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Schools likely winners in surprise $5 billion state cash

10:49 PM, Jan 31, 2013   |    comments
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If January's unexpected rush of revenues into state coffers is really extra cash, most or all of would be earmarked for schools.

That's the message from the Legislature's independent analysts delivered to the Assembly's budget committee Thursday morning.

"I think it's just important to realize that even if we're better off, it may be primarily in the area of education," said Legislative Analyst Mac Taylor.

State tax revenues for January are expected to end up $5 billion above the projections in Gov. Jerry Brown's budget released just three weeks earlier.  But exactly why there's so much unexpected cash remains unclear.

Taylor offered three scenarios to assemblymembers as they took their first look at the governor's budget.

The money, he said, could simply be taxes that California's most wealthy paid early to avoid an increase in their federal tax liability. That would mean the money is simply going to be counted earlier in the state's budget process than later -- but, in the end, not extra cash.

Or, say analysts, it could be state taxes that were assumed would be paid in April or June of this year were paid early -- again, a faster influx of dollars rather than more dollars.

And scenario three?

"It could just be that there's new money," said Taylor.

But here's where things get complicated.  If the money is scored in the current state budget year -- which began on July 1, 2012 and doesn't end until this coming June 30 -- it will almost certainly be swept up by the state's constitutional guarantee for education, the voter-created Proposition 98.

"Virtually all of the money will go to Prop 98," said analyst Taylor.

And that could squeeze other state programs further.  Analysts say the money would not only go to schools under the current year's state budget, it could possibly increase the mandated level of K-14 funding in subsequent years.

If these were dollars being counted on to arrive in state coffers later (in other words, not "extra" cash but cash that was baked into formal revenue forecasts), it would seem to create a kind of double whammy: higher mandated education funding in the fiscal year beginning July 1... and a smaller revenue base from which to fund everything else.

Budget watchers don't expect to really know why so much money arrived in January until April, at the earliest.  That's when the bulk of tax revenues usually arrive... and number crunchers will start to see whether there's a shortfall of similar size to this winter's windfall.

Or not.


Update: The paragraph that follows Mac Taylor's Prop 98 quote has been slightly modified from its original form posted on Thursday afternoon.  The sharp folks at the Legislative Analyst's Office point out that while these unexpected dollars may inflate future school funding guarantees, there are scenarios where the dollars don't raise future Prop 98 guarantees.  The reality is that Prop 98, long one of the most complex parts of California government, has become only more so in recent years... due to interpretations about exactly how the law's funding formulas work in various economic scenarios.  So bottom line: we don't really know how this money could shape long-term school funding promises.

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