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This article was rewritten and reposted on Sept. 27 to clarify that the lawsuit’s aim is to prevent underfunding of Proposition 98 in future years. The earlier version misstated that the lawsuit asserted the current state budget as enacted also violated the funding law.
Although the 2024-25 state budget shields school districts and community colleges from funding cuts, the California School Boards Association is suing the Newsom administration over a provision that the school boards association claims is unconstitutional.
The change to the Education Code would deny schools money they would be entitled to under some conditions in future years, setting a dangerous precedent, CSBA argued in a lawsuit filed this week.
The school boards association is asking the Superior Court in Sacramento County to invalidate that section in the education budget bill. CSBA argues it violates the letter and spirit of Proposition 98, the formula that determines how much of the General Fund must be allocated to schools and community colleges.
The Department of Finance inserted the little-known statutory wording into the budget trailer bill in the final days of the legislative session in June, with no discussion or notice. It was not mentioned in the budget analysis that legislators reviewed before passing the budget.
“CSBA’s defense of voter‐approved Proposition 98 is nonnegotiable, as is the obligation of the state to follow the Constitution that governs it,” CSBA President Albert Gonzalez, a Santa Clara Unified school board member, said in a statement.
On behalf of Newsom, the California Department of Finance refuted CSBA assertions in a series of exchanges with legislative leaders in July. All of its actions were legal, Joe Stephenshaw, director of the Department of Finance, wrote.
The lawsuit would not affect this year’s budget, which took effect July 1. However, the tense negotiations and controversial revenue maneuvers preceding the budget’s passage were very much on the minds of Newsom’s financial advisors when they wrote the statutory change that the school boards association opposes.
It pertains to the unusual challenge that Newsom and the Legislature found themselves in trying to write the 2023-24 budget. Because of the devasting impacts of winter storms and floods, the federal government and the state pushed back the tax collection deadline from April to November 2023. Without having tax receipts in hand, Newsom and the Legislature made a best-guess estimate of what Prop. 98 minimum guarantee would be for 2022-23. As it turned out, the minimum guarantee was $8.8 billion less than what they appropriated.
Rather than cut funding for school districts and community colleges after the 2022-23 fiscal year had ended and money had been spent, Newsom left what he called “an overappropriation” alone. Two of the main formulas to determine the Prop 98 minimum guarantee incorporate what the state spent on schools in the prior year. So, the over-appropriation in 2022-23 would increase the amount that the state owed schools in 2023-24, 2024-25 and beyond. his initial 2024-25 budget in January, Newsom proposed allowing schools to keep the $8.8 billion for 2022-23 but to exclude the money when calculating the Prop. 98 minimum guarantee for 2023-24 and 2024-25.
CSBA and other education groups opposed that move. They said that dropping Prop. 98 below what the Legislature had approved violated the initiative that voters passed in 1988.
In most years, the Legislature’s Prop. 98 appropriation becomes the base amount for the following year, then is adjusted for enrollment growth or decline, inflation, or increases in economic growth per student. That assures that Prop. 98 minimum funding guarantee will grow over time, CSBA said.
Faced with strong opposition from a coalition of school groups, Newsom eventually gave up on lowering the minimum guarantee. But still short of funding to pay for it, Newsom turned to a series of multiyear maneuvers: suspending the minimum guarantee in 2023-24, deferring funding from one year to the next, draining the rainy day fund, and creating a multi-billion dollar debt that the General Fund, not future Prop. 98 revenues, would pay back over several years. All of these tactics were legal.
Newsom tries again
But Newsom and Finance officials hadn’t given up on the idea of revising the Prop. 98 minimum guarantee downward when tax revenues come up short. They quietly inserted language into the trailer bill to limit the state’s funding vulnerability in the event of another tax filing delay in the future.
It says that when the filing deadline for personal and corporate income taxpayers is pushed back at least two weeks, then the state will revert to the previous year’s minimum guarantee. After the new taxes are collected, the state will recalculate the new Prop. 98 minimum and determine the difference between the original and revised Prop. 98 minimum. The “excess” appropriation won’t be able to raise the Prop. 98 minimum that year and for subsequent years, the statute says.
CSBA criticized this “unlawful provision” for “artificially lowering the baseline upon which future years’ school funding is established.” The lawsuit argues that voters passed it to assure a “stable and predictable source of funding that is not subject to political influence or manipulation.”
“When the Newsom administration proposed a budget maneuver in January to exclude some school funding from the Prop 98 formulas, education groups opposed it because it was unconstitutional. The budget language passed this summer to allow a similar manipulation of the guarantee in the future would be similarly unconstitutional,” said Rob Manwaring, senior policy and fiscal advisor for the nonprofit Children Now and an advisor on the lawsuit.
Delays in the tax deadline as occurred in 2022 and laid out in the provision will presumably be rare, but CSBA said the integrity of Prop. 98 must be preserved.
The Legislature has no authority to amend the wording of Prop. 98 – only voters can do that, CSBA argued.