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How Proposition 76 Protects Education Funding
False claims from the opponents...

[by Anthony P. Archie] 11/3/05

Opponents of Proposition 76 claim that education funding will significantly decline if the measure passes on November 8. Though Prop 76 does make changes in education funding, it does not prevent the annual increases in education spending. The measure even encourages spending above the Prop 98 limit.

Approved by voters in 1988, Prop 98 mandates that California adopt yearly education spending increases. The increases must rise with the levels of K-12 enrollment as measured by attendance rates, and inflation as measured by per-capita personal income.

Anthony P. Archie

Anthony P. Archie is a public policy fellow in Business and Economic Studies. Prior to joining Pacific Research Institute, Anthony earned his masters degree in public policy from Pepperdine University, specializing in economics and regional/local policy. As part of his graduate work, he co-authored Crisis in California: Reforming Workers’ Compensation, a proposal that drew praise from an esteemed panel of scholars and policy advisors. Mr. Archie has held internships on Capitol Hill and in the State Assembly. He received his B.A. in economics and political science from Pepperdine University. [Archie index]

Prop 76 would tweak Proposition 98 to allow for more flexibility in years with a revenue downturn. It also dictates that any funds allocated above the Prop 98 requirement in a given year be added to the base sum in the funding calculation, thereby increasing future education spending at a higher rate.

It is this rapid increase in the size of the Prop 98 mandate that has left the state prone to huge budget deficits since the requirement locks in rigid spending formulas. Proposition 76 aims to override the formulas when revenues can’t support them. It does so by eliminating provisions for the so-called “Test 3” and “maintenance” factors. “Test 3” is the term for an optional lower-level funding calculation that can be administered during years when revenues are down. The maintenance factor is the difference between the Test 3 amount and the regular Prop 98 funding level.

In poor revenue years, the legislature has implemented the Test 3 formula and used the maintenance factor for expenditures not related to education. While this has bailed out the legislature in rough years, state law stipulates that the maintenance factor must be repaid in full at the regular funding level when the revenue picture is brighter.

By eliminating the Test 3 and maintenance factor, the legislature would no longer be obligated to restore the funding at prescribed Prop 98 levels, freeing up the budget in fiscal emergencies. This would help tie education spending in a given year to available revenues, decreasing the incentive to borrow heavily or increase taxes.

Prop 76 actually strengthens education funding in a number of ways. By allowing for possible mid-year cuts, it will permit the governor and legislature to deal with fiscal shortfalls before they escalate into sizable deficits. California has experienced continual deficits since 2001, which has led to a cumulative debt of $25 billion. That sum must be paid off by future legislatures from money that could have gone toward education.

Prop 76 repays California’s current outstanding maintenance factor of $3.8 billion over a 15-year period. This directly counters the argument that the measure shorts schools by nearly $4 billion. Prop 76 also states that any additional education funds allocated over the Prop 98 minimum will not be counted within the base for future funding calculations. This will permit a legislature to provide more education funding in a given year without saddling future budgets with additional mandates. It encourages over-appropriation without penalizing legislators for doing so.

Opponents claim that Proposition 76 would reduce the guarantee of Prop 98 in the long term. Practically the opposite is true. While Prop 76 adds a slower growth provision, it still requires education funding to rise annually. On November 8, California voters should understand that, in the long term, Prop 76 actually strengthens education funding. CRO

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