Details of Final Budget Package Finally Emerge

In a somewhat protracted endgame to the State Budget process, the final pieces of the education budget finally became clear five days after the State Budget was sent to the Governor.

The big question in the process was the fate of the proposed $469 million STRS hit, or “teacher tax,” a proposal debuted by the Governor in January and renewed in his May Revision. That proposal has been taken off the table, meaning community colleges and K-12 school districts are not on the hook for an additional 2% in contributions to STRS (the employer rate stays at 8.25%). It was unclear for a time who was going to pick up the cost of the $469 million proposed STRS shift–it is now clear that K-14 schools have lost out on $247 million in mandated cost claim reimbursements proposed by the legislative Democrats from prior year Proposition 98 settle-up funds, but the state will bear the remainder of the burden.

And the last piece of the education budget puzzle was the fate of equalization funding. The Governor proposed in his January State Budget and renewed in his May Revision $40 million to fund equalization. The legislative Budget Conference Committee reduced the $40 million to $20 million. The final deal worked out by the �Big Five� (the Governor and legislative leadership) increased equalization funding to $30 million by eliminating the $10 million that had been earmarked for increasing the noncredit instruction rate. If you look at the budget bill, SB 77 (Chapter 38/2005), it will show a line item of $20 million for equalization. However, the budget trailer bill, SB 80 (Chapter 39/2005), contains the appropriation of $30 million for equalization.

Also, proposed budget language by Senator Ducheny (D-San Diego) that would have provided additional funds for equalization if the total funds allocated to backfill shortfalls in property tax revenues were not needed, was deleted by the Administration.

Significant Vetoes
The Governor line item vetoed $20 million for Career Technical Education because the Legislature had linked providing identical amounts of funding for supplemental instructional materials for English learners. In his veto message, the Governor indicated that these two programs do not share any legal or programmatic relationship, thus an inappropriate funding link for two distinct programs was created. Further, the Governor indicated that he would restore the $20 million for Career Technical Education if the Legislature de-linked the issue, and sent him separate legislation. The Legislature is scheduled to adjourn for the year on September 9, 2005.

The Governor reduced the Legislature�s augmentation to community colleges to backfill a projected shortfall in 2004-05 local property tax revenues from $33 million to $15.5 million. The Governor�s veto message indicated that he was advised that the community colleges will experience a shortfall not greater than $21 million in the current year. Furthermore, according to the veto message, the community colleges are not likely to earn all of the growth funding for 2004-05, and, as such, the system would not incur the costs of instruction anticipated for the current year.

It appears that it is the intent of the Governor to aside $17.4 million (from the $33 million) to be used in combination with the set aside of $20 million to provide support for Career Technical Education pursuant to separate legislation. The total funding for Career Technical Education would then be $37.4 million�coincidentally, the amount proposed in his May Revision.

Guess what�in less that six months, we get to start this process all over again.

Governor Signs Education Trailer Bill � Senate Bill 63
Education trailer bills are introduced to place into statute and/or implement various provisions of the Budget Bill (SB 77, Chapter 38/2005). The primary education trailer bill, SB 63, was recently signed by the Governor. Among other provisions, the bill includes the $200 million �deferred� appropriation that is part of the apportionment funds to be certified for 2005-06, but which is not distributed to districts until July 2006. SB 63 also includes $10 million in one-time funds to pay off mandate claims of community college districts, with the earliest filed and audited claims paid first.

SB 63 also contains provisions that are tied to the $31.4 million in Partnership for Excellence Funding lost in last year�s Budget Act. SB 77 restores these funds contingent upon district- specific outcome measures, based largely on recommendations adopted by the Board of Governors.

SB 63 adds Section 84754.5 to the Education Code, which reads, in part:

�As a condition of receiving specified funds ($31.4 million) in the annual Budget Act to encourage district level accountability efforts, community college districts shall provide data, in a format and according to a schedule to be specified by the Office of the Chancellor of the California Community Colleges, for the purpose of the annual report to the Legislature and for purposes of providing the means for both internal and external assessment of the district�s educational offerings in meeting the high priority educational goals of the state.

The Chancellor shall withhold, delay, or reduce funds specified in the annual Budget Act to encourage district level accountability efforts from a district that fails to provide needed data by specified deadlines.�

SB 63 also amends Section 1529.2 of the Health and Safety Code which reads now, in part:

�In addition to the foster parent training provided by community colleges, foster family agencies shall provide a program of training for their certified foster families.�

The Facts on the 2005-06 Education Budget
The California Education Coalition, comprising organizations representing K-12 parents, teachers, school board members, school employees, and administrators, has put together a fact sheet on the Governor�s 2005-06 education budget. The Education Coalition continues to be critical of the Governor�s position on education funding.

Following is from a paper being distributed by the Coalition titled, �The Facts on the 2005-06 Education Budget.�

Claim: Governor Schwarzenegger has put our children first in line at the treasury by investing more in education than we ever have before

Fact: This Budget is certainly not �terrific� nor is the �best Budget agreement� ever, as the Governor claimed.

This Budget fails to mend the Governor�s broken promises to education, it fails to meet the Constitutional requirements of the voter-approved Proposition 98, and it underfunds K-14 schools by $3.1 billion at a time when they receive less funding per student than the national average.

Claim: True to the Governor�s May Budget proposal, K-14 education will receive a $3 billion increase, $736 million beyond Proposition 98 requirements.

Fact: The Governor�s claim is misleading because it attempts to rebase Proposition 98 by ignoring the agreement reached with California students and schools in 2004.

 In 2004-05, Proposition 98 was suspended or reduced by $2.0 billion, with the promise that the money would be restored

 The agreement with the Governor also promised that if state revenues increased above the 2004-05 estimates, education would receive its fair share as required by the State Constitution and Proposition 98

Fact: Revenues increased by $6.4 billion over the 2004-05 Budget estimates.

 The Governor�s agreement, state statute (SB 1101, Chapter 213/2004), and the California Constitution all require an additional $3.1 billion�
$1.8 billion in funding this past fiscal year (2004 05) and $1.3 billion in the new Budget year (2005-06)

Fact: The final Budget provides education with zero dollars of this revenue increase. The Governor�s claim of $3 billion includes:

 A shift of $674 million away from school districts to city and county governments to make up for the Vehicle License Fee (VLF) revenue shortfall. This so-called �increase� in state funding for schools simply replaces this lost property tax revenue and results in no additional funding for schools

 The rest of the �increase� comes from $1.8 billion in cost-of-living adjustments and enrollment growth, funds that merely allow schools to maintain the status quo

Loss of Accreditation at Compton College Appealed
Last week, state and local officials took the first formal steps toward appealing the decision last month that threatens to strip Compton Community College District of its accreditation after the summer session, and potentially close the campus altogether.

Jamillah Moore, the college�s state-appointed president, filed a request for review of the Western Association of Schools and Colleges� (WASC) ruling that could make Compton the first community college in state history to lose its accreditation. WASC cited financial and management irregularities at the 6,600-student school, and set August 19 as the end of accreditation. Loss of accreditation would render Compton College ineligible for state funding, and its students would no longer have access to federal financial aid.

If WASC does not reverse its decision, college officials said they would take the next step and file an appeal for a more sweeping study by the agency. Such reviews can take months, during which the school would keep its accreditation.

When the state took control of Compton College in May 2004, the Chancellor�s Office had been investigating the campus for poor accounting practices and failure to provide a satisfactory audit. A state study found potentially illegal practices, such as college officials steering contracts and jobs to relatives, although the study did not list names. The campus has been under federal and local investigations for possible corruption, but no one has yet been charged with any wrongdoing.

The Chancellor�s Office estimates it would take Compton College at least two years to remedy the problems�far short of the six months WASC gave the college in January to avoid loss of accreditation. In recent weeks, the Chancellor�s Office has been questioning neighboring community college districts (Los Angeles, Cerritos, Long Beach, and El Camino) to determine their interest in administering classes at Compton should the college lose accreditation. Such temporary management would allow the campus to continue to serve students. As of last week, no neighboring district has given a formal affirmative response.

Several faculty and staff members began an effort to recall three members of the college�s elected Board of Trustees. Even though the Board was relegated to an advisory role after the state takeover, its interference with reform was much criticized by WASC. Last month, state Chancellor Mark Drummond urged the five-member Board to resign, but members have refused and some blame the state for the college�s woes.

Ask Arnold (Bray, the tall one) . . .

What is the Status of the STRS 2% Issue?

Q. It is still not clear to me how the State Teachers� Retirement System (STRS) 2% issue was resolved in the State Budget. I heard that the state is only picking up half the cost. Am I on the hook for the remaining amount? Our district is getting ready to run the first payroll of this fiscal year. What is the correct rate for STRS?

A. The final deal struck by the Governor and legislative leadership came during the final hours of negotiations. As you are aware, the Governor was proposing to shift the entire state contribution ($469 million) to K-14 schools. However, he agreed to cover approximately half of the contribution ($234 million) from the state General Fund.

The other half of the 2% shift still has an impact on K-14 schools. Instead of getting one-time money from Proposition 98 settle-up funds from the mid-1990s, which the Legislature repackaged for paying off mandates, the agreement was to use $235 million of these funds, along with the $234 million from the General Fund, to cover the $469 million state contribution. This means that the state still owes schools the $235 million in settle-up funds.

Most of the mandate reimbursement dollars were lost, but there is no longer a need to cover any of the proposed 2% STRS shift from existing local general fund dollars. Therefore, the STRS employer rate to use in your payroll system for 2005-06 is 8.25%.

The STRS issue could resurface next year, since STRS is facing a more than $24 billion unfunded liability and pension reform is still on the Governor�s radar screen.