Resources > Charter Currents > Charter Currents: Coronavirus Update #14: First Partial Guesstimates of COVID-19 Impact on State Budget and Education Funding

Editor’s Note: CSDC is offering these Coronavirus-19 updates for public viewing, to members and non-members alike, and in front of our usual member’s only “paywall” as a service to the larger charter school community. We hope nonmembers will consider joining CSDC.

Sacramento, CA—The California Department of Finance (DOF) issued a four-page Fiscal Update yesterday noting that the economic interruption caused by the coronavirus pandemic will reduce state revenues by an estimated $41.2 billion and reduce the “Proposition 98” K-14 education funding by $18.3 billion over the current and upcoming budget years. This would leave the state with a $54.3 billion deficit at the end of next fiscal year. The brief document included no details regarding the assumptions behind these estimates, making them difficult to evaluate. 

The DOF typically is tight-lipped during the days leading up to the annual release of its May Revision to the governor’s January budget proposal. CSDC presumes that yesterday’s release of this unprecedented document is intended to create a bit of “shock and awe” to soften the impact when the Newsom Administration releases details of the May Revision next week.

This morning, the Legislative Analyst’s Office (LAO) released a more detailed, 20-plus-page update containing less pessimistic-sounding estimates. The Analyst’s report is more detailed and looks through different lenses than the DOF’s brief. It outlines two potential scenarios, including an “optimistic U-shaped” recession scenario and a “somewhat pessimistic L-shaped” recession scenario, and estimates their impact on a “workload” budget that holds most state spending constant. 

LAO’s estimates include holding K-14 funding largely “flat” between the current and upcoming fiscal years and  includes funding statutory cost-of-living adjustments (COLAs)—reflecting LAO’s definition of a “workload” budget. If the state were to adopt a “workload” budget, it would end the next year with a $18 billion deficit under the “U-shaped” scenario and a $31 billion deficit under the “L-shaped” one, per their estimates.

At first blush, LAO’s estimates appear more optimistic than DOF’s, but they are actually quite close. The DOF estimates, for example, assume the governor’s proposed augmentations in his January budget proposal are funded, even though Newsom has signaled that most or all are now off the table, thereby making for a larger estimated deficit whereas the LAO assumes no such augmentations.

The Analyst does note that, if the state funded K-14 education at the constitutional minimum per the Proposition 98 funding formulas, education funding would be cut by $10.1 billion under the “U-shaped” scenario and $15.4 billion under the “L-shaped” one, slightly more optimistic than the $18.3 billion cut estimated by DOF.

Many of CSDC’s members are asking us to translate these into per-student and/or percentage cut figures for budgeting purposes. The crude response is that they fall into a $1,500 to $3,000 per student range over the current and upcoming budget year, but these likely overstate the actual impact. The actual impact is likely to vary based on other factors, including but not limited to the following:

  • The actual impact of the pandemic on the economy and state revenues—neither LAO nor DOF have a crystal ball to predict the unique impact of this pandemic and presumably are making crude estimates.
  • The impact on local property tax revenues and their interaction with the Proposition 98 education funding formulas.
  • Whether the state uses any of its reserves to fund above the minimum mandated by the Proposition 98 education funding formulas. Historically, the state rarely funds above the formula minimums, but political pressure to do so will be intense.
  • Whether the adopted budget cuts or deletes proposed new and/or existing K-12 funding programs. CSDC presumes most augmentations will be quickly jettisoned, freeing-up at least $2 billion.

For now, CSDC continues to suggest modeling a range of possible outcomes as per our prior guidance.  We anticipate the governor’s staff will release the full May Revise late next week and we will provide our more detailed analyses and planning suggestions shortly thereafter.

Posted: 05/08/2020