Comparing Funding for Charter Schools and Their School District Peers

Comparing Funding for Charter Schools and Their School District Peers M AC TAy lo r • le g i s lA Ti v e A nAl y sT • JA n uA r y 26, 2012 An LAO RepOR t 2 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t ExECuTivE Summary The 1992 legislation that authorized charter schools in California created a funding model intended to provide charter schools with the same per-pupil operational funding as received by other schools in the same school district. The state subsequently modified this policy in 1998, enacting legislation specifying that “charter school operational funding shall be equal to the total funding that would be available to a similar school district serving a similar pupil population.” This policy remains in place. To assess the extent to which this policy is being met, we analyzed per-pupil Proposition 98 operational funding for charter schools and their school district peers. Due to data limitations, we focused our analysis primarily on direct-funded charter schools. (These schools receive funding directly from the state whereas locally funded charter schools have some of their funding allocations embedded within their local school district’s allotment.) Total General Purpose Per-Pupil Funding Is Somewhat Less for Charter Schools. In 2010-11, charter schools received, on average, $395 per pupil (or 7 percent) less in total general purpose funding than their school district peers. This difference is relatively small because the largest single source of funding—base general purpose funding—is comparable for both groups. Charter schools, however, receive less in-lieu (or “flexible”) categorical funding. The $395 per-pupil funding gap is attributable to school districts receiving $150 more for programs in the Charter School Categorical Block Grant (CSBG) and $245 more for other in-lieu categorical programs. With the 2011-12 midyear elimination of the Home-to-School (HTS) transportation program, the per-pupil funding gap for programs in the CSBG decreased from $150 to $56—lowering the total funding gap to $301 per pupil. Funding Gap Increases as a Result of Changes in K-3 Class Size Reduction (CSR) and Mandate Rules. The funding gap between charter schools and their school district peers grows if one accounts for recent changes in K-3 CSR and mandate rules. Regarding K-3 CSR, in 2008-09, the state barred any new schools or additional classrooms from participating in the program. Because of the relatively rapid growth of new charter schools, only 49 percent of total K-3 charter school students participated in the program in 2010-11 whereas approximately 95 percent of school district K-3 students participated. This resulted in an additional funding gap of $721 per pupil for new charter schools. Regarding education mandates, the Commission on State Mandates (CSM) made a determination in 2006-07 to disallow charter schools from receiving mandate reimbursement, and the Controller subsequently stopped reimbursing charter schools in 2009-10. While claiming school districts receive on average $46 per pupil to complete certain mandated activities that also apply to charter schools, charter schools receive no associated funding. Three Recommendations if Existing K-12 Funding Structure Retained. We recommend the Legislature equalize the funding rates of charter schools and their school district peers as well as provide more flexibility for both groups of schools. The Legislature could achieve these objectives either by making changes within the existing K-12 finance system or fundamentally restructuring the existing system. If the existing K-12 funding structure were retained, we recommend the Legislature: • Equalize In-Lieu Categorical Funding Rates. We recommend providing charter schools with the average statewide amount received by school districts for all in-lieu categorical www.lao.ca.gov Legislative Analyst’s Office 3 An LAO RepOR t programs—$837 per pupil (a $301 increase from the existing rate of $536 per pupil). Completely closing this funding gap in 2012-13 for the roughly 440,000 charter students projected statewide would cost $133 million. Given the state’s current fiscal condition, the Legislature could close the funding gap over a multiyear period. • Maximize Flexibility for Charter Schools and School Districts. We recommend making K-3 CSR flexible for both charter schools and school districts by including these funds in their base general purpose allocations and providing the same associated per-pupil funding rate to new charter schools. If new charter schools were provided the statewide average K-3 CSR funding rate, this would cost the state $16 million in 2012-13. Similarly, we recommend placing all remaining career technical education programs (agricultural vocational education, Partnership Academies, and apprentice programs) into base general purpose allocations. • Provide Charter Schools In-Lieu Mandate Funding. We recommend the state provide $23 per charter pupil to fund the 17 mandated activities that apply to charter schools. This would cost the state $10 million in 2012-13. We recommend the state provide this amount as a supplement to the CSBG. (This funding rate equates to roughly half the amount provided to school districts that file mandate claims, on the rationale that charter schools will incur lower costs as a result of not needing to participate in the state’s formal mandate process.) Two Recommendations if Legislature Pursues More Fundamental Restructuring. Though the above changes would eliminate existing funding disparities between charter schools and school districts, the Legislature could pursue more fundamental restructuring of the K-12 finance system. If a new system were designed to replace the existing one, we recommend the Legislature: • Apply the Same Basic Funding Model to Charter Schools and School Districts. For both charter schools and school districts, we recommend funding a base general purpose allocation—one that is rationale, simple, and transparent—along with a few block grants linked with student needs, and then equalizing associated per-pupil rates over time. Alternatively, the Legislature could consider the Governor’s proposal to create a weighted student formula, which also would provide additional funding for disadvantaged students and equalize per-pupil rates over time. • Allow Charter Schools Access to Certain Mandate-Related Funding. In addition to categorical restructuring, the Legislature could consider fundamental changes to the existing mandate reimbursement system. If this course of action were pursued, we recommend applying the new system to both charter schools and school districts. While we think the Governor’s discretionary mandate block grant proposal is a reasonable starting point, we recommend allowing both charter schools and school districts access to the associated funding. 4 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t inTroDuCTion In this report, we assess whether operational receive some allocations indirectly through their funding received by charter schools and their local school district. Despite this data limitation, school district peers is comparable. For the our funding comparisons apply to the vast majority purposes of this report, we define operational of charter schools. Our analysis is based on data funding as all Proposition 98 unrestricted and from 2010-11—the most recent year for which restricted funding designated for school opera- reliable fiscal and attendance data are available. We tions. (We exclude funding for school facilities.) adjust these data, however, to account for the recent Proposition 98 funding is comprised of both state elimination of the HTS transportation program. General Fund and local property tax revenues. Our Below, we (1) describe the funding models used for analysis primarily focuses on direct-funded charter charter schools and school districts, (2) compare schools, which make up approximately 75 percent funding rates for the two groups, and (3) provide of all active charter schools. This is because recommendations for simplifying the funding complete school-level funding information is not system, maximizing flexibility for both school available for locally funded charter schools that types, and equalizing funding rates. ExiSTing FunDing SySTEm In 1992, the legislation that authorized policy established in 1998-99 essentially remains in charter schools created a funding model intended place today. (Figure 1, see next page, summarizes to provide charter schools with comparable the major legislation affecting charter schools’ operational funding as received by other schools funding over the years.) in the same school district. This locally focused Four Major Sources of Funding. Currently, model required that school districts pass through the state provides four major types of operational a negotiated amount of funds to charter schools school funding. As shown in Figure 2 (see page 7), without a clear way of monitoring if funding was the state provides: (1) base general purpose funding following each student. The state significantly (commonly called revenue limits for school changed this policy in the late 1990s and created a districts and general purpose entitlements for statewide funding model specifying that “charter charter schools), (2) in-lieu categorical funding, school operational funding shall be equal to the including programs in the CSBG and other flexible total funding that would be available to a similar categorical programs, (3) restricted funding tied school district serving a similar pupil population.” to specific policy goals and programmatic require- Rather than having a variety of locally negotiated ments, and (4) mandate reimbursements linked funding rates for charter schools throughout the with certain state-imposed activities. (This figure state, this policy established statewide rates for excludes a few programs that apply only to a few charter schools. Though two relatively minor districts and/or county offices of education [COEs].) changes subsequently were made to the categorical The sections below discuss each of these four types funding component of this funding model, the of funding in more detail. www.lao.ca.gov Legislative Analyst’s Office 5 An LAO RepOR t Base general Purpose Funding disparity (while also incentivizing charter schools to locate in any part of the state). Both charter schools and school districts receive base per-pupil funding that can be used for any in-Lieu Categorical Funding educational purpose. This funding is primarily In addition to base general purpose funding, used for the general operating costs associated with both charter schools and school districts receive schools, such as salaries and benefits for teachers, in-lieu categorical funding. This funding is akin administrators, aides, and other school support to general purpose funding in that the associated staff. This is the largest funding source for both categorical requirements have been removed—that school types. Despite these similarities, differences is, the funding comes in lieu of having to comply exist in how charter school and school district rates with specific categorical rules. As with base general are determined. School district rates are unique to purpose funding, this funding can be used for any each district based on historical factors. In contrast, educational purpose (including each program’s charter schools all receive the same per-pupil intended purpose, if desired). Two major types of general purpose rate based on school districts’ in-lieu categorical funding exist, as described below. statewide averages in four grade spans: K-3, 4-6, 7-8, Programs in the CSBG. With the creation of and 9-12. Charter school rates range from $5,077 for the CSBG in 1999, most of the in-lieu categorical schools with students in kindergarten through third funding charter schools receive is from the grade to $6,148 for charter high schools. In general, block grant. The block grant provides funding this component of the funding model results in little Figure 1 Major Charter School Funding Legislation Year Legislation Major Provisions 1992 Chapter 781 • Created first charter school funding model. Established that charter schools receive the same level of per-pupil revenue limit funding as their sponsoring school district. Also provided charter schools with access to designated categorical funding (including special education funding). 1998 Chapter 34 • Declared that “charter school operational funding shall be equal to the total funding that would be available to a similar school district serving a similar pupil population.” Tasked the California Department of Education with implementing this provision. • Also allowed charter schools to choose whether to receive funding through the local school district or directly from the state. 1999 Chapter 78 • Created the current charter school funding model. Model includes a general purpose entitlement, a base Charter School Categorical Block Grant, and in- lieu Economic Impact Aid funding. • Changed charter schools’ general purpose entitlement from their district’s revenue limit rate to the statewide average provided to districts serving the same grade-level student. 2005 Chapter 359 • Revised the list of programs in the Charter School Categorical Block Grant and set an associated per-pupil funding rate ($400 in 2006-07, $500 in 2007-08, and adjusted annually thereafter for inflation). 2009 Chapter 2 • Allowed school districts and charter schools to use funds from 34 applicable categorical programs for any educational purpose. Of the 34 programs for which flexibility was provided, 21 were already in the Charter School Categorical Block Grant. 6 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t in lieu of 21 categorical programs. As shown in annually for changes in student attendance. Figure 2, many of the programs in the CSBG fund (In-lieu Economic Impact Aid [EIA] funding also basic school operations, such as instructional is provided through the categorical block grant, as materials, professional development, and facility discussed later in the report.) maintenance. Rather than having to operate these “Flexed” Programs Not in the CSBG. Charter 21 categorical programs, charter schools can use schools and school districts received significant their in-lieu funding for any educational purpose. new flexibility in 2009. Chapter 2, Statutes of 2009 Block grant funding is linked to a single per-pupil (ABX4 2, Evans), allows charter schools and school amount and school allocations are adjusted districts to use funds associated with 34 applicable Figure 2 School Funding Model Base General Purpose Funding Revenue limits General purpose entitlements In-Lieu Categorical Funding (37) Flexible Programs in CSBGa: Flexible Programs Not in CSBG: Advanced Placement Grant Programs Adult education Agricultural vocational educationb Alternative Credentialing/Internship program Bilingual teacher training assistance program Arts and Music Block Grant Deferred maintenance California High School Exit Exam supplemental instruction Foster youth programsb California School Age Families Gifted and Talented Education California Technology Assistance Projects Instructional Materials Block Grant Certificated Staff Mentoring Ninth-Grade Class Size Reduction Community Based English Tutoring Peer Assistance and Review Community Day School Principal Training Grade 7-12 counseling Professional Development Block Grant National Board certification incentive grants Professional development for Math and English Oral health assessments Pupil Retention Block Grant Physical Education Block Grant Reader services for blind teachers Regional Occupational Centers and Programs School and Library Improvement Block Grant Summer school programs/supplemental instruction School Safety Block Grant Teacher Credentialing Block Grant School Safety Competitive Grant Specialized secondary program grants Targeted Instructional Improvement Block Grant Teacher dismissal apportionment Year-Round School Grantsb Restricted Programs (9) After School Education and Safety Program Economic Impact Aidb Apprentice programs Partnership Academies Assessments Quality Education Investment Act Child nutrition Special education Class Size Reduction (K-3) Reimbursable Mandates (36) See Figure 3 for list of mandated programs a CSBG = Charter School Categorical Block Grant. b Programs are flexible for charter schools but not for school districts. www.lao.ca.gov Legislative Analyst’s Office 7 An LAO RepOR t categorical programs for any educational purpose. their member local educational agencies (LEAs) As shown in Figure 2, many of these flexed based on local plans. For SELPA purposes, charter programs also were originally intended to fund schools can choose to be part of a school district certain basic school operations, such as adult or they can choose to be deemed an LEA, thereby education, summer school, and counseling. Of becoming a direct member of the SELPA. As of the 34 flexed programs, 18 programs already were 2011-12, two SELPAs—run out of El Dorado COE included in the CSBG, with 16 programs newly and Los Angeles COE—consist of only charter flexed. Thus, the flexibility granted in 2009 was school members, with another such SELPA (run more substantial for school districts than charter out of Sonoma COE) likely to begin operating schools. For existing charter schools and school in 2012-13. We do not address special education districts, flexed funding allocations are locked in funding issues in detail in this report because any at 2008-09 levels, with allocations not adjusted change to the SELPA funding model could have annually for increases or decreases in student atten- notable implications statewide. Though we are dance. New charter schools, however, receive the aware of concerns that some charter schools are average statewide charter school amount for the 16 receiving too little or too much special education flexed programs not in the CSBG ($127 per pupil), funding, we believe these issues are better adjusted for changes in student population. addressed as part of a more comprehensive special education funding conversation. restricted Categorical Funding K-3 CSR. The second largest categorical program Increased categorical funding flexibility is K-3 CSR. The original purpose of this program shortened the list of stand-alone programs that was to reduce class sizes to 20 or fewer students in charter schools and school districts are required the early grades. The funds are intended to be used to apply for separately. Nonetheless, a school for the operational costs associated with decreasing district must still access funding for 12 programs class sizes, including the costs of hiring additional separately, whereas a charter school must access teachers. Charter schools and school districts must funding for eight programs separately (see follow the same requirements to receive funding Figure 2). Each of these stand-alone programs has and are subject to the same funding reductions if a specific set of requirements, eligibility rules, and they exceed the class-size caps. The state recently funding rate determinations that generally apply to modified these funding-reduction rules. Since charter schools and school districts in similar ways. 2008-09, school districts and existing charter schools The three largest categorical programs are special have been able to receive up to 70 percent of the education, K-3 CSR, and EIA. We discuss these full funding rate for K-3 class sizes of 25 or more three programs in more detail below. students. The full funding rate is the same for all Special Education. The largest restricted participants—$1,071 for each full-day student in a program is special education, which supports K-3 class of 20 or fewer students. The rates vary for an array of education services for students with school districts and charter schools depending solely disabilities. The program has specific rules intended on the number of participating classrooms and the to ensure funding equity among regions in the size of those classrooms. state, with funding distributed to 126 Special EIA. The third largest categorical program Education Local Plan Areas (SELPAs). In turn, is EIA, which provides funds to charter schools SELPAs allocate funds and organize services for and school districts for supplemental support of 8 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t economically disadvantaged (ED) students and (lower than 25 students) to ensure sufficient funding English learner (EL) students. The state requires that of additional support services. Additional funding is school districts use these funds to provide ED and also provided to charter schools and school districts EL students with additional educational resources, with very large proportions of these populations such as hiring classroom aides, offering after-school (at least 50 percent of total enrollment) on the tutoring, reducing class sizes, engaging parents, and assumption that higher concentrations of ED or EL purchasing supplemental instructional materials. In students require more supplemental services. contrast, charter schools can use these funds for any mandate Funding educational purpose. Each charter school and school district’s annual allocation is based on their total In addition to applying for categorical program counts of ED and EL students (a student that is both funding, school districts can seek reimbursement ED and EL generates funding under both designa- for certain state-mandated activities. The state tions). The per-pupil EIA funding rate varies among is constitutionally required to pay for new school districts for historical reasons. By comparison, programs, activities, or higher levels of service it charter schools all receive the same statewide average imposes on school districts. As shown in Figure 3, per-pupil EIA rate ($337 in 2010-11). The program school districts currently are subject to 36 active provides minimum grants if a charter school or mandates, ranging from requirements to annually district’s ED and EL student counts are very small notify parents of certain school policies and Figure 3 Charter Schools Required to Do Some Mandate-Related Activities Required Activities for Both Charter Schools and School Districtsa Agency Fee Arrangements High School Exit Examination Behavioral Intervention Plansb High School Science Graduation Requirementsb California State Teachers’ Retirement System Service Credit Immunization Records—Hepatitis B Caregiver Affidavits Immunization Records—Original Collective Bargaining Missing Children Notifications Comprehensive School Safety Plans Physical Performance Tests Criminal Background Checks I-II Pupil Health Screenings Expulsion Transcripts Pupil Suspensions, Expulsions, and Expulsion Appeals Financial Compliance and Audits Required Activities Only for School Districts Stull Act Mandate Reimbursement Process Absentee Ballots Notification of Truancy AIDS Prevention Instruction I-II Notification to Teachers of Mandatory Expulsion Annual Parent Notification Open Meetings Actc Charter Schools I-III Pupil Safety Notices Differential Pay and Reemployment School Accountability Report Cards Habitual Truant Parent Notification and Conference School District Fiscal Accountability Reporting Inter/Intradistrict Attendance County Office Fiscal Accountability Reporting Juvenile Court Notices II School District Reorganizations Law Enforcement Agency Notifications a These mandates are statutorily required of school districts and either statutorily or implicitly required of charter schools. b Reimbursement for these mandates has not yet commenced due to pending issues in the mandate determination process. c Ambiguity in current law regarding whether charter schools are required to complete the activity. www.lao.ca.gov Legislative Analyst’s Office 9 An LAO RepOR t collectively bargain certain personnel issues to seek associated reimbursement. This is because the requirements on conducting teacher evaluations CSM determined in 2006-07 that charter schools and keeping student immunization records. Of were not eligible claimants, and the Controller the 36 mandates school districts are required to consequently cut off all reimbursement for all complete, charter schools are either statutorily or mandated activities in 2009. (Prior to 2009, charter implicitly required to do 17 of the same or similar schools had received reimbursement for certain activities. Despite being required to undertake mandated activities.) these activities, charter schools are not eligible to FunDing DiSPariTiES Charter schools are, on average, receiving reimbursement rules. Moreover, new charter less operational funds per pupil than their school schools serving K-3 students experience an even district peers due to lower in-lieu categorical wider funding disparity given they are disallowed funding rates. As shown in Figure 4, school from receiving any K-3 CSR funding. Below, we districts received $5,960 per pupil in 2010-11 discuss our findings in more detail. (adjusted for the elimination of the HTS transpor- Inequities Between Charter Schools and Their tation program) whereas charter schools received School District Peers Linked to Categorical Block $5,659. This funding disparity grows by approxi- Grant… Under current law, charter schools were to mately $46 per pupil if one considers mandate receive $500 per pupil in CSBG funding in 2007-08, adjusted annually Figure 4 thereafter for inflation. Charter Schools Receive Due to recent budget Somewhat Less Per-Pupil Operational Funding cuts, however, charter schools received $409 $7,000 per pupil in 2010-11. This charter rate is 6,000 $372 $127 $150 less per pupil $465a $409 5,000 Other In-Lieu than the funding rate Categorical Funding provided to school 4,000 Programs in the Charter districts for the same School Block Grant programs—resulting Base General Purpose 3,000 Funding in charter schools $5,123 $5,123 receiving $53 million 2,000 less statewide than 1,000 school districts serving the same number of students in 2010-11. In School Districts Charter Schools a This rate dropped from $569 to $475 as a result of the 2011-12 midyear elimination of the 2011-12 and moving Home-to-School Transportation program. 10 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t forward, this funding gap was reduced to $56 all district K-3 students participate in the program due to the elimination of the HTS transportation whereas only 49 percent of all K-3 charter students program. participate. This difference largely is a result of …And Other In-lieu Categorical Funding. charter schools opened after 2008-09 being ineli- As shown in Figure 4, school districts receive gible to apply for the program. This is particularly $372 per pupil for the 16 programs made flexible problematic given the number of charter schools but not in the CSBG. Charter schools receive less in California has been growing about 12 percent for these programs, with charter schools existing annually in recent years. (Though the K-3 CSR prior to 2008-09 receiving, on average, $127 per funding rules are the same for school districts and pupil and charter schools opening after 2008-09 charter schools, charter schools received $836 per each receiving exactly $127 per pupil. In 2010-11, pupil in 2010-11 compared to $718 per pupil for this disparity resulted in charter schools receiving school districts, indicating that charter schools are approximately $85 million less statewide than keeping their K-3 class sizes somewhat lower than school districts serving the same number of their district peers.) students. …And by Lack of Access to Mandate Inequities Exacerbated by Changes to K-3 CSR Reimbursements. For the 17 mandated activities Participation and Eligibility for New Schools. The charter schools are required to complete, charter funding gap between charter schools and school schools receive no funding. By comparison, school districts is exacerbated by low charter participation districts that claim reimbursement for those rates in K-3 CSR due to recent changes in eligibility 17 mandates receive on average a total of $46 per requirements. Whereas funding rates are generally pupil. (Considerable funding disparities also exist comparable for both based on program rules, among districts, as less than one-third apply for school districts and charter schools participate at reimbursement.) very different rates. Approximately 95 percent of aDDrESSing FunDing DiSPariTiES Given these funding disparities, the state does existing finance structure. We then discuss our not appear to be meeting its statutory objective of recommendations if the Legislature chooses providing equal operational funding for charter to pursue more fundamental school funding schools and their school district peers. To address restructuring. these disparities, we recommend equalizing the recommendations if Existing funding rates of charter schools and their school K-12 Funding Structure retained district peers as well as providing more flexibility for both groups of schools. The Legislature could If the Legislature chooses to retain the existing achieve these objectives by either making changes K-12 funding structure, we have three recommen- within the existing K-12 finance structure or dations, which, if taken together, would essentially fundamentally restructuring the existing system. eliminate the funding disparities between charter Below, we first discuss our specific recommenda- schools and their school district peers and provide tions if the Legislature chooses to retain the both with more flexibility. www.lao.ca.gov Legislative Analyst’s Office 11 An LAO RepOR t Equalize In-Lieu Categorical Funding Rates. school districts and charter schools. In addition, Rather than providing charter schools with the we recommend providing associated funding to single rate of $409 in the CSBG and the average new charter schools. This would cost approximately rate of $127 in flexible funding for programs $16 million in 2012-13 (by providing the statewide not included in the block grant, we recommend average rate of $721 for all new charter school providing charter schools with the annual average daily attendance). For the CTE programs, statewide average received by school districts for we recommend folding all CTE funds into the all in-lieu categorical funding. This would increase base general purpose allocations of high school/ the charter rate from $536 to $837 per pupil—an unified school districts and charter high schools. increase of $301 per pupil. The total additional In 2010-11, the state provided a total of $39 million cost of closing this funding gap in 2012-13 is for these restricted programs combined. In our $133 million. Connecting the funding determi- report, Year-Two Survey: Update on School District nation for charter schools with that provided to Finance, the majority of districts stated they school districts would ensure both groups receive would like some or much more flexibility for these the same amount of flexible categorical money CTE programs, indicating they believe they can each year—thus ensuring both experience budget benefit from modifying the programs to better increases and cuts similarly moving forward. Given meet local priorities or redirecting the funds to the state’s current fiscal condition, the Legislature other higher local priorities. Moreover, the state could close this funding gap over a multiyear already has made funding flexible for Regional period. For example, the state could schedule Occupation Centers and Programs—a much larger charter funding increases over the next three years CTE program. (In contrast to our general recom- (2012-13 through 2014-15), such that the charter mendation to remove strings from many currently rate equaled the statewide average district rate by restricted programs, we recommend requiring the end of the period. charter schools to apply separately for foster youth Remove More Strings for Both Charter funding rather than allowing them to access in-lieu Schools and School Districts. We also recommend funding through the block grant as they now do. providing even more flexibility for certain The Foster Youth Program is primarily operated by remaining stand-alone programs. Of the remaining COEs, with funding based on foster student counts categorical programs, a few make particularly in the region. For these reasons, the program is not good candidates for flexing (whereas flexing others, an ideal candidate for the charter block grant.) such as those connected to settlements or ballot Fund Charter Schools for State-Mandated measures, would be more problematic). Specifically, Activities Imposed on Them. Because charter we recommend making K-3 CSR and all remaining schools are required to complete 17 mandated career technical education (CTE) programs activities similar to other public schools, we (agricultural vocational education, Partnership recommend the state provide them with associated Academies, and apprentice programs) flexible funding. Rather than requiring them to participate for both school districts and charter schools. For in the state’s mandate system, however, we each of these programs, we believe districts would recommend providing charter schools with a benefit more from flexible dollars. For K-3 CSR, funding supplement to the CSBG. Because all we recommend folding funding into the base charter schools would receive funding without general purpose allocations of elementary/unified undertaking the mandate reimbursement process 12 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t under our approach, we believe they could complete funding system going forward and place school the required activities for notably less than their districts and charter schools on the same funding school district peers. As a result, we recommend model. Having all schools under the same funding providing charter schools with less funding model would not only eliminate existing funding than their school district peers. For example, the disparities but make funding disparities less state could provide charter schools with half the likely to reemerge in the future. The Legislature per-pupil funding provided to school districts that could consider two basic approaches if it pursues file mandate claims ($23 per pupil). (In setting the restructuring of the funding system: a block grant specific per-pupil funding rate for charter schools, approach or a weighted student formula. Both the Legislature, however, could make a different approaches could be structured to ensure that assumption regarding the amount of efficiency funding disparities between charter schools and likely to be achieved as a result of charter schools school districts (and among school districts) are not needing to undertake the reimbursement eliminated. process.) If the Legislature were to provide charter Block Grant Approach. Rather than extend schools half of the per-pupil funding going to current categorical flexibility for additional years, participating districts, the statewide cost would the Legislature could improve the state’s K-12 be $10 million in 2012-13. Moving forward, if funding system on a lasting basis by consolidating additional mandates were imposed on charter virtually all K-12 funding into base general purpose schools, we recommend adjusting the funding funding and a few block grants. Unlike the current supplement commensurately. in-lieu categorical program approach, a few block grants would provide flexibility while also allowing recommendations if Fundamental more opportunity for the state to ensure at-risk restructuring is Pursued and/or high-cost students continue to receive the Many research groups and other education services they need. For example, the state might stakeholders have concluded that California’s create a disadvantaged student block grant and K-12 school finance system is complex, irrational, a special education block grant to ensure school and inequitable. Though general improvements districts and charter schools dedicate additional recently have been made to simplify, equalize, and resources to these higher-cost students. Regarding provide more flexibility to school districts and timing, we recommend the Legislature develop charter schools, certain components of the current the new finance system before the end of in-lieu school funding model are still overly complex categorical funding flexibility in 2014-15, with and result in funding disparities amongst schools implementation phased in over a few years, thereby serving similar students. Specifically, the state’s allowing for equalization in funding rates to occur categorical program funding approach is deeply more gradually. In addition to making improve- flawed and contains notable discrepancies in state ments permanent, our recommended approach funding both among school districts and between would create a system that is simpler, more trans- school districts and charter schools. Though the parent, rational, and better connected to student Legislature could equalize funding and increase needs for all schools. flexibility for both school types under the existing Weighted Student Formula. Another restruc- K-12 funding structure, we think an even better turing approach would be to adopt the Governor’s approach would be to improve the entire K-12 proposal to create a new funding system that www.lao.ca.gov Legislative Analyst’s Office 13 An LAO RepOR t would provide more flexibility through a weighted with a new mandate block grant deserves serious student formula, with funding rates equalized for consideration, it applies only to school districts, all school districts and charter schools on a lasting thereby missing the opportunity to address charter basis. Specifically, instead of the existing revenue schools’ access to funding for state-imposed limit and categorical funding model, the Governor activities. proposes that all districts and charter schools Conclusion receive an equal base per-pupil funding amount, plus additional general purpose funding intended Though the Legislature established its intent to serve their disadvantaged students. He proposes to provide school districts and charter schools phasing in the weighted student formula over five serving similar student populations with compa- years, beginning in 2012-13, with full equalization rable operational funding, we find that charter for all schools achieved in 2016-17. schools receive less per-pupil operational funding. Recommend Pursuing Comprehensive Inequities are primarily linked to in-lieu categorical Mandate Reform, Including Both Charter Schools funding, K-3 CSR, and mandates. To address and School Districts. While we recommend the these issues, the Legislature either could modify Legislature directly address the current operational or fundamentally restructure the state’s K-12 funding disparity created by charter schools funding system. If the Legislature were to retain exclusion from the mandate reimbursement the existing finance system, we recommend equal- process, we also recommend the state pursue izing in-lieu categorical funding rates, providing fundamental changes to its education mandate access to K-3 CSR funding for new charter schools, process. As discussed in our report, Education and providing access to funding for certain Mandates: Overhauling a Broken System, the state state-mandated activities that apply to all charter could vastly improve this system by eliminating schools. If the Legislature were to pursue funda- nonessential requirements and then rethinking mental finance restructuring, then we recommend how it funds essential requirements. Moreover, if placing both charter schools and school districts certain activities are deemed essential and charter on the same funding model. Specifically, we schools are required to undertake them, then the recommend adopting a simple and transparent base state should address how best to fund charter general purpose allocation, coupled with a few large schools for these activities. On a lasting basis, the block grants, potentially including a block grant state either could have charter-specific solutions for state-mandated activities. These improvements or develop comprehensive solutions that apply to would ensure school districts and charter schools both charter schools and school districts. While receive comparable funding for all students on a the Governor’s proposal to provide school districts lasting basis. 14 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t www.lao.ca.gov Legislative Analyst’s Office 15 An LAO RepOR t Lao Publications This report was prepared by Jeimee estrada and reviewed by Jennifer Kuhn. 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 website at www.lao.ca.gov. The lAo is located at 925 l street, suite 1000, sacramento, CA 95814. 16 Legislative Analyst’s Office www.lao.ca.gov