   By May 2011, it was clear that revenues were still on the rise.  The adopted budget included "Big 3" revenues (sales, income and corporate taxes) that were $7.5 billion higher than projected in January, even though Republicans rejected the Governor's proposed tax increase.ii   

2011-12 Education Spending  

According to the Legislative Analyst's Office, despite this surge in unanticipated revenues, overall K-12 education funding dropped in the 2011-12 budget by about $700 million from the prior year.  This cut was the result of several actions taken in the budget:

Realignment Reduced Education Funding
The majority vote budget adopted in June 2011, diverted 1.065%of the state sales tax to fund the Governor's realignment scheme (AB 114, Chapter 43, 2011).  The 1.065% diversion represented about $5.1 billion.  Assembly Bill 114 then declared that the $5.1 billion would not be used in the Proposition 98 calculation, even though these revenues have traditionally been part of determining the minimum school funding guarantee.    According to the nonpartisan Legislative Analyst's Office, this mechanism reduced school funding by about $2.1 billion in 2011-12.iii  The state is being sued by education groups, who questioned the use of the Governor's manipulation of the constitutionally guaranteed level of funding for education. 

Note: The Governor's pending tax increase initiative asks voters to retroactively authorize the $2.1 billion cut to education in 2011-12

Trigger Cuts Targeted Education  
(AB 121, Chapter 41, 2011-12) The final 2011-12 budget included a provision which targeted school funding if estimated revenues fell short.  As enacted by the Legislature in the majority party's budget plan last summer, 85% of the full trigger cut list targeted school funding, including $1.5 billion in cuts to K-12 education and an additional $300 million cut to California's university system.  In the end, schools were spared a portion of the cuts in December only because revenues increased by $1.8 billion over what had been projected in the Governor's May Revision. However, schools still sustained 65% of the triggered cuts that were implemented in December 2011, even though school funding was not growing.iv

2011-12 Health and Welfare Spending

Health and welfare spending continued to grow at a rapid pace.  In the 2010-11 budget, health and welfare spending hit $26.6 billion.v  According the Governor's January 2012 budget, adjusted health and welfare spending in 2011-12 has grown by $3 billion, to $29.6 billion.  Under the Governor's plan, $2.9 billion of those expenditures were realigned to local agencies as part of the Governor's realignment proposal in October.  These programs continued to be funded by a portion of the state sales tax that was previously used to fund these very same General Fund programs.  No programs were reduced as part of the realignments.vi

2012-13 Budget

The Governor's budget estimates that the states "Big 3" Revenues (income taxes, sales and use taxes and corporation taxes) will rise by $4.8 billion without the Governor's tax increase.vii   The Governor is also asking for a $6.9 billion tax increase in 2012-13.

2012-13 Education Funding

If the voters approve a $6.9 billion tax increase, according to the Legislative Analyst, schools will see an estimated programmatic funding increase of about $1.5 billion in 2012-13.viii  However, if the voters reject the Governor's tax increase, the Governor proposes that education funding will take a programmatic cut of $2.8 billion even though revenues are expected to grow by $4.8 billion.ix  This is because the Governor funds the Proposition 98 minimum funding guarantee for education at about $50 billion, but adds the cost of debt service into the school ledger.  Previously, debt service payments did not count toward the Proposition 98 minimum funding guarantee. 

2012-13 Health and Welfare Spending

In contrast, health and welfare programs, which grew $3 billion last year, will grow by approximately $400 million more this year. x This is primarily the result of a recent court ruling which prohibited the state from requiring Medi-Cal recipients to make a co-pay for accessing state services, and other adjustments adopted as part of last year's budget.  This court case will cost the state $106 million in savings in the 2011-12 fiscal year and $677 million in the 2012-13 fiscal year.  This modest growth in health and welfare spending assumes the Legislature adopts several programmatic changes that are aimed at slowing the growth of these fast-growing programs.  If the Legislature does not adopt these changes, health and welfare funding would grow by an additional $2 billion.xi

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i 2011-12 Overview of the Governor's Budget, Legislative Analyst's Office, page 14.

ii Revenues in 2010-11 grew $4 billion and in 2011-12 grew $3.5 billion from the Governor's no-tax increase projections. Projected review for a no-tax increase budget can be found at 2011-12 Overview of the Governor's Budget, Legislative Analyst, page 14.  Adopted budget revenues for2011-12 revenues can be found at Governor's Budget Summary 2012-13, page 45 and page 75.  Note: The 2011-12 budget realigned 1.065% of the state sales take to local governments.  That money funds formerly state General Fund programs.  Adding the $5.1 billion in realigned sales tax to the $19 billion in sales taxes in the Governor's revenue schedule gives you an apples to apples sales tax comparison.  Adopted budget revenues for 2010-11 can be found in the Legislative Analyst's Office analysis of the 2011-12 budget package, page 9. 

iii Legislative Analyst's Office

iv Governor's Budget Summary 2012-13, page 5

v 2011-12 State Budget, page 10

vi Governor's Budget Summary 2011-12, page 11.

vii Governor's Budget Summary 2012-13, page 45.  Big 3 revenues account for 95% of available revenue in 2012-13)

viii The increase from 2011-12 to 2012-13 is not as substantive as it may appear.  The Governor's original 2012-13 proposal included restorations of the 2011-12 trigger reductions and various augmentations, like spending for mental health and school mandates.  In February, he modified his 2012-13 proposal to continue home to school transportation for the 2012-13 school year only, and to add funding to hold schools harmless for his new weighted pupil formula proposal.  Thus, the $1.5 billion increase does not directly translate into general funding increases for schools.  In doing this, the Governor has had to reduce his proposal to retire a portion of education payment deferrals.

ix The Governor proposes to cut education funding even if there is a huge surge in revenue.  His proposal ties education funding solely to the passage of a tax increase at the ballot.  If the Facebook IPO or other economic activity increased state revenues, schools would get none of that money.

x Governor's Budget Summary-2012-13, page 17 shows General Fund Spending for health and welfare dropping $254 million.  According to the Department of Finance, the recent court case will increase General Fund costs by $677 million in 2012-13.  This wipes out any proposed reductions in health and welfare spending and will result in an increase in health and welfare spending of $423 million.

xi Governor's Budget Summary 2012-13, page 6