Legislative Analyst Reviews “The California Live Within Our Means Act” Initiative

The Legislative Analyst’s Office (LAO) has reviewed the proposed initiatives related to a new state spending limit, Proposition 98 funding, the budget process, Proposition 42 transfers, special fund loans and transfers, and payment of deferred mandate claims. This article will focus on the initiative�s impact on Proposition 98.Current Law

Proposition 98 establishes a minimum funding guarantee for K-14 education in the State Constitution. Under this proposition, K-14 spending is based on the interaction of three different “tests.” Under the test that is normally operative, total spending for K-14 education is based on the actual amount of K-14 spending in the prior year, as adjusted for changes in average daily attendance and per capita personal income. This adjustment is often referred to as the “Test 2″ growth factor.

K-14 funding can be reduced below the level required by Test 2 when either (1) the guarantee is suspended through a two-thirds vote of the Legislature, or (2) an alternative funding formula becomes operative during a low-revenue year (referred to as “Test 3″). When the reduction occurs, a “maintenance factor” is established, which is equal to the difference between actual appropriations and the higher level required by Test 2. In subsequent years, the maintenance factor is restored (thereby causing spending to rise up toward the Test 2 level) through a formula that allocates extra funding to education in above-average revenue growth years. The maintenance factor can also be paid off through over-appropriations by the Legislature. The operation of Test 3 and maintenance factors allows K-14 education funding to automatically slow down during “bad times” and rise again during “good times.” Read the rest of this entry »