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November 16, 2018
LAO Budget Forecast and Proposition 98 Outlook
On Wednesday, November 14, 2018, the Legislative Analyst’s Office (LAO), the Legislature’s nonpartisan policy and fiscal advisors, released its annual budget and Proposition 98 outlook report for 2019-20. And while the general outlook is very positive for California, Proposition 98 growth will be moderate.
The report concludes that the Proposition 98 minimum guarantee is down $226 million in 2017-18 and $461 million in 2018-19. The decrease is mainly due to a reduction in K-12 student attendance. The 2018-19 State Budget is based upon an assumption of flat attendance; however, the LAO incorporates updated data that reflects declines in both years. These K-12 attendance declines pull down the minimum guarantee and therefore what the state is required to spend on K-14 education.
Despite this, the LAO expects the Proposition 98 minimum guarantee to grow to $80.8 billion in 2019-20, an increase of $2.4 billion when compared to its revised 2018-19 funding estimates. After accounting for one-time initiatives, the LAO estimates the state will have $2.8 billion for new spending under Proposition 98 in 2019-20. By comparison, last fall the LAO forecast the state would have $5.3 billion in uncommitted funds for Proposition 98 in 2018-19. Those significant resources allowed for a substantial investment in California Community Colleges and the new Student Centered Funding Formula.
The LAO estimates it would take $2.3 billion to provide an estimated 3.1% cost-of-living adjustment for K-14 education in 2019-20 as follows:
- $239 million for community college programs
- $164 million for other Proposition 98-funded programs, including State Preschool
- $1.9 billion for K-12 apportionments
This leaves about a half billion dollars remaining for new K-14 spending. For example, a second year of free community colleges as prioritized by Governor-elect Gavin Newsom. The LAO estimates Proposition 98 will be in Test 1 in 2019-20 and create no new maintenance factor. With all maintenance factor obligations paid off as of 2017-18, increases in Proposition 98 are flattening compared to past years.
The Proposition 98 analysis is sobering compared to prior years when the LAO predicted larger amounts of discretionary funding. It is also concerning when you consider that the LAO is typically more optimistic in its budget and Proposition 98 forecasts when compared to Governor Jerry Brown’s Department of Finance (DOF). The DOF is currently putting together its estimates and will work with the outgoing and incoming administrations to prepare for the January 2019 budget proposal where we will see how their forecast differs from the LAO.
Due to the Thanksgiving holiday, we will not be providing the ACCCA Update next week unless there is breaking news; we will return to our regular production schedule on November 30, 2018.
We wish everyone a very Happy Thanksgiving!