Copyright© 2000 by School Services of California, Inc.
Ask SSC . . .
How Can We Be on "Test 3" When Economy Is So
Strong?
Q. I just can't believe it. How can the Proposition 98 calculations come under the dreaded "Test 3" next year-or the variant known as "Test 3B"-when the state's economy is so strong?
A. You are right that in years of normal economic growth, Proposition 98 funding comes under the "Test 2" calculation, where the growth in funding per ADA is based on the growth in per capita personal income. "Test 3" is triggered when only state taxes grow more slowly-to be precise, when the growth in state taxes per capita plus ½% is less than the growth in personal income per capita. And "Test 3B" occurs in what would otherwise be a "Test 3" year, but the growth in Proposition 98 funding per ADA is increased to be no less than the growth in non-Proposition 98 expenditures per capita.
The reason for 2001-02 being a "Test 3" year is largely due to timing. For the 2001-02 Proposition 98 calculations, the change in per capita personal income is measured by comparing the fourth quarter of 2000 to the fourth quarter of 1999. This is done so as to have a known number for the next budget year. And this change is projected to be an incredibly high 7.3%.
For the "Test 3" calculation, the growth in state taxes is based on the budget year as compared to the prior year. What is happening is that just as personal income jumped in 2000, so too have state taxes in 2000-01 compared with 1999-00. By contrast, state taxes are projected to grow much slower in 2001-02. The economy is still healthy and state taxes are still growing. It's just that state taxes in 2001-02 aren't projected to grow as fast as personal income in 2000.
--Paul Goldfinger