California School Finance

A Primer on Proposition 98
October 1996

This article explains the Proposition 98 funding guarantee as of 1996. For more up-to-date information on Proposition 98, see:

Since 1988, a voter-approved amendment to California's Constitution has protected K–12 education from cuts that have struck some of the other services supported through the state's budget. Proposition 98 also ensures that schools enjoy a large share of any increase in state revenues.
The calculation of the guarantee is very complicated, as is the politics of funding it. The dynamic process usually involves recalculations for previous years as well as estimates for the current year.
The Proposition 98 allocation depends on changes in enrollment, per capita personal income, and projections of state tax revenues. Despite heavy pressures on the state's budget in the early 1990s, the governor and legislature decided not to reduce the per pupil funding for schools. They did this through "prepayments" (also called "loans") against future Proposition 98 allocations. The California Teachers Association challenged the concept by suing the state (CTA v. Gould). A compromise solution, eventually validated by the courts, calls for education and the state to share in the "repayment." The agreement specifically states that the loan mechanism will not be used again.
As the chart shows, a strong economy has a favorable effect on education funding. For 1996–97 Proposition 98, bolstered by economic growth and the resolution of the court case, produced a windfall in revenues for K–12 schools.

Provisions of Proposition 98
Entitled the "Classroom Instructional Improvement and Accountability Act," Proposition 98 (1988), as amended by Proposition 111 (1990) and legislation, mandates that:

  • A minimum amount of funding be guaranteed for elementary and secondary schools and community colleges, according to one of three tests.

    In years of normal or stronger revenue growth, the Proposition 98 guarantee is the larger of

    Test 1:
    the same share of the General Fund as in the base year of 1986–87 (recalculated to account for shifts of property tax revenues to schools) or

    Test 2: the prior year's funding from state and property taxes, adjusted for inflation and enrollment increases. "Inflation" is defined as the growth in per capita personal income.

    In years of low revenue growth, when General Fund tax revenues per capita increase more slowly than per capita personal income, the Proposition 98 guarantee is

    Test 3: the same as Test 2 except inflation is defined as the growth in per capita General Fund revenues plus one-half percent. The difference between this amount and what Test 2 would have yielded is to be restored to education funding in years of high revenue growth.

    Test 3b: any reduction, compared to the previous year, must be no worse than cuts in state spending per capita for other budgeted services.

  • The state maintain a "prudent" reserve (not defined).

  • Each school produce an annual School Accountability Report Card (SARC) with information about student achievement, dropout rates, class size, discipline, expenditures, programs, instructional materials, and other items.

  • Suspending the provisions of Proposition 98 requires a two-thirds vote of the legislature and agreement by the governor.