California Budget Act for 2012-13
August 6, 2012
(Note: Mandates section revised September 26, 2012, to reflect changes in Senate Bill 1028, Chapter 575, Statutes of 2012)
Dear County and District Superintendents, Direct-Funded Charter School Administrators, and County Chief Business Officers:
BUDGET ACT FOR 2012–13
On June 27, 2012, the Governor signed the Budget Act and related trailer bills, thereby putting into place a spending plan for 2012–13 and a revised spending plan for 2011–12. This letter, prepared by the California Department of Education (CDE) fiscal policy staff, provides information on the budget actions that affect kindergarten through grade twelve (K–12) education and child development programs.
Copies of this document, as well as other budget-related documents, are available through the CDE Education Budget Web page at http://www.cde.ca.gov/fg/fr/eb/. Official state budget documents are available through the Department of Finance Web site at http://www.dof.ca.gov/ .
On January 5, 2012, Governor Edmund G. Brown Jr. released his proposed budget for 2012–13. The plan identified a $9.2 billion deficit for a two-year period, 2011–12 and 2012–13. Although the state’s slow economic recovery had played a part in the state’s fiscal condition, reliance on temporary remedies and various court decisions had worsened the problem. By the May revision, released on May 14, 2012, the state’s deficit had increased from $9.2 billion to $15.7 billion over the two-year period. The increase was mainly due to lower revenues, an increase in Proposition 98 obligations, and court rulings.
The budget actions close the $15.7 billion deficit for the 2011–12 and 2012–13 fiscal years through a combination of program reductions and reforms ($8.1 billion), revenue increases ($6 billion), and other measures. The budget proposal assumes voter approval in November 2012 of the Governor’s proposed tax initiative. The tax measure would:
- Impose a temporary (four-year) 0.25 percent increase in the state sales tax. The sales tax increase would go into effect on January 1, 2013.
- Impose a temporary (seven-year) increase on annual earnings over $250,000. The income tax hike would be retroactive to January 1, 2012.
The Governor estimates the initiative would raise $8.5 billion in General Fund revenues in 2011–12 and 2012–13. If the Governor’s initiative fails, there would be cuts of $6 billion to various budget appropriations, including $5.4 billion to Proposition 98 appropriations for K–12 education and community colleges (K–14 education).
Proposition 98 Changes
2011–12 Proposition 98 Changes
At the time the 2011–12 budget was enacted, the minimum funding level required by Proposition 98 was projected to be $48.6 billion (K–14). The 2012–13 budget package is based on a revised Proposition 98 minimum funding level of $46.9 billion, or $1.7 billion less than the enacted level. The final 2012–13 budget reflects a reduction in spending of $1.7 billion, including $1.6 billion for K–12 programs due to:
- Reclassification of $598 million in spending as satisfying Proposition 98 obligations from prior years (settleup)
- Trigger cuts of $334 million imposed in January as a result of provisions in the 2011 budget package
- Replacement of $222 million in 2011–12 appropriations with one-time funds
- Reductions in average daily attendance (ADA) below the level anticipated
2012–13 Proposition 98 Changes
The budget package proposes a Proposition 98 funding level of $53.5 billion for 2012–13. This is $6.6 billion above the 2011–12 revised budget level and $1 billion above the amount provided under the Governor’s budget proposal. Although revenue projections for 2012–13 were down since release of the Governor’s budget in January, the year-over-year change in revenues was higher, resulting in a higher maintenance factor payment. This funding level assumes passage of the Governor’s tax initiative.
The $6.6 billion increase in Proposition 98 spending includes $6.1 billion for K–12 programs. Major components of the K–12 increase include $3.1 billion to backfill for one-time solutions in the 2011–12 budget package and $2.1 billion to reduce inter-year deferrals.
The budget package reduces K–12 inter-year deferrals by $2.1 billion and community college deferrals by $210 million. This action would be reversed if the Governor’s tax initiative does not pass in November. The budget package also includes additional intra-year deferrals related to the assumption that $6.9 billion in revenue limit funding will come from the Education Protection Account (EPA), which would be established by the initiative. Revenue limit payments would be reduced throughout the year, with the full amount of the EPA payments made in June 2013.
The budget package assumes General Fund savings of $1.5 billion (K–14) in 2012–13 due to the distribution of redevelopment agencies’ cash assets and $1.8 billion (K–14) over two years due to the distribution of redevelopment agencies’ tax increment funding.
Cost-of-Living and Growth Adjustments
The budget package does not provide a statutory cost-of-living adjustment (COLA) for K–12 education and instead establishes deficit factors of 22.272 percent for school districts and 22.549 percent for county offices of education (COEs) to reflect the lack of a COLA. The statutory COLA is 3.24 percent.
The budget package provides growth funding for revenue limits, charter school block grants, and charter school categorical block grants.
Child Care and Development
The Governor’s January budget proposed to shift the child care and development program, excluding part-day state preschool, to a work-based child care system administered by county welfare departments. Under the proposal, beginning in 2013–14, county welfare departments would have administered child care, and all eligible families would have received a voucher for payment to a provider of their choice.
The Legislature rejected the Governor’s proposal to transfer administration of child development services to county welfare departments. The final budget package reduces child care by $130 million. The specific actions in the budget package include:
- Transfer funding from general child care to the part-day state preschool program to acknowledge the part of the day that is curriculum-based. Funding for the remainder of the day continues to be provided through general child care funds.
- Align preschool age eligibility with the new kindergarten start date.
- Require families to pay fees for the part-day preschool program.
- Impose an 8.7 percent across-the-board cut ($80 million) to direct service programs, except Stage 2. This cut affects general child care, migrant, alternative payment, and Stage 3 programs.
- Reduce alternative payment programs (non-CalWORKs vouchers) by $20 million and state preschool by $30 million.
The Legislature rejected the Governor’s January budget proposal to eliminate the transitional kindergarten program.
The budget provides a total of $420 million for mental health services consisting of:
- $348.2 million from the General Fund, including $98.6 million to backfill funding provided in 2011–12 from Proposition 63, the Mental Health Services Act. This funding will be allocated based on ADA.
- $69 million in federal funding, consisting of $52 million to be allocated based on usage of mental health services and $17 million to be allocated based on ADA. The budget package provides a one-year transition to the per-ADA model.
- $3 million for an extraordinary cost pool.
The budget package does not provide growth funds for special education and clarifies that nonpublic schools, charter schools, and the State Special Schools are eligible for workability grants.
The budget package provides $54 million to fund growth in charter school enrollment. Additionally, the budget package authorizes COEs and county treasurers, with approval of the county board of education, to make loan funds available to charter schools in the same manner as for school districts.
The budget also allows a COE to issue Tax Revenue Anticipation Notes (TRANs) on behalf of all charter schools over which it has supervisory authority and authorizes charter schools to issue independent TRANs.
The budget authorizes a charter school to directly seek an exemption from intra-year deferrals and requires the charter authorizer be notified of the request.
Further, the budget requires the governing board of any school district that is seeking to sell or lease any real property designed to provide direct instruction or instructional support it deems to be surplus property to first offer that property for sale or lease to any charter school that has submitted a written request to the school district to be notified of any surplus property offered for sale or lease by the district.
The budget package establishes a mandates block grant of $167 million (K–12) with funds to be distributed based on ADA. Rates will be:
- School districts, $28 per ADA
- Charter schools, $14 per ADA
- County offices of education, $28 per ADA plus $1 “extra” per revenue limit ADA generated by school districts and the COE within that county
A school district or COE that elects to participate and receives mandate block grant funding is not eligible to submit a claim for reimbursement. Mandates encompassed in the block grant include all mandates listed in Government Code Section 17581.6
that were funded in 2011–12. The block grant does not include two mandates: Graduation Requirements and Behavioral Intervention Plans. The Legislature rejected the Governor’s proposal to eliminate these and other mandates.
Home-To-School Transportation and the Weighted Student Funding Proposal
The Legislature rejected the Governor’s proposals to eliminate the Home-to-School Transportation program and include the funds in a weighted student formula.
The 2012–13 budget package includes trigger cuts that would go into effect January 1, 2013, if voters do not approve the tax initiative. The trigger cuts include funding cuts of $5.4 billion to programs funded under Proposition 98. The funding cuts are the result of (1) a reduction of $2.9 billion in the guarantee due to revenue reductions and (2) a reduction of $2.5 billion to accommodate inclusion of two additional programs under Proposition 98—general obligation bond debt service and the Early Start program operated by the Department of Developmental Services for children ages zero through three.
The $5.4 billion reduction would be achieved by reversing an action to pay down $2.3 billion of deferrals ($2.1 billion for K–12 and $210 million for community colleges) in 2012–13, by reducing revenue limit funding for schools by $2.7 billion, and by reducing community college funding by $340 million.
If the trigger cuts go into effect, schools will have the flexibility to reduce the school year to 160 days in 2012–13 and 2013–14. This reflects a reduction of an additional 15 days in each school year.
The budget eliminates funding for:
- Early Mental Health Initiative
- Advancement Via Individual Determination (AVID)
- State supplemental funding for child nutrition programs provided by child care agencies and public agencies other than school districts
- Vocational education student associations
The budget moves a portion of American Indian Education Center funding previously funded from non-Proposition 98 funds into Proposition 98.
The budget funds the Quality Education Investment Act at a funding level of $313 million (K–12) within Proposition 98.
The budget suspends through December 31, 2014, current law that imposes Level 3 developer fees if funding is not available for new construction.
Budget and Trailer Bills
The Budget Act and trailer bills are as follows:
- Budget Bill: AB 1464, Chapter 21, signed June 27, 2012
- Amendments to Budget Bill: AB 1497, Chapter 29, signed June 27, 2012
- Education trailer bill: SB 1016, Chapter 38, signed June 27, 2012
NOTICE: The guidance in this letter is not binding on local educational agencies or other entities. Except for the statutes, regulations, and court decisions that are referenced herein, this letter is exemplary, and compliance with it is not mandatory. (See Education Code Section 33308.5.)