The ELA has historically been on the front lines of protecting Proposition 98 and that remains true when addressing the implementing language of Senate Bill 153, the 2024 Education Budget Trailer Bill. The language at issue arose from the over-estimation of Proposition 98 revenues by the Department of Finance (DOF) when state tax filings were delayed due to natural disasters in the state. The tax revenues in 2023 were lower than estimated by DOF and resulted in a Proposition 98 calculation below the original amount allocated to the Proposition 98 Guarantee. While the Legislature did not follow through on Gov. Gavin Newsom’s original plan to address the overestimate (in part, due to CSBA’s advocacy efforts), the Legislature added language to SB 153 that would allow the Legislature and DOF to manipulate the Proposition 98 Guarantee in future years with delayed tax filing deadlines. To do so, SB 153 created new Education Code Section 41206.04. This section purports to be implementing language for Proposition 98, but it exceeds the Legislature’s authority to enact implementing legislation and results in an amendment to Proposition 98 that would require a ballot measure approved by the voters.

Proposition 98 establishes a minimum level of funding for public schools and community colleges. It accomplishes this through constitutional language that requires “the moneys to be applied by the State for the support of school districts and community college districts shall not be less than the greater of” three alternate tests. While the first of those, “Test 1,” looks solely to the percentage of General Fund revenues appropriated in 1987–88 in determining the amount of the guarantee, “Test 2” and “Test 3” are maintenance-of-effort tests requiring funding at the amount necessary to ensure that total allocations to schools are equal to the prior year’s allocations, adjusted for cost-of-living and enrollment changes, and therefore are directly impacted by the amount of prior fiscal year funding. Recently, the combination of this language along with delayed receipt of tax filings for the 2022–23 tax year resulted in a situation where the Proposition 98 Guarantee and the funds allocated to meet that guarantee, which were calculated based on estimated tax receipts, were significantly higher than the guarantee later calculated based on actual tax receipts. The state originally took the position that in the subsequent year, Tests 2 and 3 should not be based on the actual amount allocated, but rather the later calculated minimum. In other words, Tests 2 and 3 required maintenance of effort of the later calculated amount, not of the higher amount actually allocated. While this matter was resolved through negotiation of the recent budget, SB 153’s language is an attempt by the state to codify this approach for the future.

Specifically, SB 153 added Education Code Section 41206.04 and subdivision (d) of that section makes two relevant changes:

• It leaves the fiscal year open for purposes of determining the Proposition 98 Guarantee until up to Jan. 10 if two factors are present: 1) there is a delay in personal and corporate tax revenue collection until after May 1 due to an extension granted by the state to conform to an extension on tax filings granted by the IRS; and 2) the delay is in counties that in total contributed more than 50 percent of the state’s total personal and corporate tax revenue in the immediately preceding fiscal year.
• Once taxes are collected, the DOF would calculate if there was any difference between what was allocated based on the estimated taxes and the minimum requirement based on the actual taxes. If there was a difference, the funds allocated in excess of the minimum would be excluded from the Tests 2 and 3 calculations for the subsequent tax year.

In other words, the DOF can reduce the minimum funding guarantee after the fact in years with a delayed tax return filing deadline. This could result in an artificial reduction of the guarantee because it would lower the prior year allocations, below the actual allocation amounts, for purposes of the calculation of subsequent year guarantees under Tests 2 and 3. In short, the California Constitution requires Tests 2 and 3 to take into account the “total amount,” but Section 41206.04, subdivision (d) sanctions using an amount less than the “total” in certain situations. While it may be challenging for the state to calculate the guarantee where tax receipts are delayed, allowing the state to ignore constitutional language in this situation could set a dangerous precedent that future Governors and Legislatures may use to undercut the guarantee approved by voters.