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School Services of California, Inc.
Community College Update
November 25, 1996

Copyright© 1996 by School Services of California, Inc.
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Over $400 Million More for K-14 Education in 1996-97,
per Legislative Analyst Forecast

Projections of additional state tax revenues will increase Proposition 98 funding for both 1995-96 and 1996-97, according to California's Fiscal Outlook, a report by the State's Legislative Analyst's Office (LAO). The report, which projects state revenues and expenditures through 1998-99, was released on November 21, 1996.

According to the LAO's forecast, state revenues will exceed prior budget estimates by $168 million in 1995-96 and $723 million in 1996-97, for a two-year increase of $891 million. In turn, these higher revenues increase Proposition 98 funding above prior budget estimates by $90 million in 1995-96 and $425 million in 1996-97.

Additionally, LAO indicates that K-12 enrollments in both 1995-96 and 1996-97 will be higher than the level used for the adopted State Budget, and these higher enrollments will drive Proposition 98 funding higher by a total of $360 million for these two years. Of course, most of this additional funding will be needed to fund higher statewide revenue limits.

The increased Proposition 98 minimum funding level from both higher state tax collections and higher statewide ADA is projected to total $895 million for 1995-96 and 1996-97, meaning that Proposition 98 would consume all of the forecasted increase in state revenues for this two-year period.

Forecast for 1997-98 and 1998-1999

For 1997-98 and 1998-99, the LAO forecasts that Proposition 98 funding per pupil will increase between 4% and 5% per year, a very positive sign for these future years.

State's Ending Balance Will Turn Negative Unless Action Is Taken

Looking at the State Budget as a whole, the LAO forecasts that the state will be deficit spending beginning in 1997-98, and that by the end of 1998-99 will have a negative ending balance of almost $1 billion. However, the LAO points out that its forecast is based on all provisions of current law, including the restoration of the renters' credit in 1997 and the restoration of welfare grant levels and COLAs beginning in November 1997. Since these changes increase state expenditures by about $775 million per year, beginning in 1997-98, the state could go from the negative $1 billion balance to a positive $600 million reserve at the end of 1998-99 simply by taking action to prevent the renters' credit and welfare increases from being restored.

The LAO report emphasizes that its long-term forecast is intended to provide a starting point for state policy discussions about what future changes need to be made. Clearly some actions need to be taken for the state to avoid a negative ending balance.

Commentary

Prior reports that state tax collections exceeded budget estimates for the first three months of 1996-97 indicated that Proposition 98 funding will be higher than expected in 1996-97, and this LAO forecast confirms this expectation. Community colleges should receive perhaps $40 million in additional funding for 1996-97 (as their share of about 10% of Proposition 98 funding growth from higher state taxes), as well as perhaps $10 million in additional Proposition 98 funding for 1995-96.

It should be recognized, however, that the state's "official" State Budget forecasts are those prepared by the Department of Finance (DOF). DOF forecasts are used for the Governor's initial budget proposal in January 1997, and the final adopted budget is based on the DOF's "May Revise" economic forecast. Thus, the LAO forecast should not be used by school agencies for budget decisionmaking, but rather as a general guideline for the direction of where the State Budget and Proposition 98 funding are headed.

The positive news for K-14 education in the LAO's California's Fiscal Outlook gives us reason to expect that the Governor's January 1997 budget proposal will contain good news for K-14 school agencies, including additional funding for 1996-97 as well as strong funding growth for 1997-98.

&emdash; Paul Goldfinger
[Posted 11/25/96]