Revenue and Expenditure Projections for California K–12 Education

Expenditures for elementary and secondary education in California must rise by about 59 percent between 1983–84 and the end of the decade just to maintain the status quo in terms of real per-student spending. This would amount to a K–12 budget in 1989–90 of $21.9 billion.

Yet K–12 revenues are projected to grow by only 50 percent (under one scenario) or by about 72 percent (under another). In other words, unless the revenue structure is significantly altered, projected school revenues through 1990 will be inadequate to maintain the same level of spending per student or will increase at a pace only slightly faster than that needed to stay even. Still, in the latter case, few improvements could be funded. Efforts to increase teacher salaries in real terms, to reduce class size, or to provide for substantially higher resources per student cannot reach fruition if these estimates of school revenue growth are accurate.

Population, student enrollments, personal income, and inflation are key factors influencing the availability of future school revenues. A combination of extrapolative and econometric techniques are used in this report to derive projections for these variables. Recent trends are informative also.

During the last 10 years, real revenues per student have increased a total of only 12.7 percent. However, in half of those years the purchasing power of K–12 revenues per student actually declined.

California's elementary and secondary school dollars are now derived overwhelmingly from state revenues (78.3 percent in 1982–83). The growth of state revenues in California, however, has not kept pace with the growth in state personal income. This has been true not only for education but also for state and local revenues in general. As a percent of California personal income, state and local revenues have dropped from 15.8 percent in 1978 to 11.2 percent in 1982, a 29.1 percent drop in four years. In part, this rejects the effects of Proposition 13; it is also part of a national trend, though considerably more pronounced in California.

California's total population is expected to grow by 4.2 million persons during the 1980s, though this growth will not be uniform across age groups.

Public school enrollments declined during the early 1980s. But after 1984, enrollments (and ADA consequently) are projected to grow each year through 1990. Enrollments in 1990 are expected to be about 565,000 students or 13.9 percent above the 1984 level, a total student population of 4.6 million.

This increased student population will require a significant increase in the number of public school teachers. California will need approximately 23,400 additional teachers by 1990 in order to maintain the 1983-84 California student-teacher ratio of 23.9 to 1. To move by decade's end to the national average of 17.1 to 1, California would need another 99,500 teachers.

These data are used in developing projections of school revenue growth. The methodology is to estimate the responsiveness of K–12 revenues to growth in personal income (elasticities) during the post-Proposition 13 era. The elasticities are combined with income projections to forecast school revenues. Since the responsiveness of revenues to income varies with the period examined, several alternatives are provided.

In the two most likely scenarios, the ratio of K–12 revenues to state personal income falls over time.

If no major changes are instituted in the revenue structure for K–12 education, then school revenues are expected to reach between $20.6 billion and $23.6 billion by 1989-90.

Current K–12 revenues per ADA are expected to reach between $4,232 and $4,847 by the end of the decade. Yet, in constant dollar terms, $4,232, the figure derived from the the first and more conservative of two scenarios, translates into a drop in funding per ADA of $167. On the other hand, $4,847, a figure derived from a second and more positive scenario, equals a modest increase in funding per ADA of $79.

If K–12 revenues were to grow as rapidly as state personal income, then real spending per student would increase by $130 or 8.7 percent over the next five years. But this is not expected.

Finally, real tax revenues per capita will not increase substantially through the end of the decade over levels expected for the next year, and may even decline. Nor will the competing revenue demands from other state programs diminish. The overall conclusion is that a demand for increased expenditures to improve K–12 education will not likely be aided by increases in state revenue growth or a reduction in the expenditure demands from competing state programs.