California Budgets Balancing After a Decade of Turmoil

SACRAMENTO, Calif. — The California education budget is coming into balance for the first time in years, according to the state’s Legislative Analyst Office (LAO). The LAO is a nonpartisan fiscal and policy advisory agency that gives budget projections to the state legislature and analyzes the fiscal impact of various budget proposals, voter initiatives and policy trends.

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.