GOVERNOR'S MAY REVISED AND THINKING AHEAD
Updated: Mar 19, 2018
School Services of California, Inc. reported that Governor Brown’s economic projections for the current year and the Budget year are “coming up aces." The Legislative Analyst’s Office (LAO) estimates that extra revenue in the May budget revision will raise K-12 Proposition 98 funding to $9,978 per student –$656 per student higher than the inflation-adjusted, pre-recession spending level in 2007-08. The LAO’s per student Prop. 98 estimate for 2014-15 includes one-time spending of $700 per student more than districts anticipated when they built their 2014-15 budgets; that money, totaling $4.3 billion, will be spent in 2015-16 and subsequent years.
“More than $6 billion in revenues beyond projections present an opportunity to build on the progress we have made in public education since the passage of Prop 30,” said Joshua Pechthalt, president of the California Federation of Teachers, “and the Governor makes a good start with the May Revision." While this in itself is encouraging, the forecast does not project a recession, despite the fact that the current expansion has already exceeded the average post-year expansion by over a year. This makes School Boards and other stewards of taxpayer dollars more than a little nervous. So let’s approach this May Revision with guarded optimism, but optimism nonetheless.
Why guarded optimism? The Governor said that the view that “now that we’re getting a little money, we’re in fiscal utopia” is “demonstrably false.” He stressed the notion that while some may want a bigger role for the public sector, everything must be balanced and that tradeoffs or cuts would have to be made in some programs if expansions were sought for others. This is a sound fiscal strategy that historically fiscally responsibility school districts have employed as their fiscal philosophy.
Furthermore, the Governor warned that despite stronger state revenue collections this year, the Budget remains precariously balanced and faces the prospect of deficits in future years. One of the highlights of the May Revision for the Governor is a $1.9 billion contribution to the state’s Rainy Day Fund and $1.9 billion to pay down existing liabilities and retire long-term debt. In addition to the Governor’s warnings, the before-mentioned economic expansion must be taken into consideration. History provides us ample evidence that losing sight of the cycle could be disastrous. 2014 marked the sixth straight year of positive growth in the stock market. Exactly why is that a concern? Primarily because California’s tax structure is heavily dependent upon the top income earners who receive a disproportionate share of their income from capital gains, therefore, any downward correction could significantly impair personal income tax collections. While less of a concern than the expansion, the economic slowdown in China and European Union countries has implications for California exports, ultimately decreasing corporate profits and personal income and increasing unemployment.
According to School Services of California, Inc. and other sources, the optimism moving forward is the result of positive job growth, an unemployment rate falling both at the national and state level, and a drop in the price of oil has kept inflation low and allowed consumers to boost spending. And while global growth is anticipated to remain slow as mentioned above, it is expected to be steady. The National Gross Domestic Product in 2014 was 2.4%, and the May Revision forecasts a continuation of that momentum in 2015 at 2.8% and in 2016 at 2.7%. School districts should be directing this positive outlook to the classroom. Students could be encouraged that California’s unemployment rate continues to steadily drop and is projected to fall further by the end of 2016. Local college costs will remain steady as well. Preparing students for college and career is fueled when positive prospects await our kids.
Now, let’s turn our attention to our students relative to all of this “May Revision” stuff. Among the staples of 21st century skill sets, students must able to create, as well as integrate and evaluate content presented in diverse media and formats. College and Career Readiness Anchor Standards for Reading (R.6. R.7) and Speaking and Listening (SL.1) both support this critical skill as part of the Common Core State Standards (CCSS). The political cartoon below was published in 2013. It says a lot about our condition. And as a metaphor for those of us who ride that rollercoaster year in and year out as stewards of taxpayer dollars, it’s scary. Rollercoasters today are being designed to take riders higher than ever before, while introducing one thrill right after the next for about twice as long as “your father’s” rollercoaster ride a decade or two ago. Looking back a few years it’s easy to see why this cartoon resonated with educators.
When this cartoon was published, Governor Brown had estimated that state revenues would likely come in more than $2 billion (turned out to be 2.4 B) above his January projection, though he asserted the surplus would be largely consumed by higher than expected expenditures. Most of the discussions in education that year revolved around the pace of the increase to STRS rates, LCFF gap funding changes, reduction in the amount of deferrals that were eliminated this year, additional revenue to pay down old mandate claim obligations, and a cap imposed on district reserves under specific circumstances.
Recall that the year before that the Governor’s May Revision painted a pessimistic economic outlook in 2013 and 2014. The Legislative Analyst Office (LAO) did not agree with his forecast. Most of the discussions in education then revolved around further reducing deferrals, funding common core implementation, proposed LCFF first-year dollars, the future of Adult Education, and Special Ed backfill given sequestration.
The year before that, the Governor reported an 8 billion dollar shortfall unless actions were not taken to eliminate the structural gap between revenues and expenditures. Discussions that year revolved around the “Wall of Debt” and restoring the 9.6 B in reductions that had been made to Proposition 98 since the 2007-08 budget crisis. An historical footnote at the time, the May Revision that year birthed the Local Control Funding Formula, retiring the complex, administratively costly and imbalanced school finance system that befuddled even school finance experts and those of us who were expected to teach it at the university level to aspiring administrators.
So what does the future hold for our students given the current outlook and the immediate prospects? I believe it holds great promise, what do you think?