The 2016-17 Budget: Proposition 98 Education Analysis

The 2016-17 Budget: Proposition 98 Education Analysis MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • FEBRUARY 2016 2016-17 BUDGET TABLE OF CONTENTS Executive Summary ..................................................................................................3 Introduction ..............................................................................................................5 K-12 Education in Context .......................................................................................5 Overview of the Governor’s Budget ......................................................................16 Local Control Funding Formula .............................................................................25 Preschool Restructuring ........................................................................................28 Education Mandates ...............................................................................................36 Special Education ...................................................................................................43 County Offices of Education ..................................................................................51 High Speed Network ..............................................................................................55 Teacher Workforce Trends ......................................................................................61 Summary of LAO Recommendations ....................................................................72 2 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET EXECUTIVE SUMMARY Overall Proposition 98 Budget Plan Governor’s Budget Increases Proposition 98 Funding Significantly. Proposition 98 funds preschool, K-12 education, the California Community Colleges (CCC), and adult education. The Governor’s budget includes $4.3 billion in Proposition 98 funding increases, with the largest augmentation ($2.8 billion) for implementation of the Local Control Funding Formula (LCFF) for school districts and charter schools. For community colleges, the largest proposals are $255 million for deferred maintenance and instructional equipment and $200 million for a new CCC workforce development program. Governor’s Estimates of Proposition 98 Minimum Guarantee Reasonable. The Governor’s budget plan contains multiyear estimates of the Proposition 98 minimum guarantee. We believe these estimates are a reasonable starting point for budget deliberations. Changes in state General Fund revenue, however, will affect estimates of the guarantee over the period. Whereas revenue changes will have an almost dollar-for-dollar effect on the guarantee in 2014-15, the guarantee is relatively unaffected by revenue changes in 2015-16, and the 2016-17 guarantee likely will change about 50 cents for every $1 change in state General Fund revenue. Governor’s Local Property Tax Estimates Likely Too Low. Though the administration’s estimates of the minimum guarantee appear reasonable to us, we think the administration’s estimate of local property tax revenue is around $1.1 billion too low across the 2015-16 and 2016-17 period. This is primarily due to differences in our estimates of redevelopment-related revenue and growth in assessed property values. Though higher local property tax revenue would not affect overall Proposition 98 funding, it would free up a corresponding amount of non-Proposition 98 General Fund. Governor’s Budget Has Relatively Small Cushion. As in the past few years, a key budget decision this year concerns the amount of 2016-17 funding allocated to one-time versus ongoing purposes. The Governor allocates $520 million (about 1 percent of 2016-17 Proposition 98 spending) to one-time purposes. The Legislature could consider designating a larger amount for one-time purposes to provide a greater cushion in the event of a future economic slowdown. Specific Proposition 98 Proposals Recommend a Preschool Restructuring Approach That Links Funding to Children. The Governor proposes to redirect $1.6 billion in Proposition 98 funds from three existing preschool programs to create a new block grant intended to benefit low-income and at-risk four-year olds. The block grant would be given to local education agencies (LEAs) and potentially other entities based on historical funding allocations and local need. The administration would develop the remaining aspects of the program over the next few months. Though we think the Governor’s general approach of consolidating existing programs and prioritizing the neediest children is promising, we are concerned that basing funding on historical allocations would work counter to keeping funding linked to children. We recommend the Legislature create a single, coherent program that would serve all low-income and www.lao.ca.gov Legislative Analyst’s Office 3 2016-17 BUDGET at-risk children, provide a uniform per-child funding rate, offer a full-day option for working families, and include developmentally appropriate activities. Recommend Creating a Plan for Retiring the Mandate Backlog. The Governor proposes to allocate $1.4 billion towards paying down the K-14 mandate backlog ($1.3 billion to schools and $76 million to community colleges). While the per-student funding approach is consistent with prior years and initially had notable advantages, it can practically never retire the entire K-14 backlog. As an alternative, we recommend the Legislature create a $2.6 billion plan to retire the backlog over the next two or three years (depending on the availability of one-time funding). Participating school districts and county offices of education (COEs) would receive per-student funding based on the statewide median claim ($450 per student), with an additional allocation to COEs based on the number of students within the county ($20 per student) and a minimum COE payment of $1 million. As a condition of accepting funding, participating LEAs would write-off all outstanding claims through 2015-16. Funding Inequities in Special Education Going Unaddressed. The administration has no specific proposal on special education equalization. Existing per-student special education funding rates, however, vary widely across the state, and these differences affect local contributions to special education as well as the amount of resources remaining for general education. We recommend equalizing special education funding rates over the next few years in tandem with LCFF implementation. Services for Infants and Toddlers With Disabilities in Need of Comprehensive Reform. The Governor removes a $30 million ongoing augmentation that the state had provided last year for LEAs serving infants and toddlers with disabilities. He removes the funding because no agreement could be reached on how to use the funds. The state’s existing approach to serving these children is outdated and overly complex. We recommend the Legislature undertake a comprehensive review of this program with the intent of pursuing a major restructuring in future years. Governor’s COE Cost Estimates Highlight Need to Address Larger LCFF Design Flaw. We believe that the administration underestimates LCFF costs for some COEs by a total of $20 million in 2015-16 and $35 million in 2016-17. The shortfall is related to how the state funds COEs under the “minimum state aid” provision of LCFF. We believe this provision is a fundamental design flaw of LCFF that works at cross-purposes to the formula’s intent by creating new and growing funding differences among COEs. We recommend the Legislature repeal the provision. Doing so would free up $40 million (Proposition 98) in 2016-17 and save tens of millions of dollars every year moving forward. Recommend Rethinking Governor’s Proposal for Funding High Speed Network (HSN) Grantee. The Governor proposes providing the HSN grantee $19.3 million in 2016-17 expenditure authority. Of this amount, $8 million would come from Proposition 98 General Fund. We are concerned that the proposal would allow the HSN grantee to carry a reserve of $8.8 million without adequate justification and that the proposal does not include a plan for “right-sizing” the grant to meet present-day expectations. We recommend the Legislature provide no General Fund appropriation to the grantee in 2016-17, instead requiring the grantee to fund its 2016-17 operations using its reserves, leaving a $1.4 million reserve at year end. We also recommend the Legislature ask CDE to report about the performance and cost-effectiveness of the HSN grantee at spring budget hearings. 4 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET INTRODUCTION Proposition 98 funds subsidized preschool, we provide background on Proposition 98 and the elementary and secondary education, and Proposition 98 minimum funding guarantee. We community colleges. In this report, we analyze next describe and assess the Governor’s estimates the Governor’s Proposition 98 budget package. In of the minimum guarantee and his corresponding the first section, we provide background on public overall Proposition 98 spending package. In the schools in California. (We provide background on remaining sections of the report, we describe community colleges in our forthcoming Higher and assess the Governor’s specific Proposition 98 Education Budget Analysis.) In the second section, proposals. K-12 EDUCATION IN CONTEXT In this section, we answer many questions averaging 2 percent per year between 1994-95 legislators and others commonly ask about K-12 and 2004-05. Over this earlier decade, statewide education in California. We begin with a focus on enrollment grew by nearly 1 million students. the main components of California’s public school Almost Six in Ten California Students Are system, then turn to the state’s academic standards From Low-Income Families. In 2014-15, 59 percent and student performance on standards-aligned of California’s public school students were eligible assessments, and finish by explaining the basics of to receive a free or reduced price school meal under school finance in California. a large federal nutrition program. States frequently use this eligibility measure as an indicator of California’s Public student poverty. Qualifying students come from School System families earning no more than 185 percent of the Below, we describe California’s students, federal poverty level. In 2014-15, this level equated teachers, local education agencies, and state to $45,000 for a family of four. California’s rate of education agencies. free or reduced price meal eligibility is above the nationwide rate of 50 percent. Students Half of California Students Are Hispanic. California Has More Than 6 Million Public As shown in Figure 1 (see next page), the ethnic K-12 Students. In 2014-15, California’s public make-up of California’s students differs notably from schools enrolled a total of 6.2 million students, the nationwide picture. Whereas half of California’s representing 13 percent of all public school students students are of Hispanic origin and about in the nation. About two-thirds of these students one-quarter are white, in the United States those were in grades kindergarten through eight, with shares are flipped. Differences exist among other one-third attending high school. Over the past ethnic groups too, with Asian students comprising a decade, student enrollment has been virtually flat, larger share of students in California than the nation with enrollment in 2014-15 about 1 percent below (12 percent and 5 percent, respectively), and black the 2004-05 level. Enrollment in the preceding students comprising a smaller share (6 percent in decade, however, grew rapidly, with growth California compared to 15 percent nationwide). www.lao.ca.gov Legislative Analyst’s Office 5 2016-17 BUDGET Nearly One-Quarter of California Students for special education than the rest of the nation Are English Learners. In 2014-15, 22 percent (13 percent). Specific learning disabilities such as (1.4 million) of California students were classified dyslexia are the most common diagnoses requiring as English learners—a higher proportion than in special education services (affecting 4 percent any other state. One out of every three English of the state’s K-12 students), followed by speech learners in the nation attends school in California. and language impairments (affecting 2 percent of Even more California students—almost 2.7 million California’s students). While the overall prevalence students overall—speak a primary language of students with autism and chronic health other than English at home, but almost half of problems still is relatively rare (each affecting about these students are considered fluent in English. 1 percent of California’s students), the number California students come from families speaking of students diagnosed with these disabilities has over 60 different home languages, although the increased notably over the last decade. vast majority (78 percent) speak Spanish, with Teachers Vietnamese the next most common language Graphic Sign Off (3 percent). California Has Almost 300,000 Teachers. In One in Ten California Students Are Identified 2014-15, about 296,000 teachers were Semepclroeyteadr iyn as Having a Disability Affecting Their Education. the public school system. Roughly thrAeen-aqulyasrtters In 2014-15, about 647,000, or roughly 10 percent of teachers are women, similar to the MshParAe in of K-12 students in the state, were identified with other states. Compared to the studentD peoppuultaytion, a disability affecting their education. Pursuant to teachers are more likely to be white (68 percent federal law, schools must provide these students of teachers compared to 25 percent students) and with special education services. California less likely to be Hispanic (19 percent of teachers identifies a slightly smaller proportion of students compared to 54 percent of students). The number Figure 1 Ethnic Make-up of California's Students Differs From Nation 2014-15 California United States Other Other Black Asian Black Asian White Hispanic White Hispanic 6 Legislative Analyst’s Office www.lao.ca.gov ARTWORK #160005 Template_LAOReport_large.ait 2016-17 BUDGET of teachers decreased during the last economic experience. This is higher than ten years ago, when recession, dropping from 310,000 in 2007-08 to teachers had an average of 13 years of experience. 284,000 in 2011-12. Since 2011-12, the number of As shown in Figure 2, the share of teachers in teachers has increased each year. California with 15 or fewer years of experience has California’s Credentialing Requirements steady declined (from 65 percent in 2005-06 to Are Similar to Those in Other States. To obtain 55 percent in 2014-15), whereas the share with more a first-time teaching credential in California, than 15 years of experience has steadily increased individuals must have a bachelor’s degree, complete (from 35 percent in 2005-06 to 45 percent in a teacher preparation program, meet certain basic 2014-15). skills requirements, and demonstrate subject California’s Teacher Salaries Higher Than matter competency. Within five years of receiving Most Other States. Based upon the most recent their initial credentials, teachers must complete national data, California has the third highest approved, two-year, on-the-job training programs average teacher salary. Its average teacher salary in to obtain their full professional credentials. Most 2013-14 was 26 percent higher than the national other states have similar requirements. Fully average. California consistently has ranked in credentialed teachers from other states who want the top four of states, having the highest average to work in California typically are granted in-state teacher salary of all states three of the last ten years. Graphic Sign Off credentials conditionally, having to fulfill certain Teacher Salaries Vary Significantly Across Secretary California-specific requirements (including a basic the State. In California, the state requires most Analyst skills requirement and a requirement relating to LEAs to set teacher salary levels through collective teaching English learners) within a set amount of bargaining. The average teacher salary in California MPA time. in 2014-15 was $71,400, but teacher salary levels Deputy Four in Ten Teachers in California Have varied widely across the state. Orange County Advanced Degrees. In 2014-15, less than 1 percent had the highest average salary at $81,000, whereas of California’s teachers held less than a bachelor’s Siskiyou County had the lowest salary at $55,200. degree, 57 percent possessed a bachelor’s degree, and Figure 2 42 percent had a master’s Share of Teachers by Years of Experience degree or other advanced graduate degree. The share 70% 15 years or less of teachers with a master’s 60 or other advanced graduate degree has increased by 50 almost 10 percentage points 40 over the past ten years. 30 15 + years Average Years of Teaching Experience Have 20 Steadily Increased Over 10 Last Decade. In 2014-15, California’s teachers had 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 an average of 14 years of www.lao.ca.gov Legislative Analyst’s Office 7 ARTWORK #160005 Template_Letter.ait 2016-17 BUDGET Average teacher salaries tend to be higher in urban Size of California School Districts counties, such as San Mateo ($74,500), Los Angeles Varies Dramatically. As shown in Figure 3, ($72,400), and San Diego ($71,700), and lower in California’s 947 school districts vary greatly in rural counties, such as Shasta ($60,900) and Sierra size. One-quarter of school districts are very ($56,500). small, serving 300 or fewer students. Another California Has Among Highest Student-to- one-third are small, serving between 301 and Teacher Ratio in Nation. Though California’s 2,500 students. Whereas these two sets of districts teachers tend to be better paid than the rest of the combined comprise more than half of all districts nation, the state employs comparatively fewer of in California, they account for only 7 percent of them. Based upon the most recent national data, all students. At the other extreme, 13 very large California had the highest student-to-teacher ratio. districts each serve more than 40,000 students and California’s average student-to-teacher ratio in together educate about one-fifth of all students in 2012-13 was 23.7 to 1 compared to the national the state. The largest district in California (and the average of 16 to 1. The state’s student-to-teacher second largest in the nation) is the Los Angeles ratio consistently has been among the highest Unified School District, serving 9 percent of all in the nation, even prior to the recent economic California students. Seven of the state’s counties recession. contain only a single school district, and 201 school districts contain only a single school. At the other Local Education Agencies extreme, Los Angeles County contains 80 school School Districts, Charter Schools, and County districts and the Los Angeles Unified School Offices of Education Provide Instruction to District contains almost 800 schools. Students. The public school system is comprised of Charter Schools Are Fast-Growing Sector of many local education agencies (LEAs). In 2014-15, California’s K-12 School System. An increasing 947 school districts, 1,173 charter schools, and 58 share of California students attend charter schools. county offices of education operated in California. Charter schools are publicly funded schools that are California’s public school system also includes similar to traditional schools in many ways—they three state special schools for certain blind and deaf must employ state-certified teachers, and they must students as well as four Division of Juvenile Justice teach and assess students based on the same state facilities for incarcerated students. academic standards. They differ from traditional Figure 3 California School Districts Vary Greatly in Size 2014-15 Number of Percent of Total Percent of District Size Districts All Districts Students All Students 6 to 300 238 25% 28,970 1% 301 to 2,500 308 33 335,323 6 2,501 to 5,000 136 14 490,730 9 5,001 to 10,000 116 12 863,800 16 10,001 to 40,000 136 14 2,593,579 47 40,000+ 13 1 1,172,038 21 Totals 947 100% 5,484,441 100% Note: Based on average daily attendance. Excludes charter school attendance. 8 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET district-operated schools, however, in that they $250 million and about 1,500 employees— are exempt from certain laws, allowing them rendering it midsized compared to other more flexibility over the design of their education departments within California state government. programs. While overall K-12 enrollment has been More than two-thirds of CDE’s funding comes relatively flat over the past decade, the number of from federal funds, as most of CDE’s activities students attending charter schools has more than are associated with federal programs. The tripled, growing at an average rate of 12 percent Superintendent of Public Instruction (SPI) oversees each year. In 2014-15, charter schools served the day-to-day operations of CDE. In California, 545,000 students (9 percent of the statewide total). the SPI is a non-partisan position elected by voters. Charter schools ranged in size from 7 students to This contrasts with most other states in which the more than 5,000 students, with an average school officers heading their departments of education size of 444. typically are appointed by their governors or state County Offices of Education (COEs) Operate boards of education. Regional Programs and Services. Specifically, they Three Other State Agencies Involved in operate alternative programs for students who Aspects of K-12 Education. In addition to CDE, the are incarcerated, on or referred by probation, or following three state entities are involved in major have been mandatorily expelled by their district aspects of K-12 education. of residence. Many COEs also operate regional • The State Board of Education (SBE), special education and career technical education consisting of ten members appointed by programs. In addition, COEs offer a variety of the Governor, is responsible for setting regional services to support school districts. Most and implementing various state policies, COEs, for example, operate countywide payroll including developing regulations needed systems and provide professional development for to implement state laws involving K-12 teachers and administrators. The COEs also are education, granting LEAs waivers from required to review and approve school districts’ certain requirements in state law, selecting annual budgets, monitor the fiscal health of a contractor for the state’s standardized districts twice per year, and review districts’ tests, and adopting instructional materials strategic plans, known as Local Control and for kindergarten through grade eight. Accountability Plans. • The Commission on Teacher Credentialing State Education Agencies is responsible for accrediting teacher California Department of Education (CDE) preparation institutions to ensure those Administers Education Programs at the State institutions have met minimum standards; Level. The department is the primary state entity credentialing teachers to ensure those responsible for administering federal and state individuals have met minimum training education programs. The department monitors requirements; and monitoring teacher compliance with laws and regulations for education conduct to ensure teachers conduct programs; collects and compiles data related to themselves appropriately. districts, schools, and students; allocates funding; • The State Allocation Board allocates and monitors state contracts for student testing. bond funding for the construction and The department has an annual budget of around www.lao.ca.gov Legislative Analyst’s Office 9 2016-17 BUDGET modernization of public school facilities. administer state-approved student assessments, Prior to receiving state bond funding, and report certain student performance outcomes. school facility projects must be reviewed In addition to state law, federal law places, as a and approved by the Office of Public condition of receiving funding, several major School Construction, an office within the requirements on schools. Most notably, the federal Department of General Services. government requires schools to provide special education services and requires annual testing A Few Entities Tasked With State-Level in certain subjects and grade levels. The federal Functions. In addition to these state entities, the government also funds various programs that have state contracts with a few entities (via their COEs) specific requirements associated with them. For to undertake activities that have statewide benefits. example, if a school district accepts a federal Title The Fiscal Crisis and Management Assistance I grant, then it must demonstrate that the funds Team (affiliated with the Kern COE) provides fiscal are used for supplemental services for low-income advice, management assistance, and other training students. (As highlighted in the nearby box, the to school districts across the state. California federal government recently reauthorized the School Information Services (also affiliated with the legislation governing much of its K-12 education Kern COE) helps LEAs across the state with data requirements.) management issues. The K-12 High Speed Network The SBE Is Responsible for Developing State (affiliated with the Imperial COE) assists schools Regulations. In many instances, state law delegates with connectivity to Internet2 (a network reserved important policy decisions to the board. In 2014, mostly for education institutions). The California for example, the board adopted regulations that Collaborative for Educational Excellence (affiliated specified how LEAs could spend certain revenues with the Riverside COE), established by the state from the Local Control Funding Formula. The in 2013 and in the midst of development, will serve board also is in the midst of considering various as a hub of expertise for helping LEAs improve issues relating to the state’s new accountability student outcomes. system, including whether to modify or replace the Policy and Performance Academic Performance Index (a summary measure of academic performance), what to include in the Below, we focus on major state and federal laws evaluation rubrics COEs are to use to monitor affecting K-12 education and then turn to student school district performance, and how to integrate performance. the state’s accountability system with recently Law and Regulations adopted changes in federal law. State and Federal Law Governs Large Academic Standards Portion of K-12 Education. Much of school The SBE Adopted California’s First Set operations are dictated by state and federal law. of Academic Content Standards in the Late For example, the state sets caps on the size of 1990s. As required in state law, these academic elementary and middle school classrooms, requires content standards were to specify what students a minimum of 180 instructional days per year, should know after completing each subject area and sets minimum course requirements for high in each grade level. California first adopted school graduation. State law also requires LEAs academic content standards for its core content to implement state-adopted academic standards, 10 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET areas—English language arts, math, science, and developed Next Generation Science Standards in history-social science—in 1997 and 1998. The 2013. (California was a lead state partner in the state subsequently adopted standards for English development of these new standards.) Because the language development (used for instructing English state has yet to develop curriculum frameworks learners), visual and performing arts, physical or new exams aligned with NGSS, instruction in education, career technical education, and world the classroom is not yet aligned to the new science languages. The Instructional Quality Commission, standards. an advisory body to SBE, created associated Student Assessments curriculum frameworks that provided examples of lesson plans aligned with the content standards. Federal Law Requires States to Administer Like Most States, California’s Instruction Standardized Tests. Federal law requires states to Now Based on Common Core State Standards. In assess students in English language arts and math 2010, at the direction of the state Legislature, the in grades 3 through 8 and at least once from grades SBE adopted the Common Core State Standards 10 through 12. In addition, federal law requires (with the addition of a few California-specific states to assess students in science at least once standards) as the new foundation for what students during: (1) grades 3 through 5, (2) grades 6 through should know and be able to do in English language 9, and (3) grades 10 through 12. States also are arts and math from kindergarten through twelfth required to annually assess the English proficiency grade. The new standards are designed to be of English learners. From 2003 through 2013, better at preparing students for college and career. most students in California were assessed using California schools are implementing the new the California Standards Tests (CSTs) in these standards by modifying curriculum, conducting subjects, which were aligned to the state’s first set professional development for staff, and purchasing of academic standards. (Students with moderate or new instructional materials. Forty two states and severe disabilities were assessed using alternative the District of Columbia also have adopted and are assessments.) implementing the Common Core State Standards. First Exams Aligned to Common Core State in Process of Implementing New Science Administered in Spring 2015. Although the Standards. California also adopted the nationally Common Core State Standards were adopted by President Signs Every Student Succeeds Act on December 10, 2015 The Every Student Succeeds Act (ESSA) is the main federal legislation affecting K-12 education. The act supersedes the No Child Left Behind (NCLB) Act, enacted in 2002 and up for reauthorization since 2007. As with NCLB, the ESSA sets specific requirements for states to test students in English language arts, math, and science; report testing data by specified student subgroups (including low-income students); and identify and intervene in their lowest-performing schools. The ESSA most notably differs from NCLB in that it provides states with flexibility to develop their own accountability systems and decide for themselves what actions they will take to improve low-performing schools and districts. By comparison, NCLB was much more prescriptive in dictating specific school turnaround strategies that states were to implement. www.lao.ca.gov Legislative Analyst’s Office 11 2016-17 BUDGET SBE in 2010, schools were not expected to have and performing arts, technology, or any other their instruction aligned with the new standards subject matter. The SPI also may consider whether until 2014-15, at which time the state was to additional assessments should be developed to administer a new set of Common Core-aligned supplement existing exams in English language assessments. The new assessments were developed arts, math, and science. by the Smarter Balanced Assessment Consortium Student Performance (SBAC), a group of 18 member states, with California a lead member. The SBAC assessments Student Performance on State Exams are intended to be taken online using a computer Improved From 2003 Through 2013. Student or tablet (though schools have a pencil-and-paper performance on the CSTs improved significantly option for the first three years). Compared to the during the ten years when the CSTs were state’s previous exams, which consisted almost administered. As Figure 4 shows, the percentage exclusively of multiple choice questions, the SBAC of students scoring advanced or proficient on the assessments contain some open-ended responses. eighth grade English language arts exam almost For example, both English language arts and math doubled—from 30 percent to 57 percent—from 2003 exams include performance tasks that require to 2013. Performance improved at similar rates for students to review source materials and respond in both low-income and non-low-income students. writing to several questions. Student performance also improved at similar rates State in Process of Developing Several New in English language arts at other grade levels and on Exams. Over the next several years, the state plans math exams. As part of the transition to new exams, to develop additional assessments aligned with the California suspended the CSTs in spring 2014. Thus, Common Core State Standards. Specifically, the no performance data is available for 2014. state plans to develop new assessments for students Figure 4 with disabilities and new Student Performance on State Exams Has Improved assessments in languages Percent of Students Proficient or Above on other than English. In 8th Grade English Language Arts Exam addition, the state plans 100% to develop new exams in 90 science and English language development to replace 80 existing exams that are 70 Non-Low-Income Students aligned to older standards. 60 The state also will consider 50 All Students whether to add other 40 assessments. By March 1, 30 Low-Income Students 2016, the SPI must submit 20 recommendations to SBE 10 regarding whether the state should add assessments 2003 2005 2007 2009 2011 2013 in social science, visual 12 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Graphic Sign Off Large Achievement Gaps Remain Under New than that of low-income students, both groups Assessments. The results of the new assessments perform lower than their peers in other states. Secretary in English language arts and math—the first year California’s performance compared to other states Analyst of results based on the new standards—were made has not changed significantly in the past ten years. MPA public in September 2015. Statewide, 44 percent of In addition to having lower performance compared Deputy California students met or exceeded standards in to other states, California also has among the English language arts, whereas 33 percent met or largest achievement gaps between low-income exceeded standards in math. As Figure 5 shows, and non-low-income students. In fourth grade the results of the new exams show significant “achievement gaps”—the difference between Figure 5 the scores of low-income and Achievement Gaps Remain Under New State Exams non-low-income students. Percent of Students That Met or Exceeded Standard In eighth grade English 80% language arts, for example, Low Income 70 64 percent of non-low-income Non-Low Income students met or exceeded the 60 state standards, compared 50 to 32 percent of low-income 40 students. These gaps are similar for other subjects and 30 other grade levels and similar 20 to achievement gaps under the 10 prior exams (a difference of roughly 30 percentage points). 3rd Grade 8th Grade 11th Grade 3rd Grade 8th Grade 11th Grade California Ranks Near English Language Arts Math Bottom on National Tests. Figure 6 shows California’s ranking on the National Figure 6 Assessment of Educational ARTWORK #160005 California Ranks Near Bottom on National Testsa Progress, a federal California’s Ranking Among 5T0e mStaptelsa taend_ LDAistOricRt eofp Coorlutm_bmiaid.ait assessment conducted Low Income Non-Low Income Achievement nationwide. As the All Students Students Students Gapb figure shows, California 4th grade performs near the bottom Reading 49 49 40 49 in tests of reading and Mathematics 48 51 39 49 8th grade math for fourth and eighth Reading 44 45 39 37 grades. Although the Mathematics 41 45 34 38 performance of non-low- a Based on performance on the 2015 National Assessment of Educational Progress. Ranking compared to 50 states and District of Columbia. income students tends to b Achievement gap is difference between score of non-low-income and low-income students. The state that is ranked 1 has the rank somewhat higher smallest gap. www.lao.ca.gov Legislative Analyst’s Office 13 2016-17 BUDGET reading, for example, California’s achievement gap funding from all sources. As Figure 7 shows, is ranked 49th in the country. (That is, 48 states have the largest share of school funding comes from achievement gaps that are smaller than California.) the state, with smaller shares coming from local Eight in Ten Students Graduate High School sources (primarily from local property tax revenue) Within Four Years. Of the cohort of students that and the federal government. These proportions entered ninth grade in the 2010-11 school year, differ from many other states, where local property 81 percent graduated within four years, 12 percent tax revenues cover a much larger share of school dropped out of school, 7 percent returned to school funding. (Unlike many other states, California’s for a fifth year, and less than 1 percent received State Constitution limits local property tax rates.) either a High School Equivalency Certificate (if they Additionally, in contrast to many other states, passed the General Educational Development Test) most school districts’ overall funding levels are not or a special education certificate of completion. affected by how much local property tax revenue Increasing Share of Graduates Complete they receive. This is because California generally Coursework Required for University Eligibility. In uses local property tax revenue as an offset for state 2014, 42 percent of California students graduated General Fund spending. That is, if a district receives Graphic Sign Off high school having completed the coursework more local property tax revenue in a given year, the required to be eligible for admission to the state reduces the district’s General Fund support by Secretary University of California and California State a like amount. About one in ten school districts in Analyst University. This proportion has been gradually California, however, are affected by growth in their MPA increasing over the last 20 years. In 1994, 32 percent local property tax revenue, as they have such high Deputy of California high school graduates completed such levels of local revenue that the state provides no coursework. (To meet the minimum eligibility direct base aid. requirements for the University of California and California State University, students also must meet Figure 7 certain grade point average State Is Primary Operating Revenue for Schools requirements and take 2014-15 college entrance exams.) Federal Finance Below, we discuss how schools are funded in California and how funds Local are allocated and spent at the local level. School Funding State State Is Primary Source Lottery of Operating Revenue for Schools. In 2014-15, schools received $82 billion in total 14 Legislative Analyst’s Office www.lao.ca.gov ARTWORK #160005 Template_LAOReport_mid.ait 2016-17 BUDGET Per-Pupil Funding in 2014-15 Exceeded Allocation and Use of Funds Pre-Recession Level. For 2014-15, schools directly Most Funding Is Allocated Through the Local received $9,853 in state General Fund and local Control Funding Formula (LCFF). The 2015-16 property tax revenue per student, about $200 budget plan allocated 90 percent of K-12 education (2 percent) above the 2007-08 pre-recession level funding (state General Fund and local property tax adjusted for inflation. The 2015-16 Budget Act revenue combined) through LCFF. School districts provided schools with $10,089 per student, a $200 and charter schools may use LCFF funds for any (2 percent) increase from 2014-15. educational purpose, though they must use a California Per-Pupil Spending Ranks in portion of these funds for increasing or improving Bottom One-Third of States. Based on data from services for English learners and low-income 2012-13, California ranked 36th in per-pupil spending students. In addition to general purpose LCFF among the 50 states and District of Columbia. funds, the state provides funding for various In 2007-08, prior to the most recent recession, categorical programs, the largest being special California ranked 23rd in per-pupil spending. The education. (Categorical programs restrict funding drop in ranking over this period is primarily due to for specified purposes.) the reductions the state made during the recession. Graphic Sign Off Most School Spending Is for Instruction. As Because California’s revenues are highly sensitive Figure 8 shows, 62 percent of school expenditures Secretary to changes in the economy and financial markets, in 2013-14 were related to instruction and Analyst California’s budget tends to be more significantly instructional support—largely paying teacher MPA affected by recessions (and recoveries) than most salaries and benefits. Schools spent 17 percent of Deputy other states. Given California has made significant their funds on facilities, including land acquisition, increases in K-12 funding over the past three years, construction, and maintenance. Schools spent its ranking likely will increase as newer data become 10 percent on pupil services, including school available. meals, pupil transportation, counseling, and If Adjusted for Cost of Employment, California Figure 8 Drops in the Rankings. Some Most School Spending Is for Instruction organizations produce rankings 2013-14 of state per-pupil spending with Other adjustments for regional costs. Administration In these rankings, California typically ranks much lower. Pupil Services In one recent ranking, for example, California ranked 46th in per-pupil spending. The Instruction adjustments in these rankings Facilities are primarily intended to control for the variation in wages across the country, with average wages higher in California. www.lao.ca.gov Legislative Analyst’s Office 15 ARTWORK #160005 Template_LAOReport_mid.ait 2016-17 BUDGET health services. About 10 percent of funds were legal, and human resource functions; and other spent on central administration, including the expenses, including purchasing, printing, and data compensation of superintendents; central business, processing. OVERVIEW OF THE GOVERNOR’S BUDGET In this section, we describe how the state Various Inputs Determine Operative “Test.” calculates its school funding obligation under As described in Figure 9, the minimum guarantee Proposition 98; discuss changes in proposed is determined by one of three tests set forth in the funding and spending from 2014-15 through State Constitution. These tests are based on several 2016-17; and examine some of the key issues facing inputs, including changes in K-12 attendance, per the Legislature over the next few years. capita personal income, and per capita General Fund revenue. The operative test that sets the Background on Calculating minimum guarantee is triggered automatically Minimum Guarantee depending on these inputs. In most years, Proposition 98 Sets Minimum Funding Test 2 or Test 3 has been the operative test, with Level for Schools and Community Colleges. State the minimum guarantee building upon the level of budgeting for schools and community colleges funding provided the prior year. Since the inputs is governed largely by Proposition 98, passed are not finalized until a few years after the close of by voters in 1988. The measure, modified by the fiscal year, the operative test can fluctuate and Proposition 111 in 1990, establishes a minimum the minimum guarantee can change significantly funding requirement for schools and community from the level initially assumed in the budget. colleges, commonly referred to as the minimum State Can Provide More Funding Than guarantee. Both state General Fund and local Required or Suspend Guarantee. During the property tax revenue apply toward meeting the economic boom that prevailed in the late 1990s, minimum guarantee. the state for several years provided more funding than was required by the Figure 9 minimum guarantee. Constitution Sets Forth Three Tests for Alternatively, in 2004-05 Calculating Proposition 98 Minimum Guarantee and 2010-11, the state applied a provision of Test 1—Share of General Fund. Ensures Proposition 98 programs receive at least 40 percent of state General Fund revenue. This test applies only when it Proposition 98 allowing results in a higher funding level than Test 2 or Test 3. Test 1 has been operative for the suspension of the 4 of the last 27 years. minimum guarantee upon Test 2—Growth in Personal Income. Adjusts prior-year Proposition 98 funding for changes in K-12 attendance and per capita personal income. This a two-thirds vote of each test applies when higher than Test 1 but lower than Test 3. Test 2 has been house of the Legislature. operative 14 of the last 27 years. When the state suspends Test 3—Growth in General Fund Revenue. Adjusts prior-year Proposition 98 funding for changes in K-12 attendance and per capita General Fund revenue. the minimum guarantee, This test applies when higher than Test 1 but lower than Test 2. Test 3 has been it can provide a lower level operative 7 of the last 27 years. of funding but it creates an Note: In 2 of the last 27 years, the state suspended Proposition 98. 16 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET out-year obligation to restore K-14 funding in later minimum guarantee for 2014-15, 2015-16, and years (as described below). 2016-17. Below, we describe these changes. State Creates “Maintenance Factor” 2014-15 Minimum Guarantee Up $387 Million Obligation in Certain Years. Proposition 111 From Budget Act Estimates. As shown in allows the state to provide less funding than the Figure 10, the administration’s revised estimate of Test 2 level if Test 3 is operative or it suspends the 2014-15 minimum guarantee is $66.7 billion, an the minimum guarantee. In these years, the state increase of $387 million compared with the budget creates a maintenance factor obligation, which is plan adopted last June. This upward revision largely equal to the difference between the higher Test 2 reflects a $441 million increase in the amount of level and the amount of funding actually provided. local property tax revenue received by schools and Moving forward, the maintenance factor obligation community colleges. (Because Test 1 is operative in is adjusted annually for changes in K-12 attendance 2014-15, increases in property tax revenue result in and per capita personal income. In subsequent a higher overall Proposition 98 funding level rather years, when General Fund revenue is growing than offsetting General Fund costs.) The increase more quickly, the Constitution requires the state in property tax revenue is due to higher-than- to make maintenance factor payments until this expected ongoing savings from the dissolution of obligation has been paid off. The magnitude and redevelopment agencies ($303 million) and changes timing of these payments is determined by formula, to several other components of local property though stronger and faster revenue growth tax revenue ($138 million). The administration generally requires larger and more rapid payments. also adjusts its estimate of the guarantee to These maintenance factor payments increase the reflect changes in a few other factors, including minimum guarantee on an ongoing basis. a $93 million reduction in General Fund tax revenue and slightly lower-than-expected growth Changes in Minimum Guarantee in state population. These adjustments result As part of its budget package, the in a $54 million reduction to General Fund administration has updated its estimates of the Proposition 98 funding. Figure 10 Updating Estimates of 2014-15 and 2015-16 Minimum Guarantees (Dollars in Millions) 2014-15 2015-16 June 2015 January 2016 June 2015 January 2016 Estimate Estimate Change Estimate Estimate Change Minimum Guarantee General Fund $49,608 $49,554 -$54 $49,416 $49,992 $575 Local property tax 16,695 17,136 441 18,993 19,183 191 Totals $66,303 $66,690 $387 $68,409 $69,175 $766 Operative Test 1 1 — 3 2 — Key Factors General Fund tax revenue $112,068 $111,975 -$93 $116,619 $120,205 $3,585 Maintenance factor payment $5,402 $5,392 -$10 — $810 $810 K-12 average daily attendance 5,994,522 5,981,073 -13,449 5,995,889 5,976,227 -19,662 www.lao.ca.gov Legislative Analyst’s Office 17 2016-17 BUDGET 2015-16 Minimum Guarantee Up $766 Million now will meet this condition, we do not anticipate from Budget Act Estimates. Also shown in the state will meet the remaining conditions for Figure 10, the administration’s revised estimate of making a deposit and capping school district the 2015-16 minimum guarantee is $69.2 billion, reserves (as described later). an increase of $766 million compared with the 2016-17 Guarantee Up $3.2 Billion Over budget plan adopted last June. This increase is 2015-16 Budget Act Level. As shown in Figure 11, due primarily to a $3.6 billion increase in General the Governor’s budget includes $71.6 billion in total Fund tax revenue. Whereas the June budget plan Proposition 98 funding in 2016-17. This funding assumed the state would make no maintenance level is $3.2 billion (4.6 percent) above the 2015-16 factor payment in 2015-16, this higher revenue Budget Act level and $2.4 billion (3.5 percent) requires a maintenance factor payment of above the revised 2015-16 level. Relative to the $810 million. The administration also revises its 2015-16 Budget Act level, several factors explain the estimates of a few other Proposition 98 factors. higher 2016-17 guarantee. First, the $766 million These adjustments yield a net $44 million reduction upward adjustment in the 2015-16 guarantee in the guarantee. The most notable of these other carries forward, increasing the 2016-17 guarantee revisions is for K-12 attendance. Whereas the by a like amount. Second, Test 3 is operative June budget plan assumed attendance would in 2016-17, with the guarantee adjusted for the grow by 0.02 percent from 2014-15 to 2015-16, the growth in per capita General Fund revenue. The administration now estimates that K-12 attendance administration estimates this growth at 2.4 percent. has declined 0.08 percent over the period. (Under In combination with a 0.5 percent increase that a two-year hold harmless provision in the State applies automatically when Test 3 is operative, Constitution, the change in K-12 attendance is this growth results in the guarantee increasing deemed to be zero rather than negative.) by about $2 billion. Third, the state is required to Under Revised Estimates, State Pays Off make a $475 million supplemental appropriation All Maintenance Factor by End of 2015-16. to ensure the minimum guarantee grows at least Upon making the $810 million maintenance as quickly as the rest of the state budget. (The factor payment, the state will have paid off supplemental appropriation is due to a state law all maintenance factor created during the adopted in 1990 and is required only when Test last recession, leaving no maintenance factor 3 is operative.) These three increases are offset by outstanding for the first time since 2005-06. Paying a 0.08 percent decline in K-12 attendance, which off this obligation has two main implications. First, reduces the guarantee by roughly $25 million. any additional increases in 2015-16 revenue will (The constitutional hold harmless provision does not result in a further increase to the guarantee. not apply in 2016-17 because attendance declined This dynamic contrasts notably with the situation in the two preceding years.) Despite the increase in 2012-13 and 2014-15, under which additional associated with these factors, the 2016-17 guarantee revenue increased the guarantee nearly dollar for remains below the Test 2 funding level. As a result, dollar. Second, paying off the maintenance factor the state creates $548 million in new maintenance created prior to July 1, 2014 is one of the conditions factor. the state must meet before making a deposit into 60 Percent of Increase in 2016-17 Guarantee the state school reserve, thus triggering the capping Covered by Higher Local Property Tax Revenue. of local districts’ reserves. Though the state likely Though the minimum guarantee grows by 18 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET $2.4 billion from revised 2015-16 estimates to • Assessed Property Values Projected to 2016-17, state General Fund spending grows by only Grow by 5.6 Percent. The largest source of $980 million (2 percent), whereas local property local revenue for schools and community tax revenue increases by $1.4 billion (7.5 percent). colleges is the 1 percent tax levied on As shown in Figure 12, this large increase in local the value of residential and commercial revenue mainly results from two factors: property. The administration projects that assessed property values will increase Figure 11 Proposition 98 Funding by Segment and Source (Dollars in Millions) Change From 2015-16 2014-15 2015-16 2016-17 Revised Revised Proposed Amount Percent K-12 Educationa General Fund $44,496 $44,536 $45,442 $906 2.0% Local property tax 14,834 16,560 17,802 1,242 7.5 Subtotals ($59,330) ($61,096) ($63,244) ($2,148) (3.5%) California Community Collegesb General Fund $4,979 $5,373 $5,447 $74 1.4% Local property tax 2,302 2,624 2,812 188 7.2 Subtotals ($7,281) ($7,997) ($8,259) ($262) (3.3%) Other Agenciesc $80 $82 $83 — 0.3% Totals $66,690 $69,175 $71,585 $2,410 3.5% General Fund $49,554 $49,992 $50,972 $980 2.0% Local property tax 17,136 19,183 20,613 1,430 7.5% a Includes State Preschool in 2014-15 and 2015-16 and proposed early education block grant in 2016-17. b Includes $500 million for adult education regional consortia in 2015-16 and 2016-17. c Consists entirely of General Fund. Figure 12 Proposition 98 Property Tax Revenue Estimates Reflects Governor’s Budget (Dollars in Millions) Change From 2015-16 2014-15 2015-16 2016-17 Revised Revised Estimated Amount Percent Local Property Tax Components Tax on assessed valuea $15,737 $16,616 $17,544 $929 5.6% End of “triple flip” — 1,257 1,676 419 33.3 RDA ongoing revenue shift 1,126 1,008 1,045 36 3.6 Other local revenueb 1,069 998 1,039 41 4.1 Excess tax revenuec -796 -695 -690 5 -0.7 Totals $17,136 $19,183 $20,613 $1,430 7.5% a Reflects school and community college allocations from the 1 percent property tax levied in each county. b Largely reflects the taxes levied on business property and property sold midyear. Also includes payments of delinquent taxes, one-time revenue associated with the sale of RDA assets, and several smaller taxes. c Reflects revenue in “basic aid” districts and county offices of education that does not count toward the Proposition 98 minimum guarantee. RDA = Redevelopment Agency. www.lao.ca.gov Legislative Analyst’s Office 19 2016-17 BUDGET by 5.6 percent in 2016-17, similar to the Governor proposes to dedicate $342 million of the average growth rate over the past 20 years. available 2014-15 funding and $754 million of the This increase equates to $929 million in available 2015-16 funding toward the K-14 mandate additional property tax revenue. backlog. Of the combined $1.1 billion, schools would receive $1 billion and community colleges • Final Shift of Revenue From End of “Triple would receive $76 million. The Governor designates Flip.” The triple flip began phasing out the remainder of available 2014-15 and 2015-16 in 2015-16, with $1.3 billion in associated funding for a few other purposes (including startup local property tax revenue flowing back grants for new charter schools). to schools and community colleges. In Largest Spending Proposals for 2016-17. 2016-17, schools and community colleges Figure 13 summarizes the Governor’s will receive an additional $419 million Proposition 98 spending proposals for 2016-17. For associated with the final quarter of this schools, the Governor’s largest proposal is to provide shift. (The triple flip was a complex $2.8 billion to continue implementation of LCFF. financing mechanism under which the state The next largest proposal is to provide $240 million diverted local sales tax revenue to pay off for the Career Technical Education Incentive Grant certain state bonds, backfilled cities and for Secondary Schools. (The Governor also proposes counties with property tax revenue, and $60 million in 2015-16 dollars for this purpose, backfilled schools and community colleges bringing total program funding to $300 million.) with state General Fund.) Additionally, the Governor proposes a significant restructuring of the State Preschool and transitional Changes in Spending kindergarten programs. For community colleges, Governor’s Budget Package Includes the Governor’s largest proposal is to provide $4.3 Billion in New Proposition 98 Spending. The $255 million on a one-time basis for deferred Governor’s budget includes a total of $4.3 billion maintenance and instructional equipment. The in additional spending related to increases in Governor also proposes $200 million to implement the Proposition 98 minimum guarantee. From the recommendations of the Board of Governors an accounting perspective, $387 million is (BOG) task force on workforce development attributable to 2014-15, $766 million is attributable and $115 million to increase community college to 2015-16, $3.2 billion is attributable to 2016-17, enrollment by 2 percent. and $257 million is a settle up payment related to Other Proposals for 2016-17. The Governor’s meeting the Proposition 98 minimum guarantee budget also includes several smaller proposals. for 2009-10. In addition, the proposed budget As shown in Figure 13, the budget provides a repurposes $1.5 billion in Proposition 98 funding 0.47 percent cost-of-living adjustment (COLA) for freed up from several expiring one-time 2015-16 several K-12 programs (including special education initiatives. From a cash perspective, schools and and child nutrition) as well as community college community colleges will receive all of this funding apportionments. Due to the recent drop in fuel in 2016-17. Below, we describe the Governor’s major prices, this COLA is well below the historical Proposition 98 spending proposals. average of about 3 percent per year. For schools, Higher 2014-15 and 2015-16 Spending Largely the budget also proposes to allocate $7 million for Dedicated to Paying Down Mandate Backlog. The truancy and dropout prevention, consistent with 20 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET the requirements of Proposition 47. The budget Period. The Governor’s budget assumes that also allocates $5 million in ongoing funding for the General Fund tax revenue will be $112 billion K-12 High Speed Network (HSN). (In 2015-16, the in 2014-15, $120.2 billion in 2015-16, and state required this program to fund its operations $124.2 billion in 2016-17. Although we believe these by drawing down reserves.) For community estimates are a reasonable starting point for budget colleges, the budget provides (1) $48 million to deliberations, they rely upon many assumptions make the CTE Pathways program permanent, (2) about the national and state economy. In May, the $30 million to augment the Figure 13 Basic Skills Initiative, (3) 2016-17 Proposition 98 Changes $25 million (one time) to fund Innovation Awards, (In Millions) (4) $10 million to increase Revised 2015-16 Proposition 98 Spending $69,175 funding for the Institutional Technical Adjustments Remove prior-year one-time payments -$1,446 Effectiveness Initiative, Make other adjustments -115 and (5) $5 million to Adjust categorical programs for changes in attendance -16 create pathways that allow Make LCFF adjustments 101 Revise estimate of energy efficiency funds 58 students to earn degrees and Annualize funding for previously approved preschool slot increases 31 certificates with no textbook Subtotal (-$1,386) costs. K-12 Education Increases in Funding Increase LCFF Funding $2,825 Fund CTE Incentive Grant for Secondary Schools (year two of three) 240a Per Student. Under the Provide 0.47 percent COLA for select categorical programs 23 Governor’s budget, K-12 Fund truancy and dropout prevention program 7 Proposition 98 funding Fund High Speed Network 5b Support Exploratorium 4 per student increases from Fund improvement of web-based tools for state accountability system 1 a revised 2015-16 level Shift funding for transitional kindergarten and preschool into new block grant 0 of $10,237 to $10,605 in Remove prior-year augmentation for infants and toddlers with disabilities -30 Subtotal ($3,073) 2016-17, an increase of $368 California Community Colleges (3.6 percent). Community Fund deferred maintenance and instructional equipment (one time) $255 college Proposition 98 Implement workforce recommendations of BOG task force 200 funding per full-time Fund 2 percent enrollment growth 115 equivalent (FTE) student Make CTE Pathways Initiative ongoing 48 Augment Basic Skills Initiative 30 increases from a revised Provide 0.47 percent COLA for apportionments 29 2015-16 level of $6,878 to Fund Innovation Awards at community colleges (one time) 25 $7,003 in 2016-17, an increase Increase funding for Institutional Effectiveness Initiative 10 Fund development of “zero-textbook-cost” degree programs 5 of $125 (1.8 percent). Improve systemwide data security 3 Increase apprenticeship reimbursement rate 2 Issues to Consider Provide 0.47 percent COLA for selected student support programs 1 Subtotal ($723) Changes to Revenue Total Changes $2,410 Estimates Affect the 2016-17 Proposition 98 Spending $71,585 Minimum Guarantee a Budget includes additional $60 million from other Proposition 98 funds. b Differently Across the Budget includes additional $3.5 million from other Proposition 98 funds. LCFF = Local Control Funding Formula, COLA = cost-of-living adjustment, CTE = Career Technical Education, and BOG = Board of Governors. www.lao.ca.gov Legislative Analyst’s Office 21 2016-17 BUDGET administration will revise these estimates based by roughly 50 cents. Changes in 2015-16 upon the latest available economic data. Compared revenue also could affect the 2016-17 with current estimates, higher revenue would tend guarantee. Counterintuitively, higher to increase the minimum guarantee whereas lower revenue in 2015-16 (all else constant) revenue would tend to reduce the guarantee. The would reduce the guarantee in 2016-17 exact effect, however, varies notably depending on because it would lower the year-to-year the year in which the revenue changes occur. Below, growth rate. Lower revenue in 2015-16 we describe sensitivity of the guarantee to revenue would increase the guarantee in 2016-17 changes in 2014-15, 2015-16, and 2016-17. because it would raise the year-to-year growth rate. • 2014-15 Guarantee Is Highly Sensitive. In 2014-15, Test 1 is the operative test for Local Property Tax Estimates Likely Too calculating the minimum guarantee and Low in 2015-16 and 2016-17. We believe the the state is making a large maintenance administration’s estimate of local property factor payment. Under these conditions, tax revenue is $1.1 billion too low across the the guarantee changes virtually dollar for two-year period—$520 million too low in dollar with any change in revenue. Any 2015-16 and $620 million too low in 2016-17. As increase in the guarantee, however, likely described below, most of our differences with would not carry forward into 2015-16. the administration are concentrated in two This is due to a provision in the State areas. (Our estimates for a few of the smaller Constitution known as “spike protection,” components of property tax revenue also are which effectively prevents large jumps in slightly higher than what the administration the guarantee from carrying forward into projects.) future years. • Redevelopment-Related Ongoing Revenue. The administration estimates • 2015-16 Guarantee Is Relatively that the ongoing revenue shifted to Insensitive. In 2015-16, Test 2 is operative schools and community colleges from and the state has paid off all maintenance former redevelopment agencies will factor. Relative to the administration’s be about $1 billion per year in 2015-16 estimates, state revenue could increase by and 2016-17. Based on increases in as much as $7 billion with no increase in the tax increment allocated to the the guarantee. Conversely, state revenue former redevelopment agencies and the could fall by as much as $1.3 billion with repayment of redevelopment-related debt, no decrease in the guarantee. we think revenue is likely to exceed the • 2016-17 Guarantee Is Moderately administration’s estimates by $330 million Sensitive. In 2016-17, Test 3 is operative in 2015-16 and $364 million in 2016-17. and growth in the guarantee depends (We believe the administration’s current upon year-to-year growth in General forecast methodology systematically Fund revenue. For every $1 dollar understates redevelopment-related increase (decrease) in 2016-17 revenue, revenue.) the guarantee would increase (decrease) 22 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET • Assessed Property Values. The Devoting Some 2016-17 Funding for administration estimates that assessed One-Time Purposes Provides Cushion if Revenue property values will grow by 5.6 percent Declines in Future Years. Though a recession per year in 2015-16 and 2016-17. does not seem imminent, the minimum guarantee By contrast, we estimate growth of could decrease in 2017-18 or future years if stock 6 percent in 2015-16 (based on the latest market prices were to drop or growth in the data submitted by county assessors) economy and personal income were to decline. and 6.3 percent in 2016-17 (based on Even a modest slowdown could reduce the 2017-18 continuing growth in housing prices). minimum guarantee below the Governor’s Accounting for the higher growth rates, proposed 2016-17 spending level. Such a scenario we think the associated tax revenue will serves as a caution against the state committing exceed the administration’s estimates all available Proposition 98 funding for ongoing by about $100 million in 2015-16 and purposes. The Governor’s budget dedicates $200 million in 2016-17. $520 million of the funding within the 2016-17 minimum guarantee for one-time activities. This If local property tax revenue comes in higher effectively reflects a cushion of less than 1 percent than the administration estimates, Proposition 98 (0.7 percent). If the guarantee were to decline by General Fund costs will be correspondingly lower more than this amount in 2017-18, the Legislature and available non-Proposition 98 General Fund might have to reverse its progress toward LCFF will be higher. implementation or make reductions to other Recent Data Suggest Per Capita Personal ongoing programs. The Legislature could consider Income Will Grow More Quickly Than dedicating a larger share of 2016-17 funding for Administration Projects. Federal data released one-time activities to minimize the likelihood of in December 2015 suggest that per capita such future reductions. personal income will grow more quickly than Proposals to Extend Proposition 30 Income the administration assumes in 2016-17. Whereas Taxes Would Increase Minimum Guarantee. the administration assumes a growth rate of Proposition 30, approved by the voters in 4.4 percent, we believe growth could be around November 2012, temporarily increased personal 1 percentage point higher based on this new income taxes for very high-income Californians. information. Though the higher growth is unlikely Though these taxes are scheduled to expire at to change the operative test or the minimum the end of December 2018, a proposal is being guarantee in 2016-17, it does mean the state circulated to extend them. We estimate that likely will create more maintenance factor than an extension would raise between $5 billion the administration assumes. With a 5.4 percent and $11 billion annually in the initial years of growth rate, for example, the state would create implementation, with the increase in 2018-19 a new maintenance factor obligation of about around half of this amount, as half of the $1.3 billion, compared with the $548 million associated revenue raised in 2019 would be obligation assumed by the administration. This accrued to 2018-19. The large range in the estimate additional maintenance factor obligation would is due to the income volatility of high-income tend to increase school funding in future years. Californians. These individuals receive a large portion of their incomes from investments in www.lao.ca.gov Legislative Analyst’s Office 23 2016-17 BUDGET the stock market and other sources that can vary Though an extension of the Proposition 30 notably from year to year. The additional revenue income taxes would tend to increase state would increase the minimum guarantee, with the revenue, our projections indicate that this exact effect depending upon which Proposition 98 increase alone would not be large enough to meet test were operative and how much maintenance all of the conditions for a deposit into the state factor were outstanding in 2018-19 and 2019-20. school reserve in 2018-19 or 2019-20. Absent a Under most of the economic scenarios we larger surge, a deposit would not occur and the examined, the increase in the guarantee was local reserve cap would not be triggered. roughly 50 cents for each dollar of revenue, Recent Growth in School Funding Has Far though the exact effect ranged from as low as Exceeded Initial Growth in Districts’ Retirement 20 cents to as high as 60 cents. For planning Contributions. School and community college purposes, we think the Legislature could assume districts are affected by both CalSTRS and schools and community colleges would receive CalPERS employer contribution rates. (CalSTRS roughly half of any revenue increase associated administers the pension system for teachers and with an income tax extension. For example, if other certificated employees, whereas CalPERS the measure raised $4 billion in 2018-19 and an administers the pension system for classified additional $4 billion in 2019-20 ($8 billion on employees.) The 2014-15 budget package included an annual basis), the state might plan for the a plan to fully fund the CalSTRS pension system guarantee to increase by $2 billion in 2018-19 and over the next roughly 30 years. In the first few an additional $2 billion in 2019-20 ($4 billion on years of implementation, districts’ CalSTRS an annual basis). contribution rates increased from 8.25 percent Deposits in State School Reserve Remain of payroll in 2013-14 (before the start of the rate Unlikely in Near Term. A state law approved in increases), to 8.88 percent in 2014-15, and to 2014 imposes a cap on school district reserves 10.73 percent in 2015-16. In addition to CalSTRS in the year after the state makes a deposit into rate increases, the CalPERS board recently began the state school reserve. Deposits are predicated increasing CalPERS contribution rates to move on several conditions. Though we anticipate one that system closer to full funding. Over this condition will be satisfied in 2015-16 (having initial period of rate increases, district costs for paid off all maintenance factor created before these two pension systems have grown by more 2014-15), we do not anticipate the state will meet than $800 million (about 80 percent of which the other conditions within the next few years. is related to CalSTRS increases). Over the same For example, a deposit requires the minimum period, the Proposition 98 minimum guarantee guarantee to be growing more quickly than per has increased by more than $10 billion. capita personal income. Under the projections Retirement Contributions Scheduled to released by our office in November and by the Continue Rising While Growth in School administration in January, this condition will not Funding Projected to Slow. District retirement be met in 2016-17 or any of the following three contributions are scheduled to continue years. To meet all of the conditions for a deposit, increasing each year for the next five years. the state very likely would need to experience Under the statutorily established schedule, a year-to-year revenue surge of at least several districts’ CalSTRS contribution rates are to billion dollars relative to these projections. reach 19.1 percent of payroll in 2020-21. CalPERS 24 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET contribution rates, though not fixed in statute, rates and/or high levels of poverty, are receiving also are expected to increase over this period. larger annual funding increases than other Compared to 2013-14 levels, districts’ CalSTRS districts. On the one hand, these districts may and CalPERS costs are anticipated to be roughly face somewhat less challenge in accommodating $5 billion higher annually by 2020-21 due to the pension rate increases. On the other hand, the scheduled rate increases (with about three- the state is requiring these districts to increase quarters due to CalSTRS rate increases). Under or improve their services for EL/LI students. various multi-year economic simulations, These districts likely are experiencing tension we found districts’ retirement cost increases in deciding how best to balance these two accounted for between roughly one-quarter and priorities (covering the pension rate increases half of the projected increases in school funding and improving EL/LI services), along with all over the period. other priorities. Despite this tension, these Pension Rate Increases, Coupled With districts still likely face somewhat less difficult LCFF Implementation, Pose Certain Challenges choices than those districts with historically high for Certain Types of Districts. As the state per-pupil rates and/or low levels of poverty that implements LCFF, some districts, typically are experiencing pension rate increases at the those with historically low per-pupil funding same time their annual allocations are growing slowly. LOCAL CONTROL FUNDING FORMULA The largest proposal in the Governor’s system designed to be more flexible, student- budget is a $2.8 billion augmentation for oriented, and cost-driven. implementation of LCFF. Below, we discuss the New Formula Based on Student and enactment of LCFF and the main components District Characteristics. The LCFF has three of the formula. We then describe and assess the primary components: base funding rates tied Governor’s proposal. to four grade spans; supplemental funding for English learner, low-income, and foster youth Background (EL/LI) students; and concentration funding State Enacts New School Funding Formula for districts with relatively high proportions of in 2013-14. Legislation enacted as part of the EL/LI students (more than 55 percent of their 2013-14 budget package made major changes enrollment). As displayed in Figure 14 (see next to the way the state allocates funding to school page), the base rates generally increase for higher districts and charter schools. Previously, the grades in recognition of their higher costs—for state distributed school funding through revenue example, providing career technical education in limits (general purpose grants) and more than 40 high school. (The K-3 rate is an exception to this state categorical programs. Categorical programs rule. It is higher than the rates for grades 4-8, as had long constrained districts by requiring them it is intended to support smaller class sizes in the to spend fixed amounts on prescribed activities. early grades.) The state replaced the historical revenue limit An Illustration of Two Districts’ LCFF and categorical funding system with a new Calculations. Figure 15 (see next page) shows www.lao.ca.gov Legislative Analyst’s Office 25 2016-17 BUDGET the LCFF target calculation for two equally threshold. Given the difference in student sized elementary school districts. Both districts demographics, District A receives a total of generate the same amount of base funding given $430,000 more than the other district. they serve the same number of students in the Implementation Expected to Take a Number K-3 and 4-6 grade spans. Though they have of Years. When it enacted the new formula, the same attendance by grade span, District A the state set target per-pupil rates that were has a notably higher share of EL/LI students much higher than under the former system. compared to District B. As a result, District Over the course of implementation, districts A generates more supplemental funding than and charter schools will receive new funding the other district. Unlike District B, District A based on the difference (or gap) between their also generates concentration funding given its prior-year funding level and their target LCFF share of EL/LI students exceeds the 55 percent funding level. Based on projections of growth in Proposition 98 funding, the administration Figure 14 estimated that the LCFF Target Funding Rates state would reach full Target Rates as Calculated in 2015-16a implementation in Supplemental Concentration 2020-21. Over the past Grade Spans Base Rates Fundingb Fundingc three years, the state has K-3 $7,820 $1,564 $3,910 provided $12.8 billion 4-6 7,189 1,438 3,595 7-8 7,403 1,481 3,702 towards implementing 9-12 8,800 1,760 4,400 the formula. As shown a Does not reflect actual funding levels. State funded 90 percent of the target rates in 2015-16. in Figure 16, the b Equals 20 percent of the base rate. Generated for each district student who is a foster youth, an English learner, or low income (EL/LI). LCFF target level was c Equals 50 percent of the base rate. When EL/LI students comprise more than 55 percent of total district enrollment, generated for each EL/LI student above that threshold. 72 percent funded in LCFF = Local Control Funding Formula. 2013-14 and is 90 percent funded in 2015-16. Figure 15 Illustration of LCFF Calculation for Two Elementary School Districtsa District A District B Difference Attendance K-3 100 students 100 students — 4-6 120 students 120 students — EL/LI percentageb 91% 50% 41% Grade span funding $1,645,000 $1,645,000 — Supplemental funding 299,000 165,000 $134,000 Concentration funding 296,000 — 296,000 Totals $2,240,000 $1,810,000 $430,000 a Reflects target rates as calculated in 2015-16. Rounded to nearest thousand. b EL/LI students as a share of total enrollment. LCFF=Local Control Funding Formula and EL/LI=English Learner/low-income. 26 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Considerable Funding Provided on Behalf of have no explicit requirement to spend a certain EL/LI Students. One frequently asked question amount on EL/LI services. regarding LCFF is how much funding the state is Governor’s Proposal providing on behalf of EL/LI students. If LCFF had been fully implemented in 2015-16, the state Provides $2.8 Billion LCFF Increase. would have provided districts with $36 billion Consistent with the prior three years, the (out of a total of $58 billion in LCFF funding) Governor’s largest proposed programmatic on behalf of EL/LI students. In 2015-16, the augmentation in 2016-17 is for the LCFF for state is providing funding sufficient to cover school districts and charter schools. The only 90 percent of full implementation costs. If Governor’s budget provides a $2.8 billion one assumes all components of the formula are (6 percent) increase from 2015-16—bringing being phased in at the same rate (that is, base, total LCFF funding to $55 billion (excluding supplemental, and concentration funding all are Transitional Kindergarten). The Governor 90 percent funded on a statewide basis), then estimates the additional funding would close districts in 2015-16 received $32 billion (out of 49 percent of the remaining gap to target funding a total $53 billion in LCFF funding) for EL/LI levels. We estimate the proposed 2016-17 LCFF students. Of the $32 billion, $24.5 billion is base funding level would be approximately 95 percent funding, $4.5 billion is supplemental funding, of the statewide full implementation cost. and $3 billion is concentration funding. Districts Have Discretion Over Use Figure 16 of Funds. Districts can Tracking Funding for LCFF use most LCFF funds (In Billions) at their discretion. For supplemental and $70 Target concentration funding, Growth Funding Base 60 however, statute 49% requires districts to 52% of gap 50 of gap funded demonstrate that they 30% funded 12% of gap are “increasing or 40 o fu f n g d a e p d funded improving” services 30 for EL/LI students in proportion to the 20 increase in funding 10 generated by the students. As required by 2012-13 2013-14 2014-15 2015-16 2016-17 statute, SBE developed 72% 80% 90% 95% a formula to link the Percent of Target Level Funded proportional increase in LCFF = Local Control Funding Formula funding with increase in services, but districts www.lao.ca.gov Legislative Analyst’s Office 27 2016-17 BUDGET Assessment have had to make changes to their programs (LCFF has only been in effect for two and a half Prioritizing LCFF Implementation Consistent years) and the recent changes in the state’s testing With State’s Prior-Year Actions. The Governor’s system that make test scores difficult to compare plan to dedicate most additional ongoing K-12 to previous years’ scores, it is too early to draw funding to LCFF implementation is consistent conclusions regarding the effect of LCFF. Over with the Legislature’s approach over the past the next several years, additional outcome data three years. By continuing to prioritize LCFF will become available, allowing the state to assess implementation in 2016-17, both the Governor and both the overall effectiveness of LCFF and the the Legislature would be fostering greater local performance of individual districts. Down the control and flexibility while simultaneously making road, were the state to find no overall improvement progress toward providing additional funding for in EL/LI outcomes, it might consider rethinking or disadvantaged students. refining its funding and accountability approach. In Future Years, State Should Evaluate Were the state to find some districts’ EL/LI students Whether LCFF Has Helped Close Achievement performing much better than other districts’ EL/ Gaps. Given the LCFF was a recognition the state LI students (even under a system that provides wanted to do more to help improve outcomes all districts the same amount of funding for for EL/LI students, the state likely will want to these students), it could examine differences in examine EL/LI performance data to assess what district services to determine if some instructional effect the reforms have had on EL/LI outcomes. approaches and practices were more effective at Given the relatively short time frame districts helping EL/LI students. PRESCHOOL RESTRUCTURING In this section, we provide background on eligibility based on family income whereas one California’s major preschool programs; describe the determines eligibility by a child’s birthday. Two Governor’s proposal for preschool restructuring; of the programs require low-income families provide an assessment of the Governor’s proposal; to be working to receive full-day preschool and offer a framework for developing a single, whereas the other two programs do not have a coherent preschool program. work requirement. The programs operate out of school districts, subsidized preschool centers, Background or both places. The state funds each of the three California Has Several Major Preschool state programs using a different funding method Programs. Figure 17 highlights key features of (family vouchers, direct state contracts, and school California’s four largest preschool programs: district LCFF payments). Though not shown in the center-based voucher programs, the California figure, in 2014-15 the state also began providing State Preschool Program (CSPP), Transitional $50 million annually for Quality Rating and Kindergarten (TK), and federal Head Start. As Improvement Systems (QRIS) designed to promote shown in the figure, the programs are similar improvement among some CSPP providers in some in some ways and different in other ways. For areas of the state. In addition to the programs example, three of the four programs determine already mentioned, some preschool in California 28 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Figure 17 Major Preschool Programs in California Center-Based California State Transitional Voucher Programsa Preschoolb Kindergartenc Head Startd Eligibility Family income 70 percent of state 70 percent of state None 100 percent eligibility cap median income median income of federal poverty level Income cap for $42,216 $42,216 N/A $20,090 family of three (2015-16) Work requirement Yes Yes for full-day No No program Age eligibility Two through five-year Three and four-year Four-year olds with Three and four- criteria olds olds birthdays between year olds September 2 and December 2 Four-year olds 5,400 138,400 83,000 46,400 served (2015-16 estimates) Program Provider(s) Subsidized centers LEAs and subsidized LEAs LEAs and centers subsidized centers Duration Varies based on At least 6.5 hours Must operate no Determined by parents’ work per day, 250 days fewer than 180 local provider schedules per year for full-day days per year, program; at least hours per day three hours per determined by day, 175 days per district year for part-day program Funding Method of payment State provides funds to State directly State provides 5-year federal providers on behalf of contracts with funds through grant directly families providers LCFF to providers Total funding $60 million $740 million $690 million $420 million for four-year olds (2015-16 estimates) Annual funding per Average of $10,600 for $4,200 (part day) and Average of $8,500 Average of child (2015-16) full-time program $9,600 (full day) $9,100 a Includes the CalWORKs child care and Alternative Payment programs. Programs are offered to children birth through 12 years of age, with a certain funding rate and program requirements for children two through five-years old. Number of four-year olds served is estimate of four- year olds receiving care in a center. Overall, 19,100 four-year olds received vouchers for care in a variety of settings. Full-time rate assumes reimbursement on a monthly basis. b Up to 15 percent of children in program may come from families with incomes above cap. Program gives priority to serving four-year olds. c Districts may choose to serve other four-year olds, but those children do not generate state funding until they turn five. d Up to 10 percent of children in program may come from families with incomes above cap. Some programs also provide home visits and wraparound services such as health check-ups. Number of four-year olds served is based on 2014-15 enrollment. LEA = local education agency and LCFF = Local Control Funding Formula. www.lao.ca.gov Legislative Analyst’s Office 29 2016-17 BUDGET is funded with federal Title I funds, local First their children, or may be unable to find slots in 5 revenue, and special education funding. Some nearby programs. children may benefit from multiple preschool Many Children With Disabilities Not programs. For example, some children are enrolled Currently Served in Mainstream Programs. in both CSPP and Head Start. Federal law requires that LEAs provide appropriate For Some Programs, Available Slots services, in many cases including preschool, to Insufficient to Serve All Eligible Children. Some children with disabilities. Federal law also requires voucher programs, CSPP, and Head Start are that students with disabilities be served in the unable to serve all eligible children. Slots for least restrictive environment. For most three these programs are determined by annual budget and four-year olds with disabilities, this means a appropriations and priority for slots is given to program where they are served along with their certain children. Voucher programs and CSPP mainstream peers, such as in CSPP. Because federal must give priority to children receiving child law does not require school districts to create a protective services, children at risk of being mainstream preschool program if they do not abused or neglected, and children from families already have one, some children with special needs with the lowest incomes. Head Start providers are may not have a mainstreaming option available. In required to develop their own priority ranking 2013-14, 41 percent of three and four-year olds with based on the needs of the local community, but special needs were served in mainstream programs, they too generally limit eligibility to children from 34 percent were served in specialized programs, low-income families. For TK, all four-year olds with and 25 percent did not receive any form of early September 2 to December 2 birthdays, regardless education. of family income, are guaranteed slots. School Programs Have Different Standards and districts receive TK funding for these children Oversight. Figure 18 describes the standards automatically as part of their LCFF allotments. that apply to the four preschool programs. Each Some Children From Low-Income Families program has a unique set of requirements related Not Currently Served. Based on participation to teacher qualifications, staffing ratios, health and data from the four programs, we estimate between safety standards, developmental standards, and 60 percent and 80 percent of four-year olds from oversight. As shown in the figure, all programs families that earn below 185 percent of the federal are required to meet some minimum health and poverty level (FPL) are served by subsidized safety standards, although specific standards preschool centers and school districts. This range vary by program. Three of the programs must is large because we do not have data on the number include developmental standards, but these specific of children enrolled in multiple programs. (The standards also vary somewhat across the programs. 185 percent threshold is used as an eligibility Center-based voucher programs are not required criterion for various K-12 education programs, to include developmental standards, but some may including a major child nutrition program. In provide services similar to CSPP. 2015-16, the 185 percent threshold equated to Governor’s Proposal about $37,000 a year for a family of three.) Eligible children may not be participating for a variety Governor Proposes Consolidating Three of reasons. Some families may not be aware of Existing Funding Streams Into New Block Grant. subsidized programs, may choose not to enroll The Governor proposes to consolidate three 30 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET existing preschool programs into a new $1.6 billion program. The providers also would be required Early Education Block Grant. Specifically, the to conduct some support activities, including proposal would redirect funding from CSPP family engagement, screening for developmental ($845 million), TK ($726 million), and the QRIS disabilities, and referral to supportive health and Block Grant for CSPP ($50 million). Funds from social services, if appropriate. The Governor’s the new block grant would be given to LEAs and proposal does not shift $33 million in CSPP funds potentially other entities that currently offer CSPP that support preschool programs at 55 community to operate a developmentally appropriate preschool colleges. (These programs serve the dual purpose Figure 18 Standards for Major Preschool Programs Center-Based California Transitional Voucher Programs State Preschool Kindergarten Head Start Teacher Child Development Child Development Bachelor’s degree, Half of teachers must have a Qualifications Associate Credential Teacher Permit (24 Multiple Subject bachelor’s degree in ECE/ or 12 units in ECE/ units of ECE/CD plus Teaching Credential, CD or a bachelor’s degree CD.a 16 general education and a Child with ECE/CD experience. units).b Development Rest of teachers must have Teacher Permit associate degree in ECE/ or at least 24 CD (typically between units of ECE/CD 24 and 40 credits) or or comparable associate degree with ECE experience.c experience. Staffing Ratios 1:12 teacher-child 1:24 teacher-child ratio 1:33 maximum 1:20 teacher-child ratio and ratio or 1 teacher and 1:8 adult-child teacher-child ratio. 1:10 adult to child ratio. and 1 aide per 15-18 ratio. children. Health and Safety Staff and volunteers Staff and volunteers are Staff and volunteers Staff and volunteers are Standards are fingerprinted. fingerprinted. Subject are fingerprinted. fingerprinted. Subject to Subject to CCL to CCL health and Subject to K-12 CCL health and safety health and safety safety standards. health and safety standards. standards. standards. Developmental None. Developmentally Locally developed, The Head Start Early Standards appropriate activities modified Learning Outcomes designed to facilitate kindergarten Framework. transition to curriculum. kindergarten. Oversight Unannounced visits Unannounced visits by Teacher-child ratios Unannounced visits by CCL by CCL every CCL every three years subject to annual every three years or more three years or or more frequently audit. Some school frequently under special more frequently under special facilities inspected circumstances. Onsite under special circumstances. Onsite by COEs. reviews by the Federal circumstances. reviews by CDE Office of Head Start every every three years (or three years. as resources allow) and annual self- assessments. a The Child Development Associate Credential is issued by the National Credentialing Program of the Council for Professional Recognition. b The Child Development Teacher Permit is issued by California’s Commission on Teacher Credentialing. c Effective for new TK teachers hired after July 1, 2015. CCL= Community Care Licensing; CDE = California Department of Education; and ECE/CD = Early Childhood Education/Child Development. www.lao.ca.gov Legislative Analyst’s Office 31 2016-17 BUDGET of providing preschool for children of community while improving transparency and coherence. college students and serving as a lab school for Prioritizing funds for low-income children would students training to become preschool teachers.) ensure that the state’s available resources are Low-Income and At-Risk Children to Receive directed to those most likely to benefit. Low-income Priority. The Governor’s proposal requires block families are both less likely than higher-income grant recipients to prioritize services to children families to be able to afford preschool and more from low-income families (as defined locally), likely to benefit from access to preschool (according homeless children, foster children, children with to most mainstream research). Prioritizing at-risk disabilities, children at-risk of abuse and neglect, students would provide children who have had and English learners. Although the proposal adverse early childhood experiences access to specifies which students should receive priority, the supportive environments. Finally, prioritizing proposal does not require providers to serve any children with disabilities as part of a larger specific group of students. mainstream program creates more opportunities Hold Harmless Provision for LEAs. The for them to be served alongside their peers. Governor’s proposal includes a hold harmless Allowing Income Eligibility to Be Locally provision that ensures LEAs receive the same Determined Likely to Result in Similar Children amount from the new block grant as they otherwise Receiving Different Levels of Service. We are would have received from TK and CSPP contracts. concerned about the Governor’s proposal to let The state would distribute any remaining block income eligibility criteria be locally determined. grant funds based on local need. (At the time of Allowing this core eligibility criterion to be this writing, the administration’s proposed trailer set locally very likely would result in notable legislation had no specific definition of “local differences across the state in services and funding need.”) per child. This could result in similar children Administration Plans to Submit Additional being treated very differently based on where they Details of New Program as Part of May Revision. live. Neighboring school districts with similar The Governor’s January proposal contains few levels of funding, for example, could target their details about the restructured preschool program. program to a different set of students and provide The proposal, for example, does not set forth significantly different levels of service. specific eligibility criteria, the role of private Hold Harmless Provision Limits Ability to providers, program standards, or clear funding Allocate Funding Based on Need. We also are rules. The administration intends to solicit concerned about the Governor’s proposal to lock feedback from stakeholders on these issues and in districts’ funding allocations permanently. release a more detailed proposal in May. Because TK eligibility is based on birth month and not tied to need, school districts with relatively low Assessment and relatively high shares of low-income students Consolidating Funding and Prioritizing currently may be operating TK programs that are Based on Need Are Improvements Over Current similar in size. Thus, the Governor’s proposed hold Approach. The Governor’s proposal to consolidate harmless provision would result in some districts three preschool funding streams into one permanently receiving a disproportionate amount program would help simplify and streamline the of funding relative to their numbers of low-income state’s existing labyrinth of preschool programs and at-risk children. These districts would be able 32 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET to expand eligibility to serve a much larger share of and all four-year olds who are receiving child their children or provide a much more expensive protective services, are at-risk of being abused program for low-income or at-risk children in or neglected, are homeless, or have disabilities. their areas. By contrast, some school districts with Providers under such an approach might choose relatively high proportions of low-income and to offer preschool to children above 185 percent at-risk children would receive proportionately fewer of FPL, but they would need to do so using other resources. As a result, these districts would have resources. to narrow eligibility or operate with notably less Funding Linked to Children. To ensure that funding per child. additional funding directly results in additional children being served, we recommend the Recommendations Legislature allocate funding to providers based on Key Features of Any Restructured Preschool the number of eligible children who participate in Program. As discussed below, we believe certain the program. This approach is similar to current features are important to include as part of any funding for CSPP and TK. (As discussed in the restructured preschool program. nearby box, setting a per-child funding rate is One Consolidated Funding Stream. We likely to be among the Legislature’s most difficult recommend the Legislature consolidate all existing program decisions.) If the Legislature were to adopt Proposition 98 funding for preschool into one new a hold harmless provision for current providers, we program. Under this approach, the state would recommend the provision only take effect during consolidate nearly $1.7 billion in funding from the transition to the new system, as this would CSPP, TK, and QRIS, as well as the set aside for better ensure funding upon full implementation is community college lab schools, into one program. linked to children. Specific Eligibility Criteria. To ensure similar Convenience for Families. The Legislature children are treated similarly across the state, we could take a couple of steps to make participation recommend the Legislature set specific criteria for easier for families. We recommend the state require which students are eligible for the new preschool providers to offer full-day preschool programs program. We think a reasonable approach would for children from low-income, working families. be to provide preschool to all four-year olds from Without a full-day option, some families would families with incomes below 185 percent of FPL, otherwise be unable work or opt to place their Illustration of One Possible Funding Rate for New Preschool Program One of the most difficult decisions the Legislature likely would face as part of restructuring is setting the specific per-child funding rate. Ideally, the funding rate would be based on the cost of the service being sought. For illustrative purposes, if the Legislature required new preschool programs to operate 180 days per year (the same as the school year), it might offer a part-day rate of $5,200 and a full-day rate of $7,800 (part-day rate plus a $2,600 wraparound rate). This part-day rate is 20 percent higher than the current CSPP part-day rate. This wraparound rate is the same as the current CSPP wrap rate, adjusted for 180 days. These rates are roughly comparable to the current market-based, full-time, monthly voucher preschool rates, adjusted for 180 days. At these rates, we estimate the state could serve all children who meet our recommended eligibility criteria within existing resources. www.lao.ca.gov Legislative Analyst’s Office 33 2016-17 BUDGET children in less formal environments that have no participation rates by county. This would help the specific learning expectations. We also recommend state identify geographical areas that consistently the Legislature create a streamlined eligibility enroll relatively few eligible children, thereby verification process that reviews eligibility only allowing the state to make targeted efforts to once per year (at the beginning of the school year). increase preschool enrollment in those areas. Under such an approach, a child would remain To foster transparency, we also recommend the eligible for the entire school year, regardless of state require providers to create plans that would changes in family circumstances. be available online. Such plans could include Developmentally Appropriate Activities. We information on key elements of a program, such also recommend providers be required to include as the length of the program (hours per day and developmentally appropriate activities in their days per year), curriculum, process for measuring preschool programs. This could include using the program’s added value to the child, and family California’s Preschool Learning Foundations engagement activities. or an alternative framework, such as the Head Other Key Restructuring Decisions Start Early Learning Outcomes Framework, that includes age-appropriate activities. Foundations Various Trade-Offs to Consider When such as these typically focus on helping children Designing Remaining Features of Program. In learn self-awareness and self-regulation, how to addition to the above issues, the Legislature faces interact with peers and teachers, language and basic other important restructuring decisions. These literacy, and basic numeracy. Because these types of decisions entail selecting providers, developing a frameworks are not overly prescriptive, providers method for disbursing funding, and figuring out still would retain a great deal flexibility to develop how best to oversee the new program. Below, we a specific curriculum tailored to the needs and discuss some trade-offs the Legislature faces in interests of their children. making each of these decisions. Minimum Staffing Requirements. We Providers. One key decision the Legislature recommend the Legislature set some minimum would face in restructuring preschool is identifying standards to ensure a baseline of services for all which entities should be responsible for providing eligible children. At a minimum, we recommend the program. On the one hand, school districts that the state require teachers to have some and charter schools offer greater opportunity to education in child development (for example, a ensure preschool is aligned with kindergarten and Child Development Permit, as is required in CSPP) the rest of the K-12 school system. Additionally, and set a maximum teacher-child ratio. because school districts already have specific Basic Reporting Requirements. We district boundaries and are required to serve all recommend the Legislature also require basic school-aged children within those boundaries, information from providers. We recommend they are well-positioned to ensure that all eligible requiring providers to collect basic student children living within their catchment area have demographic information, such as race, gender, access to a new preschool program. (Smaller family income, and disability status. This data school districts, charter schools, and COEs also would allow educators and policymakers to are familiar with forming joint powers agencies monitor program participation. The Legislature to help them coordinate program services within also could require CDE to report preschool their vicinities.) Currently, no similar catchment 34 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET system exists for non-LEA providers. On the decisions seem to go together. For example, if the other hand, many non-LEA providers have a Legislature were to decide to serve all low-income long history and considerable expertise serving children, then relying on school districts becomes preschool-aged children. In many cases, these a relatively natural fit, as districts could be required providers also provide wraparound services, such to serve all children showing up for the program. as infant or toddler child care and after school care. If LEAs were selected as providers, then disbursing Furthermore, non-LEA providers may provide funds through LCFF and using local governing certain types of preschool options that have boards as oversight agents become more natural greater appeal to some families and may be more downstream decisions. Alternatively, were the conveniently located for some families than their Legislature to decide to select both LEAs and LEA options. non-LEAs as providers, then disbursing funds A Method for Disbursing Funds. Another through direct state contracts and using state important decision the Legislature would face in agencies to perform some oversight activities restructuring preschool is deciding how to disburse become more natural downstream decisions. funds to providers. Disbursing funds to LEAs Transition through the LCFF system is straightforward and requires no special administrative structure. Were Multi-Year Phase In. Any effort to restructure both LEAs and non-LEAs to provide preschool California’s preschool programs into a single, programs, however, the state likely would need coherent program will involve many decisions another funding disbursement mechanism. For and take some time. By gradually introducing new example, it might continue issuing direct contracts eligibility, program, funding, and administrative with providers. Though direct contracts are requirements over a number of years, the state somewhat more administratively burdensome could minimize disruption to children, families, than LCFF allocations, they still can keep funding and providers while ensuring steady progress linked with children served and track slots allotted towards a better system. Given families typically to each provider. make enrollment decisions and providers typically Oversight and Accountability. Finally, if it make staffing and budget decisions several months pursues preschool restructuring, the Legislature in advance, we recommend the Legislature allow will need to decide how to oversee program plenty of time to notify them of any program providers. On the one hand, having a robust state changes. oversight system could result in greater consistency Transition Plan. As part of restructuring, we among programs statewide. On the other hand, a recommend the Legislature create a transition plan local oversight system could take into account local that sets forth when certain changes would take priorities and challenges while also providing more place. For example, in the first year of a transition tailored feedback to local providers on improving plan, the state could continue CSPP and TK under their programs. existing rules. In the second year, the state could Some Program Components Fit Together replace CSPP and TK rules with new eligibility Better Than Others. Some combinations of rules and begin changing funding allocations to decisions seem to fit together better than other match children served. In the third year, combinations. In particular, certain combinations the state could fully transition to the new funding of eligibility, provider, funding, and oversight formula and begin to ramp up program oversight. www.lao.ca.gov Legislative Analyst’s Office 35 2016-17 BUDGET EDUCATION MANDATES In this section, we first provide background recently found two new state requirements to be on state education mandates and then discuss the mandates. The CSM recognized a law requiring Governor’s proposals for paying down the mandate school districts and COEs to provide annual backlog and funding the mandates block grant. training on the detection of child abuse to be a mandate. In addition, the CSM identified as a new Background mandate a requirement for school districts and Constitution Requires the State to Reimburse COEs to purchase devices for the administration Local Governments for Mandated Activities. of new computer-based state exams in English Proposition 4, passed by California voters language arts and math. The CSM is currently in in 1979, requires the state to reimburse local the process of determining a cost estimate for both governments for the cost of new programs and mandates. higher levels of service it imposes upon them. State Traditionally Paid Mandates Through Under a process subsequently established in state Claims Process. Under the state’s traditional law, the Commission on State Mandates (CSM) mandate reimbursement process, LEAs submit determines if a new law, regulation, or executive claims for the actual cost of performing each action constitutes a reimbursable state mandate for mandated activity. The State Controller’s Office local governments. In the area of education, a local (SCO) pays claims from funds appropriated in the government is defined as a school district, COE, or state budget. The SCO also audits some claims and community college district—collectively referred reduces payments accordingly. to as local education agencies (LEAs) throughout Mandates Also Can Be Paid Using Reasonable this section. Although some state-mandated Reimbursement Method (RRM). Beginning activities also apply to charter schools, the CSM in 2004, the state established an alternative deemed these schools ineligible for reimbursement reimbursement method, known as the RRM. beginning in 2006. Rather than filing for the actual cost of performing Currently 58 Active Education Mandates. the mandated activity, an RRM uses a formula As shown in Figure 19, the state budget currently to determine a reasonable amount to allocate to recognizes 43 mandates that apply to K-12 each applicable LEA. The CSM has adopted two education and 15 that apply to community colleges. education RRMs to date—one relating to the high (Of these mandates, seven apply to both K-12 school science graduation requirement and one education and community colleges.) The state relating to behavioral intervention plans. has suspended 17 other education mandates (five State Went Many Consecutive Years Without that apply only to K-12 education, five that apply Paying Claims, Large Backlog Mounted. The state only to community colleges, and seven that apply deferred payments on education mandate claims to both). LEAs are not required to perform the for seven consecutive years—from 2003-04 through activities associated with suspended mandates and, 2009-10. During this period, LEAs continued consequently, the state is not required to reimburse to submit claims, creating a large backlog of them. outstanding mandate claims. Two Additional Mandates in Various Phases Claim Amounts Vary Widely. Over the past of the Filing and Determination Process. The CSM several decades, our office has expressed concerns 36 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Figure 19 Education Mandatesa K-12 Education Active (43) Academic Performance Index Juvenile Court Notices II Agency Fee Arrangements Law Enforcement Agency Notificationc AIDS Prevention/Instruction I and II Notification of Truancy Annual Parent Notificationb Open Meetings/Brown Act Reform California State Teachers’ Retirement System Service Credit Parental Involvement Programs Caregiver Affidavits Physical Performance Tests Charter Schools I, II, III, and IV Prevailing Wage Rate Child Abuse and Neglect Reporting Public Contracts County Office of Education Fiscal Accountability Reporting Pupil Suspensions and Expulsions I and II Collective Bargaining Pupil Health Screenings Comprehensive School Safety Plans I and II Pupil Promotion and Retention Criminal Background Checks I and II Pupil Safety Notices Developer Fees Race to the Top Differential Pay and Reemployment School Accountability Report Cards I, II, III, and IV Expulsion of Pupil: Transcript Cost for Appeals School District Fiscal Accountability Reporting Financial and Compliance Audits School District Reorganization Graduation Requirements Teacher Notification: Pupil Suspensions/Expulsionsd Habitual Truants The Stull Act High School Exit Examination I and II Threats Against Peace Officers Immunization Records (includes Pertussis and Hepatitis B) Uniform Complaint Procedures Intradistrict Attendance Williams Case Implementation I, II, and III Interdistrict Attendance Permits Suspended (12) Absentee Ballots Mandate Reimbursement Process I and II Brendon Maguire Act Physical Education Reports County Treasury Withdrawals Pupil Residency Verification and Appeals Grand Jury Proceedings Removal of Chemicals Health Benefits for Survivors of Peace Officers/Firefighters School Bus Safety I and II Law Enforcement Sexual Harassment Training Scoliosis Screening Community Colleges Active (15) Agency Fee Arrangements Minimum Conditions for State Aid Cal Grants Open Meetings/Brown Act Reform California State Teachers’ Retirement System Service Credit Prevailing Wage Rate Collective Bargaining Public Contracts Community College Construction Reporting Improper Governmental Activities Discrimination Complaint Procedures Threats Against Peace Officers Enrollment Fee Collection and Waivers Tuition Fee Waivers Health Fee Elimination Suspended (12) Absentee Ballots Law Enforcement Jurisdiction Agreements Brendon Maguire Act Law Enforcement Sexual Harassment Training County Treasury Withdrawals Mandate Reimbursement Process I and II Grand Jury Proceedings Sex Offenders: Disclosure by Law Enforcement Health Benefits for Survivors of Peace Officers / Firefighters Sexual Assault Response Procedures Integrated Waste Management Student Records a Mandates typically include only very specific activities associated with their name. b Also includes Schoolsite Discipline Rules and Alternative Schools. c Also includes Missing Children Reports. d Also includes Pupil Discipline Records. www.lao.ca.gov Legislative Analyst’s Office 37 2016-17 BUDGET with the traditional claims reimbursement process. after collecting and submitting receipts, LEAs One of the most disconcerting aspects of the subsequently can be audited by the state, and the state’s traditional reimbursement method is that SCO historically has had very high disallowance per-student claims vary so greatly among every rates on audited claims. Of K-12 claims that the type of LEA. As Figure 20 shows, school district SCO determines to be high risk and audits, it per-student claims range from less than $1 to disallows about 75 percent of claim costs. almost $8,700. The range in per-student claims for State Has Made Significant Progress Towards COEs is even wider, from a low of less than $150 Reducing the Backlog, but Sizeable Backlog to a high of almost $30,000. Perhaps surprisingly, Remains. As Figure 21 shows, the state has LEA size is not strongly correlated with the size of provided $4.5 billion for reducing the K-14 mandate per-student claims. For example, the smallest and backlog since 2010-11. Of this amount, $3.8 billion largest district claimers both have fewer than 5,000 has been for the K-12 backlog and $700 million for students. the community college backlog. After accounting Widespread Agreement Claims Process for these payments, we estimate that the current Has Other Serious Shortcomings. In addition K-14 backlog is $1.9 billion. (Our backlog estimate to allowing vast differences in per-student does not include the $700 million in submitted claims, the traditional reimbursement process claims associated with pending litigation, as we provides no incentive for LEAs to perform assume the state prevails in these cases.) activities as efficiently as possible. The traditional State Created Mandate Block Grants as reimbursement process also has a high Alternative to Claims Process. To address administrative burden, as LEAs must document concerns with the mandate claims process and specific costs and fill out associated reimbursement provide a streamlined alternative approach for forms. This administrative process is so daunting reimbursing LEAs, the state created two mandate that some LEAs do not file for reimbursement block grants in the 2012-13 budget: a K-12 block and other LEAs hire consultants specifically to grant (for districts, COEs, and charter schools) help with their filings. Costs associated with filing and a community college block grant. The LEAs this paperwork led the CSM to determine that that choose to participate in these block grants the filing process was itself a mandate, for which receive per-student funding to cover the cost of LEAs could submit reimbursement claims. The state-mandated activities in lieu of submitting Mandate Reimbursement Mandate traditionally is claims. Figure 22 shows the per-student funding one of the state’s more expensive mandates. Even rates provided in the block grants. As shown in the figure, the per-student Figure 20 funding rate for most Distribution of LEAs’ Outstanding Claims types of students is $28, Claims Per Student with double that amount Share With Minimum Median Maximum ($56) provided for high Claims Claim Claim Claim school students. Charter School districts 50% —a $400 $8,673 schools generally receive County offices of education 69 $148 2,649 29,719 half the per-student Community college districts 14 183 1,514 5,001 a funding rates of school Actual value of claim is $0.39 per student. Note: Local education agencies (LEAs) with no outstanding balances have been omitted. districts, as about half 38 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET of K-12 mandates apply to them. A COE receives from settle-up funds, and $32 million from unspent funding for its direct students, as well as $1 for prior-year funds.) each K-12 student in the county. The K-12 and CCC Schools and Community Colleges Can Use block grants are intended to cover the annual costs Funds for Any Purpose. In many cases, LEAs of included mandates. Under this approach, the incurred associated mandate costs many years backlog for any mandates in the block grants does ago, with some claims dating to more than twenty not grow, but action still is needed to reduce the years ago. The funding LEAs would receive in prior-year backlog. 2016-17 therefore generally would not reimburse Near Universal Participation in Block Grant. activities recently undertaken. Given this timing The two block grants have very high participation issue, the Governor proposes language encouraging rates. In 2015-16, 93 percent of school districts, school districts, COEs, and charter schools to 91 percent of COEs, 91 percent of charter schools, dedicate their one-time funds to implementation and all community college districts participated of Common Core State Standards, technology, in the block grant. These participation rates reflect professional development, induction programs for modest increases for all LEA types compared beginning teachers, and deferred maintenance. to 2014-15. Currently, the LEAs participating in Somewhat similarly, the Governor’s proposal the block grants account for 99 percent of K-14 includes language encouraging community colleges attendance statewide. Figure 21 Mandate Backlog Funding for Education Mandates Backlog Below, we explain the Governor’s proposal Since 2010-11 to pay down the backlog of outstanding mandate (In Millions) claims, assess the proposal, and recommend an Year Funding K-12 Community alternative approach. Provided Education Colleges Totals 2010-11 $187 $23 $210 Governor’s Proposal 2014-15 400 50 450 2015-16 3,205 632 3,837 Governor Counts $1.4 Billion in One-Time Totals $3,792 $705 $4,497 Funding Toward Mandates Backlog. The Governor’s budget proposes to provide a Figure 22 large amount of one-time funding to schools Mandate Block Grant Rates ($1.3 billion) and community colleges ($76 million). Block The Governor proposes to count this funding Attendance Grant Rate toward schools’ and community colleges’ mandate Type of LEA Type Per Student backlogs. Consistent with similar payments made School Districts K - 8 $28 9 - 12 56 by the state the past few years, the Governor Charter Schools K - 8 14 proposes to distribute this funding on a per-student 9 - 12 42 basis, with schools receiving $214 per ADA and COEs K - 8 28 community colleges receiving $72 per FTE student. 9 - 12 56 Countywide K-12 1 (From an accounting perspective, the $1.4 billion Community Colleges FTE student 28 consists of $754 million from 2015-16 funds, LEA = local education agency; COE = county office of education; and $342 million from 2014-15 funds, $229 million FTE = full-time equivalent. www.lao.ca.gov Legislative Analyst’s Office 39 2016-17 BUDGET to use their one-time funds for campus security, the students enrolled in these four community technology, professional development, and the colleges account for less than 7 percent of all development of open education resources and community college students statewide. The highest zero-textbook-cost degrees. claimer, the North Orange Community College District, accounts for 52 percent of the remaining Assessment statewide backlog yet only 3 percent of the system’s Many LEAs Have No Outstanding Claims. FTE students. The level of disparity in community Due to the substantial payments the state already college claims is particularly striking considering has made to reduce the backlog, many LEAs the mandated activities apply uniformly and now have no outstanding mandate claims. After community colleges have less variation in size than accounting for payments made in the 2015-16 school districts or COEs. budget, we estimate 50 percent of school districts, Paying Down Backlog on Per-Student Basis 31 percent of COEs, and 86 percent of community Initially Had Notable Advantages. Paying down colleges have no outstanding claims. (Because the backlog on a per-student basis allocates funding charter schools are not eligible for reimbursement, proportionally, regardless of past mandate claiming they also have no outstanding claims.) practices. This approach ensures that LEAs are Few Apparent Reasons Why Some LEAs Might not disadvantaged if they did not submit claims Still Have Claims. Based on our review, we found in the past due to the complexity of the claiming few reasons to explain differences in per-student process or if they performed mandated activities mandate claims. As mentioned earlier, the size at a lower cost compared to other LEAs. The of outstanding claims does not strongly relate to uniform per-student approach for all LEAs also LEA size. One clear finding is that COEs have reduces the incentive for LEAs in the future to consistently higher claims on average than school perform state-mandated activities in inefficient or districts. Even among COEs, however, significant excessively costly ways. A per-student approach differences exist. For example, among COEs that also is consistent with the mandate block grant directly serve fewer than 100 students, outstanding Figure 23 claims range from $315 to Community Colleges With Remaining Mandate Backlog Claims $29,700 per student. Estimated Backlog at End of 2015-16 Ten Community Community College FTE Percent of Colleges With Remaining District Students Remaining Claims Remaining Backlog Claims Are a Stark North Orange 29,825 $149,056,058 52% Illustration of Issues El Camino 18,462 41,191,858 14 Now Facing State. As Victor Valley 9,293 37,521,227 13 Long Beach 19,676 28,287,718 10 Figure 23 shows, the Foothill-Deanza 27,115 13,010,492 5 four community college Redwoods 3,760 5,952,136 2 districts with the largest West Kern 2,478 4,175,026 1 San Mateo 18,418 3,377,897 1 remaining claims account Palo Verde 1,362 1,061,374 — for nearly 90 percent of Gavilan Joint 4,647 831,693 — the remaining community Totals 135,036 $284,465,480 100% college backlog. However, FTE = full-time equivalent. 40 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET approach, which allocates funding primarily based Below, we discuss the specific amounts that our on attendance, with some adjustments for the plan provides to school districts, COEs, charter particular circumstances of charters schools and schools, and community colleges. COEs. Provide Districts With Per-Student Eliminating Remaining Backlog Solely Using Funding Based on Statewide Median Claim. We Per-Student Basis Unrealistic. Given the wide recommend providing all participating school variation in remaining claims, paying off the districts with $450 per ADA, equal to the median backlog using solely a per-student approach is outstanding mandate claim for K-12 LEAs. If all no longer sensible. Of the Governor’s proposed school districts chose to accept the funding, the $1.4 billion mandate backlog payment, we estimate state cost would be $2.4 billion. that only 48 percent of the K-12 payments and Provide Most COEs With Per-Student 14 percent of the community college payments Funding, With Minimum Payment for Small would reduce the backlog. If the state were to COEs. We recommend the state provide COEs continue a per-student approach in future years, $450 per ADA (the same rate as districts), plus $20 such payments would be even less efficient for per countywide ADA. An additional countywide paying off the backlog. After the Governor’s ADA payment is consistent with the structure of proposed payment, we estimate the state would the mandates block grant for COEs, which provides need to provide an additional $177 billion to retire funding per countywide ADA in recognition of the the K-12 mandate backlog and another $5 billion countywide services that COEs perform. To ensure to retire the community colleges backlog using the the payments are sufficient to significantly reduce per-student approach. the backlog for small COEs, which tend to have the highest per-student costs of all types of LEAs, Recommendations we recommend each participating COE receive the Recommend a Multi-Year Plan for Retiring greater of its ADA-derived allotment or $1 million. the Mandate Backlog. We recommend creating a If all COEs chose to participate in this plan, the plan for districts and COEs to address the mandate state cost could be $160 million. backlog. The plan would provide $2.6 billion over Do Not Provide Funding to Charter Schools. the next two to three years, about $1 billion more We recommend the Legislature provide no than the existing mandate backlog. (The exact additional funding for charter schools at this time. length of the plan would depend on the amount In each of the past few years, the state has provided of one-time funding available.) As a condition of charter schools with the same per-student backlog receiving funding, the state would require school funding it provided for school districts. The state, districts and COEs to write-off any mandate however, provides charter schools about half the claims outstanding as of the end of 2015-16. For district rate under the mandates block grant in those LEAs choosing not to participate in the recognition that about half of mandates apply to payment plan, the state would continue to retain them. Because the state has not cut charter schools and track all of their outstanding mandate claims. per-student mandate backlog rates in half the past We think that our plan provides a per-student few years, we believe the state already has provided funding stream that avoids rewarding LEAs with an amount sufficient to cover charter schools extraordinarily high claims, while also strategically prior-year mandate costs. retiring a large proportion of the existing backlog. www.lao.ca.gov Legislative Analyst’s Office 41 2016-17 BUDGET Do Not Provide Funding for Community recommend that when the vast majority of LEAs College Backlog at This Time. The vast majority have new claims and the outstanding backlog of community colleges (86 percent) have no is sizeable, the state revisit the backlog. At that outstanding backlog as of 2015-16. Given time, the state could consider new per-student remaining claims are concentrated among only a funding rates for paying down both new and dozen community colleges, providing a uniform prior claims. per-student payment to all community colleges in Mandates Block Grant 2016-17 would retire very little of the outstanding backlog. Instead of addressing outstanding claims Below, we describe the Governor’s 2016-17 at this time, we recommend the state continue proposal related to the mandate block grants and to track claims. As we discuss further below, we recommend the Legislature apply a COLA to the recommend the state revisit the backlog when the block grants to preserve their purchasing power vast majority of community colleges once again over the long run. have claims on the books. Governor’s Proposal Address Any Remaining Backlog When Vast Majority of LEAs Once Again Have Sizeable Maintains Per-Student Funding Levels for Outstanding Claims. Under the funding rates Block Grants. The Governor’s budget provides for the backlog plan specified above, the vast $219 million for the K-12 mandates block grant majority of LEAs would receive enough funding and $33 million for the community college to fully retire their backlogs. Other school mandates block grant. Compared to 2015-16, districts and COEs that have some, but not all, these totals reflect a $1 million reduction to the of their claims funded likely would participate K-12 block grant and a $1 million increase to in plan too, thereby writing off their remaining the community college block grant to reflect claims. Upon full implementation of the plan, respective changes in attendance. The Governor relatively few LEAs likely would have outstanding makes no adjustment to the per-student rates for claims. We expect that outstanding claims will the block grants nor does the Governor propose begin to grow again, as CSM identifies new to add or remove any mandates from the block mandates and LEAs incur costs during the initial grants. determination phase. Growth in the backlog Recommendation would occur very gradually, however, as the process of determining if legislation is a mandate Recommend Applying a COLA to Block and placing it in the block grant can take several Grants. We recommend the Legislature provide years. Furthermore, the state has set precedent a 0.47 percent COLA to the mandates block the past few years for adding new mandates to the grants (the same COLA rate used for other K-12 block grant as soon as statewide cost estimates and community college programs). Applying have been developed, such that backlog costs a 0.47 percent COLA in 2016-17 would cost incurred in the interim phase could be relatively $1.2 million ($1 million for the K-12 block minor. Barring an unexpected, very costly grant and $150,000 for the community colleges mandate determination, we anticipate many block grant). Providing an annual COLA would years could pass before the vast majority of LEAs ensure block grant rates better reflect the cost of once again have outstanding mandate claims. We performing mandated activities and ensure LEAs’ 42 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET purchasing power is maintained. The mandate over time, which might cause some LEAs to stop block grant rates have not changed since the participating in the block grants and return to block grant was created in 2012-13. Without a filing separate reimbursement claims—arguably a COLA, the value of the block grants will erode disadvantage both for them and the state. SPECIAL EDUCATION In this section, we begin with an overview General Fund, 24 percent from federal funds, and of the Governor’s proposed budget for special 13 percent from local property tax revenue. These education. We then examine three special shares are about the same as in the prior two years. education budget issues: (1) differences in special Special Education Funding Rates education per-student funding rates, (2) funding for infants and toddlers with exceptional needs, Below, we provide background on special and (3) funding to develop new systems of support education funding, discuss differences in special for struggling students. education funding rates, and recommend a process for reducing these differences over time. Overview Background Governor’s Budget Proposes Slight Reduction in Special Education Funding. As Figure 24 Federal Law Requires Districts to Provide shows, the Governor’s budget includes $5 billion Supplemental Support for Students With for special education in 2016-17. Funding decreases Disabilities. Specifically, the federal Individuals $41 million (1 percent) from the revised 2015-16 with Disabilities Education Act (IDEA) requires level. The largest single source of this decrease is school districts, COEs, and charter schools the Governor’s proposal to remove a $30 million (collectively referred to as LEAs) to provide augmentation for infant and toddler services “specially defined instruction, and related services, included in last year’s budget. An additional at no cost to parents, to meet the unique needs decrease of $30 million reflects a slight decline of a child with a disability.” Once a district has (0.4 percent) in projected 2016-17 attendance and Figure 24 various other technical Special Education Funding adjustments. Offsetting (Dollars in Millions) some of this $60 million Change From 2015-16 reduction is an $18 million 2014-15 2015-16 2016-17 Actual Revised Proposed Amount Percent increase for a 0.47 percent COLA and a $1 million Proposition 98 General Fund $3,287 $3,257 $3,181 ($76) -2% increase in federal Local Property Taxes 529 593 627 34 6 funding. Of total special Subtotals ($3,816) ($3,850) ($3,808) (-$42) (-1%) education funding in Federal Fundsa $1,210 $1,206 $1,207 $1 — 2016-17, 63 percent Totals $5,026 $5,056 $5,016 -$41 -1% a comes from the state Excludes $14 million in federal funding for infants and toddlers passed through from the Department of Developmental Services. www.lao.ca.gov Legislative Analyst’s Office 43 2016-17 BUDGET determined a student with a disability requires services, LEAs use general purpose funds to cover additional educational support, it develops an any remaining cost. (In addition to the main state Individual Education Program (IEP) for the student and federal special education categorical programs, that documents which special education services a few other special education categorical programs the district will provide. Throughout this section, exist. The most notable of these is a state categorical we use the term student with disability (SWD) to program for infants and toddlers with exceptional refer to a student who has formally qualified to needs.) receive special education services. Most Categorical Funds Allocated to Special Education Services Supported by Both Special Education Local Plan Areas (SELPAs). General Purpose and Categorical Funds. Local Because economies of scale often improve both agencies receive billions of dollars in LCFF funding programmatic outcomes and cost-effectiveness, the on behalf of educating all students, including state distributes special education categorical funds SWDs. As shown in Figure 25, the supplemental to 130 SELPAs rather than to the approximately services LEAs must provide to SWDs impose 2,000 LEAs in the state. Most SELPAs are consortia additional costs on top of this base level of support. of nearby districts, COEs, Ganrda cphharitcer Sscihgonol sO, ff To assist LEAs in paying these additional costs, although some large districts have formed their Secretary both the state and federal government distribute own SELPAs. Additionally, three SELPAs consist Analyst categorical funds dedicated specifically for special of only charter schools and one SELPA consists MPA education. Because these funds typically are not solely of court schools in Los Angeles County. Each sufficient to cover the costs of all IEP-required SELPA has a governing boDaredp cuotnysisting of member LEAs that determines how Figure 25 categorical funds will be Cost of Providing Special Education allocated. These funds can Shared Among State, Federal, and Local Governments be distributed to member LEAs or retained by the SELPA to operate shared, Local General Purpose regionalized services. Federal IDEA Funding Provided for (A few special education Special Education Services funding streams, State Special Education including funding for infants and toddlers with exceptional needs, are allocated directly to Funding Provided LEAs.) LCFF for Every Student State Previously Distributed Categorical Funds Based on Projected Costs. Prior to 1998, IDEA = Individuals With Disabilities Education Act and LCFF = Local Control Funding Formula California distributed Note: Exact shares of cost borne by state, federal, and local governments vary somewhat among funds to SELPAs based local education agencies. on the estimated cost 44 Legislative Analyst’s Office www.lao.ca.gov ARTWORK #160029 2016-17 BUDGET of providing specific “units” of special education rate is $510 per student, with rates ranging from services. This system provided higher funding $480 to $925. This large variation in rates has amounts to SELPAs that identified a larger existed for many decades, largely stemming from proportion of their students for special education differences that pre-date the transition to the and served these students in more expensive census-based model in 1998-99. When the state settings. made the transition to the new special education Most Categorical Funds Now Allocated Based funding model, each SELPA’s per-student rate on Overall Student Population. To eliminate the was based on the amount of funding it had incentives to over-identify students for special received under the old unit-based model. The state education and provide them with more costly effectively carried forward significant variations in services, California switched to a “census-based” those former rates into the new system. model for special education funding in 1998. The State Has Made Efforts to Equalize Special census-based model allocates funds to SELPAs Education Rates. In an effort to reduce inequities based on total student attendance, regardless of in SELPA funding rates, the state funds all how many students are served in special education. SELPAs’ attendance increases at a uniform rate In adopting this model, the state implicitly assumes ($530 per student in 2014-15). That is, when a Graphic Sign Off that SWDs are distributed equally across SELPAs. SELPA’s attendance increases, it receives $530 The federal government made a similar switch per student, not its unique per-stuSdeecnrte rtaater.y As towards a census-based funding model starting in SELPA attendance increases, thisA anpparloyascth slowly 2000, though some federal funds still are allocated increases the lowest per-student rMatPesA and decreases according to other factors. the highest rates. Because statewiDdee aptutetnydance Special Education Funding Rates Vary Across has been virtually flat over the last 10 years, this SELPAs. Figure 26 shows the variation in SELPA equalization approach has had little effect on the per-student funding rates. The statewide median variation in per-student funding rates, with only Figure 26 Special Education Per-Student Funding Rates Vary Share of Statewide Attendance, 2013-14 25% 20 15 10 5 $480-490 $491-500 $501-510 $511-520 $521-530 $531-540 $541-550 $551-560 $561-570 $571-580 $580-590 $591-925 www.lao.ca.gov Legislative Analyst’s Office 45 ARTWORK #160029 Template_LAOReport_mid.ait 2016-17 BUDGET growing SELPAs being affected. The state also the old unit-based funding model provided greater provided $122 million in the late 1990s to partially levels of funding to SELPAs that identified a equalize SELPA per-student rates. More recently, in larger proportion of students for special education 2013-14, the Legislature appropriated $30 million and served students in more expensive settings. to equalize special education rates at the same pace Second, the state paid unequal per-unit rates to as LCFF implementation, but these funds were SELPAs. These per-unit rates were based on an vetoed by the Governor. In his veto message, the informal survey of special education expenditures Governor expressed concern that special education in 1979-80. The variation in expenditures primarily equalization would come at the expense of LCFF reflected differences in average teacher salaries at implementation. that time, which, in turn, were driven by differences Special Education Funding Disparities Not in regional wages and differences in the experience Addressed in State’s Recent Finance Reform. and qualifications of individual teachers. Although Since enacted in 2013-14, the state has dedicated we believe the state’s current census-based funding billions of new dollars toward implementing model is better designed than the old unit-based LCFF. In allocating these new dollars, the state has system, the current system in practice inherited taken a “gap” approach, such that districts receive the old system’s disparities in per-student rates, additional funding based on the difference (or gap) and the state has yet to reduce those disparities between their prior-year funding level and their significantly. target LCFF funding level. Under this approach, LEAs in SELPAs With Relatively Low Rates districts with historically low per-student funding Must Contribute a Larger Share of Local Funds rates are receiving larger LCFF funding increases to Special Education. When special education than those with historically high per-student rates. categorical funding does not cover all IEP-required Because special education funding was not shifted services, LEAs must use their local general purpose into LCFF and the Governor has not approved the funds to cover the difference. As a result, LEAs Legislature’s recent special education equalization that belong to SELPAs with relatively low special efforts, special education per-student rates have not education funding rates must contribute more increased significantly nor have differences in these (all else constant). We estimate that in 2013-14, rates been reduced significantly. school districts and COEs located in the quarter of SELPAs with the lowest funding rates spent Assessment an average of $370 per student in local funds. By Inequities in Special Education Funding contrast, districts and COEs located in the quarter Rates Are Due to Multiple Historic Anomalies. of SELPAs with the highest funding rates spent The differences between special education funding an average of $305 per student in local funds. rates across the state are due to multiple historic Because these funds would otherwise be available anomalies that have no relationship to SELPAs’ for general purpose expenditures, these findings current student populations. When the census- indicate that inequities in special education based funding model was first adopted in 1998, funding spill over and generate inequities in the each SELPA’s per-pupil rate was determined by amount of resources districts and COEs have for dividing their 1997-98 special education funding general education purposes. by their total ADA. These original rates differed among SELPAs primarily for two reasons. First, 46 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Recommendations Infants and Toddlers With Exceptional Needs Set Target to Equalize Special Education Funding at the 90th Percentile. We recommend Below, we provide background on the state’s the Legislature adopt statute stating intent to program for infants and toddlers with exceptional equalize special education funding rates to the 90th needs, assess the Governor’s proposal to remove percentile of existing rates. (When the Legislature an augmentation provided for this program last has equalized funding for education programs in year, and recommend the Legislature pursue the past, it typically has set this level as a target.) comprehensive reform of this program. We estimate the 90th percentile is approximately $570 per ADA in 2016-17. We estimate funding Background this equalization target would cost $307 million in State Serves Infants and Toddlers Who Are 2016-17. Developmentally Delayed or at Risk for Delay. Close Special Education Funding “Gap” California receives federal funding under IDEA at Same Rate as LCFF. We recommend the Part C, which requires participating states to offer Legislature take steps to equalize special services to all children from birth to 36 months of education funding rates at the same pace as LCFF age who are developmentally delayed or at serious implementation. Using this approach would involve risk for a developmental delay. Risk factors include two steps. First, it would require calculating each disabling conditions, such as hearing loss, visual or SELPA’s funding “gap”—the difference between the orthopedic impairments, and neurodevelopmental 90th percentile rate and the SELPA’s current rate. disorders, such as autism. The state identified and Second, it would require that any funds set aside for served approximately 35,000 infants and toddlers LCFF transition funding be applied proportionally under these eligibility categories in 2014-15. to the remaining gaps in both LCFF and special Most Infants and Toddlers Receive Services education. This would involve adding the total From the Department of Developmental Services special education funding gap for all SELPAs to (DDS). At the state level, responsibility for serving the statewide LCFF gap and using this new “LCFF infants and toddlers with exceptional needs is plus special education” gap level to calculate a gap shared by DDS and CDE. The state has designated closure rate. This gap closure rate then would be DDS as the lead agency for IDEA Part C services. applied equally to every SELPA (to close a portion Approximately 85 percent of enrolled infants and of their special education funding gap) and LEA toddlers receive services from Regional Centers (to close an identical portion of their LCFF gap). contracting with DDS, whereas the remaining If the Legislature adopted the Governor’s proposal 15 percent receive services from LEAs and SELPAs to provide $2.8 billion for LCFF gap funding and under the direction of CDE. used this approach to funding special education LEAs and SELPAs Required to Serve Infants equalization, roughly $140 million would be and Toddlers With Certain Disabilities. Since appropriated to SELPAs. Under this approach, 1993, California has required SELPAs to serve the state would close 46 percent of gap for both all children who have solely low-incidence LCFF and special education funding (rather than disabilities, which the state defines as being deaf 49 percent of the gap for LCFF only). or hard of hearing, blind or visually impaired, or orthopedically impaired. LEAs and SELPAs www.lao.ca.gov Legislative Analyst’s Office 47 2016-17 BUDGET are not required to serve children who have a The J-50 system funds LEAs for certain “units” low-incidence disability in addition to another of service, such as service in separate classrooms eligible condition. For example, children who are containing only students with disabilities or service both blind and autistic typically would be served by in integrated classrooms containing students their Regional Center. both with and without disabilities. For each type Some LEAs Serve Some Infants and Toddlers of service, LEAs receive a unique per-unit rate With Other Conditions. The state’s approach for based on their average personnel costs in 1980-81 identifying, serving, and funding infants and adjusted for cost-of-living increases. Although toddlers with exceptional needs has changed over the state distributes funding based on the number time. Today, some LEAs provide services to infants and type of units that LEAs report, these units and toddlers with exceptional needs who do not do not reflect how services are typically provided have solely low-incidence disabilities. Currently, a to infants and toddlers. As a result, LEAs may, total of 97 LEAs provide such services. The state for example, provide only home-based services selected these LEAs for historical reasons, and no for children even if their unit-based funding new LEAs have been allowed to start serving these assumes they deliver service in a classroom with an types of children since 1987, the last time the state instructor and an aide. expanded the program. SELPAs and LEAs Receive Additional Support Most LEA Infant and Toddler Services Provided From Two Minor Funding Streams. Supported by Unit-Based Funding System Adopted Two additional funding streams supplement the in Early 1980s. As shown in Figure 27, the state J-50 unit system. One of these is the Part C Grant provides most funding for LEA infant and toddler for SELPAs, which is a $14 million grant intended programs through the J-50 system, which was to cover the cost of providing specific services originally developed for K-12 special education and mandated by federal law. (These services include then applied to infant and toddler services starting providing transportation, case management, and in 1980-81. The state stopped using this system services for all infants and toddlers with solely for most special education services in 1998-99 low-incidence disabilities.) The Part C Grant for but continues to use it for infants and toddlers. SELPAs is funded as a portion of a larger federal grant received by DDS. Figure 27 The second funding LEA Funding for Infants and Toddlers With Exceptional Needs stream is the Infant (Dollars in Millions) Discretionary Fund, Change from 2015-16 which provides $2 million 2014-15 2015-16 2016-17 Actual Budget Act Proposed Amount Percent (Proposition 98 General Proposition 98 Funds Fund) for supplementary J-50 units $59 $105 $75 -$30 -29% assistance to SELPAs and Infant Discretionary Funda 2 2 2 — — LEAs who can document Subtotals ($62) ($107) ($77) (-$30) (-28%) extraordinary costs in Part C Grant for SELPAsb $14 $14 $14 — — Total $76 $121 $91 -$30 -25% their infant and toddler a Provides additional funding to LEAs that can document extraordinary costs. program. b Reflects portion of federal funding passed through from the Department of Developmental Services to the Department of Education. Total IDEA Part C funding is approximately $50 million. LEA = local education agency and IDEA = Individuals With Disabilities Education Act. 48 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Special Education Task Force Recommends Assessment Centralizing Program Under Single State Funding Formula Is Based on Inaccurate Agency. In 2015, a group of special education Assumptions of How Services Are Provided. The experts in California (collectively referred to as J-50 unit system has never reflected how services the Statewide Task Force on Special Education) are provided to infants and toddlers. Federal law issued a report recommending policy changes. requires that these services be provided in a natural Among their recommendations was a proposal setting, such a child’s home, but LEAs are funded to centralize administration for the infant and for providing education in formal settings such as toddler program under a single state agency. The special day classes. This disconnect between how task force concluded that the current diffusion services are provided and how LEAs are funded of responsibility for this program between DDS has been apparent since the earliest days of the and CDE has resulted in unjustified disparities in program. In 1985, only four years after the program funding rates and unequal access to programs in all was created, a statewide survey of LEAs providing parts of the state. infant and toddler services found that 58 percent 2015-16 Budget Included Ongoing Increase of indicated “the present funding model does not $30 Million for LEA Infant and Toddler Services. reflect how services are provided.” These LEAs The 2015-16 Budget Act included an ongoing recommended developing a funding model that augmentation of $30 million for services to infants more accurately reflected the delivery of home- and toddlers with special needs, an approximately and/or center-based services. More than thirty 33 percent increase in state support for the years have passed, however, and the funding model program. These funds were to be allocated to LEAs remains unchanged. according to a method determined jointly by the Variation in LEA Rates Results in Large Department of Finance, the California Department Funding Inequities. In addition to using a model of Education, and the Legislative Analyst’s Office. that is not aligned to actual services, the current During discussions this fall, the three agencies were funding model provides unique per-unit rates unable to agree on a specific method for allocating to LEAs based on their average personnel costs the funds. As a result, these funds were not spent. in 1980-81. (These rates have received the same cost-of-living adjustments as other state education Governor’s Proposal programs, but they have not otherwise been Governor’s Budget Removes Ongoing Increase adjusted since 1980-81.) We estimate that the for Infants and Toddlers. Because the three effective rates LEAs receive under the J-50 system agencies were unable to come to an agreement on range from less than $7,000 to more than $17,000 how to distribute the $30 million, the Governor’s per child served. budget removes the ongoing increase for infant and 2015-16 Augmentation Provided Substantial toddler services. Funding for these services would Increase to LEAs, No Increase to DDS. The 2015-16 return to approximately the same funding level as Budget Act increased LEA funding for infants and in 2014-15, adjusted for changes in enrollment and toddlers by roughly one-third. This augmentation cost-of-living. (As discussed later in this section, was provided without considering whether funding the Governor proposes to provide $30 million in increases would be more effective in serving infants one-time funding for another special education and toddlers if distributed proportionally to LEAs initiative.) and DDS Regional Centers, which serve the vast www.lao.ca.gov Legislative Analyst’s Office 49 2016-17 BUDGET majority of eligible infants and toddlers. (We Background estimate that, prior to the 2015-16 augmentation, Special Education Task Force Recommends LEAs received more direct state and federal Support for Struggling Students. Last year, funding per infant/toddler served than Regional the Statewide Special Education Task Force Centers.) recommended encouraging districts to implement Given Major Flaws With Funding Model, systems of support for students who struggle either Proposal to Remove Ongoing Increase Is academically or behaviorally. These systems would Reasonable. Because the funding system is serve as alternatives to identifying struggling complex, outdated, and unequal, we think the students for special education or addressing Governor’s proposal to remove the ongoing behavioral issues through disciplinary action. $30 million increase is reasonable. While increases Examples of such systems might include revising in funding for infants and toddlers may be instructional practices to make curriculum more warranted, using the existing funding system accessible to students with diverse learning needs to allocate a sizeable funding increase would or developing a special curriculum for students exacerbate existing inequities. with behavioral issues. 2015-16 Budget Allocated $10 Million to Recommendation Develop Systems of Support for Struggling Recommend Comprehensive Restructuring of Students. The 2015-16 budget included $10 million Program. Given the major flaws with the existing to be awarded to one or two COEs to develop new funding model, we recommend the Legislature resources related to these new systems of support. consider undertaking a comprehensive review Trailer legislation required the award recipient(s) to of the state’s programs for infants and toddlers identify strategies for implementing these systems, with special needs. Such a review could include develop materials related to these strategies, and an analysis of how funding rates vary by LEA, provide technical assistance and professional a comparison of LEA rates with DDS rates, a development to LEAs interested in implementing summary of how LEAs and Regional Centers these systems of support. CDE is currently coordinate services, and an analysis of the reviewing grant applications and expects to make governance structure of the infant and toddler an award decision in April 2016. programs. Such a report would help the Legislature take specific action in the future to address the Governor’s Proposal flaws in the existing system and ensure funding is Governor’s Budget Proposes $30 Million equitable across the state. One-Time Increase for Systems of Support. The Schoolwide Systems of Support administration has indicated that it intends for the majority of the $30 million increase to be Below, we provide background on the issue passed through to LEAs via a subgrant process of schoolwide systems of support for struggling administered by the recipient of the original award. students, assess the Governor’s proposal to increase These subgrants would help LEAs cover the cost of funding for a grant related to these systems, and implementing new strategies. recommend rejecting this proposal, as we believe the original grant amount is sufficient to realize state goals. 50 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Assessment in recent years, as well as substantial one-time funding to pay down the mandate backlog that Original Grant Is Sufficient to Realize can be used for any purposes, including training State Goals. We believe the original grant offers teachers and school leaders on new systems of sufficient funding for the recipient to identify student support. We believe such efforts would be effective strategies, develop a repository of related best planned and coordinated by local governing materials, and train a small number of teachers boards. and administrators from across the state who can in turn provide training to their peers. The CDE Recommendation currently has received applications from 11 COEs, Reject Governor’s Proposal. Because we suggesting the $10 million is enough to perform the believe the state’s goals can be realized with the activities specified in statute. original grant amount, we recommend rejecting School Districts Already Have Sufficient the proposed augmentation. This would free up Resources to Implement New Systems. We believe $30 million in Proposition 98 funding that the the justification for subgrants to help LEAs cover Legislature could use for other one-time purposes, the cost of implementing new instructional and such as paying down more of the existing mandate support strategies is weak. School districts have block grant. received substantial increases in LCFF funding COUNTY OFFICES OF EDUCATION The 2016-17 Governor’s Budget provides the formula for districts differs from that for COEs, the state’s 58 COEs with a total of $1 billion in LCFF state had a similar restructuring goal—to replace an funds, reflecting a slight increase ($1.8 million) outdated and prescriptive set of revenue limit rules from the revised 2015-16 level. Below, we provide and categorical grants with a more consistent and background on the COE funding formula; describe student-oriented funding approach. The COE LCFF the adjustments the Governor makes to COE consists of a two-part formula that reflects the two funding in 2014-15, 2015-16, and 2016-17; discuss core functions of COEs: (1) ongoing support to our ongoing concerns about an implementation the school districts, including review of districts’ issue with the COE funding formula; and offer a budgets and Local Control and Accountability corresponding recommendation. (For more detail Plans, and (2) operation of COE alternative schools on COE funding, please see our online EdBasics, for certain categories of students. Each part of “How Are County Offices of Education Funded the formula contains specified funding rates for Under the Local Control Funding Formula.”) performing the associated functions. Each COE’s target funding level is the sum of the two parts. Background Like the school district formula, the COE LCFF is State Created New COE Funding Formula funded by a combination of state General Fund and in 2013-14. In tandem with implementing the local property tax revenue, with the proportion of LCFF for school districts, the state also revised its each fund source varying by county. approach to funding COEs. While the allocation www.lao.ca.gov Legislative Analyst’s Office 51 2016-17 BUDGET State Included Two “Hold Harmless” Governor’s Proposal Provisions in LCFF Legislation. The legislation Finalizes 2014-15 LCFF Allotments. Based creating LCFF (for both school districts and COEs) on final data, the Governor makes two notable included two provisions designed to ensure that adjustments to prior-year COE LCFF funding, no LEA experienced a loss in funding as a result resulting in a net reduction of $33 million. The first of implementing the new formula. The first hold adjustment is a decrease of $43 million due to the harmless provision ensures that each LEA will actual amount of 2014-15 base COE funding upon continue to get at least as much total funding as which LCFF targets and hold harmless amounts it received in 2012-13. Under this provision, each are calculated being lower than the administration COE receives either its 2012-13 total funding originally estimated. The second adjustment is an level or its calculated LCFF target funding level, increase of $10 million due to higher minimum whichever is greater. The second hold harmless state aid costs than the administration originally provision, known as the “minimum state aid” estimated. provision, ensures that each LEA will continue Makes Corresponding Downward Adjustment to get at least as much state General Fund as it to 2015-16 Funding Level. The Governor’s budget received in 2012-13 for categorical programs. makes two notable adjustments to current-year This means that even in a county where local COE LCFF funding, resulting in a net reduction of property tax revenue is sufficient to fund most $35 million compared to the 2015-16 Budget Act. or all of its LCFF allotment, the state still must The bulk of the change is due to carrying forward provide a specified amount of state aid. Each COE’s the adjustments from the prior year, with a slight minimum state aid entitlement varies based on additional drop primarily due to lower attendance historical participation in categorical programs, than the administration estimated. with those that ran more and/or larger programs Proposes Nearly Flat Funding for 2016-17. The before LCFF receiving larger amounts of state aid. Governor proposes to increase COE LCFF funding Two-Thirds of COEs Funded Above Their LCFF in 2016-17 by $1.8 million (0.2 percent) over the Targets. In 2014-15, the state fully implemented the revised 2015-16 level. This slight increase is due to LCFF for COEs—funding every COE at or above some COEs receiving a 0.47 percent COLA. We their target level. Because of the two hold harmless estimate 23 COEs would receive the COLA, with provisions, almost two-thirds of COEs are above the remaining 35 COEs already at funding levels in their target levels. As Figure 28 shows, current excess of their COLA-adjusted LCFF targets. funding levels are above LCFF target funding levels in 37 counties, with some COEs’ funding Assessment levels notably exceeding their targets. Of these 37 Revisiting Rationale for First COE LCFF COEs, 16 COEs are above their targets solely due Hold Harmless Provision. The two hold harmless to the first hold harmless provision, 2 are above provisions departed from the essence of the new their targets solely due to the second hold harmless LCFF formula (that is, linking funding to students provision, and 19 are above their targets due to a and providing the same funding rates statewide), combination of the two provisions. but we believe the first hold harmless provision was a reasonable measure to help some COEs transition to the new funding system. Specifically, the first provision ensuring that a COE received no less 52 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET than its total 2012-13 funding level meant that the the first hold harmless provision, the second hold COE could maintain its existing programmatic harmless provision is not easing transition to the level moving forward. Though the affected COEs new system. To the contrary, some historically were ones with historically high revenue limit rates, high-funded COEs are now benefiting two-fold— categorical funding rates, or both, we understand from solid growth in local property tax revenue the desire of the Legislature to minimize disruption and having state aid provided on top of their local during the transition to the new funding formula. property tax allotment. Moreover, the benefit of this hold harmless provision was designed to lessen over time and Figure 28 eventually go away. As Almost Two-Thirds of COEs Funded the state implemented Above Their LCFF Target Levels LCFF and funding levels 2015-16, Based on LAO Estimates were raised for COEs with Funding Level County Office of Education (COE) historically lower rates, At LCFF Target (21 COEs) Alameda San Benito these latter COEs would Alpine San Francisco Colusa Shasta catch up and eventually El Dorado Sierra receive the same Humboldt Siskiyou per-student rates as their Kern Trinity Kings Tulare historically higher funded Madera Tuolumne peers. Modoc Yolo Fundamental Design Nevada Yuba Orange Flaw in Second Hold Harmless Provision. The 101 Percent to 125 Percent Butte San Bernardino second hold harmless Above LCFF Target (11 COEs) Calaveras San Joaquin Imperial San Luis Obispo provision went further Lassen Solano by ensuring no loss of Merced Tehama state aid for COEs. Under Monterey this provision, several 126 Percent to 150 Percent Amador Placer COEs will increasingly Above LCFF Target (11 COEs) Contra Costa Sacramento Fresno Santa Cruz benefit from their large Lake Sonoma former state categorical Los Angeles Ventura aid allocations. We Mariposa believe locking in 151 Percent to 200 Percent Del Norte San Diego their state categorical Above LCFF Target (11 COEs) Glenn Santa Barbara Marin Santa Clara aid permanently is Mendocino Stanislaus completely counter Napa Sutter to trying to eliminate Plumas historical differences 201 Percent to 260 Percent Inyo Riverside in state categorical aid. Above LCFF Target (4 COEs) Mono San Mateo Furthermore, unlike LCFF = Local Control Funding Formula. www.lao.ca.gov Legislative Analyst’s Office 53 2016-17 BUDGET Second “Hold Harmless” Provision increases the amount the state must dedicate Generating New Funding Differences Among towards the COE LCFF. As Figure 30 shows, COEs. The second LCFF hold harmless provision is we project these costs will continue to grow in creating big COE differences. Figure 29 illustrates the coming years as local property tax revenue what is happening. As local property tax revenue increases. (All else constant, increases in local grows in a county over time, the minimum state property tax revenue normally reduce state General aid allotment for that COE becomes a new bonus Fund costs.) We estimate the cost of the minimum in base funding on top of the their LCFF level. By state aid provision will increase from $30 million in 2019-20, we estimate 27 COEs will be receiving 2013-14 to $115 million in 2019-20. Graphic Sign Off all or part of their minimum state aid allotments Administration Underestimates Cost. The in excess of the LCFF level. That is, rather than Governor’s budget underestimates the coSset cofr etary moving all COEs toward their student-oriented, minimum state aid provision for COEs. APrnoavliydsintg cost-driven LCFF levels, some COEs will be moving 14 COEs minimum state aid supplementMs cPoAst further and further away from their LCFF levels. $40 million in 2014-15. The Governor estimates Deputy Cost of “Hold Harmless” Provision Steadily these costs will continue at the same level in Increasing. Providing the minimum state aid 2015-16 and 2016-17. Our analysis of local property supplement on top of COEs’ base LCFF funding tax growth, however, projects notably higher costs. Figure 29 Illustration of How COE Minimum State Aid Is Working at Cross-Purposes With LCFFa (In Millions) LCFF Level Funding in Excess of LCFF Level $120 $25 100 $25 $25 MSA $25 MSA $25 MSA MSA MSA 80 $91 $87 60 $83 LPT LPT $79 LPT $75 LPT 40 LPT 20 2013-14 2014-15 2015-16 2016-17 2017-18 $2 million $4 million $6 million $8 million At LCFF Level Above LCFF Level a Reflects growth for a typical COE that is affected by MSA. Assumes COE is at its LCFF target in 2013-14, with total funding of $100 million, comprised of $75 million in LPT revenue and $25 million in MSA. Assumes 2 percent annual growth in LCFF rates and 5 percent annual growth in LPT revenue over period. COE = county office of education; LCFF = Local Control Funding Formula; MSA = minimum state aid; and LPT = local property tax. ARTWORK #160029 54 Legislative Analyst’s Office www.lao.ca.gov Template_LAOReport_sm.ait Graphic Sign Off Secretary Analyst MPA Deputy 2016-17 BUDGET In 2015-16, we estimate 21 Figure 30 COEs will receive a partial Minimum State Aid Obligations Are Growinga or full minimum state aid supplement, costing around (In Millions) $60 million ($20 million $140 above the Governor’s estimates). In 2016-17, we 120 estimate 22 COEs will 100 receive the supplement at a cost of around $75 million 80 ($35 million above the 60 Governor’s estimates). 40 Recommendation 20 Repeal Minimum State Aid Provision for COEs. We 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 recommend the Legislature a Reflects actual obligations in 2013-14 and 2014-15. Reflects LAO estimates thereafter. repeal the minimum state aid provision for COEs. Every COE still would be held state aid provision is growing quickly and harmless relative to its 2012-13 level, ensuring a significantly. We also recommend the Legislature smooth transition during LCFF implementation AR a T c W t im O m R e K d i # at 1 e 6 ly 0 b 0 e 2 fo 9 re the minimum state aid without creating any new funding inequities supplement becomes more deeply imbedded as a among COEs. We recommend the Legislatur T e e a m ct plate_CLOAEO fRuenpdoinrgt_ esxmpe.catiattion. This recommendation immediately because the cost of the minimum saves the Legislature tens of millions of dollars every year moving forward. HIGH SPEED NETWORK In this section, we provide background on the formed a joint nonprofit organization called the K-12 High Speed Network (HSN), describe and Corporation for Education Network Initiatives assess the Governor’s HSN proposal, and offer in California (CENIC) to build and maintain associated recommendations. this backbone. Beginning in the early 2000s, the state decided to pay for Internet connections from Background the backbone to all COEs. The state named the State Created HSN to Connect COEs to an connections among the 58 COEs the “K-12 High Internet Backbone. In the early 2000s, the state Speed Network,” or HSN. School district offices decided to link COEs to a high speed Internet and schools then were encouraged to connect to the network, or “backbone,” servicing mostly HSN via their COE network “hubs.” (The California educational institutions. Years earlier, the University State University, community colleges, and local of California and private research universities had libraries also are joined to the backbone.) www.lao.ca.gov Legislative Analyst’s Office 55 2016-17 BUDGET HSN Intended to Have Several Benefits. HSN Grantee Has Three Main Types of The state pays for HSN to lower the cost of Internet Expenditures. As shown in the top part of connections for COEs and participating schools Figure 31, the HSN grantee primarily incurs costs and improve their Internet service. The HSN lowers for (1) CENIC’s services, (2) salaries and benefits for the cost of Internet for COEs and schools because the HSN grantee’s employees, and (3) equipment (1) the state pays for the portion of their Internet purchases. In addition, the HSN grantee has connection that runs through HSN and the various other types of expenditures, including backbone, (2) CENIC is supposed to charge lower travel and contracts with entities other than rates for these connections than for-profit Internet CENIC. companies, and (3) CENIC applies for state and HSN Grantee Receives Revenue From Three federal Internet subsidies that COEs and schools Main Sources. As shown in the bottom part of might not apply for on their own. The HSN is Figure 31, the HSN grantee receives nearly all of supposed to improve Internet service for COEs and its revenue from Proposition 98 General Fund and schools because it can access CENIC’s customer two Internet subsidy programs. The General Fund service. provided to the grantee by CDE typically comprises State Authorized a Grantee to Help about half of its total revenue. The remaining Coordinate HSN-Related Activities. Upon revenue primarily comes from E-Rate and the establishing the COE network, state law required California Teleconnect Fund (CTF). E-Rate is a CDE to select a grantee to coordinate COE federal telecommunications subsidy that provides connections to the HSN. The department was to reimbursements of up to 90 percent for Internet select the grantee using a competitive selection service. The CTF is a state special fund that process. The department selected the Imperial provides reimbursements of 50 percent for Internet COE as the grantee in 2004 and this COE has service, after all E-Rate discounts are applied. Both served in this role since that time. Originally, subsidies are funded by telecommunication user the HSN grantee’s primary activities included surcharges. (1) encouraging COEs and schools to connect to State Suspended General Fund Appropriation HSN and (2) working with CENIC to connect in 2015-16. As shown in Figure 32 (see page 58), them. The HSN grantee’s primary activities since the HSN grantee has a reserve that grew steadily— that time include (1) overseeing contracts with reaching nearly $15 million in 2014-15. Growth in CENIC to manage the COEs’ connections and the reserve level was caused by a steady reduction claim state and federal Internet subsidies on in the HSN grantee’s expenditures and an increase their behalf, (2) planning and communicating in CTF revenue, without a corresponding reduction with COEs about Internet upgrades and other in the state grant amount. In 2015-16, the state requirements for their sites, and (3) coordinating suspended the HSN grantee’s General Fund other contracts and serving as a point of contact appropriation in recognition of this large reserve. for COEs’ and schools’ HSN and Internet-related While this suspension forced the HSN grantee needs. Most recently, the state has charged the HSN to spend down some of its reserve, it still expects grantee with implementing two new initiatives— to end 2015-16 with a $9.2 million reserve that it the Broadband Infrastructure Improvement Grant would carry forward into 2016-17. (BIIG) program and the Technical Assistance and Professional Development Initiative. 56 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Governor’s Proposal Assessment Governor Authorizes $19.3 Million for HSN Governor’s Proposal Raises Two Main Grantee’s Expenditures in 2016-17. As shown Concerns. First, the proposal allows the HSN in the rightmost column of Figure 31, the HSN grantee to continue to carry a large reserve without grantee indicates that in 2016-17 it will spend (1) adequate justification. Second, the proposal does $13.4 million on CENIC services, (2) $1.6 million not provide a plan for “right sizing” the HSN on salaries and benefits, (3) $500,000 to add grant but instead simply reinstates an amount to its equipment replacement reserve, and similar to the grant’s historical General Fund (4) $1.6 million on other expenses. This would appropriation. We provide more detail on these result in $17.1 million in total expenditures and concerns below. We have additional concerns leave the grantee with $2.2 million in remaining with the administration’s lack of a proposal for expenditure authority. The administration the HSN grantee’s anticipated cost increases for indicates the HSN grantee could use the excess administering the new BIIG program, which we authority to pay for any “unanticipated cost or address in the box on page 59. emergency.” Governor Assumes Figure 31 $17.1 Million for HSN HSN Grantee Budget Summary Grantee’s Revenues in (In Millions) 2016-17. The rightmost 2013-14 2014-15 2015-16 2016-17 column of Figure 31 also Actual Actual Estimated Proposed shows the HSN grantee’s Expenditures revenue streams in CENIC services COE connections to $5.8 $7.1 $7.4a $7.8a 2016-17. The Governor backbone (1) proposes $8 million Backbone 4.8 4.8 4.8 4.8 from Proposition 98 Otherb 0.7 1.0 1.0 0.8 Subtotal ($11.3) ($12.9) ($13.2) ($13.4) General Fund Salaries and benefits $1.3 $1.4 $1.5 $1.6 ($4.5 million in 2016-17 Equipment 2.6 0.2c 1.0c 0.5c funding and $3.5 million Otherd 1.1 1.7 1.9 1.6 in 2015-16 funding), Totals $16.2 $16.1 $17.6 $17.1 (2) assumes $5.2 million Revenues General Fund (Proposition 98) $8.3 $8.3 —e $8.0 from E-Rate subsidies, E-Rate 4.0 4.7 $5.0 5.2 (3) assumes $3.5 million CTF 3.2 3.4 3.4 3.5 from CTF subsidies, and Other 0.1 0.1 8.3f 0.4f Totals $15.6 $16.5 $16.7 $17.1g (4) draws down $383,000 a HSN assumes COE connection costs increase 5 percent in 2015-16 and 2016-17 (based on historical from the HSN grantee’s trends from 2010-11 to 2014-15). b Includes E-Rate management and other services. reserve. c Set aside for future expenditures. d Includes travel, indirect costs, administrative expenses, and contracts with entities other than CENIC. e HSN was authorized to use up to $8.3 million of its reserve in lieu of state General Fund. f Reflects draw down of reserve. g The Governor’s budget includes an additional $2.2 million in expenditure authority for any “unanticipated cost or emergency.” HSN = High Speed Network; CENIC = Corporation for Education Network Initiatives in California; COE = county office of education; and CTF = California Teleconnect Fund. www.lao.ca.gov Legislative Analyst’s Office 57 2016-17 BUDGET Governor’s Proposal Would Leave HSN its E-Rate reimbursements is unlikely and has Grantee With Sizeable Reserve. The reserve would never before happened. Moreover, the HSN total $8.8 million at the end of 2016-17—an amount grantee in recent years consistently has received larger than the Governor’s proposed General Fund reimbursements from E-Rate that have covered appropriation of $8 million. The HSN grantee around 70 percent of HSN’s annual Internet has indicated it would like to keep a $7.8 million service costs, with only minor fluctuations of a reserve should the federal government not provide few percentage points from year to year. The HSN E-Rate subsidies, pay them later than usual, or grantee has managed these minor fluctuations reclaim formerly disbursed E-Rate subsidies. during this time, all the while increasing its reserve. The HSN grantee has indicated the reserve also For 2016-17, the HSN grantee projects it will receive could help guard against other unidentified fiscal reimbursements to cover 67 percent of associated uncertainties. On top of the $7.8 million, the HSN costs—the same percent as in 2014-15 and 2015-16. grantee would like to set aside $1 million for future Uncommon to Ask Grantee to Save on equipment replacement. State’s Behalf. Though saving annually for major Graphic Sign Off No Major Fluctuations in Annual E-Rate equipment replacements is prudent fiscal practice, Reimbursements to Justify Such a Large Reserve. we are concerned abSoeuct rae gtraarnytee creating its own On an operating budget of $17.1 million, the reserve for such a pAurnpaolsyes. Rt ather than allowing HSN grantee would like to reserve $7.8 million the HSN grantee toM eaPrmAark part of its funding (45 percent of annual operating expenses) for for equipment replaDceempeuntty, the state could uncertainties, particularly uncertainties relating to earmark funding directly and then authorize E-Rate subsidies. The HSN grantee has indicated the replacement, as scheduled. Given the HSN that the chance of the federal government canceling grant is an annual grant and CDE could rebid the contract any given year depending upon Figure 32 the HSN grantee’s HSN Grantee’s Reserve Grew Steadily Over Period performance, we In Millions believe a state $16 earmark for equipment is more 14 appropriate. The 12 state effectively took 10 this approach with HSN’s first equipment 8 replacement, 6 providing funding 4 to the HSN grantee in the year the 2 replacement was 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 needed. HSN = High Speed Network. 58 Legislative Analyst’s Office www.lao.ca.gov ARTWORK #160029 Template_LAOReport_mid.ait 2016-17 BUDGET Administrative Costs for HSN Grant Higher out to local libraries to get them to connect to the Than Similar Grants. The California State Library CENIC backbone, coordinate with CENIC, and and the CCC Chancellor’s Office award grants represent public libraries on the CENIC board of to certain agencies to perform duties similar to directors. The Chancellor’s Office has a $105,000 those required of the HSN grantee. Administrative contract with Butte Community College to serve costs for these grantees, however, are lower than as its administrative agent for CENIC activities the $1.5 million spent by the HSN grantee. The and participate in CENIC’s governance structure. California State Library has a $225,000 contract Though some differences exist between the three with a nonprofit organization called Califa to reach entities’ responsibilities, their core responsibility Administrative Costs for Internet Grant Program State Established Grant Program to Help Schools Upgrade Internet Infrastructure for Online Testing. The state recently created the Broadband Infrastructure Improvement Grant (BIIG) program to help schools increase their Internet speeds to those required to administer new online assessments. The 2014-15 budget included $26.7 million for an initial round of grants, and the 2015-16 budget provided an additional $50 million for a second round of grants. The budget tasks the High Speed Network (HSN) grantee, in consultation with the California Department of Education and the State Board of Education, with distributing funds to schools and supporting network connectivity. The budget also tasks the HSN grantee with submitting reports to the state about schools’ Internet connections and how the grants were awarded. HSN Grantee Has Spent $1.4 Million to Date to Administer Initial Round of Grants. The HSN grantee has spent $830,000 for its staff to administer the grant selection process, oversee an external contractor, and directly prepare parts of the required reports. It has spent $600,000 for the external contractor to manage the bulk of the project and prepare significant portions of the required reports. The HSN grantee has paid for these administrative expenditures from its reserve. To date, the HSN grantee indicates that it has awarded $17 million of the $26.7 million available for the initial round of grants. HSN Grantee Expects Administrative Costs to Increase for Round Two. Though HSN indicates its administrative costs for the second round will be higher than its first-round costs, neither it nor the administration has identified how much more. The 2015-16 budget allows the HSN grantee to spend a portion of the $50 million provided for the program for only certain administrative costs, specifically those associated with reporting requirements. Recommend Requesting Administration Submit an Expenditure Proposal. We recommend the Legislature ask the administration to submit a proposal as part of the May Revision that identifies (1) the administrative costs associated with the second round of BIIG and (2) proposed fund sources. Similar to a budget change proposal, we recommend the proposal include detailed information on the specific administrative activities entailed, the costs to conduct these activities, and feasible alternatives. With this information, the Legislature would be able to make an informed decision about the expected administrative costs and adjust the HSN grantee’s operating budget accordingly. www.lao.ca.gov Legislative Analyst’s Office 59 2016-17 BUDGET of acting as the liaison between their segment and Fund appropriation in 2016-17 to the HSN CENIC is the same. grantee and instead authorize it to spend down HSN Grantee’s Staffing Costs Have Grown $7.8 million of the $9.2 million reserve it expects to Considerably Over Time. Although the state has have remaining at the end of 2015-16. Under this given the HSN grantee a few new activities since approach, the HSN grantee still would be left with its creation in 2004, its staffing costs have grown a $1.4 million reserve at the end of 2016-17—more almost every year during that time, as shown than enough to weather any minor fluctuations in in Figure 33. At some points, growth has been its expenditures and revenue. This recommendation particularly significant. For example, between would free up the Governor’s proposed $8 million 2004-05 to 2007-08, the HSN grantee’s personnel in General Fund for other Proposition 98 priorities. costs quadrupled, and, between 2007-08 and Ask CDE to Report on HSN Grant at Spring 2011-12, the grantee’s personnel costs doubled. Budget Hearings. We recommend the Legislature Moreover, growth in the HSN grantee’s staff ask CDE to provide testimony at spring budget understates its overall administrative growth hearings to help it determine the appropriate size because the grantee has contracted out many of the HSN grant. Specifically, we recommend the Graphic Sign Off new and ongoing activities to other entities. For Legislature ask CDE to explain how it reviews and instance, the HSN grantee contracted with Butte assesses the HSN grantee’s performaSnceec arnedta hroyw COE for work on the My Digital Chalkboard this has affected decisions to renew or rebid the Analyst website (formerly called Brokers of Expertise). grant each year. We recommend the Legislature MPA also ask CDE to explain why its grantee’s Recommendations Deputy administrative costs have increased considerably Reject Governor’s Proposed $8 Million over the last decade and why these administrative Appropriation for HSN in 2016-17. We costs are larger than the administrative costs for recommend the Legislature provide no General similar grants administered by the California Figure 33 HSN Grantee’s Staffing Costs Have Grown Six-Fold Since 2004-05 In Millions $1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 22001155--1166 22001166--1177 Estimated Proposed HSN = High Speed Network. 60 Legislative Analyst’s Office www.lao.ca.gov ARTWORK #160029 Template_LAOReport_mid.ait 2016-17 BUDGET State Library and the CCC Chancellor’s Office. is not satisfied with the information provided, it The Legislature could use the information CDE could adopt supplemental report language directing provides to determine whether to adjust the HSN CDE to evaluate more formally the performance grant objectives and grant amount to be more and cost-effectiveness of the HSN grantee. If the consistent with the expectations and funding levels Legislature takes this approach, we recommend it of the library and community college equivalents. require CDE submit the report in fall 2016 so the (Alternatively, the Legislature could use the Governor and Legislature can consider its findings information to upsize the amounts provided to before the release of the Governor’s 2017-18 budget the libraries and community colleges for their proposal. comparable services.) If the Legislature ultimately TEACHER WORKFORCE TRENDS In this section, we begin with a review of profession also affects the statewide market, as recent demand, supply, and turnover trends in the teachers who voluntarily leave the profession for statewide market for teachers in California. We both non-retirement and retirement reasons must then examine the evidence for shortages in specific be replaced by new teachers. areas of the teacher workforce, identify and assess Discussion Often Overly Simplified to Focus past policy responses to these shortages, and raise Only on Supply of New Teachers. Though several some issues for the Legislature to consider when factors affect the teacher workforce, sometimes thinking about potentially new policy responses. discussions narrowly focus only on the mismatch between the statewide number of newly credentialed Statewide Market for Teachers teachers and statewide projected hires. As shown The Statewide Market for Teachers Is Driven in Figure 34 (see next page), California has had by Several Important Factors. The statewide long periods in which the number of new teacher market for teachers is affected by demand, supply, credentials outpaces projected hires and vice versa. and turnover. The demand for teachers is largely For example, from the 2002-03 school year to the driven by changes in the level of state funding, 2013-14 school year, California produced thousands as school districts typically use the bulk of state more teachers than its schools could hire. This funding increases for some combination of hiring market trend changed in 2013-14, as the number additional teachers and increasing teacher salaries. of projected hires began to outpace the number of Demand also is influenced by class size preferences, new credentials issued, and has continued through as class size reduction policies require additional 2014-15. These trends indicate that these two factors teachers to staff smaller classes. The supply of tend to follow cyclical patterns, with mismatches teachers is driven by multiple factors, including tending to correct themselves gradually over time. prospective teachers’ perceptions regarding the These trends, however, do not capture all the other availability of jobs, the rate at which California important aspects of teacher demand, supply, and can produce newly credentialed teachers, and turnover. districts’ ability to recruit teachers from out of state and attract former teachers back into the profession. The rate at which teachers leave the www.lao.ca.gov Legislative Analyst’s Office 61 2016-17 BUDGET Demand Trends Formula has been offering fiscal incentives to reduce K-3 class size to 24 students. In recent years, Demand for New Teachers Fluctuates With class sizes have been declining, which has caused Changes in School Funding. Year-over-year statewide demand for teachers to increase by an changes in the Proposition 98 minimum guarantee estimated 11,300 teachers. Such policies illustrate are highly correlated with changes in projected how decisions regarding class sizes can interact teacher hires. Since 1989-90, about 70 percent of with other market forces to exacerbate teacher the time the guarantee increased, projected hires shortages (or potentially eliminate them). increased too. About 80 percent of the time the guarantee decreased, projected hires decreased Supply Trends too. As the minimum guarantee is tied to state Supply of Teachers Rebounding After revenues, it fluctuates notably over time, suggesting Decreasing During the Recession. The total that demand for teachers also will fluctuate notably nationwide stock of teachers was 3.5 percent over time. With the increase in the guarantee in smaller in 2012-13 compared to 2008-09, while recent years, the number of projected hires in the stock in California was 7 percent smaller. 2015-16 (21,483 hires) is nearly double the number As shown in Figure 35, the number of teachers of projected hires in 2011-12 (10,361 hires). enrolled in teacher preparation programs declined State and Local Policies Also Influence by 30 percent nationwide and 56 percent in Teacher Demand. Policies that aim to reduce California within this samGe triampe hfriacm Se. iDgenc liOnefsf student-teacher ratios create incentives for districts in the number of new credentials issued tracked to hire more teachers. For example, over the period Secretary with decreases in teacher preparation enrollment. of 1995-96 to 2001-02, the annual number of Analyst Declines in the supply of teachers, in turn, tracked projected hires more than doubled, largely driven MPA declines in the number of jobs available, which by class size reduction goals. More recently, over Deputy decreased by 33 percent in California over this the past few years, the Local Control Funding time period. Figure 34 (The larger drops Comparing New Teacher Credentials With in California New Teacher Hires in California compared to the nation 35,000 likely reflect the New Teacher Credentials greater volatility 30,000 of California’s 25,000 tax revenues. 20,000 This volatility Projected Hires tends to result 15,000 in California 10,000 being affected 5,000 more adversely during recessions 91-92 93-94 95-96 97-98 99-00 01-02 03-04 05-06 07-08 09-10 11-12 13-14 15-16 and more advantageously 62 Legislative Analyst’s Office www.lao.ca.gov ARTWORK #160029 Template_Handout.ait 2016-17 BUDGET during recoveries.) Recent data show a change in Turnover Trends supply trends, with the number of new credentials Reducing Turnover Can Reduce Workforce issued in California increasing modestly (4 percent) Pressures. Those who leave their jobs are typically from 2013-14 to 2014-15. Officials from two of the divided into two categories: (1) movers (those state’s largest credentialing programs, the California who switch to a new teaching job) and (2) leavers State University and National University, also cite (those who leave the profession for retirement or increases in their credentialing program enrollment non-retirement reasons). Keeping teachers in their within the past year and believe higher enrollment classrooms reduces statewide demand for teachers, is likely to continue at least in the short-term. which, in turn, reduces district costs to hire and Many Credentialed Teachers Are Not train replacement teachers. (Multiple studies Teaching, Though Some Are Likely to Re-Enter estimate these hiring and training costs to be over Profession in the Future. We estimate that more $15,000 per teacher.) than 10,000 teachers in California have active Nationwide, About 15 percent of Teachers credentials but are not currently teaching. Some of Vacate Their Jobs Each Year. Based on data, these individuals might not have been able to find about half of teachers who vacated their jobs in jobs during the recession. Some of these teachers, 2011-12 moved to a new school, whereas half left however, are likely to enter or return to the the profession. Of the movers, nearly 40 percent profession in the future. A nationwide longitudinal switched to a new public school district, requiring study by the National Center for Education districts to recruit replacement teachers. Of Statistics found that of those teachers who began the leavers, nearly 30 remained in education, teaching in 2007-08 and left the profession within entering into positions such as teaching coaches their first five years, 58 percent had either returned or administrators. Teachers most likely to or expected to return to teaching in the future. vacate their current teaching jobs include those Other nationwide studies have shown that over teaching in city-center schools, schools with a one-quarter of all teachers hired in a given year high percentage of low-income students, younger have taught at some point in the past. teachers, teachers with less tenure, and special California Recruits a Significant Share of education teachers. Factors associated with teachers Teachers From Other States. From 1990-91 to vacating their current jobs include lack of support 2014-15, 18 percent of California’s new teaching by administrators and parents, lack of control credentials were issued to those prepared in over their work, a high prevalence of student out-of-state programs. This share has fluctuated significantly over time— Figure 35 from a low of 11 percent Traditional Teacher Supply Pipeline in 2003-04 to a high of Declined During Recession 33 percent in 1990-91. Out-of-state prepared 2008-09 2012-13 Percent Change candidates accounted for California New credentials issued 17,407 11,080 -36% nearly 25 percent (3,700) Teacher preparation enrollment 44,692 19,854 -56 of credentials issued in United States 2014-15. New credentials issued 232,707 192,459 -17 Teacher preparation enrollment 719,081 499,800 -30 www.lao.ca.gov Legislative Analyst’s Office 63 2016-17 BUDGET misbehavior or tardiness, and lack of access to a teacher market in California is beginning to teacher induction program. correct itself, research over many years has found Data Indicate No Large Wave of Retirements substantial evidence of specific market shortages. in the Near Future. Although retirements The California Department of Education has can create staffing pressures, data suggest that identified shortages of special education, science, California is not facing an imminent wave of and math nearly every year since 1990-91. (The retirements in the near future. A recent study by US Department of Education requires states to the Learning Policy Institute found that while report shortages using a federal methodology California was facing a surge of retirement-eligible based largely on the number of vacant positions, teachers in 2006-07, these individuals have missassigned teachers, and teachers on temporary since exited the profession, with many districts teaching permits.) Such staffing difficulties are offering early retirement programs during the consistent with nationwide trends. Though data recession to avoid layoffs. Looking out a few show persistent, pervasive shortages in all of these decades, retirements rates in California likely will areas, the causes and severity of these shortage experience some ebb and flow. In many cases, areas vary by subject, as discussed below. the causes of these fluctuations will have been Special Education Commonly Viewed as rooted in developments, such as hiring surges due Most Acute Shortage Issue. Research has found to demographic changes or class size reduction that special education teachers tend to have higher policies, that occurred 25 to 30 years earlier. rates of turnover and these positions tend to take longer to fill than general education positions. Teacher Shortages Research attributes higher rates of turnover to the in Certain Areas additional stress factors faced by special education Statewide Teacher Market Appears in Process teachers, such as the increased risk of lawsuits and of Correcting Itself . . . While the number of the large amounts of paperwork associated with projected hires statewide in 2015-16 exceeded each student’s Individualized Education Program the number of new credentials issued by roughly (a federal requirement). As one means of addressing 6,000, we think this gap will begin closing over these staffing difficulties, districts often hire the next few years. Several factors likely will be at teachers with internship credentials. Approximately work, including a continued increase in teacher 50 percent of special education credentials issued in preparation enrollment, districts tapping the large California in 2013-14 were internship credentials, supply of potential re-entry teachers, districts compared with 17 percent of single-subject increasing their out-of-state recruitment efforts, credentials. Within the field of special education, and districts already having reached their class shortages are more acute in certain subareas. size reduction goals. These developments suggest For example, four counties currently lack any the statewide challenge in filling job openings psychologists and two counties lack any speech/ will decrease without direct state action. (Some language specialists. districts, however, might continue to face localized Science and Math Shortages Linked to a challenges in filling particular job openings.) Lack of Individuals in the Pipeline. Researchers . . . But Longstanding Shortages Exist in attribute the nationwide challenge of staffing Certain Subject Areas and Types of Schools. science and math teachers to a shortage of Although current data suggest the overall undergraduates in science, technology, engineering, 64 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET and math (STEM) majors and the high salaries that school may find attracting new teachers easier than these graduates can receive in other professions. more isolated rural schools, but also experience In 2014-15, the California State University issued higher rates of turnover as teachers often leave for STEM degrees to 13 percent of its graduates. The urban districts offering higher pay. limited stock of STEM graduates must then choose Policy Responses between careers in teaching and other STEM professions, which can be far more lucrative. The All Levels of Government Have Created nationwide average salary of STEM occupations Policies to Address Past Teacher Shortages. is about $90,000, while the nationwide average Similar to private employers, school districts often teacher salary is $58,000 (a 55 percent difference). adapt to changing market conditions by embarking Staffing Difficulties More Prevalent in on more aggressive recruitment efforts and offering City-Center and Low-Income Schools. Nationwide, more attractive compensation packages, such teacher turnover tends to be greater in city-center as signing bonuses. In addition to local policies, schools (18 percent in 2011-12) and schools with the state and federal governments have adopted high rates of poverty (22 percent in 2011-12). (For many programs over the years to help improve this measure, high poverty is defined as schools the teacher workforce. Figure 36 (see next page) where at least 75 percent of students are eligible for groups all of these policy responses into eight broad free or reduced-price meals.) In California, higher categories. Below, we highlight key aspects of each turnover also is reported in these types of schools. category. On average, staffing vacancies in these types of Eight Categories of Policies schools require more time to fill than those in the suburbs or those with lower rates of poverty. More Flexible Credential Requirements. To meet immediate staffing needs, city-center More flexible credentialing requirements, such as and high-poverty schools are more likely to be being able to test out of a requirement or use work staffed by underprepared teachers, a further experience to fulfill a requirement, increase the sign of staffing difficulties. In California, the supply of teachers by reducing the barriers to entry recently enacted Local Control Funding Formula into the profession, such that more individuals are yields higher funding levels for these schools in eligible to teach. Experts sometimes cite concerns, recognition of their additional challenges and however, with reductions in standards due to higher costs. potential negative consequences that these may Staffing Difficulties in Rural Schools Are have on student learning. More Nuanced. Rural schools experience different More Accessible Credentialing Programs. The staffing pressures depending on their location goal of these programs is to increase the supply and population base. Staffing is most difficult for of teachers by improving the accessibility of the those rural schools with a declining population profession to those whose life circumstances base. While administrators suggest that teachers would otherwise preclude them from enrolling recruited to this type of rural school are unlikely in a credentialing program. Key examples of to leave, attracting candidates can be difficult, these programs include Cal State TEACH (an especially as their small population bases make online California State University credentialing recruiting locally difficult. Rural schools close to program for those who wish to become elementary large population centers with a postsecondary school teachers), internship programs (which www.lao.ca.gov Legislative Analyst’s Office 65 2016-17 BUDGET allow individuals to be teachers of record CalTEACH program from 1997 to 2004. This while simultaneously enrolled in credentialing program funded several regional recruitment programs), and programs that operate throughout centers to attract both in-state and out-of-state the year (such as CSU’s recent efforts to enroll more candidates. Although the program has since ended, students during the summer). districts currently engage in independent out-of- Recruitment, Advertising, and Outreach. state recruitment efforts and post open positions Both California and school districts have a history on California’s online teacher job board (EdJoin), of recruiting teachers from within the state as which can be viewed by out-of-state candidates. In well as out of state. For example, the state ran the addition, California’s higher education institutions Figure 36 Summary of Policies Designed to Address Teacher Shortages Policy Category Overriding Goal of Policy Specific Programs More Flexible Credential Increase the supply of teachers. (1) Programs that allow individuals to test or waive out of Requirements requirements. (2) Reductions in number or types of requirements. More Accessible Credentialing Increase the supply of teachers. (1) Online programs (CalState TEACH). Programs (2) Internship programs. (3) Programs that begin throughout the year. Recruitment, Advertising, and Increase the supply of teachers. (1) Out-of-state recruitment (by districts). Outreach (2) CalTeach recruitment centers. (3) Recruit high schoolers (CSU partnerships). (4) Recruit college students to become STEM teachers (UC). (5) Credential reciprocity with other states. Support Programs Reduce turnover and improve quality. (1) Beginning Teacher Support and Assessment (BTSA). (2) New teacher induction programs. (3) Peer Assessment and Review Program (PAR). (4) Ongoing professional development. (5) Additional prep periods for certain teachers. Ongoing Salary Increases Increase the supply of teachers, (1) Locally bargained salary increases. reduce turnover, and improve (2) Differentiated pay by subject. quality. Salary Bonuses Attract people to teach in longstanding (1) Bonuses for specific subjects. shortage areas and improve quality. (2) Bonuses for dual-credential holders to teach specific subjects. (3) Bonuses to teach in hard-to-staff schools. (4) Return-to-workforce bonuses for retired teachers. Housing Subsidies Increase the supply of teachers. (1) Subsidized mortgages. (2) Extra-Credit Teacher Home Purchase Program. (3) Rent-controlled units (provided by districts). Financial Aid for Becoming/ Increase the supply of teachers (1) Assumption Program of Loans for Education (APLE). Working as a Teacher and attract people to teach in (2) Governor’s Teaching Fellowship Program. longstanding shortage areas. (3) Cal Grant T. (4) Federal Teacher Loan Forgiveness Program. (5) Teacher cancellation of federal Perkins loans. 66 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET operate a number of recruitment programs, with a median annual premium of $788 per special including the University of California’s CalTEACH education teacher. While a certain percentage program (which recruits undergraduates to become of special education premiums are awarded in STEM teachers) and the CSU’s partnerships with recognition of additional required working hours, local districts (which encourage high school others are offered in recognition that certain students to enter the teaching profession and teach specialists are difficult to find and retain (such as in their local schools). speech pathologists). Support Programs. Teacher support programs Salary Bonuses. To attract qualified are designed to reduce turnover and improve the individuals into longstanding shortage areas, states quality of the workforce. California has a long have offered a variety of bonuses. Hawaii offers history of funding these types of programs. Among a $10,000 bonus spread over three years to entice the largest of California’s programs have been retired special education teachers to return to the the Beginner Teacher Support and Assessment profession. It offers a similarly sized bonus to dual program (an induction program of mentorship and credential holders to return to special education if support for new teachers) and Peer Assistance and they are not currently teaching special education. Review (a peer-based program to help struggling Certain districts within California offer one-time veteran teachers). With the enactment of LCFF, signing bonuses to all new hires. districts now undertake these types of activities Housing Subsidies. Some states and districts using their LCFF allocations. Since the enactment offer housing subsidy programs as an additional of LCFF, the state, however, still has earmarked incentive for entering and staying in their schools. some funding specifically for teacher-support Examples of these programs include Connecticut’s activities. Most notably, the state has provided Teacher Mortgage Assistance Program (which billions of dollars in one-time funding in part to offers subsidized mortgages for teaching in hard-to- help teachers implement the Common Core State staff schools or in shortage areas), California’s Standards and, in 2015-16, $490 million (one time) Extra-Credit Teacher Home Purchase Program for the educator effectiveness block grant, which (which offers zero-interest loans of up to $15,000 districts can use for a variety of teacher-related to help with down payments and closing costs purposes. for teaching in hard-to-staff schools), and rent Ongoing Salary Increases. School districts controlled teacher housing units (operated by use ongoing salary increases as a way of attracting certain districts, including the San Francisco and retaining candidates. California has one of Unified School District). the highest average teacher salaries in the country Financial Aid for Student Loans. Financial ($74,000), which can serve to attract candidates aid programs offset the cost of teacher preparation from other states. (California also has a higher programs, thereby reducing the cost of entry cost-of-living than many other states.) To address into the profession. For individuals who may staffing difficulties with certain types of positions, a otherwise be deterred by the cost of a credentialing small subset of school districts offer ongoing salary program, such programs could increase the premiums for certain types of shortage positions. supply of teachers. In the past, California has For example, approximately 20 percent of districts offered both upfront aid for covering the cost of within California have locally negotiated annual teacher preparation and backend loan forgiveness. salary premiums for special education teachers, Examples of California’s former financial aid www.lao.ca.gov Legislative Analyst’s Office 67 2016-17 BUDGET programs include the Governor’s Teaching New Teacher Support Programs Generally Fellowship Program (which provided a $20,000 Found Effective . . . Teacher induction programs upfront fellowship for individuals to teach in have repeatedly been shown to significantly a hard-to-staff school for four years) and the increase the retention of new teachers. A recent Assumption Program of Loans for Education nationwide study of the 2007-08 cohort of (which provided up to $19,000 in loan forgiveness teachers conducted by the U.S. Department of for teaching in shortage areas for four years). In Education found that 80 percent of those teachers addition to these programs, the federal government who participated in teacher induction programs runs the Teacher Loan Forgiveness Program, which remained teaching after five years, compared to provides up to $17,500 in loan forgiveness for 64 percent of individuals who did not participate in teaching in hard-to-staff schools for five years. The induction programs. Studies of California’s teacher federal government also cancels up to 100 percent induction programs have demonstrated similar of Federal Perkins Loans debt for individuals benefits. teaching in a shortage area for one year. . . . But California Already Supports These Types of Programs. The state has a long history Issues for Consideration of supporting new teacher induction programs, Below, we combine a high-level review of key which it continues to do under the LCFF program. findings on the effectiveness of past teacher policies When creating the LCFF, the state integrated with thoughts for the Legislature to consider when existing funding for beginning teacher and veteran exploring potentially new teacher policies. teacher support into districts’ allocations. Since Focus on Longstanding Shortage Areas its enactment, funding for LCFF has increased Rather Than Adopting Broad Statewide Policies. significantly. Creating new teacher support Though mismatches between new teaching programs therefore likely would work counter credentials issued and projected teacher hires arise to and complicate the state’s current approach periodically, these mismatches tend to correct to school finance. Rather than authorizing new themselves gradually over time. Given these induction programs, the state may wish to explore cyclical patterns, with trends changing every few options for encouraging districts to engage in best years, state government likely cannot react quickly practices using their LCFF funding. enough to make much of a difference before the Efforts to Support Teachers on Ongoing Basis market corrects itself. Moreover, efforts to address Found to Reduce Turnover . . . Many teachers who statewide market issues tend to result in broad- left the profession in 2011-12 cited an improved based policies, such as financial aid for all teacher ability in their new, non-teaching job to balance preparation students, that can be expensive and their personal and work lives, influence their detract from efforts otherwise focused on the workplace’s policies and practices, and have state’s longstanding shortage areas. For these autonomy and control over their own work. Former reasons, we encourage the Legislature to avoid teachers have indicated through these surveys the broad statewide policies and narrowly tailor any value of being empowered in their professional lives new policies to addressing California’s perennial and having control over their schedule and work. staffing difficulties in specific subjects areas (special These issues of poor workplace culture are often education and STEM) and types of school districts cited as some of the most important reasons why (city-center, low-income, and rural). teachers leave the profession. 68 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET . . . But These Types of Programs Difficult to bonus for every high school science and math Design at State Level. The most effective efforts teacher would cost $200 million annually. at supporting veteran teachers on an ongoing Financial Aid Has Limited Benefits in basis appear to involve school leaders tailoring Relation to Attracting New Teachers . . . Many professional development opportunities to the studies show that financial aid programs increase interests and challenges facing specific teachers. the probability that a new teacher will teach in a For example, school leaders seem to be best hard-to-staff school (if aid is contingent on working suited to provide mentorship and guidance to in a hard-to-staff school), but less is known about special education teachers involved in stressful these programs’ effectiveness in attracting new meetings relating to students’ Individual Education entrants into teaching. Researching the behaviors Programs. By comparison, state interventions of law school entrants, one Harvard study found generally apply a one-size-fits all solution, which that upfront tuition subsidies (similar to the may be inappropriate for many of these types of Governor’s Teaching Fellowship) were much more local workplace issues. effective in compelling law school students to enter Targeted, Ongoing Salary Increases Likely lower-paying, public-sector jobs and remain in Most Effective Fiscal Incentive . . . Research these jobs than loan forgiveness programs (similar generally finds that targeted, ongoing salary to APLE). Another shortcoming of loan forgiveness increases are the most effective type of financial programs is that only about half of graduates in incentive for attracting highly qualified teachers bachelor’s programs in California have student and keeping them in their jobs. For example, debt, meaning the program draws from a limited research finds that providing ongoing salary subset of potentially interested individuals. Such increases targeted to shortage subjects in hard-to- programs by design are poor at attracting all types staff schools have helped districts retain higher of candidates (those with and without student debt) qualified teachers (such as those with higher SAT into teaching. scores or those who are National Board Certified . . . So Urge Caution in Designing Financial Teachers). Targeted, ongoing salary increases Aid Program. Research suggests that upfront tend to be more effective than targeted, one-time tuition subsidies (such as the Governor’s Teaching salary increases, as bonuses provide no incentive to Fellowship) likely are a more effective recruitment remain teaching in a shortage area after the bonus and retention tool than loan forgiveness programs has been paid. (such as APLE). While the program monitoring . . . But California Faces Challenges in costs of upfront tuition subsidies may be larger Providing These Types of Fiscal Incentives. Given (as the state needs to monitor individuals longer most school districts collectively bargain teacher to ensure that they enter and remain in the salaries and teachers have a longstanding tradition profession), the higher retention rates of these of a single salary schedule, the state presumably teachers make the approach more cost-effective has no easy way of encouraging higher pay in its overall. Evidence is limited, however, for both types perennial shortage areas. It could try offering a of financial aid programs in terms of bringing bonus at the state level. Hawaii, a state with a highly new teachers into the profession. We recommend centralized school system, offers such bonuses. the Legislature consider a tuition grant program Such an option might work in California, but it specifically if the goal is to prompt teachers to work would be costly. For example, providing a $10,000 in perennial shortage areas. www.lao.ca.gov Legislative Analyst’s Office 69 2016-17 BUDGET Consider Outreach to Re-Engage Former questions legislators have cannot, in turn, be Teachers or Recruit Out-of-State Teachers. Both of answered well or at all. For example, the state does these strategies are among the most cost-effective not have reliable data on the retention rates of for increasing the supply of teachers within intern-prepared teachers compared to traditionally California in the short-term. If the state were to prepared teachers, nor does the state have data on spend one-time funds on outreach, we encourage the retention rates of its special education teachers it to focus specifically on recruiting individuals relative to STEM teachers or these teachers relative who are trained to teach in perennial shortage to other teachers. California does not have data on areas. Outreach can attract viable teachers much how many credentialed teachers are not working, faster and at lower cost than many other shortage nor does it have data to examine the effectiveness of policies. Student aid programs, for example, pay-based policies in re-engaging fully credentialed typically cost more than outreach campaigns and special education teachers who have dropped out of take longer (at least one year) to result in additional the teacher workforce. These are only a few of the stocks of teachers. Moreover, other states, such as many important questions the state cannot answer New York, produce far more teachers than they are because it is not strategic about collecting and able to hire, suggesting that California may be able sharing teacher data among state agencies. to recruit from these states. Encourage State Develop a California Significant Drawbacks of Having No Teacher Database. The state created the California California Teacher Database. California does not Longitudinal Teacher Integrated Data Education have an integrated data system that tracks cohorts System (CALTIDES) in statute in 2006. The data of teachers over time. Without this type of data system was created “for purposes of developing system, the state must rely heavily on research from and reviewing state policy, identifying workforce other states as well as periodic survey data collected trends, and identifying future needs regarding at the federal level. Both of these alternative the teaching workforce.” It also was “to provide sources of information have notable shortcomings. high-quality program evaluations” and “promote Research from other states almost always assesses the efficient monitoring of teacher assignments the outcomes of an individual policy intervention as required by state and federal law.” The system and does so within those states’ political contexts. would have linked teacher data across several These studies also rarely make comparisons across state agencies, and the state had dedicated years of policies. For example, no study we are aware of preparation working through linkage and privacy has compared the cost-effectiveness of funding a issues among these agencies. At the time, the teacher induction program compared to a teacher state had received $6 million in federal funding preparation grant program. Moreover, periodic to create the database. In 2011-12, the Governor federal survey data tends to be limited to certain eliminated authorization for the project, citing types of data that are generalizable enough to be a desire to “avoid the development of a costly applicable to all states, and California-specific technology program that is not critical.” Given the policies can rarely be tracked. potential benefits to California of having such a Many Important California-Specific system, we encourage the Legislature to consider Questions Consequently Left Unanswered. Many re-establishing it. 70 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET www.lao.ca.gov Legislative Analyst’s Office 71 2016-17 BUDGET SUMMARY OF LAO RECOMMENDATIONS Proposition 98 • Use the administration’s estimates of General Fund tax revenue and the Proposition 98 minimum guarantee as a reasonable starting point for budget deliberations. • Expect the 2016-17 guarantee to be somewhat higher if 2016-17 revenue estimates are revised upward and somewhat lower if revenue estimates are revised downward. • Expect the 215-16 guarantee not to change much due to revenue updates but expect the 2014-15 guarantee to change about dollar for dollar. • Assume roughly $1.1 billion in higher local property tax revenue across the 2015-16 and 2016-17 period, as the administration’s estimates likely are too low. Frees up a corresponding amount of non-Proposition 98 General Fund for any state priority. • Consider devoting additional 2016-17 funding to one-time purposes, as this would minimize the risk of an economic slowdown adversely impacting ongoing school and community college programs. Local Control Funding Formula (LCFF) • Dedicate the bulk of any additional ongoing school funding to LCFF, consistent with the past two years of implementation. Fosters local flexibility while providing additional funding for disadvantaged students. Preschool Restructuring • Create one, consolidated preschool program designed to provide access to all low-income and at-risk children (as defined by the state). Offer full-day programs to all children from low-income, working families. Create a streamlined eligibility verification process that reviews eligibility only once per year. • Set a per-child funding rate and distribute all funds based on number of eligible children participating in the program. Have hold harmless provision only during transition to new system. • Provide substantial local flexibility on program implementation but require all programs to include developmentally appropriate activities, meet minimum state staffing requirements, and report some key information to the state. Education Mandates • Provide $2.6 billion to retire K-14 mandate backlog over the next two to three years, about $1 billion more than the existing mandate backlog. As a condition of accepting funding, require local education agencies (LEAs) to write-off any mandate claims outstanding as of the end of 2015-16. For LEAs choosing not to accept funding, continue to track their outstanding claims. • Provide participating school districts and county offices of education (COEs) with per-student funding based on statewide median claim ($450 per student), with an additional allocation to COEs based on the number of students within the county ($20 per student). To ensure that smaller COEs are adequately funded, institute a minimum payment of $1 million. • Reject the Governor’s proposal to provide backlog funding for community colleges and charter schools. • Address any remaining backlog when the vast majority of LEAs once again have sizeable outstanding mandate claims. • Provide a 0.47 percent cost-of-living adjustment to the mandates block grants to better reflect the cost of performing mandated activities and ensure purchasing power is maintained. Costs $1.2 million ($1 million for the K-12 block grant and $150,000 for the community college block grant). Special Education • Provide $140 million towards equalizing special education funding rates. Make appropriation from within annual amount set aside for LCFF implementation. • Require a comprehensive review of state’s program for infants and toddlers with exceptional needs. • Reject the Governor’s proposal to increase one-time grant for schoolwide systems of support. Frees up $30 million for other one-time Proposition 98 purposes. 72 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET County Offices of Education • Repeal the COE minimum state aid provision to avoid creating new and growing funding inequities among COEs. Frees up $40 million in 2016-17 for other Proposition 98 priorities. Provides tens of millions of dollars of savings every year moving forward. High Speed Network • Reject Governor’s proposed $8 million appropriation and instead require the HSN grantee to fund its 2016-17 operations using its reserves (leaves a $1.4 million reserve at year end). Ask CDE to report to the Legislature about the performance and cost-effectiveness of the HSN grantee at spring budget hearings. • Ask the administration to submit a proposal as part of the May Revision that identifies (1) the administrative costs associated with the second round of the Broadband Infrastructure Improvement Grants and (2) corresponding funding options. Teacher Workforce • Rather than creating policies to address shortages within the broad market of teachers, focus on perennial teacher shortage areas (special education, science, and math) and difficult to staff schools (low-income, city- center, and certain types of rural schools). • Develop a longitudinal teacher database to track workforce trends and determine the effectiveness of workforce policies. www.lao.ca.gov Legislative Analyst’s Office 73 2016-17 BUDGET 74 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET www.lao.ca.gov Legislative Analyst’s Office 75 2016-17 BUDGET Contact Information Edgar Cabral K-12 Education in Context 319-8343 Edgar.Cabral@lao.ca.gov Kenneth Kapphahn Overview of the Governor’s Budget 319-8339 Kenneth.Kapphahn@lao.ca.gov Ryan Anderson Local Control Funding Formula 319-8308 Ryan.Anderson@lao.ca.gov Special Education Virginia Early Preschool Restructuring 319-8309 Virginia.Early@lao.ca.gov Dan Kaplan Education Mandates 319-8352 Dan.Kaplan@lao.ca.gov Teacher Workforce Trends Natasha Collins County Offices of Education 319-8335 Natasha.Collins@lao.ca.gov High Speed Network LAO Publications This report was reviewed by Jennifer Kuhn and Edgar Cabral. 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. 76 Legislative Analyst’s Office www.lao.ca.gov