Remarkably, it looks like California’s public school system will make it through the state’s multibillion-dollar budget shortfall more or less intact.
That’s because the state will draw more than $6 billion from the colloquially termed “rainy day fund” that will essentially keep school funding at last year’s record level, assuming lawmakers approve budget revisions Gov. Gavin Newsom put forward this month.
This almost miraculous accomplishment was partially obscured by a highly technical controversy over how Newsom’s financial gurus have calculated what the state owes schools under Proposition 98, a bafflingly complicated initiative approved by voters in 1988. Powerful education groups threatened litigation before reaching a deal this week, promising additional funds in future years.
But the fact that schools will emerge from budget battles mostly unscathed, at least for the coming year, is largely due to the single-mindedness — even obsession — of former Gov. Jerry Brown to build up the state’s reserves. His pursuit featured a rare and now mostly forgotten display of bipartisanship in the Legislature a decade ago.
When Brown was elected governor in 2010, California was experiencing one of its worst budget crises ever in the wake of the Great Recession.
Schools took a huge hit. By the 2012-13 school year, annual spending had fallen by an average of over $2,000 per student. The full impact, while substantial, was somewhat blunted by a huge infusion of onetime federal funds through the American Recovery and Reinvestment Act.
At the time, California had no real buffer to lessen the impact of the economic downturn. Its reserves were virtually nonexistent, down to the equivalence of a mere two days of the state’s operating budget. Only one other state had a smaller reserve fund.
This was despite Proposition 58, an initiative voters approved in 2004 and backed by Gov. Arnold Schwarzenegger, which required the state to regularly transfer money into the rainy day fund.
But the initiative had a huge loophole: It did not put restrictions on when funds could be withdrawn, and allowed the governor to suspend payments. As a result, only two payments had been made to the reserve over a 10-year period.
Brown set out to change that. He called a special legislative session in 2014 to build up the reserves.
“I’m determined to avoid the fiscal mess that the last few governors had to deal with,” he declared.
Lawmakers emerged from that effort by putting an initiative with fewer escape hatches on the ballot. It required the state to put 1.5% of the state’s general fund each year into its reserves – and even more when personal income taxes from capital gains exceeded 8% of the general fund.
It also established a reserve fund specifically for schools, and set a requirement for state deposits.
Republican lawmakers enthusiastically endorsed the strategy and California voters ultimately agreed, approving the initiative by a 69% majority.
When the state recovered from the recession, Brown came under intense pressure to spend the state’s surpluses on new programs. But he held firm. In his last budget as governor in 2018, he convinced lawmakers to put another $5 billion into the rainy day fund.
To be clear, many school districts will still be impacted under Newsom’s plan. Some districts will still be in the red and will have to make painful cuts, especially those with declining enrollments or have budget problems rooted in their own particular histories. He also proposes to cut back on funding for an ambitious mental health initiative, and on expanding a range of child care and early education programs.
But it could have been much worse. Going forward, when (not if) the state enjoys big surpluses again, the danger is that the Legislature will be tempted to spend the money on a range of programs, instead of investing in the reserves.
Fortunately, Newsom seems to be aware of the pitfalls. Earlier this year, he said that the state should be even more aggressive in building up its reserves, and that could include raising the current cap on how much can go into it. Depending on the reserve, that can’t exceed the equivalent of 10% of the general fund, or of spending required by Prop. 98.
The payoff for Brown’s persistence a decade ago offers lessons for California’s future. No matter how well the state is doing, hard times will almost certainly follow and we have to prepare for them.
Otherwise, we put our schools — and our children’s futures — at risk.
Louis Freedberg is director of the Advancing Education Success Initiative, and executive producer of its “Sparking Equity” podcast.
