Will There be More Money for Schools Next Year? Let’s See…

The headlines say California schools will get billions of dollars of new funding next year under Prop 98 which guarantees schools about 40% of the state budget.

This is great news. But it is only part of the financial picture, because last year schools lost billions of dollars of funding under Prop. 98.

We are at the start of a new budget cycle that projects how much money California will have next year, in this case 2021-22. This includes “guestimates” as to whether schools will get more money or less. Here is a quick look at how this works:

  • In November, the independent legislative analyst reports on the State’s fiscal outlook.
  • In January, the Governor releases his proposed budget, which is usually based on slightly different financial projections from the Department of Finance.
  • In May, the Budget Proposal is revised, based on the most recent economic projections.
  • In June, a final budget is adopted for the next year, starting July 1.

Just to make this a bit more complicated, schools have a special procedure in the budget called “settle up”. When the budget is adopted, there is a projection as to how much schools should get under Prop. 98. If that guess is wrong, and it usually is not quite right because it is hard to guess the future, then next year’s budget corrects this through the settle up. Schools get more money if last year’s budget projection was too low.

That’s what is happening now. The Legislative analyst report in November estimates the minimum Proposition 98 guarantee will increase by more than $13 billion for the current year, 2020–21. This is because tax receipts were higher than anticipated. This is a one-time windfall.

In upcoming years, Prop. 98 school funding is projected to have only a modest increase.

Budget Magic

Last year, based on what was known in May of 2020, the state did not have enough money in Prop. 98 to keep education funding from dropping. So as part of its budget adoption for 2020-21, it included money it hoped to get from the federal government because of the pandemic. Well, that extra money did not happen.

Deferrals: The fallback position was something called “deferrals.” If the federal government did not come through with funding help for schools, the state would have to delay about $12 billion in payments owed to local school districts. (This means school districts would have to meet their ongoing expenses by digging into reserves or borrowing.) The state planned to send schools that $12 billion as the first part of their 2021-22 funding.

Supplemental payments: Even with deferrals, the education budget was so low in 2020-21 that the state also promised to give education extra money from the general fund in 2021-22 to keep education protected.

Where are we now?

Many education advocates and the legislative analyst are recommending that deferrals be eliminated in the current year so schools get the money they are owed on time. This would use up most of the $13 billion in projected new revenue.

We still don’t know, however, what will happen to state revenues for the rest of the current year as the state builds its budget for next year. Will the picture look better or worse?

And what should happen to those supplemental payments promised to schools in the coming years? Schools certainly need the money. But so does the general fund, which pays for lots of programs that support children and families. General fund deficits are projected to grow by a substantial amount in future years given the costs created by the pandemic, the impact on various parts of the state’s economy, and the costs of such extraordinary events as this year’s wildfires. The new Legislature may also have its own ideas about how important it is to fund schools at something beyond the minimum guarantee.

This article is based on information from Ed100 on how the state budget works.