The LAO found that funding for California schools, which comes primarily from Proposition 98, was heading up. The state’s overall budget is still facing a deficit, albeit a very small one in the context of the last decade. Proposition 98, passed by voters in 1988, created a minimal amount of the state’s budget that must be allocated to education. A complex formula provides a baseline level of 39 percent of the budget going to education, with different measures for cost of living increases based on whether a fiscal year experiences strong or weak economic growth.

Legislative analyst Mac Taylor explained in a mid-November press conference that “Our numbers reflect growth in Proposition 98 of a couple of billion each year,” adding that the number would grow even further in later years. The LAO projected that the state’s overall budget would also experience growth, at a slightly slower pace, leading to a slight surplus in the 2014-15 fiscal year and ballooning to a $10 billion surplus by 2017-18.

Taylor said the balancing of the education and general fund budgets could be attributed partially to voters’ passage of Proposition 30 in the November election and partially to budget cuts and the state’s economic recovery. Proposition 30 increased the state sales tax from 7.25 percent to 7.5 percent and also increased income taxes for those earning at least $250,000 per year, with those making over $1 million per year seeing the largest increase. The LAO expects the temporary tax increase to raise school funding by about $3 billion per year.

Taylor projected that the general fund budget would have a $1.9 billion shortfall over the next to fiscal years, which is actually relatively small for the state compared to the last decade. He happily predicted the state would reach a small surplus in 2014-15, adding “This is one of the first non-red bars that we’ve shown in this document for quite a while.”

The LAO indicated the growth in education funding would not only allow the state to balance its year-to-year school funding, but also to pay down debt and on-year deferrals from prior years. In theory, this will allow the state to achieve a truly balanced education budget and focus on rehiring teachers and improving education outcomes. Taylor said he didn’t expect a significant bump in the road for the state’s economic recovery in the foreseeable future.

“This is a much, much more positive situation that we’ve faced in many, many years,” said Taylor.

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Proposition 30
Proponents: Governor Jerry Brown, California Teachers Association, California Police Chiefs Association, League of Women Voters, California Federation of Teachers, California Democratic Party
Opponents: Howard Jarvis Taxpayers Association, National Federation of Independent Business California, California Republican Party

Proposition 38
Proponents: California State PTA, the Advancement Project
Opponents: California Chamber of Commerce, California Republican Party, California Democratic Party, California State Sheriffs’ Association

The state’s strange mix of laws, which keep taxes low while allowing spending to grow, has created a seemingly perpetual imbalance in the budget, which Governor Jerry Brown and his last two predecessors have all promised to fix. Part of the current governor’s solution was to cut education funding in the budget and allow voters to decide if they wish to raise taxes or not. Different forms of this strategy have had varying levels of success in the past but seem to be the way of the future in the Golden State. The legislature in California requires a two-thirds vote in both houses to pass any bill that involves raising taxes. Such a dominant show of support can almost never be found in such a politically divisive legislature, meaning governors must build spending cuts into the budget and hope voters will approve the funding to replace some of those cuts and achieve what they consider to be a balanced approach.

Proposition 30, the solution presented by Gov. Brown, would raise income taxes by one to three percent over seven years for individuals earning $250,000 or couples filing jointly for $500,000. It would also raise the state sales tax by one-fourth of a cent. This would raise an estimated $6 billion per year, with $2.9 billion going to K-12 schools and community colleges in the first year.

Proposition 38, the product of millionaire civil rights attorney Molly Munger and her Advancement Project, a civil rights group based in Los Angeles, would increase income taxes on a sliding scale, affecting all Californians for 12 years. The tax rate for most people would increase by .4 percent, while those earning more than $2.5 million would experience an increase of 2.2 percent. The proposal would bring in $10 billion per year, with all of the funds going to K-12 schools and early education programs beginning in the fifth year of the program. The proposal designates 30 percent of the funding over the first four years to paying down state bond debt.

If both proposals pass, the one receiving the most votes will be implemented. If neither effort proves successful, a $5.4 billion cut to education funding will occur, without any funds to backfill the gap.

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