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LAO: Federal Government Adjusts 2018 19 COLA, Indicating Slightly Higher Funding for K-14 Education Programs

May 3, 2018

In late April, the federal government released updated information that affects the cost-of-living adjustment (COLA) that the state provides to certain school and community college programs. Below, we explain how the state calculates the COLA, share the recent data, and examine its budget effects.

Background

Annual COLA Determined by Price Index for State and Local Governments. The state budget typically provides a COLA for certain school and community college programs. State law links this COLA to a national price index developed by the Bureau of Economic Analysis (a division of the U.S. Department of Commerce). This index is designed to reflect the cost of goods and services purchased by state and local governments across the country. The largest component of the index is employee wages and salaries. Other components include fuel, utilities, office supplies, and equipment. State law bases the rate on the average value of this index over the 12 month period ending in March of the prior year with the 12 month period ending in March of the current year. For 2018-19, the two periods being compared are the April 2016 through March 2017 period and the April 2017 through March 2018 period. The Bureau of Economic Analysis typically releases the data the state needs to finalize the COLA for the upcoming year in late April.



Recent Data

New Data Show Statutory COLA Is Higher Than January Estimate. On April 27, 2018, the Bureau of Economic Analysis released its updated data for the index. The data show that the K-14 COLA for 2018-19 is 2.71 percent. This compares with the 2.51 percent COLA assumed in the January budget. The new rate is above the COLA for the past few years (1.02 percent in 2015-16, 0.0 percent in 2016-17, and 1.56 percent in 2017-18) but closely tracks the 20-year historical average of 2.7 percent per year.

New COLA Affects Costs for Local Control Funding Formula (LCFF). The Governor’s budget includes a $2.9 billion increase for LCFF. Of the proposed increase, $1.7 billion is for closing the gap to the LCFF target funding rates and $1.2 billion is for providing a 2.51 percent COLA to those rates. The new COLA rate increases the cost of providing COLA for the LCFF by $96 million.

New COLA Affects Costs for Other School and Community College Programs. As the figure shows, the Governor’s budget includes a COLA for several other school and community college programs. For schools, the largest program after LCFF is special education. For colleges, the largest allocation is for apportionments. The Governor’s budget also provides a COLA for the California State Preschool Program. In January, the administration estimated that the total cost of providing a 2.51 percent COLA for all programs shown in the figure would be $1.5 billion-$1.2 billion for LCFF and $327 million for other programs. Based on the new COLA rate of 2.71 percent, we now estimate the cost of COLA has increased to $1.7 billion-$1.3 billion for LCFF and $373 million for other programs. Holding other factors constant (including estimates of the Proposition 98 minimum guarantee), the higher cost of COLA reduces the funding available for the state’s other Proposition 98 priorities by $122 million.

Cost of Providing COLA for K-14 Education Programs

(In Millions)

Sources: California Legislative Analyst’s Office



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