On August 22, 2007 the California Legislature finally passed California’s 2007-08 fiscal year budget. The budget totals $145 billion of which $103 billion is available to the general fund. Proposition 98 funding totals $57.1 billion, most of which comes from the general fund. These monies are required to be spent entirely on schools (K-14). The $57.1 billion is a 22% increase over the $46.5 billion of Proposition 98 funds included in the 2003-04 fiscal year budget when Arnold Schwarzenegger became Governor. The total 2003-04 budget was $98.9 billion. During the same four year period the United States Consumer Price Index (“CPI”) increased 11.1%. Thus the increase in Proposition 98 funds is almost 200% of the increase in the CPI. Proposition 98 was enacted by California voters in 1988 as an amendment to the state Constitution. It establishes a minimum annual funding level for K-14 schools (K-12 schools and community colleges). Over 70% of total K-12 funding and about two-thirds of community college funding is from Proposition 98. This measure was a result of 1978’s Proposition 13 which limited assessed property taxes to one percent of a home’s value in California and thus limited the amount of local funds that could be spent on schools. Although the Legislature can suspend the funding guarantee for a single year with a 2/3 vote, the shortfall must be made up in the future. Currently there is no way to reduce the guarantee even if there is a fiscal emergency. The annual minimum funding is determined by increasing the prior year’s funding level by the lesser of the growth in attendance and per capita personal income or the growth in attendance and per capita General Fund revenues. If, instead of growth, there is a substantial decrease in attendance, per capita personal income and per capita General Fund revenues, there is no mechanism to reduce the minimum funding. If all of these factors decline, the minimum funding will be equal to that of the prior year. In 2005 Governor Schwarzenegger included Proposition 76 in the “Special Election” attempting to provide for reductions during fiscal emergencies and to make school funding more subject to annual decisions. This measure failed due primarily to a flurry of ads placed by the teachers’ unions appealing to voters’ fear and guilt by suggesting that all children in California would suffer from inadequate education if the funding was allowed to be reduced. It is unfortunate that proponents of Proposition 76 did not adequately inform the voting public of how much money is actually being spent on schools. How much money? I am certain that most voters and elected officials believe that a quality education is one of the most important services the State can provide. Not only is it important for the future well-being of the students and their families, it is equally important for the future well-being of California’s economy. The questions we should ask ourselves are: how much money should it take? And, are the current Proposition 98 funds being used appropriately and effectively? I have a cousin who is a pubic school teacher and constantly complains that the school doesn’t have the money to provide adequate teaching materials and classroom supplies for her students and that the only way she is able to obtain them is to buy them herself. I am acquainted with a number of other school teachers whose stories are consistent with those of my cousin. In fact, this condition is so widespread that there is a tax deduction specifically for the cost of supplies purchased by teachers for their students. When one considers the huge amount of money being provided to schools from Proposition 98 funding along with the fact that teachers find it necessary to buy materials and supplies for their students, one must conclude that something is seriously wrong. Additionally, since there is no mechanism to reduce the minimum funding level, there is no incentive for school officials to make sure that the money is spent wisely or to determine how it is being spent. I was recently told that in the Los Angeles City School System administration costs exceed 60% of the total budget. I admit that I don’t know anything about school administration but to me this sounds ridiculous. Yet, even with this, it seems that there should be more than enough money to pay for materials and supplies. With Proposition 98 funding for the 2007-08 fiscal year being set at $57.1 billion I submit that it’s time for an independent investigation to determine exactly how the funds are being spent and, once determined, to take immediate action to eliminate waste, reduce the costs of administration and assure that adequate funds get into the classrooms. After those items are taken care of we should take another look at Proposition 98. Gregory N. Lippe, CPA, is Managing Partner of the Woodland Hills-based CPA Firm of Lippe, Hellie, Hoffer & Allison, LLP and a Director and Vice- chair of the Valley Industry and Commerce Association (VICA).
