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The 2017-18 Budget: Proposition 98 Education Analysis

Legislative Analyst's Office · lao-3549 · Report · 2017-02-09

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The 2017-18 Budget: Proposition 98 Education Analysis MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • FEBRUARY 9, 2017 2017-18 BUDGET 2 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET TABLE OF CONTENTS Executive Summary ��1 Introduction ��3 K-12 Education in Context ��3 Federal Funding for K-12 Education ��14 Overview of the Governor’s Proposition 98 Budget Package ��17 Local Control Funding Formula ��25 Special Education ��28 Preschool ��35 Education Mandates ��41 Pension Costs ��51 School Facilities ��55 Summary of Recommendations ��59 www.lao.ca.gov Legislative Analyst’s Office i 2017-18 BUDGET ii Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET EXECUTIVE SUMMARY In this report, we analyze the Governor’s overall Proposition 98 budget package as well as his specific spending proposals for K-12 education. Overall Proposition 98 Budget Plan Governor Adjusts Proposition 98 Spending to Reflect Revised Estimates of the Minimum Guarantee. Compared to June 2016 estimates, the Governor’s budget has the minimum guarantee down $379 million in 2015-16 and down $506 million in 2016-17. These drops are due mostly to reductions in General Fund tax revenue. The administration proposes to reduce Proposition 98 spending to match the lower estimates, primarily by deferring some program costs from 2016-17 to 2017-18. Regarding 2017-18, the administration estimates that the minimum guarantee will increase $2.1 billion above the revised 2016-17 level, reflecting modest year-over-year growth in state revenue. The administration proposes to use this increase primarily for eliminating the prior-year deferral and providing a cost-of-living adjustment to the Local Control Funding Formula (LCFF). Key Messages Higher Minimum Guarantee Likely in 2017-18. We believe the administration’s estimate of General Fund revenue in 2017-18 is low given its other economic assumptions. By May, revenue in 2017-18 could be significantly higher than assumed in January, with a resulting increase in the minimum guarantee. If revenue were to increase in 2017-18 by $2 billion above the Governor’s January level, the minimum guarantee would increase by roughly $500 million. If revenue were to increase by $4 billion, the minimum guarantee would increase by about $1.5 billion. Recommend Increased Funding for LCFF, Exhausting Alternatives Before Approving Deferral. The Governor proposes three significant actions relating to LCFF: (1) deferring an $859 million LCFF payment from June to July 2017; (2) eliminating the deferral for the next payment cycle, thereby returning payments to the regular statutory schedule; and (3) augmenting LCFF funding by $744 million in 2017-18. Before deferring an LCFF payment, we recommend the Legislature exhaust all other one-time options, including capturing any current-year program savings. Were the Legislature to include a deferral in its budget package, we recommend it retire the deferral as soon as possible, as the Governor proposes. We also recommend the Legislature take the Governor’s same approach of dedicating most new ongoing Proposition 98 funding to LCFF, thereby giving districts flexibility to meet local priorities and cost pressures. Recommend Taking Time to Explore Possible Changes to Special Education Funding. The 2017-18 Governor’s Budget Summary expresses concern with the state’s current special education funding system and indicates interest in having a statewide conversation about possible changes. In particular, the administration has indicated an interest in rolling special education into LCFF and directing all special education funding to districts rather than Special Education Local Planning Areas (SELPAs). While we agree the current special education system has shortcomings, including unnecessary complexity and unjustified funding inequities, we believe the Legislature has many www.lao.ca.gov Legislative Analyst’s Office 1 2017-18 BUDGET options to consider in redesigning the system. Moreover, redesigning the system could have significant implications for many stakeholders. For these reasons, we recommend the Legislature take time to explore its redesign options. Recommend Different Approach to Aligning Preschool Programs. The Governor’s budget includes several proposals that would change State Preschool programs in certain ways and Transitional Kindergarten programs in other ways. Though the intent is to more closely align State Preschool and Transitional Kindergarten programs, we recommend rejecting most of these proposals, as we believe many elements of the proposals would add greater complexity to an already complex system. We recommend the Legislature take a more holistic approach. Under such an approach, the Legislature would consider how best to serve four-year olds, particularly those from low-income families, including what eligibility criteria, program standards, and funding levels it desired for these children. Making all these decisions in tandem would provide for better alignment and coherence. Recommend Creating a Plan for Addressing Mandates Backlog, Adding Two New Mandates to Block Grant. The Governor proposes to make a one-time payment of $287 million toward the K-12 mandates backlog. His proposal gives money to all schools on a per-student basis even though many do not have any outstanding claims. Consequently, we estimate his proposal would lower the backlog by only $102 million. We recommend the Legislature reject this approach and instead develop a multiyear plan that provides backlog funding conditionally on schools writing off remaining claims. Such an approach costs substantially less than the Governor’s approach. Regarding the K-12 mandates block grant, we recommend the Legislature adopt the Governor’s proposal to add the new school employee training mandate but increase the associated block grant augmentation from $8.5 million to $41.9 million to more accurately reflects costs. Though the Governor does not yet have a proposal for another new mandate related to online standardized testing, we recommend adding the mandate and $37.8 million to the block grant ($25 million to reflect higher costs and $12.8 million to reflect an accounting shift of existing related assessment funds). Recommend Requiring Administration to Provide More Information on How to Address Backlog of Facility Projects. Passed by voters in November 2016, Proposition 51 authorizes the state to sell $7 billion in general obligation bonds for K-12 school facilities. The Governor’s budget proposes to issue $594 million of these bonds in 2017-18, along with $61 million in school bonds from prior voter measures. These bond sales would address only a fraction of the current project backlog of $2.4 billion. Given a large backlog of projects would persist under the Governor’s proposal, we recommend the Legislature use its budget hearings to gather more information from the administration on how to address the backlog as expeditiously as possible. We also recommend the Legislature adopt a related proposal by the Governor to shift auditing of state-funded school facility projects from the state to the local level, thereby making auditing of facility expenditures more similar to other program expenditures. 2 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET INTRODUCTION The Governor’s Proposition 98 budget a high-level assessment of it. In the remaining package includes proposed changes in funding for sections of the report, we analyze several key areas K-12 education and the California Community of the K-12 education budget. In our forthcoming Colleges (CCC). In this report, we analyze the Higher Education Budget Analysis, we provide Proposition 98 budget package, with a focus on background on community colleges and discuss the K-12 education. In the first section of the report, Governor’s specific community college proposals. we provide background on public schools in On the “EdBudget” portion of our website, we post California. We then provide an overview of the dozens of tables containing additional detail about Governor’s Proposition 98 budget package and the Proposition 98 budget. K-12 EDUCATION IN CONTEXT In this section, we answer many questions per year. Over this earlier decade (1995-96 to legislators and others commonly ask about K-12 2005-06), statewide enrollment grew by about education in California. We begin with a focus on 850,000 students. the main components of California’s public school Almost Six in Ten California Students Are system, then turn to the state’s academic standards From Low-Income Families. In 2015-16, 59 percent and student performance on standards-aligned of California’s public school students were eligible assessments, and finish by explaining the basics of to receive a free or reduced price school meal under school finance in California. a large federal nutrition program. States frequently use this eligibility measure as an indicator of California’s Public School System student poverty. Qualifying students come from Below, we describe California’s students, families earning no more than 185 percent of the teachers, local education agencies, and state federal poverty level. In 2015-16, this level equated education agencies. to $45,000 for a family of four. California’s rate of free or reduced price meal eligibility is above the Students nationwide rate of 52 percent. California Has More Than 6 Million Public Half of California Students Are Hispanic. K-12 Students. In 2015-16, California’s public As Figure 1 (see next page) shows, the ethnic schools enrolled a total of 6.2 million students, make-up of California’s students differs notably representing 13 percent of all public school students from the nationwide picture. Whereas about half in the nation. About two-thirds of these students of California’s students are of Hispanic origin and were in grades kindergarten through eight, with about one-quarter are white, in the United States one-third attending high school. Over the past those shares are flipped. Differences exist among decade, student enrollment has been virtually flat, other ethnic groups too, with Asian students with enrollment in 2015-16 about 1 percent below comprising a larger share of students in California the 2005-06 level. Enrollment in the preceding than the nation (12 percent and 5 percent, decade, however, grew by an average of 1 percent respectively), and black students comprising a www.lao.ca.gov Legislative Analyst’s Office 3 2017-18 BUDGET smaller share (6 percent in California compared to with special education services. California 16 percent nationwide). identifies a slightly smaller proportion of students Nearly One-Quarter of California Students for special education than the rest of the nation Are English Learners. In 2015-16, 22 percent (13 percent). Specific learning disabilities such as (1.4 million) of California students were classified dyslexia are the most common diagnoses requiring as English learners—a higher proportion than special education services (affecting 5 percent in any other state. Three out of every ten English of the state’s K-12 students), followed by speech learners in the nation attends school in California. and language impairments (affecting 2 percent of Even more California students—almost 2.7 million California’s students). While the overall prevalence students overall—speak a primary language of students with autism and chronic health other than English at home, but almost half of problems still is relatively rare (each affecting about these students are considered fluent in English. 1 percent of California’s students), the number California students come from families speaking of students diagnosed with these disabilities has over 65 different home languages, although the increased notably over the last decade. vast majority (78 percent) speak Spanish, with Teachers Vietnamese the next most common language (3 percent). California Has Almost 300,000 Teachers. In About One in Ten California Students Are 2014-15 (the most recent year for which certain Identified as Having a Disability Affecting Their statewide staffing data are available), about Education. In 2015-16, about 662,000 California 296,000 teachers were employed in the public students (11 percent) were identified with a school system. Roughly three-quarters of teachers disability affecting their education. Pursuant to are women, similar to the share in other states. federal law, schools must provide these students Compared to the student population, teachers Figure 1 Ethnic Make-Up of California's Students Differs From Nation 2015-16 California United States White Hispanic Hispanic White Asian Black Black Asian Other Other 4 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET are more likely to be white (68 percent of teachers years of experience has steadily declined (from compared to 25 percent of students) and less likely 65 percent in 2005-06 to 55 percent in 2014-15), to be Hispanic (19 percent of teachers compared whereas the share with more than 15 years of to 54 percent of students). The number of teachers experience has steadily increased (from 35 percent decreased during the last economic recession, in 2005-06 to 45 percent in 2014-15). In 2014-15, dropping from 310,000 in 2007-08 to 284,000 in the least experienced teachers (having taught less 2011-12. Since 2011-12, the number of teachers has than five years) and the most experienced teachers increased each year. (having taught more than 25 years) each accounted California’s Credentialing Requirements for about 15 percent of California’s teachers. Are Similar to Those in Other States. To obtain California’s Teacher Salaries Higher Than a first-time teaching credential in California, Most Other States. Based upon the most recent individuals must have a bachelor’s degree, complete national data (2014-15), California has the fourth a teacher preparation program, meet certain basic highest average teacher salary among the 50 states skills requirements, and demonstrate subject and the District of Columbia. Its average teacher matter competency. Within five years of receiving salary in 2014-15 was 26 percent higher than the their initial credentials, teachers must complete national average. California has ranked among the approved, two-year, on-the-job training programs top four states each year since 2000-01. During this to obtain their full professional credentials. Most period, Connecticut, New York, New Jersey, and other states have similar requirements. Fully Massachusetts commonly ranked among the top credentialed teachers from other states who want states along with California. to work in California typically are granted in-state Teacher Salaries Vary Significantly Across credentials conditionally, having to fulfill certain the State. In California, the state requires most California-specific requirements (including a basic local education agencies to set teacher salary levels skills requirement and a requirement relating to through collective bargaining. In 2015-16, the teaching English learners) within a set amount of average teacher salary in California was $77,200. As time. Figure 2 (see next page) shows, teacher salary levels Four in Ten Teachers in California Have varied widely across the state, with average salaries Advanced Degrees. In 2014-15, less than 1 percent generally higher in more urbanized areas than of California’s teachers held less than a bachelor’s rural areas. degree, 57 percent possessed a bachelor’s degree, California Has Highest Student-to-Teacher and 42 percent had a master’s degree or other Ratio in Nation. Though California’s teachers advanced graduate degree. The share of teachers tend to be better paid than the rest of the nation, with a master’s or other advanced graduate degree the state employs comparatively fewer of them. has increased by almost 10 percentage points over Based upon the most recent national data (2013-14), the past ten years. California had the highest student-to-teacher Average Years of Teaching Experience Have ratio—50 percent higher than the national average. Steadily Increased Over Last Decade. In 2014-15, The state’s student-to-teacher ratio consistently California’s teachers had an average of 14 years of has been among the highest in the nation, even experience. This is higher than ten years ago, when prior to the recent economic recession. In 2014-15, teachers had an average of 13 years of experience. California’s student-to-teacher ratio was 21.1, a The share of teachers in California with 15 or fewer decrease of 0.5 compared to 2013-14. www.lao.ca.gov Legislative Analyst’s Office 5 2017-18 BUDGET Size of California Figure 2 School Districts Varies Average Teacher Salary Higher in More Urbanized Areas Dramatically. As shown By County, 2015-16 in Figure 3, California’s 946 school districts vary Orange greatly in size. One-quarter of school districts are very Santa Clara small, serving 300 or fewer students. Another one-third are small, serving between Los Angeles 301 and 2,500 students. Whereas these two sets of Statewide districts combined comprise Average more than half of all Tulare districts in California, they account for only 7 percent of all students. At the other Shasta extreme, 12 very large districts each serve more Plumas than 40,000 students and together educate one-fifth of 20,000 40,000 60,000 80,000 $100,000 all students in the state. The largest district in California Local Education Agencies (and the second largest School Districts, Charter Schools, and County in the nation) is the Los Angeles Unified School Offices of Education Provide Instruction to Students. District, serving 9 percent of all California students. The public school system is comprised of many local Seven of the state’s counties contain only a single education agencies (LEAs). In 2015-16, 946 school school district, and 253 school districts contain only districts, 1,222 charter schools, and 58 county Figure 3 offices of education California School Districts Vary Greatly in Size operated in California. 2015-16 California’s public school Number of Percent of All Total Percent of All system also includes three District Sizea Districts Districts Students Students state special schools for Less than 300 240 25% 29,569 1% certain blind and deaf 301 to 2,500 306 32 335,013 6 2,501 to 5,000 138 15 503,233 9 students, four schools 5,001 to 10,000 113 12 848,318 16 for students incarcerated 10,001 to 40,000 137 14 2,620,318 48 at state juvenile justice 40,001+ 12 1 1,114,654 20 Totals 946 100% 5,451,105 100% facilities, and 78 county a Based on average daily attendance. Excludes charter school attendance. juvenile court schools. 6 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET a single school. At the other extreme, Los Angeles and Accountability Plans (LCAPs). The COEs also County contains 80 school districts, and four school will have a support role in helping school districts districts each have more than 100 schools. that do not meet performance standards in two or Charter Schools Are Fast-Growing Sector of more of eight state priority areas. California’s K-12 School System. An increasing State Education Agencies share of California students attend charter schools. Charter schools are publicly funded schools that are California Department of Education (CDE) similar to traditional schools in many ways—they Administers Education Programs at the State must employ state-certified teachers, and they must Level. The department is the primary state entity teach and assess students based on the same state responsible for administering federal and state academic standards. They differ from traditional education programs. The department monitors district-operated schools, however, in that they compliance with laws and regulations for education are exempt from certain state laws, allowing them programs; collects and compiles data related to more flexibility over the design of their education districts, schools, and students; allocates funding; programs. While overall K-12 enrollment has been and monitors state contracts for student testing. relatively flat over the past decade, the number The department has an annual budget of around of students attending charter schools has more $260 million and about 1,500 employees— than tripled, growing at an average annual rate rendering it midsized compared to other of 13 percent. In 2015-16, charter schools served departments within California state government. 573,000 students (9 percent of the statewide More than two-thirds of CDE’s funding comes total), up from 200,000 students (3 percent of the from federal funds, as many of CDE’s activities statewide total) in 2005-06. In 2015-16, charter are associated with federal programs. The schools ranged in size from 3 students to more than Superintendent of Public Instruction (SPI) oversees 5,000 students, with an average school size of 447. the day-to-day operations of CDE. In California, County Offices of Education (COEs) Operate the SPI is a non-partisan position elected by voters. Regional Programs and Services. Specifically, they This contrasts with most other states in which the operate alternative programs for students who are officers heading their departments of education incarcerated, on probation, referred by probation typically are appointed by their governors or state departments, or have been mandatorily expelled. boards of education. Many COEs also operate regional special education Three Other State Agencies Involved in and career technical education programs. In Aspects of K-12 Education. In addition to CDE, the addition to providing some specialized forms of following three state entities are involved in major direct student instruction, COEs offer a variety aspects of K-12 education. of services to school districts. Many COEs, for • The State Board of Education (SBE), example, operate countywide payroll systems and consisting of ten members appointed by provide professional development for teachers the Governor, is responsible for setting and administrators. The COEs also are required and implementing various state policies, to review and approve school districts’ annual including developing regulations needed budgets, monitor the fiscal health of districts to implement state laws involving K-12 several times per year, and review districts’ education, granting LEAs waivers from strategic academic plans, known as Local Control certain requirements in state law, selecting www.lao.ca.gov Legislative Analyst’s Office 7 2017-18 BUDGET a contractor for the state’s standardized Law and Regulations tests, and adopting instructional materials State and Federal Law Place Certain for kindergarten through grade eight. Requirements on Schools. Much of school operations are dictated by state and federal • The Commission on Teacher Credentialing law. For example, state law sets the maximum is responsible for accrediting teacher number of students per elementary and middle preparation institutions, credentialing school classrooms, requires a minimum of teachers, and investigating allegations of 180 instructional days per year, and sets minimum teacher misconduct. course requirements for high school graduation. • The State Allocation Board allocates State law also requires LEAs to implement state- bond funding for the construction and adopted academic standards, administer state- modernization of public school facilities. approved student assessments, and report certain Prior to receiving state bond funding, student performance outcomes. In addition to school facility projects must be reviewed state law, the federal government places several and approved by the Office of Public major requirements on schools. Most notably, as a School Construction, an office within the condition of receiving certain federal grants, the Department of General Services. federal government requires schools to provide special education services, provide supplemental A Few Entities Tasked With State-Level services for low-income students, and annually test Functions. In addition to these state entities, the students in certain subjects and grade levels. state contracts with a few entities (via their COEs) The SBE Is Responsible for Developing State to undertake activities that have statewide benefits. Regulations. In many instances, state law delegates The Fiscal Crisis and Management Assistance important decisions to the board. In recent years, Team (affiliated with the Kern COE) provides fiscal some of the board’s most significant decisions have advice, management assistance, and other training been related to the Local Control Funding Formula to school districts across the state. California (LCFF) and LCAPs. In 2014, for example, the board School Information Services (also affiliated with adopted regulations that specified how LEAs could the Kern COE) helps LEAs across the state with use certain LCFF funding intended for English data management issues. The K-12 High Speed learners and low-income students. That same year, Network (affiliated with the Imperial COE) assists the board also adopted a template for districts to schools with Internet connectivity. The California use in developing their LCAPs. In September 2016, Collaborative for Educational Excellence (affiliated the board adopted the evaluation rubrics that COEs with the Riverside COE), established by the state in are to use to monitor whether school districts 2013 and in the midst of development, is to serve have met performance standards in eight state as a hub of expertise for helping LEAs improve priority areas. The board also is the primary entity student outcomes. responsible for ensuring the state complies with Policy and Performance recently adopted changes in federal law regarding school accountability. Below, we highlight major state and federal laws affecting K-12 education and then review trends in student performance. 8 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Academic Standards Student Assessments The SBE Adopted California’s First Set of Federal Law Requires States to Administer Academic Content Standards in the Late 1990s. Standardized Tests. Federal law requires states to These academic content standards specified what assess students in English language arts and math students should know after completing each subject in grades 3 through 8 and at least once from grades area in each grade level. California first adopted 10 through 12. In addition, federal law requires states academic content standards for its core content to assess students in science at least once during: areas—English language arts, math, science, and (1) grades 3 through 5, (2) grades 6 through 9, and history-social science—in 1997 and 1998. The (3) grades 10 through 12. States also are required to state subsequently adopted standards for English annually assess the English proficiency of English language development (used for instructing English learners. From 2003 through 2013, most students learners), visual and performing arts, physical in California were assessed using the California education, career technical education, and world Standards Tests (CSTs) in these subjects, which were languages. The Instructional Quality Commission, aligned to the state’s first set of academic standards. an advisory body to SBE, created associated (Students with moderate or severe disabilities were curriculum frameworks that provided examples of assessed using alternative assessments.) lesson plans aligned with the content standards. First Exams Aligned to Common Core State Like Most States, California’s Instruction Is Standards Were Administered in Spring 2015. Now Based on Common Core State Standards. In Although the Common Core State Standards were 2010, at the direction of the state Legislature, SBE adopted by SBE in 2010, schools were not expected adopted the Common Core State Standards (with to have their instruction aligned with the new the addition of a few California-specific standards) standards until 2014-15, at which time the state was as the new foundation for what students should to administer a new set of Common Core-aligned know and be able to do in English language arts assessments. The new assessments were developed and math from kindergarten through twelfth grade. by the Smarter Balanced Assessment Consortium The new standards are designed to better prepare (SBAC), a group of 17 states, with California students for college and career. California schools a lead member. The SBAC assessments are are implementing the new standards by modifying intended to be taken online using a computer or curriculum, training staff, and purchasing new tablet (though schools have a pencil-and-paper instructional materials. Forty two states and option for the first three years). Compared to the the District of Columbia have adopted and are state’s previous exams, which consisted almost implementing the Common Core State Standards. exclusively of multiple choice questions, the SBAC State Is in Process of Implementing New assessments are more elaborate. For example, Science Standards. California also adopted the both English language arts and math exams nationally developed Next Generation Science include performance tasks that require students Standards (NGSS) in 2013. (California was a lead to review source materials and respond in writing state partner in the development of these new to several questions. In spring 2016, the state standards.) Because the state has yet to develop began administering the Common Core-aligned new curriculum frameworks or exams aligned California Alternate Assessment in English with NGSS, instruction in the classroom is not yet language arts and mathematics for students with aligned to the new science standards. severe cognitive disabilities. www.lao.ca.gov Legislative Analyst’s Office 9 2017-18 BUDGET State Is in Process of Developing Several New improved, with the percentage of students meeting Exams. The state currently is developing several or exceeding standards increasing from 33 percent additional assessments aligned with new academic to 37 percent. For both subject areas, performance standards. In spring 2017, the state will administer improved in all grades and for all ethnic groups. a pilot test for new science assessments, known as Large Achievement Gaps Still Exist. Although the California Science Test, with fully operational performance has improved for all students, tests beginning in spring 2019. The state also will results on the new exams continue to show pilot test a science exam for students with the most significant “achievement gaps” between the scores significant cognitive disabilities. Additionally, of low-income and non-low-income students. the state is developing a new English language As Figure 4 shows, for example, 36 percent of development exam—used to determine whether low-income students met or exceeded the state students should be classified as English learners— standards in eighth grade English language to be used beginning fall 2017. The state also is in arts, compared to 68 percent of non-low-income the early stages of developing a Spanish language students. The gaps are similar for other subjects assessment aligned to the Common Core. This and other grade levels and similar to achievement optional exam could be used for students receiving gaps under the prior exams (a difference of roughly instruction in Spanish, English learners who have 30 percentage points). been enrolled in school for less than 12 months, Outcomes Also Vary by Ethnicity. Results on or other students interested in assessing their statewide exams also show significant achievement proficiency in Spanish. gaps among California’s four largest ethnic groups. Differences across ethnic groups exist Student Performance even after controlling for income. As Figure 5 Student Performance on State Exams shows, low-income black and Hispanic students Improved From 2003 Through 2013. Student have lower proficiency rates on 8th grade English performance on the CSTs improved significantly language arts exams (27 percent and 33 percent, during the ten years when the CSTs were respectively) than low-income white and Asian administered. The percentage of students scoring students (45 percent and 62 percent, respectively). advanced or proficient on the eighth grade English Similar differences among groups exist in third and language arts exam almost doubled—from eleventh grade. 30 percent to 57 percent—from 2003 to 2013. California Ranks Near Bottom on National Performance improved at similar rates for both Tests. The federal government administers the low-income and non-low-income students. Student National Assessment of Educational Progress performance also improved at similar rates in every two years. The most recent assessment English language arts at other grade levels and on results (2015) show that California performs near math exams. As part of the transition to new exams, the bottom in reading and math for fourth and California suspended the CSTs in spring 2014. eighth grades. When compared to demographically Performance Improved Between First and similar students in other states, the performance Second Year of New Assessments. In 2016, of non-low-income students in California (39th in 49 percent of California students met or exceeded eighth grade reading) ranks somewhat higher standards in English language arts, up from than low-income students (45th in eighth grade 44 percent in 2015. Performance on math also reading). Both groups in California, however, 10 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Figure 4 Notable Achievement Gaps Remain Across Every Grade Level 2016, Percent of Students That Met or Exceeded Standard 80% Low Income 70 Non-Low-Income 60 50 40 30 20 10 3rd Grade 8th Grade 11th Grade 3rd Grade 8th Grade 11th Grade English Language Arts Math rank lower than most other states. California’s largest achievement gaps between low-income performance compared to other states has not and non-low-income students. In fourth grade changed significantly in the past ten years. In reading, for example, California’s achievement gap addition to having lower performance compared ranked 49th in the country. (That is, 48 states have to other states, California also has among the achievement gaps that are smaller than California.) Figure 5 Achievement Gaps Exist Among Low-Income Students 2016, Percent of Students That Met or Exceeded Standard 80% Black 70 Hispanic 60 White Asian 50 40 30 20 10 3rd Grade 8th Grade 11th Grade English Language Arts www.lao.ca.gov Legislative Analyst’s Office 11 2017-18 BUDGET Eight in Ten Students Graduate High School from the state, with smaller shares coming from Within Four Years. Of the cohort of students that local sources (primarily from local property tax entered ninth grade in the 2011-12 school year, revenue) and the federal government. (Revenues 82 percent graduated within four years, 11 percent from the state lottery account for 1 percent of all dropped out of school, 6 percent returned to school revenue.) These proportions differ from many other for a fifth year, and less than 1 percent received states, where local property tax revenue covers a either a High School Equivalency Certificate (if much larger share of school funding. (Unlike many they passed the General Educational Development other states, California’s State Constitution limits Test) or a special education certificate of local property tax rates.) Additionally, in contrast completion. to many other states, most school districts’ overall More Graduates Completing Coursework funding levels are not affected by how much local Required for University Eligibility. In 2015, property tax revenue they receive. This is because 43 percent of California students graduated high California generally uses local property tax revenue school having completed the coursework required as an offset for state General Fund spending. to be eligible for admission to the University of That is, if a district receives more local property California and California State University. This tax revenue in a given year, the state reduces the proportion has been gradually increasing over district’s General Fund support by a like amount. the last 20 years. In 1995, 35 percent of California About one in ten school districts in California, high school graduates completed such coursework. however, are affected by growth in their local (To meet the minimum eligibility requirements property tax revenue, as they have such high levels for the University of California and California of local revenue that the state provides no direct State University, students also must meet certain base aid. grade point average requirements and take college Per-Pupil Funding Exceeds Pre-Recession entrance exams.) Level. The 2016-17 Budget Act provided schools with $10,657 per student (from state General Finance Below, we explain Figure 6 State Is Largest Source of Revenue for Schools how schools are funded in California, how funds are 2016-17 Federal allocated among districts, and how districts typically use Other Local their funding. School Funding State Is Primary Source of Operating Revenue for Schools. In 2016-17, schools Local Property Tax State received $88 billion in total funding from all sources. As Figure 6 shows, the largest share of school funding comes 12 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Fund and local property tax revenue combined), Allocation and Use of Funds a $440 (4 percent) increase from 2015-16 and Most Funding Is Allocated Through the LCFF. about $600 (6 percent) more than the 2007-08 The 2016-17 budget plan allocated 91 percent of pre-recession level adjusted for inflation. Statewide K-12 education funding (state General Fund and per-pupil funding has exceeded pre-recession levels local property tax revenue combined) through since 2014-15. LCFF. School districts and charter schools may California Per-Pupil Spending Ranks in use LCFF funds for any educational purpose, Bottom One-Third of States. Based on spending though they must use a portion of these funds data from 2013-14 (the most recent available), for increasing or improving services for English California ranked 35th in per-pupil spending learners and low-income students. In addition to among the 50 states and the District of Columbia. general purpose LCFF funds, the state provides In 2007-08, prior to the most recent recession, funding for various categorical programs, the California ranked 23rd in per-pupil spending. The largest being special education. (Categorical drop in ranking over this period is primarily due to programs restrict funding for specified purposes.) the reductions the state made during the recession. Most School Spending Is for Instruction. As Because California’s revenues are highly sensitive Figure 7 shows, 62 percent of school expenditures to changes in the economy and financial markets, in 2014-15 was related to instruction and California’s budget tends to be more significantly instructional support—largely paying teacher affected by recessions (and recoveries) than most salaries and benefits. Schools spent 17 percent of other states. Given California has made significant their funds on facilities, including land acquisition, increases in K-12 funding over the past several construction, and maintenance. Schools spent years, its ranking likely will increase as newer data 10 percent on student services, including school become available. If Adjusted for Cost of Figure 7 Employment, California Most School Spending Is for Instruction Drops in the Rankings. 2014-15 Some organizations produce Other rankings of state per-pupil Administration spending with adjustments for regional costs. In these Student Services rankings, California typically ranks much lower. In one recent ranking, for example, California ranked 46th in per-pupil spending. The adjustments in these rankings Facilities are primarily intended to Instruction control for the variation in wages across the country, with average wages higher in California. www.lao.ca.gov Legislative Analyst’s Office 13 2017-18 BUDGET meals, pupil transportation, counseling, and health legal, and human resource functions; and other services. About 10 percent of funds were spent on expenses, including purchasing, printing, and data central administration, including the compensation processing. of district superintendents; central business, FEDERAL FUNDING FOR K-12 EDUCATION In this section, we briefly review the role of the and test students on their proficiency relative to federal government in K-12 education, provide an those benchmarks. The 1994 reauthorization also overview of federal funding for K-12 education in required that schools not meeting benchmarks California, and discuss several major federal K-12 develop a school improvement plan as a condition education programs. of receiving Title I funds. The 2001 reauthorization of the ESEA, better known as the No Child Left Role of Federal Government Behind Act, expanded testing to more grades Federal Government’s First Major and required disaggregation of test scores for Educational Focus Was to Support Students certain student groups. If schools did not meet Who Were From Poor Families. The federal benchmarks for all student groups, they were government’s role in funding K-12 education was required to undergo various reforms. The most limited through the 1950s. It increased significantly recent reauthorization of the ESEA, called the in the 1960s. During that decade, President Every Student Succeeds Act (ESSA), occurred Johnson expanded the federal government’s role in 2015. Under ESSA, the federal government in K-12 education as part of his larger War on continues to require states annually to test students Poverty initiative. Enacted in 1965, the Elementary for accountability purposes, but it allows states to and Secondary Education Act (ESEA) provided set their own proficiency benchmarks and removes an infusion of federal funds into school districts many of the repercussions schools not meeting with high proportions of low-income students. benchmarks had faced under the No Child Left The funding had few restrictions, except that Behind Act. it be used to enhance low-income students’ Today Three Major Acts Govern the Federal educational opportunities. Funding could be used Government’s Role in K-12 Education. These three for things like increasing teacher pay, purchasing acts are: new instructional materials, and offering more • The Healthy, Hunger-Free Kids Act. advanced academic courses. This act supports several child nutrition Federal Government Gradually Has Assumed programs administered by the United Greater Role in School Accountability. As early States Department of Agriculture. as the 1970s, the federal government began Generally, these programs reimburse using assessments to evaluate ESEA programs, schools for providing meals to low-income particularly “Title I” programs supporting students at reduced prices or for free. low-income students. It was not until the 1994 reauthorization of ESEA, however, that states were • The Every Student Succeeds Act (ESSA). required to set English and math benchmarks This act supports several elementary 14 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET and secondary education programs Districts serving relatively large numbers of administered by the United States low-income students and English learners tend to Department of Education. The programs rely more heavily on federal funding. range from supplemental services for Major Federal Education Programs students from low-income families to additional funding for schools on federal Child Nutrition Programs. The largest lands. Since the original enactment of nutrition programs funded under the Healthy, ESEA, the law has been reauthorized seven Hunger-Free Kids Act are the National School times. Lunch Program and the School Breakfast Program. These two programs comprise • The Individuals With Disabilities 78 percent of the $2.6 billion proposed for Education Act (IDEA). This act supports California schools in 2017-18 under the act. The services for students with disabilities. As act supports several other school-based nutrition with ESSA, IDEA is administered by the programs, including programs to provide meals United States Department of Education. to students in the summer and after school. For The core component of IDEA is services some nutrition programs, the state supplements tailored at the local level to the unique federal funding. The 2017-18 budget proposes to needs of each child with a disability ages include $161 million in Proposition 98 General 3 through 22. Fund support primarily to provide additional reimbursements to schools participating in the Overview of Federal Funding federal lunch and breakfast programs. Federal Funding Makes Up About 10 Percent Programs for Students From Low-Income of Total K-12 Funding. The Governor’s 2017-18 Families. As Figure 8 (see next page) shows, the Budget recognizes over a dozen federal K-12 largest ESSA program is support for low-income education programs associated with a total of students (Title I), comprising 75 percent of the $7.5 billion in federal funding. This represents $2.6 billion proposed for schools in 2017-18. about 10 percent of total K-12 funding in Title I itself has many components, including California, with the remaining funding coming formula-based grants for schools educating from state (60 percent) and local (30 percent) high proportions of children from low-income sources. Over the past 15 years, the federal share families, formula-based grants for states to provide of K-12 funding has ranged from 8 percent to supplemental educational services for the children 15 percent (an unusual high resulting from of migrant workers, and funding for states to stimulus funding the federal government provided administer standardized assessments. during the past recession). Other ESSA Programs. As Figure 8 shows, Some School Districts Rely More on Federal ESSA supports several other aspects of K-12 Funding Than Others. Two-thirds of California’s education. The largest of these other areas is school districts (collectively serving two-thirds of professional development for teachers and California’s students) receive less than 10 percent of administrators, comprising almost 10 percent of their total revenues from federal programs, while all ESSA funding. The next largest ESSA programs the remaining one-third receive 10 percent or more are for English learners and after school programs of their total revenues from federal programs. (most notably, 21st Century Community Learning www.lao.ca.gov Legislative Analyst’s Office 15 2017-18 BUDGET Centers). ESSA also funds various other initiatives, Two Other Notable Federal Education including support for rural schools, American Programs Administered by State. The Carl D. Indian education, and schools on federal lands. Perkins Career and Technical Education (CTE) (Funding for the latter two programs is awarded Act provides about $50 million annually to directly to schools and does not pass through the schools to increase the quality of CTE. Schools California Department of Education.) California use the funding to develop CTE curriculum, offer provides state funding for similar purposes as professional development for CTE teachers, and ESSA. Most notably, the state provides significant purchase equipment and supplies for the classroom. funding targeted for low-income students and In addition, the McKinney-Vento Homeless English learners under its main per-pupil funding Assistance Act provides about $7 million annually formula. (In 2016-17, we estimate the state provided to schools for providing homeless children extra $8.6 billion for this purpose.) In addition, the services such as transportation and help accessing state provides earmarked funding for after-school social services. programs, assessments, and schools in rural areas. Other Federal Grants Allocated Directly Programs for Students With Disabilities. to Educational Service Providers or Schools. Nearly all IDEA funding is for direct services The federal government allocates some federal for children with disabilities ages 3 through 22. funding directly to educational service providers. For each child identified with a disability, school One of the largest fund sources of this nature administrators and teachers must meet annually is the Federal Communications Commission’s with the child’s parents to identify the specific (FCC’s) Schools and Libraries program, commonly services the child requires to succeed. These known as E-Rate. This program provides services receive 96 percent of the $1.3 billion IDEA funding to telecommunication companies to funding proposed for schools in 2017-18, with the provide discounted Internet and related services state contributing an additional $3.8 billion. The to schools. In 2015-16, the FCC committed to remaining 4 percent of federal funding supports offsetting California schools’ Internet costs by over services for children birth through age three. $400 million in E-Rate funds. In some cases, the federal government also allocates federal funding Figure 8 directly to schools. For Funding for Every Student Succeeds Act example, we estimate Proposed 2017-18a (In Millions) schools receive about Support for: $15 million annually in Low-income students (Title I) $1,958 federal Forest Reserve Teachers and administrators (Title II) 238 funds to offset some of English learners (Title III) 145 After-school programs and charter schools (Title IV) 164 the timber revenue rural Rural schools (Title V) 1 schools have lost due to American Indian education (Title VI) 7b Schools on federal lands (Title VII) 85b various federal actions Total $2,598 that have reduced timber a Does not include various competitive grant awards. In 2016, we estimate California educational entities harvests on federal lands. received a total of $60 million in competitive grant funding. b LAO estimates. 16 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Federal Funding for California Department federal funding supported almost 70 percent of of Education State Operations. The 2017-18 the department’s operations budget. State funding budget proposes to provide $161 million in supported about 20 percent of the department’s federal funding to the California Department of operations budget, with remaining support coming Education to administer various federal programs. from various other fund sources. In a review we conducted in 2014, we found that OVERVIEW OF THE GOVERNOR’S PROPOSITION 98 BUDGET PACKAGE Below, we provide background on how the tests depend upon several inputs, including changes state calculates its school funding obligation under in K-12 attendance, per capita personal income, Proposition 98, describe the Governor’s proposed and per capita General Fund revenue. The operative Proposition 98 funding and spending changes from test that sets the minimum guarantee is triggered 2015-16 through 2017-18, and offer a high-level automatically depending on these inputs. In most assessment of the package. years, Test 2 or Test 3 has been the operative test, with the minimum guarantee building upon the Background on Calculating level of funding provided the prior year. Since Minimum Guarantee the inputs are not finalized until a few years after Proposition 98 Sets Minimum Funding the close of the fiscal year, the operative test can Level for Schools and Community Colleges. State fluctuate and the minimum guarantee can change budgeting for schools and community colleges significantly from the level initially assumed in the is governed largely by Proposition 98, passed by budget. voters in 1988. The measure, modified by Proposition 111 in Figure 9 1990, establishes a minimum Three Proposition 98 “Tests” funding requirement for Test 1 Test 2 Test 3 schools and community Share of General Change in Per Change in General colleges, commonly referred Fund Revenue Capita Personal Fund Revenue Income (PCPI) to as the minimum guarantee. General PCPI Fund Both state General Fund and ADA ADA local property tax revenue 40% apply toward meeting the Prior-Year Prior-Year minimum guarantee. Funding Funding Various Inputs Determine Operative “Test.” As described Guarantee based on share Guarantee based on prior- Guarantee based on prior- of state General Fund year funding level adjusted year funding level adjusted in Figure 9, the minimum revenue going to K-14 for year-over-year changes for year-over-year changes education in 1986-87. in K-12 attendance and in K-12 attendance and guarantee is determined by California PCPI. state General Fund revenue. one of three tests set forth in ADA = average daily attendance. the State Constitution. These www.lao.ca.gov Legislative Analyst’s Office 17 2017-18 BUDGET Additional Statutory Formula Applies in and per capita personal income. In subsequent Test 3 Years. In 1990, the state established an years, when General Fund revenue is growing additional formula to ensure that school funding is more quickly, the Constitution requires the state treated no worse than the rest of the budget during to make maintenance factor payments until it has tight economic times. Calculated when Test 3 is paid off this obligation. The magnitude and timing operative, the formula requires the state to provide of these payments is determined by formula, with a supplemental appropriation when Proposition 98 stronger and faster revenue growth generally funding otherwise would grow less quickly than requiring larger and more rapid payments. the rest of the budget. The state provides this These maintenance factor payments increase the supplemental appropriation on top of the minimum minimum guarantee on an ongoing basis. guarantee otherwise calculated for that year. Given Major Features of Governor’s Plan its intent, the formula is commonly known as the “equal pain/equal gain” formula. As part of its budget package, the State Can Provide More Funding Than administration has updated its estimates of the Required or Suspend Guarantee. During the minimum guarantee for 2015-16, 2016-17, and economic boom that prevailed in the late 1990s, 2017-18. Below, we describe these changes as well as the state for several years provided more funding the proposed associated changes to Proposition 98 than was required by the minimum guarantee. spending. (The administration also has updated its Because the minimum guarantee generally estimates of local property tax revenue across the builds upon the level provided in the previous period. The box on page 20 describes and assesses year, such augmentations resulted in long-term these changes.) increases in school funding. Alternatively, in Minimum Guarantee for 2015-16 Revised 2004-05 and 2010-11, the state applied a provision Downward. Figure 10 compares the Governor’s of Proposition 98 allowing for the suspension of estimates of the 2015-16 and 2016-17 minimum the minimum guarantee upon a two-thirds vote guarantees with the estimates made in June 2016. of each house of the Legislature. When the state The revised estimate of the 2015-16 guarantee is suspends the minimum guarantee, it can provide $68.7 billion, a $379 million decrease compared a lower level of funding but it creates an out-year with the previous estimate. This drop is due obligation to restore K-14 funding in later years (as to a $1.5 billion decrease in General Fund tax described below). revenue. As a result of this lower revenue, the state State Creates “Maintenance Factor” is no longer required to make the $379 million Obligation in Certain Years. Proposition 111 maintenance factor payment included in the June established maintenance factor and set forth budget plan. Under the revised estimates, Test 3 certain rules pertaining to it. The state creates rather than Test 2 is operative. The amount of the a maintenance factor obligation when Test 3 is statutory “equal pain/equal gain” supplemental operative or the minimum guarantee is suspended. appropriation, however, is such that the state This obligation equals the difference between creates no new maintenance factor. the actual level of funding provided and the Test Minimum Guarantee for 2016-17 Also Revised 1 or Test 2 level (whichever is higher). Moving Downward. The revised estimate of the 2016-17 forward, the maintenance factor obligation is guarantee is $71.4 billion, a $506 million decrease adjusted annually for changes in K-12 attendance compared with the estimates made last June. 18 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Figure 10 Tracking Changes in the Proposition 98 Minimum Guarantee (In Millions) 2015-16 2016-17 June 2016 January 2017 June 2016 January 2017 Estimate Estimate Change Estimate Estimate Change Minimum Guarantee General Fund $49,722 $48,989 -$733 $51,050 $50,330 -$720 Local property tax 19,328 19,681 353 20,824 21,038 215 Totals $69,050 $68,671 -$379 $71,874 $71,368 -$506 This drop is due primarily to the lower funding not affect local programs. Spending is reduced an level in 2015-16 carrying forward. In addition, additional $55 million in 2015-16 primarily due non-Proposition 98 spending is growing somewhat to various automatic adjustments, such as savings less quickly than assumed last June, such that the resulting from a slight drop in student attendance. supplemental appropriation required by the equal 2016-17 Spending Reduced Primarily Through pain/equal gain formula has shrunk. Though the School Payment Deferral. By scoring certain administration has revised its estimate of 2016-17 one-time payments in 2016-17 rather than 2015-16, General Fund revenue down by $1.6 billion, the the Governor’s budget plan increases 2016-17 almost equally sized revenue drop in 2015-16 Proposition 98 spending by $324 million. This results in the year-to-year growth rate remaining increase, combined with the $506 million drop at 3.6 percent. Under the revised 2016-17 estimates, in the minimum guarantee and various minor Test 3 remains operative, with the state creating a adjustments, results in a spending level that would new maintenance factor obligation of $838 million exceed the 2016-17 guarantee by $859 million. To (slightly more than the $746 million assumed in the avoid spending more than the minimum guarantee, June budget package). the Governor proposes to defer an $859 million 2015-16 Spending Reduced Primarily by payment for the Local Control Funding Formula Scoring Some One-Time Payments to 2016-17. The (LCFF). Specifically, the administration proposes administration proposes to reduce Proposition 98 to provide this funding in July 2017 rather than in spending to match the lower estimates of the June 2017, as originally scheduled. This delay would 2015-16 and 2016-17 minimum guarantees. To allow the state to count the payment toward the reduce spending in 2015-16, the administration 2017-18 guarantee instead of the 2016-17 guarantee. changes how it scores one-time payments for 2017-18 Guarantee Increases $2.1 Billion Over the K-12 mandates backlog and the California Revised 2016-17 Level. The Governor’s budget Collaborative for Educational Excellence (the includes $73.5 billion in total Proposition 98 funding Collaborative). Whereas the June budget plan had in 2017-18. As shown in Figure 11 (see page 21), counted payments for these activities toward the this reflects a 3 percent increase over the revised 2015-16 guarantee, the Governor proposes to count 2016-17 level. Test 3 is operative in 2017-18, with the $324 million for these programs toward the 2016-17 higher guarantee driven primarily by the 2.6 percent guarantee. As schools already were expecting to increase in per capita General Fund revenue. (This receive this funding in 2016-17, this proposal would 2.6 percent increase includes the 0.5 percent add-on www.lao.ca.gov Legislative Analyst’s Office 19 2017-18 BUDGET required by the State Constitution.) In addition, the new maintenance factor obligation of $219 million. state makes a $266 million supplemental payment This additional maintenance factor brings the state’s under the equal pain/equal gain formula. The total outstanding obligation to $1.6 billion by the administration also estimates that the state creates a end of 2017-18. Local Property Tax Update Property Tax Estimates Revised Upwards in 2015-16 and 2016-17. As shown in the figure below, the Governor’s budget assumes property tax revenue will total $19.7 billion in 2015-16 and $21.0 billion in 2016-17. These estimates reflect an upward revision of $568 million across the two years compared with estimates made last June (bringing them closer to our November 2016 estimates). Higher estimates of revenue distributed to schools from Educational Revenue Augmentation Funds comprise the bulk of this increase. This upward revision is due primarily to an improvement in the administration’s estimation methodology. Another factor contributing to the upward revision to relates to supplemental tax revenue. Data reported by local educational agencies in 2015-16 show this revenue exceeding initial budget estimates, and the administration assumes this revenue will increase further in 2016-17. (Supplemental taxes consists of the property tax levied on properties sold midyear. For the purposes of the figure, they are included in “other property tax.”) These increases are partially offset by a higher estimate of excess tax revenue. (Excess tax revenue consists of the local revenue that some schools and community colleges receive beyond their general purpose funding level set by the state. This portion of local revenue is excluded from the Proposition 98 calculations.) We believe the administration’s revisions for 2015-16 and 2016-17 are reasonable. Property Tax Revenues Projected to Increase $1.1 Billion in 2017-18. The Governor’s budget assumes that property tax revenue will total $22.2 billion in 2017-18. This is an increase of $1.1 billion (5.3 percent) from the revised 2016-17 level. This increase is driven largely by an assumed 5.3 percent increase in assessed property values, reflecting the continued strength of the state’s real estate markets. (In the figure, the growth in assessed values primarily affects the “secured property tax revenue.”) The administration also makes various smaller adjustments to other components of local property tax revenue. We think the administration’s assumptions for 2017-18 are reasonable (with our estimates being only slightly lower). Proposition 98 Property Tax Revenue Estimates Under Governor’s Budget (Dollars in Millions) Change From 2016-17 2015-16 2016-17 2017-18 Revised Revised Estimated Amount Percent Property Tax Components Secured property tax $16,740 $17,731 $18,678 $947 5.3% Other property tax 1,667 1,818 1,966 148 8.1 Redevelopment agency dissolution 1,247 1,298 1,447 149 11.4 Educational Revenue Augmentation Fund 837 1,042 1,017 -24 -2.4 Excess tax -810 -850 -948 -97 11.5 Totals $19,681 $21,038 $22,160 $1,121 5.3% 20 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Figure 11 Proposition 98 Funding by Segment and Source (Dollars in Millions) Change From 2016-17 2015-16 2016-17 2017-18 Revised Revised Proposed Amount Percent Preschoola $885 $975 $995 $20 2.0% K-12 Education General Fund $42,719 $43,829 $44,811 $982 2.2% Local property tax 17,052 18,236 19,200 965 5.3 Subtotals ($59,770) ($62,064) ($64,012) ($1,947) (3.1%) California Community Colleges General Fund $5,304 $5,443 $5,465 $22 0.4% Local property tax 2,630 2,803 2,959 156 5.6 Subtotals ($7,933) ($8,246) ($8,424) ($179) (2.2%) Other Agenciesa $82 $83 $80 -$3 -3.3% Totals $68,671 $71,368 $73,511 $2,143 3.0% General Fund $48,989 $50,330 $51,351 $1,021 2.0% Local property tax 19,681 21,038 22,160 1,121 5.3 a Consists entirely of General Fund. New K-12 Funding in 2017-18 Dedicated community college funding is for apportionments to LCFF. Figure 12 (see next page) shows the (consisting of $94 million for a 1.48 percent COLA, Governor’s Proposition 98 spending proposals $79 million for 1.34 percent enrollment growth, for 2017-18. The largest ongoing proposal is a and $24 million for an unallocated increase). $744 million augmentation to the LCFF. The The remainder is for categorical programs and proposed augmentation is approximately equal is mainly one time. By far the largest of these to the cost of applying the statutory 1.48 percent initiatives is $150 million one time for community cost-of-living adjustment (COLA). The Governor’s colleges to develop “guided pathways”—detailed, budget also adjusts LCFF for changes in student term-by-term roadmaps for students to complete attendance, though average daily attendance (ADA) academic programs, accompanied by early is expected to remain virtually flat (at 5.9 million academic planning and ongoing student support ADA). Though the bulk of new ongoing K-12 services. The budget also includes $20 million one funding is for LCFF, the Governor’s budget also time for innovation awards to community colleges. applies the statutory 1.48 COLA to a few other K-12 Whereas the administration has been closely programs, including special education and child involved in implementing innovation awards in nutrition. Beyond these ongoing augmentations, previous years, the proposal this year provides the the Governor proposes to use virtually all of the Chancellor’s Office substantial latitude to set award remaining increase in 2017-18 K-12 funding to criteria and select winners. eliminate the payment deferral created in 2016-17. Budget Plan Includes $601 Million in About Half of New Community College Additional Proposition 98-Related Funding. Funding Is for Apportionments, Half for In addition to the $2.1 billion increase in the One-Time Initiatives. About half of new 2017-18 minimum guarantee, the Governor’s www.lao.ca.gov Legislative Analyst’s Office 21 2017-18 BUDGET budget includes $601 million in funding from in unspent Proposition 98 funding from previous one-time sources. Of this amount, $400 million is years. The Governor proposes to use the combined a proposed settle-up payment related to meeting $601 million for four activities: (1) paying down the the 2009-10 minimum guarantee. The Governor K-12 mandates backlog ($287 million), (2) funding counts this amount as a Proposition 2 debt the third and final year of the CTE Incentive payment. After making this payment, the state Grant program ($200 million), (3) addressing would have a remaining settle-up obligation of deferred maintenance at the community colleges $626 million ($532 million associated with 2009-10 ($44 million), and (4) swapping out $70 million in and $94 million for more recent years). The other ongoing funding (primarily for special education). source of one-time funding consists of $201 million Budget Plan Includes Substantial Funding for School and Community College Facility Projects. Figure 12 2017-18 Proposition 98 Changes Passed by the voters in November 2016, (In Millions) Proposition 51 authorizes 2016-17 Revised Proposition 98 Spending $71,368 the state to sell $9 billion Technical Adjustments in general obligation Make Local Control Funding Formula (LCFF) adjustments $65 Revise estimate of energy efficiency funds 27 bonds—$7 billion for Annualize funding for previously approved preschool slot increases 24 schools and $2 billion Make various other adjustmentsa -30 for community colleges. Subtotal ($85) K-12 Education The Governor’s Retire June-to-July LCFF deferral (one time)b $859 budget proposes to Increase LCFF funding 744 sell $601 million of Provide 1.48 percent COLA for select categorical programsc 58 Add mandated reporter training to Mandates Block Grant 8 these bonds in 2017-18, Subtotal ($1,670) including $594 million for California Community Colleges schools and $7.4 million Fund guided pathways initiative (one time) $150 Provide 1.48 percent COLA for apportionments 94 for community colleges. Fund 1.34 percent enrollment growth 79 The Governor’s proposal Provide unallocated increase 24 for schools would Fund Innovation Awards (one time) 20 Augment Online Education Initiative 10 fund the state’s list of Develop integrated library system (one time) 6 $370 million in already Provide 1.48 percent COLA for select categorical programsd 4 approved facility projects, Subtotal ($387) as well as $230 million Total Changes $2,143 2017-18 Proposition 98 Spending $73,511 in additional projects. a Includes the removal of prior-year one-time payments, a special education fund swap (using one-time For school facilities only, instead of ongoing funds), a High Speed Network fund swap (using ongoing rather than one-time funds), and various minor adjustments. the Governor proposes b Under the Governor’s proposal, the state would make 11 LCFF payments in 2016-17 (producing savings to make distribution of relative to the 2016‑17 Budget Act) and 13 LCFF payments in 2017-18 (12 normal monthly payments plus an additional payment for the prior year). bond proceeds contingent c Applied to special education, child nutrition, services for foster youth, adults in correctional facilities, and American Indian education. on two conditions. d Applied to Extended Opportunity Programs and Services, Disabled Students Programs and Services, CalWORKs student services, and support for certain campus child care centers. Specifically, he proposes COLA = cost-of-living adjustment. (1) requiring schools to 22 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET enter into upfront grant agreements that include the estimates made last June. Regarding 2017-18, certain conditions and accountability measures the administration’s estimate of the minimum and (2) making schools’ associated expenditures guarantee is about $1 billion below our November subject to local independent audits. For community estimate. The administration’s lower estimate of colleges, the proposed $7.4 million would fund General Fund tax revenue explains the bulk of this preliminary plans for five projects (two addressing difference. In May, both the administration and seismic risks, two modernizing instructional space, our office will release updated estimates of General and one replacing utility infrastructure). Fund revenue. Below, we discuss how updated Delays Implementation of Multiyear revenue estimates could affect the guarantee. We Preschool Agreement. As part of the 2016-17 then comment on the overall mix of one-time and budget package, the Legislature and the Governor ongoing spending included in the Governor’s plan. agreed on a four-year plan to increase ongoing Minimum Guarantee Not Likely to Change Proposition 98 State Preschool funding by roughly Much in 2015-16. The guarantee in 2015-16 is not $200 million. In 2016-17, the state provided particularly sensitive to revenue changes. State $51.5 million for the first year of State Preschool revenue could increase by as much as $700 million augmentations—consisting of $43.7 million for with no increase in the minimum guarantee. preschool rate increases to begin January 1, 2017 This is because Test 2 would become operative and $7.8 million for 2,959 additional full-day slots but no maintenance factor payment would be to begin April 1, 2017. (The state also provided required. Increases above this level would require $7.1 million non-Proposition 98 General Fund for the state to begin paying off maintenance factor, the wrap portion of State Preschool provided by with the guarantee increasing about 50 cents non-local educational agencies.) The agreement for for each dollar of additional revenue. Regarding 2017-18 assumed annualization of the prior-year downward revisions, revenue also could fall by cost increases, additional rate increases, and as much as $1.8 billion in 2015-16 with no effect 2,959 additional full-day slots. The Governor’s on school funding. This buffer is due to the budget proposes to annualize the cost of the equal pain/equal gain formula, which offsets the new slots created in 2016-17, but he suspends all drop in the guarantee that would occur otherwise. other components of the agreement for 2017-18, Minimum Guarantee in 2016-17 Is Somewhat extending the plan through 2020-21. More Sensitive to Revenue Changes. We estimate the 2016-17 minimum guarantee would rise or LAO Comments fall about 50 cents for each dollar of higher or Assumptions About State General Fund lower revenue. Regarding upward revisions, the Revenue Key Factor Affecting Estimates of the guarantee increases because the faster growth in Guarantee. Though the Governor’s budget includes per capita General Fund revenue increases the revised estimates of most of the inputs affecting funding required under Test 3. Though additional the calculation of the minimum guarantee, the revenue eventually would make Test 2 operative, the revisions to General Fund revenue estimates guarantee would increase further as maintenance account for nearly all of the changes in school factor payments become required. On the downside, funding. Absent the drop in revenue across a drop in revenue would lower the growth in 2015-16 and 2016-17, estimates of the minimum per capita General Fund revenue and produce a guarantee in those two years would be similar to correspondingly lower Test 3 requirement. www.lao.ca.gov Legislative Analyst’s Office 23 2017-18 BUDGET Higher General Fund Revenue, Higher school funding to the level required to keep pace Minimum Guarantee Likely for 2017-18. As with growth in per capita personal income. For the discussed in our recent Overview of the Governor’s next $1 billion of additional revenue, the guarantee Budget report, we believe the administration’s does not change. Any further revenue increase, estimate of state revenue is low given its other up to an additional $2.6 billion, would trigger a economic assumptions. By May, General Fund requirement to make maintenance factor paGymraepnths ic Sign Off revenue in 2017-18 could be significantly higher and would increase the guarantee by about 50 cents Secretary than assumed in January. Holding other factors for each additional dollar of revenue. In cumulative Analyst constant, these higher revenue estimates would terms, revenue increases of $2 billion and $4 billion MPA increase the 2017-18 guarantee. As Figure 13 shows, above the Governor’s January level would increase ARTWORK #170030 Deputy certain revenue cut points have specific associated the 2017-18 guarantee by $500 million and impacts on the minimum guarantee. ForT ethme pfirlastt e_LAO$R1.e5p boilrltio_nla, rrgesep.aecittively. Revenue increases beyond roughly $400 million of additional revenue, the about $4 billion likely would have no effect on the guarantee increases by about $200 million, bringing minimum guarantee. Figure 13 The Impact of Higher State Revenues on the 2017-18 Minimum Guarantee $2.6 Billion A b o u t H a lf $4 Billion $1 Billion N one $1.3 Billion $1.5 Billion About Half $400 Million $200 Million Additional Revenue Effect on Above Governor’s Minimum Guaranteea January Level a Assumes all other Proposition 98 inputs remain unchanged. 24 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Recommend Relying on Mix of Ongoing in the minimum guarantee to LCFF and CCC and One-Time Spending. The Governor’s budget apportionments while using the remainder for roughly balances new ongoing and one-time one-time payments to reduce or eliminate the Proposition 98 spending. Regardless of the exact K-12 mandates backlog. A stronger 2017-18 fiscal level of the 2017-18 minimum guarantee, we year does not necessarily imply a strong 2018-19 recommend the Legislature adopt a final budget fiscal year. By setting aside some funding for plan that continues to rely upon on a mix of one-time purposes, the state would be better ongoing and one-time spending. The Legislature positioned to accommodate a drop in the 2018-19 has taken such an approach the past few years. guarantee without needing to make cuts to LCFF or Under this approach, the Legislature could community college apportionments. dedicate a portion of any additional increases LOCAL CONTROL FUNDING FORMULA The Governor’s budget contains three major New Formula Based on Student and District proposals related to LCFF: (1) deferring an Characteristics. As Figure 14 shows, LCFF has $859 million LCFF payment from June 2017 to three primary components: (1) base funding rates July 2017, (2) eliminating the deferral the next tied to four grade spans; (2) supplemental funding payment cycle, and (3) providing a $744 million for English learner, low-income, and foster youth augmentation for LCFF implementation in 2017-18. (EL/LI) students; and (3) concentration funding for Below, we discuss the main components of LCFF, districts with relatively high proportions of EL/LI describe the Governor’s LCFF proposals in detail, students (more than 55 percent of their enrollment). and assess those proposals. Base rates generally increase for higher grades in recognition of their higher costs—for example, Background providing career technical education in high State Enacted New School Funding Formula school. The K-3 rate is an exception to this rule. in 2013-14. A few years ago, the state enacted major changes to the way it allocates funding to school Figure 14 districts and charter schools. Previously, the state Local Control Funding Formula distributed school funding through a combination Per-Student Rates of general purpose grants (called “revenue limits”) Effective 2017-18 School District and Charter School and more than 40 state categorical programs. Rates Under Governor’s Budget Districts could use general purpose grants for Grade any educational purpose, but they had to spend Span Base Supplementala Concentrationb categorical funding on state-prescribed activities. K-3 $7,626 $1,525 $3,813 In 2013-14, the state eliminated most categorical 4-6 7,011 1,402 3,505 7-8 7,220 1,444 3,610 programs, replacing all the previous program- 9-12 8,583 1,717 4,291 specific funding formulas with one new formula. a Equals 20 percent of the base rate. Generated for each student who is a foster youth, English learner, or low income (EL/LI). The new formula significantly increased the size of b Equals 50 percent of the base rate. When EL/LI students comprise more than general purpose grants and directed more funding 55 percent of total district enrollment, generated for each EL/LI student above that threshold. to districts with disadvantaged students. www.lao.ca.gov Legislative Analyst’s Office 25 2017-18 BUDGET Intended to support smaller class sizes in the early LCFF Provides Considerable Funding for grades, it is higher than the rates for grades 4-8. EL/LI Students. Assuming all components of An Illustration of Two Districts’ LCFF the formula are being phased in at the same rate Calculations. Figure 15 shows the LCFF (that is, base, supplemental, and concentration calculation for two equally sized elementary school funding all are 96 percent funded), districts in districts. Both districts generate the same amount 2016-17 received $37 billion for EL/LI students of base funding as they serve the same number of (out of a total $55.8 billion in LCFF funding). students in each of the K-3 and 4-6 grade spans, Of the $37 billion, $28.4 billion is base funding, but District A has a notably higher share of EL/LI $5.6 billion is supplemental funding, and $3 billion students than District B (91 percent compared to is concentration funding. 50 percent) and thus generates more supplemental State Law Guides Use of Some EL/LI funding. District A also has a student population Funding. Districts can use most LCFF funds that is more than 55 percent EL/LI, thereby for any educational expense, but they must use generating concentration funding. Given these some funding specifically for the benefit of EL/LI differences in student demographics, District A students. Specifically, districts must demonstrate receives a total of $431,000 more than District B. they are “increasing or improving” services for Implementation Expected to Take Several EL/LI students in proportion to the funding Years. In developing LCFF, the state created increases generated by these students. per-student funding targets that were significantly Governor’s Proposal higher than the going rates, with the cost of full LCFF implementation estimated at $57 billion (or Defers LCFF Payment From June to July $18 billion more than the combined cost of general 2017. As part of his budget package, the Governor purpose grants and categorical programs under proposes to defer an $859 million LCFF payment the previous system). Starting in 2013-14, the state from June 2017 (the 2016-17 fiscal year) to July 2017 began providing augmentations to LCFF to close (the 2017-18 fiscal year). Because schools still would the difference (or gap) between their prior-year receive their full LCFF allotment within a few funding level and their LCFF target level. Based on projections of growth in Figure 15 Proposition 98 funding, the Illustration of LCFF Calculation for Two Elementary Districtsa administration estimated that the state would reach District A District B Difference full implementation of District Characteristics Grades K-3 attendance 100 students 100 students — LCFF in 2020-21. Over the Grades 4-6 attendance 120 students 120 students — past four years, the state EL/LI percentageb 91% 50% 41% has provided $15.7 billion LCFF Funding towards implementing Grade span funding $1,645,000 $1,645,000 — Supplemental funding 299,000 164,000 $135,000 the formula. As shown Concentration funding 296,000 — 296,000 in Figure 16, LCFF was Totals $2,240,000 $1,809,000 $431,000 73 percent funded in a Reflects statutory rates adjusted for the cost of living through 2016-17. Rounded to nearest thousand. b 2013-14 and is 96 percent EL/LI students as a share of total enrollment. LCFF = Local Control Funding Formula and EL/LI = English learner/low-income students. funded in 2016-17. 26 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET weeks of the original payment date, the deferral is Given the increase is approximately equal to the intended to have no programmatic effect. 1.48 percent statutory COLA applied to the LCFF Eliminates the Deferral in 2017-18. The target rates, we estimate the proposed 2017-18 Governor proposes to eliminate the deferral for funding level would continue to fund 96 percent the next payment cycle. Under the proposal, of the full implementation cost. (To achieve full schools would receive 13 months of payments in funding in 2017-18, the administration estimates 2017-18—12 normal monthly LCFF payments plus an additional $2.3 billion, beyond the proposed an additional payment related to the prior-year $744 million augmentation, would be required.) deferral. Paying off the deferral entails a one-time Assessment cost of $859 million in 2017-18 (just as deferring the payment initially creates $859 million in one-time Exhaust Other One-Time Options Before savings in 2016-17). Eliminating the deferral allows Deferring LCFF Payment. We recommend the the state to return to the regular statutory LCFF state exhaust other potential one-time options payment schedule moving forward. before adopting a payment deferral for 2016-17. Provides LCFF Augmentation. In addition to Most notably, the state is likely to learn over eliminating the deferral, the Governor proposes a the coming months that certain programs have $744 million (1.4 percent) augmentation in 2017-18— unspent funds available for 2016-17. These unspent bringing total LCFF funding to $56.6 billion. funds could be redirected to other Proposition 98 Figure 16 Tracking Implementation of the Local Control Funding Formula Formula for School Districts and Charter Schools (Dollars in Billions)a Target $70 Gap Funding Base 60 25% 57% of gap 53% of gap funded 50 of gap funded 33% funded of gap 12% funded 40 of gap funded 30 20 10 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 73% 83% 91% 96% 96% Percent of Target Level Funded a Numbers are final through 2014-15 and estimated for 2015-16 through 2017-18. www.lao.ca.gov Legislative Analyst’s Office 27 2017-18 BUDGET programs, thereby reducing or eliminating the report, we believe the Governor’s revenue estimates, need for a payment deferral. Were the Legislature and related estimate of the Proposition 98 to adopt a deferral for 2016-17, we recommend minimum guarantee for 2017-18, are low. Were eliminating the deferral as soon as possible these estimates to be revised upward, more thereafter. Barring a recession in 2017-18, we funds would become available for Proposition 98 recommend the Legislature take the same approach priorities in 2017-18. as the Governor and eliminate the deferral in Some Districts Experiencing More Growth 2017-18. Making payments on time is a responsible Under LCFF Than Others. Districts do not fiscal practice and ensures school districts do not all benefit in the same way under LCFF. By experience the unintended consequences of higher design, LCFF provides larger funding increases borrowing costs or programmatic cuts. to districts with more EL/LI students and to Prioritizing LCFF Implementation Consistent districts that historically received less state With State’s Prior-Year Actions. The Governor’s funding than their peers. Though LCFF funding plan to dedicate most new ongoing K-12 funding statewide would increase 1.4 percent in 2017-18 to LCFF implementation is consistent with the under the Governor’s proposal, districts would Legislature’s approach over the past four years. By continue experiencing their own unique growth continuing to prioritize LCFF implementation, rates depending upon their EL/LI counts and both the Governor and the Legislature would their existing funding levels. We estimate about be fostering greater local control and flexibility 70 districts (7 percent) would experience growth while simultaneously providing more funding for of 2 percent or more, about 440 would experience disadvantaged students. Come May, the Legislature LCFF growth of between 1 and 2 percent, and the might decide it could dedicate even more to LCFF remaining 435 districts would experience LCFF implementation. As we discuss earlier in this growth of less than 1 percent. SPECIAL EDUCATION In this section, we provide background on disabilities and develop an individual service plan special education in California, describe the for each one. Governor’s special education budget proposals, and State and Federal Governments Provide discuss various issues we believe the Legislature Categorical Funding to Cover Some Special should consider if it is interested in changing the Education Costs. Schools receive billions of state’s special education funding system. dollars each year (mostly from LCFF) to educate all students, including students with disabilities. Background These funds primarily are intended to cover Federal Law Requires Schools to Provide general education costs such as teacher salaries. Additional Services to Students With Disabilities. Beyond these general education costs, schools incur Special education is instruction designed to meet additional costs, such as specialized support staff the unique needs of each child with a disability. The salaries and adaptive equipment, to serve students federal Individuals with Disabilities Education Act with disabilities. To help cover these additional (IDEA) requires schools to identify students with costs, both the state and federal governments 28 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET provide categorical funds Figure 17 specifically for special Districts Cover Majority of education. As Figure 17 Special Education Costs With Unrestricted Funding shows, state and federal California Special Education Costs by Fund Source, 2014‑15 categorical funding covers about 40 percent of special education costs in California. State Categorical Funding Schools cover remaining special education costs with unrestricted funding (mostly from LCFF). Most Categorical Unrestricted Funding Funds Allocated to Special Federal Categorical Funding Education Local Plan Areas (SELPAs). In the late 1970s, the state began requiring all districts to belong to SELPAs. Currently, California has 131 In 2016-17, four charter-only SELPAs existed. SELPAs. Of these SELPAs, 42 consist of a single Though they serve a small share of overall statewide school district, most of which have more than attendance (about 2 percent in 2015-16), they 20,000 students (ADA). The state considers these serve about a quarter of charter school students districts large enough to serve all their students statewide. (The state’s remaining SELPA serves with disabilities. As Figure 18 shows, these SELPAs only students attending Los Angeles County court account for about one-third of all students in the schools.) state. The state’s remaining districts (most of them small Figure 18 or mid-sized) belong to one of California Has Three Types of SELPAs 84 collaborative SELPAs. Each Share of Statewide Attendance, 2015‑16 of these SELPAs is a collection of neighboring districts that Single-District by themselves are considered SELPAs too small to serve all their students with disabilities. Since 2003-04, the state has allowed charter schools to join charter-only SELPAs. Collaborative SELPAs These SELPAs are collections Charter-Only SELPAs of charter schools from across the state that have agreed to SELPA = Special Education Local Planning Area. share administrative costs. www.lao.ca.gov Legislative Analyst’s Office 29 2017-18 BUDGET Most State Categorical Funds Distributed restrictions. (For simplicity, we have condensed According to Overall Student Population. About a few small categorical programs into larger 85 percent of state special education funding is categories in the figure. Most notably, the state distributed according to a student-based formula technically has two extraordinary cost pools and commonly called AB 602 (after the legislation that two programs for Necessary Small SELPAs.) After introduced it in 1998). This formula allocates funds AB 602 base funding, the largest special education to SELPAs based on their total student attendance, categorical program distributes $360 million on regardless of how many students are served in a per-student basis specifically for mental health special education. By distributing funding based on services. The next largest program distributes total student attendance rather than a more direct $145 million to SELPAs according to the number measure of special education costs (for example, of Licensed Children’s Institutions (such as group the number of students identified for special homes) located within their boundaries. education or the types of services these students Collaborative SELPAs Retain Some Funds for are provided), AB 602 ensures no SELPA has an Regional Services, Allocate Rest to Members. Each incentive to over-identify students for special collaborative SELPA must decide for itself how to education or serve these students in unnecessarily allocate its share of categorical special education expensive settings. funding to member districts. Typically, SELPAs Some State Special Education Categorical adopt allocation plans that retain some funding for Funds Distributed According to Other Factors. regional services and distribute remaining funding In addition to AB 602 base funding, the state to member districts. Member districts vote to adopt has several other special education categorical their allocation plans. Specific voting rules vary programs. Figure 19 describes each of these among SELPAs. For example, in some SELPAs, each program’s allocation formula and spending district has one vote regardless of its size, whereas Figure 19 California Has Several Special Education Categorical Programs (In Millions) 2016-17 Program Funding Allocation Formula Spending Restrictions AB 602 $3,136 Each SELPA receives a unique rate per student Any special education expense Mental Health Services 360 Flat rate per student Mental health services for special education students Out-of-Home Care 145 Location and capacity of Licensed Children’s Any special education expense Institutions Workability 40 Number of students enrolled in qualified Employment training and assistance program Low Incidence Disabilities 17 Number of students who are deaf, hard of Services or materials for students with hearing, visually or orthopedically impaired qualifying disabilities Extraordinary Cost Pools 6 SELPAs can be reimbursed for documented Unusually expensive single-student exceptional costs services Necessary Small SELPAs 2 Must be countywide SELPA with less than Any special education expense 15,000 ADA SELPA = Special Education Local Planning Area and ADA = average daily attendance. 30 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET in other SELPAs, larger districts have more votes this change would increase district autonomy, than smaller districts. make K-12 funding simpler and more equitable, State Has Separate Planning Requirements and better integrate general and special education. for General and Special Education. With the Before undertaking a significant restructuring of introduction of LCFF, the state began requiring special education, we think the Legislature has districts to develop annual plans outlining several key issues to consider, as discussed below. the services they provide to all students, and Issues for Consideration in particular the services they plan to provide certain student groups such as English learner, Many Concerned About Silos Between low-income, and foster youth students. Before General and Special Education. In 2015, a adopting these plans, school administrators must statewide task force of special education experts talk to parents and other local stakeholders about expressed concern that special education programs the types of services they want schools to provide. in California are developed separate from other Special education is not specifically included in school services, with little discussion between this annual planning process. Instead, SELPAs general and special educators about how best to engage in a separate planning process, including serve students. Whereas special education directors separate conversations with parents and other local focus on their AB 602 funding and developing stakeholders. Under this process, SELPAs submit their special education budget and service plans annual budget and service plans to CDE. for CDE, district budget directors focus on their LCFF funding and developing a comprehensive, Governor’s Proposal coordinated plan for general education services. Governor’s Budget Proposes Slight Increase in Given these separate funding streams and planning Special Education Funding. The Governor’s budget processes, special education directors and district includes $3.8 billion in state categorical funding budget directors tend to have little regular for special education, representing a $46 million interaction. This lack of regular communication increase over the 2016-17 Budget Act level. This and coordination could be resulting in inferior or year-over-year increase reflects a small decrease for inappropriate services for students with disabilities. declining student attendance and a 1.48 percent Most notably, the disconnect could result in more COLA. We have no concerns with these proposed students with disabilities being served in separate adjustments. classrooms where they are largely isolated from Governor Proposes Statewide Conversation other students. Our office has heard concerns on Special Education Funding. In The 2017-18 about the disconnect between general and special Governor’s Budget Summary, the administration education not only from state-level groups but also expresses concern with the current special from district-level teachers, administrators, and education funding model and proposes a series parents. of stakeholder meetings to discuss possible Many Believe LCFF Has Removed Similar changes. Though not explicitly stated in the budget Silos Between Program and Budget Experts. Prior summary, the administration has indicated an to LCFF (when many state categorical programs interest in rolling special education into LCFF and existed), stakeholders commonly complained about directing all special education funding to districts the lack of cooperation between program and rather than SELPAs. The administration believes budget experts at the district level. Program experts www.lao.ca.gov Legislative Analyst’s Office 31 2017-18 BUDGET tended to focus narrowly on the programmatic justified either because they direct more funding requirements associated with the specific to areas with unusually high costs or they protect categorical programs that applied to them. School important services that educational providers district budget officers devoted much of their time might otherwise not offer. Categorical special to familiarizing themselves with state categorical education funding for single-district SELPAs programs and ensuring their districts appropriately satisfies neither of these conditions. These districts accounted for all associated spending. Rarely receive both LCFF and AB 602 funding based on did program and budget experts come together total student attendance, and their spending on to consider how best to build comprehensive, special education services is dictated by federal coherent, and coordinated academic plans. Many law. In these districts, the state’s categorical special administrators believe that eliminating most education program likely could be eliminated and categorical funding and introducing a streamlined associated funding allocated under LCFF without LCFF planning process significantly improved much, if any, effect on student services. cooperation between program and budget experts. Collaborative SELPAs Provide Three The administration believes consolidating special Benefits to Small and Mid-Sized Districts . . . education into LCFF would achieve similar The main advantage of categorical special benefits—removing silos between general and education funding is for collaborative SELPAs, special education. which provide members three valuable benefits. Federal Law Limits District Discretion Over First, collaborative SELPAs provide economies of Special Education Services and Spending. By scale to districts that otherwise could not afford eliminating most state categorical programs and appropriate services. For example, a small district folding associated funding into LCFF, the state might be unable to afford a specialized teacher to effectively freed up funding for districts’ local assist a single student who is visually impaired, but priorities. Eliminating special education categorical a collection of neighboring districts typically can programs and folding associated funding into afford a teacher who collectively serves all of their LCFF, however, would not allow districts that same visually impaired students. Second, collaborative flexibility. This is because federal law requires SELPAs smooth year-to-year fluctuations in their districts to spend at least as much on special members’ special education costs by redirecting education each year as they spent the previous funds from districts with unusually low costs to year. Consequently, districts would be unable to those with unusually high costs. Pooling resources repurpose the increase in their LCFF funding within a collaborative SELPA effectively protects to support other local programs and priorities. districts, particularly small districts, when their Though the lack of discretion could be viewed as a own special education population increases downside to rolling special education into LCFF, unexpectedly or some of their special education it also could be viewed as an upside, ensuring students require expensive services in a given districts do not reduce their spending on students year. Finally, collaborative SELPAs can reduce with disabilities even under a simpler, streamlined administrative costs by providing centralized data funding model. management and legal services to member districts. Current Special Education Funding Model . . . But Also Can Affect Mid-Sized Districts Does Not Offer Any Clear Benefit to Single- Negatively. Though collaborative SELPAs provide District SELPAs. Categorical programs can be key benefits to small and mid-sized districts, they 32 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET also can affect mid-sized districts in negative ways. of its extraordinary cost pools and making it Some administrators of mid-sized districts within easier for districts to access these funds. The state collaborative SELPAs claim their SELPA policies could reduce administrative costs by encouraging discourage them from pursuing some programmatic districts to purchase data management services improvements. For example, some collaborative from providers located anywhere in the state (just SELPAs retain a portion of categorical special as the state currently allows charter schools to education funding to provide regional programs. purchase these services from statewide providers). Districts in these SELPAs can choose between If the state wanted to move away from the current serving their students in neighborhood schools (and SELPA model, there are likely several more directly paying the full cost of these services) or options that preserve valuable attributes of the busing their students to a regional program (where existing system without maintaining its exact services would be provided at little, if any, additional organizational structure. cost to the district). A district that believed it Alternatively, State Could Increase District could provide better services locally might still Autonomy and Accountability While Retaining send students to the regional program because of Current SELPA Model. Just as we believe the this cost disparity. We have heard that mid-sized state could maintain the benefits of SELPAs even districts are most likely to be adversely affected by while providing most special education funding these kinds of SELPA policies. Unlike large districts, directly to districts, we also believe the state could mid-sized districts typically are unable to become increase district autonomy and accountability even single-district SELPAs, and unlike small districts, while providing some or most special education mid-sized districts often are able to directly serve funding directly to SELPAs. For example, the state most of their students with disabilities. While in could increase district autonomy by establishing theory these districts should be able to work within a formal process for mediating disagreements their SELPAs to negotiate better arrangements, between SELPA members or making the process of in practice some SELPAs retain voting structures becoming a single-district SELPA easier. The state designed decades ago. In some of these voting also could increase district-level accountability structures, a mid-sized district might find itself by formally integrating special education into the consistently out-voted by neighboring small districts, LCFF yearly planning process. leaving it with little voice in how categorical special Per-Student Funding Rates Vary Notably education funding is spent. Between SELPAs. One key problem the State Could Support Small and Mid-Sized administration cites with the state’s existing special Districts Without Current SELPA Model. We education funding system relates to funding believe the state has several options for maintaining inequities. As Figure 20 (see next page) shows, the benefits of collaborative SELPAs even while SELPAs’ AB 602 per-student rates vary notably— providing most special education funding directly with a nearly $100 per pupil difference between to districts. For example, the state could address the lowest- and highest-funded deciles. These the economies of scale issue by requiring county inequities reflect historical anomalies and are not offices of education to be a special education justified by current differences in special education provider of last resort for small and mid-sized costs. Regardless of whether the state pursues districts. The state could manage yearly fluctuations larger changes to special education funding, we in special education costs by increasing the size recommend it work to eliminate these inequities. www.lao.ca.gov Legislative Analyst’s Office 33 2017-18 BUDGET Special Education Figure 20 Restructuring Likely to Special Education Per-Student Funding Rates Vary Involve Several Complex Share of Statewide Attendance, 2015‑16 Components. Any effort to 60% include special education in LCFF will require decisions 50 about the LCFF formula, state SELPA requirements, 40 the treatment of charter 30 schools, property tax revenue, academic planning, and 20 accountability, along with 10 many other related issues. Not only do many decisions $483-500 $501-525 $526-550 $551-575 $576-930 need to be made, but those decisions would affect many stakeholders, ranging from Some Special Education Categorical Programs districts of all sizes to county Have Questionable Merit, Others More Obvious offices of education, charter schools, general and Benefits. We also share the administration’s special educators, parents, advocates, and students. concerns about the complexity of current special Suggest Legislature Take Time to Consider education funding and think some existing Options and Examine Potential Consequences. special education categorical programs have little Given the complex issues involved and the number merit. Most notably, the state has no clear, strong of groups potentially affected, we encourage the rationale for earmarking funding for mental Legislature to take its time in evaluating any health services given no other special education overarching change to special education funding. services receive earmarked funding. Though Though the administration’s restructuring some special education categorical programs do goals sound laudable, restructuring could have not seem justified, we believe others continue to unintended consequences without sufficient serve valuable functions. Most notably, Necessary study. The overall endeavor, however, could be Small SELPAs (which serve counties with fewer worthwhile. Potentially, the state could discover than 15,000 students) do not have the same level of new and better ways to provide reasonable economies of scale as larger SELPAs and thus can protections for small and mid-sized districts and experience unusually high special education costs. the students they serve while also doing a better job The state might wish to continue providing targeted of encouraging innovation and cooperation at the funding to these areas even if it eliminates most district level. other special education categorical programs. 34 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET PRESCHOOL In this section, we provide an overview of funding rates. Transitional Kindergarten is run California’s preschool programs, then discuss key exclusively by LEAs. By comparison, about half of issues relating to preschool slots and preschool State Preschool providers are LEAs (accounting program alignment. for two-thirds of slots) and half are non-LEAs (accounting for one-third of slots). In addition Overview to these state programs, the federal government State Has Two Main Preschool Programs. runs the Head Start preschool program. Of all In 2016-17, California spent $1.8 billion on two subsidized preschool slots for four-year olds in main preschool programs: State Preschool and California in 2014-15, 52 percent were in State Transitional Kindergarten. Of this amount, Preschool, 31 percent in Transitional Kindergarten, $1.1 billion supported 164,000 State Preschool and 18 percent in Head Start. slots and $700 million supported nearly 80,000 State Authorized Districts to Create Transitional Kindergarten slots. As Figure 21 “Expanded” Transitional Kindergarten in shows, these programs have different eligibility 2015-16. As part of the 2015-16 budget plan, the criteria, program length, staffing requirements, and Legislature enacted trailer legislation that allows Figure 21 Comparing California’s Two Major Preschool Programs State Preschool Transitional Kindergarten Eligibility criteria Four-year olds from families with Four-year olds with birthdays between incomes at or below 70 percent of state September 2 and December 2.b median income as calculated in 2007.a Children in full-day program must have parents working or in school. Providers Local education agencies and Local education agencies. subsidized centers. Program length At least 3 hours per day, 175 days per At least 3 hours per day, 180 days per year for part-day program. At least year. 6.5 hours per day, 250 days per year for full-day program. Teacher qualifications Child Development Teacher Permit Bachelor’s degree, Multiple Subject (24 units of ECE/CD plus 16 general Teaching Credential, and a Child education units).c Development Teacher Permit or at least 24 units of ECE/CD or comparable experience.c,d Staffing ratios 1:24 teacher-to-child ratio and 1:8 adult- 1:33 teacher-to-child ratio. to-child ratio. Annual funding per childe $4,386 (part-day) and $10,114 (full-day). Average of $8,810. a Programs may serve three-year olds from income-eligible families if all eligible and interested four-year olds have been served first. b Schools may serve younger four-year olds with birthdays before the end of the school year but those children do not generate state funding until they turn five. c Referenced permit and credential are issued by California’s Commission on Teacher Credentialing. d The requirements shown apply to teachers hired after July 1, 2015. e Funding rates are 2016-17 estimates. ECE/CD = Early Childhood Education/Child Development. www.lao.ca.gov Legislative Analyst’s Office 35 2017-18 BUDGET school districts and charter schools to enroll State Preschool to account for a 0.4 percent four-year old children in Transitional Kindergarten decline in the birth to four population. For State if their fifth birthday falls between December 2 and Preschool, the budget does not include a statutory the end of the school year. These children generate 1.48 percent COLA nor does it annualize funding attendance-based funding when they turn five. A for the 10 percent Standard Reimbursement Rate child with a birthday in the middle of January, for increase scheduled to begin January 1, 2017. (For example, would generate funding for roughly half administrative reasons, CDE implemented this of the school year. The state does not collect data on rate increase as a 5 percent increase starting July the number of children enrolled as a result of these 1, 2016. The Governor’s proposal would apply the expanded Transitional Kindergarten provisions. same rates in 2017-18 as in 2016-17, leaving them Several large school districts, however, indicate they unchanged year over year.) have expanded their Transitional Kindergarten Preschool Slots programs under the new provisions. In 2015-16, for example, the Los Angeles Unified School District Below, we provide background on recent indicated it served 2,900 children through the increases in preschool slots, describe the Governor’s expanded Transitional Kindergarten provisions. slot-related proposals, assess those proposals, and State Has Complicated Way of Funding offer associated recommendations. Preschool Programs. For State Preschool, Background CDE contracts with individual providers using a Standard Reimbursement Rate for State Added Total of Almost 10,000 Full-Day every child served. The funding source is State Preschool Slots Over Last Two Years. In primarily Proposition 98 General Fund, though 2015-16, the Legislature added 7,030 full-day State full-day programs run by non-LEAs receive Preschool slots, scheduled to begin January 1, 2016. non-Proposition 98 General Fund for the Of these slots, the budget act earmarked 5,830 wraparound portion of their program. The state for LEAs and 1,200 for non-LEAs. In 2016-17, the funds Transitional Kindergarten through LCFF, Legislature added another 2,959 full-day State which is funded with Proposition 98 General Fund Preschool slots, all for LEAs, scheduled to begin and local property tax revenue. April 1, 2017. Governor Proposes Various Changes in LEAs Have Not Shown Sufficient Interest Preschool Funding. The Governor’s budget in New Full-Day Slots. To allocate new slots includes an additional $30 million (Proposition 98 across the state, CDE requests applications from General Fund) for preschool programs in 2017-18, interested entities and awards contracts to those a 2 percent increase from 2016-17. The largest that demonstrate they can meet the minimum component of this increase is $24 million due to program requirements. In 2015-16, due to a lack annualizing costs for the 2,959 full-day, LEA State of applicants, CDE issued only 1,646 of the 5,830 Preschool slots approved in the 2016-17 budget and full-day State Preschool slots for LEAs. With the set to start April 1, 2017. The budget also includes a remaining funding, the department issued 3,700 $10 million increase in Transitional Kindergarten part-day slots for LEAs, 851 part-day slots for associated with the Governor’s overall proposed non-LEAs, and 1,490 full-day slots for non-LEAs augmentation for LCFF. These increases are (above the 1,200 already earmarked in the budget). offset by a statutory $4 million reduction to In 2016-17, LEAs to date have applied for only 36 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET 519 of the 2,959 full-day State Preschool slots Governor’s Proposal available. The CDE is currently in the process of Does Not Include Funding for Additional issuing a second request for applications. If CDE Slots in 2017-18. While the Governor’s budget is still unable to find enough LEAs interested in includes funding to annualize the cost of the slots offering the full-day slots, it will make funding implemented mid-year in 2016-17, it does not available for part-day slots. include funding for the second batch of additional Some State Preschool Providers Report slots in 2017-18. (These slots would cost $7.5 million Challenges Earning Their Contracts. Each State under the rates proposed in the Governor’s budget.) Preschool provider contracts with the state for a Allows Part-Day State Preschool Programs specified amount of funding. If it does not spend its More Flexibility to Serve Children With Special full contract amount, the associated funds return Needs. To allow providers more flexibility to to the state. If this occurs for multiple years, CDE serve as many children as their contract allows, can reduce the contract in future years. In 2014-15, the Governor proposes to allow part-day State the most recent year of data available, $101 million Preschool programs to serve children with special in State Preschool funding allocated to providers needs who do not meet the income eligibility was “unearned.” This represents 12 percent of all criteria as long as all eligible and interested children State Preschool funding and is almost double the are served first. (Current law allows part-day State unearned rate for other contract-based child care Preschool programs to fill up to 10 percent of their programs (7 percent). This amount also is 77 percent slots with children from families with incomes higher than the amount unearned for the program up to 15 percent over the income eligibility limit in 2013-14. Several factors might contribute to if all eligible and interested children are served the increased difficulty in filling slots, including: first. Under the Governor’s proposal, over-income providers being unable to expand or open new sites children with special needs would not count toward quickly enough to accommodate the rapid and this cap.) significant increase in slots since 2014-15; increased enrollment in other large competing programs for Assessment four-year olds, such as Transitional Kindergarten School Districts Do Not Have Strong and Head Start; and the state’s outdated income Incentives to Apply for Full-Day State Preschool eligibility threshold, which is based on state median Slots. The LEAs’ lack of interest in new full-day income as calculated in 2007. State Preschool slots may be due to their Multiyear Budget Agreement Assumes Total strong fiscal and programmatic incentives to of Almost 9,000 Additional Slots Over Four-Year serve children using expanded Transitional Period. While not formalized in statute, the Kindergarten. Districts receive substantially more multiyear budget agreement for preschool included funding per day for Transitional Kindergarten 8,877 additional full-day State Preschool slots than they receive for State Preschool. On a for LEAs. These slots were to be implemented per-day basis, Transitional Kindergarten funding in three equal batches on April 1 of 2017, 2018, is 21 percent higher than the average full-day and 2019. The first batch was funded through the State Preschool rate and nearly twice the average 2016-17 Budget Act, with future batches intended part-day State Preschool rate. Despite receiving for inclusion in the 2017-18 and 2018-19 budgets higher levels of funding, Transitional Kindergarten respectively. programs operate for a shorter length of time www.lao.ca.gov Legislative Analyst’s Office 37 2017-18 BUDGET and have fewer programmatic restrictions. They recommend the Legislature reject the Governor’s do not, for instance, have to determine income proposal to expand State Preschool eligibility to eligibility, conduct child assessments, or set higher-income children with special needs. Though up their classrooms according to specific state the Governor’s proposal to serve more children standards. Because of higher funding rates and with special needs seems well intended, it has fewer restrictions, we think many LEAs might be the effect of displacing low-income children who choosing to serve additional four-year olds using otherwise would be able to access the program. expanded Transitional Kindergarten rather than Moreover, LEAs are responsible for ensuring all through full-day State Preschool. four-year old children with special needs receive Not All Eligible Children Are Being Served. service according to their individualized education Although some providers have difficulty earning program. As a result, this proposal effectively their State Preschool contracts, we estimate a shuffles children with special needs from one substantial portion of eligible children remain program to another while bumping out low-income unserved. Specifically, we estimate that at least children who have no other program option. 1 in 5 income-eligible four-year olds in California Preschool Program Alignment are not receiving subsidized preschool through a state or federal preschool program. (If other similar Below, we provide additional background on programs are indicative, some families with eligible State Preschool and Transitional Kindergarten, children might not be interested in participating in describe the Governor’s proposals to better align a preschool program, but other unserved families the two programs, assess those proposals, and offer might desire it yet be unable to access it.) associated recommendations. Recommendations Background Allow All Types of Providers to Apply for New State Preschool and Transitional Full-Day Slots. If the Legislature is interested in Kindergarten Have Different Health and Safety supporting more full-day State Preschool slots Requirements. State Preschool programs must be over the next few years, we recommend it make licensed and follow Community Care Licensing funds available to all providers, not only LEAs. (CCL) health and safety standards. (The CCL is a LEAs currently do not seem to have sufficient division within the Department of Social Services.) interest in offering more full-day slots and have These licensing standards include requirements strong fiscal incentives to serve children through that classrooms be clean and sanitary, children expanded Transitional Kindergarten rather than be constantly supervised, teachers be trained in State Preschool. If the Legislature wants more LEAs first aid, and medication and cleaning supplies be to operate State Preschool programs over the longer stored out of reach of children. Members of the term, it could address funding disparities between public can submit complaints to CCL regarding State Preschool and Transitional Kindergarten possible licensing violations. The CCL is then or change eligibility requirements so that each required to visit the facility within 10 days. State program serves a distinct group of students. Preschool programs also must follow standards Focus on Unserved Eligible Children Before set by CDE regarding classroom environment, Expanding Eligibility. Given many children eligible which include a mix of health, safety, and for State Preschool currently are unserved, we programmatic requirements. These CDE rules 38 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET include requirements that furniture and toys be (Districts can operate programs of differing lengths clean and well-maintained and classrooms be on separate school sites.) set up with multiple stations to support different Governor’s Proposal types of learning (for example, classrooms could have a science area and an art area). Both CCL Governor Interested in Better Aligning State and CDE visit sites once every three years to Preschool and Transitional Kindergarten. The monitor compliance with regulations. By contrast, Governor’s budget includes several proposals to Transitional Kindergarten programs are not more closely align these two programs. Most of licensed or inspected. Instead, they must operate the proposals are designed to make State Preschool in buildings with the same safety specifications as programs more similar to those of Transitional other K-12 buildings. For example, these facilities Kindergarten but one proposal is designed to make must be built to minimize the risk of damage in an Transitional Kindergarten more similar to State earthquake. Preschool. Many State Preschool Programs Participate in Exempts State Preschool Programs Run by Local Quality Rating and Improvement Systems School Districts From Licensing Requirements. (QRIS). The state provides $50 million for State The Governor proposes to exempt State Preschool Preschool QRIS each year, with funding allocated programs from CCL requirements if they operate in 2016-17 to 37 local consortia serving 49 counties. in facilities constructed according to the state’s These consortia use the funds to evaluate the K-12 building standards. Programs still would be quality of State Preschool providers and provide required to follow CDE’s requirements for staffing additional resources to help providers improve and environment. or maintain program quality. Local consortia Includes Two Flexibility Proposals for assess providers based on a five-tier matrix, which Meeting State Preschool Staffing Requirements. awards points for different levels of staffing ratios The Governor proposes to exempt State Preschool and qualifications, the quality of child-teacher providers with QRIS Tier 4 or higher ratings from interactions, and the implementation of certain the State Preschool staffing ratio requirements. child assessments, among other program aspects. These providers, however, still would need to meet The minimum State Preschool requirements are licensing requirements (that is, have an adult-to- roughly equivalent to a Tier 3 rating. child ratio of 1:12). Similarly, for State Preschool Schools Required to Operate Transitional programs with lower QRIS ratings or no rating, the Kindergarten Same Length of Day as Governor proposes to allow classrooms taught by a Kindergarten. Under state law, Transitional teacher with a Multiple Subject Teaching Credential Kindergarten is the first year of a two-year to operate with an adult-to-child ratio of 1:12 Kindergarten program. If a school district runs (rather than the 1:8 ratio currently required). Transitional Kindergarten and Kindergarten Allows Districts to Run Part-Day Transitional programs on the same site, the two programs Kindergarten and Full-Day Kindergarten on at that site must be run for the same length of Same Site. The Governor proposes to allow school the day. Districts that want to operate a full-day districts to run their Transitional Kindergarten Kindergarten and a part-day Transitional and Kindergarten programs on the same site for Kindergarten program on the same site must different lengths of time without a waiver. obtain a waiver from the State Board of Education. www.lao.ca.gov Legislative Analyst’s Office 39 2017-18 BUDGET Assessment teacher with early education training to serve more children with less adult support. Better Alignment of State Preschool and Transitional Kindergarten and Kindergarten Transitional Kindergarten Programs Worthy Funding Not Aligned With Program Length. Given Goal. The state currently lacks a systematic the state currently allows school districts to choose approach to providing early learning to four-year the length of day for their Transitional Kindergarten olds, which results in wide disparities in eligibility, and Kindergarten programs at different school sites, funding, and the types of services provided. Given we see no reason to restrict their ability to offer this lack of coherence and unnecessary complexity, programs of different length on the same school we think better alignment of the state’s two largest site. We are concerned, however, that Transitional preschool programs is a very worthy goal. Kindergarten and Kindergarten programs receive Proposals Make Complicated System More the same amount of funding per student regardless Complicated. Although the administration intends of program length. This lack of alignment results to better align State Preschool and Transitional in a funding structure that has little connection to Kindergarten, many elements of his proposals districts’ underlying program costs. add greater complexity to the existing system. For example, exempting only certain State Preschool Recommendations programs from licensing requirements would Reject Preschool Proposals, Pursue Alignment create different requirements for State Preschool More Holistically. Rather than make marginal programs at LEAs and non-LEAs. Similarly, while changes to existing preschool programs to get them State Preschools run by LEAs would be exempt to operate somewhat more similarly, we recommend from licensing requirements (and more similar to the Legislature take a more holistic approach. Under Transitional Kindergarten in that respect), they such an approach, the Legislature would consider still would have to follow CDE’s regulations about how best to serve four-year olds, particularly classroom environment (which do not apply to those from low-income families. To this end, it Transitional Kindergarten). By creating new staffing would consider what eligibility criteria, program ratio standards for State Preschool teachers with a standards, and funding levels it desired for these teaching credential, the staffing flexibility proposals children. Making all these decisions in tandem also add complexity without allowing for complete would provide for better alignment and coherence. alignment. A State Preschool classroom with a Adopt Transitional Kindergarten/Kindergarten credentialed teacher still would be required to have Flexibility in Tandem With Differential Rates. If an adult-child ratio (1:12) almost three times lower the Legislature does not pursue holistic reform of than that of Transitional Kindergarten (1:33). programs serving four-year olds, we recommend Additional Concerns With Minimum it adopt the Governor’s proposal regarding Staffing Requirement Proposals. In addition Kindergarten and Transitional Kindergarten to our concerns about making the system more flexibility and also establish differential funding complicated, we also have specific concerns rates for full-day and part-day programs. Such with the proposal to allow higher staffing ratios an approach would better align school district for credentialed teachers. Specifically, we are funding to actual program costs and reduce funding concerned that a teacher with a Multiple Subject disparities between part-day State Preschool and Teaching credential and no early education training part-day Transitional Kindergarten programs. requirements might not be better prepared than a 40 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET EDUCATION MANDATES In this section, we first provide background five that apply only to community colleges, and on state education mandates. Next, we discuss the seven that apply to both). LEAs are not required to Governor’s proposal for paying down a portion perform the activities associated with suspended of the mandates backlog. We then consider his mandates and, consequently, the state is not required proposal to fund a new mandate requiring schools to reimburse them. to train their employees to detect and report child CSM Recently Found Two New State abuse. Lastly, we discuss a new mandate related to Requirements to Be Mandates. First, the CSM school assessments. Though the Governor does not determined a law requiring school districts and address the assessment mandate in his budget plan, COEs to provide annual training on the detection the mandate has completed the state determination and reporting of child abuse to be a mandate. process and now has a statewide cost estimate. Second, the CSM identified as a new mandate requirements for school districts and COEs to Background administer new computer-based state exams in Constitution Requires the State to English language arts and math. The CSM recently Reimburse Local Governments for Mandated released cost estimates for both mandates, thereby Activities. Proposition 4, passed by California completing the mandate determination process. voters in 1979, requires the state to reimburse State Traditionally Paid Mandates Through local governments for the cost of new programs Claims Process. Under the state’s traditional and higher levels of service it imposes upon them. mandate reimbursement process, LEAs submit Under a process subsequently established in state claims for the actual cost of performing each law, the Commission on State Mandates (CSM) mandated activity. The State Controller’s Office determines if a new law, regulation, or executive (SCO) pays claims from funds appropriated in action constitutes a reimbursable state mandate for the state budget. The SCO audits some claims and local governments. In the area of education, a local reduces payments accordingly. government is defined as a school district, COE, or State Went Many Consecutive Years Without community college district—collectively referred Paying Claims, Large Backlog Mounted. The to as LEAs throughout this section. Although state deferred payments on education some state-mandated activities also apply to charter mandate claims for seven consecutive years— schools, the CSM deemed these schools ineligible from 2003-04 through 2009-10. During this period, for reimbursement beginning in 2006. LEAs continued to submit claims, creating a large State Budget Currently Recognizes 58 backlog of outstanding mandate claims. Education Mandates. As Figure 22 (see next page) Widespread Agreement Claims Process shows, the state budget currently recognizes 43 Has Serious Shortcomings. One of the most mandates that apply to K-12 education and 15 that disconcerting aspects of the state’s traditional apply to community colleges. (Of these mandates, reimbursement method is that per-student seven apply to both K-12 education and community claims vary so greatly among every type of LEA. colleges.) The state has suspended 17 other education School district per-student backlog claims (for all mandates (five that apply only to K-12 education, mandates combined) currently range from $1 to www.lao.ca.gov Legislative Analyst’s Office 41 2017-18 BUDGET Figure 22 Education Mandatesa K-12 Education Active (43) Academic Performance Index Juvenile Court Notices II Agency Fee Arrangements Law Enforcement Agency Notificationc AIDS Prevention / Instruction I and II Notification of Truancy Annual Parent Notificationb Open Meetings/Brown Act Reform California State Teachers’ Retirement System Service Credit Parental Involvement Programs Caregiver Affidavits Physical Performance Tests Charter Schools I, II, III, and IV Prevailing Wage Rate Child Abuse and Neglect Reporting Public Contracts County Office of Education Fiscal Accountability Reporting Pupil Suspensions and Expulsions I and II Collective Bargaining Pupil Health Screenings Comprehensive School Safety Plans I and II Pupil Promotion and Retention Criminal Background Checks I and II Pupil Safety Notices Developer Fees Race to the Top Differential Pay and Reemployment School Accountability Report Cards I, II, III, and IV Expulsion of Pupil: Transcript Cost for Appeals School District Fiscal Accountability Reporting Financial and Compliance Audits School District Reorganization Graduation Requirements Teacher Notification: Pupil Suspensions/Expulsionsd Habitual Truants The Stull Act High School Exit Examination I and II Threats Against Peace Officers Immunization Records (includes Pertussis & Hepatitis B) Uniform Complaint Procedures Intradistrict Attendance Williams Case Implementation I, II, and III Interdistrict Attendance Permits Suspended (12) Absentee Ballots Mandate Reimbursement Process I and II Brendon Maguire Act Physical Education Reports County Treasury Withdrawals Pupil Residency Verification and Appeals Grand Jury Proceedings Removal of Chemicals Health Benefits for Survivors of Peace Officers / Firefighters School Bus Safety I and II Law Enforcement Sexual Harassment Training Scoliosis Screening Community Colleges Active (15) Agency Fee Arrangements Minimum Conditions for State Aid Cal Grants Open Meetings/Brown Act Reform California State Teachers’ Retirement System Service Credit Prevailing Wage Rate Collective Bargaining Public Contracts Community College Construction Reporting Improper Governmental Activities Discrimination Complaint Procedures Threats Against Peace Officers Enrollment Fee Collection and Waivers Tuition Fee Waivers Health Fee Elimination Suspended (12) Absentee Ballots Law Enforcement Jurisdiction Agreements Brendon Maguire Act Law Enforcement Sexual Harassment Training County Treasury Withdrawals Mandate Reimbursement Process I and II Grand Jury Proceedings Sex Offenders: Disclosure by Law Enforcement Health Benefits for Survivors of Peace Officers / Firefighters Sexual Assault Response Procedures Integrated Waste Management Student Records a Mandates typically include only very specific activities associated with their name. b Also includes Schoolsite Discipline Rules and Alternative Schools. c Also includes Missing Children Reports. d Also includes Pupil Discipline Records. 42 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET almost $11,000 and COEs’ per-student claims State Created Mandates Block Grants range from $50 to almost $30,000. In addition to as Alternative to Claims Process. To address allowing vast differences in per-student claims, concerns with the mandate claims process and the traditional reimbursement process provides provide a streamlined approach for reimbursing no incentive for LEAs to perform activities LEAs, the state created two mandates block as efficiently as possible. The traditional grants in the 2012-13 budget: a K-12 block grant reimbursement process also has a high (for districts, charter schools, and COEs) and administrative burden, as LEAs must document a community college block grant. The LEAs specific costs and fill out associated reimbursement that choose to participate in these block grants forms. Even after collecting and submitting receive per-student funding to cover the cost receipts, LEAs subsequently can be audited by the of state-mandated activities in lieu of submitting state, and the SCO historically disallows many claims. Figure 24 shows the per-student funding audited claims. Of K-12 claims that the SCO rates provided in the block grants. As the figure determines to be high risk and subsequently audits, shows, the per-student funding rate for K-8 it disallows about 75 percent of claim costs. students is $28, with double that amount ($56) State Has Made Significant Progress provided for high school students. The state elected Towards Reducing the Backlog, but Sizeable to make charter schools eligible for block grant Backlog Remains. As Figure 23 shows, the state funding, but they receive half the K-8 per-student has provided $5.9 billion for reducing the K-14 funding rates of school districts, as about half of mandates backlog since 2010-11. Of this amount, K-8 mandates apply to them. Similarly, about half $5.1 billion has been for the K-12 backlog and of high school mandates apply to charter schools, $811 million for the community college backlog. but their grades 9-12 rate is more than half the After accounting for these payments, we estimate district rate due to the treatment of the High School that the current K-14 backlog is $1.3 billion— Graduation mandate (which generates $28 per $1.1 billion for schools and $266 million for student for both charter schools and districts.) A community colleges. (Our backlog estimate does COE receives funding for its direct students, as well not include $571 million in submitted claims as $1 for each K-12 student in the county. associated with pending litigation, as we assume Figure 24 the state prevails in these cases.) Rates Underlying Mandates Block Grants Block Grant Figure 23 Attendance Rate Per Funding for Education Mandates 2016-17 Type Student Backlog Since 2010-11 School Districts K - 8 $28 (In Millions) 9 - 12 56 Charter Schools K - 8 $14 K-12 Community Education Colleges Totals 9 - 12 42 COEs K - 8 $28 Budget Act 9 - 12 56 2010-11 $187 $23 $210 Countywide K-12 1 2014-15 400 50 450 2015-16 3,205 632 3,837 Community Colleges FTE student $28 2016-17 1,281 106 1,387 LEA = local education agency; COE = county office of education; and Totals $5,073 $811 $5,884 FTE = full-time equivalent. www.lao.ca.gov Legislative Analyst’s Office 43 2017-18 BUDGET Near Universal Participation in Block Grant. Proposal Treats All LEAs Similarly, Provides The two block grants have very high participation Incentives to Control Mandate Costs. Paying rates. In 2016-17, 95 percent of school districts, down the backlog on a per-student basis means 95 percent of charter schools, 95 percent of COEs, that all LEAs receive funding, regardless of their and all community college districts participated past mandate claiming practices. This ensures in the block grant. These participation rates reflect that LEAs are not disadvantaged if they did not modest increases for all LEA types compared submit claims in the past due to the complexity to 2015-16. Currently, LEAs participating in of the claiming process or if they performed the block grants account for 99 percent of mandated activities at a lower cost compared to K-14 attendance statewide. other LEAs. The per-student approach also reduces Block Grants Include Funding for All the incentive for LEAs in the future to inflate Mandates Recognized in State Budget. Currently, claims or perform state-mandated activities in an all mandates recognized in the state budget are unreasonably costly manner. included in the block grants. The K-12 block grant Majority of Payments Would Not Reduce totals $219 million for its 43 mandates, whereas the Backlog. Because the Governor proposes to community college block grant totals $32 million distribute funding to school districts and COEs for its 15 mandates. with no unpaid claims (either due to a lack of filing or full repayment by prior backlog payments), Mandates Backlog these payments would not reduce the backlog. Governor Proposes $287 Million Payment In addition, the Governor proposes to distribute Toward K-12 Backlog. The Governor proposes to funding to charter schools, which are ineligible to make a one-time payment of $287 million toward submit mandate claims and therefore do not have a the K-12 backlog, but he does not provide funding mandates backlog. As Figure 25 shows, we estimate for the community colleges backlog. Consistent the $287 million payment would reduce the K-12 with many previous backlog payments made by backlog by only $102 million, from $1.1 billion the state, the Governor proposes to distribute to $964 million. funding on the basis of ADA. Because the payments would be made for expenses incurred Figure 25 by LEAs many years Estimates of Outstanding ago, the funds provided K-12 and CCC Mandates Backlogs today effectively could (In Millions) be used for any purpose. K-12 Community Education Colleges Total The Governor suggests school districts, charter 2016-17 Backloga $1,067 $266 $1,332 schools, and COEs use Governor’s Proposalb $287 — $287 Payment towards backloga (102) — (102) the payments for content Remaining fundinga (185) — (185) standards implementation, 2017-18 Backloga $964 $266 $1,230 professional development a LAO estimates. b for teachers, or deferred From settle-up payments. Allocated to all local education agencies, with and without unpaid claims, on a per-student basis. maintenance. 44 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Serious Concerns With Lack of Plan to Retire among these mandated reporters. The legislation Mandates Backlog. The Governor’s proposal makes makes failure to report abuse or neglect a some further progress towards fulfilling the state’s misdemeanor, punishable by up to six months constitutional requirement to reimburse LEAs for of jail time and/or a $1,000 fine. While placing a the activities it mandates of them. The per-student reporting requirement on school employees, the funding approach taken by the Governor, however, legislation did not require schools to train staff is exceptionally costly. In the long term, if the state members in the detection and reporting of abuse. were to continue this approach to retire the entire State Creates New Law Requiring Training backlog, we estimate it would cost $179 billion— in Abuse Detection and Reporting. In 2013, a Bay over 100 times more than the backlog. We Area news organization surveyed school districts recommend the Legislature consider a more and found that only 31 percent conducted annual strategic approach to retiring the mandate backlog, trainings in how to identify and report child abuse. such as the one we outlined last year in our 2016-17 The news organization conducted the survey after Proposition 98 Education Analysis. Our approach finding several instances of school staff failing to retains a positive feature of the Governor’s plan— report abuse. In response to these concerns, the making payments on a per-student basis—and Legislature enacted Chapter 797 of 2014 (AB 1432, it avoids the greatest negative feature of the Gatto). This legislation built on the 1980 law by Governor’s plan—its astronomical cost—by more requiring districts to train virtually all staff in how narrowly targeting funding. Most notably, our to detect and report child abuse. School districts, recommended plan reduces costs by requiring charter schools, COEs, and state special schools are schools to write-off all unpaid mandate claims as a now required to administer these trainings within condition of receiving payment. the first six weeks of the school year or the first six weeks of a newly hired individual’s employment. The Training on law requires the California Department of Social Child Abuse Detection and Services to develop an online training module for Reporting Mandate use by schools, but schools also may develop their Below, we provide background on the child own training materials if they submit these materials abuse detection and reporting mandate, describe to the California Department of Education. the Governor’s proposal to add the mandate to the CSM Determines New Requirements to Be K-12 mandates block grant, assess the proposal, and Reimbursable Mandate. The CSM determined make an associated recommendation. in 2015 that the new training and reporting requirements constitute a reimbursable mandate. Background Specifically, CSM found that schools are required School Employees Required to Report to perform the following activities for nearly all Child Abuse. In 1980, the Legislature enacted employees: (1) provide annual child abuse and Chapter 1071 of 1980 (SB 781, Rains), which neglect training (detailing how to identify abuse, requires individuals in certain professions (who report abuse, and the penalties for failing to are referred to as “mandated reporters”) to report report it); (2) provide written proof to the school’s child abuse and neglect to specific law enforcement governing board that staff completed the training; agencies or county welfare departments. School and (3) report to the California Department of staff, including teachers and other employees, are Education the training material used if not using www.lao.ca.gov Legislative Analyst’s Office 45 2017-18 BUDGET the state’s online training module. The CSM Assessment determination allows school districts and COEs to Mandate Serves a Compelling State Interest. claim reimbursement for these activities effective Properly identifying child abuse and neglect is a January 1, 2015. first step for helping to improve a child’s welfare. CSM Estimates Statewide Mandate Costs of School staff have significant contact with children $40.5 Million Ongoing. The CSM’s estimate of and therefore are well positioned to detect and ongoing statewide costs consists of $32.4 million report abuse and neglect. Properly detecting and for employee training, $5.4 million for reporting reporting abuse, however, presumably requires to CDE, and $2.7 million for indirect costs such some training, and, prior to being mandated, many as personnel services. (The CSM also estimates districts were not providing such training. For one-time costs in 2014-15 of $13.5 million for these reasons, we believe that the mandate serves a developing a process to record proof of training.) compelling state interest. The CSM calculated the costs of employee training Assessing Actual Effects of Mandate Difficult by identifying the total number of school employees Due to Data Limitation. According to the statewide (589,320), the average compensation of California Child Welfare Indicators Project (a school employees ($55 per hour), and the average collaboration between the University of California amount of time required to complete the training at Berkeley and the California Department of (one hour). It calculated the costs of reporting to Social Services), the number of child abuse and CDE and indirect costs based on claims submitted neglect cases reported to the department increased by 19 districts. Specifically, CSM found from from 325,000 in 2014 to 332,000 in 2015 (the year these claims that these two activities comprised the mandate took effect). This increase, however, is 20 percent of total ongoing costs. (Due to a math the continuation of a trend occurring prior to the error, CSM inadvertently published its ongoing mandate’s enactment. Moreover, information is not statewide cost estimate as $43.5 million, rather readily available to ascertain whether the increase than $40.5 million.) is due to the mandate or other factors that might cause the number of child abuse reports to rise. Governor’s Proposal Governor’s Proposal Underfunds Mandate’s Adds Mandate and $8.5 Million to the K-12 Costs Without Justification. The Governor Mandates Block Grant. The Governor proposes cites historical precedent as the rationale for to increase the K-12 block grant by $8.5 million underfunding the mandate. The one case he cites is (4 percent) to account for the new mandate. His unusual. The High School Graduation Requirement proposed increase is equal to 20 percent of CSM’s mandate was litigated between the state and published ongoing statewide cost estimate of schools over the course of more than two decades. $43.5 million. The Governor bases his 80 percent The state reduced funding for this mandate when reduction on a historical precedent for adding adding it to the block grant because it felt, even another mandate to the block grant. Specifically, though the courts upheld the requirement to be a the administration cites the 2013-14 budget’s state reimbursable mandate, that the mandate did provision of $50 million to add the High School not impose new costs on schools. By contrast, the Graduation Requirement mandate to the block training on child abuse detection mandate has not grant, even though annual ongoing claims for this been subject to any dispute between the state and mandate totaled approximately $250 million. 46 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET schools. For this reason, we believe the Legislature kindergarten through twelfth grade. The standards should fund its full costs. were developed by the National Governor’s Actual Costs of Mandate Close to CSM Association and Council of Chief State School Estimate. Our review of CSM’s cost estimate Officers, in consultation with education experts, identified some shortcomings. For example, its with the intent to better prepare all students for estimates did not properly account for the number college and career. In September 2010, as part of nonteaching staff, the costs of providing of its Race to the Top Assessment Program, the mid-year training to newly hired staff, and the federal government awarded $330 million to two hourly rate of school employees. After adjusting for consortia to develop assessments aligned to the new these shortcomings, however, we estimate only a standards. California is a member of the Smarter slightly different amount than CSM—$41.9 million. Balanced Assessment Consortium (SBAC), which This is because some of our adjustments resulted in received $160 million to develop new exams for higher costs but these were largely offset by other students in grades 3 through 8 and grade 11. adjustments that resulted in lower costs. New Tests Require Devices and Internet Connection. The tests developed by SBAC require Recommendation a computing device—a tablet, desktop computer, Add Mandate and $41.9 Million to the K-12 or laptop computer—that is connected to the Mandates Block Grant. Because the mandate Internet. (The other consortium funded by the serves a compelling statewide purpose, we federal government, Partnership for Assessment recommend adopting the Governor’s proposal of Readiness for College and Careers, or PARCC, to add it to the block grant. We recommend, developed an exam that is computer-based however, increasing the block grant by but does not require an Internet connection.) $41.9 million—$33.4 million more than proposed Each spring, schools have a 12-week window to by the Governor—to accurately reflect the costs of administer the test to students in grades 3 through the mandate. This would increase the block grant 8 and a seven-week window for grade 11. To ease per-student funding rates by $7 for school districts, the transition to the new system, schools can charter schools, and COEs. administer a pencil and paper version of the test during the first three years of implementation but CAASPP Mandate must use the online version by spring 2018. Below, we provide background on a new State Required Schools to Administer New mandate relating to the state’s assessment system, Exams Beginning Spring 2014. Chapter 489 of formally known as the California Assessment of 2013 (AB 484, Bonilla) codified into state law many Student Performance and Progress (CAASPP). We requirements based on SBAC. Chapter 489 also then analyze the mandate to determine how best to directed schools to administer a trial run of the adjust the K-12 mandates block grant. online version of the SBAC tests in spring 2014, if possible. (No paper and pencil version of the trial Background test was available.) Because it was a trial, test results California Adopted New Standards and were not reported for accountability purposes. The Joined Testing Consortium in 2010. Seven years trial test was intended to help schools transition to ago, California adopted the Common Core State the new standards and give them an opportunity Standards in English Language Arts and math for to determine their technology needs before www.lao.ca.gov Legislative Analyst’s Office 47 2017-18 BUDGET administering the first official tests in spring 2015. speeds. The state has funded more than 400 school The state’s standards-based assessments—including sites. As of December 2016, the state has identified the SBAC exams, science assessments, alternate only five schools that do not have the Internet assessments for students with disabilities, and a speeds to administer the exam. standards-based test in Spanish—are collectively State Provides Annual Funding for Costs of known as the CAASPP. Administering Standardized Tests. The 2016-17 State Has Provided Substantial One-Time Budget Act included $23.2 million to cover the Funding to Help Schools Implement New costs of administering the state’s standardized Standards and Tests. The 2013-14 budget plan assessments. These funds, which have been provided $1.25 billion for professional development provided annually since the previous set of state in aligning instruction to the new standards, standardized exams, are distributed to school purchasing aligned instructional materials, and districts based on per-student rates set by SBE for acquiring the technology required to implement each exam. In 2016, schools received $4 for each the SBAC exams. Of the $1.25 billion provided, student who took at least one SBAC exam during school districts reported spending $577 million the previous year (costing $12.8 million statewide). on technology, including $400 million on For the prior English language arts and math devices and accessories and $98 million on exams, SBE provided $2.52 per student. These technology infrastructure. In 2014-15, the state funds are intended to cover costs such as training provided $401 million that schools could use test site coordinators and proctors, as well as for any purpose, including implementing the sharing certain student demographic data with the new standards and tests. (School districts with state’s testing contractor. outstanding mandate claims had this funding CSM Determines Minimum Technology applied to those claims.) Requirements to Be Reimbursable Mandate. State Also Provided Special Grants for In 2016, the CSM determined that compliance Improving Internet Infrastructure. To address with the minimum technology requirements concerns with some schools potentially not having of the new exams constituted a reimbursable Internet bandwidth sufficient for administering the mandate. Reimbursable costs include purchasing SBAC exams, the state provided $77 million over computing devices and maintaining Internet two years (2014-15 and 2015-16) for Broadband service sufficient to administer the exams within Infrastructure Improvement Grants (BIIG). Schools the testing window. Specific related costs include eligible to benefit from a BIIG grant either had to acquiring and installing network equipment have been unable to administer the trial test on-site and hiring consultants or engineers to assist due to low Internet capacity or had to shut down districts in proper installation. School districts are other core online activities (such as e-mail) in order required to maintain supporting documentation to administer the test. As a condition of receiving demonstrating that their prior inventory was funds, schools were required to commit to the insufficient to administer the new tests to ongoing costs associated with the new Internet all eligible pupils within the testing window. connections. If any BIIG funding remained after Reimbursement for fixed costs, such as devices helping these schools, then BIIG grants could be or networking equipment, is to be prorated based provided to other schools to increase their Internet on the share of use associated with mandated 48 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET activities. If, for example, half of a computer’s usage years, and a projection of the number of claims that is for administering exams, then schools can be will be submitted by LEAs with no prior claims. reimbursed for only half of the computer’s cost. (The CSM did not use this available claims data to CSM Also Declares Other Associated extrapolate a statewide cost estimate assuming all Activities a Mandate. The CSM also determined LEAs incurred associated costs.) that certain administrative requirements for the Assessment SBAC exams exceeded the requirements under previous exams. These other reimbursable costs Submitted Claims Likely Overstate Ongoing include ongoing monitoring of computing devices Cost of Mandate. Based on our review of CSM’s and Internet speeds to ensure they meet minimum ruling and available claims data, we believe the requirements, scoring and transmitting tests, claims submitted by LEAs overstate the ongoing reporting additional test-related information to the costs of the mandated activities. Below, we discuss state’s testing contractor or CDE, notifying parents our concerns with the claims data and provide an that their children are not required to take the alternative estimate of the ongoing costs of the assessments, and reviewing training materials and CAASPP mandate. documents related to administering the exams. Virtually All Schools Meet Minimum Internet Several Funding Sources Deemed Offsetting. In Speed Requirements. One concern we have with its ruling, CSM required districts to identify specific the claims data is that LEAs appear to be seeking funding sources as offsetting their mandates claims. reimbursement for costs that exceed the minimum For the two largest one-time funding sources— Internet speed requirements. To minimize the the $1.25 billion in 2013-14 and $401 million in financial burden of the new exams, SBAC set its 2014-15—the funding offsets districts’ claims if associated technology requirements low compared used for the mandated activities. In addition, CSM to existing technology standards. With regards requires districts to count all of the $77 million in to connectivity, schools must have a minimum BIIG funding and annual state apportionments for Internet speed of 20 kilobits per second (Kbps) test administration as offsetting. for each student being tested simultaneously. CSM Receives Roughly $70 Million in CAASPP (Internet speeds are measured by the number of Claims for Each of First Two Years. For 2013-14, “bits,” or units of data, transmitted per second.) 197 LEAs (a mix of school districts and COEs) This minimum standard is low compared to speeds identified $87 million in costs associated with the currently available in schools. In 2014, a survey mandate and $13 million in revenue offsets. For with responses from 96 percent of California 2014-15, 230 school districts and COEs submitted schools found 99 percent of schools had speeds costs totaling $77 million and $11 million in greater than 1.5 megabits per second (mbps)— revenue offsets. Of the total reimbursable costs sufficient to test 75 students at one time. (The identified across the two years, 62 percent was for median school’s Internet speed—100 mbps—is computing devices and accessories, 30 percent sufficient to test 5,000 students at one time.) Those for Internet services, and 8 percent for all other schools that did not meet current Internet speeds requirements. Although complete data for 2015-16 could receive state aid through BIIG. For these is not yet available, the CSM estimates 2015-16 net reasons, virtually no school at this point should costs to be $77 million. This estimate is based on need faster Internet speeds to administer the SBAC data from the 170 LEAs that submitted claims both tests. www.lao.ca.gov Legislative Analyst’s Office 49 2017-18 BUDGET Claims for Device Costs Also Likely Exceed claims for the other claimable costs equivalent to Minimum Standards. The SBAC’s minimum $4 per student. We expect these particular costs to requirements for computing devices also are decrease over time as schools become more familiar relatively low compared to current technology with the new testing requirements. In future years, standards. For example, through the end of staff will need to be informed of changes to the 2019-20, schools can administer SBAC exams testing system but will not be required to learn a using computers running Windows 7, an operating completely new system. Activities such as scoring system first released to the public in 2009. With and reporting data also will require less time as such minimal requirements, schools should be staff become familiar with the required procedures. able largely to use their existing computers to For these reasons, we assume the ongoing administer the exams. The state also has eased per-student cost would be roughly half the cost in the technology requirements by allowing for the initial years ($2 rather than $4 per student). a relatively long testing window (12 weeks for Applying this rate statewide yields a total cost of grades 3 through 8, 7 weeks for grade 11), thereby about $12 million. reducing the number of computing devices needed. Recommendations A high school with 500 11th graders, for example, could administer all exams within the 7-week Add Mandate and $25 Million, Along With testing window at no additional cost if it has one Shifting Associated Apportionment Funding, Into existing computer lab that can accommodate 30 the K-12 Mandates Block Grant. We recommend students at a time. Because of these low minimum adding the CAASPP mandate to the K-12 mandates standards, we think the mandate claims submitted block grant. In tandem, we recommend increasing significantly overstate costs. the block grant funding by $37.8 million. Of this Estimate Average Annual Device Cost of amount, $25 million reflects our estimate of the Roughly $13 Million. We estimate statewide annual ongoing costs associated with the new annual costs of roughly $13 million for devices mandated activities. The remainder ($12.8 million) sufficient to meet minimum standards. This reflects a shift of the related assessment estimate is based on several key assumptions. We apportionment funding. This shift would be a assume (1) schools currently have one computer conforming action to consolidate all funding available for every 50 students tested, (2) schools related to the new assessments into the block grant, administer tests throughout the entire testing thereby making for more transparent budgeting. window, and (3) purchased devices have a lifespan To derive the new per-student block grant funding of three years and are used about one-third of the rates, we recommend increasing the K-8 rate more time for non-testing purposes. (Though we believe than the high school rate, as five grades in the K-8 this package of assumptions is reasonable, one grade span are tested whereas only one high school alternatively could assume a shorter testing period grade (eleventh) is tested. Assigning the rates but longer device life span and more usage for more proportionately, we recommend increasing the K-8 testing purposes.) block grant funding rate by $8 per student and the Estimate Annual Cost of Other Activities at high school rate by $3 per student. Roughly $12 Million. For 2014-15, LEAs submitted 50 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET PENSION COSTS In this section, we provide background on of 2013-14, CalSTRS estimated that its main school district pension costs, compare LCFF investment fund was more than $70 billion short funding increases with pension cost increases of the amount needed to pay for benefits earned over the past few years, project these increases for through that date. This shortfall is referred to as an 2017-18 and the next few years, and discuss how unfunded liability. Chapter 47 of 2014 (AB 1469, the cost increases likely are affecting different types Bonta) included a plan to pay down the unfunded of school districts. The section focuses on both liability within about 30 years. Under the plan, the California State Teachers’ Retirement System district contributions as a share of payroll increase (CalSTRS), which administers retirement programs from 8.25 percent in 2013-14 to 19.1 percent in for teachers, administrators, and other certificated 2020-21. The plan also increased state contributions staff, and the California Public Employees’ from 5.2 percent in 2013-14 to 10.6 percent in Retirement System (CalPERS), which administers 2020-21. The final component of the plan increased retirement programs for classified school personnel contribution rates for most teachers from 8 percent such as paraprofessionals and maintenance staff. in 2013-14 to 10.25 percent in 2016-17. (CalSTRS estimates that teachers hired after January 1, 2013 Background will pay 10.21 percent beginning in 2017-18.) The State Approved Plan in 2014-15 to Address top part of Figure 26 summarizes the changes in CalSTRS’ Unfunded Liability. At the end district and state contribution rates. The state rates Figure 26 K-12 Pension Contribution Rates and Amounts (Dollars in Millions) 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 Contribution Ratesa CalSTRS School Districts 8.3% 8.9% 10.7% 12.6% 14.4% 16.3% 18.1% 19.1% Stateb 5.2 5.7 7.1 8.6 9.1 9.6 10.1 10.6 Totals 13.5% 14.6% 17.9% 21.2% 23.5% 25.9% 28.2% 29.7% CalPERS School Districts 11.4% 11.8% 11.8% 13.9% 15.8% 18.7% 21.6% 24.9% Contribution Amounts CalSTRS School Districts $2,090 $2,280 $2,970 $3,622 $4,403 $5,216 $6,027 $6,587 Stateb 1,360 1,486 1,935 2,473 2,787 3,060 3,319 3,589 Totals $3,450 $3,766 $4,905 $6,095 $7,190 $8,277 $9,346 $9,177 CalPERS School Districts $993 $1,035 $1,132 $1,421 $1,665 $2,101 $2,415 $2,867 Total District Contributions $3,083 $3,315 $4,103 $5,043 $6,069 $7,318 $8,442 $9,455 a Chapter 47 of 2014 (AB 1469, Bonta) phased in annual CalSTRS rate increases for teachers, districts, and the state. District contribution rates for CalSTRS are set in statute through 2020-21. Other contribution rates are actuals through 2016-17 and projections thereafter. Future rates will differ based on investment returns and changes in actuarial assumptions and policies. b Includes roughly 2.5 percent contribution to a program that protects retirees’ benefits from the effects of inflation. www.lao.ca.gov Legislative Analyst’s Office 51 2017-18 BUDGET shown in the figure reflect CalSTRS’ February 2017 totaled $5 billion, an increase of $2.9 billion decision to change some of its key assumptions, (64 percent) over the 2013-14 level. By comparison, including lowering its investment return state CalSTRS contributions totaled $2.5 billion assumption from 7.5 percent to 7 percent over the in 2016-17, an increase of $1.1 billion (82 percent) next few years. over the 2013-14 level. The higher percentage CalPERS Also Is Increasing District Rates to increase for the state is related to the legislation Address Unfunded Liability. Similar to CalSTRS, implementing the CalSTRS funding plan, which CalPERS also has an unfunded liability. In recent initially increased the state’s contribution relatively years, the CalPERS board has taken action to quickly and school district contributions more address this unfunded liability by increasing slowly. district contribution rates (along with the rates LCFF Funding Increases Have Been that apply to many other state and local agencies Significantly Higher Than Total School District participating in CalPERS). As Figure 26 shows, Pension Cost Increases. Figure 27 compares the the latest actuarial estimates suggest that district annual increase in districts’ combined CalSTRS contribution rates will increase from 11.4 percent in and CalPERS costs with annual increases in LCFF 2013-14 to 24.9 percent by 2020-21. Compared with funding. For each of the last three years, LCFF the previous estimates released by CalPERS, the funding has increased significantly more than district contribution rates are nearly 4 percentage pension costs. Over the three years combined, points higher by 2020-21. This increase equates to LCFF funding increased by about $14 billion, about $500 million in higher contributions and is compared with higher pension costs of about due largely to the adoption Figure 27 of less optimistic investment assumptions. Specifically, Comparing Statewide Growth in LCFF Funding and District Pension Costs CalPERS recently decided to lower its assumed annual (In Billions) investment return similar to $14 CalSTRS. 12 Growth in: Trends Through 2016-17 District Pension Costs State and District 10 LCFF Funding Contributions Have 8 Increased Over Past Three Years. The bottom half 6 of Figure 26 displays our estimate of the annual amount 4 school districts and the state 2 are contributing toward pension costs. In 2016-17, school district contributions 2014-15 2015-16 2016-17 Three-Year Cumulative for CalSTRS and CalPERS LCFF = Local Control Funding Formula. 52 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET $2 billion. Pension cost increases equated to about other districts. They also receive a large share of 15 percent of LCFF growth over this period. their LCFF funding through the necessary small Questions About the Experience of Individual schools (NSS) allowance—20 percent on average. Districts. Though LCFF funding has outpaced Districts with large amounts of categorical and NSS pension costs on a statewide basis, some legislators funding tended to start 2013-14 very close to, or and school groups have asked whether certain already at, their LCFF target and thus experienced districts are experiencing pension cost increases relatively slow or no LCFF growth in recent years. greater than the growth in their funding. These To accommodate the higher contribution rates, questions tend to arise because the funding these districts likely had reduce other areas of their increases under LCFF are weighted toward districts budgets. (We excluded basic aid districts from this with relatively high numbers of low-income analysis because their funding is affected primarily students and English learners, whereas the higher by changes in property tax revenue rather than pension rates apply to all districts. Determining LCFF.) how many districts are affected this way is difficult Pension Cost Increases a Much Smaller because districts make different decisions about Share of LCFF Funding Increases in Most Other salaries and staffing levels. These decisions, in Districts. Under our assumptions, about four turn, affect payroll and the amount districts pay in five districts would have seen pension cost for pension costs. For our analysis, we developed increases equating to less than 20 percent of their a cost simulation that began with each district’s LCFF funding increases. These districts generally 2013-14 payroll and pension contribution amounts. started 2013-14 far below their LCFF targets and We then accounted for the pension contribution have experienced correspondingly higher funding rate increases that have occurred over the past increases as the state has made progress toward three years. Next, to account for inflationary implementing LCFF. pressures, we assumed payroll grew 3 percent per 2017-18 and Out-Year Analysis year. Changing our payroll growth assumption up or down by a few percentage points did not notably LCFF Funding Increase in 2017-18 Smaller change our results. Than Total School District Pension Cost Increases Some Districts Likely Have Seen Pension Projected for That Year. Compared with their Costs Grow More Quickly Than LCFF Funding. experience the past three years, districts are likely Under these assumptions, 7 percent of non-basic to find pension rate increases more challenging aid districts would have seen their pension costs to accommodate in 2017-18. Total district increase by more than their LCFF increase from pension contributions are expected to increase 2013-14 through 2016-17. The districts in this by about $1 billion ($782 million for CalSTRS category tend to be very small—jointly representing and $244 million for CalPERS). These cost less than 1 percent of statewide attendance—and increases compare to the $744 million proposed were historically advantaged in terms of state augmentation for LCFF under the Governor’s funding. Specifically, these districts average budget. Thus, the average district would have to around 200 ADA, compared to 6,200 ADA for redirect some of its existing resources to cover all other districts. They received a large amount the pension-related costs in excess of its LCFF of categorical funding in 2012-13—about $5,000 increases. per ADA on average, compared to $1,300 for all www.lao.ca.gov Legislative Analyst’s Office 53 2017-18 BUDGET Not All Districts Likely to Be Affected to the capita personal income, and K-12 attendance. Same Extent. Similar to the past few years, the We examined the relative growth in costs and effect of any LCFF augmentation in 2017-18 will funding from 2013-14 through 2020-21 under vary according to district circumstances. Districts two simulations. The simulations are based with relatively high numbers of low-income upon two economic scenarios we developed for students and average and below average historical our November 2016 fiscal projections. Under funding rates will receive larger LCFF funding our economic growth scenario, total K-12 increases than other districts, such that their LCFF Proposition 98 funding in 2020-21 would exceed funding likely will continue to outpace growth in the 2013-14 level by $22 billion. Under this pension costs. These districts, however, face greater scenario, the $6.4 billion increase in pension costs expectations for increasing and improving services over the same period equates to about 30 percent for their low-income students. These districts likely of the increase in school funding. Under our mild will experience some tension in deciding how to recession scenario, the increase in school funding accommodate these two cost pressures. Compared would be $17 billion, with the $6.4 billion increase to districts with high numbers of low-income in pension costs equating to nearly 40 percent of students, more affluent districts will receive the funding increase. (Many other scenarios—both relatively small LCFF funding increases and might stronger than our growth scenario and weaker need to make budget reductions to accommodate than our recession scenario—are possible over this higher pension costs. In addition to being affected period.) differently based on their student demographics, Key Considerations districts differ in the extent to which they incorporated higher pension costs into previous Addressing Unfunded Pension Liabilities Is budget planning. Districts that set aside funds in Critical. Despite the significant fiscal pressure their reserves and increased programs more slowly imposed by higher pension costs, addressing in previous years likely will have less difficulty unfunded CalSTRS and CalPERS liabilities is accommodating higher pension costs in 2017-18. In critical. Whereas CalSTRS had estimated that contrast, districts that dedicated the bulk of their it would run out of assets by the mid 2040s, the additional LCFF funding the past three years to funding plan approved in 2014 places the system program expansion are likely to experience more on a trajectory to reach full funding within about difficulty maintaining their higher levels of service 30 years. Similarly, the rate increases approved in 2017-18. by CalPERS will reduce that system’s unfunded LCFF Funding Projected to Grow More liabilities over time. Though school districts and Quickly Than Pension Costs Over Seven-Year the state are both paying more to fund the two Implementation Period. Growth in district systems over the next several years, the result in pension costs beyond 2017-18 will depend upon both cases will be lower costs over the long term many factors, including district decisions about and more sustainable pension systems moving salaries and programs, as well as state-level forward. decisions about pension contribution rates and By Prioritizing General Purpose Funding, investment assumptions. Growth in Proposition 98 State Can Help Districts Accommodate Higher funding also will depend upon various factors— Costs. Given the scheduled rate increases, pension primarily changes in General Fund revenue, per costs will be a key factor in district budgets for 54 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET many years to come. One way the state can help creating new or expanding existing state categorical districts manage these increases is to continue programs makes balancing district budgets more allocating Proposition 98 funds through general difficult, as funds get tied up for specific state purpose grants like LCFF and mandate backlog purposes that might not align well with every payments. Allocating funding in this way provides districts’ local priorities and budget-balancing districts the flexibility to make difficult trade-offs strategies. in ways that reflect local priorities. In contrast, SCHOOL FACILITIES In this section, we provide background on the state effectively exhausted funding from state funding for school facilities and discuss the these bonds. After running out of funding, the Governor’s proposed school facility bond sales and state kept a list of board-approved applications his related audit proposal. awaiting funding (known as the “unfunded list”) and another list of applications received Background but not yet reviewed by OPSC (known as the School Facilities Program (SFP) Was Created “acknowledged list”). The unfunded list currently Nearly Two Decades Ago. Chapter 407 of 1998 (SB totals $370 million and the acknowledged list 50, Greene) created the SFP. The underlying tenet totals $2 billion. As the state ran out money for the of the program is that the state and school districts program, it also decreased OPSC staffing notably, share the cost of building new school facilities from a historical average of around 130 positions and modernizing old ones. The state generally to around 50 positions today. Figure 28 (see next contributes 50 percent of new construction costs, page) shows changes in OPSC staffing since the including the purchase of land, working drawings, establishment of the SFP. and construction of new facilities. The state New State Bond Approved in 2016. typically contributes 60 percent of modernization Proposition 51 was approved by voters in November costs for the renovation of facilities at least 25 years 2016. It authorizes the state to sell $7 billion in old. For both types of projects, the state can general obligation bonds for K-12 school facilities contribute up to 100 percent of project costs if projects (in addition to $2 billion for community districts face challenges in raising their local shares. college projects). Of the $7 billion, $3 billion Schools submit applications for state funding to the is for new construction projects, $3 billion is Office of Public School Construction (OPSC). The for modernization projects, and the remaining OPSC then brings eligible applications to the State $1 billion is split evenly between charter school and Allocation Board for approval on a first-come, first- career technical education projects. Proposition 51 served basis. specifies that the state must spend the bond funds Virtually No State Funding Has Been in accordance with the SFP. Available for Program Since 2012. The state Bond Sales funded the SFP with a series of four voter-approved general obligation bonds between 1998 and 2006 State Generally Times Bond Sales to Match that together provided $35.4 billion. By 2012, Project Schedules. To minimize interest payments www.lao.ca.gov Legislative Analyst’s Office 55 2017-18 BUDGET states that its proposal Figure 28 is based on the size of Staffing Level at Historic Low the unfunded list and Office of Public School Construction Personnel Years how many applications it 160 believes OPSC can process 140 from the acknowledged 120 list with its current staffing level. (The Governor 100 proposes no change to 80 OPSC’s staffing levels.) 60 Though required by state 40 law, the Governor did not provide an out-year 20 schedule of anticipated school bond sales in 1999-00 2001-02 2003-04 2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 his five-year statewide infrastructure plan. (which begin accruing once a bond is sold), the The Governor also requires new accountability state typically sizes its bond sales to match the measures be put in place prior to issuing the bonds, amount of funding required for projects that which we discuss in the next section. are “shovel ready.” For school facilities, requests Governor’s Proposed Issuance Insufficient to for bond funding are linked to the volume of Address Backlog of Facility Funding Requests. applications submitted to OPSC and the speed with Though the Governor’s $655 million proposal which OPSC can review them and present them to would clear the $370 million in already approved the State Allocation Board for approval. school projects awaiting funding, it leaves only Bulk of Last School Bond Sold Over Six Years. $285 million left to address the $2 billion in The state’s last school bond was Proposition 1D projects on the acknowledged list. Moreover, (2006), which provided $7.3 billion for school new applications continue to come in, with facilities. The state sold $6.1 billion (84 percent) OPSC reporting receiving $158 million in of Proposition 1D bonds within six years of its new applications in the first two months after passage. Bond sales ranged from $344 million Proposition 51 was approved by voters. (These to $1.9 billion per year. During these six years, applications are included in the $2 billion the state also was selling bonds from prior voter backlog figure.) If OPSC continued to receive new measures. For example, in 2007-08, the state applications at this pace, the backlog of projects on sold $344 million in Proposition 1D bonds but the acknowledged list would grow to $3.1 billion by another $1.5 billion from prior bonds, for a total of January 2018, assuming no projects receive funding $1.8 billion. in the interim. (We asked about the volume of Governor Proposes to Issue $655 Million in projects on the acknowledged list that historically School Bonds in 2017-18. This amount consists is approved, but OPSC indicates it does not collect of $594 million from Proposition 51 bonds and this information.) $61 million from prior bonds. The administration 56 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET No Staffing Analysis to Support Governor’s as attendance data, and to determine whether Proposal. The administration states that its certain expenditures, such as for energy efficiency proposal is based on how many applications projects, are spent in accordance with state law. The it believes OPSC can process with its current independent auditors report their findings to local staffing level, but it was not able to provide any school boards and the State Controller’s Office. corresponding staffing analysis. The Governor’s OPSC Conducts Audits of SFP Expenditures. proposal also does not consider the OPSC staffing State law requires districts to submit annual level appropriate to address the large backlog of summary reports of state facility expenditures to projects. OPSC. The office may choose to audit these reports, Placing Conditions on Bond Sales Raises though this is not required. Currently, OPSC Concerns. The Governor indicates he will not reviews only a subset of projects, generally those sell Proposition 51 bonds until the accountability deemed to be higher risk, based on factors such changes discussed in the next section are as the size of the project. If OPSC finds ineligible implemented. If the Governor were to withhold expenditures, the State Allocation Board can seek Proposition 51 bond sales indefinitely, however, to have the funds repaid to the state. If a district the state could be challenged in court, as voters fails to pay within 60 days, the board may request indicated through the passage of the measure that that the State Controller’s Office deduct the funds they wish to see the bonds sold. from the district’s next LCFF apportionment. Recommend Directing Administration Recent Report Cites Concerns Over OPSC to Provide Additional Information at Spring Audits. The Office of State Audits and Evaluations Hearings. We recommend the Legislature use (OSAE), a division of the state Department of its budget hearings to gather more information Finance, conducted a review of OPSC’s audit from the Department of Finance on how the practices in September 2015. It found that administration plans to address the backlog $3 billion (41 percent) of Proposition 1D funding of school facility projects and size and time had not been audited to date. The OSAE sampled the associated Proposition 51 bond sales. We $300 million of these unaudited expenditures, recommend the Legislature also ask OPSC to report finding that $3 million (1 percent) was spent at hearings how many applications it can process on ineligible items. The OSAE also found that per personnel year and how many applications it OPSC does not conduct site visits to verify actual likely could process with its current staffing level. construction or purchases. After the Legislature determines its desired amount Governor Proposes to Require Local of statewide school facilities funding for 2017-18, Independent Audits of SFP Expenditures. The it then could use OPSC’s staffing analysis to set an Governor proposes to amend state law to add state appropriate staffing level moving forward. facility bond expenditures to local school audit requirements. Under the Governor’s proposal, Expenditure Audits OPSC would no longer perform audits at the State Requires Local Independent Audits completion of a project. Instead, OPSC would assist of Certain School Records and Expenditures. districts in filling out newly required upfront grant The state requires schools to hire independent agreements outlining SFP terms, conditions, and auditors to verify various school records, such accountability measures. The Governor is pursuing www.lao.ca.gov Legislative Analyst’s Office 57 2017-18 BUDGET this by requesting the State Allocation Board to subset of projects statewide. Second, it treats facility enact a regulatory change, with the new upfront expenditures the same as many other district agreements expected to be implemented as early as expenditures, which are audited locally. Third, the April. proposal builds upon existing state efforts to shift Shifting Auditing Function to Local Level accountability to the local level. For these reasons, Has Merit, Recommend Adopting Proposal. we recommend adopting the Governor’s proposal. Though the OSAE review found only a tiny fraction We recommend the Legislature also gather more of unallowable expenditures, we believe the information at spring budget hearings about Governor’s proposal still has merit. First, it would the effect of the proposal on OPSC’s workload, ensure each district’s SFP expenditures were subject including the number of positions it might free up to audit, whereas currently OPSC only examines a for project application reviews. 58 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET SUMMARY OF RECOMMENDATIONS Proposition 98 • Expect the 2015-16 guarantee not to change much in the coming months. Expect the 2016-17 guarantee to rise or fall about 50 cents for each dollar of higher or lower state tax revenue. • Expect the 2017-18 minimum guarantee to exceed the administration’s January estimate by as much as $1.5 billion due to increases in state tax revenue. • Continue to rely upon a mix of one-time and ongoing spending in 2017-18, as this would minimize the likelihood of programmatic cuts to schools the following year were the economy to experience a downturn. Local Control Funding Formula (LCFF) • Designate the bulk of any new K-12 Proposition 98 ongoing spending for LCFF implementation, as LCFF fosters local flexibility while also providing additional funding for disadvantaged students. • Exhaust other options for achieving one-time budget solutions in 2016-17 before deferring LCFF payment. Special Education • Take time to explore possible changes to special education funding, as many options exist and redesigning the system could have significant implications for many stakeholders. Preschool • Reject proposal to allow part-day State Preschool programs to serve children over the income threshold. If providers continue having trouble earning their contracts, recommend redistributing unearned funding to other part-day State Preschool providers that can serve additional low-income children. • Allow all types of providers, not only local education agencies, to apply for new full-day State Preschool slots if additional slots are funded the next few years. Over longer term, consider options for encouraging local education agencies to run more full-day State Preschool programs—options such as addressing funding disparities between State Preschool and Transitional Kindergarten or changing eligibility requirements so that each program serves a distinct group of students. www.lao.ca.gov Legislative Analyst’s Office 59 2017-18 BUDGET • Reject three proposals to align State Preschool more closely with Transitional Kindergarten. Instead, pursue program alignment more holistically by considering eligibility criteria, program standards, and funding levels in tandem. • Adopt Governor’s proposal regarding Transitional Kindergarten and Kindergarten flexibility, but, in tandem, establish differential funding rates for full-day and part-day programs. Education Mandates • Develop a less costly approach for making one-time payments toward the K-12 mandates backlog. Our recommended plan reduces costs by having schools write-off all remaining mandate claims as a condition of receiving payments. • Add a new mandate—Training for School Employee Mandated Reporters—to the K-12 mandates block grant and increase block grant funding by $41.9 million. • Add a new mandate relating to the California Assessment of Student Performance and Progress to the K-12 mandates block grant and increase block grant funding by $37.8 million. Of this amount $25 million reflects the costs associated with the new mandated activities and $12.8 million is a shift of existing, related assessment funding. School Facilities • Direct the administration to provide more information during spring budget hearings on how to address the $2.4 billion backlog of school facility projects as quickly as possible. • Adopt the Governor’s proposal to shift auditing of school facility expenditures from the state Office of Public School Construction to local independent auditors. 60 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET www.lao.ca.gov Legislative Analyst’s Office 61 2017-18 BUDGET 62 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET www.lao.ca.gov Legislative Analyst’s Office 63 2017-18 BUDGET Contact Information Edgar Cabral K-12 Education in Context 319-8343 Edgar.Cabral@lao.ca.gov Natasha Collins Federal Funds for K-12 Education 319-8335 Natasha.Collins@lao.ca.gov Kenneth Kapphahn Overview of the Governor’s Budget 319-8339 Kenneth.Kapphahn@lao.ca.gov Pensions Ryan Anderson Local Control Funding Formula 319-8308 Ryan.Anderson@lao.ca.gov Special Education Virginia Early Preschool 319-8309 Virginia.Early@lao.ca.gov Dan Kaplan Education Mandates 319-8352 Dan.Kaplan@lao.ca.gov School Facilities LAO Publications This report was reviewed by Jennifer Kuhn. The Legislative Analyst’s Office (LAO) is a nonpartisan office that pro- vides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 64 Legislative Analyst’s Office www.lao.ca.gov