Read Our Blog Series on Proposition 2

October 27, 2014

A little over a month ago, the California Budget Project published our analysis of Proposition 2, a measure that will appear on the November 4, 2014 statewide ballot and would make changes to how California sets aside revenue both to build up reserves and pay down state liabilities.

In recent weeks, we’ve published a blog series aimed at highlighting some of the key components of Proposition 2 and our take on them. With Election Day just around the corner, we’re bringing links to this full series together into a single post, in an effort to help our readers understand what Proposition 2 would do and its potential impact in the coming years.

Topics covered by our blog series have included the following:

Proposition 2’s substantial revisions to the state’s current budget reserveCBP Director of Research Scott Graves looks at the changes that Proposition 2 would make to California’s existing reserve — the Budget Stabilization Account, or BSA — and some of the trade-offs that would likely result.

Proposition 2’s requirement that a portion of state revenues be set aside for paying down budgetary debt:  Executive Director Chris Hoene examines a critical — but often overlooked — provision of Proposition 2: that a share of state revenues would be set aside each year for the next 15 years to pay down budgetary debt. This post discusses why this requirement is important and what it could mean for state finances in the near and long terms.

The total amount of revenues expected to be set aside each year under Proposition 2: Scott Graves discusses how much the state would potentially set aside each year — both to pay down state liabilities and add to the budget reserve — and points out that the annual amount would not necessarily be higher under Proposition 2 than under current policy.

What Proposition 2 would likely mean for state funding for K-12 schools and community colleges: Senior Policy Analyst Jonathan Kaplan discusses the new state reserve that Proposition 2 proposes to create for K-14 education. This post explains that the impact of this new reserve on state education funding would be negligible, although local districts’ reserves could be affected.

For our full analysis of Proposition 2 — which touches on the above issues along with other facets of the ballot measure — read our recent brief. And be sure to check out our website and this blog for further commentary on Proposition 2 as well as Proposition 47, another key measure on the November ballot.

— Steven Bliss


Proposition 2’s New Reserve for K-14 Education Is Unlikely to Have Impact, Though Local School Districts’ Reserves May Be Affected

October 19, 2014

This is the fourth in a series of blog posts highlighting key components of the CBP’s analysis of Proposition 2, which will appear on the November 4, 2014 statewide ballot.

As we have blogged about recently, setting aside funds in good economic times to help meet the challenges that arise during economic downturns is a sound budgeting practice — and one California voters supported when they approved Proposition 58 in 2004. Proposition 2, a constitutional amendment placed on the November 4, 2014 ballot by the Legislature, would rewrite the rules governing deposits into and withdrawals from the state’s existing Budget Stabilization Account (BSA) — and, as we explained last week, would require the state to pay down “budgetary debt” for the next 15 years.

Proposition 2 also would create a new state-level budget reserve for schools and community colleges called the Public School System Stabilization Account (PSSSA). However, our recent analysis explains that because deposits into the PSSSA would only happen under limited circumstances, they would be unlikely to occur until at least 2020-21, and in most years thereafter. Without deposits into the PSSSA, this new reserve would not have dollars to provide to schools and community colleges during an economic downturn. As a result, Proposition 2’s impact on state funding for K-14 education would likely be negligible.

While deposits into a new state-level reserve for schools and community colleges would be unlikely for many years under Proposition 2, much attention has focused on a provision of a new state law — Senate Bill 858  — that would take effect if voters approve the ballot measure. The provision in SB 858 could limit the amount that K-12 school districts are allowed to keep in their local school district budget reserves. However, this cap would only take effect in a year after a transfer is made to the new PSSSA, which means school districts would not likely be required to limit their local budget reserves until at least 2021-22. SB 858, which would not apply to community colleges, could place a limit on most local school district reserves between 3 percent and 10 percent of a district’s annual spending. Unlike the provisions contained in Proposition 2 itself, which would be placed into the state Constitution, the Legislature could revise or repeal this cap on local school district reserves with a simple majority vote. Moreover, county offices of education could exempt school districts from the cap on local budget reserves for up to two consecutive years.

The focus on local K-12 district budget reserves as part of the debate around Proposition 2 is understandable. Schools suffered significant cuts in state support as revenues plummeted during and in the aftermath of the Great Recession. Some school districts were able to buffer these cuts with dollars they had saved in their local budgets. Despite the likelihood that the cap on local budget reserves would not take effect until at least 2021-22, some school districts may spend down their local reserves to bring them closer to the cap in the new law. To the extent this occurred, local districts would have fewer dollars available for economic uncertainties, such as tough budget years.

As is often the case, voters may find it difficult to sort through all of the issues raised by a ballot measure as complex as Proposition 2. But one thing is clear: Voters should not expect Proposition 2 to solve the problem that drops in state revenue mean for K-14 education funding.

— Jonathan Kaplan