GOVERNOR SCHWARZENEGGER’S CLAIM THAT K-12 EDUCATION FUNDING IS INCREASING BY SEVEN PERCENT IS A MYTH

Governor Arnold Schwarzenegger and his Finance Director Tom Campbell continue to claim that the Governor’s Proposed Budget includes a 7.1 percent increase in funding for schools. The Department of Education has been asked to verify this claim. But, after a thorough review of the Governor’s Budget, that claim cannot substantiated.

The following is an analysis of the Governor’s Budget for education. It shows that there is a significant credibility gap between what the Governor says is allocated for schools and what actual funding will be used for the education of our students.

It also shows that if you look the total funding in the Governor’s Proposed Budget for K-12 schools, and consider that “COLA and growth” merely cover increased costs due to inflation and the anticipated growth in the student population, AND that the Governor proposes shifting new costs to school districts, the real world effect is that students in California will not benefit from any additional resources in the classroom, but may be affected by budget cuts at their local school.

Consider the following (all of the numbers in this table come directly from the Governor’s budget):

K-12 Funding	2004-05	2005-06	Diff.	% Change
General Fund (Prop 98 + non-98)	$31,622,272	$33,475,243	$1,852,971	5.86%*
Total Prop 98 (GF + Prop.Taxes)	$42,167,464	$44,696,414	$2,528,950	6.00%*
Total Funding	$50,854,025	$53,043,734	$2,189,709	4.31%*
Total Funding subtracting proposed COLA from 05-06	$50,854,025	$51,393,863	$539,838	1.06%
Total Funding subtracting proposed COLA and growth from 05-06	$50,854,025	$50,999,117	$145,092	0.29%
Total Funding subtracting proposed growth from 05-06	$50,854,025	$52,648,988	$1,794,963	3.53%

(* If the same funds for the CA Community Colleges (CCC) are included, those percentages change respectively to 6.21%, 6.16%, and 4.57%.)

The first three rows of this table represent the type of comparisons that a reasonable person would make in response to the question, “How much more will K-12 education receive in 2005-06 under the Governor’s Proposed Budget than it received in 2004-05?”

Those three comparisons are of:

i) General Fund appropriations to K-12 in the two years – this makes sense because the state’s budget shortfall is primarily a General Fund issue,

ii) Total Prop 98 funding for K-12 in the two years – this makes sense because it represents the bulk of state funding, is probably the most used number when talking about K-12 funding, and Prop 98 has been the focus of education budget discussions in 2004-05 and 2005-06, and

iii) Total Funding for K-12 – this probably makes the most sense since the real issue is how much better or worse off schools are, and that would depend on the total amount of funding available to them, including general fund, other state funds, local property taxes, and federal funds. The only things that this number would leave out would be local revenue, such as parcel taxes and proceeds from bake sales.

• You can see that the increases in these numbers range from 4.31% to 6.0%. Anyone could pick their number and use the information above in i), ii), and iii) to tell a reasonable story about how much funding has increased.

However, this still really doesn’t answer the question that we want to – “How much better (worse) off will schools be in 2005-06, than they are in 2004-05?” The other way to put this is that “schools will nominally get 4.31-6.0% more dollars, but what will that mean to them in real terms?”

The last three rows of the table use Total Funding for K-12 (that’s item iii) above) and start to correct the 2005-06 funding level for those proposed appropriations that don’t move schools forward, but only keep them treading water. Cost of living adjustments (COLAs) are designed to offset cost increases that impact schools from one year to the next; a COLA is expressly intended to maintain the real level of funding by correcting for inflation.

• Note that if we subtract out the $1,649,871 proposed for the K-12 COLA, it reduces the proposed increase in funding from 4.31% to 1.06%, meaning that when corrected for inflation schools would get a little over 1% more in funding.
• We also often track school funding on a per pupil basis and are interested in increasing or maintaining the level of per pupil funding as well. To do this we would have to appropriate additional funds whenever enrollments grow, just to stay even.
• If we correct Total Funding for K-12 for both growth and COLA, then the increase in funding for K-12 looks more like .29% - in other words, after correcting for the funding increases that we would have to provide K-12 unless we clearly wanted to go backward, the Total Funding for K-12 from this year to next year (proposed) is virtually flat.

Ordinarily that would be a sorry state, but at least not going backward. However, the number in the Governor’s proposed education budget leaves something out. In another section of the budget you can find the State Contributions to the State Teacher’s Retirement System. In that section is a $469,047,000 reduction in the state contribution to STRS.

• The Governor’s Budget provides a descriptive statement in this section; it says, “The State General Fund makes annual payments to the State Teacher’s Retirement System in order to reduce the retirement contribution burden on teachers and school districts.” This description makes clear a recognition that a reduction in this contribution by the state will increase “…the retirement contribution burden on teachers and school districts.”
• Shifting this cost to school districts further erodes the spending power of the proposed K-12 funding.
• If we subtract the $469 million from the Total K-12 Funding as corrected for COLA and growth, the .29% growth in funding becomes a .64% decrease. Even if this retirement contribution burden is shared evenly between teachers and districts, the level of funding proposed by the Governor for 2005-06 will buy less education for each student in California than the funding appropriated in 2004-05.

The only way to calculate a 7.1% increase is to look at the increase in Total Prop 98 General Fund. The figure is reached by combining Prop. 98 funding proposed for K-12, California Community Colleges, California Youth Authority, Department of Mental Health, the Commission on Teacher Credentialing, AND other state agencies.

• For 2004-05 the total is $34,123,805 and for 2005-06 the total is $36,532,334; the increase calculating out to 7.058%. Rounding this to one decimal point would get you to 7.1%.
• The problem with this approach is that it adds in funding that has no impact on K-12 schools, and even then it only accounts for part of the funding for education - it doesn't account for all of Prop 98 funding allocated in the budget, it doesn't account for all state funds allocated to education in the budget, and it doesn't account for non-state funds allocated in the state budget.
• An analogy would be to compare it to a family budget: If one parent in the household gets a 7.1 percent raise, but the other parent in the household gets a pay cut, and in the same year a new child is born and the cost of groceries goes up, it would be disingenuous to say that the household budget increased by 7.1 percent.
• Because of this, Total Prop 98 GF is clearly a less relevant number to compare than the other three options shown in the table above.
• Interestingly, because Governor Schwarzenegger overturned the VLF law, the Prop. 98 General Fund MUST go up because the property tax share of Prop. 98 is going down. In the Governor’s Budget, more property tax revenue is being diverted to local governments to cover increased costs resulting from higher than anticipated car sales.