Hope, But No Guarantee for K-14 COLA
With the release of the Legislative Analyst’s Office’s (LAO’s) dismal assessment of the State Budget several weeks ago, many are speculating about the prospects for a cost-of-living adjustment (COLA) for K-14 programs. Current-year revenues have fallen short of projections and the LAO believes that the weak economy will continue into 2008-09. In addition, the LAO projects that the Proposition 98 minimum funding guarantee for K-14 education will fall short of caseload and COLA requirements (4.81% by their estimate) by $1.5 billion, causing some to speculate that education will receive no COLA in 2008-09. On the other hand, revenues continue to grow, albeit slowly, thus providing an opportunity for a COLA. What can schools expect?
Keep in mind that the thoughts offered in this article come from the staff at School Services, and, while we think options are available to the Governor, we have no way of predicting which ones he will select in January. So we are not predicting whether there will or won’t be a COLA for K-14, but we do know that there are options that we think would make it possible to do so.
First, we should remember that the Governor’s January Budget is his proposal for state programs, including local assistance programs like K-14 education, for the upcoming year. This proposal will be modified in May to reflect the latest estimates of state revenues, and it will be subject to numerous legislative augmentations, amendments, deletions, and other changes before being sent back to the Governor for his signature. Thus, what is proposed next month will be just the starting point for negotiations on next year’s state spending plan.
Second, while revenues have indeed fallen below projections and the state’s ongoing budget gap has yet to be closed, revenues are projected to increase. According to the LAO, state revenues will grow 4.6% in 2008-09, providing $4.6 billion in additional resources to meet expenditure demands. The trouble is that these expenditure demands will increase faster than revenues. The LAO projects that current services expenditures in 2008-09 will increase 7% over 2007-08. This means that current-year caseloads, plus projected caseload growth and inflation adjustments, will cost 7% more next year than this year. The question, then, is which state programs will get less than full caseload growth and COLA.
Third, for the last few years K-12 enrollment has actually fallen from year to year. The 2007-08 Budget Act funds a 0.48% decline in ADA for K-12 education. Demographic projections indicate that this trend will continue in 2008-09. Thus, the decline in K-12 enrollment provides relief to the rest of the General Fund budget, allowing the state to accommodate caseload growth in other programs such as higher education, Medi-Cal, and corrections.
Fourth, it is important to keep in mind that the Legislature and the Governor have many options to address K-14 education’s funding needs in light of the state’s dim budget outlook and Proposition 98. Remember that Proposition 98 is a funding target that establishes the minimum funding guarantee for K-12 education and community colleges. The Legislature is free to appropriate funds above the minimum in order to meet its policy priorities. These funds can be subject to the guarantee, thus boosting the minimum funding level for subsequent years, or the funds can be from sources that do not boost the guarantee, as was the case for 2007-08. (The 2007-08 Budget provides $567 million in one-time funds for K-14 programs that do not count toward the Proposition 98 guarantee.)
The Legislature can also differentiate between programs whose COLA is specified in statute base apportionment and required categorical programs and programs that do not have a statutory COLA. Prior budgets have funded a full COLA, but provided little or no COLA for the other categorical programs. While this option does not recognize local districts’ need to treat staff in all programs equally, it allows the state to meet its statutory obligation with respect to the COLA.
Other options include eliminating low-priority programs and applying these funds to provide a COLA for the remaining programs; providing a COLA for all programs, but at a rate below the statutory level; or providing a lower COLA only for programs with an adjustment specified in law. (Keep in mind that funding base apportionment with less than the full statutory COLA creates a deficit factor that must be made up [i.e., eliminated through additional appropriations] in future years.)
Additionally, the state has about $3.5 billion in untapped borrowing power from the deficit reduction bonds. It also has been paying down debt faster than required and not doing that could save the state another $1.6 billion next year.
Finally, we should recall that the Governor has indicated that a top priority for his Administration is to maintain support for education. We would hope that, in a year with potentially $4 billion to $5 billion in additional revenues and declining caseloads for K-12 schools, the Governor and the Legislature will conclude that providing a COLA to allow local school and community college districts to simply keep pace with inflationary costs is a top state priority.
—School Services of California Staff