The 2016-17 Budget: Analysis of the Proposition 98 May Revision Budget Package

The 2016-17 Budget: Analysis of the Proposition 98 May Revision Budget Package MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • MAY 16, 2016 Executive Summary Relatively Small Changes in Overall Proposition 98 Funding. The May Revision increases Proposition 98 funding by a combined $626 million over the 2014-15 through 2016-17 period. Compared with the administration’s January estimates, Proposition 98 funding is up $463 million in 2014-15, down $125 million in 2015-16, and up $288 million in 2016-17. These revisions are driven primarily by changes in state revenue. Relatively Small Differences in Administration’s and LAO’s Estimates. Our estimates of the minimum guarantee are $305 million higher across the three-year period than the administration’s estimates. Our estimates of the guarantee are slightly higher due primarily to our slightly higher estimates of state revenue. In addition, our estimate of local property tax revenue exceeds the administration’s estimate by $353 million across 2015-16 and 2016-17 combined. All else constant, this higher local revenue increases the Proposition 98 General Fund obligation in 2016-17 by $58 million and frees up $295 million General Fund that could be used for any state priority. Mixed Review of Specific Proposition 98 Proposals. The May Revision contains many specific proposals changing spending levels and substantive aspects of Proposition 98 programs. We examine major changes to K-12 education, early education, and community college programs. We believe some of these proposals are reasonable and recommend the Legislature adopt or modify them slightly. In many other cases, however, we have concerns with the proposals and recommend the Legislature reject or modify them more significantly. 2016-17 BUDGET INTRODUCTION In this brief, we analyze the Governor’s respectively. The Appendix to the brief contains Proposition 98 May Revision budget package. 19 figures that have detailed education budget In the first section, we focus on changes in the data. (Our February analysis contains background overall Proposition 98 funding level under the information about Proposition 98 and the May Revision compared to the Governor’s January calculations of the minimum guarantee. It also budget. In the next three sections, we describe and contains detailed analyses of the administration’s assess the major changes in specific Proposition 98 January Proposition 98 budget proposals and, in proposals for K-12 education, early education, many cases, our recommended alternatives to those and the California Community Colleges (CCC), proposals.) PROPOSITION 98 MINIMUM GUARANTEE Below, we explain and assess the Governor’s used in the Proposition 98 formulas, changes in revised estimates of the Proposition 98 minimum General Fund tax revenue account for nearly all guarantee. of the revisions to the guarantee. Compared to January estimates, the May Revision has General May Revision Estimates Fund tax revenue down a net $2.1 billion over the May Revision Increases Proposition 98 three-year period, yet it has Proposition 98 funding Funding by $626 Million Over the Period. increasing. This counterintuitive outcome largely Figure 1 displays the May Revision estimates of relates to the timing of these revenue changes and the minimum guarantee and compares them their interactions with the Proposition 98 formulas. to the estimates included in the Governor’s In broad strokes, the largest revenue increase occurs January budget. Compared with January, the in 2014-15, when the guarantee is highly sensitive May Revision reflects a net $626 million increase to changes in state revenue, and the largest decrease in Proposition 98 funding, consisting of a occurs in 2015-16, when the guarantee is less $463 million increase in 2014-15, a $125 million affected by changes in state revenue. We describe decrease in 2015-16, and a $288 million increase these dynamics further in the next paragraph. in 2016-17. Of the net increase over the three-year Interaction Between Guarantee and State period, $389 million comes from the state General Revenue Varies Notably by Year. In 2014-15, Fund and $236 million comes from higher local Test 1 is the operative test for calculating the property tax revenue. Under the May Revision, minimum guarantee and the state is making a large the 2016-17 minimum guarantee is $71.9 billion. maintenance factor payment. This dynamic requires This is a $2.8 billion (4.1 percent) increase over the the state to dedicate virtually every new dollar of revised 2015-16 level and a $3.5 billion (5.1 percent) revenue to Proposition 98, with General Fund tax increase over the 2015-16 Budget Act level. revenue increasing by $474 million and the guarantee Total Proposition 98 Funding Increases increasing by $463 million. In 2015-16, by contrast, Despite Decrease in State Revenue Estimates. Test 2 is operative and the state is making a relatively Though the May Revision updates all of the factors small maintenance factor payment. Under Test 2, 2 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET the guarantee is determined primarily by changes provided and the amount needed to grow at the in per capita personal income and is less sensitive to same rate as per capita personal income. Under change in state revenue. Despite a $1.7 billion drop the May Revision, the state not only creates more in General Fund revenue, the guarantee drops by maintenance factor in 2016-17, but it also pays off only $125 million. In 2016-17, Test 3 is operative and less total maintenance factor across 2014-15 and changes in the guarantee depend primarily upon 2015-16. Across those two years, payments drop year-to-year growth in state revenue. Though the a combined $144 million due to changes in state estimate of 2016-17 state revenue is $933 million revenue. (The size of maintenance factor payments below January estimates, this decline is smaller is driven largely by year-over-year growth in state than the $1.7 billion decline in 2015-16 revenue. revenue. Though growth is higher in 2014-15, this is As a result, year-to-year revenue growth is higher more than offset by slower growth in 2015-16.) under the May Revision, with the 2016-17 guarantee Small Increase in Estimates of Local Property correspondingly increasing by $288 million. Tax Revenue. Compared with January, the Maintenance Factor Obligation Increases administration’s estimate of local property tax $360 Million by End of Figure 1 the Period. In January, the Changes in Proposition 98 Funding administration estimated By Segment and Source that the state would end (In Millions) 2016-17 with $548 million Governor’s May in outstanding Budget Revision Change maintenance factor. 2014-15 Minimum Guarantee $66,690 $67,153 $463 Under the May Revision, By Segment: this amount is estimated Schools $59,330 $59,742 $412 Community colleges 7,281 7,331 51 to be $908 million, an Othera 80 80 — increase of $360 million By Fund Source: from January. The largest General Fund $49,554 $50,029 $475 Local property tax 17,136 17,124 -12 factor explaining the 2015-16 Minimum Guarantee $69,175 $69,050 -$125 increase is higher-than- By Segment: expected growth in per Schools $61,096 $60,984 -$112 capita personal income Community colleges 7,997 7,983 -14 in 2016-17. Whereas Othera 82 82 — By Fund Source: the administration had General Fund $49,992 $49,773 -$218 assumed growth of Local property tax 19,183 19,276 93 4.36 percent in January, 2016-17 Minimum Guarantee $71,585 $71,874 $288 federal data now show By Segment: growth of 5.37 percent. Schools $63,244 $63,496 $252 Community colleges 8,259 8,295 36 The amount of new Othera 83 83 — maintenance factor created By Fund Source: in a Test 3 year equals the General Fund $50,972 $51,105 $133 Local property tax 20,613 20,769 156 difference between the a Includes funding for instructional services provided by the State Special Schools, California Department amount of funding actually of Corrections and Rehabilitation, and Department of Developmental Services. www.lao.ca.gov Legislative Analyst’s Office 3 2016-17 BUDGET revenue is up by $249 million across 2015-16 scores the settle-up payment as a Proposition 2 and 2016-17 combined. (The administration also debt payment. makes a downward adjustment of $12 million Assessment to 2014-15 property tax estimates.) The largest factor explaining the increase is an upward In this section, we compare our estimates revision to estimates of the ongoing revenue of the minimum guarantee, state General Fund, shifted to schools and community colleges from and local property tax revenue with those of the former redevelopment agencies (RDAs). The administration. We focus first on our estimates for administration also revises its estimate of growth in the budget year and then turn to the next few years. assessed property values upward from 5.6 percent LAO’s Estimates of the Minimum Guarantee to 5.9 percent in 2015-16 and from 5.9 percent to Similar to Administration’s Estimates in the Near 6.2 percent in 2016-17. These increases are offset by Term. Figure 2 compares our estimates of the downward revisions to several smaller components guarantee with those included in the May Revision. of local property tax revenue. From 2014-15 through 2016-17, our estimates of the Proposed Settle-Up Payment Reduced by minimum guarantee are a combined $305 million $39 Million. The state currently owes $1.2 billion higher than the administration’s estimates— related to meeting the 2009-10, 2011-12, and $199 million higher in 2014-15, $1 million higher 2013-14 minimum guarantees. In January, the in 2015-16, and $106 million higher in 2016-17. administration proposed making a $257 million These differences are attributable almost entirely to settle-up payment toward meeting this obligation. differences in state revenue estimates. In 2014-15, The May Revision reduces this proposed payment the guarantee remains highly sensitive to changes to $218 million, a reduction of $39 million. in state revenue, with our $210 million higher After making this payment, the amount of settle revenue estimate increasing the guarantee virtually up remaining at the end of 2016-17 would be dollar for dollar. In 2016-17, our estimate of state $1 billion. As in January, the administration revenue is $172 million above the administration. Figure 2 Comparing Administration’s and LAO’s Estimates of the Minimum Guarantee (In Millions) 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 May Revision General Fund $50,029 $49,773 $51,105 $52,416 $52,034 $53,301 Local property tax 17,124 19,276 20,769 22,050 23,322 24,639 Total Guarantees $67,153 $69,050 $71,874 $74,466 $75,356 $77,939 LAO Forecast General Fund $50,235 $49,659 $50,973 $52,553 $52,835 $53,389 Local property tax 17,117 19,392 21,007 22,390 23,642 24,778 Total Guarantees $67,352 $69,051 $71,979 $74,943 $76,477 $78,167 Difference General Fund $206 -$115 -$132 $137 $800 $88 Local property tax revenue -7 115 237 340 320 139 Total Differences $199 $1 $106 $477 $1,121 $227 4 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET The guarantee is less sensitive to this additional districts too. Despite variation in these particular revenue, however, such that the guarantee increases property tax components, our overall difference by only about half of this amount. Given the with the administration represents only about volatile nature of state General Fund revenue and 1 percent of total anticipated property tax revenue the sensitivity of the estimates to many different over the two-year period. (The Appendix includes economic assumptions, our differences with the tables comparing property tax estimates.) administration are relatively minor. In previous Higher Local Property Tax Revenue years, our estimates of the minimum guarantee Would Lead to Higher “Test 3 Supplemental have differed from the administration’s estimates Appropriation” in 2016-17. If local property tax by billions of dollars. (The Appendix includes revenue exceeds the May Revision estimates, the a series of tables comparing estimates of the Proposition 98 General Fund obligation would minimum guarantee.) drop, in turn, freeing up non-Proposition 98 LAO Property Tax Estimates Somewhat General Fund that the Legislature could use for Higher Than Administration’s Estimates. Our any state priority. The reduction in Proposition 98 estimates of local property tax revenue are General Fund obligation in 2016-17, however, $353 million higher than the administration’s would be somewhat less than the increase in local estimates across 2015-16 and 2016-17. (Our property tax revenue because of an interacting differences in 2014-15 are only $7 million.) statutory provision. Specifically, statute requires Variation in several components of local property the state to ensure that Proposition 98 funding tax revenue underlie the differences between the grows at least as quickly as the rest of the state estimates. Compared to the administration, our budget when Test 3 is operative. The exact estimates assume more revenue will be allocated associated increase would depend upon several to schools and community colleges from the factors. For illustrative purposes, if local property Educational Revenue Augmentation Fund (ERAF). tax revenue were to exceed the administration’s Our estimates are based on reports from counties estimates by $353 million across 2015-16 and to the State Controller (with modifications for 2016-17 (an amount equal to the difference between the complexities of the ERAF allocation process), the May Revision and our estimates), the state’s while the administration uses other data sources. supplemental payment in 2016-17 would increase We also assume more revenue associated from about $58 million, leaving $295 million in freed-up RDA dissolution, primarily due to assumptions General Fund that the Legislature could use for any about lower RDA-related debt payments. The state priority. higher revenue we assume from these two sources Slightly Higher LAO Out-Year Estimates is offset partially by our higher estimates of of Guarantee Reflect Higher State Revenue “excess” property tax revenue. (Some districts in Assumptions. For 2017-18 through 2019-20, we California receive more local property tax revenue estimate the minimum guarantee will be a few than required to meet state-established funding hundred million to about $1 billion above the levels. These districts keep the revenue in excess administration’s estimates for each year. This of their state-established funding levels but that difference primarily relates to differences in our revenue does not count toward the guarantee.) assumptions about state revenue. Based on our The administration appears to be assuming main economic scenario, we assume that state lower growth of assessed property values in these revenue will be a few billion higher than the www.lao.ca.gov Legislative Analyst’s Office 5 2016-17 BUDGET administration estimates beginning in 2017-18, Cushion Against Future Economic Downturn with the minimum guarantee correspondingly Remains Small. The May Revision provides a higher. This increase, however, is partially offset by relatively modest cushion inside the Proposition 98 our lower estimates of K-12 attendance throughout guarantee to insulate ongoing K-14 programs from the period. Whereas the administration projects volatile state revenues. Of the $71.9 billion proposed that K-12 attendance will decline slightly (dropping spending counting toward the 2016-17 guarantee, by 0.1 percent to 0.3 percent per year), we estimate the administration dedicates only $524 million a slightly faster decline (dropping by 0.3 percent (less than 1 percent) for one-time purposes. Though to 0.4 percent per year). We also project that the our forecast assumes steady economic growth amount of maintenance factor outstanding will over the next few years, the state’s fiscal condition be a few billion higher than the administration historically has been more volatile. For example, estimates by the end of the period. This difference the guarantee experienced a sudden decline of primarily relates to our higher out-year estimates more than 12 percent in 2008-09 following six of per capita personal income, which is one factor consecutive years of growth. In 2001-02, the determining the amount of new maintenance factor guarantee dropped by more than 12 percent, having created each year. increased 12 percent the prior year. K-12 EDUCATION Compared to the Governor’s January cost. By comparison, the January budget proposed budget, the May Revision includes an additional closing 49 percent of the gap and funding $553 million for K-12 education ($252 million 95 percent of the full implementation cost. in 2016-17 funds and $301 million in prior-year Increases One-Time Funding for K-12 funds). This augmentation brings total 2016-17 Mandates Backlog by $135 Million. This funding for schools to $63.6 billion. K-12 funding augmentation would bring total K-12 mandates per student in 2016-17 is $10,657, an increase backlog funding up to $1.4 billion. The funds of $440 per pupil (4.3 percent) over the revised would be distributed based on student attendance, 2015-16 level. Below, we describe and assess the with the rate increasing to $236 per student (up Governor’s major May Revision proposals for K-12 from the January estimate of $214 per student). education. The Appendix includes tables providing The May Revision makes no other changes to more detail on the K-12 education budget. the mandate backlog payment. As proposed in January, local education agencies (LEAs) could Major Spending Changes use the funds for any education purpose, but the Increases LCFF Funding by $154 Million. administration encourages the funds be used for This increase brings the total LCFF augmentation deferred maintenance, professional development, in 2016-17 to $3 billion. The administration and implementation of the Common Core State estimates this funding would close 55 percent of the Standards, among other priorities. If an LEA has remaining gap to the LCFF target funding level. At outstanding mandate claims, the funding would be $55.6 billion in total LCFF funding in 2016-17, the scored against those claims. administration estimates it would be supporting Proposes a New $100 Million Revolving Loan 96 percent of the program’s full implementation Program for Facility Emergencies. The California 6 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Department of Education (CDE) would operate the $3 million Proposition 98 funding for CDE to K-12 School Facility Emergency Repair Revolving contract with a COE, which in turn would contract Loan Program. To qualify, schools would need to with a vendor to replace SACS. The project no longer demonstrate that they have closed their facilities for would be required to undergo the state’s standard one-week or longer (with an outside public agency review and oversight process. Associated trailer bill deeming the facility unsafe for occupation), have language indicates the funds would be available for no extra facilities, and have exhausted all readily CDE to contract with a COE upon approval of the available state and local resources. The loans would Department of Finance, with notification to the Joint be interest free for one year, with an interest rate Legislative Budget Committee. assessed thereafter equal to two percentage points Increases Dropout and Truancy Programs by above the Pooled Money Investment Account $2.6 Million. Proposition 47 reduced the penalties (PMIA) rate. Schools would have up to 20 years to for certain crimes and required that the state retire the loans. savings resulting from the measure go to support certain state programs. Specifically, the measure Other Spending Changes requires that 25 percent of the savings go to CDE to Revises LCFF-Related Funding for administer a grant program to reduce high school County Offices of Education (COEs) Upward dropout, truancy, and student victimization rates. by $16.5 Million Over Period. The May The May Revision increases the administration’s Revision provides an additional $16.5 million estimate of Proposition 47 savings, resulting ($5.5 million each in 2014-15, 2015-16, and in a $2.6 million augmentation for the dropout 2016-17) in LCFF-related funding for COEs. The and truancy prevention grant program. This administration’s revision is based on updated augmentation brings total funding for the grant prior-year local property tax data. For some COEs program to $9.9 million (up from $7.3 million in with historically high participation in certain state the Governor’s budget). Neither the January budget categorical programs, growth in local property tax nor the May Revision contain details about the new revenue increases total COE funding. (For other grant program, but the administration indicates it COEs, local property tax revenue offsets state is working with the Legislature and stakeholders, General Fund.) and likely will authorize the grant program Makes Significant Modifications to the pursuant to legislation adopted this session. Standardized Account Code Structure (SACS) Proposes $2.5 Million One Time for Teacher Replacement Project Proposal. The state uses Recruitment Efforts. The May Revision proposes to the SACS system to collect financial data from create the California Center on Teaching Careers. LEAs and meet various reporting requirements. The The Commission on Teaching Credentialing (CTC) Governor’s January budget included $7.2 million would conduct a competitive bid process to select ($3.6 million non-Proposition 98 General Fund one LEA to manage a recruitment campaign. and $3.6 federal carryover funding) for upgrading Specifically, the selected LEA would engage in a the system. The Governor’s budget assumed the statewide effort to inform perspective teachers project would undergo the state’s standard review of the requirements to become a teacher, provide and oversight process through the California information on loan assistance programs, and Department of Technology (CDT). The May engage in a variety of other marketing practices to Revision replaces the January proposal with encourage teachers to enter the workforce. www.lao.ca.gov Legislative Analyst’s Office 7 2016-17 BUDGET Increases Funding for College Planning One Notable Non-Proposition 98 Proposal Website by $1 Million. The Governor’s January Relating to Four-Year Teacher Preparation budget proposed $1 million in one-time funds Programs. The May Revision contains $10 million for the nonprofit organization California College one-time non-Proposition 98 General Fund to Guidance Initiative (CCGI) to enhance its expand or create new four-year undergraduate college planning website, also known as Student teacher credentialing programs through the Friendly Services. The May Revision increases the Integrated Teacher Preparation Grant. This augmentation to $2 million and makes the entire funding would go to CTC, which would issue $2 million ongoing. This augmentation would $250,000 grants to institutions of higher education bring total ongoing Proposition 98 support for selected prior to June 30, 2018. This funding could the organization to $2.5 million. CCGI’s website support the development of any type of four-year provides high school counselors, students, and credentialing program, but programs issuing parents with various tools to access information education specialist credentials or single subject about college planning and financial aid. In credentials in designated shortage areas would addition to these publicly available services, CCGI get priority. Grant recipients could use funding to offers enhanced services to school districts for a fee. release faculty, hire program coordinators, recruit CCGI indicates that of the $2.5 million in ongoing students into the programs, or develop summer state funding, half ($1.25 million) would be used courses. to support operations associated with its publicly Assessment and Recommendations available services and half ($1.25 million) for support of its enhanced services. Below, we assess the May Revision proposals Zeros Out COLAs for K-12 Education for K-12 education and provide associated Programs. Based on updated data, the May recommendations. Figure 3 summarizes these Revision adjusts the COLA rate used for certain recommendations. K-12 programs down from 0.47 percent in January Continue to Have Concerns With Lack of Plan to zero. Relative to the Governor’s January budget, to Retire Mandate Backlog. The May Revision zeroing out the COLA reduces funding for makes some further progress towards fulfilling certain K-12 categorical programs by a combined the state’s constitutional requirement to reimburse $18 million. Adjusting the COLA rate also lowers LEAs for the activities it mandates of them. The the LCFF target, which partly explains why more progress, however, is small. Of the $1.4 billion of the gap is closed under the May Revision. (The proposed for the K-12 mandates backlog, less than full implementation cost of LCFF has decreased half ($664 million) would reduce the backlog. This by about $300 million since January due to the is because the funds are allocated on a per-student reduction in the COLA rate and a slight decline in basis to all LEAs, though about half of LEAs projected student attendance.) have no outstanding claims and the claims for Revises Proposition 39 Estimates. The May other LEAs vary widely on a per-student basis. Revision adjusts Proposition 39 revenue estimates Continuing to use a per-student approach to retire upward, resulting in an additional $33 million the entire backlog would cost $182 billion—almost being designated for school energy-efficiency 100 times more than the backlog. We continue projects, bringing their total energy-efficiency to recommend the Legislature consider a more funds for 2016-17 to $399 million. strategic approach to retiring the mandate backlog. 8 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Need for Another K-12 Emergency Repair months, districts have been able to secure financing Program Is Unclear. The May Revision creates a for emergency repairs through the program. If the new revolving loan program to address emergency Legislature is interested in further expediting the facility issues without clearly explaining why the process to receive funding for emergency repairs, it state’s existing efforts in this area are inadequate. could consider over the coming months potential Established 18 years ago, the state already funds a ways to modify the existing program. Also, a facility hardship program that provides grants to $7 billion school bond is on the November ballot, help districts address their facility issues, including which, if approved, would provide more funding emergency repairs. While it can take several for emergency repairs. Figure 3 Summary of K-12 Education Recommendations Program May Revision Proposal LAO Recommendation LCFF funding for Increase by $154 million. Adopt. Accelerates LCFF implementation. school districts K-12 mandates backlog Increase by $135 million. Modify. Adopt funding level but combine with strategic plan to pay off remainder of backlog. School Facility Emergency Provide $100 million (one time) Reject. New program redundant with state’s Repair Revolving Loan for new program. existing Facility Hardship Grant Program. LCFF funding for COEs Increase by $16.5 million Modify. Change one of the COE LCFF formulas ($5.5 million each 2014-15, to ensure funding remains connected with the 2015-16, and 2016-17). cost of expected COE services. SACS replacement project Provide $3 million. (Replaces Reject. Direct CDE to work with CDT to $7.2 million in combined non- progress through initial stages of state review Proposition 98 and federal process. Ask agencies to report progress in funds.) summer. Signal intent to fund next year once planning phases of project complete. Dropout and truancy Increase by $2.6 million. Modify. Estimate of available Proposition 47 prevention grants funds still too low. Allocate funds to schools (Proposition 47) with the highest concentration of at-risk youth. Provide programmatic flexibility. California Center on Provide $2.5 million (one time) Modify. Adopt funding level. Require efforts Teaching Careers for teacher recruitment. be focused on longstanding teacher shortage areas. Strengthen reporting requirements. College planning website Increase by $1 million (for a Modify. Approve $750,000 for public side of site. total of $2 million). Make all Reject $1.25 million for fee-for-service side of $2 million ongoing. site. School energy-efficiency Increase by $33 million. Adopt. Increase for projects consistent with projects (Proposition 39) revised Proposition 39 revenue estimate. Integrated Teacher Provide $10 million non- Reject. Barriers to integrated programs unlikely Preparation Programs Proposition 98 General Fund to be overcome by one-time grants. for one-time incentive grants. LCFF = Local Control Funding Formula; COE = county office of education; SACS = Standardized Account Code Structure; CDE = California Department of Education; and CDT = California Department of Technology. www.lao.ca.gov Legislative Analyst’s Office 9 2016-17 BUDGET May Revision Further Magnifies the funding would not receive appropriate scrutiny, as Counterproductive Design of the COE LCFF. proposed trailer bill language is vague as to what is The May Revision provides additional funding required for Department of Finance approval and to a small group of COEs based not on students’ only notification is provided to the Legislature. or districts’ educational costs (the essence of Recommend Informational Hearing to LCFF), but rather on their counties’ property Ensure CDE and CDT Make Progress on SACS tax growth and historic participation in certain Replacement Project. To ensure the project is state categorical programs. Absent any change, developed as soon as possible and with sufficient these funding inequities will worsen over time, oversight, we recommend directing CDE to go with certain COEs moving increasingly above through the CDT’s first stages of project approval the LCFF targets as their property tax revenues by October 1, 2016. We recommend the Legislature increase. This practice runs counter to the intent hold an informational hearing or an informal of the LCFF. To address this problem, we continue meeting with the two departments in August 2016 to recommend changing one of the underlying to monitor their progress in developing the project. COE LCFF formulas to ensure funding remains To signal good faith in funding the project once connected with the cost of expected services. If planned and approved, we also recommend the left unaddressed, we believe the May Revision Legislature include language in the 2016-17 budget underestimates the cost of the COE LCFF by a indicating its intent to fund the costs of the project combined $45 million over 2015-16 and 2016-17. over the subsequent few years. Replacing SACS Is Warranted, but Serious Could Provide More Funding for Concerns With May Revision Proposal. Though Dropout Prevention Program and Offer More we agree the SACS system is outdated and should Programmatic Flexibility. Although the May be replaced, we have serious concerns with the Revision adjusts estimated Proposition 47 savings administration’s latest proposal. The CDE has had upward, we believe the savings estimate very nearly a year to work with CDT to put forth a new likely is still too low. If it is concerned that the plan for executing the project, but no progress administration’s estimate is too low, the Legislature has been made on the project during this time. could choose to appropriate additional funding In conversations with CDE, CDE indicates that to the programs funded under the measure. the May Revision approach would be less costly Regarding the dropout and truancy prevention and faster than working with the CDT, but we grant program, we continue to recommend that the have not received evidence to support either of Legislature design a program that allocates funds these claims. Furthermore, neither CDE nor the to schools with the highest concentrations of at-risk administration has made a case as to why CDE students and then gives those schools flexibility should be allowed to circumvent the standard in deciding how best to address their dropout project oversight process for the SACS replacement and truancy issues. To this end, we recommend project (which reflects a relatively typical, mid-sized the state rely on its new school planning and state technology project). Giving this project special accountability systems to monitor student treatment without special justification would set outcomes and provide support to districts that fail precedent for future state technology projects, to improve outcomes for at-risk students. potentially undermining the state’s oversight Recommend Focusing Teacher Recruitment process. We also are concerned that approval of the on Key Shortage Areas. By focusing on teacher 10 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET recruitment, the May Revision embraces one begin providing funding to subsidize the fee-side of of the fastest and most cost-effective strategies the website, however, raises concerns about whether for bringing more teachers into the workforce. the state should be subsidizing one service provider Certain states, such as New York, train thousands over others. (Various entities offer college planning more teachers than they hire, while thousands of tools for a fee.) The state funds high school students Californians hold valid teaching credentials but are at a higher per-pupil rate to account for the costs not actively teaching. While the focus on teacher of things like college planning. We believe that recruitment seems reasonable to us, the proposed school districts can use their general purpose funding is not prioritized to the areas with the dollars to contract with the service provider that greatest teacher shortages. We recommend the best serves their students’ needs. With this in Legislature modify the May Revision proposal mind, we recommend rejecting $1.25 million of the by prioritizing the new funding for recruiting Governor’s proposal to fund the enhanced side of teachers to perennial shortage subject areas (special the website. education, science, and math) and geographic areas Recommend Rejecting the Governor’s (low-income, central-city, and certain types of Approach to Expanding Four-Year Teacher rural schools). We also recommend the Legislature Preparation Programs. While a four-year strengthen the administration’s proposed reporting credentialing program can make the teaching requirements to include (1) the numbers of teachers profession more accessible, thereby potentially recruited into each of these subject and geographic increasing the statewide supply of teachers, a lack shortage areas and (2) the numbers of teachers of planning grants likely is not the key barrier to recruited in these areas which did not have access the developing more of these programs. Higher to other forms of recruitment (that is, the center education institutions currently offer a limited made very reasonable effort to focus on individuals number of blended credentialing programs. Their who otherwise might not have been recruited into decision not to offer more programs appears the teaching profession). at least partly linked to low student interest in Mixed Review of Funding Increase for College these types of programs. Expansion also might Planning Website. The Governor’s proposal be limited due to challenges in coordinating the to increase funding to CCGI by an additional degree requirements between departments, but, in $750,000 to support the public college planning the past, the state has been able to encourage the website seems reasonable. The state has long segments of higher education to engage in program provided Proposition 98 funding to CCGI to development and degree alignment without contract for the free portion of the website and providing planning grants. For these reasons, we the organization has provided documentation recommend the Legislature explore other strategies describing the enhancements it would make with for encouraging expansion of four-year routes into the increased funding. The Governor’s proposal to the teaching profession. EARLY EDUCATION BLOCK GRANT Of the $626 million increase the May Revision changes: a $10 million augmentation for COEs to provides in total Proposition 98 funding, $6 million help with implementation of the Early Education is for early education. This increase consists of two Block Grant and a $4 million reduction due to www.lao.ca.gov Legislative Analyst’s Office 11 2016-17 BUDGET the zeroing out of the COLA for State Preschool. with disabilities that affect their learning, and Though the May Revision contains only this English learners. Providers may use block grant slight change in overall funding, it contains many funding to serve children who are not low income significant fiscal and policy changes. Below, we or at risk as long as they make every effort to first describe and assess these changes. serve all prioritized children who are interested in participating. Specifically, the provider must May Revision Changes actively promote the program to the families of Includes Additional Details on Preschool low-income and at-risk children and take steps to Restructuring, Postpones Start to 2017-18. The ensure the program is convenient for those families May Revision makes several modifications to before serving other children. To increase overall the Governor’s January preschool restructuring participation in the new preschool program, the proposal, including postponing its start date. May Revision allows providers to charge fees to Under the May Revision, the State Preschool families of children who are not low income or at and Transitional Kindergarten programs would risk. continue to operate as usual in 2016-17. Beginning Gives Bulk of Funding Directly to School in 2017-18, the State Preschool and Transitional Districts. Under the May Revision, school districts Kindergarten funding streams would be would begin receiving block grant funding in consolidated into one block grant prioritized for 2017-18. That year each district would receive the low-income and at-risk four-year olds. (Similar same amount of funding it had received in 2016-17 to the January proposal, $33 million from State for Transitional Kindergarten and State Preschool Preschool that currently supports lab schools at combined. School districts also would receive the community colleges would not be shifted into funding that previously went to non-LEA State the new block grant.) The $50 million in preschool Preschool providers in their areas. COEs would Quality Rating and Improvement System (QRIS) receive the rest of the block grant funds, with each grant funds, which was included in the block grant COE receiving the same amount of funding it under the January proposal, would not be shifted received in 2016-17 from State Preschool contracts. into the new preschool program. Over time, the proposal intends to shift preschool Establishes Statewide Definitions of funds from COEs to school districts, with each Low-Income and At-Risk Children. The May COE’s funding reallocated to districts in that Revision includes specific definitions of the county that have unmet need. (The reallocation low-income and at-risk children who would receive occurs only if districts are deemed to have capacity priority for the new preschool program. Children to serve more preschoolers.) Though school would be deemed low-income if they met the districts are the primary intended providers of the income-eligibility requirements for free or reduced- new preschool program, districts would be allowed price school meals or state-subsidized child care. to subcontract with other entities to provide the (The current income eligibility threshold for free program. or reduced-price meals is $37,167 for a family of Requires School Districts to Serve Specified three, while the child care eligibility threshold is Number of Children. The May Revision would $42,216 for the same family size.) The May Revision require each school district to serve at least as defines at-risk children as those who are homeless, many children as it served in 2016-17, adjusted at risk of abuse or neglect, foster youth, children moving forward for year-to-year percentage 12 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET changes in its kindergarten through third grade regional preschool planning, help school districts average daily attendance. Beginning in 2020-21, implement new programs, and provide ongoing CDE could reduce funding for school districts by technical assistance and professional development up to 5 percent per year if they fail to meet these opportunities to school districts. The May Revision attendance requirements. also specifies that COEs have first priority for the Specifies Future Funds Be Allocated Based $50 million in preschool QRIS block grant funds. on School Districts’ Prior-Year Funding Levels Any remaining QRIS funds would be spent by and Unmet Need. In future years, school districts the regional QRIS consortia. (Currently, regional would receive their prior-year funding amount plus consortia determine how all QRIS block grant a COLA. Additional funding beyond COLA would funds are spent. In many cases, COEs are lead be allocated based on estimates of school districts’ agencies of their regional consortia.) Prioritizing unmet need. Specifically, CDE would distribute COEs for QRIS funding means COEs likely would funding proportionally based on the number of have a major role in rating preschool providers. unserved low-income and at-risk children in each Both pots of funding (the $20 million and district. Districts would receive $6,200 for every $50 million) would be distributed to COEs based additional child served. This rate is somewhat on countywide average daily attendance. lower than the current full-day State Preschool rate Requires School Districts to Develop Local adjusted for a 180-day school year ($6,935 per year). Early Learning Plans. Beginning in 2018-19, the Sets Minimum State Standards but Offers proposal requires districts to submit three-year Flexibility in Demonstrating Compliance. plans to their COEs and align spending with these Providers would be required to operate preschool plans. District plans must identify the number of programs for a minimum of three hours per day unserved low-income and at-risk children living and 180 days per year (the same requirements within school district boundaries and areas of the as kindergarten). Rather than setting other district where the number of priority children and specific programmatic requirements, the proposal access to preschool is not well matched. District requires providers to meet Tier 4 standards of plans also must set goals and specify actions they the QRIS matrix in 2017-18. This five-tier matrix will take to increase access to preschool, especially awards points for different levels of staffing ratios for low-income and at-risk children, and to work and qualifications, the quality of child-teacher with other local preschool providers (such as interactions, and the implementation of certain Head Start programs) to maximize the availability child assessments, among other program aspects. and quality of preschool services for priority This approach gives districts flexibility to pursue children. In addition, district plans must describe the quality elements they deem most important. how preschool programs are being aligned with Funding from the $50 million preschool QRIS elementary school programs. block grant would be used to rate providers on the Requires COEs to Develop Regional Early five-tier matrix and assist them in achieving at least Learning Plans. The proposal requires each COE a Tier 4 rating. to submit a three-year, county-level plan to CDE. Includes Additional Funding and In this plan, a COE must assess the early learning Responsibilities for COEs. The May Revision needs of the county, taking into account county- includes $20 million ($10 million one time, level demographic information and data included $10 million ongoing) for COEs to coordinate in districts’ local plans. Additionally, COE plans www.lao.ca.gov Legislative Analyst’s Office 13 2016-17 BUDGET must set goals and create an action plan to improve Tier 4 QRIS rating by hiring teachers with Child access to early education in the county, help Development Teacher Permits and providing an providers improve quality and align programs with 8 to 1 child-to-adult ratio or hiring teachers with elementary school programs, and improve their master’s degrees and providing a 12 to 1 child-to- capacity to recognize when district programs need adult ratio. technical assistance. COEs Well Positioned to Provide Support and Undertake Regional Planning. Requiring COEs Assessment: Some Significant Improvements to develop regional plans and provide support Delaying Implementation for One Year Is to school districts would complement many of Less Disruptive Approach. Delaying preschool the activities COEs currently undertake. For restructuring for one year would minimize example, COEs already provide fiscal oversight disruption to current preschool providers and and review school districts’ strategic plans. In families who have already signed up to use the some cases, COEs provide technical assistance to existing programs in 2016-17. The one-year period low-performing schools and districts. Many COEs also would give districts and COEs additional also are currently involved in regional planning time to develop preschool programs that meet the for preschool since they are members of local proposed new requirements. planning councils that set local priorities for child New Definition Helps Ensure Children Are care and preschool activities. In addition, COEs Prioritized Consistently Statewide. By creating currently receive QRIS block grant funding to assist statewide definitions of low-income and at-risk providers in improving program quality. children and requiring districts to prioritize Assessment: Some Notable Shortcomings these children, the May Revision provides greater assurance that similar children will be prioritized School District Hold Harmless Provisions similarly across the state. Additionally, because the Disconnect Funding From Need. Despite changes state would have information regarding the number in the May Revision, we continue to be concerned of unserved low-income and at-risk children, future that funds from the proposed block grant would funding increases could be better targeted to areas not be distributed statewide based on the number with greater unmet need. of low-income and at-risk children in each Achieves Reasonable Balance of State district. While a hold harmless provision would Standards and Local Flexibility. We think be helpful for some school districts in the initial aligning the minimum preschool requirements years of implementation, the proposal does little for length of school day and year with existing to assure funding is better aligned to need in the kindergarten requirements is a reasonable approach long run. Although the proposal specifies that that provides greater alignment with elementary future increases would be allocated based on school programs. Additionally, we think setting need, the only required increase in future years other program standards using the QRIS matrix is would be a COLA applied to prior-year funding an improvement over the current State Preschool levels. Since school district allocations under and Transitional Kindergarten requirements, as the new system would be based on historical it would allow providers flexibility to pursue the Transitional Kindergarten and State Preschool quality elements they deem most relevant. For funding and enrollment, districts likely would have example, preschool providers could achieve a very different effective per-child funding rates. 14 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Applying a uniform COLA would only enhance when they should offer assistance, what kinds of these disparities, giving larger per-child dollar assistance they should offer, how long they should increases to districts with already higher per-child offer assistance, and at what point funding should funding levels. Under this approach, significant be revoked if programs do not improve after variation would be perpetuated across the state in prolonged assistance. Additionally, the proposal per-student funding and in the share of low-income does not provide sufficient detail regarding when and at-risk children served. CDE should provide technical assistance to COEs. Implementing QRIS Statewide Likely This lack of clarity could result in wide variety in Multiyear Effort. Providers may need several years how programs receive technical assistance across to attain a Tier 4 QRIS rating. Although some the state. existing State Preschool programs have received Recommendations a Tier 4 rating, the minimum State Preschool requirements are roughly equivalent to a Tier 3 Below, we discuss our recommendations rating. For Transitional Kindergarten, the state regarding the Early Education Block Grant. minimum standards are far below the standards for Figure 4 (see next page) summarizes these a Tier 4 rating. COEs and regional QRIS consortia recommendations. also likely would need several years to build the Adopt Revised Consolidation Approach. We capacity to rate all state-subsidized preschool continue to recommend consolidating the State programs. Currently, State Preschool programs are Preschool and Transitional Kindergarten programs rated only on a voluntary basis. into one program and delaying that restructuring Proposed COE Role Leads to Conflicts of until 2017-18. Since the proposal uses the QRIS Interest. We also are concerned the proposal allows rating matrix to evaluate programs, we also think a COE to operate preschool programs (through a continuing to use $50 million for implementation direct appropriation or as a contract provider for of preschool QRIS rather than distributing those school districts) while also requiring it to play a funds directly to districts is reasonable. prominent role in providing support, oversight, and Choose One Definition of Income Eligibility. ratings for all state-subsidized preschool programs We recommend the state only use eligibility for in the county. This structure leads to a conflict free and reduced-price meals to determine whether of interest, as it potentially would result in COEs a child is low income. While the two proposed being required to evaluate their own preschool definitions of low income (free and reduced-price programs, determine when their own programs meal eligibility and state-subsidized child care should receive technical assistance, and, in those eligibility) are currently somewhat similar, they cases, provide themselves technical assistance. could diverge in future years. Since districts Proposal Does Not Include Enough Detail on already use free and reduced-price meal eligibility Oversight and Accountability. The May Revision as a criterion for other K-12 education programs, also does not provide sufficient detail regarding they likely would find using this measure COEs’ role in supporting struggling programs, administratively easier. Eligibility for free and which makes other important provisions of the reduced-price meals also would be a preferable proposal difficult to implement. For example, measure because it is based on a federal poverty the proposal requires both COEs and CDE to measure that is annually updated for changes in the provide technical assistance, but it does not specify cost of living. By contrast, the income threshold for www.lao.ca.gov Legislative Analyst’s Office 15 2016-17 BUDGET state-subsidized child care eligibility has not been With Need. To align funding with the distribution regularly updated by the state. of low-income and at-risk children across the Include One-Year Hold Harmless Provision state, we recommend the state shift funds to for Districts, Then Gradually Align Allocations districts with the highest percentages of unserved Figure 4 Summary of Early Education Block Grant Recommendations Program Component May Revision Proposal LAO Recommendation Funding for providers during Provide funding to school districts based on 2016-17 Modify. Include one-year hold harmless initial years of implementation State Preschool and Transitional Kindergarten provision for districts, then gradually funding. align funding based on the number of Provide funding to COEs based on 2016-17 State low-income and at-risk children in each Preschool funding. district. Include three-year hold harmless for school districts Decrease non-LEA and COE funding and COEs. over five years and reallocate funding Redirect funding from non-LEA providers to school to districts within each county based on districts in the area. unmet need. Future funding allocations Specify future funding would be allocated based Adopt. on prior-year funding levels and determination of unmet need. Prioritization of children Require districts to prioritize funding for low-income Adopt. and at-risk youth. Definition of low income Children who qualify for free or reduced-price meals Modify. Define children as low income only or state-subsidized child care. if they qualify for free or reduced-price meals. Definition of at risk Children who are homeless, at risk of abuse or Adopt. neglect, foster youth, children with disabilities that affect their learning, and English learners. Attendance expectations Require districts to serve at least as many children Modify. Over the long run, adjust as they served in 2016-17, adjusted for changes in attendance expectations to serve as K-3 attendance. many priority children as possible given available funding. Program duration Require programs to operate for a minimum of three Adopt. hours per day and 180 days per year. Program standards Require programs to meet QRIS Tier 4 standards. Modify. Phase in QRIS standards and rating process over several years. Require independent party evaluate COE-operated programs. New COE responsibilities Require COEs to coordinate regional planning, Modify. Require COEs (and CDE) to help school districts implement new programs, provide technical assistance under and provide ongoing technical assistance and specified conditions. professional development opportunities to school districts. New COE funding Provide $20 million ($10 million one time, Modify. Provide $10 million one-time $10 million ongoing) for additional responsibilities. funding. Make decision on ongoing funding amount in 2017-18 budget. QRIS funding Give COEs first priority for $50 million in preschool Adopt. QRIS block grant funds. COE = county office of education; LEA = local educational agency; QRIS = Quality Rating and Improvement System; and CDE = California Department of Education. 16 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET low-income and at-risk four-year olds beginning We recommend requiring COEs to provide in 2018-19. We recommend that this shift occur districts with technical assistance in at least gradually over time to help any affected districts two circumstances: (1) if districts do not meet adjust to lower funding levels. For example, the QRIS Tier 4 requirements (when QRIS is fully state could reduce the grant amounts of districts implemented), and (2) if the share of preschool that serve large numbers of non-prioritized students who are low income or at risk is lower four-year olds by no more than 5 percent per year. than the districtwide share of kindergarteners who Decrease Non-LEA and COE Provider are low income or at risk. Similarly, we recommend Funding Over Five Years, Reallocate Countywide CDE provide technical assistance to COEs’ to Districts With Highest Need. We recommend preschool programs in these two circumstances. that non-LEA and COE State Preschool funding We also recommend requiring CDE to provide be reallocated countywide to school districts with technical assistance to COEs if half of the preschool the highest percentages of unserved low-income programs in a county do not meet QRIS Tier 4 and at-risk four-year olds over a five-year period. requirements (when QRIS is fully implemented) Reallocating these funds gradually statewide allows and if the share of preschool students in the county the state to ease the transition for non-district who are low income or at risk is lower than the providers and families that use those programs countywide percentage of kindergarteners who are while still making progress toward to a more low income or at risk. equitable system in the long term. Provide COEs One-Time Funding in Budget Recommend Modifying New Standards and Year, Consider the Appropriate Ongoing Funding Oversight Process. We recommend adopting the Level Over Coming Year. The proposal includes May Revision’s proposed oversight structure and additional responsibilities for COEs. Without program standards. We recommend, however, specificity in the plan regarding how or when phasing in the QRIS standards and rating process counties should offer technical assistance, however, over several years. To ensure COE-operated what amount of ongoing funding they should preschools are given a fair rating, we also receive is unclear. We recommend providing recommend the state require those programs to be $10 million in one-time funding in 2016-17 and evaluated by an independent party, such as CDE or then determining the appropriate amount of a neighboring COE. ongoing funds COEs should receive as part of the Clarify Specific Instances When COEs 2017-18 budget process. and CDE Must Provide Technical Assistance. COMMUNITY COLLEGES Compared to the Governor’s January budget, the per full-time-equivalent (FTE) student is $7,053 in May Revision includes an additional $73 million for 2016-17, an increase of $158 (2.3 percent) over the community colleges ($36 million in 2016-17 funds revised 2015-16 level. Below, we describe and assess and $37 million in current- and prior-year funds the Governor’s major May Revision proposals for combined). This augmentation brings total 2016-17 community colleges. The Appendix includes tables community college funding to $8.3 billion. Funding providing more detail on the CCC budget. www.lao.ca.gov Legislative Analyst’s Office 17 2016-17 BUDGET Major Spending Changes the proposed May Revision augmentation, the administration expects community colleges to Provides $75 Million Unallocated Base speed up progress on several of these projects and Increase. The May Revision provides $75 million increase course offerings significantly. in ongoing, general purpose apportionment funding. The Governor proposes the increase to Other Spending Increases account for additional operating expenses in areas The May Revision includes seven new proposals such as employee benefits, facilities, professional ranging from $300,000 to $5 million each. development, and converting faculty from part Provides $5 Million One Time for Technical time to full time, but colleges could use the funds Assistance to Adult Education Consortia. The May for any purpose. Revision includes one-time funding of $5 million Backfills Anticipated Property Tax Shortfall. for one selected school district, community college The May Revision includes one-time funding of district, COE, or consortium to provide technical $39 million to offset an anticipated property tax assistance to consortia over a three-year period shortfall in 2015-16 relating to less-than-expected (2016-17 through 2018-19). Services could include revenue flowing to community colleges from meeting facilitation, assistance with governance former RDAs. If the shortfall is less than this issues, dissemination of effective practices, and amount, the Chancellor’s Office would distribute professional development, among others. These remaining funds toward the CCC mandates types of services would be intended to help backlog. consortia successfully transition to the new adult Increases One-Time Funding for CCC education program structure. Mandates Backlog by $29 Million. The May Expands Systemwide Internet Capacity. The Revision brings total backlog payments in the May Revision proposes to provide $7 million one budget package up to $106 million. The May time (from 2015-16 funds) and $5 million ongoing Revision continues to allocate these payments on to the Telecommunications and Technology a per-FTE student basis. The new funding would Infrastructure Program (TTIP) for network provide $92 per FTE student. equipment upgrades and higher-capacity Internet Provides $20 Million One Time to connections to community colleges sites. The Accelerate Implementation of Online Education administration notes that the improvements are Initiative. The state initially funded this effort needed to meet growing demand for connectivity with $17 million in 2013-14 and has provided (for example, students increasingly are connecting $10 million annually thereafter to increase CCC multiple mobile devices to college WiFi networks) students’ access to and success in online courses. and prepare for statewide rollout of the common The initiative includes several projects: a common assessment, education planning, online education, course management system for colleges, resources and other statewide technology initiatives. (These to help faculty design high-quality courses, online initiatives currently are in various stages of learner readiness modules, tutoring and counseling development and piloting.) platforms, exam-proctoring solutions, and the CCC Increases Funding for Energy-Efficiency Online Course Exchange. (The course exchange, Projects. The May Revision revises Proposition 39 to be piloted in 2016-17, is a system enabling revenue estimates upward, resulting in an students at any community college to enroll in additional $4.1 million for community college degree-applicable courses at other colleges.) With 18 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET energy-efficiency projects, bringing their correction to properly account for stability funding total energy-efficiency funds for 2016-17 to provided to San Francisco Community College $49.3 million. District pursuant to Chapter 34 of 2014 (SB 860, Funds Instructional Materials for Senate Committee on Budget and Fiscal Review). Incarcerated Adults. The Governor proposes This adjustment does not change state policy $3 million ongoing to purchase electronic regarding the district’s funding. Instead, it ensures textbooks and other classroom resources for the scheduled stability payment for 2016-17 will not inmates under the jurisdiction of the California reduce the availability of enrollment funding across Department of Corrections and Rehabilitation the CCC system. The May Revision also includes a (CDCR) who are enrolled in community college reduction to the interest rate on loans provided to courses. The department indicates it already has Compton Community College District to reflect the necessary e-readers for inmates to access these rates recently provided to certain school districts. resources. It previously has purchased textbook Spending Reductions content to use on these readers, but the content expires after a limited time. Reduces One-Time Deferred Maintenance Provides Funding to Further Equal and Instructional Equipment Funding. The May Employment Opportunity. The May Revision Revision partly offsets the above increases by a provides $2.3 million from the Employment $66 million reduction in the Physical Plant and Opportunity Fund to promote equal opportunity in Instructional Equipment categorical program. hiring and promotion at community colleges. (This Budget-year funding for these purposes would drop fund contains penalties paid by community college from $255 million to $189 million. Total funding districts that do not meet their full-time faculty for these purposes, including funding scored to obligation number.) the current and prior years, would be $219 million Increases Financial Aid for CTE Students. (compared with $290 million in the Governor’s The May Revision provides $2.2 million to expand January budget). eligibility for the Full-Time Student Success Grant Updates COLA Rate. Based upon updated to Cal Grant C recipients and fund an anticipated data, the May Revision adjusts the COLA rate used increase in the number of eligible Cal Grant B for certain community college programs down recipients. The proposal also fixes the annual grant from 0.47 percent in January to zero. Relative to the amount at $600 per student. (The state created Governor’s budget, zeroing out the COLA reduces the Full-Time Student Success Grant in 2015-16 to apportionment costs by $29 million and selected provide financial aid supplements to Cal Grant B categorical program costs by $1.3 million. recipients attending CCC full time.) Changes to Strong Workforce Proposal Increases Support for Statewide Academic Senate by $300,000. The May Revision increases In addition to spending changes, the May state support for the Academic Senate from Revision contains trailer bill proposals that would $468,000 to $768,000 in recognition of its role make various substantive changes to the Governor’s in implementing several statewide initiatives, January proposals. Among the most significant including the proposed Strong Workforce Program. of these substantive changes, discussed below, are Two Adjustments Associated With Specific those proposed for the Strong Workforce Program. Districts. The May Revision includes a $42 million www.lao.ca.gov Legislative Analyst’s Office 19 2016-17 BUDGET Separately Designates Funding for Regional year. The other option would permit adoption Collaboratives and Districts. The Governor’s within one semester, for courses and programs to January proposal allocated $200 million to regional be offered the following semester. In consultation “collaboratives” to expand the availability of with the Department of Finance and the Legislative quality CTE and workforce development courses, Analyst’s Office, the Chancellor’s Office would pathways, and programs resulting in certificates, select one of these options to implement. The plan degrees, and other credentials. The collaboratives also would include a process for a college to adopt would consist of community college districts, or adapt another college’s approved CTE course or local education agencies, interested CSU and program within one semester. UC campuses, civic representatives, workforce Calls for Study of Possible Program development boards, representatives from the Consolidation. The May Revision states legislative organized labor community, and economic intent for the Chancellor’s Office, Department development and industry sector leaders. Each of Finance, and Legislative Analyst’s Office to region’s share of the $200 million would be based investigate potential consolidation of other CTE on specified factors (the region’s unemployment programs within the Strong Workforce Program. rate, its share of statewide CTE enrollment, Other Changes. Additional changes include projected job openings in the region, and requiring the CCC Academic Senate to establish member colleges’ workforce outcomes), and the a CTE subcommittee consisting mainly of CTE collaboratives would use the funds for regionally faculty to ensure (1) portability of courses, prioritized projects and programs. Under the May programs, and degrees across colleges and (2) Revision, 40 percent of program funding will be alignment of CTE instruction with industry allocated to collaboratives and the remaining trends. The proposal clarifies the types of degree 60 percent directly to member districts based on and certificate programs to be included in the the same funding factors. Districts would use their Strong Workforce Program and the definition direct funding for regionally prioritized activities of supplanting for the program purposes. It also consistent with the collaborative’s regional plan. Of requires the Chancellor’s Office to recommend the funds provided directly to a district, no more the regional allocation of funds to the Legislative than 60 percent could be used for ongoing costs. Analyst’s Office and the Department of Finance Strengthens Requirements for Improving for approval prior to distribution. (The Governor’s Curriculum Development and Approval Processes. January proposal required only Department of The Governor’s January proposal required the Finance approval.) Chancellor’s Office to develop policies to streamline Other Policy Changes local and statewide curriculum approval. The revised proposal requires the Chancellor’s Office Changes to Zero-Textbook-Cost Degree to develop a plan for expedited approval of Proposal. The May Revision also includes a CTE courses and programs by July 1, 2017 and number of changes to the administration’s January implement the plan by January 1, 2018. The plan zero-textbook-cost degree proposal. Changes would be required to set forth two curriculum- include reducing the grant amount to $200,000 approval options. One option would permit per degree program (from $500,000), authorizing colleges to adopt courses and programs within one districts to use funding to obtain professional academic year, to be offered the following academic development and technical assistance, and 20 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET requiring that grantees strive to offer the new to amend provisional language to provide a degree programs by fall 2018. Additional changes larger share of Basic Skills Initiative funding providing clarification or fine-tuning include: for statewide faculty and staff development. The goal of these professional development activities • Prioritizes Use of Existing Open is to improve curriculum, instruction, student Educational Resources (OER). The May services, and program practices in basic skills Revision requires colleges to prioritize use and English as a second language programs. The of existing OER through existing initiatives May Revision includes $2.5 million or 5 percent or elsewhere, before creating new content. of total funding for statewide activities, compared It requires that faculty have flexibility with the $1.2 million or 2.4 percent of total to update and customize instructional funding proposed in January. The May Revision materials, effectively requiring that all OER also requires notification and concurrence of the used have a type of license that permits Legislative Analyst’s Office and the Department faculty to make changes. of Finance on factors to include in the funding • Requires Sustainability Planning. The formula for this program. (The Governor’s January May Revision also requires that colleges proposal required only Department of Finance consider sustainability of materials concurrence.) developed under the program, including Changes to Adult Education Block Grant how content will be updated and presented Program. The May Revision contains trailer bill after grant funding is exhausted. language that would (1) require the fiscal agents of regional adult education consortia to distribute • Other Clarifications. The May funds to their members within 45 days of receipt Revision proposal includes a number and (2) prohibit these fiscal agents from requiring of clarifications regarding printing of members to be funded on a reimbursement basis. instructional materials, safeguarding of testing and assessment materials posted Assessment and Recommendations publicly, types of degree and certificate Below, we assess the May Revision proposals programs that may be developed and for community colleges and provide associated prioritized, and compliance with applicable recommendations. Figure 5 (see next page) federal laws. summarizes these recommendations. We begin by Changes to Basic Skills Proposal. In January, identifying those proposals we believe reasonable the Governor proposed a $30 million ongoing and recommend adopting or amending slightly. augmentation to the Basic Skills Initiative. The We then turn to those proposals we believe have majority of these funds would be allocated to notable shortcomings and recommend rejecting or districts, with a small portion designated for modifying more significantly. statewide professional development activities. Recommend Approving Increase in General (At that time, we recommended redirecting this Purpose Funding. Given the availability of augmentation to an existing, one-time Basic additional Proposition 98 funding for community Skills and Student Outcomes Transformation colleges at the May Revision, we think providing grant program for colleges to redesign their basic an apportionment increase is reasonable. Although skills programs.) The May Revision proposes state categorical programs have received substantial www.lao.ca.gov Legislative Analyst’s Office 21 2016-17 BUDGET augmentations in recent years, these programs programs and have a high likelihood of successful often do not give districts sufficient flexibility to implementation. Specifically, we think the meet state priorities, nor are they always perfectly CCC could use the following augmentations aligned with local priorities. Districts could use this productively: more flexible funding to tailor their approaches to • Online Education Initiative. This initiative meeting statewide priorities and meet any other is well underway and the Chancellor’s high priorities. Office believes it could significantly Several New Funding Proposals Appear to accelerate progress with the proposed Have Merit. We have no significant concerns funding. Before approving the proposed regarding five of the Governor’s new spending May Revision increase, we recommend the proposals. These are modifications to established Legislature ask CCC to identify specific Figure 5 Summary of California Community Colleges Recommendations Program May Revision Proposal LAO Recommendation General purpose Increase by $75 million. Adopt. Colleges can use flexible funds to meet highest priorities. apportionment funding Online Education Initiative Provide $20 million one time. Adopt. Accelerates implementation of online courses. Technical assistance for Increase by $5 million one Adopt. Maintains service level to consortia during transition Adult Education Consortia time (over three years). process. Telecommunications and Increase by $7 million one Adopt. Expands Internet capacity for statewide technology projects. Technology Infrastructure time and $5 million ongoing. Full-Time Student Success Increase by $2 million. Adopt. Reduces financial aid disparity between career technical Grant education students and other students. CCC Academic Senate Increase by $300,000. Adopt. Addresses increased workload for statewide initiatives. Energy-efficiency projects Increase by $4 million. Adopt. Increase for projects consistent with revised Proposition 39 (Proposition 39) revenue estimate. Equal Employment Opportunity Increase by $2 million. Adopt. Uses special fund balance for authorized purposes. Strong Workforce Program Make policy changes. Modify. Remove requirement that LAO approve funding allocations. Zero-Textbook-Cost Make policy changes. Modify. Add requirement for CCC to coordinate with related state Degree Program initiatives. Consider adding component for instructional materials for incarcerated adults. Instructional materials for Provide $3 million. Reject. Proposal lacks adequate information and raises several incarcerated adults concerns. Consider link to zero-textbook-cost proposal. Basic Skills Initiative Make policy changes. Modify. Adopt change in share for statewide professional development (from 2.4 percent to 5 percent of total program funding). Designate first-year funding for grants. Remove requirement that LAO concur on funding factors. Enrollment growth Make no changes to January Modify. Reduce 2015-16 enrollment base to reflect updated data proposal. and carry adjustment forward into 2016-17. Still assume 2 percent growth year over year. Use freed-up funds for other high priorities. CCC mandates backlog Provide $29 million. Reject. Per-student approach to reducing CCC mandates backlog no longer makes sense. Deferred Maintenance and Increase by $189 million. Modify. To extent Legislature frees up funding by rejecting or Instructional Equipment modifying other CCC proposals, redirect funds for one-time purposes such as maintenance backlog. 22 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET associated deliverables it can expect from we recommended the Legislature consider the project over the next few years. It if it wanted to increase financial aid for would be helpful to know, for example, the CCC CTE students. Community colleges number of courses currently scheduled for were able to quickly implement the grant piloting over the next two or three years program last year after it was initially and the extent to which the proposed funded and should not have difficulty funding would increase this number. expanding the program to include Cal Grant C recipients. • Technical Assistance for Adult Education Consortia. The May Revision proposal • Academic Senate. The Academic Senate would enable CDE and the Chancellor’s has an important role in supporting the Office to maintain for three more years the implementation of statewide initiatives level of support they have been providing that involve instructional programs. These for districts as they transition to the new include recent student success and basic adult education program. (Although both skills initiatives as well as the proposed agencies received state operations funding new workforce program. for the adult education program, they Recommend Approving Substantive Changes have provided support for consortia partly to Strong Workforce Program. Limiting the with one-time funds that recently were share of funding that can be used for ongoing exhausted.) Although many consortia have programs, as the May Revision does, would help successfully transitioned to the new model ensure that resources remain available over time and are working together well, others for periodic CTE equipment purchase and renewal continue to struggle with establishing and other one-time CTE costs. Setting a time line the necessary relationships, structures, for planning and implementing improvements to and policies to collaborate effectively. the CTE curriculum development process, and Additional one-time funding could help clarifying expectations for the new process, likely these consortia come together and assist would accelerate improvement on this longstanding all consortia in improving their practices issue. Exploring consolidation of other workforce and outcomes through better coordination, programs has the potential to reduce duplication professional development and targeted in planning and reporting and improve alignment technical assistance. of activities across the system. We recommend one modification, however, to the Governor’s proposal. • Technology Infrastructure. We believe While we believe it is appropriate for our office to the TTIP program has developed a solid review the proposed funding allocation and notify plan for using the $7 million one time the Legislature of any concerns, it is not appropriate and $5 million ongoing augmentations for our office to have an executive branch role of proposed in the May Revision to expand approving a particular funding allocation. Internet capacity across the system. Recommend Approving May Revision • Financial Aid for CTE Students. The Changes to Zero-Textbook-Cost Degree Proposal. proposal to expand the CCC Full-Time Several of the May Revision changes—including Student Success Grant reflects an option reducing the grant amounts, authorizing use of www.lao.ca.gov Legislative Analyst’s Office 23 2016-17 BUDGET grant funds for outside professional development, Modify Basic Skills Initiative Proposal. prioritizing the use of existing OER, establishing a We continue to think the state would be better time line for offering new programs, and planning served by providing the proposed funding for for sustainability—are consistent with our February additional Basic Skills and Student Outcomes recommendations. Other May Revision changes, Transformation grants, as we recommended earlier such as the change to safeguard testing and this year. Since the time of our initial analysis, the assessment materials, provide helpful clarifications. Chancellor’s Office awarded the full $60 million In addition to adopting the May Revision changes, in available grant funding to 43 colleges. Another we recommend the Legislature require the 21 applicants were eligible for $30 million in awards Chancellor’s Office to coordinate the program but did not receive funding. We recommend the with other OER initiatives in the state, including a Legislature designate the Governor’s proposed current OER adoption incentive grant program for $30 million augmentation to this program instead CSU and CCC. We also recommend the Legislature for additional transformation grants. The ongoing consider incorporating into this program efforts funds would become available following 2016-17 to provide free instructional materials for inmate for the ongoing Basic Skills Initiative. Should education. the Legislature not wish to fund additional Inmate Education Proposal Lacks Sufficient transformation grants, however, we recommend Information. We have several questions regarding adopting the Governor’s proposed increase in this proposal and recommend the Legislature reject the share of funding designated for statewide it at this time. It is unclear whether CDCR and professional development. Additionally, similar CCC (including the CCC Academic Senate) have to one or our concerns with the revised workforce had sufficient communication about the proposed proposal, we recommend the Legislature modify electronic textbook materials. Although a growing the requirement that our office concur on the number of community colleges are offering courses Chancellor’s Office’s proposed funding allocation. and programs for inmates, few CCC faculty have Enrollment Growth Funding Likely Too opted to use the existing e-readers. While some High. Although updated CCC enrollment reports faculty may perceive resources as a barrier to using show lower 2015-16 enrollment than anticipated these devices, others report that they prefer using in January, the May Revision does not reduce printed materials that inmates may keep in their enrollment growth funding for the current year cells. In addition, unlike the electronic textbooks or the budget year. Based on apportionment data, CDCR has purchased, printed materials do not we recommend reducing current-year enrollment expire at the end of a term. If the Legislature is growth funding by about 12,000 FTE students to interested in considering this initiative, it could ask reflect anticipated systemwide growth of 1 percent. the agencies to work together to develop a proposal We also recommend reducing base enrollment for the next legislative session. To begin addressing by a similar amount for 2016-17. For each year, the need for course resources in the meantime, this would free up about $60 million that the the Legislature could consider amending the Legislature could redirect to other Proposition 98 Governor’s zero-textbook-cost degree proposal to priorities. Lower-than-anticipated growth in the ensure a portion of that initiative results in free, current year makes it less likely that CCC will customizable, and non-expiring materials for achieve systemwide growth of 2 percent in 2016-17. inmate education programs. Rather than reducing growth funding at this time, 24 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET however, we recommend the Legislature revisit redirect the $106 million the administration the issue in 2016-17 and make adjustments at that proposes for the CCC mandates backlog to time based on fall 2016 enrollment reports. This higher one-time priorities, such as addressing will ensure sufficient funding in the event growth CCC’s substantial deferred maintenance issues. begins to recover. The Chancellor’s Office reports a maintenance Recommend Redirecting Funding From CCC backlog at every campus, with a total systemwide Mandates Backlog to Higher One-Time CCC maintenance backlog in excess of $1 billion. Priorities. We are especially concerned that the Concern With Reducing One-Time Spending. May Revision increases funding for the CCC We also are concerned about the proposed mandates backlog. Only ten of the 72 community reduction to the maintenance and instructional college districts have outstanding mandates claims. equipment item, not only because of the large (The backlog for all other districts was eliminated maintenance backlog but also because reducing the past few years, as the state made large backlog one-time spending leaves the state with a payments.) Though the state subjects community smaller cushion in the event of a decline in the college districts to the same set of mandated Proposition 98 guarantee the next few years. activities, some districts claim far more than To the extent the Legislature frees up funding others in costs for these activities. Four community within the guarantee by adopting some of our college districts account for over 90 percent of the recommendations above (such as adjusting system’s backlog. One district alone accounts for CCC funding downward to account for updated 52 percent of the system’s backlog. Given this very enrollment data), we encourage the Legislature to uneven distribution of mandates claims, paying redirect those funds for one-time purposes, such as all districts on a per-FTE student basis no longer the maintenance backlog. makes sense. We recommend the Legislature www.lao.ca.gov Legislative Analyst’s Office 25 2016-17 BUDGET 26 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET APPENDIX Education Budget Figures Tracking Changes in Estimates of Proposition 98 Minimum Guarantee ........................................................28 Changes in General Fund Tax Revenue and Proposition 98 General Fund ....................................................28 Changes in Proposition 98 Funding by Segment and Source ...........................................................................29 2015-16 Proposition 98 Spending Changes .........................................................................................................30 2016-17 Proposition 98 Spending Changes .........................................................................................................31 2016-17 K-12 Proposition 98 Spending Changes ...............................................................................................32 K-12 Proposition 98 Funding Per Pupil ...............................................................................................................32 Changes in LCFF Funding .....................................................................................................................................33 2016-17 CCC Proposition 98 Spending Changes ...............................................................................................33 Community College Programs Funded by Proposition 98 ...............................................................................34 Proposed Funding for Education Mandates Backlog .........................................................................................35 Key Proposition 98 Information Underlying May Revision ..............................................................................35 Key Proposition 98 Information Underlying LAO Forecast .............................................................................36 Comparing Administration’s and LAO’s Estimates of Minimum Guarantee ..................................................36 Comparing Proposition 98 Property Tax Revenue Estimates ...........................................................................37 Year-Over-Year Growth in Proposition 98 Property Tax Revenue ...................................................................37 Summary of K-12 Education Recommendations ...............................................................................................38 Summary of Early Education Block Grant Recommendations .........................................................................39 Summary of California Community Colleges Recommendations ...................................................................40 www.lao.ca.gov Legislative Analyst’s Office 27 2016-17 BUDGET Tracking Changes in Estimates of Proposition 98 Minimum Guaranteea (In Millions) June January May Change From Change From 2015 2016 2016 January 2016 June 2015 2014-15 $66,303 $66,690 $67,153 $463 $850 2015-16 68,409 69,175 69,050 -125 641 2016-17 — 71,585 71,874 288 3,465b a Reflects budget act estimates for June 2015 and administration’s estimates for January 2016 and May 2016. b Reflects change from June 2015 estimate of 2015-16 minimum guarantee. Increase is 5.1 percent. Changes in General Fund Tax Revenue and Proposition 98 General Funda (In Millions) Governor’s May Budget Revision Change 2014-15 General Fund tax revenue $111,975 $112,448 $474 Proposition 98 General Fund 49,554 50,029 475 2015-16 General Fund tax revenue $120,205 $118,516 -$1,688 Proposition 98 General Fund 49,992 49,773 -218 2016-17 General Fund tax revenue $124,154 $123,222 -$933 Proposition 98 General Fund 50,972 51,105 133 a The Proposition 98 minimum guarantee is met using state General Fund and local property tax revenue. “Proposition 98 General Fund” refers to the amount of the guarantee covered by state General Fund. 28 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Changes in Proposition 98 Funding By Segment and Source (In Millions) Governor’s May Budget Revision Change 2014-15 Minimum Guarantee $66,690 $67,153 $463 By Segment: Schools $59,330 $59,742 $412 Community colleges 7,281 7,331 51 Othera 80 80 — By Fund Source: General Fund $49,554 $50,029 $475 Local property tax 17,136 17,124 -12 2015-16 Minimum Guarantee $69,175 $69,050 -$125 By Segment: Schools $61,096 $60,984 -$112 Community colleges 7,997 7,983 -14 Othera 82 82 — By Fund Source: General Fund $49,992 $49,773 -$218 Local property tax 19,183 19,276 93 2016-17 Minimum Guarantee $71,585 $71,874 $288 By Segment: Schools $63,244 $63,496 $252 Community colleges 8,259 8,295 36 Othera 83 83 — By Fund Source: General Fund $50,972 $51,105 $133 Local property tax 20,613 20,769 156 a Includes funding for instructional services provided by the State Special Schools, California Department of Corrections and Rehabilitation, and Department of Developmental Services. www.lao.ca.gov Legislative Analyst’s Office 29 2016-17 BUDGET 2015-16 Proposition 98 Spending Changes (In Millions) Governor’s May Budget Revision Change 2015-16 Budget Act Spending $68,409 $68,409 — Technical Adjustments Make LCFF adjustments -$91 -$35 $56 Other 43 -61 -104 Subtotals (-$48) (-$96) (-$48) Policy Changes Pay down K-12 mandate backlog $681 $586 -$95 Pay down CCC mandate backlog 73 76 3 Fund CTE Incentive Grant program 60 — -60 Backfill CCC for lower than projected property tax revenuea — 39 39 Backfill special education for lower than projected property tax revenuea — 29 29 Provide CCC with technology infrastructure funding (one time) — 7 7 Subtotals ($814) ($737) (-$78) Total Changes $766 $641 -$125 2015-16 Revised Spending $69,175 $69,050 -$125 a If backfill amounts exceed actual property tax shortfalls, CCC Chancellor’s Office directed to use excess funds for CCC mandate backlog. Excess funds for special education would revert. LCFF = Local Control Funding Formula and CTE = career technical education. 30 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET 2016-17 Proposition 98 Spending Changes (In Millions) Governor’s Budget May Revision Change 2015-16 Revised Proposition 98 Spending $69,175 $69,050 -$125 Technical Adjustments Remove prior-year one-time payments -$1,446 -$1,301 $145 Make other adjustments -115 -152 -36 Adjust categorical programs for changes in attendance -16 -21 -6 Make LCFF adjustments 101 175 74 Annualize funding for previously approved preschool slot increases 31 31 — Subtotals (-$1,445) (-$1,268) ($177) K-12 Education Increase LCFF funding $2,825 $2,979 $154 Fund CTE Incentive Grant for Secondary Schools (year two of three)a 240 300 60 Provide COLA for select categorical programsb 23 — -23 Fund truancy and dropout prevention program 7 10 3 Fund High Speed Networkc 5 5 — Revise estimate of energy-efficiency funds 52 85 33 Support Exploratorium 4 4 — Fund improvement of web-based tools for state accountability system 1 1 — Remove augmentation for infants and toddlers with disabilities -30 -30 — Fund COEs for implementation of new Early Education Block Grant — 10 10 Support Student Friendly Services — 2 2 Subtotals ($3,125) ($3,365) ($239) California Community Colleges Implement workforce recommendations of BOG task force $200 $200 — Fund deferred maintenance and instructional equipment (one time) 255 189 -$66 Fund 2 percent enrollment growth 115 115 — Provide apportionment increase (above growth and COLA) — 75 75 Make CTE Pathways Initiative ongoing 48 48 — Augment Basic Skills Initiative 30 30 — Fund Innovation Awards at community colleges (one time) 25 25 — Revise estimate of energy-efficiency funds 6 11 4 Increase funding for Institutional Effectiveness Initiative 10 10 — Augment technology infrastructure funding — 5 5 Fund technical assistance to adult education consortia (one time) — 5 5 Fund development of “zero-textbook-cost” degree programs (one time) 5 5 — Provide instructional materials for incarcerated adults — 3 3 Improve systemwide data security 3 3 — Extend Full-Time Student Success Grant to Cal Grant C recipients — 2 2 Increase apprenticeship reimbursement rate 2 2 — Provide COLAb 31 — -31 Subtotals ($730) ($728) (-$2) Total Changes $2,410 $2,824 $414 2016-17 Proposed Spending $71,585 $71,874 $288 a Governor’s budget includes $60 million in 2015-16 funding for this purpose. b COLA rate was estimated at 0.47 percent in January and finalized at zero in May. c Budget also includes $3.5 million in one-time funding for this purpose. LCFF = Local Control Funding Formula; CTE = career technical education; COLA = cost-of-living adjustment; COE = county office of education; and BOG = Board of Governors. www.lao.ca.gov Legislative Analyst’s Office 31 2016-17 BUDGET 2016-17 K-12 Proposition 98 Spending Changes (In Millions) Governor’s May Budget Revision Change 2015-16 Revised Spending $61,178 $61,066 -$112 Technical Adjustments -$977 -$852 $125 Policy Proposals Increase LCFF funding $2,825 $2,979 $154 Fund CTE Incentive Grant for Secondary Schools 240a 300 60 Revise estimate of energy-efficiency funds 52 85 33 Fund truancy and dropout prevention program 7 10 3 Fund COEs for implementation of new Early Education Block Grant — 10 10 Fund High Speed Network 5b 5b — Support Exploratorium 4 4 — Fund improvement of web-based tools for state accountability system 1 1 — Support Student Friendly Services —d 2 2 Provide COLA for select categorical programsc 23 — -23 Remove augmentation for infants and toddlers with disabilities -30 -30 — Subtotals ($3,125) ($3,365) ($239) Total Changes $2,148 $2,513 $364 2016-17 Proposed Spending $63,326 $63,579 $253 a Also included $60 million in 2015-16 funding for this purpose. b Also includes $3.5 million in one-time funding for this purpose. c COLA rate was estimated at 0.47 percent in January, finalized at zero in May. d Governor’s budget proposed $1 million in prior-year funds. LCFF = Local Control Funding Formula; CTE = Career Technical Education; COE = county office of education and COLA = cost-of-living adjustment. K-12 Proposition 98 Funding Per Pupil Governor’s May Budget Revision Change 2014-15 $9,933 $10,001 $68 2015-16 10,237 10,217 -20 2016-17 10,605 10,657 52 Year-to-Year Changea Amount $369 $440 $72 Percent 3.6% 4.3% 0.7% a Reflects change from 2015-16 to 2016-17. 32 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Changes in LCFF Funding (Dollars in Millions) 2016-17 2015-16 Year-to-Year Revised Governor’s Budget May Revision Change Changea Base fundingb $46,433 $52,585 $52,580 -$5 $6,147 Gap funding 6,171 2,889 3,053 163 -3,118 Total Funding $52,604 $55,475 $55,633 $158 $3,029 Target $58,266 $58,473 $58,158 -$315 -$108 Gap closure 52.1% 49.1% 54.7% 5.6% 3% Percent of target level funded 90.3% 94.9% 95.7% 0.8% 5% a Reflects change from the 2015-16 revised level to the 2016-17 May Revision level. b Base funding reflects total prior-year funding adjusted for changes in student attendance. LCFF = Local Control Funding Formula. 2016-17 CCC Proposition 98 Changes (In Millions) Governor’s May Budget Revision Change 2015-16 Revised Spending $7,997 $7,983 -$14 Technical Adjustments -$468 -$416 $52 Policy Proposals Implement workforce recommendations of BOG task force $200 $200 — Fund deferred maintenance and instructional equipment (one time)a 255 189 -$66 Fund 2 percent enrollment growth 115 115 — Provide apportionment increase (above growth and COLA) — 75 75 Make CTE Pathways Initiative ongoing 48 48 — Augment Basic Skills Initiative 30 30 — Fund Innovation Awards at community colleges (one time) 25 25 — Revise estimate of energy-efficiency funds 6 11 4 Increase funding for Institutional Effectiveness Initiative 10 10 — Augment technology infrastructure funding — 5 5 Fund technical assistance to adult education consortia (one-time) — 5 5 Fund development of “zero-textbook-cost” degree programs (one time) 5 5 — Provide instructional materials for incarcerated adults — 3 3 Improve systemwide data security 3 3 — Extend Full-Time Student Success Grant to Cal Grant C recipients — 2 2 Increase apprenticeship reimbursement rate 2 2 — Augment funding for systemwide Academic Senateb — — — Provide COLAc 31 — -31 Subtotals ($730) ($728) (-$2) Total Changes $262 $311 $50 2016-17 Proposed Spending $8,259 $8,295 $36 a Governor’s budget provided an additional $28 million in Proposition 98 settle up and $6.4 million in unspent Proposition 98 prior-year funds for this purpose. The May Revision provides $24 million in settle up and $6.4 million in unspent prior-year funds. b Provides $300,000. c COLA rate was estimated at 0.47 percent in January, finalized at zero in May. BOG = Board of Governors; COLA = cost-of-living adjustment; and CTE = Career Technical Education. www.lao.ca.gov Legislative Analyst’s Office 33 2016-17 BUDGET Community College Programs Funded by Proposition 98 (In Millions) 2015-16 2016-17 Gover- nor’s May Governor’s May Budget Revision Change Budget Revision Change Apportionments General Fund $3,417 $3,455 $38 $3,209 $3,346 $137 Local property tax 2,624 2,562 -62 2,812 2,760 -52 Subtotals ($6,041) ($6,017) (-$24) ($6,020) ($6,106) ($86) Categorical Programs and Other Appropriations Adult Education Block Grant $500 $500 — $500 $505 $5 Student Success and Support Program 299 299 — 299 299 — Physical plant and instructional support (one time) 100 100 — 255 189 -66a Economic and Workforce Development 23 23 — 223 223 — Student equity plan implementation 155 155 — 155 155 — Extended Opportunity Programs and Services 123 123 — 124 123 -1 Disabled Students Program 115 115 — 116 115 -1 Financial aid administration 74 74 — 68 71 2 Student Success for Basic Skills Students 20 20 — 50 50 — CTE Pathways Initiative — —b — 48 48 — Lease revenue bond payments 56 56 — 47 47 — Proposition 39 energy-efficiency projects 39 39 — 45 45 — Cal Grant B and C supplemental grants 39 39 — 39 41 2 CalWORKs student services 35 35 — 35 35 —c Mandates block grantd 32 32 — 33 32 —c Apprenticeship (community colleges) 31 31 — 32 32 —c Institutional effectiveness initiative 18 18 — 28 28 — Innovation awards (one time) — — — 25 25 — Part-time faculty compensation 25 25 — 25 25 — Telecommunications and technology services 20 27 $7 23 28 5 Apprenticeship (school districts) 20 20 — 22 21 —c Online course initiative 10 10 — 15 18 3 Nursing grants 13 13 — 13 13 — Foster Parent Education Program 5 5 — 5 5 — Fund for Student Success 4 4 — 4 4 — Part-time faculty office hours 4 4 — 4 4 — Campus child care support 3 3 — 3 3 —c Othere 3 3 — 3 3 —c Mandate backlog payment (one time) 190 193 3 — — — Subtotals ($1,956) ($1,966) ($10) ($2,238) ($2,189) (-$49) Totals $7,997 $7,983 -$14 $8,259 $8,295 $36 a Budget provides an additional $24 million in Proposition 98 settle-up and $6 million in unspent Proposition 98 prior-year funds for this purpose. b State provided $96 million in 2014-15, including $48 million for 2015-16 costs. c Less than $500,000. d Includes $17,000 in 2015-16 and $13,000 in 2016-17 for mandate reimbursements. e Includes Equal Employment Opportunity, transfer education and articulation, district financial crisis oversight, part-time faculty health insurance, and Academic Senate. CTE = career technical education. 34 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Proposed Funding for Education Mandates Backlog (In Millions) Governor’s Budget May Revision Change K-12 Education Pay down scored to: 2014-15 $339 $635 $296 2015-16 681 586 -95 Settle up 229 194 -35 Othera 32 — -32 Subtotals ($1,281) ($1,416) ($135) California Community Colleges Pay down scored to: 2014-15 $3 $29 $26 2015-16 73 76 3 Subtotals ($76) ($106) ($29) Totals $1,357 $1,521 $164 a Prior-year unspent funds. Key Proposition 98 Information Underlying May Revision (Dollars in Millions) 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 Minimum Guarantee General Fund $50,029 $49,773 $51,105 $52,416 $52,034 $53,301 Local property tax 17,124 19,276 20,769 22,050 23,322 24,639 Total Guarantees $67,153 $69,050 $71,874 $74,466 $75,356 $77,939 Inputs General Fund taxesa $112,448 $118,516 $123,222 $127,585 $128,677 $133,178 K-12 average daily attendance 5,981,713 5,977,223 5,966,068 5,961,800 5,945,458 5,941,669 State civilian population 38,750,025 39,098,266 39,444,353 39,789,683 40,132,904 40,475,897 Growth Factors Per capita personal income -0.2% 3.8% 5.4% 4.9% 3.9% 3.5% Per capita General Fundb 10.4 5.0 3.6 3.1 0.5 3.1 K-12 average daily attendance -0.2 -0.1 -0.2 -0.1 -0.3 -0.1 State civilian population 0.9 0.9 0.9 0.9 0.9 0.9 Assessed property values 6.1 5.9 6.2 5.8 5.7 5.4 K-14 cost-of-living adjustment 0.9 1.0 — 1.1 2.4 2.7 Outcomes Proposition 98 operative “test” 1 2 3 3 3 3 Spike protection effectc -$1,009 — — — — — Test 3 supplemental payment — — $502 $387 $728 $279 Maintenance factor: Amount created/paid (+/-) -5,679 -$379 746 884 1,797 — Amount outstanding 514 155 908 1,837 3,700 3,827 PSSSA Deposit? — No No No No No a Reflects General Fund revenue that affects the calculation of the minimum guarantee. b Reflects per capita General Fund plus 0.5 percent (one of the Test 3 factors). c Due to a revenue spike in 2014-15, a portion of the increase in the 2014-15 minimum guarantee is backed out from the calculation of the minimum guarantee moving forward. PSSSA = Public School System Stabilization Account. www.lao.ca.gov Legislative Analyst’s Office 35 2016-17 BUDGET Key Proposition 98 Information Underlying LAO Forecast (Dollars in Millions) 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 Minimum Guarantee General Fund $50,235 $49,659 $50,973 $52,553 $52,835 $53,389 Local property tax 17,117 19,392 21,007 22,390 23,642 24,778 Total Guarantees $67,352 $69,051 $71,979 $74,943 $76,477 $78,167 Inputs General Fund taxesa $112,658 $118,485 $123,393 $129,701 $132,327 $135,325 K-12 average daily attendance 5,981,713 5,972,805 5,956,678 5,939,701 5,913,566 5,894,938 State civilian population 38,750,025 39,098,266 39,440,742 39,758,017 40,063,426 40,364,205 Growth Factors Per capita personal income -0.2% 3.8% 5.4% 4.4% 6.2% 5.4% Per capita General Fundb 10.6 4.7 3.7 4.8 1.8 2.0 K-12 average daily attendance -0.2 -0.2 -0.3 -0.3 -0.4 -0.3 State civilian population 0.9 0.9 0.9 0.8 0.8 0.8 Assessed property values 6.1 5.9 6.6 5.9 5.7 5.3 K-14 cost-of-living adjustment 0.9 1.0 — 1.8 2.4 2.3 Outcomes Proposition 98 operative “test” 1 2 3 2 3 3 Spike protection effectc -$1,078 — — — — — Test 3 supplemental payment — — $540 — $558 $410 Maintenance factor: Amount created/paid (+/-) -5,802 -$249 583 — 2,770 2,159 Amount outstanding 391 157 748 $779 3,593 5,933 PSSSA Deposit? — No No No No No a Reflects General Fund revenue that affects the calculation of the minimum guarantee. b Reflects per capita General Fund plus 0.5 percent (one of the Test 3 factors). c Due to a revenue spike in 2014-15, a portion of the increase in the 2014-15 minimum guarantee is backed out from the calculation of the minimum guarantee moving forward. PSSSA = Public School System Stabilization Account. Comparing Administration’s and LAO’s Estimates of the Minimum Guarantee (In Millions) 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 May Revision General Fund $50,029 $49,773 $51,105 $52,416 $52,034 $53,301 Local property tax 17,124 19,276 20,769 22,050 23,322 24,639 Total Guarantees $67,153 $69,050 $71,874 $74,466 $75,356 $77,939 LAO Forecast General Fund $50,235 $49,659 $50,973 $52,553 $52,835 $53,389 Local property tax 17,117 19,392 21,007 22,390 23,642 24,778 Total Guarantees $67,352 $69,051 $71,979 $74,943 $76,477 $78,167 Difference General Fund $206 -$115 -$132 $137 $800 $88 Local property tax revenue -7 115 237 340 320 139 Total Differences $199 $1 $106 $477 $1,121 $227 36 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Comparing Proposition 98 Property Tax Revenue Estimates (In Millions) Governor’s Budget to May Revision 2015-16 2016-17 Governor’s May Governor’s May Budget Revision Change Budget Revision Change Total local property tax revenue $19,183 $19,276 $93 $20,613 $20,769 $156 Base property tax revenue 18,306 18,221 -85 19,391 19,385 -5 Ongoing RDA revenue shift 1,008 1,167 159 1,045 1,240 196 ERAF 448 503 55 859 862 3 Sales of RDA assets 116 126 10 10 11 1 Excess tax revenue -695 -740 -45 -690 -729 -39 May Revision to LAO May Outlook 2015-16 2016-17 May May Revision May LAO Change Revision May LAO Change Total local property tax revenue $19,276 $19,392 $115 $20,769 $21,007 $237 Base property tax revenue 18,221 18,201 -19 19,385 19,426 41 Ongoing RDA revenue shift 1,167 1,212 45 1,240 1,297 57 ERAF 503 616 113 862 1,106 245 Sales of RDA assets 126 158 33 11 52 40 Excess tax revenue -740 -795 -56 -729 -874 -145 RDA = redevelopment agency and ERAF = Educational Revenue Augmentation Fund. Year-Over-Year Growth in Proposition 98 Property Tax Revenue (Dollars in Millions) 2015-16 2016-17 Change Percent May Revision Total local property tax revenue $19,276 $20,769 $1,493 8% Base property tax revenue 18,221 19,385 1,164 6 Ongoing RDA revenue shift 1,167 1,240 73 6 ERAF 503 862 359 71 Sales of RDA assets 126 11 -114 -91 Excess tax revenue -740 -729 10 -1 LAO May Outlook Total local property tax revenue $19,392 $21,007 $1,615 8% Base property tax revenue 18,201 19,426 1,224 7 Ongoing RDA revenue shift 1,212 1,297 86 7 ERAF 616 1,106 490 80 Sales of RDA assets 158 52 -107 -67 Excess tax revenue -795 -874 -79 10 RDA = redevelopment agency and ERAF = Educational Revenue Augmentation Fund. www.lao.ca.gov Legislative Analyst’s Office 37 2016-17 BUDGET Summary of K-12 Education Recommendations Program May Revision Proposal LAO Recommendation LCFF funding for Increase by $154 million. Adopt. Accelerates LCFF implementation. school districts K-12 mandates backlog Increase by $135 million. Modify. Adopt funding level but combine with strategic plan to pay off remainder of backlog. School Facility Emergency Provide $100 million (one time) Reject. New program redundant with state’s Repair Revolving Loan for new program. existing Facility Hardship Grant Program. LCFF funding for COEs Increase by $16.5 million Modify. Change one of the COE LCFF formulas ($5.5 million each 2014-15, to ensure funding remains connected with the 2015-16, and 2016-17). cost of expected COE services. SACS replacement project Provide $3 million. (Replaces Reject. Direct CDE to work with CDT to $7.2 million in combined non- progress through initial stages of state review Proposition 98 and federal process. Ask agencies to report progress in funds.) summer. Signal intent to fund next year once planning phases of project complete. Dropout and truancy Increase by $2.6 million. Modify. Estimate of available Proposition 47 prevention grants funds still too low. Allocate funds to schools (Proposition 47) with the highest concentration of at-risk youth. Provide programmatic flexibility. California Center on Provide $2.5 million (one time) Modify. Adopt funding level. Require efforts Teaching Careers for teacher recruitment. be focused on longstanding teacher shortage areas. Strengthen reporting requirements. College planning website Increase by $1 million (for a Modify. Approve $750,000 for public side of site. total of $2 million). Make all Reject $1.25 million for fee-for-service side of $2 million ongoing. site. School energy-efficiency Increase by $33 million. Adopt. Increase for projects consistent with projects (Proposition 39) revised Proposition 39 revenue estimate. Integrated Teacher Provide $10 million non- Reject. Barriers to integrated programs unlikely Preparation Programs Proposition 98 General Fund to be overcome by one-time grants. for one-time incentive grants. LCFF = Local Control Funding Formula; COE = county office of education; SACS = Standardized Account Code Structure; CDE = California Department of Education; and CDT = California Department of Technology. 38 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Summary of Early Education Block Grant Recommendations Program Component May Revision Proposal LAO Recommendation Funding for providers during Provide funding to school districts based on 2016-17 Modify. Include one-year hold harmless initial years of implementation State Preschool and Transitional Kindergarten provision for districts, then gradually funding. align funding based on the number of Provide funding to COEs based on 2016-17 State low-income and at-risk children in each Preschool funding. district. Include three-year hold harmless for school districts Decrease non-LEA and COE funding and COEs. over five years and reallocate funding Redirect funding from non-LEA providers to school to districts within each county based on districts in the area. unmet need. Future funding allocations Specify future funding would be allocated based Adopt. on prior-year funding levels and determination of unmet need. Prioritization of children Require districts to prioritize funding for low-income Adopt. and at-risk youth. Definition of low income Children who qualify for free or reduced-price meals Modify. Define children as low income only or state-subsidized child care. if they qualify for free or reduced-price meals. Definition of at risk Children who are homeless, at risk of abuse or Adopt. neglect, foster youth, children with disabilities that affect their learning, and English learners. Attendance expectations Require districts to serve at least as many children Modify. Over the long run, adjust as they served in 2016-17, adjusted for changes in attendance expectations to serve as K-3 attendance. many priority children as possible given available funding. Program duration Require programs to operate for a minimum of three Adopt. hours per day and 180 days per year. Program standards Require programs to meet QRIS Tier 4 standards. Modify. Phase in QRIS standards and rating process over several years. Require independent party evaluate COE-operated programs. New COE responsibilities Require COEs to coordinate regional planning, Modify. Require COEs (and CDE) to help school districts implement new programs, provide technical assistance under and provide ongoing technical assistance and specified conditions. professional development opportunities to school districts. New COE funding Provide $20 million ($10 million one time, Modify. Provide $10 million one-time $10 million ongoing) for additional responsibilities. funding. Make decision on ongoing funding amount in 2017-18 budget. QRIS funding Give COEs first priority for $50 million in preschool Adopt. QRIS block grant funds. COE = county office of education; LEA = local educational agency; QRIS = Quality Rating and Improvement System; and CDE = California Department of Education. www.lao.ca.gov Legislative Analyst’s Office 39 2016-17 BUDGET Summary of California Community Colleges Recommendations Program May Revision Proposal LAO Recommendation General purpose Increase by $75 million. Adopt. Colleges can use flexible funds to meet highest priorities. apportionment funding Online Education Initiative Provide $20 million one time. Adopt. Accelerates implementation of online courses. Technical assistance for Increase by $5 million one Adopt. Maintains service level to consortia during transition Adult Education Consortia time (over three years). process. Telecommunications and Increase by $7 million one Adopt. Expands Internet capacity for statewide technology projects. Technology Infrastructure time and $5 million ongoing. Full-Time Student Success Increase by $2 million. Adopt. Reduces financial aid disparity between career technical Grant education students and other students. CCC Academic Senate Increase by $300,000. Adopt. Addresses increased workload for statewide initiatives. Energy-efficiency projects Increase by $4 million. Adopt. Increase for projects consistent with revised Proposition 39 (Proposition 39) revenue estimate. Equal Employment Opportunity Increase by $2 million. Adopt. Uses special fund balance for authorized purposes. Strong Workforce Program Make policy changes. Modify. Remove requirement that LAO approve funding allocations. Zero-Textbook-Cost Make policy changes. Modify. Add requirement for CCC to coordinate with related state Degree Program initiatives. Consider adding component for instructional materials for incarcerated adults. Instructional materials for Provide $3 million. Reject. Proposal lacks adequate information and raises several incarcerated adults concerns. Consider link to zero-textbook-cost proposal. Basic Skills Initiative Make policy changes. Modify. Adopt change in share for statewide professional development (from 2.4 percent to 5 percent of total program funding). Designate first-year funding for grants. Remove requirement that LAO concur on funding factors. Enrollment growth Make no changes to January Modify. Reduce 2015-16 enrollment base to reflect updated data proposal. and carry adjustment forward into 2016-17. Still assume 2 percent growth year over year. Use freed-up funds for other high priorities. CCC mandates backlog Provide $29 million. Reject. Per-student approach to reducing CCC mandates backlog no longer makes sense. Deferred Maintenance and Increase by $189 million. Modify. To extent Legislature frees up funding by rejecting or Instructional Equipment modifying other CCC proposals, redirect funds for one-time purposes such as maintenance backlog. LAO Publications This brief was prepared by the Education Unit of the Legislative Analyst’s Office (LAO). The LAO is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This brief 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. 40 Legislative Analyst’s Office www.lao.ca.gov