reconvene regular meeting: 7:00 pm - Irvine Unified School District

percentage of State General Fund revenues (the “first test”), or (b) the amount appropriated to K-14
schools in the prior year, adjusted for changes in the cost of living (measured as in Article XIII B by
reference to per capita personal income) and enrollment (the “second test”), or (c) a “third test” which
would replace the second test in any year when the percentage growth in per capita State General Fund
revenues from the prior year plus one half of one percent is less than the percentage growth in California
per capita personal income. Under the third test, schools would receive the amount appropriated in the
prior year adjusted for changes in enrollment and per capita State General Fund revenues, plus an
additional small adjustment factor. If the third test is used in any year, the difference between the third test
and the second test would become a “credit” to schools which would be paid in future years when State
General Fund revenue growth exceeds personal income growth.
Legislation adopted prior to the end of the 1988-89 Fiscal Year implementing Proposition 98
determined the K-14 schools’ funding guarantee under the first test to be 40.3 percent of the general fund
tax revenues, based on 1986-87 Fiscal Year appropriations. However, that percent has been adjusted to 35
percent to account for all subsequent redirection of local property taxes, since such redirection directly
affects the share of general fund revenues to schools.
Proposition 98 permits the Legislature by two-thirds vote of both houses, with the Governor’s
concurrence, to suspend the K-14 schools’ minimum funding formula for a one year period. Proposition 98
also contains provisions transferring certain State tax revenues in excess of the Article XIII B limit to K-14
schools. “Excess” tax revenues are determined based on a two-year cycle, so that the State could avoid
having to return to taxpayers excess tax revenues in one year if its appropriations in the next fiscal year
were under its limit. After any two-year period, if there are excess State tax revenues, 50 percent of the
excess would be transferred to K-14 schools with the balance returned to taxpayers. Further, any excess
State tax revenues transferred to K-14 schools are not built into the school districts’ base expenditures for
calculating their entitlement for State aid in the next year, and the State’s appropriations limit will not be
increased by this amount.
Since Proposition 98 is unclear in some details, there can be no assurance that the Legislature or a
court might not interpret Proposition 98 to require a different percentage of general fund revenues to be
allocated to K-14 districts, or to apply the relevant percentage to the State’s budgets in a different way than
is proposed in the Governor’s Budget. In any event, the Governor and other fiscal observers expect
Proposition 98 to place increasing pressure on the State’s budget over future years, potentially reducing
resources available for other State programs, especially to the extent the Article XIII B spending limit
would restrain the State ability to fund such other programs by raising taxes.
ABx8 6 authorizes the State to eliminate the sales tax on gasoline and replace it with an excise tax.
The elimination of the sale tax on gasoline would reduce the State General Fund. Under current law, any
reduction in the State General Fund could reduce the minimum guarantee under Proposition 98. Pursuant
to ABx8 6, the State’s Director of Finance is directed to adjust the percentage of State General Fund
revenues appropriated for school districts and community college districts such that the provisions of
ABx8 6 will have no net fiscal impact upon the amounts that are otherwise required to be applied by the
State for the support of school districts and community college districts pursuant to Proposition 98.
However, there can be no assurances that any action taken by the State’s Director of Finance will not
adversely affect Proposition 98 revenues. See “STATE FUNDING OF EDUCATION – State Budget –
Proposed Fiscal Year 2010-11 State Budget” herein. See “CONSTITUTIONAL AND STATUTORY
PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS — Proposition 98”
below for further descriptions of the minimum funding tests under Proposition 98 and the impact of
Proposition 98 on K-14 education funding.
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