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Battle Brewing Between School Districts and State Over Federal Funds Application

By Andrew Keller - February 5, 2010

While the Governor’s budget proposal takes center stage in Sacramento, several red flags are drawing the attention of education leaders throughout the state.  Lobbyists for individual school districts and county offices of education such as San Diego, San Francisco, and San Bernardino County Office of Education are at odds with the administration over accounting tactics used in the state’s application for additional stimulus funds from the federal government.

The two issues under the microscope are the use of so-called “forward funding” accounting and the substitution of expenses for actual revenues in the financial reporting section of California’s application.


Issue #1: Forward Funding

In order to receive additional federal funds, the state must meet a maintenance of effort (MOE) obligation — in other words, we must prove that we will continue to support education for 2009-10 and 2010-11 according to federal guidelines.  The problem is that California does not currently meet this MOE for 2009-10 unless it counts funds technically marked for distribution next year as support in the current year.  California’s application is predicated on this “forward funding” tactic, and education leaders want nothing to do with it, fearing that it would set a dangerous precedent for future budgets.


Issue #2: Expenses vs. Revenues

The second issue is a little more complex.  It also has far greater consequences for future education funding.  The state is currently applying for a federal waiver of the MOE requirement for the 2010-11 budget year, citing the current economic crisis as the reason for subpar education funding.  The figure they used to showcase the amount of funding marked for education, however, was calculated based on a percentage of the state’s expected expenses.

Revenues are typically used to calculate the state’s level of education funding, but it is also allowed to use expenses.  The two figures are usually very close in normal economic times.  This year, however, revenues are being used to pay for this year’s and last year’s expenses.  On paper, California’s revenues meet the MOE requirement, but California’s expenses for the year are much lower.  By using expenses instead of revenues to calculate how much the state must fund education, California falls below the MOE level and can now apply for a waiver.  Another result — schools are under-funded, and now need these federal funds even more.

Education leaders say that this method is a technical “cop-out” on the Governor’s part, using an accounting gimmick to lower the state’s obligation to fund education.  Worse, they argue, is that this approach has far-reaching consequences: the state’s current funding formula for education uses the prior year’s figure as a starting point.  Lowering the state’s obligation for this year would lower the bar for all future years.

It’s important to note that the consequences of these issues are speculative at best.  The Governor’s office has not announced that it will use “forward funding” accounting in the future, nor has it explicitly stated that the use of expenditures was intended to help the state dodge its commitments to funding education.  The administration is scrambling to find every available dollar in its new budget, and some gimmicks are to be expected.  Education leaders just have to keep reminding the Governor that it’s not just our tax dollars on the table — it’s the quality of education for our kids.

Editor's Note: Andrew Keller is Policy Consultant for Governmental Solutions Group, LLC, a policy consulting and legislative advocacy firm.