Review of School Transportation in California

Review of School Transportation in California MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • FEBRUARY 25, 2014 AN LAO REPORT 2 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT EXECUTIVE SUMMARY Overview Report Reviews State’s Approach to Funding School Transportation. In 2013-14, the Legislature undertook a major restructuring of school finance but retained the state’s Home-to- School Transportation (HTST) categorical program. Recognizing the need for additional reform, the Legislature asked our office to assess and make recommendations for improving the state’s approach to funding school transportation. The Legislature specifically directed us to consider new approaches that would address historical inequities and include incentives for efficient, effective transportation service. About One in Eight Students Bused to School. In California, school districts provide transportation between home and school for about one in eight students. The exact share of students transported varies notably across the state, with about one-quarter of districts transporting less than 10 percent of their students and about one-tenth of districts (generally small and rural) transporting more than half of their students. Districts provide transportation for a variety of reasons, including concerns that students lack alternative methods of getting to school as well as federal laws that require certain groups of students, including some students with disabilities, to be bused. More Than $1 Billion Spent on School Transportation. In 2011-12, school districts spent $1.4 billion to transport students. The state’s HTST program covered 35 percent ($491 million) of these statewide costs. Districts primarily covered the remaining costs with general purpose funds. HTST Program Widely Recognized as Problematic. The current formula for allocating HTST funding is widely recognized as outdated and irrational. Districts’ funding levels have been locked in at the amounts they received in the early 1980s. Moreover, because the funding formula is based on historical participation, a few school districts and all charter schools in the state are excluded from receiving HTST funding. Three Alternatives Three Options Provided for Addressing Transportation Moving Forward. Given the significant shortcomings of the state’s HTST program, we recommend the Legislature replace it with one of the following alternatives. • Fund Transportation Within Local Control Funding Formula (LCFF). Under this option, the state no longer would provide additional funding for a standalone school transportation program. Instead, districts would pay for these costs out of their LCFF allocations. This option is consistent with the way the state has chosen to treat most other types of district costs and most other former categorical programs. • Create a Targeted Program That Reimburses a Share of Extraordinary Transportation Costs. Under this option, the state would provide districts with additional funding if their transportation costs made up a disproportionately high share of their budgets. Specifically, www.lao.ca.gov Legislative Analyst’s Office 3 AN LAO REPORT the state would establish a threshold (for example, 8 percent of a district’s budget) and then fund a share of the costs in excess of that threshold (for example, 75 percent of excess costs). This approach recognizes that extraordinary costs largely are beyond the direct control of these districts and can result in fewer resources available for their instructional programs. (Sharing the extraordinary costs, however, helps ensure these districts retain an incentive to operate efficient programs.) • Create a Broad-Based Program That Reimburses a Share of All Transportation Costs. Under this option, the state would reimburse a fixed share—between 35 percent and 50 percent—of all districts’ transportation expenditures. Choosing a share within this range would provide every district with at least the current statewide average share of cost while maintaining strong incentives for efficient service. Unlike the HTST program, the share of costs reimbursed would be uniform across all districts, thereby addressing historical funding inequities. State Could Transition Gradually to New Approach. Each option varies in how many districts it would benefit, how much it would cost the state, and how many spending requirements would be associated. Which reform option the Legislature selects ultimately will depend upon its policy goals for pupil transportation and how much state funding it wants to dedicate to this purpose. For all three options, we describe a gradual transition that would phase out historical inequities over a period of years while ensuring no district receives less total state funding than it currently receives. In general, the first two options gradually would free up state funding that the Legislature could direct for other educational purposes, while the third option likely would require additional state spending in the low hundreds of millions per year. All Options Represent Notable Improvement Over State’s Current Approach. When the Legislature adopted the LCFF, it addressed numerous historical anomalies and inequities in school funding. The HTST program is a glaring exception to this nearly comprehensive reform effort. Adopting any of the three options contained in this report would be a notable improvement to the state’s existing HTST program and help the Legislature further its goal of building a school funding system that is simple, transparent, and rational. 4 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT INTRODUCTION Most school districts in the state operate with the state’s existing approach to funding the school bus programs to transport a portion of their HTST program. Given the significant shortcomings students to and from school. As a component of its of the state’s existing funding approach, we recent school finance reform efforts, the Legislature recommend the Legislature replace it with one of requested that our office review the state’s approach three alternatives we set forth in the latter half of to funding school transportation. Specifically, the this report. Specifically, we describe and assess Legislature asked us to recommend how the state the trade-offs of the following three options: might address historical funding inequities and (1) funding transportation services within the new improve incentives for local educational agencies LCFF, (2) creating a new, targeted program to help (LEAs) to provide efficient and effective pupil districts facing extraordinarily high transportation transportation services. costs, and (3) creating a broad-based program This report responds to this request. We begin whereby the state pays a share of each district’s by providing background on pupil transportation transportation costs. in California. Next, we describe key problems BACKGROUND In this section, we describe the policies, districts to transport students who live far from ridership trends, expenditures, and funding school. Instead, state law allows the district involved in providing pupil transportation. Because governing board to provide pupil transportation the vast majority of pupil transportation services “whenever in the judgment of the board the currently are run by school districts, we generally transportation is advisable and good reasons exist use the term “school districts” throughout this therefor.” Generally, the state grants districts report. Many county offices of education (COEs), discretion over which students they will transport however, also operate transportation programs, and how many school bus routes they will operate. though those programs are relatively small Federal Law Requires Districts to Provide compared to district programs. In some cases, COE Transportation to Certain Students. Federal law data are available and included in the numbers requires districts to transport the following three we provide. Only a few charter schools operate groups of students (these requirements also apply to transportation programs and those programs serve COEs and charter schools). an even smaller number of students. Nonetheless, • Students With Disabilities. The federal in cases for which charter school data are available, Individuals with Disabilities Education we also have included them in our numbers. Act requires that all districts take special steps to ensure students with disabilities Policies receive a “free and appropriate public State Law Allows Districts to Determine education.” If school officials determine Whether to Provide Transportation. In contrast transportation is necessary for a student to to some other states, California does not require access his/her education, the district must www.lao.ca.gov Legislative Analyst’s Office 5 AN LAO REPORT provide it. (Depending on the disability greater proportion of students in California living and needs involved, these students may within two miles of school (nearly 70 percent) receive transportation between service compared with students across the nation (less providers during the school day as well as than 50 percent). In addition, some states have transportation to and from school.) established transportation requirements exceeding those found in federal law. • Students Attending Federally Sanctioned A Few Districts Transport a Significant Schools. The federal No Child Left Behind Portion of Their Students. Although relatively few (NCLB) Act of 2001 requires schools to students ride the bus to school statewide, most meet annual performance expectations. school districts transport at least some, and a few Schools receiving federal funding that do districts transport most, of their students. Figure 2 not meet these expectations are subject to displays the number of districts transporting sanctions that include allowing students various proportions of their overall enrollment. to transfer to a higher-performing school About 275 districts (just over one-quarter of within the district and paying to transport the state’s roughly 950 districts) transport fewer those students to the higher performing than 10 percent of their students, whereas about Graphic Sign Off school. 100 districts transport more than half of their Secretary students. The districts transporting larger shares • Homeless Students. The federal McKinney- Analyst of their pupils tend to have smaller enrollments, Vento Homeless Assistance Act requires MPA be located in more rural areas, and enroll districts to provide transportation for larger proportions of students from low-income Deputy homeless students. families compared to those with smaller pupil transportation programs, although these trends School Bus Ridership do not apply in all cases. (That districts with high About One in Eight California Students Ride the Bus to School. Statewide Figure 1 data from 2011-12 (the most recent How California’s Students Get to Schoola available) show that about 700,000, or about 12 percent, of California students ride the school bus on a daily basis. As shown in Automobile 54% Figure 1, students are much more likely to get to school via private automobile or Walk/Bike 28% by walking or biking. (The figure shows a slightly higher percentage riding the bus—14 percent instead of 12 percent— School Bus 14% because the data are slightly older and from a different source.) These ridership Otherb 4% trends differ notably from many other states. Nationally, available data suggest a Data based on most recent U.S. Federal Highway Administration up to 50 percent of students ride the bus to Survey (2009). b Primarily includes public transit. school. The difference is partially due to a 6 Legislative Analyst’s Office www.lao.ca.gov ARTWORK #140106 Template_LAOReport_mid.ait AN LAO REPORT ridership rates tend to be small helps explain how Sometimes Similar Districts Make Different statewide average ridership remains relatively Decisions About Transportation Services. As low.) noted, our research identified some common Most Pupil Transportation Offered Out of trends across the types of districts that opt to run Concern That Students Might Not Otherwise transportation programs and the reasons why Get to School. The range displayed in Figure 2 districts decide to offer such services. Our review, illustrates that districts differ in their decisions however, revealed numerous examples of districts about what level of transportation service to with similar demographics and geography that offer. Most pupil transportation in California is run notably different transportation programs. offered at the discretion of the districts. (About For example, not all districts whose students live one in five daily bus riders has a disability that far from school opt to offer school transportation. necessitates transportation, and other federally Because the state does not set expectations required transportation constitutes only a minor regarding what level of transportation service share of ridership.) In our interviews with districts districts must provide, local governing boards Graphic Sign Off that run large transportation programs, most respond differently to concerns over safety, Secretary indicated they offer such services because many attendance, community preferences, and other Analyst of their students lack viable alternatives for factors. MPA getting to school. For example, districts cited long School Bus Ridership Has Been Declining for Deputy distances between homes and schools, the absence Many Years. As shown in Figure 3 (see next page), of sidewalks, busy streets, and the presence of over the past several decades school bus ridership unsafe neighborhoods as reasons for providing has been declining. Since the late 1970s, for bus service. (In addition to concerns about how example, the share of students riding the bus has absences affect student learning, many districts Figure 2 noted they provide Districts Vary Notably in transportation because Share of Students They Transporta California only provides Number of Districts, 2011-12 funding for the days a 300 student attends school, so higher absence rates 250 would lead to funding 200 reductions for districts.) Some districts also 150 provide transportation 100 for students to attend 50 schools located outside of their neighborhoods 0 to 10% 10 to 20 20 to 30 30 to 40 40 to 50 Above 50 (such as magnet schools) Share of Students Transported and because of strong parental preferences. a Based on data for 809 school districts. wwwA.lRaoT.cWa.OgoRvK L#e1g4is0la1t0iv6e Analyst’s Office 7 Template_LAOReport_mid.ait AN LAO REPORT declined from roughly one in four to one in eight. of district transportation expenditures. Nearly Some of this change likely is due to demographic three-quarters of expenditures are for services and societal changes. For example, California districts provide directly, with the remainder is somewhat more urbanized now—with more representing payments to contracted entities such students living closer to school—than it was in the as private bus companies. As with most areas of past. In addition, during the 1970s several districts school spending, the largest spending category ran large transportation programs to comply with is personnel. Of direct district services, nearly court-ordered desegregation requirements that three-fourths of expenditures are for employee have since been lifted. Many districts interviewed compensation, including compensation for for this report, however, noted that these trends districts’ bus drivers, dispatchers, and mechanics. also reflect shifting local priorities, and that their Other significant expenditures include fuel governing boards have decreased transportation (10 percent) and capital outlay for school bus services in order to fund other school programs. purchases and other large equipment (7 percent). A few districts also fund alternative forms of Transportation Spending transportation, such as purchasing passes for Districts Spend $1.4 Billion on students to ride a citGy brausp.hic Sign Off Transportation. In 2011-12, districts reported Spending Averages $240 Per Pupil, but Varies Secretary spending $1.4 billion on pupil transportation. by District. Transportation spending per pupil Analyst (Throughout this report, we rely on district- averaged $240 during 2011-12. (This per-pupil MPA reported financial data collected through the state’s figure is based on all pupils enrolled in a district, Deputy standardized accounting system. Though subject not just those riding the bus on a daily basis.) to some inconsistencies, these data represent the Similar to the variance in district transportation only available source of statewide expenditure service levels, however, per-pupil spending rates information.) Figure 4 displays the major categories also vary across the state. Figure 5 shows that just under 200 districts reported spending less than $100 per pupil in the district, whereas Figure 3 Share of Students Riding School Bus about 40 districts reported spending in excess Has Been Declining for Decades of $1,000 per pupil. Percent of Enrollment Per-Rider Spending Also Varies by District. The amount districts spend on each 25% student they actually transport also varies 20 across the state. Specifically, while statewide per-rider expenditures averaged $1,800 15 in 2011-12, about one-quarter of districts spent less than $1,000 per rider and about 10 one-quarter of districts spent more than 5 $2,500 per rider. (These averages include spending for students both with and without disabilities. Districts with very high per-rider 77-78a 84-85a 95-96 99-00 03-04 07-08 11-12 a Selected years reflect data available prior to 1995-96. costs generally transport only students with disabilities.) 8 Legislative Analyst’s Office www.lao.ca.gov ARTWORK #140106 Template_LAOReport_mid.ait Graphic Sign Off Secretary Analyst MPA Deputy AN LAO REPORT Variations in Expenditures Reflect Factors Within and Outside Figure 4 of District Control. Apart from Categories of Transportation Expenditures how many students a district opts 2011-12 to transport, a number of other factors affect transportation costs. One significant factor is the share of Contracted students that has severe disabilities. Services Since these students frequently are provided door-to-door service, Employee specialized buses, bus aides, and Compensation other specialized services, the All Other average expenditure per individual Graphic Sign Off rider is nearly six times higher than Busesb Secretary expenditures for other students. Analyst (Bus riders with disabilities cost Fuela an average of $6,100 annually, MPA whereas riders without disabilities a Includes oil, small parts, and other consumable items. Deputy b Includes other large equipment purchases. average $1,100.) Additional cost factors include the configuration and condition of local roadways, ARTWORK #140106 traffic conditions, and weather. These sorts of Figure 5 Template_LAOReport_mid.ait factors are outside of a Districts Vary Notably in district’s control. Many Transportation Expenditures Per Pupila other cost factors, however, Number of Districts, 2011-12 are directly influenced by a district, including decisions 300 about the configuration of 250 bus stops, bell schedules 200 (staggering school start times often allows buses 150 to make multiple runs), 100 employee compensation levels, and the location of 50 school sites. $0 1- 100- 200- 300- 400- 500- 600- 700- 800- 900- 1,000- 100 200 300 400 500 600 700 800 900 1,000 2,000 Transportation Funding Expenditures Per Pupil Most Districts Fund a Based on data for 896 school districts. Transportation From Two Major Sources. By ARTWORK #140106 www.lao.ca.gov Legislative Analyst’s Office 9 Template_LAOReport_mid.ait AN LAO REPORT far, the two largest funding sources for pupil funding sources described below to cover their transportation are contributions from local transportation costs. To the degree these revenues unrestricted revenues and the state HTST are not sufficient, districts use discretionary funds program. In addition, two other sources of to pay for their remaining expenses. revenue—federal grants and local fees—account In Recent Years, State Has Appropriated for a small share of funding. Besides these About $500 Million Annually for HTST Program. ongoing sources of revenue, the state historically The next largest funding source supporting has funded a small program for certain districts pupil transportation services is the state HTST to make one-time purchases of school buses, as categorical program, which in 2011-12 totaled described in the nearby box. (While below we $491 million, covering 35 percent of total cite the share of total statewide expenditures expenditures. As detailed in Figure 6, the state’s covered by each source, these proportions vary approach to funding HTST has undergone several notably across districts based on the size of changes since the program was established in their programs, allocations of state and federal 1947. While the program began by reimbursing revenues, and local fee policies.) districts for a share of their transportation Majority of Expenditures Covered With Local expenditures, since the early 1980s districts have Unrestricted Funds. The largest source of funding been “locked in” at the same funding levels with for pupil transportation is from local unrestricted no adjustment for changes in costs, enrollment, or funds, which covered 62 percent of transportation any other factor apart from uniform cost-of-living expenditures in 2011-12—roughly $860 million. adjustments (COLAs) in some years. As noted in (This total also includes a small amount of the figure, each district’s HTST allocation was funding from other state categorical programs— reduced by 20 percent in 2008-09. A total of 890 primarily special education—that can be used for school districts receive HTST funding, along with transportation in limited cases.) Generally, districts 38 COEs. (The district total includes 38 districts first use any revenue available from the three that receive no direct funding from the state but Small School Bus Replacement Program Until 2013-14, State Funded Program for Small Districts to Purchase Buses. In addition to the Home-to-School Transportation (HTST) program, the state historically funded a school bus purchasing program for districts with fewer than 2,500 students. The program focused on replacing buses that did not meet federal standards. Most funding was awarded based on the age, mileage, and condition of the buses to be replaced. In 2012-13, $4.9 million was appropriated for the program, and 32 out of 170 applicants received grants of up to $155,000 to replace a single school bus. 2013-14 Budget Package Ends Bus Replacement Program, Merges Funding Into HTST Program. Beginning in 2013-14, the state discontinued the bus replacement program. Any district receiving bus replacement funds in 2012-13, however, had its regular HTST allocation permanently increased by that amount. That is, under current law, any district that received a one-time grant for bus replacement in 2012-13 will continue receiving this same amount but may use the freed-up funds for any transportation purpose. 10 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT participate in one of several state-funded Joint in federal funds for this purpose, sufficient to Powers Authorities [JPAs]—consortia of districts cover slightly less than 2 percent of expenditures organized to provide pupil transportation.) statewide. Most of this funding is associated with Some Federal Funds Can Be Used to Title I of NCLB and used to transport students who Cover Mandatory Transportation. The federal have opted out of attending low-performing schools. government allows districts to use some federal Some Districts Charge Fees for grants to defray costs associated with providing Transportation. The final revenue source transportation pursuant to federal requirements. In supporting pupil transportation is fees, which in 2011-12, districts reported using about $25 million 2011-12 generated $17 million and covered just Figure 6 Major Developments in the History of the HTST Program 1947‑48 State Creates HTST Program. • Reimburses transportation costs on a sliding scale, covering between 50 percent and 90 percent of costs beyond certain spending thresholds. • Provides additional funding for districts with lower property tax values. 1951‑52 State Creates a Special Education Transportation Program. • Reimburses 100 percent of associated costs (up to a maximum amount per pupil) for transporting students with severe disabilities. 1981‑82 State Revises HTST Formula (Part of State’s Larger Response to Passage of Proposition 13). • Freezes funding allocations at prior-year levels. • For future years, only mechanism to increase HTST allocations is through cost-of-living adjustments given to all districts. • Introduces practice of making permanent, dollar-for-dollar reductions in the HTST allocation of a district failing to spend its entire allocation in a given year. 1984‑85 State Consolidates General HTST and Special Education Transportation Funding. • Freezes combined allocation at 1983-84 levels. 1992‑93 State Establishes New HTST Spending Requirement for Students With Severe Disabilities. • Requires districts to split HTST allocation into two pots, one for special education transportation (students with severe disabilities) and one for all other students, each with separate spending requirements. • Freezes split at 1992-93 levels. 2008‑09 State Makes Various Changes in Response to Budget Shortfall. • Funding for HTST (and many other categorical programs) reduced by 20 percent. • Continues requiring the HTST allocation to be spent on transportation, but waives requirements for many other categorical programs. 2011‑12 State Eliminates, Then Restores HTST Program. • Eliminates HTST funding when state revenues fall below projections, pursuant to “trigger cuts” included in the 2011-12 budget package. • Subsequently rescinds cuts to HTST program. 2013‑14 State Establishes New Funding System for Schools. • Retains HTST program as a separate funding stream, freezes allocations at 2012-13 levels. • Eliminates separate HTST spending requirements for general and special education transportation. • Directs LAO to review HTST program and make recommendations to address historical inequities. HTST = Home-to-School Transportation. www.lao.ca.gov Legislative Analyst’s Office 11 AN LAO REPORT over 1 percent of expenditures statewide. The state also provides supplemental funding for districts allows districts to charge fees to help cover some to serve students who are low-income or English transportation costs under certain conditions. learners. The state currently is implementing the While districts have discretion over fee polices LCFF gradually by increasing funding until each (including fee levels), state law specifically prohibits district is funded at its LCFF “target” level. This districts from (1) assessing fees on students transition is expected to take another seven years. who have disabilities or are indigent, (2) raising New Formula Retains HTST Funding but fee revenue in excess of the cost of providing Freezes LEA Allocations. Although the budget transportation, and (3) charging more than the cost package rolled most categorical programs into of providing comparable service via public transit. the LCFF, it retained HTST as a separate funding The first condition notably limits the degree to stream. More specifically, any district that received which districts apply fees. In 2011-12, only about HTST funding in 2012-13 will continue to receive 170 districts charged fees. These fees averaged about that same amount of funding in addition to its $315 per rider per year, but ranged from as low as LCFF allocation each year. Unlike the state’s $20 to as high as $960. previous approach to HTST, however, these allocations will not receive future COLAs. While Changes in 2013-14 Budget Package state law continues to require that districts spend 2013-14 Budget Package Initiates HTST funding on pupil transportation, the state Comprehensive School Finance Reform. The eliminated the separate spending requirement for 2013-14 budget package initiated a significant students with severe disabilities. The state also restructuring of state funding for schools. The discontinued the collection of detailed expenditure LCFF is the centerpiece of these changes, replacing and ridership data from districts. Finally, the almost all former sources of state funding, budget package included a temporary requirement including most state categorical programs. The that requires any district that transferred a portion LCFF establishes a per-pupil funding target that of its HTST funding to a JPA in 2012-13 to continue is adjusted for differences in grade levels but transferring that same amount until the end of the otherwise is uniform across the state. The LCFF 2014-15 fiscal year. WIDELY RECOGNIZED PROBLEMS WITH HTST PROGRAM In this section, we discuss two key problems one-quarter of districts receive an HTST allocation with the state’s HTST program. sufficient to cover less than 30 percent of their Funding Allocations Are Outdated and costs, whereas another one-quarter of districts Irrational. Because HTST allocations were receive an HTST allocation that covers more locked in during the early 1980s, they fail to than 60 percent of their costs. Figure 7 illustrates reflect districts’ current characteristics or level this difference. The three sample school districts of transportation services. As a result, funding provide transportation to a similar number of allocations now vary across similar districts for students at similar costs per rider, but receive no apparent reason. Available data indicate that notably different state funding allocations. 12 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT The HTST funding allocations are particularly of the state’s approximately 1,100 charter schools irrational for districts that have experienced (serving more than 450,000 students) do not receive notable demographic shifts over the past 30 years HTST funding because charter schools were not with no corresponding funding adjustment. authorized until the early 1990s. In addition, All Charter Schools and a Few Districts at least 20 school districts (serving more than Excluded From Funding. In addition to the 26,000 students) reported some transportation disparities in funding among districts receiving expenditures in 2011-12 but received no HTST HTST allocations, some LEAs are excluded entirely funding. (These districts likely did not participate from receiving any allocation. Most notably, all in the HTST program during the early 1980s, and therefore have been excluded ever since.) IMPROVING THE STATE’S APPROACH TO FUNDING TRANSPORTATION Fundamental Questions Arise When School Districts Divided on Future of HTST Considering Future of HTST Funding. How the Funding. In 2012, we surveyed districts regarding Legislature chooses to treat HTST funding moving how they thought existing state categorical forward will depend largely upon its perspective programs should be treated under a new school regarding a few key policy questions, including: finance system. With respect to HTST, about 40 percent of respondents preferred to maintain • Does transportation differ notably from the existing program, about 40 percent preferred other educational services such that it to eliminate the program, and about 20 percent merits a separate stream of funding? preferred a restructured transportation program. • Does pupil transportation represent a vital This lack of consensus at the local level suggests state need that—in the absence of targeted that identifying an approach that meets the needs state funding—districts might choose not of all districts across the state will be difficult. to prioritize? • Should the Figure 7 state’s funding Three Districts Illustrate Disparities in approach account HTST Funding Allocations for the diverse 2011-12 circumstances Buckeye Union Corning Union Tulare City that districts face Elementary Elementary Elementary and the different Enrollment 5,000 2,000 9,000 decisions they Daily ridership 1,400 1,100 1,800 historically have Expenditures $729,000 $577,000 $984,000 made about what Expenditures per rider $520 $525 $545 HTST allocation $548,000 $254,000 $223,000 transportation Share of Costs Covered 75% 44% 23% services to offer? HTST = Home-to-School Transportation. www.lao.ca.gov Legislative Analyst’s Office 13 AN LAO REPORT Three Options for Addressing Transportation Rationale Moving Forward. To assist the Legislature’s Treats Transportation Costs Consistently With deliberations, we have identified three options for Most Other District Costs. Funding transportation funding pupil transportation moving forward. The costs within the LCFF would be consistent with options primarily differ in the degree to which they the state’s existing approach of funding most other account for transportation costs separately from the school costs. As described earlier, transportation other costs districts face. These three options are expenditures vary notably across districts. So too, to (1) fund transportation costs within the LCFF, however, do many other district costs for which (2) fund only extraordinary transportation costs, or the state does not provide differential amounts of (3) fund a share of all transportation costs. Although funding. The primary example is teacher salaries, the basic approach for each option differs, all contain which make up more than half of all district some key advantages. Most notably, all three options spending and vary dramatically across the state. provide a means to phase out the use of allocations Specifically, about one-quarter of all school districts linked to historical factors and apply the same pay a teacher with ten years of experience less than funding rules to all LEAs, addressing key problems $56,000 annually, whereas another one-quarter of with the state’s existing approach. In addition, all of districts pay a teacher with comparable experience the options would encourage efficiency by requiring more than $67,000 annually. While these differences local budgets to cover a notable share of total costs. frequently reflect factors outside of a district’s Finally, all three options would be relatively simple control—such as the salary a district must pay to to implement and easy for districts and the public remain competitive in the regional job market—the to understand. In the remainder of this section, state does not provide additional funding to we describe each of the three options in more districts located in higher-cost areas. In addition, detail, provide the policy rationale behind why the there is evidence that regional cost variations may Legislature might consider adopting it, and discuss somewhat offset each other in many cases, further associated costs and transition issues. (Each of these undermining the need for associated funding options would apply in the same way to all districts, adjustments. For example, rural districts typically COEs, and charter schools.) offer lower teacher salaries and spend more on pupil O 1: F transportation, whereas the reverse frequently is true ptiOn und t W LCFF in urban districts. ranspOrtatiOn ithin Treats HTST Program Consistently With Most Other Categorical Programs. Funding Approach transportation costs within the LCFF also would be Fund Transportation Costs Within LCFF. consistent with the way the state has treated nearly Under this option, the state no longer would all other categorical programs. The LCFF replaced provide additional funding for a discrete pupil funding for the vast majority of categorical programs transportation program. Instead, districts would with a larger, more flexible grant that districts may pay for any transportation costs they face using use for locally determined priorities. Many of these their LCFF allocations. Individual districts would former programs funded vital activities, such as determine what level of transportation service to facility maintenance, instructional materials, and provide and how much to spend providing this school safety initiatives. The Legislature determined, service. however, that districts are better positioned to 14 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT determine exactly how much education funding greater percentages of low-income students. The should be spent on each activity. Adopting a similar supplemental resources LCFF provides for these approach for pupil transportation would encourage students could be used for helping transport them to districts to make decisions about transportation school. in the context of all other available resources and Transition and Cost local priorities. Conversely, retaining the HTST program could create pressure for the Legislature State Could Implement New Approach to reestablish categorical programs for other local Gradually. Funding transportation costs through activities, undermining the goal of providing state the LCFF ultimately would represent a decrease in funding in a more flexible and less complex manner. overall funding levels for those districts currently LCFF Contains Incentives to Maximize Student receiving HTST funds. This is because those Attendance. Because the LCFF maintains strong districts no longer would receive HTST allocations fiscal incentives for districts to maximize student on top of their LCFF amounts. To help mitigate attendance, eliminating the separate funding stream this transition, the change could be implemented for transportation likely would not eliminate the gradually and in a way that ensures no district incentive for districts to do what is necessary— receives less funding than it receives today. Similar including running buses—to get students to school. to the multiyear approach the state currently That HTST funding on average has covered less than is using to phase in the LCFF, the state could half of associated costs suggests that this program phase out HTST allocations over several years by has not been the principal reason that districts gradually counting those allocations toward each historically have offered transportation services. district’s LCFF funding allocation—that is, scoring Rather, as discussed earlier, most districts indicate the funds towards closing the “gap” to the district’s that facilitating student attendance has been the LCFF target funding level. (This gradual approach primary rationale for transporting students. The would differ from the method used with most other existing fiscal incentives to get students to school categorical programs, which immediately were will continue under LCFF, as district funding subsumed into the LCFF beginning in 2013-14.) will continue to be linked to student attendance. This approach would allow districts to continue to Moreover, beginning in 2014-15 all districts must set receive anticipated LCFF funding increases in the annual goals around student attendance and student coming years, albeit at lower levels. By the time outcomes as part of new local accountability plans. the LCFF is fully implemented (projected to be in These state funding and accountability provisions 2020-21), the supplemental HTST funding would give districts strong reasons to continue providing be eliminated. transportation to students who otherwise would not Over Time, Approach Would Free Up Funding attend school. for Other Educational Purposes. Since the state LCFF Provides Additional Funding to Address currently budgets $491 million for HTST, phasing Transportation Costs for Low-Income Students. the program out would free up a like amount of While districts containing more low-income funding by the end of the transition period. The students may face higher transportation costs, the Legislature then could use these funds for any LCFF provides additional funding to cover those educational purpose, such as increases in LCFF costs. As described earlier, higher levels of school base rates or special education funding to benefit bus ridership are more common in districts serving all districts. www.lao.ca.gov Legislative Analyst’s Office 15 AN LAO REPORT O ptiOn 2: F und program.) Under this option, the state also would E xtraOrdinary t ranspOrtatiOn C Osts need districts to submit transportation-related information to enable tracking of service levels and Approach verification of allowable cost claims. Fund Only Extraordinary Costs. Under this Rationale option, the state would provide additional funding Most Districts Do Not Face Extraordinary for districts facing disproportionate transportation Transportation Costs. . . Most districts dedicate costs, but not for districts spending average roughly the same share of their budgets to pupil amounts to transport students. Specifically, the transportation, suggesting most do not face state would establish a threshold at which costs special circumstances meriting special funding notably exceed what an ordinary district pays dispensations. Figure 8 shows transportation for pupil transportation, then fund a share of the expenditures as a share of local budgets for costs in excess of that threshold. For example, nearly all of the state’s school districts. The figure suppose the state set the threshold at 8 percent of shows that half of districts have transportation a district’s budget and agreed to fund 75 percent expenditures comprising 2 percent to 4 percent of of extraordinary expenditures. (Setting a high their overall budgets. Moreover, the distribution state reimbursement rate above the threshold in Figure 8 shows that more than 90 percent of would recognize that many extraordinary costs districts spend 8 percent or less of their budget likely are beyond a district’s direct control. on transportation—a relatively small degree of Maintaining a small local share, however, variation across most districts in the state. would help encourage districts to run programs . . .But Providing Additional Funding to efficiently.) In this example, a district with a budget Those That Do Would Help Preserve Their of $100 million spending more than $8 million Instructional Programs. A few districts do face (8 percent of the budget) on transportation would special circumstances, however, such that special have extraordinary costs. If this district spent treatment may be merited. Providing additional $12 million on transportation, $4 million would be funding to the few districts that face extraordinary considered extraordinary and the state would cover transportation costs would help ensure that $3 million (75 percent of the extraordinary cost). their unique conditions do not result in inferior For all districts with transportation expenditures instructional programs compared to districts with below the state’s established threshold, ordinary transportation needs. Figure 8 shows transportation costs would be funded within the that a small number of school districts exhibit LCFF (similar to Option 1). very high expenditures on transportation relative Define Allowable Costs and Require to their budgets. Specifically, about 70 districts, Reporting. Under this option, the state would or about 8 percent of districts, spend more than need to define allowable transportation costs. The 8 percent of their budget on transportation. All of state could use a definition similar to approved these districts are located in rural areas and most expenditures under the existing HTST program. are geographically isolated, generally requiring (Allowable expenditures also could include a factor their school buses to cover more distance than is annualizing transportation-related capital costs, typical for other districts. The budgetary trade-offs in lieu of maintaining a separate bus replacement resulting from these high expenditures likely lead 16 Legislative Analyst’s Office www.lao.ca.gov Graphic Sign Off Secretary Analyst MPA Deputy AN LAO REPORT to reduced spending in other Figure 8 areas, including instruction. Transportation Expenditures Vary as Share of Budgeta Transition and Cost Number of Districts 180 State Could 160 Immediately Address 140 Extraordinary Costs While 120 Phasing Out Existing HTST 100 Allocations. Under the 80 extraordinary cost model, 60 the state would phase out 40 HTST allocations for the 20 majority of districts—as described under Option 0% 1b 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Above Share of Budgetc 15 1—while maintaining a a Based on data for 896 school districts. Expenditure data averaged over three years small amount of funding for (2009-10 through 2011-12). b Includes districts spending between 0.1 percent and 1 percent. districts with exceptionally c Refers to transportation expenditures divided by general purpose funds (funding streams which high transportation costs. now make up the Local Control Funding Formula) and Home-to-School Transportation funding. The ultimate costs of this scaled-down approach expenAdiRtuTrWes OanRd Kco v#e1r4 a0 s1et0 p6ercentage of those would be significantly less expenditures in every district. (As with Option 2, than the existing HTST program. For example, if Template_LAOReport_mid.ait allowable expenditures could include an amortized the state paid 75 percent of transportation costs bus-replacement cost, and the state would collect above an 8 percent spending threshold, we estimate information to verify expenditures.) Similar to the it would cost roughly $10 million per year. This HTST program, this option would provide funding spending could be accommodated using a small to most districts. Unlike the HTST program, the portion of the savings that would result from share of costs reimbursed would be uniform across phasing out the existing HTST allocations. (As all districts. under Option 1, the state could use the remaining Significant Local Match Critical to New savings at full implementation for any educational Approach. We believe this “share of cost” approach purpose.) is most viable if the state’s share is set between O 3: F s ptiOn und harE OF 35 percent and 50 percent. A lower level would a t C LL ranspOrtatiOn Osts benefit too few districts to merit establishing such a formula, whereas a higher level would erode Approach incentives to run efficient programs. As described earlier, current HTST allocations vary across Reimburse Share of Approved Transportation districts but cover an average of 35 percent of Costs. This option would create a new formula transportation expenditures statewide. Setting the that reimburses all districts for a portion of their reimbursement rate at 35 percent of costs, therefore, transportation costs. Under this approach, the state would bring all districts up to the current statewide would develop a set of allowable transportation www.lao.ca.gov Legislative Analyst’s Office 17 AN LAO REPORT average. Covering this share of costs would provide the state would need to increase funding for all additional funding to roughly one-third of districts, districts currently receiving less than the state’s whereas covering 50 percent of costs would provide new reimbursement level. This could be done by additional funding to more than half of all districts increasing state funding for transportation, or (but also would carry additional costs, as described by reallocating funding from districts currently later). That districts cover at least half of costs under receiving more from HTST than the state’s new the new formula, however, is critical to ensuring reimbursement level. Historically, when the state districts maintain incentives to run efficient has modified existing funding formulas, it has programs. An overly high state reimbursement included “hold harmless” language to ensure every level could lead districts to expand service levels district receives at least as much funding as it beyond what is needed or to run exceptionally received in the year the change is made. Should the costly programs, knowing the state will cover most state continue to adopt this practice, some districts of their costs. (Because of such concerns, the state would continue to receive historical funding rarely funds reimbursement-based categorical advantages and implementing the new formula programs. Instead, for most programs the state sets would require additional state investment. (Over clear service expectations and funds districts only time, these historical advantages would dissipate as for providing that level of service. Because pupil expenditures rise and those districts do not receive transportation service levels and spending vary due additional funding increases from the state.) to such a wide variety of local factors, establishing Implementation Costs Depend on Transition a specific service requirement for this program is Approach. The costs associated with adopting difficult. The best alternative, therefore, is to ensure a share of cost formula would depend upon the a strong local incentive to contain costs.) level at which the state sets its reimbursement rate. Figure 9 displays estimates for state costs under Rationale various reimbursement rates. (These estimates are Addresses Main Flaws in Existing State only rough approximations, based on district-level Approach. Adopting a new transportation data from 2011-12.) At the low end, if the state formula would rectify the two widely recognized were to fund 35 percent of expenditures and hold problems with the state’s existing HTST program. districts harmless from funding decreases, state Specifically, this approach would (1) allow funding allocations to be updated annually, and (2) provide Figure 9 a mechanism for previously excluded LEAs to Cost of New Formula Depends on State Share receive funding. (In Millions) Costs Transition and Cost Additional State New Hold State State Could Transition Gradually, Protect Share Formula Harmlessa Total Fundingb Districts Against Funding Losses. Because 35% $490 $120 $610 $120 40 560 90 650 160 the degree to which the existing state HTST 45 630 70 700 210 allocation covers district transportation costs 50 700 50 750 260 varies dramatically across the state, “equalizing” a Cost of providing every district with its 2012-13 funding level if greater than how much it would receive under the new formula. the state’s share of costs across all districts would b Amount required beyond current state appropriation for Home-to-School require a shift in how funds are allocated. First, Transportation. 18 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT costs would increase by roughly $120 million $260 million. These costs could increase over time, beyond the funding currently provided for HTST. both from inflationary pressures and potential At the high end, selecting a 50 percent share of service increases at the local level. expenditures would increase state costs by roughly CONCLUSION Treatment of HTST Program Glaring Several Options for Funding Pupil Exception to Reform Effort. When the Legislature Transportation Exist, Any Would Represent an adopted the LCFF, it addressed numerous historical Improvement. This report lays out three options the anomalies and inequities in school funding. The Legislature could pursue in reforming its approach maintenance of the HTST program is a glaring to funding pupil transportation. Each option varies exception to this nearly comprehensive reform in how many districts it would benefit, how much effort. With each passing year, existing HTST it would cost the state, and how many spending allocations become more disconnected from the requirements would be associated. Which option factors that justified them in the early 1980s. the Legislature adopts ultimately will depend upon Identifying a long-term solution to funding pupil its policy goals for pupil transportation, how much transportation and addressing the problems state funding it wants to dedicate for this purpose, inherent in the state’s existing approach are critical and which of the rationales we have laid out it finds next steps in the Legislature’s goal of building a most compelling. Despite the differences across school funding system that is simple, transparent, the three options, all would represent a notable and rational. improvement over the state’s current approach. www.lao.ca.gov Legislative Analyst’s Office 19 AN LAO REPORT LAO Publications This report was prepared by Kenneth Kapphahn and reviewed by Rachel Ehlers. The Legislative Analyst’s Office (LAO) is a nonpartisan office that 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. 20 Legislative Analyst’s Office www.lao.ca.gov