A brief Proposition 98 primer

Proposition 1B would alter the way the constitutional guarantee for schools is calculated, and how certain payments to schools are made. No piece of the budget is more arcane or complex than education finance. What follows is a brief explanation of how California public schools and community colleges receive their funding.

In 1988, voters approved Proposition 98, which set minimums for how much the state was required to spend on education. The initiative set up a number of formulas – called "tests"  – to determine the amount of money schools would receive.

The first formula, known as Test 1, ensures that public schools and community colleges receive about 40 percent of all money in the state's general fund. That money was intended to be a bare minimum. Indeed, in all the 20 years since Proposition 98's passage, the funding for schools has exceeded 40 percent of the state's general fund revenues.

In years of general fund growth, the formula known as Test 2 is used to come up with the schools' dollar figure. Test 2 links increases in school funding to growth in the state's per capita income.

In years of slower growth, Test 3 typically applies. Test 3 was not actually part of Proposition 98. It was adopted in 1990 as Proposition 111 as a way to lower demands on the general fund in times of slow budget growth. Test 3 is typically used when general fund revenues drop. In those years, the state can defer payments to schools for up to five years.

The money owed to schools by the general fund is known as the "maintenance factor," a fancy term for a debt. The current maintenance factor is about $1.4 billion. That is money that was owed schools and has not yet been repaid, dating back to 2005.

This year, for the first time since Proposition 98's passage, schools are simply guaranteed the 40 percent minimum of the state's general fund. With plummeting revenues, the state now finds itself in a "Test 1" year for the first time.

There has been debate over whether the state still owes the "maintenance factor" money to schools in Test 1 years. The Legislature and Gov. Schwarzenegger have tangled over that $8 billion question. But Proposition 1B avoids that particular fiscal showdown — for now.

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