Year-One Survey: Update on School District Finance and Flexibility

Year-One Survey: Update on School District Finance and Flexibility M A C TAy lo r • l e g i s l A T i v e A n A l y s T • M Ay 4 , 2 010 an LaO RepORt 2 LegisLative anaLyst’s Office an LaO RepORt ExEcutivE Summary As part of the February and July 2009 budget packages, the state adopted various propos- als designed to provide school districts with additional flexibility. During the same period, the federal government provided California with substantial stimulus funding that could be used for K-12 education. In the fall of 2009, we distributed a survey to all public school districts in California to better understand the effect of these recent state and federal actions. Most signifi- cantly, we sought information regarding the degree to which school districts were making use of the newly granted flexibility to shift funds among, as well as away from, approximately 40 state-funded categorical programs. In addition, we asked how districts were changing services as a result of having freedom from the associated state program requirements. We also asked when and how districts were spending their federal stimulus funds. Finally, we asked districts to identify additional types of flexibility they would find helpful. Categorical Flexibility Having Positive Impact on Local Decision Making. We found that the newly granted categorical flexibility was having a positive impact on many school districts’ ability to make certain decisions. Specifically, two-thirds of responding districts reported that categorical flexibility made developing and reaching agreement on a strategic plan easier, with three-fourths of districts indicating that categorical flexibility made implementing their strategic plan easier. The vast majority of districts also reported that categorical flexibility made it easier to develop and balance a budget, dedicate resources to local education priorities, make staffing decisions, and fund programs for struggling students. Districts Relying Heavily on Categorical Flexibility. Most districts also indicated that they were relying heavily on their newly granted authority to shift funds away from the “flexed” categorical programs. In particular, districts reported shifting some funds away from flexed pro- grams that did not support direct K-12 classroom instruction (such as adult education, deferred maintenance, professional development, and school safety) as well as from flexed programs that might be considered enrichment or supplemental student support (such as art and music, gifted education, supplemental instruction, and counseling). Few districts reported shifting funds into flexed programs. Thus, the majority of districts generally appear to be using freed-up categori- cal funds to support core classroom instruction. Some Flexed Programs Already Discontinued, Others Protected. Apart from the general trend of shifting some funds from flexed programs to the core instructional program, some districts already have discontinued (that is, entirely defunded) some flexed programs while pro- tecting other flexed programs. Most significantly, one in three responding districts reported that they discontinued Ninth-Grade Class Size Reduction (CSR) in 2009-10. One in five responding districts discontinued programs for art and music, counseling, and adult English tutoring. One in ten responding districts discontinued programs for struggling veteran teachers, professional de- velopments institutes, gifted education, and general school and library improvement activities. LegisLative anaLyst’s Office 3 an LaO RepORt In notable contrast to these programs, about half of responding districts reported making no programmatic changes and shifting no funds away from Community Day Schools, a program for teenage mothers, and an alternative pathway program for teachers. Districts Differ Regarding When, but Generally Not How, They Are Spending Federal Stimulus Funding. Given the more than $6 billion in federal stimulus funding for K-12 educa- tion that California received last year, our survey also contained questions intended to help the Legislature better understand how this funding affected districts’ overall staffing levels and categorical activities. The survey contained associated questions relating to both timing and use of these monies. With regard to timing of expenditures, our survey revealed notable differ- ences among districts. While districts, on average, reported using 20 percent of federal stimulus funds in 2008-09 and 60 percent in 2009-10, with 20 percent reserved for 2010-11, the survey revealed that about 40 percent of districts were spending virtually all their stimulus funding in 2009-10 alone. In contrast, about a quarter of districts were splitting stimulus funds about even- ly between 2009-10 and 2010-11. Despite differences in the timing of expenditures, the survey revealed that most districts were using the stimulus funds for generally the same purposes— with roughly two-thirds of the funds being used to minimize teacher layoffs and the remainder used to backfill reductions to categorical programs and make various one-time purchases. Recommend Providing School Districts With Additional Flexibility. Based on our survey findings, coupled with our ongoing assessment of the state’s categorical programs and statutory requirements, we conclude this report by laying out several recommendations for providing school districts with more flexibility. Specifically, we recommend the Legislature convert three now stand-alone programs (K-3 CSR, Home-to-School (HTS) Transportation, and After School Safety and Education) into flexed programs. As is the case with the other currently flexed categorical programs, this would allow districts to use associated funding for any high priority and exempt them from the programs’ underlying statutory requirements. We also recommend consolidating two other stand-alone programs—merging the smaller, more narrowly focused English Language Acquisition Program (ELAP) into the much larger, more broad-based Econom- ic Impact Aid (EIA) program. In addition, we recommend consolidating five K-12 career tech- nical education programs and eliminating the associated programmatic requirements in favor of monitoring related student outcomes. Furthermore, we recommend the Legislature remove certain statutory restrictions that relate to contracting out for noninstructional services, substi- tute teaching, state school improvement activities, and mandated education activities. Each of these recommendations is designed to give school districts additional flexibility not only to help weather the economic downturn but also to help maximize program effectiveness and elimi- nate inefficiencies. 4 LegisLative anaLyst’s Office an LaO RepORt introduction This report highlights the major findings of recent developments, (2) present major findings a survey we distributed to all California public from the survey, and (3) offer recommendations school districts in the fall of 2009. The survey that the Legislature could implement in 2010-11 was designed to gather information about the to provide school districts with additional flex- impact of recent state and federal actions affect- ibility. The report also has an Appendix that ing school district finance and operations. Below, contains a complete listing of survey questions we (1) provide background information on these and results. Background As part of the February and July 2009 bud- February 2009 Budget Package Suspends get packages, the Legislature adopted several Many Categorical Program Requirements. Prior proposals that provided school districts with to 2008-09, the state separately funded approxi- temporary relief from certain state requirements. mately 60 K-12 categorical programs. For each of By offering districts more flexibility, the Legisla- these categorical programs, school districts were ture was trying to help districts adjust to reduced required to use program monies to meet associ- state funding while also streamlining the state’s ated program requirements. Chapter 2, Statutes complex system of K-12 categorical funding. At of 2009 (ABX4 2, Evans), essentially combined the federal level, actions also were taken to help approximately 40 of these categorical programs states and school districts weather the reces- into a “flex item” (see Figure 1, next page). That sion. Most significantly, the federal government is, a single statutory code section referenced all provided California with considerable stimulus 40 programs and allowed school districts to shift funding for K-12 education—much of which funds among the 40 categorical programs or could be used by districts to mitigate reduc- redirect the funds and use for any other educa- tions in state funding. Below, we describe the tional purpose. (Colloquially, these programs are flexibility options the state recently granted to sometimes referred to as Tier 3 programs.) Local districts and discuss the federal stimulus funding governing boards are required to discuss and for K-12 education. We then provide some basic approve the proposed use of these flexed funds information on our survey and the districts that at a regularly scheduled open public hearing. responded to it. From a fiscal perspective, the flex item effec- tively converted $4.5 billion, or 38 percent of Recent State Actions Affecting School all categorical funding, from restricted to unre- District Finance and Flexibility stricted monies. School districts are granted this Last year, the state temporarily suspended flexibility from 2008-09 through 2012-13. The various statutory and regulatory requirements af- state continues to separately fund the remain- fecting school districts. Each of the major chang- ing approximately 20 categorical programs (see es is discussed in more detail below. Figure 2, page 7)—reflecting $7.5 billion, or LegisLative anaLyst’s Office 5 an LaO RepORt 62 percent, of all categorical funding. (Colloqui- not be linked to these program-specific factors. ally, these programs are sometimes referred to as Instead, a district’s allocation for each flexed pro- Tier 1 programs, if they Figure 1 were not subject to fund- K-12 Categorical Programs in Flexibility Item ing reductions in recent years, or Tier 2 progams, (In Millions) if they were subject to Program 2009-10 Funding reductions.) Funding for Targeted Instructional Improvement Block Grant $855 Adult education 635 these excluded pro- Regional Occupational Centers and Programs 385 grams remains linked to School and Library Improvement Block Grant 370 all associated program Supplemental instruction 336 Instructional Materials Block Grant 334 requirements. Deferred maintenance 251 District Alloca- Professional Development Block Grant 218 tions “Locked In” for Grade 7-12 counseling 167 Charter schools categorical block grant 136 Next Few Years. Prior Teacher Credentialing Block Grant 90 to 2008-09, funding for Arts and Music Block Grant 88 the categorical programs School Safety Block Grant 80 Ninth-Grade Class Size Reduction 79 that are now flexed Pupil Retention Block Grant 77 was allocated to school California High School Exit Exam supplemental instruction 58 districts based mostly on California School Age Families Education 46 Professional Development Institutes for Math and English 45 program-specific factors. Gifted and Talented Education 44 For example, a district’s Community Day Schools 42 Teacher Credentialing Community Based English Tutoring 40 Physical Education Block Grant 34 Block Grant allocation Alternative Credentialing/Internship programs 26 was based on its number Peer Assistance and Review 24 of first- and second- School Safety Competitive Grants 14 California Technology Assistance Projects 14 year teachers, its Peer Certificated Staff Mentoring 9 Assistance and Review County offices of education Williams audits 8 allocation was based Specialized Secondary Programs 5 Principal Training 4 on 5 percent of its total American Indian Education Centers 4 certificated classroom Oral health assessments 4 teacher count, and its Art Advanced Placement fee waivers 2 National Board certification incentive grants 2 and Music Block Grant Bilingual teacher training assistance program 2 allocation was based on American Indian Early Education Program 1 its K-12 pupil count. Un- Reader services for blind teachers —a Center for Civic Education —a der the provisions of the Teacher dismissal apportionments —a 2009 budget package, California Association of Student Councils —a districts’ allocations for Total $4,529 the next few years will a Statewide, less than $500,000 is spent on each of these programs. 6 LegisLative anaLyst’s Office an LaO RepORt gram will be based on its share of total program Recent Federal Actions Affecting funding either in 2008-09 or 2007-08 (the earlier School District Decision Making year was used for certain participation-driven The American Recovery and Reinvestment programs). As a result, total funding provided Act (ARRA) of 2009 provided California with ap- for the flexed programs could change over the proximately $6 billion in federal stimulus funding next few years depending on state actions, but designated for various K-12 purposes. Most sig- districts’ proportional share of the total allocation nificantly, ARRA provided California with rough- will not change. That is, an individual district’s ly $3 billion in State Fiscal Stabilization Funding allocations will not be linked to changes in its for K-12 education, $1.5 billion in Title I funding, demographics or program participation rates. and $1.3 billion in Individuals With Disabilities February and July Budget Packages Contain Education Act (IDEA) funding. The stabilization Several Additional Flexibility Options. In addi- funding was generally shared among all districts tion to freeing up substantial categorical funding, to help mitigate reductions in state funding. The the state adopted various other flexibility provi- Title I funding provided additional support to sions last year (see Figure 3, next page). Similar to districts with low-income students. (Most districts categorical flexibility, these other flexibility options receive some Title I funding.) The IDEA funding largely are intended to provide districts some relief provided additional support for districts’ special during a difficult fiscal climate, with most of the education costs. All of the federal stimulus fund- options operative only through 2012-13. ing is one-time in nature, with districts required Figure 2 to obligate the funds by K-12 Categorical Programs Excluded From Flexibility Item September 30, 2011. (In Millions) Federal Stimulus Program 2009-10 Funding Funding Intended to Special education $3,150 Serve Multiple Purposes. K-3 Class Size Reduction 1,485 The federal stimulus Economic Impact Aid 1,008 funding was intended After School Safety and Education 547 Home-to-School Transportation 496 to help school districts Quality Education Investment Act 355 in several ways. One of Child nutrition 134 the federal objectives Student assessments 69 English Language Acquisition Program 51 was to minimize districts’ Year-Round school grants 47 need to lay off teach- Charter school facility grants 45 ers and other school Partnership Academies 19 Apprentice programs 16 staff. The other primary Foster youth programs 15 federal objective was to Adults in correctional facilities 15 stimulate the economy County office oversight 9 K-12 High-Speed Network 8 by encouraging districts Agricultural vocational education 4 to use their one-time Total $7,473 ARRA funding to make LegisLative anaLyst’s Office 7 an LaO RepORt various one-time purchases, such as upgrading superintendent of a California public school computers, purchasing instructional materials, or district an email containing a link to the survey. buying new buses. Additionally, under the IDEA Of California’s 1,043 public school districts, 231 provisions, districts were allowed to reduce their school districts responded, representing 37 per- own contributions to special education by up to cent of the state’s total average daily attendance half of the federal IDEA increase. In essence, this (ADA). We received responses from five of the allowed districts to free up some existing special ten largest school districts in California. We plan education monies and redirect them to core to administer comparable surveys in the fall of classroom functions. 2010, 2011, and 2012. Survey Respondents Reflective of State. Survey Seeks Information About Figure 4 lists several demographic factors and How Districts Are Responding compares our survey respondents with the To Recent Actions statewide average. As shown, the socioeconomic While the flexibility provisions are operative, composition of districts that responded to our we plan to distribute an annual school district year-one survey is fairly representative of the finance and flexibility survey to learn how dis- socioeconomic composition of all students in tricts are responding to them. In the fall of 2009, the state. The percentage of African-Americans, we distributed our first survey—sending every Asians, and English Learner students represented Figure 3 Other Flexibility Options Contained in Recent Budget Packages 2008-09 to 2012-13 (Unless Otherwise Noted) Provision Description Eases K-3 Class Size Reduction requirements Allows districts to exceed 20 students per K-3 classroom without losing as much funding as under previous rules (2008-09 through 2011-12). Reduces requirement for routine Lowers the percentage districts must set aside for mainte- maintenance deposit nance of school buildings from 3 percent to 1 percent of expenditures. Districts with facilities in good repair are exempt from any set-aside requirement. Eliminates local spending requirement to qualify Eliminates requirement that districts spend their own funds for state deferred maintenance match on deferred maintenance in order to qualify for state dollars. Allows access to categorical fund balances Allows districts to spend ending categorical balances (except in seven programs) for any purpose (2008-09 and 2009-10 only). Postpones instructional material Postpones requirement that districts purchase new instruc- purchase timeline tional material packages. Reduces instructional time requirements Provides school districts option to reduce length of school year by as many as five days. Allows revenue from sale of surplus property Allows districts to use the proceeds of surplus property sales for to be retained any purpose if property was purchased entirely with local funds. 8 LegisLative anaLyst’s Office an LaO RepORt by districts in our sur- Figure 4 vey are within 1 percent Survey Respondents Fairly Representative of State of the total percent- Percent of Student Population: age statewide. Whites, Survey Total however, were slightly Student Characteristic Respondents Statewide Difference under-represented African-American 8.0% 7.3% 0.7% whereas Latinos and Asian 9.3 8.4 0.9 White 24.9 27.9 -3.0 students eligible for free Latino 50.8 49.0 1.8 or reduced-price lunches English Learners 25.2 24.2 1.0 were slightly overrepre- Eligible for Free and Reduced- 57.6 53.6 4.0 Price Meal program sented in our survey. FindingS This section highlights eight major findings cal decision making (see Figure 5). For example, from the survey. two-thirds of responding districts indicated that Positive Impact on Local Decision Making. categorical flexibility made developing and Many districts reported that the newly granted reaching agreement on a strategic plan easier, categorical flexibility had positive effects on lo- with three-fourths indicating that it was easier to implement their strategic plan. The vast majority Figure 5 of districts also reported Categorical Flexibility Makes Certain that categorical flexibility Local Decisions Easier made it easier to develop and balance a budget, Made Easier No Effect Made More Difficult dedicate resources to lo- Develop and Balance a Budget cal education priorities, Dedicate Resources to Local make staffing decisions, Education Priorities and fund programs for Implement Strategic Plan struggling students. Make Hiring/Layoff Decisions Significant Funds Devise and Reach Agreement on Being Shifted Away Strategic Plan From Many Categorical Develop and Implement a District Plan to Improve Student Achievement Programs in Flex Item, Fund Programs for Struggling/ Likely to Classroom At-Risk Students Instruction. The vast Fund Teacher Salaries and Benefits majority of responding Decide How Much Funding to Provide to Each School in District districts reported shift- 20 40 60 80 100% ing funds away from programs in the flex LegisLative anaLyst’s Office 9 an LaO RepORt item (see Figure 6). In particular, districts reported Some Districts Discontinuing Certain shifting funds away from categorical programs that Categorical Activities. For the 2009-10 school did not fund direct K-12 classroom instruction. year, some districts decided to stop operating a For example, more than 60 percent of respond- few of the programs included in the flex item. ing districts reported they were shifting funds (As described in the background section, this is away from deferred maintenance, professional allowable under the provisions of the flex item.) development, school safety, and adult education. Most notably, more than one-third of respond- Additionally, districts reported shifting funds away ing districts discontinued Ninth-Grade CSR. from categorical programs that might be consid- Roughly one in every five responding districts ered enrichment or supplemental student support. stopped adhering to the program requirements For example, more than 60 percent of responding associated with the Art and Music Block Grant, districts reported shifting funds away from the Art Grade 7-12 School Counseling, and Community and Music Block Grant, Gifted and Talented Edu- Based English Tutoring. Roughly one in every ten cation (GATE), supplemental instruction for strug- responding districts discontinued Peer Assistance gling students, and Grade 7-12 School Counseling. and Review, GATE, activities associated with the Ninth-Grade CSR and instructional materials also School and Library Improvement Block Grant, were significantly affected, with almost three- and their participation in the Math and Reading fourths and two-thirds of responding districts, Professional Development Institutes. respectively, shifting away funds. Few districts Some Districts “Protecting” A Few Flexed reported shifting funds to categorical programs— Programs. Though no program in the flex item suggesting funds shifted away from categorical was entirely unaffected from a statewide fiscal programs were used to cover core instructional or program perspective, a few programs appear costs. less affected than others. Most notably, more Programmatic Changes Also Occurring. than half of responding districts reported making Not only are many districts shifting funds away no funding reductions to the Alternative Certi- from flexed programs, but many also reported fication/Internship program, Community Day they were making changes to the associated Schools, and the California School Age Fami- services they were providing (see Figure 6). For lies Education program. Similarly, about half of example, more than 70 percent of respond- responding districts reported making no substan- ing districts reported that they were making tive changes to these three programs. major or minor programmatic changes to adult More Than Half of Districts Want Much education, Regional Occupational Centers and More Flexibility for Some Categorical Programs Programs (ROC/Ps), supplemental instruction, Now Excluded From the Flex Item. In addition the Professional Development Block Grant, the to gathering information regarding how districts School Safety Block Grant, the School and Library were responding to the new categorical flexibil- Improvement Block Grant, Targeted Instructional ity, our survey asked districts if they desired more Improvement Grant, instructional materials, and flexibility to operate the categorical programs deferred maintenance. These are many of the same currently excluded from the flex item. Most programs for which districts shifted away funds. notably, as shown in Figure 7 (see page 12), more 10 LegisLative anaLyst’s Office an LaO RepORt Figure 6 Flexed Programs Being Affected Both Monetarily and Programaticallya High School Class Size Reduction Adult Education Schools/Library Improvement Block Grant Deferred Maintenance Professional Development Block Grant Arts and Music Block Grant Gifted and Talented Education Instructional Materials Supplemental Instruction School Counseling School Safety Block Grant Peer Assistance and Review Targeted Instructional Improvement Grant Pupil Retention Block Grant Community Based English Tutoring Shifting Funds Away Math/English Professional Development Making Programmatic Changes CAHSEE Supplemental Instruction Principal Training Regional Occupational Centers/Programs California School Age Families Education Beginning Teacher Support and Assistance Community Day Schools Intern Program/Alternative Certification 10 20 30 40 50 60 70 80 90% aReflects responses for every flexed program included in our survey. Our survey excluded relatively small programs that did not benefit a large number of districts. CAHSEE=California High School Exit Examination. LegisLative anaLyst’s Office 11 an LaO RepORt than half of responding districts reported that group (reflecting about 40 percent of respond- they desired much more flexibility to operate the ing districts) spent the bulk of the federal stimulus K-3 CSR program, EIA, ELAP, HTS Transportation, monies in 2009-10 alone. The other group (re- After School Safety and Education (ASES), and the flecting about a quarter of responding districts) Quality Education Investment Act (QEIA). split the federal stimulus funding roughly in half Federal Stimulus Funds Help Mitigate Lay- across 2009-10 and 2010-11. Despite this differ- offs and Categorical Reductions. Our survey ence in timing of expenditures, the two groups of also asked districts both when and how they districts spent the stimulus funds in similar ways. were using federal stimulus funding. These ques- Among both groups, more than two-thirds of tions were intended to help the Legislature bet- federal stimulus was used to minimize teacher ter understand how the federal stimulus funding layoffs, with the remainder used largely to backfill affected districts’ decisions regarding both overall categorical reductions and make one-time invest- staffing levels and categorical activities. In re- ments. (No major trends emerged across the other sponse to our survey question on timing, districts 35 percent of districts. For example, relatively reported they were using, on average, 20 percent small numbers of districts reported using the bulk of their federal stimulus monies in 2008-09, 60 of stimulus funds in 2008-09, splitting the funds percent in 2009-10, and 20 percent in 2010-11. between 2008-09 and 2009-10, or dividing the Districts reported that they were using, on aver- funds somewhat evenly across all three years.) age, 62 percent of their federal stimulus dollars Figure 7 for preventing teacher Many Districts Desire “Much More” Flexibility for layoffs, 19 percent for Some Stand-Alone Categorical Programsa backfilling reductions to categorical programs, K-3 Class Size Reduction 12 percent for one-time Economic Impact Aid investments, 7 percent English Language Acquisition Program for various other pur- Home-to-School Transportation poses, and less than Quality Education Investment Act 1 percent for increasing After School Safety and Education teacher compensation. Child nutrition Notable Differences Child care/preschool in Districts’ Timing Partnership Academies of Federal Stimulus Agricultural Vocational Education Spending, Not Use. Apprentice Programs These average response Advancement Via Individual Determination rates, however, appear 10 20 30 40 50 60 70 80% to mask two common aReflects responses for every stand-alone program included in our survey. Our survey excluded some types of districts. One stand-alone programs that did not benefit a large number of districts. 12 LegisLative anaLyst’s Office an LaO RepORt rEcommEndationS In this section, we make various recommen- with discretion over roughly $2.5 billion in previ- dations for providing school districts with addi- ously restricted categorical funds. tional flexibility. Our recommendations are based K-3 CSR Good Candidate for Flex Item. In on our survey findings as well as our ongoing the February 2009 budget package, the state assessment of the state’s categorical programs and significantly eased K-3 CSR requirements—ap- statutory requirements. Figure 8 summarizes these plying relatively small funding reductions, or recommendations, each of which is discussed “penalties,” even if K-3 classes increased sub- in more detail below. (In addition, in the box on stantially above the program’s original cap of page 14, we discuss existing problems with dis- 20 students per class. For example, under the tricts’ flex-funding allocations and offer a solution new rules, a K-3 class with 25 or more students that would link district allocations with ADA.) is eligible to receive 70 percent of full funding. (Districts are allowed to increase kindergarten Add Three Programs to Flex Item classes up to a statutory maximum of 33 students As discussed in more detail below, we rec- and grade 1-3 classes up to 32 students and still ommend adding K-3 CSR, HTS Transportation, receive 70 percent of full funding.) Additionally, and ASES to the flex item. Relaxing restrictions whereas original funding allocations were linked on these three programs would provide districts to the number of classrooms actually participat- Figure 8 Summary of LAO Recommendations for Providing Additional Flexibility Recommendations Affected Programs Add three programs to flex item • K-3 Class Size Reduction • Home-to-School Transportation • After School Safety and Education Consolidate one program into Economic Impact Aid • English Language Acquisition Program Consolidate five Career Technical Education programs • Regional Occupational Centers and Programs • Specialized secondary programs • Partnership Academies • Apprenticeship programs • Agricultural vocational education Ease or remove state restrictions in four areas • Contracting out for noninstructional services • Hiring/pay rates for substitute teachers • Quality Education Investment Act requirementsa • Certain mandated activities Align CDE staffing levels with flex decisions • Cut $10 million and eliminate 150 positions a Would apply only to schools also subject to federal school improvement requirements. CDE = California Department of Education LegisLative anaLyst’s Office 13 an LaO RepORt ing, districts are now capped at the number of adding the program and its associated fund- K-3 classes participating as of January 31, 2009. ing (roughly $1.5 billion) to the flex item. While Given these changes, the K-3 CSR program is many districts already plan to increase K-3 class now only very tenuously linked to its original sizes in 2010-11, this change would allow for intention of providing fiscal incentives for schools more straightforward budgeting, offer districts to decrease particular K-3 classes to no more somewhat more flexibility, and eliminate the than 20 students. In addition, more than three- need to impose a new round of already ques- fourths of our survey respondents indicated that tionable CSR penalties. they wanted “much more” flexibility over K-3 HTS Transportation Now Good Candidate CSR funds. For all these reasons, we recommend for Flex Item. Last year, the state excluded the L F -i A A D A (ADA) ink Lex tem LLocAtions to verAge AiLy ttenDAnce Uncertainty Over Access to Flexed Categorical Funding for New Schools. In establish- ing the flex item, the state “froze” each district’s and charter school’s funding allocation at its respective share of the 2008-09 appropriation for each categorical program. (The 2007-08 appropriation was used for a handful of categorical programs.) Associated legislation allowed newly opened schools (either new charter schools or new schools in growing districts) to apply prospectively for individual programs within the flex item—contingent upon additional funds being provided in the budget—but it explicitly prohibited districts from receiving additional funds if they established a new school simply by redirecting enrollment from existing schools. The legislation, however, leaves several questions unanswered: ➢ How should the state determine whether a school consists of redirected enrollment or “new” students? ➢ Are new schools eligible for all 40 categorical programs in the flex item? At what rate(s) should they be funded? (Some allocations for programs in the flex item vary widely among districts and few districts receive funding for every program.) ➢ Will new schools have immediate flexibility over the funds, or do they need to run the programs based on former categorical rules for some length of time to justify eligibil- ity? If the latter, how will compliance be monitored given the state has stopped tracking program compliance for existing schools and districts? Allocation Methodology for Existing Districts Also Problematic. Not only does uncertainty exist over how to fund new schools, but the distribution of flexed funds for existing districts also is problematic. Because the legislation “locks” districts into receiving the share of categori- cal funds they received in 2008-09, no adjustments are to be made over the next few years for changes in a district’s student population. This policy benefits districts with declining enroll- 14 LegisLative anaLyst’s Office an LaO RepORt HTS Transportation program from the flex item flex item, the existing HTS Transportation funding because at the time the program was being formula is highly problematic, as it is based on funded with special funds that had to be used historical allocations that have little correlation to for transportation purposes. Under the Gover- districts’ current needs or circumstances regard- nor’s 2010-11 proposal, the HTS Transportation ing the transporting of students to and from program is funded with Proposition 98 monies. school. The existing formula also contains a “use Thus, from a fiscal perspective, we see no reason it or lose it” provision that discourages districts to continue treating this program differently from from implementing more cost-effective practices, most other categorical programs. Moreover, like as decreasing costs in one year means losing several other K-12 categorical programs in the funding the next year. Furthermore, our sur- ments, which get to keep funding originally provided based on students they no longer serve, at the expense of growing districts, which have to serve additional students without receiving any additional funding. The only way a growing district can qualify for more funding to serve their new students is to physically open a new school—not an incentive that the state wants to provide. Moreover, disconnecting funding from student demand leads to uncertainty over how individual program funding formulas will be resurrected if categorical program rules return when flexibility provisions expire in 2013-14. Will allocation formulas resume based on higher per-pupil rates for the districts that have had declining enrollment and lower per-pupil rates for those districts that have experienced enrollment growth? Or, alternatively, will funding sud- denly revert to equal per-pupil rates, creating a funding cliff for those districts whose allocations remained artificially high during the flex period? Recommend Allocating Flex-Item Funding Based on Changes in ADA. To address exist- ing ambiguity over how to fund new schools as well as equity issues for existing districts, we recommend the Legislature modify the methodology used to allocate flex-item funding. Spe- cifically, we recommend the Legislature develop a per-pupil rate for each district by dividing the amount it received for each program in 2008-09 by its total ADA. Moving forward, each district would receive funds based on this per-pupil rate multiplied by its annual ADA, mean- ing overall funding would increase or decrease based on changes in its student population. (To better estimate funding amounts at the time the budget is enacted, we recommend basing allocations on prior-year ADA.) New charter schools could be funded based on a statewide average rate for the programs in the flex item (similar to the way charter schools have tradition- ally received categorical funding). New district schools would be accounted for as part of the district’s overall ADA count, eliminating the need to determine whether enrollment had been “redirected.” Additionally, if the Legislature chooses to resurrect individual program formulas and rules in 2013-14, the associated funding adjustments would be less disruptive as the going rates would be better aligned with changes in districts over the next few years. LegisLative anaLyst’s Office 15 an LaO RepORt vey results suggest districts would benefit from ability to weigh funding for after school activities loosening restrictions for this program—with against other local funding priorities. more than 60 percent of respondents indicating consolidate English Learner Program into that they want much more flexibility over HTS Economic impact aid Transportation funds. For these reasons, we rec- Somewhat similar to adding three programs ommend adding the program and its associated to the flex item, we recommend merging the funding (roughly $500 million) to the flex item. funds from two programs currently excluded Districts for whom transporting students is a from the flex item and funded as separate high priority could continue to use funds for this programs. Specifically, we recommend merging purpose. (Federal law would continue to require ELAP and its associated funding ($50 million) that all districts transport special education stu- into the more broad-based EIA program (almost dents who have transportation specified in their $1 billion). Whereas ELAP funds must be used to individual education plans.) provide services to English learner (EL) students ASES Continues to Be Good Candidate for in grades 4-8, EIA supports a broader array of Flex Item. Currently, Proposition 49 (which cre- activities benefiting EL and low-income students. ated ASES) requires roughly $550 million in K-12 While continuing to dedicate funds for the state’s funds be spent solely on after school programs, most at-risk students, the merger would grant without regard to the state’s fiscal condition or districts greater flexibility to address their areas other state and local budget priorities. As a result, of greatest need and allow them to spend associ- some districts are having to make changes to ated funds on EL and low-income students of any core academic services—including increasing grade level. It also would reflect districts’ prefer- class sizes and decreasing instructional days— ences—with roughly two-thirds of our survey while supplemental after school activities remain respondents indicating they want much more untouched. Given limited resources, after school flexibility over ELAP and EL monies. In addition services might not be the highest instructional to easing these existing statutory requirements, priority for many districts. Indeed, more than half we also recommend the Legislature free districts of our survey respondents indicated they wanted from certain regulatory and compliance-related much more flexibility over ASES funds. For these requirements that California Department of reasons, we continue to recommend the Legisla- Education (CDE) has developed to guide districts’ ture place a measure on the ballot to repeal the EIA expenditures. Over the last several years, automatic ASES funding requirement and allow many districts have reported that these regula- the state to make annual decisions regarding how tions constrain their ability to use EIA funds much to spend on after school services. Should effectively. By reaffirming statutorily that districts such a measure pass, we recommend the Leg- have broad discretion in how to use EIA funds to islature treat the ASES program consistent with benefit EL and low-income students, we believe most other K-12 categorical programs and place the Legislature could enhance program effective- it in the flex item. This would provide districts the ness and eliminate existing inefficiencies. 16 LegisLative anaLyst’s Office an LaO RepORt Consolidate Career Technical substitute teaching, state school improvement Education (CTE) Programs activities, and mandated education activities. We discuss each of these recommendations in more Streamline Funding for CTE. In 2008-09, detail in two recent reports—The 2010-11 Bud- the state allowed funds associated with two CTE get: Proposition 98 and K-12 Education (February programs serving high school students to be used 2010) and Education Mandates: Overhauling a for any educational purpose while maintaining Broken System (February 2010). detailed requirements for three other high school Ease State Restrictions on Contracting Out CTE programs. Specifically, the state placed the for Noninstructional Services. Under current ROC/P and Specialized Secondary Programs in law, the state allows school districts to contract the flex item while excluding Partnership Acad- out for many noninstructional services (such as emies, Apprenticeship programs, and agricultural food service, maintenance, clerical functions, vocational education. It was not clear why some and payroll) only if certain conditions are met. CTE programs were included in the flex item For example, contracting for services cannot be while others were excluded. To better coordinate done solely for the purpose of achieving sav- the state’s fractured CTE system and increase lo- ings. Contracting out also cannot result in the lay cal flexibility, we recommend consolidating fund- off or demotion of existing district employees. ing ($427 million) for all five CTE programs. (One These restrictions make it very difficult for school such consolidation approach would be to roll the districts to implement the most cost-effective funds into high schools’ revenue limits.) options for providing noninstructional services. Focus on Student Outcomes. As part of the We recommend eliminating these restrictions on consolidation, we would further recommend contracting out to help school districts achieve eliminating most requirements associated with greater efficiencies in their noninstructional the five programs in favor of monitoring related services. student outcomes. Under this approach, districts Remove State Restrictions on Priority and receiving CTE funding would be held account- Pay for Substitute Teachers. The state currently able for various student outcomes, including the requires districts to hire substitute teachers based percentage of high school students that enter on seniority rankings, with the most senior laid- postsecondary education or begin employment off teachers given highest priority. Additionally, in a high-wage industry. By holding districts if a formerly laid-off teacher serves as a substi- more accountable for student engagement and tute more than 20 days in a 60-day period, he/ outcomes, the state could ensure students re- she must be paid at his/her pre-layoff salary rate. ceive the positive benefits of CTE while providing This is problematic for two main reasons. First, it more flexibility to districts in developing effective reduces districts’ ability to hire the most effective high school programs. substitute teachers. Second, it imposes a finan- Remove Other Statutory Restrictions cial strain on districts by forcing them to hire the most expensive substitutes. In contrast, under As discussed below, we also recommend our recommendation, districts would be able to removing certain statutory restrictions that relate choose from among the entire pool of substitute to contracting out for noninstructional services, LegisLative anaLyst’s Office 17 an LaO RepORt teachers and negotiate the wage rate at the local front to meet certain statutory requirements, the level. This could generate savings at the local lev- mandate system funds districts after they have el and afford districts a better opportunity to hire undertaken the activity and filed a specific type the most effective substitute-teaching candidates. of reimbursement claim with the state. Despite Remove State Restrictions for QEIA Schools the conceptual similarity between underlying cat- Also Subject to Federal School Improvement egorical/mandated programmatic requirements, Program. Currently, the state’s approach to and despite the state’s efforts to streamline the school improvement requires many low-achiev- categorical system, the state continues to impose ing schools to adhere to dozens of overlap- over 40 mandates on K-12 school districts, with ping state and federal requirements all meant associated annual costs of almost $400 million. to achieve the same result. Specifically, QEIA These mandates are linked with hundreds of spe- schools are expected to meet certain state- cific statutory requirements—many of which do imposed CSR and professional development almost nothing to benefit students and educators. requirements while simultaneously implement- Additionally, as a result of how mandates are ing certain federally imposed turnaround strate- reimbursed, districts are often rewarded for per- gies. Perhaps unsurprising given these layers forming activities inefficiently and ineffectively. of requirements, more than half of our survey Exacerbating matters, at the state level, funds are respondents indicated they wanted much more not allocated for mandates on a regular basis, but flexibility over QEIA funds. Rather than requiring are instead deferred to future years. As a result these low-achieving schools to juggle multiple of this practice, which a Superior Court deemed intervention plans and programs, we recommend unconstitutional in 2008, the state owes roughly aligning state and federal programs for low- $3.2 billion in outstanding K-12 claims. For all achieving schools to the extent possible. Under these reasons, we recommend the state engage our recommendation, QEIA schools otherwise in comprehensive mandate reform. Specifically, subject to both state and federal turnaround we recommend the Legislature eliminate any requirements would be required only to meet the K-12 mandate not serving a fundamental state- federal requirements. This would substantially wide interest (such as preserving public health reduce programmatic overlap, confusion, and and safety). Our recommended reform package administrative hassles; allow for more concerted, would reduce total state K-12 costs by about potentially targeted interventions; and hold af- $330 million annually. fected districts financially harmless. (Reducing Align State Staffing Levels overlap between the state and federal programs With Flexibility Decisions also would generate substantial near-term sav- ings—almost $700 million over three years.) Despite the state’s decision to essentially Undertake Major K-12 Mandate Reform. In eliminate the programmatic requirements associ- addition to the state’s still-complicated K-12 cate- ated with the roughly 40 categorical programs gorical funding system, the state has an elaborate in the flex item, the state has made no corre- K-12 mandate system. Whereas the categorical sponding changes to the CDE’s staffing of those system generally provides districts with funds up- programs. As a result, CDE has about 150 staff 18 LegisLative anaLyst’s Office an LaO RepORt members assigned to administering programs categorical programs on state operations, we rec- that the state is not now operating. (This discon- ommend decreasing CDE’s budget by $10 million nect would be amplified if the Legislature were and eliminating roughly 150 positions associated to adopt a more expansive flexibility package with programs in the flex item. this year.) To reflect the impact of consolidating concLuSion Given our fall 2009 survey came less than Taken in their totality, these responses sug- a year after the state and federal governments gest school districts are finding that categorical took major actions affecting K-12 education, flexibility is having a positive effect on local deci- our survey results are reflective only of districts’ sion making and allowing them to make strategic initial responses. Presumably, changes and redeployments of flexed dollars. Districts indicate, trends in district behavior will become more however, that they are extremely interested in evident after districts have had longer to adjust obtaining additional flexibility. Given the state and to the new statutory rules and funding condi- school districts likely will continue to confront tions. Changes in district behavior could become fiscal challenges over the next few years, explor- much more noticeable and pervasive this coming ing additional flexibility options is likely to be of school year, as the federal stimulus funding that critical importance for the Legislature. Each of the many districts are now using to minimize teacher recommendations we present in this report would layoffs and backfill for reductions in categorical provide school districts with additional flexibility funding will begin to dry up. Nonetheless, even designed not only to help weather the economic the year-one survey responses provide the Leg- downturn but also to help maximize program ef- islature with important feedback on how school fectiveness and eliminate inefficiencies. districts have begun adjusting their behavior. LegisLative anaLyst’s Office 19 appendix aPPEndix 1. if your district has a strategic plan in place for the 2009-10 school year, please list Most Common Responses the three most important objectives of the 1. Improve academic achievement. plan. 2. Remain fiscally solvent. 3. Close the achievement gap/help struggling students. 4. Improve English Learner’s performance. 5. Modernize facilities. 2. to what extent did the new categorical Percent of Response Respondents flexibility affect your district’s ability to de- vise and reach agreement on your strategic Much More Difficult 2% Somewhat More Difficult 5 plan? No Impact 27 Somewhat Easier 39 Much Easier 27 3. to what extent did the new categorical Percent of flexibility affect your district’s ability to Response Respondents implement your strategic plan? Much More Difficult 3 Somewhat More Difficult 7 No Impact 12 Somewhat Easier 49 Much Easier 30 4. as a result of having more categorical flexibility, did any of the following decision-makers yield more or less influence compared to last year? Percent of Respondents Group More No Change Less Local School Board 61% 36% 3% District Administrators 60 3 3 Teachers 26 63 11 Parents 17 71 12 20 LegisLative anaLyst’s Office appendix 5. using the scale below, please indicate the extent to which categorical flexibility has affected your district’s ability to: Percent of Respondents Made No Made More Activity Easier Effect Difficult Develop and Balance a Budget 87% 7% 6% Dedicate Resources to Local Education 79 12 9 Priorities Make Hiring/Layoff Decisions 71 21 8 Develop and Implement a District Plan 65 23 12 to Improve Student Achievement Fund Programs for Struggling/At-Risk 63 20 18 Students Fund Teacher Salaries and Benefits 53 40 7 Decide How Much Funding to Provide to 43 46 11 Each School in District 6. For each program listed below, please choose the option which best reflects what your district is doing for the 2009-10 school year. our district is changing the program/associated services: Percent of Respondents In Major In Minor Is Program Ways Ways Not at All Discontinuing Instructional Materials 51% 31% 16% 2% Deferred Maintenance 48 33 19 0 Professional Development Block Grant 38 35 19 8 Supplemental Instruction 38 40 17 5 Schools/Library Improvement Block Grant 35 40 15 11 Pupil Retention Block Grant 32 37 24 6 School Counseling 30 34 20 16 Gifted and Talented Education 27 42 20 11 Arts and Music Block Grant 26 39 15 20 High School Class Size Reduction 25 27 14 34 Targeted Instructional Improvement Grant 25 48 22 5 School Safety Block Grant 25 45 21 9 Adult Education 24 49 22 4 Math/English Professional Development 23 42 24 12 CAHSEE Supplemental Instruction 20 48 27 5 Community Based English Tutoring 20 37 28 16 Peer Assistance and Review 18 34 33 15 Beginning Teacher Support and Assistance 13 48 38 0 Community Day Schools 13 32 50 5 Regional Occupational Centers/Programs 12 59 29 0 Principal Training 12 40 36 12 California School Age Families Education 10 42 48 0 Intern Program/Alternative Certification 3 38 58 1 LegisLative anaLyst’s Office 21 appendix 7. For each program listed below, please choose the option which best reflects what your district is doing for the 2009-10 school year. our distric is shifting funding: Percent of Respondents Program Away From the Program To the Program No Change High School Class Size Reduction 74% 4% 22% Adult Education 71 6 24 Schools/Library Improvement Block Grant 71 5 24 Deferred Maintenance 69 6 25 Professional Development Block Grant 69 6 25 Arts and Music Block Grant 69 7 25 Gifted and Talented Education 68 2 30 Instructional Materials 66 14 20 Supplemental Instruction 63 15 22 School Counseling 63 10 28 School Safety Block Grant 61 6 33 Peer Assistance and Review 59 4 37 Targeted Instructional Improvement Grant 59 5 37 Pupil Retention Block Grant 56 6 38 Community Based English Tutoring 55 2 43 Math/English Professional Development 55 10 35 CAHSEE Supplemental Instruction 54 6 40 Principal Training 52 3 45 Regional Occupational Centers/Programs 44 8 48 California School Age Families Education 40 4 56 Beginning Teacher Support and Assistance 37 9 54 Community Day Schools 31 11 58 Intern Program/Alternative Certification 30 1 69 8. By how many days did your district shorten Number of Days Percent of Respondents the 2009-10 school year? 0 92% 1 2 2 0 3 3 4 0 5 2 9. if the state removed restrictions on con- Percent of tracting out for services such as mainte- Response Respondents nance, food service, and transportation, Contract out for services 59% would your district likely: Not contract out for services 41 22 LegisLative anaLyst’s Office appendix 10. What level of savings do you believe your Level of Savings Percent of Respondents district would achieve by contracting out? No Savings 5% (asked only of respondents who answered 5 Percent 18 affirmatively to the previous question.) 10 Percent 40 20 Percent 26 More Than 20 Percent 11 11. What do you believe would be the impact Impact on Quality Percent of Respondents on the quality of service if your district Reduce Substantially 9% contracted out? Reduce Somewhat 20 No Change 36 Enhance Somewhat 23 Enhance Substantially 12 12. roughly what percentage of total federal Percent of Respondents Percent of stimulus funding (including stabilization, Funds Spent 2008-09 2009-10 2010-11 title i, and idEa funding) did your district 0-25% 78% 8% 65% spend in the following school years? 26-50 13 37 32 51-75 4 23 1 76-100 4 32 1 13. of the federal stimulus funds your district is using in 2008-09/2009-10, please indicate the proportion used for each of the following: Percent of Respondents Backfill Percent of Prevent Teacher Increase Teacher Categorical Make One-Time Funds Used Layoffs Compensation Programs Investments Other 0-25% 22% 100% 77% 87% 90% 26-50 18 0 13 8 6 51-75 14 0 3 3 2 76-100 46 0 7 2 2 LegisLative anaLyst’s Office 23 appendix 14. Federal law allows districts to reduce their local contribution to special education by up to half of any increase in federal special education funding. given the increase in federal special edu- cation funding provided under the federal stimulus package, did your district reduce its local contribution to special education? Response Percent of Respondents Yes 61% No 39 15. Looking forward, please indicate the amount of additional flexibility, if any, your district would like for each of the programs listed below. Percent of Respondents Program Much More Some None K-3 Class Size Reduction 76% 14% 10% Economic Impact Aid 72 21 7 English Learner Assistance Program 63 25 12 Home-to-School Transportation 61 15 24 Quality Education Investment Act 51 10 40 After School Safety and Education 51 17 33 Child nutrition 48 31 21 Child care/preschool 47 17 36 Partnership Academies 37 16 47 Agricultural Vocational Education 37 14 49 Apprentice Programs 36 8 56 Advancement Via Individual 30 18 52 Determination LAO Publications This report was prepared by the K-12 Education Section (Jennifer Kuhn, Rachel Ehlers, Edgar Cabral, Jim Soland, and Lexi Shankster). The Legislative Analyst’s Office (LAO) is a nonpartisan office which provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an E-mail subscription service, are available on the LAO’s Internet site at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 24 LegisLative anaLyst’s Office