Bloomberg News

Brown’s Bond Bookkeeping Plan Would Cut Billions From Schools

February 14, 2012

Feb. 13 (Bloomberg) -- California students from kindergarten to community college may have funding curtailed for years to come under Governor Jerry Brown’s plan to cut education spending if voters reject $7 billion in tax increases.

California’s constitution requires the state to devote a minimum percentage of its budget to education. Brown’s plan would, for the first time, count debt service on school bonds toward meeting that requirement. The bookkeeping change, taking account of more than $31 billion in debt, would reduce the state’s obligation for classroom spending by $2.4 billion next year alone.

The largest U.S. state by population, and the most indebted, is confronting a $9.2 billion deficit. Brown, a 73- year-old Democrat, wants voters to boost sales and income taxes that would raise about $6.9 billion annually until they expire in four to five years. He built that amount into his spending plan and inserted a provision that automatically triggers $4.8 billion in cuts to schools if voters reject the higher levies.

“It’s a way to save the state a couple billion dollars,” said Bob Blattner, a school district lobbyist with Blattner & Associates. “The functional effect is a two-plus billion-dollar drop” in the required funding for education.

The formula was set in 1988, when voters approved a constitutional amendment known as Proposition 98 that earmarked a minimum annual percentage of the general fund to be spent on elementary schools, high schools and community colleges. That now amounts to about 40 percent of the $86 billion general-fund budget.

Income, Sales Taxes

Brown wants voters in November to raise income taxes on earnings of $250,000 or above, peaking at 12.3 percent for those making $1 million or more. Sales taxes, now 7.25 percent and the highest in the nation, would rise to 7.75 percent.

If the proposal fails, that would trigger cuts equivalent to the cost of three weeks of the school year. Half would come from calculating debt service as part of the minimum funding level; the rest, by delaying early repayment of $2.4 billion owed to schools that was deferred in the past to help fix previous deficits.

State voters and the legislature have approved $31.9 billion of bonds in the past decade to finance the construction and modernization of schools and community colleges, according to the Legislative Analyst’s Office, a nonpartisan agency that evaluates fiscal issues. Debt service cost taxpayers $2.5 billion in the current fiscal year, which ends June 30.

Brown’s administration says the debt service is part of the cost of schools.

‘Associated With Education’

“These are the bonds that built the schools,” said H.D. Palmer, a spokesman for the Finance Department. “These are dollars that are associated with education and it is part of the overall expense for education, without question.”

The legislative analyst said calculating bond payments into the school funding formula may cause swings in financing from year to year, depending on how much debt is sold. If Brown’s method had been used since 1988, the percent of debt service that counted toward the minimum guarantee would have fluctuated from as little as 0.5 percent to 5 percent, the analyst’s office said in a Feb 6 report.

“What otherwise would have been relatively stable school and community-college operations will be partly driven by bond- related factors rather than an assessment of operational needs,” Legislative Analyst Mac Taylor said in the report.

The change would also force advocates for such things as smaller classes and hiring more teachers to compete with school construction interests. Every dollar spent on debt service is a dollar less available for the classroom.

“If you put them both into the same pot of money, it’s a zero-sum game,” Blattner said. “It’s going to establish competition, which I don’t think is in anybody’s best interest.”

--Editors: Pete Young, Ted Bunker

To contact the reporters on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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