California Budget Proposal Good for Schools

LOS ANGELES — The increased education spending proposed in California Gov. Jerry Brown's budget would help school districts to grapple with rising pension costs and maintain a healthy and improving credit position, according to Moody's Investors Service.

The governor's proposed $71.6 billion education budget for the upcoming fiscal year represents a 3.5% increase of $2.4 billion for K-12 schools.

Education funding has increased by 51% over the past five years and is expected to continue to rise at a more moderate pace over the next two years, according to the report.

The state is within 95% of its full Local Control Funding Formula so any excess revenues going forward will likely be dedicated to other areas, Moody's said. The state spent several years post-recession catching up on payments to school districts on its share of education funding.

The improved revenues will enable school districts to tackle looming fiscal issues like increased pension contribution rates.

Analysts said these increased pension costs are expected to become a larger share of districts' ongoing expenditures.

California State Teachers' Retirement System rate increases are expected to total $3 billion, or nearly 40% of projected revenue growth for school districts through fiscal 2017-18, according to the state's Legislative Analyst's Office. Rate increases for the California Public Employees' Retirement System for non-teaching staff will bring similar increases, according to Moody's.

School districts are also facing increasing pressure from unions to resume salary increases after several years marked by flat wages and furloughs. California is also facing a teacher shortage that, paired with stagnant salaries, will pose financial and operational challenges for districts into the forseeable future, Moody's said

Districts are also monitoring the fiscal challenge posed by the maximum reserve limit, a state law that limits the amount of unassigned reserves a district can maintain, Moody's said. The law is unlikely to be trigged in fiscal 2016-17, however.

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