The 2018-19 Budget: Proposition 98 Education Analysis

The 2018-19 Budget: Proposition 98 Education Analysis MAC TAYLOR LEGISLATIVE ANALYST FEBRUARY 7, 2018 analysis full gutter 2018-19 BUDGET LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 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 and early education. Overall Proposition 98 Budget Governor’s Budget Contains $6.3 Billion in Proposition 98 Spending Proposals. Of the new spending, almost $5 billion (78 percent) is for K-12 education, $1.2 billion (19 percent) is for the California Community Colleges (CCC), and $193 million (3 percent) is for the California State Preschool Program. Across the three segments, $3.9 billion is for ongoing programs and $2.4 billion is for one-time activities. Under the Governor’s budget, overall K-12 funding per student increases from the revised 2017-18 level of $11,165 to $11,628 in 2018-19, an increase of $463 (4.1 percent). Governor’s Overall Budget Approach Is Reasonable but Some Specific Proposals Do Not Address Root Issues. We think the Governor’s plan to allocate available Proposition 98 funding to a mix of ongoing and one-time initiatives is reasonable. Including one-time initiatives reduces the likelihood of programmatic cuts to schools if the state experiences an economic downturn after 2018-19. Additionally, many of the Governor’s specific proposals—including those relating to the Local Control Funding Formula (LCFF), district support, special education staffing shortages, and career technical education (CTE)— focus on areas of interest to the Legislature. We are concerned, however, that several of the Governor’s proposals are unlikely to address longstanding and systemic underlying problems in these areas. In response to many of these proposals, we offer the Legislature alternatives designed to address root issues. In many cases, these alternatives can be structured to cost less than the funding levels proposed by the Governor. Key Messages Reaching Full Implementation of LCFF Creates Opportunity to Reflect. The Governor’s plan to dedicate most new ongoing K-12 funding to LCFF implementation is consistent with the Legislature’s approach over the past five years. By continuing to prioritize LCFF implementation, the state would be fostering greater local control and flexibility while simultaneously providing more funding for disadvantaged students. Upon reaching full implementation, the Legislature will have many options to consider regarding next steps. We weigh the trade-offs of six possible options: (1) increasing base rates, (2) increasing supplemental/concentration rates, (3) changing rules for how districts generate funding for English learner and low-income (EL/LI) students, (4) raising the concentration threshold and rate to target funds to the highest-poverty districts, (5) providing clearer guidance and/or more flexibility for how high-poverty districts may use EL/LI funding, and (6) creating new categorical programs. Upon deciding its core policy objectives, the Legislature this year or in coming years might pursue one or more of these options. Legislature Could Adopt a More Strategic Approach to Retiring the K-12 Mandate Backlog. The Governor’s budget proposes $1.8 billion in one-time discretionary grants to schools. The funds would be distributed on a per-student basis and first applied to districts’ outstanding mandate claims. With two-thirds of districts having no claims, the bulk of the $1.8 billion would have no effect on the backlog, with the backlog decreasing less than $300 million. As an alternative to the Governor’s approach, we www.lao.ca.gov 1 analysis full gutter 2018-19 BUDGET recommend the Legislature identify an amount equal to or in excess of the remaining backlog (about $900 million) and distribute funds on a per-student basis, but require districts receiving funds to write off all remaining claims. This approach would make substantially more progress toward eliminating the backlog without rewarding districts that have unusually costly claims. Recommend Alternative Approach to System of Support. The Governor’s budget includes four proposals totaling $76 million that are focused on supporting districts recently identified as having performance issues. We have serious concerns with the Governor’s overall approach to designing this system of support as well as each of his four specific proposals. We recommend the Legislature consider an alternative approach centered around districts rather than county offices of education (COEs). We believe the alternative approach has many advantages. Perhaps most importantly, it promotes district ownership of improvement efforts by allowing districts to choose from multiple teams of experts specializing in their performance issues. It also promotes responsiveness by allowing the California Collaborative on Educational Excellence to contract with new teams of experts each year as new district performance issues emerge. Unlike the Governor’s approach, it does not silo support for general education and special education, provide COEs with additional funding for services that already are funded through their LCFF allocations, or create new regional entities with poorly defined roles. It also costs substantially less ($30 million compared to $76 million). Recommend LCFF Approach to CTE, but Modify Existing CTE Program if Taking Categorical Approach. The Governor’s budget provides $212 million for a high school CTE program run out of CCC. The Governor’s primary objective of running the program out of CCC is to improve coordination between schools, community colleges, and industry partners. We recommend the Legislature fund CTE from LCFF. If the Legislature has concerns that schools will not offer CTE under the LCFF structure, the Legislature could consider modifying the formula (for example, increasing the high school base rate) or modifying the accountability system (for example, establishing separate college and career readiness indicators). Though we believe funding CTE within LCFF promotes more coherent planning as well as clearer and stronger accountability, the Legislature might consider creating a CTE categorical program. If the Legislature takes this approach, we recommend it reject the Governor’s Strong Workforce approach and instead modify the existing CTE Incentive Grant program. Specifically, we recommend the Legislature (1) set a minimum threshold of CTE coursework that must be aligned with regional workforce needs, (2) require school and college districts to share data and accountability for CTE student outcomes, and (3) fold in funding from four other high school CTE programs. Recommend Comprehensive Approach to Addressing State’s Special Education Staffing Shortages. The Governor proposes two one-time grant programs totaling $100 million to support special education teacher recruitment, training, and retention. While we commend the Governor for focusing on the longstanding problem of special education staffing shortages in the state, we are concerned that his proposals fail to address the root causes of these shortages—most notably a lack of pay differentials for special education teachers, and to a lesser extent, overly restrictive education and credentialing requirements. The Governor’s proposals also do not address the longstanding shortages of special education specialists (such as speech therapists). We recommend the Legislature reject both of the Governor’s proposals and instead pursue changes that address the root causes of these shortages. Specifically, we recommend schools establish ongoing pay differentials for special education teachers. At the state level, we recommend pursuing a variety of actions, including reducing the number of special education credentials, authorizing a four-year degree pathway option for special education teachers, and providing targeted enrollment funding for the California State University to expand certain graduate specialist training programs. 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Table of Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 K-12 Education in Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 California’s Public School System ..........................................................5 Accountability .........................................................................9 Finance .............................................................................12 Overview of Governor’s Proposition 98 Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Major Spending Proposals ...............................................................13 Minimum Guarantee ...................................................................17 Local Control Funding Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Full Implementation ....................................................................20 A Look Back: School Spending Decisions ...................................................24 A Look Ahead: Future Funding Decisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Statewide System of Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Career Technical Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Special Education Teacher Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 “Inclusive Early Education” Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 State Preschool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 Rates and Slots .......................................................................45 Licensing ............................................................................47 Kindergarten . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50 Pension Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Summary of Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 www.lao.ca.gov 3 analysis full gutter 2018-19 BUDGET 4 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET INTRODUCTION In this report, we analyze the Governor’s budget requirements. In these two sections, we examine proposals for K-12 education and early education. In (1) state funding rates for kindergarten and (2) health the first section of the report, we provide background and safety standards for school districts offering on public schools in California. We then provide an State Preschool. In our forthcoming Higher Education overview of the Governor’s Proposition 98 budget Analysis, we provide background on the California package. In the remaining sections of the report, Community Colleges, also funded by Proposition 98, we analyze the Governor’s specific school and early and discuss the Governor’s specific community college education proposals and examine a few related proposals. On the “EdBudget” portion of our website, issues, including school pension costs. The report we post dozens of tables containing additional detail also contains two sections responding to statutory about the Proposition 98 budget. K-12 EDUCATION IN CONTEXT In this section, we answer many questions legislators this eligibility measure as an indicator of a student and others commonly ask about K-12 education in coming from a low-income family. Qualifying students California. We begin by providing information on the come from families earning no more than 185 percent main components of California’s public school system. of the federal poverty level. In 2016-17, this level We then review the state’s K-12 accountability system. equated to $45,000 for a family of four. California’s rate Lastly, we explain the basics of school finance in of free or reduced price meal eligibility is above the California. nationwide rate of 52 percent. About Half of California Students Are CALIFORNIA’S Hispanic. As Figure 1 shows (see next page), the PUBLIC SCHOOL SYSTEM ethnic make-up of California’s students differs notably from the nation. Whereas about half of California’s Below, we describe California’s students, teachers students are of Hispanic origin and about one-quarter and staff, local education agencies (LEAs), and state are white, in the United States those shares are flipped. education agencies. Differences exist among other ethnic groups too, with Asian students comprising a larger share of students Students in California than the nation (12 percent and 5 percent, California Has More Than 6 Million Public respectively), and black students comprising a smaller K-12 Students. In 2016-17, California’s public share (6 percent in California compared to 16 percent schools enrolled 6.2 million students, representing nationwide). 12 percent of all public school students in the nation. About One-Fifth of California Students Are About two-thirds of these students were in grades English Learners. Students are classified as English kindergarten through eight, with one-third attending learners based on a home language survey and high school. From the mid-2000s through 2013-14, their performance on a test of English proficiency. In K-12 attendance remained essentially flat. Since 2016-17, 21 percent (1.3 million) of California students 2014-15, attendance has declined slightly each year. were classified as English learners—a higher proportion Almost Six in Ten California Students Are than in any other state. Three out of every ten English Identified as Low Income. In 2016-17, 58 percent learners in the nation attend school in California. of California’s public school students were eligible to Even more California students—almost 2.7 million receive a free or reduced price school meal under a students overall—speak a primary language other than large federal nutrition program. States frequently use English at home, but almost half of these students www.lao.ca.gov 5 analysis full gutter 2018-19 BUDGET Figure 1 Ethnic Make-Up of California’s Students Differs From Nation 2016-17 California United States White Hispanic Hispanic White Asian Asian Black Black Other Other are considered fluent in English. California students Staffing come from families speaking over 65 different home California Has Almost 300,000 Teachers. In languages, although the vast majority (78 percent) 2016-17, about 296,000 full-time-equivalent teachers speak Spanish, with Vietnamese the next most were employed in California’s public school system. common language (3 percent). Roughly three-quarters of teachers are women, similar About One in Ten California Students Are to the share in other states. Compared to the student Identified as Having a Disability Affecting Their population, teachers are more likely to be white Education. In 2016-17, about 754,000 California (66 percent of teachers compared to 24 percent of students (12 percent) were identified with a disability students) and less likely to be Hispanic (21 percent of affecting their education. Pursuant to federal law, teachers compared to 55 percent of students). Over schools must provide these students with special the past five years, the state’s teacher workforce has education services. California identifies a slightly smaller increased at an average annual rate of 1.5 percent per proportion of students for special education than year. the rest of the nation (13 percent). Specific learning Teacher Salaries Vary Across the State, Are disabilities such as dyslexia are the most common Higher on Average Than Other States. In California, diagnoses requiring special education services the state requires most LEAs to set teacher salary (affecting 5 percent of the state’s K-12 students), levels through collective bargaining. As Figure 2 shows, followed by speech and language impairments teacher salaries vary widely across the state, with (affecting 3 percent of California’s students). Although salaries generally higher in urbanized areas than rural autism remains a relatively rare diagnosis (affecting areas. In 2016-17, the average teacher salary was 1.7 percent of California’s students), the number of $79,100—34 percent higher than the national average. students diagnosed with this disability has increased California consistently ranks among the top states notably (from 14,000 children in 2000-01 to 105,000 in for teacher salary, along with Connecticut, New York, 2016-17). New Jersey, and Massachusetts. 6 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET California Has Highest Figure 2 Student-to-Teacher Ratio in Nation. Though California’s Average Teacher Salary Higher in More Urbanized Areas teachers tend to be better paid By County, 2016-17 than the rest of the nation, the state has comparatively fewer of them. Over the five-year period from Orange 2010 through 2014, the national Santa Clara average student-to-teacher ratio hovered at 16. California’s ratio Los Angeles was notably higher throughout this period, but it has been declining Statewide Average steadily since 2011-12. In 2016-17, California’s student-to-teacher ratio Tulare was 20.4. California Has 306,000 Shasta Other School Staff. In addition to teachers, schools employed Plumas 306,000 full-time-equivalent staff in various administrative and 20,000 40,000 60,000 80,000 $100,000 support positions in 2016-17. This number includes 26,000 principals, assistant principals, and other school administrators (equating to blind or deaf students and four schools for students about 1 school manager for every 11 teachers). It also incarcerated at state juvenile justice facilities. includes 29,000 pupil services personnel (primarily Size of California School Districts Varies counselors, psychologists, and speech pathologists). Dramatically. As Figure 3 shows (see next page), Similar to teachers, both administrators and pupil California’s school districts vary greatly in size. services personnel must hold a state credential. The One-quarter of school districts are very small, serving remaining 251,000 employees work in positions that 300 or fewer students. Another one-third are small, do not require a credential. These employees—known serving between 301 and 2,500 students. Whereas as classified staff—include clerical workers, janitors, these two sets of districts combined comprise more teacher aides, and bus drivers. than half of all districts in California, they account for only 7 percent of all students. At the other extreme, Local Education Agencies 12 very large districts each serve more than 40,000 School Districts and Charter Schools Provide students and together educate one-fifth of all students Most Instruction. The public school system comprises in the state. The number of school districts in each many LEAs. In 2016-17, 945 school districts and county also varies across the state, with seven counties 1,248 charter schools operated in California—typically containing a single district each, and the most populous offering comprehensive educational programs for county (Los Angeles) containing 80 districts. students in their local areas. In addition, county offices Charter Schools Are Fast Growing. Charter of education (COEs) operate certain types of schools schools are publicly funded schools that are similar for at-risk students, including students who are to traditional schools in that they must employ incarcerated or have been expelled. Many COEs also state-certified teachers, teach the same state academic operate special education, career technical education, standards, and administer the same state assessments. adult education, and preschool programs. California’s They differ from district-operated schools, however, public school system also includes seven state-run in that they are exempt from certain state laws. In schools—consisting of three special schools for exchange for these exemptions, they must adhere www.lao.ca.gov 7 analysis full gutter 2018-19 BUDGET Figure 3 California School Districts Vary Greatly in Size 2016‑17 Number of Percent of Total Percent of District Sizea Districts All Districts Students All Students Less than 300 242 26% 28,986 1% 301 to 2,500 311 33 347,203 6 2,501 to 5,000 132 14 485,979 9 5,001 to 10,000 110 12 816,719 15 10,001 to 40,000 138 15 2,588,579 48 40,001+ 12 1 1,076,310 20 Totals 945 100% 5,343,776 100% a Based on average daily attendance. Excludes charter school attendance. to locally developed, approved, and periodically The department has an annual budget of around renewed charters. These local charters are intended $270 million and about 1,600 employees—rendering it to give schools more flexibility over the design of midsized compared with other departments within their education programs. While the total number of California state government. More than two-thirds of K-12 students declined slightly over the past decade, CDE’s funding comes from federal funds, as many of charter school attendance nearly tripled, growing at an CDE’s activities are associated with federal programs. average annual rate of 11 percent. In 2016-17, charter The Superintendent of Public Instruction (SPI)—a schools served 580,000 students (10 percent of the nonpartisan position elected by the voters—oversees statewide total), up from 210,000 students (3 percent the department. of the statewide total) in 2006-07. In 2016-17, charter A Few Other State Agencies Involved in Major schools ranged in size from 5 students to more than Aspects of K-12 Education. In addition to CDE, the 5,000 students, with an average school size of 473. following state entities are involved in major aspects of COEs Typically Provide Countywide Support K-12 education: Services. In addition to providing some specialized • The State Board of Education (SBE) adopts forms of direct student instruction, COEs offer a regulations to implement certain state laws and variety of services to school districts. Many COEs, for reviews LEA waiver requests. In recent years, the example, operate countywide payroll systems and board’s most significant decisions have related provide professional development for teachers and to LCAPs. The board has an annual budget of administrators. COEs also are required to review and $2.6 million (state General Fund) and about ten approve school districts’ annual budgets, monitor the employees. fiscal health of districts several times per year, and • The Commission on Teacher Credentialing (CTC) review districts’ strategic academic plans, known as is responsible for accrediting teacher preparation Local Control and Accountability Plans (LCAPs). The institutions, credentialing teachers, and COEs also will have a support role in helping school investigating allegations of teacher misconduct. districts that do not meet performance standards, but CTC has an annual budget of around $25 million this system remains in development. (special fund) and about 140 employees. State Education Agencies • The Office of Public School Construction (OPSC), an office within the Department of General California Department of Education (CDE) Services, reviews school facility projects to Administers Education Programs. The department determine if they qualify for state bond funding. monitors compliance with state education laws and OPSC has an annual budget of around $9 million regulations, collects and compiles education data, (bond funding) and about 50 employees. allocates funding, and provides support to LEAs. 8 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET State Contracts With Some COEs to Perform new standards. SBE adopted initial guidance on how Statewide Functions. In addition to these state to teach the new science standards in 2016. Some entities, the state contracts with some COEs to schools currently are field testing the new guidance and undertake activities that have statewide benefits. implementing the new science standards, with the plan The Fiscal Crisis and Management Assistance Team to have all schools teach the new standards beginning (affiliated with the Kern COE) provides fiscal advice, in 2018-19. management assistance, and other budget-related Student Assessments training to school districts across the state. California School Information Services (also affiliated with the Federal Law Requires States to Administer Kern COE) helps LEAs across the state with data Standardized Tests. As a condition of receiving management issues. The K-12 High Speed Network federal education funding, federal law requires states (affiliated with the Imperial COE) assists schools with to assess students in English language arts and math Internet connectivity. The California Collaborative for in grades 3 through 8 and at least once from grades Educational Excellence or CCEE (affiliated with the 10 through 12. In addition, federal law requires states Riverside COE), assists certain LEAs with improving to assess students in science at least once during: their student outcomes. The state also contracts (1) grades 3 through 5, (2) grades 6 through 9, and with the San Joaquin COE to maintain two websites (3) grades 10 through 12. States also are required to (the California School Dashboard and the School assess the English proficiency of English learners each Accountability Report Card) that make school district year. performance data publicly available. Additionally, First Exams Aligned to Common Core State the state sometimes competitively bids limited-term Standards Administered in Spring 2015. Although contracts with select COEs to administer special SBE adopted the Common Core State Standards initiatives, such as conducting statewide teacher in 2010, schools were not expected to have their recruitment campaigns and providing statewide training instruction aligned with the new standards until on salient issues. 2014-15. In spring 2015, the state replaced its previous testing program with new assessments ACCOUNTABILITY aligned to the Common Core standards. The new assessments were developed by the Smarter Below, we describe the state’s current academic Balanced Assessment Consortium (SBAC), a group of standards and student assessments. We next review 17 states, with California a lead member. The SBAC trends in student performance. We then explain how assessments measure proficiency in reading, writing, the state supports LEAs identified as underperforming. and mathematics and are administered online using a Academic Standards computer or tablet. As an alternative to the Common Core assessments, students with the most severe Like Most States, California’s Instruction Is disabilities take the California Alternate Assessments Based on Common Core State Standards. In 2010, (CAAs)—first implemented in 2016-17. at the direction of the Legislature, SBE adopted the State Is Developing Several Other Exams. The Common Core State Standards (with the addition of a state is in the final stages of developing the California few California-specific standards) as the foundation for Science Test (CAST). It plans to field test CAST in what students should know and be able to do in English 2017-18, with all districts administering CAST in language arts and math. In 2012, the state adopted 2018-19. The state also recently created the English standards aligned to the Common Core for English Language Proficiency Assessments for California Learners. Forty-two states and the District of Columbia (ELPAC). The ELPAC assesses the English proficiency have adopted the Common Core State Standards. of English learners. Districts are to administer the State Is Implementing New Science Standards. In annual end-of-year ELPAC exams beginning in the 2013, California adopted the nationally developed spring of 2018 and the diagnostic component of Next Generation Science Standards (NGSS). California ELPAC beginning in July 2018. The state is in the early was a lead state partner in the development of these stages of developing a Spanish language assessment www.lao.ca.gov 9 analysis full gutter 2018-19 BUDGET aligned to the Common Core. Schools could use English language arts, compared with 68 percent of this optional exam for students receiving instruction non-low-income students. The gaps are similar at other in Spanish, English learners enrolled in school for grade levels and for math. less than 12 months, or other students interested in Outcomes Also Vary by Ethnicity. Results on assessing their proficiency in Spanish. statewide exams show significant achievement gaps among California’s four largest ethnic groups. These Student Performance gaps persist even after controlling for income. As Performance on New Assessments Improved in Figure 5 shows, low-income black and Hispanic 2016, Remained Flat in 2017. In 2017, 49 percent students have lower proficiency rates on eighth of California students met or exceeded standards grade English language arts exams (25 percent and in English language arts. This rate was essentially 33 percent, respectively) than low-income white unchanged compared with the 2016 exams but and Asian students (44 percent and 62 percent, better than the first administration of the exams in respectively). Similar differences among groups exist in 2015—when 44 percent of students met or exceeded third and eleventh grade. standards. Performance on math followed a similar California Ranks Near the Bottom on National trajectory, with 38 percent of students meeting or Tests. The federal government administers the National exceeding standards in 2017, essentially unchanged Assessment of Educational Progress every two years. from 2016, but higher than 2015 (33 percent). The most recent assessment results (2015) show that Large Achievement Gaps Exist. Results on the California performs near the bottom in reading and exams show significant achievement gaps between the math for fourth and eighth grades. The performance scores of low-income and non-low-income students. of non-low-income students in California (39th in As Figure 4 shows, 36 percent of low-income students eighth grade reading) ranks a little bit higher than the met or exceeded the state standards in eighth grade performance of low-income students (45th in eighth Figure 4 Notable Achievement Gaps Across Every Grade Level Percent of Students That Met or Exceeded Standard, 2017 80% Low-Income Non-Low-Income 70 60 50 40 30 20 10 3rd Grade 8th Grade 11th Grade 3rd Grade 8th Grade 11th Grade English Language Arts Math 10 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET grade reading). California’s performance compared to gradually increasing over the last 20 years. In 1996, other states has not changed significantly in the past 35 percent of California high school graduates ten years. In addition to having lower performance completed such coursework. (To be eligible for university compared to other states, California has among the admission, students also must meet certain grade point largest achievement gaps between low-income and average requirements and take college entrance exams.) non-low-income students. In fourth grade reading, for LEA Support example, California’s achievement gap ranked 49th in the country (that is, 48 states had achievement gaps California in Midst of Developing a New smaller than California). Accountability System. The past few years the state Five in Six Students Graduate High School Within has been developing a new system for measuring Four Years. Of the cohort of students that entered district performance and supporting districts identified ninth grade in the 2012-13 school year, 84 percent as having poor performance. The state recently decided graduated within four years. Of the same cohort, to use outcome data from the School Dashboard to 10 percent dropped out of school, 6 percent returned identify school districts in need of support. Districts are to school for a fifth year, and less than 1 percent identified when the School Dashboard data reveals received either a High School Equivalency Certificate (if poor performance for one or more student subgroups. they passed the General Educational Development Test) To measure performance, the state currently looks at or a special education certificate of completion. student test scores, English learner progress, graduation More Students Are Completing Coursework rates, and suspension rates. Beginning next year, the Required for University Eligibility. In 2016, 45 percent state also will look at chronic absenteeism and the rate of of California students graduated high school having high school graduates prepared for college/career. In fall completed the coursework required to be eligible 2017, a total of 228 districts were identified for support. for admission to the California State University and Of these districts, 164 (72 percent) were identified solely University of California. This proportion has been for poor performance of their students with disabilities. Figure 5 Notable Achievement Gaps Exist Among Ethnic Groups Percent of Low‑Income Students That Met or Exceeded Standard, 2017 80% Black 70 Hispanic White 60 Asian 50 40 30 20 10 3rd Grade 8th Grade 11th Grade English Language Arts www.lao.ca.gov 11 analysis full gutter 2018-19 BUDGET California in Midst of Aligning Accountability ago. Adjusted for inflation, per-pupil funding is at its System With New Federal Rules. Whereas the state’s highest level in three decades (since the enactment of new accountability system identifies districts in need Proposition 98 in 1988). of support, the federal Every Student Succeeds Act California Per-Pupil Spending Ranks in the (2015) requires states to provide extra support to the Middle Among the States. Based on spending lowest performing 5 percent of schools. Sometime data from 2014-15 (the most recent year for which in 2018, the state expects to have developed its national data are available), California ranked 29th methodology for identifying these schools. in per-pupil spending among the 50 states and the Underperforming LEAs Are to Receive Extra District of Columbia. Over the past decade, California Support. The state is in the process of determining has ranked as high as 23rd (in 2007-08) and as low how to support districts and schools identified as as 36th (from 2010-11 through 2012-13). Because needing support. In developing the system of support, California’s revenues are highly sensitive to changes the state is considering the roles of districts, COEs, in the economy, school spending tends to be more regional COE hubs, and CCEE. Many key decisions sensitive to recessions and recoveries than most regarding this new system likely will be made in 2018. other states. Given California has increased school funding significantly since 2014-15, its ranking likely will FINANCE increase as new data are released over the next few years. (Some organizations calculate per-pupil spending Below, we describe how California funds its schools, with adjustments for regional costs. In these rankings, explain its ranking on measures of per-pupil spending, California typically ranks much lower.) and describe how districts typically use their funding. Most School Spending Is for Instruction. As State Is Primary Source of Funding for Figure 7 shows, 62 percent of school Schools. In 2017-18, schools received $93 billion in expenditures in 2015-16 related to instruction total funding from all sources. As Figure 6 shows, the and instructional support—largely paying teacher largest share of school funding comes from the state, salaries and benefits. Schools spent 17 percent of with smaller shares coming from local sources (primarily their funds on facilities, including land acquisition, local property tax revenue) and the federal government. (Revenues from the state lottery account for Figure 6 1 percent of all revenue.) These State Is Largest Source of Revenue for Schools proportions differ from many other states, where local property tax 2017‑18 revenue covers a much larger share Federal of school funding. Unlike most other states, California’s State Constitution limits local property tax rates. Other Local Per-Pupil Funding Has Risen Notably in Recent Years. Most comparisons of school funding focus on state General Fund and local property tax revenue, the State two revenue sources over which Local the state has the greatest control. Property Tax The 2017-18 Budget Act provided schools with $11,067 per student from these sources, an increase of about $2,400 (28 percent) over the level provided five years 12 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET construction, and maintenance. Figure 7 Schools spent 11 percent on student services, including school Most School Spending Is for Instruction meals, pupil transportation, 2015‑16 counseling, and health services. The remaining funds were spent Other on central administration, including Administration the compensation of district superintendents; central business, Student Services legal, and human resource functions; and other expenses, including printing. Instruction State Has Longstanding System for Monitoring Districts’ Facilities Fiscal Health. In 1991, the state established a fiscal oversight system requiring COEs to review the financial condition of their school districts at various points during the year. If a COE determines that a district is in fiscal distress, it can undertake additional oversight, the district can continue to operate and appoints an such as assigning a fiscal expert administrator to manage the district while it implements or requiring more frequent financial reports from the a recovery plan. This fiscal oversight system generally district. If the district’s financial condition does not has been effective, with only eight districts requiring improve, the COE can take stronger action, such as emergency state loans since 1991. (By comparison, rescinding the actions of the district’s governing board. 27 districts required such assistance over the ten years When a district gets to the point of being unable to pay preceding the adoption of the 1991 system.) its bills, the state provides an emergency loan so that OVERVIEW OF GOVERNOR’S PROPOSITION 98 BUDGET In this section, we provide a high-level overview and Overview assessment of the Governor’s Proposition 98 budget Across Three Years, $6.3 Billion in Proposition 98 package. The first part analyzes the major spending Spending Proposals. The Governor’s budget proposals in the package and the second part contains a total of $6.3 billion in new Proposition 98 analyzes the administration’s estimates of the spending proposals (see Figure 8, next page). Of Proposition 98 minimum guarantee. the new spending, almost $5 billion (78 percent) is for K-12 education, $1.2 billion (19 percent) is for the MAJOR SPENDING PROPOSALS California Community Colleges (CCC), and $193 million (3 percent) is for the California State Preschool Below, we describe the Governor’s Proposition 98 Program. As the figure shows, the spending package spending package and highlight his major proposals consists of a mix of ongoing and one-time proposals. for K-12 education and preschool. We also provide Across the three segments, $3.9 billion is for ongoing our assessment of the Governor’s overall spending programs and $2.4 billion is for one-time activities. approach. www.lao.ca.gov 13 analysis full gutter 2018-19 BUDGET Per Student Funding Increases Notably. Figure 9 preschool and other agencies) increases from the shows the distribution of Proposition 98 funding by revised 2017-18 level of $11,165 to $11,628 in segment across the period. Under the Governor’s 2018-19, an increase of $463 (4.1 percent). budget, overall K-12 funding per student (including Figure 8 Governor’s Budget Contains $6.3 Billion in Proposition 98 Spending Proposals (In Millions) K-12 Education Ongoing Fund full implementation of LCFF $2,883 Provide 2.51 percent COLA for select categorical programsa 106 Provide county and regional support for low-performing districts 76 Make other ongoing augmentations 29 Subtotal ($3,095) One Time Provide per-student discretionary grants $1,757 Establish special education teacher residency program 50 Provide grants for addressing special education teacher shortage 50 Support Southern California Regional Occupational Center 3 Subtotal ($1,860) Total $4,954 California Community Colleges Ongoing Increase apportionment funding and implement new allocation formula $396 Fund high school CTE initiative through Strong Workforce Program 212 Fund AB 19 fee waiver program and consolidated financial aid program 79 Provide ongoing support for new online college 20 Make other ongoing augmentations 51 Subtotal ($759) One Time Fund deferred maintenance and instructional materials $275 Provide one-time support for new online college 100 Fund other one-time activities 53 Subtotal ($428) Total $1,186 Preschool Ongoing Increase Standard Reimbursement Rate by 2.8 percent $32 Provide 2.51 percent COLA 28 Add 2,959 full-day slots starting April 1, 2019 8 Subtotal ($68) One Time Fund early education expansion $125 Total $193 Grand Total of All Spending Proposals $6,333 a Applies to special education, child nutrition, mandates block grant, services for foster youth, adults in correctional facilities, and American Indian education. LCFF = Local Control Funding Formula; COLA = cost-of-living adjustment; and CTE = career technical education. 14 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET K-12 Education package of initiatives to support districts with performance issues. Of this amount, the majority Funds Full Implementation of LCFF. The Governor ($55 million) would fund COEs to support districts proposes a $2.9 billion increase for LCFF to close identified for improvement under the state’s new the remaining gap to the formula targets and provide accountability system. The package also includes a 2.51 percent cost-of-living adjustment (COLA). $10 million for special education agencies to support Reaching full implementation in 2018-19 would be two districts identified for improvement due to special years ahead of schedule. The budget also includes education performance issues, $7 million for CCEE $106 million to provide a 2.51 percent COLA for several to provide statewide assistance, and $4 million for categorical programs that remain outside LCFF (most selected COEs to serve as regional support leads. notably special education). Allocates $1.8 Billion for One-Time Discretionary Funds New High School Career Technical Grants. The Governor’s budget includes $1.8 billion Education (CTE) Program Through CCC Budget. for K-12 discretionary grants. Similar to previous The Governor proposes a new $212 million high school years, funds would be allocated to school districts, career technical education program funded through the COEs, and charter schools on a per-student basis. existing Strong Workforce Program administered by The $1.8 billion equates to about $300 per student. the community colleges. Of this amount, $200 million From each school district’s discretionary grant amount, is for existing Strong Workforce consortia consisting the Governor proposes to deduct any outstanding of colleges, school districts, and industry partners. obligations resulting from a settlement agreement over The consortia, in turn, would allocate the new funds Medi-Cal billing practices (see the box on page 16). The to school districts through competitive grants. The remainder of each district’s discretionary grant amount remaining $12 million would fund local industry experts would be attributed to any outstanding mandate claims. who would provide technical assistance to school About one-third of districts have such claims. districts with CTE programs. Funds Two One-Time Initiatives Focused on Funds New System of Support for School Special Education Staffing Challenges. The budget Districts. The Governor proposes a $76 million Figure 9 Proposition 98 Funding by Segment (Dollars in Millions, Except Funding Per Student) Change From 2017-18 2016-17 2017-18 2018-19 Revised Revised Proposed Amount Percent Segment K-12 education $62,048 $65,340 $67,695 $2,355 3.6% California Community Colleges 8,283 8,654 9,207 553 6.4 Preschool 975 1,122 1,338a 216 19.2 Other agencies 85 95 85 -10 -10.7 Totals $71,390 $75,211 $78,324 $3,114 4.1% Enrollment K-12 average daily attendance 5,960,037 5,961,253 5,944,090 -17,163 -0.3% Community college FTE students 1,134,809 1,135,081 1,136,813 1,733 0.2 Funding Per Student K-12 educationb $10,588 $11,165 $11,628 $463 4.1% California Community Colleges 7,299 7,624 8,099 475 6.2 a Includes $125 million for one-time grants to fund the expansion of early education programs, including preschool. Excluding this amount, the increase from 2017-18 is $91 million (8.1 percent). b Per-pupil amount combines funding for K-12 education, preschool, and other agencies. FTE = full-time equivalent. www.lao.ca.gov 15 analysis full gutter 2018-19 BUDGET funds two initiatives ($50 million each) to improve the Provides One-Time Funding for Early recruitment and retention of special education teachers. Education Expansion. The Governor’s budget The first initiative would fund teacher residency provides $125 million in Proposition 98 funding (and programs that pair new special education teachers with $42 million from the federal Temporary Assistance for experienced mentor teachers. The second initiative Needy Families program) for a competitive grant to would provide grants for locally developed efforts to increase the availability of mainstream early education address special education staffing challenges. The CTC opportunities for children with disabilities from birth would administer both initiatives as competitive grants. through age 5. The one-time grant, open to school districts as well as other providers, could be used for a Preschool variety of purposes, including staff training and facility Funds Additional Rate and Slot Increases renovations. Consistent With Multiyear Budget Agreement. The Comments Governor’s budget includes $32 million Proposition 98 (and an additional $16 million non-Proposition 98 Split Between Ongoing and One-Time Initiatives General Fund) for a 2.8 percent rate increase. It also Is Reasonable. We recommend the Legislature adopt provides $8 million for an additional 2,959 full-day a final budget plan that continues to rely upon a mix of State Preschool slots at school districts and COEs ongoing and one-time spending. The state has taken starting April 1, 2019. These increases represent the such an approach the past several years. Setting aside final augmentations associated with a multiyear child some funds for one-time purposes helps the state care and preschool budget agreement made by the avoid overcommitting to programs it might be unable Legislature and the Governor in 2016-17. In addition, to sustain during tighter fiscal times. If school funding the budget allocates $28 million in Proposition 98 were to drop in 2019-20, the expiration of one-time funding (and $22 million non-Proposition 98 General initiatives would provide a buffer mitigating reductions Fund) to provide a statutory 2.51 percent COLA for to ongoing programs such as LCFF and community certain preschool and child care programs. college apportionments. Medi-Cal Billing Settlement School Districts Are Eligible for Certain Medi-Cal Reimbursements. Since the mid-1990s, school districts in California have been eligible to receive a 50 percent federal reimbursement for the cost of administrative activities they perform in support of the Medi-Cal program. Qualifying activities include outreach and referrals, facilitating Medi-Cal applications, and arranging transportation to Medi-Cal service providers. The California Department of Health Care Services (DHCS) administers these reimbursements in association with consortia of local education agencies and other entities. One-Time Discretionary Grants Reduced to Pay for Medi-Cal Billing Settlement. In 2013, the federal government completed a review of the reimbursement program and concluded districts were submitting inflated claims. The DHCS agreed to implement a new reimbursement methodology starting in January 2015. It also agreed to use the claims data collected under the new methodology to adjust previously submitted claims from 2009-10 through 2014. Any difference between a district’s original claims and the adjusted amounts are to be repaid to the federal government. Developing the procedures for this adjustment and collecting the necessary claims data has taken several years. The Governor’s budget estimates the associated statewide obligation is $222 million. To retire the obligation, the Governor proposes to deduct each district’s individual obligation from its one-time discretionary grant allocation. 16 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Governor Has Reasonable Set of Priorities, other adjustments that free-up Proposition 98 funding. but Some Proposals Are Not Well Targeted. We conclude by offering high-level comments about the Many of the Governor’s proposals relate to issues calculation of the guarantee. of longstanding interest to the Legislature, including Background on implementing LCFF, expanding CTE, improving support for low-performing districts, addressing special Calculating Minimum Guarantee education staffing challenges, and expanding early Minimum Guarantee Calculation Depends on education. Many of the Governor’s proposals, however, Various Inputs and Formulas. The Constitution sets would not address the root problems in the areas. forth three main tests for calculating the minimum For example, special education teacher shortages guarantee. These tests depend upon several inputs, stem from several longstanding issues, ranging including K-12 average daily attendance, per capita from a lack of pay differentials to overly restrictive personal income, and per capita General Fund revenue education and credentialing requirements. One-time (see Figure 10, next page). Depending on these inputs, grants for a specific type of teacher training program one of these tests will be “operative” and determine or discretionary local solutions are unlikely to resolve the minimum guarantee for that year. In most years, these issues. In response to many of the Governor’s Test 2 or Test 3 is operative and the guarantee builds proposals, we offer the Legislature alternatives upon the level of funding provided the previous year. designed to address root issues. In many cases, these The state meets the guarantee through a combination alternatives can be structured to cost less than the of General Fund and local property tax revenue, with funding levels proposed by the Governor. increases in property tax revenue usually reducing K-12 Discretionary Grants Continue an Inefficient General Fund costs dollar for dollar. Although the state Approach to Retiring the Mandate Backlog. We are can provide more funding than required, in practice it concerned that the Governor’s per-student funding usually funds at the guarantee. With a two-thirds vote approach likely will never eliminate the mandate of each house of the Legislature, the state can suspend backlog. With two-thirds of districts having no claims, the guarantee and provide less funding than the the bulk of the $1.8 billion included in the Governor’s formulas require that year. budget would have no effect on the backlog. We “Maintenance Factor” Payments Required in estimate that the state would need to provide Certain Years. In addition to the three main tests, the around $200 billion to eliminate the backlog using Constitution requires the state to track an obligation the Governor’s approach. Moreover, the remaining known as maintenance factor. The state creates backlog does not reflect the average district’s claiming a maintenance factor obligation when Test 3 is practices, but those of an increasingly small number operative or when it suspends the guarantee. The of exceedingly high claimers. As an alternative obligation equals the difference between the actual to the Governor’s approach, we recommend the level of funding provided and the Test 1 or Test 2 level Legislature identify an amount equal to or in excess (generally whichever is higher). Moving forward, the of the remaining backlog and distribute funds on a state tracks and adjusts the maintenance factor per-student basis, but require districts receiving funds obligation each year for changes in K-12 attendance to write off all remaining claims. This approach would and per capita personal income. In subsequent years, make substantially more progress toward eliminating when General Fund revenue is growing relatively the backlog without rewarding districts that have quickly, the Constitution requires the state to make unusually costly claims. maintenance factor payments until it has paid off the obligation. The magnitude of these payments is MINIMUM GUARANTEE determined by formula, with stronger revenue growth generally requiring larger payments. Below, we provide background on the Estimates of the Guarantee Can Change After Proposition 98 minimum guarantee. We then explain the Adoption of the Budget. The state does not the major drivers underlying the administration’s finalize the minimum guarantee until the fiscal year is estimates of the minimum guarantee and discuss a few over. When the state updates the relevant inputs, the www.lao.ca.gov 17 analysis full gutter 2018-19 BUDGET guarantee can change from the level Figure 10 initially assumed in the budget act. Three Proposition 98 “Tests” If the revised guarantee exceeds the initial estimate, the state makes Test 1 Test 2 Test 3 a one-time payment to “settle up” Share of General Change in Per Change in General the difference for that year and uses Fund Revenue Capita Personal Fund Revenue Income (PCPI) the higher base for calculating the guarantee the following year. If the General PCPI Fund revised guarantee is below the initial ADA ADA estimate, the state can allow funding 40% to remain at the higher level or make Prior-Year Prior-Year midyear adjustments to reduce Funding Funding funding to the lower guarantee. Typically, the state makes downward midyear adjustments, as the decision Guarantee based on share Guarantee based on prior- Guarantee based on prior- affects the ongoing level of the of state General Fund year funding level adjusted year funding level adjusted revenue going to K-14 for year-over-year changes for year-over-year changes minimum guarantee moving forward. education in 1986-87. in K-12 attendance and in K-12 attendance and California PCPI. state General Fund revenue. Governor’s Estimates Of the Guarantee ADA = average daily attendance. 2016-17 Guarantee Down Slightly but Proposition 98 obligation at the end of 2017-18 would be $228 million. Funding Level Unchanged. Compared with estimates The rest of the increase in the guarantee is attributable made in June 2017, the 2016-17 minimum guarantee to a small increase in attendance. Whereas the June has dropped $63 million due to slightly lower estimates budget plan assumed 2017-18 attendance would of K-12 attendance and General Fund revenue. Despite decline by 2,900 students (a 0.05 percent decline), the this decrease, the Governor proposes to maintain Governor’s budget estimates that attendance will grow Proposition 98 funding at $71.4 billion—the same by 1,200 students (a 0.02 percent increase). level the state approved in the June budget plan. 2018-19 Guarantee Up $3.1 Billion Over Revised This proposed funding level is $542 million more than 2017-18 Level. The administration estimates that required to meet the revised estimate of the minimum the 2018-19 guarantee is $78.3 billion, an increase guarantee. The budget also recognizes various minor of 4.1 percent over the revised 2017-18 level (see adjustments—primarily lower LCFF costs—that reduce Figure 11). Test 3 is operative, with the increase in funding by $43 million. To offset these reductions the guarantee attributable to growth in state General and maintain funding at $71.4 billion, the Governor Fund revenue. The administration also estimates proposes to count $43 million of the funds associated that K-12 attendance will decline by 0.3 percent. with the K-12 discretionary grants toward 2016-17. Although the minimum guarantee usually is adjusted 2017-18 Guarantee Up $687 Million From Budget for changes in attendance, the Constitution contains Act Estimates. The administration’s revised estimate of a two-year hold harmless provision that deems any the 2017-18 guarantee is $75.2 billion, an increase of decline in attendance to be zero unless attendance $687 million compared with the June budget plan. This also declined during the two preceding years. Data increase is mainly the result of an increase in General from CDE show that attendance declined each year Fund tax revenue. This faster revenue growth requires from 2014-15 through 2016-17. The administration’s the state to make an additional maintenance factor estimate of a small attendance increase in 2017-18, payment of $636 million (on top of the $536 million however, restarts the hold harmless provision and payment already included in the June budget plan). prevents any downward adjustment to the 2018-19 After making the $1.2 billion total maintenance factor guarantee. The administration also estimates that the payment, the state’s outstanding maintenance factor state creates a new $83 million maintenance factor 18 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET obligation in 2018-19. This additional maintenance related to meeting the 2009-10 guarantee (scored as factor brings the state’s total outstanding obligation to a Proposition 2 debt payment). This payment would $320 million by the end of 2018-19. reduce the state’s outstanding settle-up obligation to Higher Local Property Tax Revenue Over the $340 million. Finally, the budget recognizes various Period Reduces General Fund Cost Pressure. For technical adjustments (primarily lower-than-expected 2016-17, the administration revises its property tax costs for community college apportionments) that estimate upward by $495 million to reflect updated data free up a net total of $37 million. The $2.5 billion reported by county auditor-controllers. For 2017-18, the associated with all these adjustments, combined with administration revises its property tax estimate upward the $687 million increase in the 2017-18 guarantee by $578 million. The bulk of this increase reflects the and $3.1 billion increase in the 2018-19 guarantee, prior-year increase carrying forward. The administration accounts for the $6.3 billion total spending included in also assumes assessed property values will grow the Governor’s Proposition 98 package. slightly faster than 2017-18 Budget Act estimates (rising Comments 6 percent rather than the earlier estimate of 5.3 percent). For both 2016-17 and 2017-18, the upward revisions 2017-18 Attendance Assumptions Have result in a dollar-for-dollar reduction in General Fund Significant Implications. The administration’s spending. For 2018-19, the administration estimates assumption of attendance growth in 2017-18 is a property tax revenue will increase $1.3 billion from the revised 2017-18 level (see Figure 11). This increase mainly reflects a Figure 11 5.6 percent increase in assessed Proposition 98 Key Inputs and Outcomes property values. The higher property Under Governor’s Budget tax revenue in 2018-19 covers about (Dollars in Millions) 40 percent of the estimated increase in the minimum guarantee that year. 2016-17 2017-18 2018-19 Minimum Guarantee Additional General Fund $49,993a $52,741 $54,564 Proposition 98-Related Local property tax 21,397 22,470 23,761 Funding Totals $71,390 $75,211 $78,324 Change From Prior Year Budget Includes $2.5 Billion General Fund $568 $2,747 $1,823 in Additional One-Time Funding. Percent change 1.1% 5.5% 3.5% Separate from the increases in the Local property tax $1,718 $1,074 $1,291 2017-18 and 2018-19 minimum Percent change 8.7% 5.0% 5.7% guarantees, the Governor’s budget Total funding $2,287 $3,821 $3,114 contains $2.5 billion in Proposition 98 Percent change 3.3% 5.4% 4.1% funding attributable to other Operative Test 3 2 3 adjustments. The largest of these Maintenance Factor adjustments is the expiration of Amount created (+) or paid (-) $1,279 -$1,172 $83 $2.2 billion in one-time initiatives Total outstandingb 1,350 228 320 funded in 2017-18, with the Growth Rates associated funding repurposed for K-12 average daily attendance -0.2% 0.02% -0.3%c new commitments in 2018-19. In Per capita personal income (Test 2) 5.4 3.7 4.3 addition, the budget identifies and Per capita General Fund (Test 3)d 2.7 6.0 4.1 repurposes $214 million in unspent a Includes General Fund provided on top of the minimum guarantee. b funds associated with previous years Outstanding maintenance factor is adjusted annually for changes in K-12 attendance and per capita personal income. (primarily 2015-16 and 2016-17). c Under the two-year hold harmless provision in the State Constitution, the 2018-19 guarantee is The Governor also proposes to make calculated as though attendance is flat in 2018-19. d As set forth in the State Constitution, reflects change in per capita General Fund plus 0.5 percent. a $100 million settle-up payment www.lao.ca.gov 19 analysis full gutter 2018-19 BUDGET significant development because it restarts the hold values seems consistent with the continued strength harmless provision and prevents a $230 million decline of the state’s real estate market. Over the three-year in the 2018-19 guarantee that otherwise would period, the administration’s estimates are $248 million occur. Under our November outlook, we projected above our November 2017 estimates, though this that attendance would decline even faster than the difference amounts to less than 0.4 percent of all administration assumes in 2018-19, with the potential property tax revenue collected during the period. associated reduction in the guarantee equating to more Further Upward Revisions to General than $400 million. We recommend the Legislature Fund Revenue Unlikely to Increase Minimum carefully scrutinize preliminary 2017-18 attendance Guarantee Significantly. In most years, increases data—likely available in March—to determine whether in General Fund revenue lead to increases in the growth is likely to materialize in 2017-18. If growth Proposition 98 minimum guarantee. These increases does not materialize, the 2018-19 guarantee could often reflect higher required Proposition 98 maintenance be several hundred million dollars below the level the factor payments. The Governor’s budget, however, administration currently assumes. The assumption already assumes the state pays off most of its about growth in 2017-18 also has significant maintenance factor obligation by the end of 2017-18. implications for estimates of the 2019-20 guarantee, The Governor’s budget also assumes the guarantee is given that the hold harmless provision applies for already growing at the same rate as per capita personal two years and both our office and the administration income in 2017-18 and only slightly below this rate in assume attendance declines in 2019-20. 2018-19. Under these conditions, increases in General Administration’s Property Tax Estimates Fund revenue tend to have only modest effects on the Appear Reasonable. The administration’s property minimum guarantee. Given these factors, we estimate tax estimates for 2016-17 generally reflect the the 2017-18 and 2018-19 guarantees likely would not latest available data and are likely close to the final increase more than a few hundred million dollars even amounts for the year. For 2017-18 and 2018-19, the if revenues increased several billion dollars from the administration’s estimated growth in assessed property Governor’s January budget level. LOCAL CONTROL FUNDING FORMULA In this section, we focus on LCFF. The section charter schools. Previously, the state allocated school has three parts. We first look at issues relating to the funding through a combination of general purpose full implementation of LCFF. We then present data grants (called “revenue limits”) and more than 40 state on how high-poverty and low-poverty schools have categorical programs. Districts could use general spent their LCFF funding increases in recent years. We purpose grants for any educational purpose but had to end by discussing several options for allocating any spend categorical funding on state-prescribed activities. Proposition 98 funding above the full implementation In 2013-14, the state eliminated most categorical cost of LCFF. programs, replacing all the previous program-specific funding formulas with one new formula. FULL IMPLEMENTATION LCFF Formula Has a Per-Student Base Grant. The largest component of LCFF (accounting for about Below, we provide background on LCFF and analyze 80 percent of the formula’s total cost) is a base grant the Governor’s proposal to fully fund the formula in generated by each student. Base rates vary across four 2018-19. grade spans, with students in higher grades generally generating more funding than those in lower grades. Background In establishing the base rate for high school, the state State Enacted New School Funding Formula built in an amount to recognize the shift of responsibility in 2013-14. Five years ago, the state enacted major for career technical education from regional entities changes to the way it funds school districts and to school districts. In establishing the K-3 base grant, 20 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET the state built in an amount to recognize the desire for for identifying low-income students is broad and smaller class sizes in the early grades. In setting the includes students of varied backgrounds. Low-income initial target base rates for each grade span, the state students attending high-poverty districts may face more increased funding over existing average levels by about individual-level challenges than their peers attending $500 per student. low-poverty districts. The same could be true for the Formula Allocates Additional Funding for English non-low-income students attending these districts. Learners and Low-Income (EL/LI) Students. In An Illustration of Two Districts’ LCFF addition to the base grant, districts receive funding for Calculations. Figure 13 (see next page) shows the serving EL/LI students. Under LCFF rules, a student LCFF calculation for two equally sized elementary who is only EL or only LI generates the same amount school districts. Both districts serve the same number of funding as a student who is both EL and LI. For each of students in each of the K-3 and 4-6 grade spans, EL/LI student, a district receives a supplemental grant so they generate the same amount of base funding. equal to 20 percent of the base grant. This funding District A serves a notably higher share of EL/LI largely is intended to address the individual challenges students than District B (91 percent compared to EL/LI students face—for example, needing to learn 50 percent) and thus generates more supplemental English or having access to few learning materials at funding. District A also has a student population that home. Districts serving a student population more is more than 55 percent EL/LI and thus generates than 55 percent EL/LI also receive a concentration concentration funding. Given these differences in grant funding equal to 50 percent of the base grant for student demographics, District A receives a total of each EL/LI student above the 55 percent threshold. $449,000 more than District B—$2,041 (24 percent) This funding largely is intended to address broader more per student. challenges affecting higher-poverty communities. Regulations Restrict the Use of EL/LI Funding. Both Individual and Community Factors State law directed SBE to develop specific regulations Contribute to Achievement Gap. Figure 12 guiding the use of supplemental and concentration shows how both individual- and district-level challenges contribute to the achievement gap. Although Figure 12 low-income students perform worse High-Poverty Districts Have Worse than non-low-income students Student Outcomes Than Low-Poverty Districts regardless of which districts they Percent of Students Meeting or Exceeding Standard for attend, both student groups in 8th Grade English Language Arts, Spring 2017 high-poverty districts perform 80% notably worse than peers in low-poverty districts. (Throughout Statewide 70 74.5% this section, we define high-poverty Low-Poverty Districts 67.7% districts as those serving more than 60 High-Poverty Districts 80 percent EL/LI students, and 50 54.2% low-poverty districts as those serving less than 50 percent EL/LI students. 40 42.9% To isolate the effects of LCFF in our 30 35.6% later analysis, we also exclude basic 32.2% aid districts.) The relatively poor 20 performance of high-poverty districts 10 widens the statewide achievement gap because low-income students are disproportionately likely to Low-Income Students Non-Low-Income Students attend such districts. An important caveat is that the state’s method www.lao.ca.gov 21 analysis full gutter 2018-19 BUDGET grant funding. These regulations Figure 13 require districts to use these funds Illustration of LCFF Calculation for Two Elementary Districts for the benefit of EL/LI students. Districts could use the funds for Underlying Funding Rates Based on 2018-19 Governor’s Budget supplemental services, such as District A District B Difference counseling or after school programs District Characteristics for these populations. They also Grade K-3 attendance 100 students 100 students — could use these funds on districtwide Grade 4-6 attendance 120 students 120 students — purposes (including across-the-board EL/LI percentagea 91% 50% 41% teacher salary increases) if they can LCFF Funding document how these districtwide Base funding $1,712,000 $1,712,000 — expenditures will benefit their Supplemental funding 312,000 171,000 $141,000 EL/LI students. State law requires Concentration funding 308,000 — 308,000 each district and charter school to Totals $2,332,000 $1,883,000 $449,000 document their use of supplemental a EL/LI students as a share of total enrollment. and concentration grant funding in LCFF = Local Control Funding Formula and EL/LI = English learner/low-income students. their LCAPs, which are reviewed by COEs to ensure the plans comply proposes trailer bill language directing SBE to design a with state spending restrictions. template for an addendum to district budgets. Districts Full Implementation Was Expected to Take would need to begin using the template starting in Several Years. Given the higher target funding rates 2019-20. under LCFF compared to the state’s former school Assessment funding system, full LCFF implementation initially was estimated to cost $18 billion more than the previous Prioritizing LCFF Implementation Consistent system. Starting in 2013-14, the state augmented With State’s Prior-Year Actions. The Governor’s plan LCFF funding to close the difference (or gap) between to dedicate most new ongoing K-12 funding to LCFF prior-year funding levels and the formula’s full implementation is consistent with the Legislature’s implementation cost. Based on projections of growth in approach over the past five years. By continuing to Proposition 98 funding, the administration estimated the prioritize LCFF implementation, both the Governor and state would reach full LCFF implementation in 2020-21. the Legislature would be fostering greater local control Over the past five years, the state has provided and flexibility while simultaneously providing more $17.1 billion towards implementing the formula. As funding for disadvantaged students. Figure 14 shows, LCFF was 73 percent-funded in Proposed Budget Addendum Adds Work but 2013-14 and is 97 percent-funded in 2017-18. Little Value. State law already requires districts to align their budgets with their LCAP goals, and districts’ Governor’s Proposal LCAPs already document how these goals are linked Fully Implements LCFF. The Governor proposes to specific expenditures. Although we agree with the a $2.9 billion (5.4 percent) augmentation in 2018-19— administration that current LCAPs are difficult for most bringing total LCFF funding to $60.3 billion. Of the parents to digest, this is primarily because of their $2.9 billion augmentation, we estimate $1.2 billion length (often running over 100 pages) and complexity. is necessary to cover a 2.51 percent COLA to the Adding an addendum to district budgets—another long formula’s target rates. The remaining $1.7 billion covers and complex document—seems counterproductive. 100 percent of the “gap” between last year’s funding Consequently, we recommend the Legislature reject the level and the formula’s full implementation cost. Governor’s proposal and focus instead on simplifying Proposes Addendum to District Budgets. The LCAPs. administration indicates it would like districts to improve At Full Implementation, Districts Are Required how they show alignment between their budgets to Show How All EL/LI Funds Benefit EL/LI and their LCAP goals. Specifically, the administration Students. Prior to full implementation, regulations do 22 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET not require districts to spend their entire supplemental regulations allow districts to spend less than their total and concentration grant allotments on EL/LI services. EL/LI allotment on supplemental services, we found Rather, the regulations require districts to spend a the average district already spent 84 percent of its growing portion of this funding on EL/LI services. At entire supplemental and concentration grants on such full implementation, the regulations no longer focus services. To reach 100 percent at full implementation, on incremental increases but on districts’ entire EL/LI districts statewide would have to increase spending allotments. Some school districts have expressed on EL/LI students by about $1.5 billion over two concern that at full implementation they will need to years—2017-18 and 2018-19. This is a notable but make major budget adjustments to ensure they are seemingly manageable increase, as districts increased meeting the higher spending requirement. spending on these students by about $6 billion from At Full Implementation, Districts Unlikely to 2013-14 through 2016-17—or about $1.5 billion per Have to Change EL/LI Spending Significantly. To year. evaluate these concerns, we reviewed approximately Going Forward, Legislature Has Many Options 100 LCAPs for the 2016-17 school year. Specifically, for Allocating Additional Funding. In recent years, for each LCAP, we identified the amount the district the Legislature has dedicated most new Proposition 98 reported spending for EL/LI students. Although current funding to implementing LCFF. In 2018-19, the Figure 14 Tracking Implementation of the Local Control Funding Formulaa Formula for School Districts and Charter Schools (Dollars in Billions) $70 Target Gap Funding Base 100% 60 48% of gap 58% of gap funded of gap funded 53% funded 50 of gap funded 30% of gap 12% funded 40 of gap funded 30 20 10 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 73% 83% 91% 96% 97% 100% Percent of Target Level Funded a Numbers are final through 2016-17, estimated for 2017-18, and proposed for 2018-19. www.lao.ca.gov 23 analysis full gutter 2018-19 BUDGET Legislature has about $1 billion in new Proposition 98 federal categorical funding for serving EL/LI students. funding above the cost of fully implementing LCFF. In The LCFF directed even more state funding for EL/LI some future years, the state likely will face a similar students such that, in 2015-16, high-poverty districts scenario, with growth in Proposition 98 funding spent on average 23 percent more than low-poverty outpacing growth in LCFF costs. In allocating additional districts. funds, the Legislature will have many options to weigh. Spending Decisions Differ Notably Between In the remaining two parts of this section, we provide Low-Poverty and High-Poverty Districts. Figure 16 context to inform these decisions—first providing a shows how low-poverty and high-poverty districts high-level review of how LCFF affected school spending spent their LCFF funding increases. Notably, whereas the past few years and then discussing various options low-poverty districts spent 63 percent of their increased for allocating additional funding moving forward. funding on teachers, high-poverty districts spent 49 percent of their increased funding on teachers. A LOOK BACK: Low-poverty districts also spent a notably smaller SCHOOL SPENDING DECISIONS share of their funding increases on materials and other expenses (16 percent) than high-poverty districts Legislators and advocates both have expressed (28 percent). interest in understanding how schools have spent the LCAPs Indicate EL/LI Funding Primarily Funds billions of dollars in new funding they have received Supplemental Services. The statewide expenditure under LCFF. In particular, many have asked to what data discussed above suggest high-poverty extent the supplemental and concentration dollars districts have in many cases used supplemental and generated by EL/LI students have been spent on concentration grant funding for targeted EL/LI services supplemental services versus across-the-board rather than teacher salaries. Our review of the increases in teacher salaries. Relatedly, many approximately 100 district LCAPs supports this finding. have asked whether and to what extent LCFF has We found most LCAPs detailed using supplemental and helped close the achievement gap between EL/LI concentration grant funding to purchase instructional and non-EL/LI students. Below, we address these materials for English learners, provide additional student questions by providing a high-level comparison of how LCFF funding Figure 15 increases were spent by low-poverty and high-poverty districts and High-Poverty Districts Spend Notably More Than Low-Poverty Districts tracking the achievement gap over the past few years. Total Expenditures Per Student, 2015‑16 Dollars Findings High-Poverty Districts Low-Poverty Districts High-Poverty Districts Have Seen Particularly Large Revenue Increases Since LCFF Was $9,684 Enacted. Figure 15 compares 2012-13 $8,499 the inflation-adjusted, per-student expenditures for low-poverty and high-poverty districts in 2012-13 and 2015-16, the most recent $12,452 2015-16 year for which LCFF expenditure $10,135 data are available. Even before LCFF, high-poverty districts spent 2,000 4,000 6,000 8,000 10,000 12,000 $14,000 on average 14 percent more than low-poverty districts, primarily because they received state and 24 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET support staff (such as counselors) for high-poverty For example, 36 percent of low-income students met schools, and develop professional development for or exceeded state standards in eighth grade English teachers serving EL/LI students, among similar uses. language arts in 2017, compared with 68 percent of High-Poverty Districts Continue to Have Larger non-low-income students. The gaps are similar at Classes, Pay Lower Teacher Salaries. Despite other grade levels, for math, and also between English having long received more funding per student than learners and non-English learners. Achievement gaps low-poverty districts, high-poverty districts traditionally have remained largely unchanged since the current have had both larger class sizes and less competitive statewide assessments were introduced in 2015-16. teacher pay. Figure 17 (see next page) shows these California’s achievement gap between low-income gaps persist despite the large funding increases and non-low-income students also remained largely high-poverty districts have received under LCFF. The unchanged on the National Assessment of Educational gaps, however, have narrowed somewhat. Though Progress between 2012-13 and 2015-16. the student-to-teacher ratio declined for both groups of districts from 2012-13 to 2015-16, the percentage A LOOK AHEAD: decline was greater for high-poverty districts FUTURE FUNDING DECISIONS (12 percent) than low-poverty districts (5 percent). Similarly, the average teacher salary increased for both Below, we briefly discuss some of the options the groups of districts, but the percentage increase was Legislature has for allocating additional Proposition 98 slightly greater for high-poverty districts (7.4 percent) funding once full LCFF implementation is reached. than low-poverty districts (6.8 percent). Specifically, we focus on six possible options: Achievement Gap Persists Under First Few Years (1) increasing base rates, (2) increasing supplemental/ of LCFF. Despite relatively large funding increases concentration rates, (3) changing rules for how districts for high-poverty districts, EL/LI students continue to generate EL/LI funding, (4) focusing concentration trail their non-EL/LI peers on statewide assessments. funding on the highest-poverty districts, (5) providing Figure 16 Spending Decisions Differ Notably Between Low-Poverty and High-Poverty Districts Changes in Unrestricted Expenditures From 2012‑13 to 2015‑16 Low-Poverty Districts High-Poverty Districts Materials Teacher Teacher and Other Salary Materials Salary Expenses Increases and Other Increases Expenses Other Staff New Teacher Hires Other New Teacher Staff Increased Teacher Increased Teacher Hires Benefit Costs Benefit Costs www.lao.ca.gov 25 analysis full gutter 2018-19 BUDGET Figure 17 High-Poverty Districts Still Have Larger Class Sizes and Lower Teacher Salaries LAO Estimates, Salaries in 2015‑16 Dollars Low-Poverty Districts High-Poverty Districts Average Teacher Salary Student-to-Teacher Ratio $78,358 $75,968 $73,345 $70,737 21.2 18.3 18.7 17.3 2012-13 2015-16 2012-13 2015-16 clearer guidance and/or more flexibility for how estimate about $100 million would go towards high-poverty districts may use EL/LI funding, and increased supplemental and concentration grants. (6) creating new categorical programs. Increased Supplemental and Concentration Rates Would Signal Greater Focus on Options for Legislative Consideration EL/LI Students. In setting the supplemental and Increased Base Rates Would Help All Districts concentration rates, the state considered the additional on Multiple Fronts. In particular, all districts are facing cost of educating EL/LI students, including the cost of significant pressures related to increased pension supplemental services like English language instruction costs. Additionally, nearly all districts have experienced and counseling. Current research, however, offers notable increases in special education expenditures in no consensus on exactly how much more it costs to recent years and have redirected a growing share of educate an EL/LI student effectively compared to a their LCFF dollars to special education. (These latter non-EL/LI student. Given that high-poverty districts pressures appear to be driven by a notable increase continue to have larger class sizes and less competitive in the number of students diagnosed with autism.) teacher pay, coupled with the size and persistence Increased base rates would provide both high- and of California’s achievement gap, policymakers might low-poverty districts additional general purpose reasonably conclude that existing EL/LI funding funding to accommodate these cost pressures. We rates are insufficient to compensate for the many estimate a 1 percent increase in LCFF base rates would socioeconomic factors contributing to poor student cost about $600 million. Because supplemental and outcomes. We estimate a 1 percentage point increase concentration grants are calculated as a percentage in the supplemental rate (from 20 percent to 21 percent) of base rates, an increase in base rates also would would cost about $200 million, whereas a 1 percentage increase EL/LI funding. Specifically, of the $600 million point increase in the concentration rate (from needed to increase base rates by 1 percent, we 50 percent to 51 percent) would cost about $60 million. 26 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Changing Rules for Generating EL/LI Funding allow them to spend EL/LI funding on districtwide Could Help Students With the Greatest Challenges. purposes (for example, improving the competitiveness Currently, the state treats a student with one identified of teacher salaries). If the Legislature were to provide cost factor (for example, being an English learner) the clearer guidance and/or relax existing spending same as a student with multiple identified cost factors restrictions for high-poverty districts, those districts (for example, being an English learner, low-income, and might begin improving their core services—hiring more in the foster system). Policymakers could reasonably teachers, reducing class size, and paying teachers question this policy, as students with a greater number more—which, in turn, could have greater benefit for of risk factors might be more costly to educate and EL/LI students than additional supplemental services. support. Whereas low-income students tend to benefit New Categorical Programs Would Ensure from counseling, tutoring, after school programs, and Spending on Legislative Priorities. Some other wraparound support, a low-income English policymakers have expressed concern that under LCFF learner likely could benefit from these types of services districts have insufficiently prioritized programs such as well as specific support in learning English. In the as after school activities or CTE. One way to ensure same vein, a foster youth lacking any family support increased expenditures on legislative priorities is to might benefit from more intensive counseling and introduce or augment funding for categorical programs. wraparound support than other low-income students. This approach, however, has the same drawbacks as To address these cost differences, the state could the state’s previous school finance system—namely change the rules for generating EL/LI funding such that increased complexity, greater administrative burden, a student with multiple identified cost factors counted and an emphasis on siloed, compliance-based school multiple times. At current LCFF rates, we estimate it budgeting as opposed to a coordinated focus on would cost about $2 billion to allocate supplemental student outcomes. funding based on duplicated EL/LI student counts. Important to Decide Core Policy Objectives. Raising Concentration Threshold Would Target In considering these options, we recommend the Funding to Highest-Poverty Districts. Under LCFF, Legislature first decide which policy objectives to 58 percent of districts receive concentration funding. prioritize. Among the potentially competing objectives This suggests EL/LI funding is not particularly targeted are: helping districts accommodate broad-based to the state’s highest-poverty districts. If the Legislature cost increases, mitigating socioeconomic factors wished to increase funding for these districts, it could contributing to the achievement gap, improving the raise the threshold for generating concentration grant educational resources and core programs offered by funding above 55 percent EL/LI while also increasing high-poverty districts, increasing spending on certain the concentration funding rate. For example, we legislative priorities, and allowing local leaders the estimate setting the concentration threshold at flexibility to develop budgets responsive to local needs. 80 percent EL/LI while holding overall concentration The Legislature has options for achieving each of these spending constant would increase per-student funding objectives and could address several simultaneously by $750 in the 25 percent of districts serving the state’s by combining some of the options discussed above. highest-poverty communities. For example, by increasing the threshold for generating Providing More Flexibility to High-Poverty concentration funding from 55 percent to 80 percent Districts Could Help Them Improve Core Programs. EL/LI and increasing concentration rates while also Our findings regarding how high-poverty districts are eliminating any restrictions on the use of this funding, using their LCFF funding increases suggest districts the Legislature could enable high-poverty districts to generally have followed a narrow interpretation of improve their core educational programs while still state spending restrictions (for example, purchasing ensuring EL/LI funding is used primarily for the benefit supplemental instructional materials). They have largely of disadvantaged students. not taken advantage of regulatory provisions that would www.lao.ca.gov 27 analysis full gutter 2018-19 BUDGET STATEWIDE SYSTEM OF SUPPORT In this section, we first provide an overview of Framework Includes Three Levels of Support. California’s system for supporting districts with identified In developing the new framework, SBE has identified performance issues. We then describe and assess the three levels of support: Governor’s package of support proposals and end by • Support for All LEAs (Level 1). All LEAs have offering associated recommendations. access to a variety of support intended to help Background them access information on best practices and improve their student performance. For example, For Decades, California Has Supported LEAs COEs provide support to districts in developing Identified With Poor Performance. Since 1977, their LCAPs. the state has spent billions of dollars to improve • Individually Tailored Support (Level 2). A district outcomes in schools and school districts. These that is identified as having poor performance for programs typically have had some methodology for at least one student group in two or more state identifying schools and districts in need of support priority areas is to receive individually tailored and a requirement that schools and districts create assistance. Under current law, identified districts improvement plans. Some of the programs have been must receive assistance from their COE. The COE optional, others mandatory. The most recent programs is to do one of three things: (1) conduct a “root have focused at the district level and tailored support cause” analysis to assess a district’s strengths depending on the severity and persistence of a district’s and weaknesses and identify the primary causes problems. The programs have tended to rely heavily on of its performance issues, (2) assign an academic COEs to provide support. expert, or (3) ask for assistance from CCEE (an LCFF Legislation Includes New Framework for agency created in 2013-14 to support districts in Measuring LEA Performance . . . Chapter 47 of improving outcomes). 2013 (AB 97, Committee on Budget) specifies eight • Intensive Intervention (Level 3). Level 3 state priority areas intended to encompass the key support is intended for districts with pervasive ingredients of high-quality educational programs. For performance issues that persist over several each of these priority areas, Chapter 47 lists specific years. Specifically, the SPI may intervene in performance measures. In the spring of 2017, SBE a school district if it has poor performance released the School Dashboard, a website that for three or more student groups in two or displays school and district performance measures. more state priority areas for three out of four The Dashboard currently displays results on four years. Intervention may only occur if CCEE has measures—student test scores, English learner determined that the problems in the district are progress, graduation rates, and suspension rates. Over so severe that intervention is necessary. If the SPI the next couple of years, as data becomes available, chooses to intervene, he or she can modify an the Dashboard also will include chronic absenteeism LCAP, impose budget revisions aligned with the rates and a college and career indicator. revised LCAP, or stay or rescind a school board . . . And New Framework for Supporting LEAs action that would prevent a district from improving Identified as Having Poor Performance. Under the student outcomes. new framework, results on the above performance measures are used to identify LEAs that have poor First Round of Districts Recently Identified performance. Similar to former state approaches, for Level 2 Support. In December 2017, the state state law sets forth levels of support depending on the identified the first set of districts in need of Level 2 severity and persistence of a district’s performance support. In total, 228 districts were identified for Level 2 problems. Although statute sets forth the framework for support. Of these 228 districts, 164 (72 percent) were this system, the details of how support will be provided identified because of the performance of their special have yet to be developed. education students. Most commonly, districts were 28 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET identified because their special education students had Governor’s Proposals low test scores and high suspension rates. Introduces Package of Support Proposals. As Under New Framework, Many Entities Funded to Figure 18 shows, the Governor’s budget package Support Districts. Under current law, several entities includes four proposals relating to LEA support. The are involved in supporting districts. Many of these package of proposals totals $76 million. The following entities are entrusted with providing multiple levels paragraphs describe each of these proposals in more of support. In the box on page 30, we discuss other detail. entities that also support districts but are not explicitly Increases COE Funding for Level 2 Support part of the LCFF framework. Activities. The Governor provides a $55 million • COEs. The state’s 58 COEs provide a variety ongoing augmentation to COEs to provide districts with of Level 1 support to their districts, including Level 2 support. From the $55 million, each COE would reviewing LCAPs, providing professional receive a base amount, with additional funding to be development, and monitoring fiscal health. COEs distributed based on the number of districts identified also are tasked with providing Level 2 support to for support within the county. COEs could provide identified districts. support in a number of ways generally consistent with • CCEE. Currently, CCEE conducts a variety current law, including conducting a root cause analysis, of Level 1 statewide trainings and organizes assigning an academic expert, or asking CCEE to professional learning networks intended to provide assistance. In most cases, districts would be support all interested districts. In addition, CCEE required to accept the assistance of their COE. The is operating a Level 2 pilot program for a small one exception is if the district can demonstrate that it number of LEAs. The pilot is intended to help already conducted a root cause analysis and is working inform improvement efforts moving forward. As with an academic expert or undertaking substantially envisioned under state law, CCEE also would be similar activities (all using district funding). In this responsible for making a determination whether a instance, the COE only would be required to keep district requires Level 3 support. apprised of the district’s efforts to improve outcomes. COEs also would have to report to the state the major • SPI. Upon making such a determination, the performance issues of each identified district and SPI can provide Level 3 support and intervene what each identified district is doing to improve its in a district that has a record of persistent performance. performance issues. Figure 18 Governor’s Budget Contains Package of Support Proposals (In Millions) Entity Description Amount County Offices of Education (COE) Directly support identified districts or assign an academic $55.2 expert. SELPA Regional Leads Work with COEs to directly support identified districts. 10.0 California Collaborative for Provide statewide training, collaborate with COE 6.5 Educational Excellence (CCEE) Regional Leads, and directly support identified districts. COE Regional Leads Help build COE capacity, develop resources in 4.0 collaboration with CDE and CCEE, and directly support identified districts. Total $75.7 SELPA = Special Education Local Plan Area. www.lao.ca.gov 29 analysis full gutter 2018-19 BUDGET Establishes COE Regional Leads to Support districts. The Governor also provides $500,000 for COEs With Less Capacity. The Governor also CCEE statewide trainings and $310,000 for base provides $4 million ongoing for select COEs to serve administrative costs. In addition, the Governor proposes as regional leads. Through a competitive process, CDE to carry forward $4.8 million in prior-year funding for and CCEE would identify six to ten COEs across the 2018-19 statewide training and administrative costs. In state to serve as the lead COE within its region. Each 2019-20, the administration expects to increase CCEE regional lead would assist COEs in the region to better ongoing funding from $6.5 million to $11.3 million to support districts, work with CDE and CCEE to develop reflect the loss of these one-time funds. resources, and provide direct Level 2 support when Assessment requested by a COE in its region. Establishes SELPA Regional Leads to Work Serious Overriding Concerns With Governor’s With COEs. The Governor’s proposal also includes Approach. We believe the attention the Governor is $10 million ongoing to fund six to ten SELPA regional giving to the state’s new system of support is warranted. leads. As with the COE regional leads, the SELPA The state is at the key stage of refining the details of the leads would be chosen by CDE and CCEE through system and figuring out what activities, if any, require a competitive process. The SELPA leads would help additional funding. We think the Governor’s overall COEs support identified districts. approach, however, has significant shortcomings. Provides Ongoing Funding to CCEE to Support • First, the Governor’s approach minimizes district COEs and Districts. The Governor provides choice, as an identified district is required to $6.5 million ongoing to CCEE. Of this amount, receive Level 2 support from its COE (unless it $3.2 million is for supporting COEs and regional leads uses district funding to purchase such support). and $2.5 million is for directly supporting identified This limited choice, in turn, could reduce the Other Funds Used to Support Districts State Supports Districts Using a Variety of Other Funding Streams. These streams primarily go to a few select COEs that serve as either statewide or regional hubs of expertise on select topics. Although the support provided by these COEs resemble Level 1 and Level 2 support, the state has not integrated these funding streams and activities explicitly into the LCFF framework. Federal Funds Are Used for Level 2-Type Support. For many years, the state has used federal Title I funding to support LEAs with performance issues. Most notably, 11 COEs receive $10 million annually to run the Regional System of District and School Support (RSDSS). COEs receiving this funding have long supported districts and schools within their region that have identified performance issues. For many years, the state also has used $3 million annually in Title I funds for the California Comprehensive Center, which serves as a statewide center of expertise on district and school improvement issues. Additionally, the state provides $2 million in federal Title III funding for 11 COEs to support programs for English learners (5 of these COEs also serve as RSDSS COEs). Recently, Additional State Funds Allocated for Level 1-Type Support. In recent years, the state has provided funding for additional support to districts. In 2015-16 and 2016-17, the state provided a total of $30 million in one-time funding for a COE to develop statewide resources, provide training, and allocate subgrants to districts to implement an improvement strategy known as a multi-tiered system of support. From 2015-16 through 2017-18, a total of $9 million in CTE Incentive Grant funding went to seven COEs to serve as regional hubs of expertise on CTE issues. Additionally, the 2017-18 budget provided $2.5 million in one-time funding for at least two COEs to identify and provide resources to support LEAs in promoting student equity. CDE is currently requesting applications from interested COEs to use this funding. 30 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET quality and timeliness with which a district and the increasing use of virtual support networks, receives tailored support, as a COE might not the Legislature likely would want to undertake serious have in-house expertise to address a particular deliberation before pursuing a regional approach. district’s particular performance issues. SELPA Proposal Has Added Problem of • Second, by creating two sets of new regional Working Counter to Rest of LCAP Approach. leads, the Governor’s approach includes Aside from the SELPA regional leads’ roles being too many actors with unclear and potentially unclear and likely duplicative of the other regional duplicative roles. COE leads, pulling in SELPAs to address only special • Third, the approach creates a multilayered system education issues silos support and disconnects that focuses on supporting COEs (through regional special education performance issues from other leads and the CCEE), rather than focusing on student performance issues. It also works counter to districts with identified performance issues. fostering better communication and planning between special education and general education. LEAs and Serious Concerns With Specific Support states, including California, have spent many years Proposals. In addition to our overriding concerns with moving away from the silo approach to a more holistic, the Governor’s approach, we have notable concerns coordinated approach. Moving forward, the state with each of his four specific support proposals, which presumably wants to avoid having a SELPA help a we discuss below. district with a special education performance issue, only COEs Already Funded Through LCFF to Offer to make an EL issue worse, for example, or to overlook Support. The bulk of new funding provided in the an intertwined performance issue stemming from a Governor’s package of proposals is allocated to COEs district’s general education practices. to provide Level 2 support. COEs, however, already Most of CCEE Funding Does Not Directly receive funding for these types of activities through their Support Districts With Performance Issues. Under LCFF allocations. As we discuss in our 2017 report, the Governor’s CCEE proposal, more funding goes Re-Envisioning County Offices of Education: A Study of to supporting regional entities than districts with Their Mission and Funding, COEs’ existing funding is performance problems. As mentioned above, we are not more than sufficient to conduct their statutorily required convinced that such an indirect approach is warranted support activities, including helping districts that have given modern advances in communication and support. been identified with performance issues. Additionally, by involving such a large number of Regional Lead Roles Appear Duplicative, Likely actors in the system of support, the Governor makes Unnecessary. The proposal to create two sets of the CCEE’s job of communicating with COE regional COE regional leads appears duplicative not only of leads, SELPA regional leads, and COEs particularly existing regional leads but also of other entities (COEs challenging. Though we are concerned about the and CCEE) included in the Governor’s package of relatively large amount designated for supporting proposals. Under current law, 11 COEs already receive regional hubs, we have less concern with the remainder a total of $10 million to serve as regional leads to of proposed CCEE funding, as it goes for direct district support low-performing districts and schools. The support or statewide trainings. These funds could be administration’s proposal does not integrate these tailored to addressing statewide performance issues existing leads into the new support system. The (such as poor special education performance). distinction between the roles and responsibilities of Recommendations all COEs, the regional leads, and CCEE also is not entirely clear. Without clarity on who is supposed to be Recommend Alternative Approach to System of doing what, setting expectations for each entity and Support. Given the above concerns, we recommend holding each accountable for achieving its objectives is the Legislature reject the Governor’s package of virtually impossible. Perhaps of even greater concern, support proposals and consider an alternative the administration has not convincingly demonstrated approach. Below, we sketch an alternative system that a regional approach is the best approach to take in of support for school districts that addresses the building a new system. Given advances in technology shortcomings identified in the Governor’s proposal www.lao.ca.gov 31 analysis full gutter 2018-19 BUDGET and gives districts greater choice of support providers, competitive grant process to select numerous support clearly defines each agency’s roles, and establishes teams with the appropriate expertise. Grants would be clear lines of accountability. Compared to the open to COEs, districts, other providers of education Governor’s $76 million system, the alternative would services, and education consultants. Districts would cost $30 million (60 percent less). Figure 19 shows the work with CCEE to choose contracted experts best major advantages of this alternative. We describe the suited to help address their key performance issues. alternative approach in greater detail below. (As specified under current law, a district at any time Require COEs to Work With Identified Districts may use its LCFF funding to access other support.) to Do Root Cause Analyses. To assist districts The contracted experts would help districts with their in identifying their root performance issues, we improvement efforts. Support might come in the form of recommend that all COEs be required to work with helping a district select an improvement strategy, align identified districts to conduct root cause analyses. its budget with this strategy, and reprioritize professional As with the Governor’s proposal, we recommend development efforts. We recommend providing CCEE exempting COEs from the requirement if a district initially with a total of $30 million annually. The CCEE already has conducted the analysis. Given the state could use the funding to award the limited-term grants, already tasks all COEs with approving district LCAPs oversee contracts, monitor identified districts, and and budgets, we think COEs are positioned to examine conduct statewide trainings. This alternative approach root performance issues. Given COE’s current level of would provide districts with greater choice, allow the LCFF funding already is more than sufficient to provide state to be more nimble in responding to emerging district support, we recommend not augmenting their performance issues, and rely on the best expertise funding for these activities. available from anywhere in the state. Allow Districts to Access Support From Experts Monitor New System Before Funding Level 3 Contracted Through CCEE. Rather than funding Support. Prior to fully developing and funding Level 3 Level 2 support services through a combination of support, we recommend the state monitor the number COEs, COE regional leads, and SELPA regional leads, of identified districts and track improvement trends over we recommend providing funding to CCEE to contract the next few years. At that time, the state could identify with entities interested and expert in providing such whether changes should be made to Level 2 support support. Under this alternative, CCEE would use a and whether Level 3 funding is needed. Figure 19 Major Advantages of Alternative Approach to District Support 9 Centers the system around districts, not county offices of education (COEs). 9 Promotes district ownership of improvement efforts by allowing districts to choose from multiple teams of experts specializing in their performance issues. 9 Promotes responsiveness by allowing the California Collaborative on Educational Excellence to contract with new teams of experts each year as new district performance issues emerge. 9 Does not silo support for general education and special education. Fosters more holistic approach to identifying and responding to performance issues. 9 Does not provide COEs with additional funding for services they already are funded to provide through their Local Control Funding Formula allocations. 9 Does not create new regional entities with poorly defined roles. 9 Costs $30 million compared to $76 million—60 percent less. 32 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET CAREER TECHNICAL EDUCATION In this section, we provide background on high school various other areas of education, including programs CTE. We then describe and assess the Governor’s for low-income students. By 2008-09, the state funded proposal to create a new high school CTE program more than 50 categorical programs. funded through the CCC Strong Workforce Program. We end by offering associated recommendations. Figure 20 Background 15 CTE Industry Sectors High School CTE Has Various Objectives. High schools’ main CTE objectives are to: (1) promote Agriculture and Natural Resources student engagement by teaching academic subjects in a hands-on way; (2) teach students technical skills that can lead to further postsecondary education or Arts, Media, and Entertainment employment; (3) teach soft skills, such as teamwork and communication that can better prepare students Building and Construction Trades for additional education or the workplace; and (4) help the state meet its workforce goal of producing more Business and Finance middle-skilled workers. Schools Organize CTE Around 15 Industry Sectors. The CDE defines CTE as sequenced Education, Child Development, and Family Services coursework in one of 15 industry sectors. Figure 20 lists these sectors. CDE has developed Energy, Environment, and Utilities curriculum standards for each of the sectors. These CTE standards are aligned with the Common Core Engineering and Architecture State Standards. Historically, State Supported CTE Through Many Fashion and Interior Design Categorical Programs. Prior to the adoption of LCFF, the state funded several high school CTE categorical programs. Each of these categorical programs Health Science and Medical Technology had specific spending and reporting requirements. The largest CTE categorical program was Regional Hospitality, Tourism, and Recreation Occupational Centers and Programs (ROCP). ROCP provided regional CTE training to adults and high Information and Communication Technologies school students age 16 and older. The state also supported several smaller CTE categorical programs. These programs generally focused on a particular CTE Manufacturing and Product Development industry sector, as with the Agricultural Incentive Grant, or a specific CTE delivery model, as with the cohort Marketing, Sales, and Service approach of the California Partnership Academies. The state also funded the CTE Pathways Program, an Public Services initiative to better align high school CTE with community college CTE. The categorical approach to CTE was similar to the state’s approach at this time to funding Transportation CTE = career technical education. www.lao.ca.gov 33 analysis full gutter 2018-19 BUDGET Largest CTE Program Was Eliminated and transition period, the state also funded two major Replaced With LCFF Five Years Ago. As with most limited-term CTE initiatives. The first was the California categorical programs, ROCP became discretionary in Career Pathways Trust, which provided a total of 2009, with the state allowing school districts to use $500 million over 2013-14 and 2014-15 for high ROCP funds for any educational purpose. In 2013-14, schools and community colleges to develop consortia the state adopted the LCFF, which permanently to align their CTE coursework with each other and eliminated about two-thirds of state-funded categorical with regional workforce needs. In 2015-16, the state programs and rolled their associated funding into one then created the CTE Incentive Grant initiative. The new student-based funding formula. Under the formula, expressed intent of this initiative was to help districts the state set a base per-student rate for high schools cover the costs of CTE over the LCFF phase-in period, that is notably higher than the rates set for the lower before the target rates were reached. The program grade spans (K-3, 4-6, 7-8). On top of the already ramped state funding down over a three-year period higher base rate, the state folded an amount equivalent ($400 million, $300 million, $200 million). The total to ROCP (roughly $400 million at the time) into the local match requirement was $400 million in year one, new formula. This action further increased the high $450 million in year two, and $400 million in year three. school base rate by an additional 2.6 percent, resulting Transitional Funding Linked With Districts in a total base rate 16 percent higher than the middle Fulfilling Certain Input-Oriented Requirements. school rate. The state then set target funding rates. The state’s CTE transition programs mostly relied on The state intended to ramp up LCFF funding gradually, compliance-based accountability that required school reaching the target rates by 2020-21. districts to fulfill certain programmatic requirements Several Programs Not Replaced by LCFF. as a condition of receiving funds. Though mostly Some categorical programs were not included in compliance oriented, some of the programs required LCFF and still have their own spending and reporting grant recipients to report some student performance requirements. The four CTE programs excluded data. For example, the Career Pathways Trust required from LCFF are the California Partnership Academies consortia to report on the number of courses they ($21 million), the CTE Pathways Program ($15 million), articulated and enrollment in their programs, as well Specialized Secondary Programs ($4.9 million), and as high school graduation rates. (The program also the Agricultural Incentive Grant ($4.1 million). School required consortia to report longer-term student districts must apply to each of these programs if outcome data, like transitions from high school to interested in receiving funding. The programs benefit college, but CDE indicated that the data was too few schools overall, but some programs benefit more preliminary to report to the state.) For the CTE Incentive than others. For example, half of funding for Specialized Grant initiative, grantees also had to meet certain Secondary Programs currently goes to two high CTE input-requirements, such as adhering to the CTE schools whereas funding for California Partnership curriculum standards. Neither the Career Pathways Academies goes to roughly 200 (of the state’s Trust nor the CTE Incentive Grant initiative set specific approximately 1,300) high schools. The programs are performance expectations, required school districts to mostly compliance oriented, but they tend to require establish CTE goals, or included repercussions for poor grant recipients to report on some short-term student performance. outcomes (such as high school graduation rates). LCFF Requires All School Districts to Prepare The programs, however, do not tend to have explicit Students for College and Career. LCFF was intended performance expectations or repercussions for poor to be a significant departure from the state’s former performance. categorical approach. Under LCFF, every school district During LCFF Phase In, State Funded Transitional is required to develop a strategic plan to guide how CTE Grant Programs. In addition to folding an amount they spend their LCFF dollars to meet student needs. equivalent to ROCP into LCFF, the state required school To hold schools accountable for serving students, districts to continue spending about $400 million on school districts report various student outcome data to ROCP annually in 2013-14 and 2014-15, as the state the state, which is then displayed on a public website ramped up LCFF funding amounts. During this early known as the School Dashboard. The Dashboard data 34 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET currently includes test scores, graduation rates, and outcomes, such as the number of students enrolling in suspension rates. It also includes a college and career college or entering the workforce. The state generally is readiness indicator. As Figure 21 shows, the indicator unable to track longer-term outcomes because school allows districts multiple options for demonstrating their districts and colleges do not systematically share their students are “prepared” or “approaching prepared” data. for college and career. Under the state’s accountability Governor’s Proposals system, if a school district does not do well on Dashboard indicators, it must examine its root issues Provides $212 Million for New High School CTE and access support to help it improve. Program Within CCC’s Strong Workforce Program. CTE Data Not Comprehensive and Generally The Governor allows the CTE Incentive Grant to expire Does Not Measure Longer-Term Outcomes. In in 2017-18, as currently scheduled in statute. In its 2016-17, the first year the state calculated college stead, he provides funding to the CCC Chancellor’s and career readiness as part of the Dashboard, about Office for a new high school CTE program that would 50 percent of students were deemed prepared, about be operated as part of the Strong Workforce Program. 25 percent were deemed approaching prepared, and The box on page 36 provides more information about the remainder were deemed not prepared. Though the Strong Workforce Program. the state has collected information about how many $200 Million Ongoing for CTE Aligned With students participated in CTE for many years, older data Regional Workforce Plans. Of the $212 million, generally is not comparable to this newer data because $200 million would go to the eight Strong Workforce data definitions and collection methods have changed. regional consortia. Consortia would receive funding In addition, the state does not have data on longer-term based on a formula that considers each region’s Figure 21 College and Career Readiness Indicator Gives Districts Optionsa Prepared High school diploma + any one of the following measures: • Completed a CTE pathway and (1) met standards on state tests in either English or math and nearly met standard in the other subject or (2) completed one semester of dual enrollment in college-level coursework (CTE or academic) • Met standards on state tests in both English and math • Completed two semesters of dual enrollment in college-level coursework (CTE or academic) • Passed two Advanced Placement or two International Baccalaureate exams • Completed all courses required for admission to UC and CSU and (1) completed a CTE pathway or (2) met standards on state tests in either English or math and nearly met standards in the other subject or (3) completed one semester of dual enrollment or (4) passed one Advanced Placement or International Baccalaureate exam Approaching Prepared High school diploma + any one of the following measures: • Completed a CTE pathway • Nearly met standards on state tests in both English and math • Completed one semester of dual enrollment in college-level coursework (CTE or academic) • Completed all courses required for admission to UC and CSU Not Prepared No high school diploma or high school diploma but no measures metb a Applied to every student in a district. The State Board of Education over the next three years plans to develop a “well prepared” category. That category is to include information about the number of students that earned certificates and participated in internships and other work-based learning in high school. b Student has not met any of the measures required to be deemed approaching prepared. CTE = career technical education; UC = University of California; and CSU = California State University. www.lao.ca.gov 35 analysis full gutter 2018-19 BUDGET statewide share of grade 7-12 average daily programs, it would provide more flexible funding tied to attendance, job openings, and unemployment. Once student needs. In addition, school districts would have consortia receive funding, they would distribute it to performance expectations and need to seek support if school districts in their region on a competitive basis. they failed to meet those expectations. With regard to To be eligible for grant funding, a school district would the delivery of CTE specifically, the LCFF approach has need to commit to using its grant funds for aligning its notable advantages over the old categorical approach. CTE with the Strong Workforce plan for its region. The Under the categorical approach, CTE was viewed as program also would require most grant recipients to an add-on to the core high school experience, and provide a match of two local dollars for every one dollar only those schools that received funding for a certain of Strong Workforce funding. CTE program were expected to offer a particular $12 Million Ongoing for Technical Assistance. The corresponding type of CTE. Under LCFF, every school remaining $12 million would go to hire 72 high school district is expected to prepare their students for college Workforce Pathway coordinators—one for each of the and career as part of their core high school program. 72 community college districts. Each employee would To do this, all school districts are required to develop work with school districts in their community college strategic plans for how they will meet their students’ district boundaries to help them coordinate their CTE needs, including how they will prepare them for college programs with their region’s Strong Workforce plan. and career. If a school district does poorly in preparing their students, they are identified for support. Assessment LCFF High School Funding Much Higher Today Many Benefits to LCFF Approach. The passage Than in Year 1 of Implementation. In 2017-18, high of LCFF was the culmination of more than a decade of schools are receiving a base LCFF rate of $8,700 per research and policy work on California’s school funding student—$2,400 more than the 2013-14 rate (the system. The state decided that rather than managing first year of LCFF implementation). In 2017-18, the school district budgets through dozens of categorical LCFF target rates are 97 percent funded. Under the CCC Strong Workforce Program State Created Strong Workforce Program in 2016-17. The 2016-17 budget provided $200 million in ongoing funding to the California Community Colleges (CCC) Chancellor’s Office to create a new career technical education (CTE) program. The purpose of the program is to improve the availability and quality of CTE programs leading to certificates, degrees, and credentials. In 2017-18, the state folded in a former CTE initiative, increasing Strong Workforce funding to $248 million. Program Emphasizes Regional Planning. The Strong Workforce Program requires community colleges to coordinate their CTE activities within eight regional consortia. Each consortium, consisting of all community colleges in the region, is to ensure that its offerings are responsive to the needs of employers and students. To this end, each consortium must collaborate with various local stakeholders, including local workforce development boards, industry leaders, and local education agencies, to develop a four-year plan for how they will address regional workforce needs. Colleges receive Strong Workforce funding to align their programs with the plan. Program funds are distributed to consortia based on demographic variables and performance in meeting regional workforce needs. Provides Technical Assistance to Help Regional Consortia Work With Industry. The CCC’s Economic Workforce Development program supports Strong Workforce Program efforts. Specifically, the Economic Workforce Development program provides funding for industry area experts at the Chancellor’s Office (known as Sector Navigators) and at community college districts (known as Deputy Sector Navigators). The Navigators connect community college CTE administrators and faculty with regional industry and labor leaders to help them align their CTE programs with workforce needs. 36 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Governor’s budget, LCFF would be fully implemented the Governor’s proposals, the CTE Incentive Grant in 2018-19. If approved, the base high school rate initiative allows high schools to offer any high-quality in 2018-19 would increase to $9,200. Although the CTE program, including ones that promote student initial 2.6 percent bump to the high school rate was engagement even if not directly tied to local labor associated with ROCP, the state set no expectation that market needs. The initiative also is overseen by CDE, high schools were to spend only 2.6 percent of their which has expertise in helping high schools understand LCFF funding on CTE. Nonetheless, the 2.6 percent CTE curriculum standards and build them into their CTE bump in 2013-14 equated to about $400 million, programs. Additionally, CDE already leads a network whereas today it equates to over $500 million. of regional CTE technical assistance centers designed Governor Takes Categorical Approach to to help high schools in designing and implementing Funding High School CTE. Despite five years of CTE their CTE programs. Neither the expertise of CDE nor transitional funding, the development of a college and these technical assistance centers are leveraged under career readiness indicator, and full implementation the Governor’s proposals. Moreover, the Governor’s of LCFF, the Governor proposes a new categorical proposals appear to give primary decision-making program for high school CTE. He also maintains several authority for high school CTE to community colleges, smaller categorical CTE programs. Such an approach— which could lead to unnecessary tension between the layered on top of LCFF—blurs lines of accountability, two agencies. splinters districts’ academic planning efforts, sends Recommendations mixed messages about whether CTE is core or an add on, and increases administrative burden for districts. Recommend State Use LCFF Approach to Fund New Program Is Not Coordinated With Existing High School CTE. We recommend the Legislature High School CTE Programs. Though the Governor’s use the LCFF approach to fund and support high proposal seeks to improve coordination among high school CTE. The LCFF approach focuses on student schools and community colleges, it does nothing to outcomes while also promoting local flexibility and improve coordination among existing high school CTE control. If the Legislature has concerns with the efforts. That is, the Governor continues to require high LCFF formula or associated accountability system, schools to apply separately for five CTE programs, we recommend modifying the existing formula or each of which has different rules and requirements accountability provisions rather than creating new and is not integrated into high schools’ core academic categorical programs. For example, if the Legislature planning and accountability system. Continuing four believes that school districts need more funding to small CTE programs, in addition to a new larger CTE offer CTE, it could increase the LCFF funding rate for program, works at cross-purposes to the goal of better high school students. If the Legislature believes that coordination. the state’s accountability system does not sufficiently incentivize schools to prepare their students for Proposals Also Have Potential to Focus High college and career, it could strengthen the college and School CTE Too Narrowly. Under the Governor’s career indicator. If concerned with the indicator, the proposals, high school CTE funding could be used Legislature, for example, might (1) split the indicator only for courses that meet regional workforce needs. into separate college and career indicators and/or Placing this restriction on Strong Workforce funding for (2) require districts to describe their CTE offerings and community colleges is reasonable because the primary partnerships in their strategic plans. goal of their CTE programs is to transition students into jobs in their regional labor market. High school CTE If Legislature Wishes to Pursue Categorical programs differ from community college CTE programs Approach, Recommend Adding Coordination in that they have additional goals, most notably student Requirements to CTE Incentive Grants. Should engagement and career exploration. If funding can only the Legislature decide to take a categorical approach be used on CTE courses that meet regional workforce to high school CTE, we recommend it reject the needs, these other important goals could be neglected. Governor’s Strong Workforce approach. We think the Legislature can meet the Governor’s primary objective When Compared to Governor’s Proposals, CTE of improving coordination by modifying existing CTE Incentive Grants Have Several Advantages. Unlike www.lao.ca.gov 37 analysis full gutter 2018-19 BUDGET program requirements. Specifically, we recommend the coordination. Specifically, having only the one rather Legislature build off the CTE Incentive Grant program than five CTE categorical programs on top of LCFF but add three new components (explained in the would help streamline districts’ strategic planning and three paragraphs below) that would encourage better program offerings while reducing administrative burden. coordination between high school and community Set Clear Objective for Program and Require college CTE. Explicit Reporting Requirements. We recommend the Align a Portion of High School CTE Courses state set a clear objective of what it would like any new With Regional Workforce Needs. Although the CTE or modified CTE categorical program to achieve over Incentive Grant program already requires school districts the next few years. To ensure the state can determine to coordinate with community colleges and align their whether the objective of the categorical program is CTE course offerings with regional market needs, we being achieved, we recommend the Legislature enact believe the program could go further in these areas. clear data collection and reporting requirements as well Specifically, as a condition of receiving CTE Incentive as set specific performance targets. We recommend Grant funding, we recommend the Legislature require the data tracked include a mix of short-term and high schools to align a minimum proportion of their longer-term outcomes. We also recommend the CTE course offerings with regional workforce needs. requirements apply to high schools giving data to The exact threshold set would depend upon how the CDE, as well as CDE giving data to the Legislature. Legislature weighs the relative benefits of workforce To maximize the value of this data and reporting, preparation compared to student engagement and the Legislature could ask CDE to provide annual exploration. Having some minimum threshold would performance updates during spring hearings. acknowledge that many high school CTE students likely Recommend Making Program Limited-Term. We will enter their local community college and/or the local recommend the state only extend the new program for workforce while still allowing high schools some flexibility a few years. It could use the data collected across the to meet their other CTE goals. period to evaluate how best to move forward once the Require School Districts and Community program sunsets. Colleges to Share Data and Accountability for Weigh Trade-Offs When Determining Program Student Outcomes. We recommend the Legislature Funding Level. In deciding how much to appropriate require high schools and community colleges to share for any new or modified CTE program, the Legislature data with each other on a statewide basis. This data faces a basic trade-off. The greater the amount sharing would allow for longer-term student outcomes provided for the CTE categorical program, the less to be tracked. If this data were to become available, available for LCFF. That is, providing more categorical we recommend both segments add the longer-term funding for CTE would guarantee that schools offer outcomes to their accountability systems. For high more CTE programs but potentially come at the schools, this would mean incorporating the new expense of local priorities, flexibility, and control. outcomes (such as how many students enroll and Additionally, the more provided through the CTE complete community college training programs) into categorical program, the more confusion districts the Dashboard’s college and career indicator. For might have regarding whether LCFF or the categorical community colleges, this would mean linking the Strong program is to be the primary vehicle for CTE planning Workforce performance funding component in part to and accountability. Keeping the CTE Incentive Grant colleges’ ability to enroll students transitioning from high program at its current funding level could signal school CTE programs. to districts that the program still is intended as Fold the Remaining High School CTE Programs supplemental to LCFF, rather than the primary fund Into CTE Incentive Grant Program. Eliminating other source for CTE. If the Legislature wished to signal in high school CTE programs and folding their associated this way, it could consider setting funding for the Grant funding into the CTE Incentive Grant program would program at its 2017-18 spending level ($200 million in increase Grant funding by about $40 million. Compared state funding plus district matching of $400 million). By to having five CTE programs, the one consolidated comparison, high schools statewide received a total of statewide CTE program would promote better CTE $19 billion in LCFF funding that year. 38 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET SPECIAL EDUCATION TEACHER PROPOSALS In this section, we provide background on special Schools Report Longstanding Shortage of education staffing in California, describe and assess the Special Education Staff. To comply with a federal Governor’s two proposals relating to special education requirement, each year California identifies areas teachers, and offer associated recommendations. of school staffing shortages. Since the state began reporting in the early 1980s, it has identified shortages Background of special education teachers and specialists nearly Two Types of Special Education Staff—Teachers every year. Shortages of special education staff, and Specialists. Special education teachers provide however, are not unique to California. In 2017-18, all instruction to students with disabilities and help but three states (Alaska, Georgia, and New Mexico) coordinate other special education services that reported special education shortages. Districts respond students receive. State law generally requires special to special education staffing shortages in various ways, education teachers to hold a teaching credential that including recruiting teachers internationally, hiring is aligned with the types of disabilities of the students staff without required credentials on a waiver basis, they teach. Figure 22 shows the seven types of and delaying services (such as therapy sessions) for special education credentials the state currently students. authorizes. In addition to teachers, specialists provide Shortages Are Particularly Acute for Certain a range of direct services to students with disabilities. Types of Teachers and Specialists. Although the Services can include providing a student who has state faces shortages of all types of special education a speech impediment with speech therapy and teachers, these shortages are particularly acute for providing sign language interpretation for a student teachers of students with moderate/severe disabilities. who is deaf. Specialists typically hold a license from a In 2015-16, 40 percent of new teachers of students national professional organization, which establishes with moderate/severe disabilities lacked the required profession-specific training requirements. According to credential. By comparison, 25 percent of new teachers CDE, 48,000 special education teachers and 24,000 of students with mild/moderate disabilities lacked the specialists were working in California schools in required credential. Similarly, certain types of specialists 2015-16. are in particularly short supply. Most districts try to Figure 22 Seven Types of Special Education Teaching Credentials Credential Focus of Credential Mild/Moderate Disabilities Teacher instructs students with specific learning disabilities, mild/moderate intellectual disabilities, other health impairments, and serious emotional disturbances. Moderate/Severe Disabilities Teacher instructs students with autism, moderate/severe intellectual disabilities, multiple disabilities, and serious emotional disturbances. Early Childhood Education Teacher instructs children up to five years old with mild/moderate and moderate/severe intellectual disabilities and traumatic brain injuries. Deaf and Hard of Hearing Teacher instructs students with deafness, hearing impairments, and deaf-blindness. Visually Impaired Teacher instructs students with blindness, visual impairments, and deaf-blindness. Physical and Health Teacher instructs students with orthopedic impairments, other health impairments, multiple disabilities, and traumatic brain injuries. Language and Academic Development Teacher instructs students with communication and language needs. www.lao.ca.gov 39 analysis full gutter 2018-19 BUDGET hire specialists that work exclusively for the district, applicants, causing them to choose other options; and but they typically contract with third party staffing (2) weak support systems that can contribute to high agencies when unable to hire their own specialists. staff turnover. Contract specialists are generally more expensive than Governor’s Proposals district staff and typically work on one-year contracts. In 2015-16, 23 percent of all occupational therapists Provides $50 Million in One-Time Grants for working in schools were employed through third party Teacher Residency Programs. To better prepare staffing agencies, as were 16 percent of all speech and retain special education teachers, the Governor and language pathologists. By comparison, 5 percent proposes $50 million one-time Proposition 98 funding of all psychologists working in schools were employed for schools to start new or expand existing teacher through staffing agencies. residency programs. The nearby box describes Special Education Teacher Shortage Attributable teacher residency programs and compares them with in Large Part to Pay That Does Not Reflect Unique the traditional teacher training pathway. Under the Demands of the Job. School districts generally do not Governor’s proposal, CTC would award competitive differentiate pay levels between special education and grants to schools over several years. Schools could general education teachers. Special education teachers, qualify for up to $20,000 per teacher candidate, with however, typically have additional responsibilities, such a dollar-for-dollar local match required. The initiative is as developing detailed and time-consuming individual intended to support about 2,500 teacher candidates. education plans for each of their students. They also The funds could be used in a variety of ways, including typically oversee and coordinate teams of specialists providing living stipends for teacher candidates, who work with students. Based on our discussions providing stipends for teacher mentors, and covering with school administrators, special education teachers the cost of tuition at partnering higher education also tend to spend much more of their time involved in institutions. litigation and legal challenges brought by dissatisfied Provides $50 Million in One-Time Grants parents. In many other professions, employees to Recruit, Train, or Retain Special Education tasked with greater responsibilities and challenges Teachers. The Governor’s budget also provides receive higher pay than their colleagues with fewer $50 million one-time Proposition 98 funding for a new responsibilities and challenges. As this pay differential Local Solutions Grant Program. The proposed program does not exist in schools, it can result in special would fund new or existing local efforts to recruit education teachers leaving the profession or moving into and retain special education teachers. As with the general education assignments when openings arise. Governor’s teacher residency proposal, schools would Various Other State and Local Factors Likely apply to CTC for funding, which would award grants on Contributing to Staffing Shortages. Through a competitive basis. Successful schools would receive interviews we conducted in 2017 with school districts, up to $20,000 per teacher, with a dollar-for-dollar local SELPAs, and higher education institutions, we identified match required. The administration intends that districts three primary state-level issues affecting the supply of have broad discretion in how they use the grant funds. special education staff: (1) problematic education and Assessment credentialing requirements that necessitate five years rather than four years of postsecondary education Governor’s Focus on Special Education Staffing to become a special education teacher, (2) overly Shortages Has Merit. California faces a longstanding narrow credential requirements on the types of special shortage of special education teachers and specialists. education students that teachers can instruct, and As a result, focusing on how the state could improve (3) graduate-level preparation programs that limit the policies and practices to better recruit and retain special number of specialists that can enter the field each education staff is warranted. However, we have serious year. Various school district policies also contribute concerns in how the Governor plans to address these to local-level shortages, including (1) inefficient staffing issues. human resources practices that can result in a district Both Proposals Have Shortcomings. Our biggest taking over six months to hire special education job concern with the Governor’s proposals is that they 40 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET fail to address the root causes that have contributed budget contains $1.8 billion in one-time discretionary to decades of special education staffing issues in the grants that districts could use to start up these types of state. Neither proposal addresses the core local-level programs if they desired. causes of shortages—most notably, the ability to pay Local Solutions Initiative Is Too Broadly Defined. special education teachers the ongoing compensation In our view, the Governor’s one-time local solutions needed to attract and retain the requisite number proposal gives districts too much discretion, without of staff. Additionally, neither proposal addresses the requiring them to pursue the difficult strategies likely core state-level causes of teacher shortages—most required to address root causes on an ongoing basis. notably, overly restrictive education and credentialing As a result, the funding is unlikely to produce a notable, requirements. Without addressing these core issues, lasting statewide reduction in staffing shortages. one-time funding proposals are highly unlikely to result Moreover, the longstanding local issues driving special in sustained, long-term reductions in the shortage of education shortages are unlikely to be solved through special education teachers. The Governor’s proposals one-time state grants. Rather, these issues require a also fail to address the ongoing and acute shortages selective set of ongoing reforms at both the state and of specialists. Without addressing specialist shortages, local level. schools will have to continue to use costly staffing agencies and students likely will continue to experience Recommendations delays in receiving services. In addition to these Reject Governor’s Special Education Teacher overarching concerns, we have specific concerns with Proposals. Given that the Governor’s proposals each of the Governor’s proposals, as discussed below. provide one-time funds for activities that likely would Teacher Residency Proposal Would Have Limited result in little, if any, lasting reduction in special Impact, Need for State Grant Funding Is Unclear. education staffing shortages, we recommend the At a high cost per teacher ($20,000), the Governor’s Legislature reject both of the proposals. Instead, as teacher residency proposal would produce a relatively described below, we recommend the Legislature small number of teachers, some of whom would pursue strategies that address the more fundamental otherwise have gone into teaching. Also, relatively issues underlying special education staffing shortages. few districts likely would benefit from this proposed Paying Special Education Teachers More Is the grant program. Moreover, some districts already view Most Important Way to Address the Shortage. residency programs as valuable and fund them using Though the state’s special education teacher shortage their LCFF funding. This indicates those districts has a number of causes, we believe lack of ongoing that find the strategy worthwhile are willing to spend differential pay is the most significant. Higher pay would resources to implement it. Additionally, the Governor’s encourage more teachers to pursue special education Key Differences Between Traditional and Residency Teacher Training Programs The traditional route into teaching requires individuals to obtain a bachelor’s degree, enter a year-long credentialing program at a higher education institution, and participate in a certain number of hours of student-teaching. Typically, student-teaching occurs toward the end of a candidate’s credentialing program. By contrast, a residency program pairs candidates with teacher mentors at the beginning of the credentialing program and adopts a co-teaching model whereby the candidate spends many more hours teaching than they otherwise would have in a traditional credentialing program. California currently has at least ten residency programs, which are typically established through partnerships between districts and higher education institutions. Due to the stipends and tuition waivers that residency candidates receive, these programs are much more costly to operate than traditional credentialing programs. Schools sponsoring residency programs can benefit, however, by requiring participants to teach at that school for a number of years after completing the program. www.lao.ca.gov 41 analysis full gutter 2018-19 BUDGET over general education by acknowledging and districts. Moving forward, teachers interested in these compensating them for the additional responsibilities specific areas could obtain the core special education they perform. Providing differential pay is fundamentally credential and receive personalized professional a local decision and the collective responsibility of development as the need arose. The administrative districts and teacher unions through the bargaining work and state cost associated with eliminating these process. In support of this objective, the Legislature, credentials likely would be negligible. however, might consider repealing an existing statutory Provide One-Time Funding to Create Four-Year provision that sets a uniform salary schedule as the Credentialing Route for Special Education Teachers. default district policy. We also recommend the Legislature amend state law to A Variety of Other State Actions Can Help create a four-year degree option for special education Address Special Education Staffing Problems. teachers—similar to recently enacted legislation Below, we make four recommendations. The first two providing a four-year option for general education recommendations likely would not require additional elementary school teachers. A four-year degree option state funding, whereas the other two likely would would allow students to obtain a bachelor’s degree in involve relatively minor state costs. special education and a teaching credential in special Consolidate Two Special Education Credentials. education within four years of study, reducing the time We recommend the Legislature amend state law to and cost required to enter the field. Many other states reduce the types of special education credentials. currently offer this route into teaching. To ensure that The main objective of streamlining the credentialing universities adopt the new model, we recommend structure would be to allow special education teachers that the state provide startup grants for the California to teach students with more types of disabilities State University (CSU) and potentially other teacher without having to obtain a second teaching credential. preparation institutions to redesign their curriculum and Specifically, we recommend the Legislature consolidate recruit students. We anticipate a one-time incentive the mild/moderate and moderate/severe credentials grant of about $250,000 per program likely is sufficient into one core special education credential. Although to cover the cost associated with consolidating and students with different kinds of disabilities can require revising curriculum. For every $10 million in one-time different kinds of support, we think one training state funding, 40 programs could be funded to do such program could impart to teacher candidates the range work. of strategies they likely would need. Moreover, to Provide Funding for CSU to Expand Specialist the extent specific challenges arose while a special Training Programs. Lastly, we recommend the education teacher was on the job, a school district Legislature provide CSU targeted enrollment funding to could provide tailored professional development for that admit more qualified students into two of its graduate teacher. We think the small amount of administrative specialist programs—occupational therapy and speech work entailed in consolidating the credentials could be and language pathology programs. These are the accommodated within CTC’s existing 2018-19 budget. areas that currently have the most acute specialist This is because CTC is already expected on an ongoing staffing shortages. We think CSU likely could increase basis to perform certain work relating to establishing enrollment in these programs by about 5 percent per and maintaining professional teaching standards. year (or 45 FTE students in 2018-19). We estimate Ultimately, a more streamlined credentialing system the state cost of these additional enrollment slots in would reduce CTC’s associated administrative work. 2018-19 would be approximately $675,000. Were the Eliminate Two Special Education Credentials. We state to continue funding 5 percent enrollment growth also recommend the Legislature eliminate the physical each year for the next ten years, staffing shortages in and health impairment credential and the language and the two specialist areas very likely would be reduced academic development credential. These credentials significantly. are seldom issued and inconsistently used across 42 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET “INCLUSIVE EARLY EDUCATION” EXPANSION In this section, we provide background on child care Area). The state also administers Early Head Start and and preschool programs, including programs for children Head Start, federal programs that serve children from with special needs. We then describe the Governor’s low-income families. proposal to provide a total of $167 million one-time Children With Disabilities May Be Served in a funding ($125 million Proposition 98 and $42 million Few Ways. Children with disabilities who are from TANF) to expand child care and preschool programs that income-eligible families may participate in state and serve children with disabilities. We end by providing our federally subsidized child care and preschool programs. assessment and making associated recommendations. These programs are mainstream programs—meaning all children tend to participate in the same types of Background activities at the same time. Children with disabilities State Subsidizes Child Care and Preschool, upon turning three years of age have the additional Primarily for Low-Income Children. The state option of participating in special day programs run by subsidizes child care and preschool through nine state school districts. Compared with mainstream programs, programs. As Figure 23 shows, three programs relate special day programs tend to serve children with to California Work Opportunity and Responsibility to disabilities in separate settings that provide more Kids (CalWORKs), focusing on families engaged in intensive support. In some cases, preschool-age or transitioning out of welfare-to-work activities. The children do not attend classroom-based programs remaining programs are primarily designed for other and instead receive targeted services such as speech low-income, working families, with the exception of therapy or are served through home visits. Prior to transitional kindergarten (which is age based and turning three, children with disabilities can receive has no work requirement) and Care for Children With developmental support either through regional Severe Disabilities (which serves only children in the Bay Figure 23 State Child Care and Preschool Programs Program Description CalWORKs Child Care Stage 1 Child care becomes available when a participant enters the CalWORKs program. Stage 2 Families transition to Stage 2 child care when the county welfare department deems them stable. Stage 3 Families transition to Stage 3 child care two years after they stop receiving cash aid. Families remain in Stage 3 until the child ages out (at 13 years old) or they exceed the income-eligibility cap. Non-CalWORKs Child Care General Child Care Program for other low-income, working families. Alternative Payment Another program for low-income, working families. Migrant Child Care Program for migrant children from low-income, working families. Care for Children with Severe Disabilities Program for children with severe disabilities living in the Bay Area. Preschool State Preschool Part-day, part-year program for low-income families. Full-day, full-year program for low-income, working families. Transitional Kindergarten Part-year program for children who turn five between September 2 and December 2. May run part day or full day. www.lao.ca.gov 43 analysis full gutter 2018-19 BUDGET developmental centers or, in very specific cases, by these efforts, the 2015-16 Budget Act increased the school districts. preschool reimbursement rate by 1 percent to extend About Half of Preschool-Age Children With more professional development opportunities to all Disabilities Are Not Served in Mainstream Settings. State Preschools. The state collects data on how children ages three State Funds Child Care Revolving Loan Program through five who have identified disabilities are served. to Help With Facilities. Since 1997, the state has This data shows 39 percent of preschool-age children supported child care facilities projects through the with disabilities are served in mainstream programs Child Care Facilities Revolving Fund (CCFRF). The (such as Head Start, State Preschool, or transitional CCFRF provides child care and preschool providers kindergarten); 34 percent are served in special day with interest-free loans that have a maximum ten year classes; 13 percent split their time between mainstream repayment period. Providers may use the loans to and special day classes; and 14 percent receive (1) purchase new relocatable facilities or (2) renovate targeted therapy or home visits. The state does not existing facilities to make them suitable for child collect comparable data on what inclusion means for care or preschool. For new facilities, providers can children with disabilities from birth through age two. receive loans of up to $420,000 to purchase a single State Funds Many Programs to Improve Quality relocatable facility (that has three 12-by-40 foot of Child Care and Preschool. Each year the state modules) and $140,000 for every additional module. allocates funds intended to improve the quality of its For renovations, providers can receive a loan amount child care and preschool system. In 2017-18, CDE equal to their annual operating contract amount, which allocated $93 million to about 30 quality improvement is based primarily on the number of children they serve. programs. Currently, about half of quality improvement Facility Program Has Lacked Demand in Recent funds are used for training activities, financial aid Years. Recently, demand from child care and preschool programs for teachers taking additional classes, and providers for CCFRF loans has been low. In 2016-17, supporting community colleges in serving students CDE received no new applicants for CCFRF funds. in their early childhood education programs. Of the The CCFRF ended that year with a fund balance of funds provided for training activities, the state currently $28.6 million. CDE is in the process of doing more designates some of it for certain activities, including outreach to providers about the program. Some training on infant and toddler care and a mentor providers, however, have expressed hesitancy to program for teachers and directors. Other funding accept a loan out of concern they might not be able to is distributed locally and may be used for high local pay it off. priorities, including whatever type of professional Governor’s Proposal development is viewed as beneficial to providers. Currently, a small number of quality programs are Provides One-Time Funding for Early Education focused specifically on special education-related Expansion. The Governor’s budget provides training. One such program, the Map to Inclusive Child $125 million Proposition 98 funding for LEAs and Care Project, develops materials and disseminates $42 million federal TANF funding for non-LEAs for a information about inclusive best practices to child one-time competitive grant initiative. The initiative is care providers. The state also provides $50 million for intended to increase the availability of mainstream the Quality Rating Improvement System each year. child care and preschool opportunities for children with These funds are used to evaluate the quality of State disabilities from birth through age 5. Grant recipients Preschool providers and offer additional professional must provide a $1 local match for every $3 state grant development resources to help providers improve or dollars received. Additionally, recipients must serve maintain program quality. Additionally, the state provides children in high-need communities. The grant proposal $1.6 million annually through the Family Literacy is one of many proposals included in the Governor’s Supplemental Grant program. This program funds budget intended to address poor outcomes for certain preschools to provide professional development students with disabilities. opportunities on a variety of topics, including resources Funds Could Be Used for Various Purposes. and services for children with disabilities. Beyond all The one-time grant, open to school districts and other 44 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET child care and preschool providers, could be used already serving children with disabilities in mainstream for a variety of purposes, including training, facility settings or agreeing to increase the number they serve renovations, and equipment. Grant recipients would in these settings. In addition to reallocating funding the be required to demonstrate how the funding helped state already uses for professional development, the increase access to subsidized care for children with Legislature could consider providing more total ongoing disabilities. funding for these purposes. Facility Needs Could Be Funded Through Assessment and Recommendation Existing Program. Were the Legislature to determine One-Time Funding Unlikely to Improve Program that expanding mainstream opportunities for young Quality on a Lasting Basis. We believe the Governor’s children was a priority, the state could use the existing interest in improving outcomes for students with CCFRF program to help expand such opportunities. disabilities is laudable. To date, the administration, Given existing lack of demand for CCFRF loans, the however, has provided no evidence demonstrating that Legislature could work with CDE to explore ways one of the main causes of poor performance in this area to make this program more attractive to providers. is due to lack of mainstream opportunities for children For example, it might consider making a portion birth through age five. We have heard anecdotally of the CCFRF available as grants, extending the that some child care and preschool providers feel repayment period, and/or broadening the allowable ill-equipped to address the needs of children with uses of the funds to ensure providers could make disabilities. Such claims indicate an ongoing issue special education-related renovations, including those unlikely to be addressed in a sustained way with renovations that might be required to mainstream one-time funding. This is likely to be particularly the children with disabilities. case with child care and preschool staff, who reportedly Reject Proposal, Consider Funding Existing have high turnover rates. If the Legislature determined Programs. Given these concerns, we recommend existing professional development opportunities in rejecting the Governor’s proposal. If the Legislature this area were insufficient, it could reallocate existing wishes to expand the availability of mainstream quality improvement funding to prioritize special opportunities for children with special needs, it could do education-related training. Specifically, it could prioritize so by reallocating, modifying, or increasing funding for quality improvement funding for training to providers existing programs. STATE PRESCHOOL In this section, we first discuss the Governor’s Background proposals to increase State Preschool rates and State Preschool Serves Low-Income Children. slots as part of the final phase of a multiyear budget State Preschool provides part-day or full-day programs agreement. We then discuss key issues relating to to qualifying three- and four-year olds. To qualify for the state’s decision last year to exempt LEA-run State either part-day or full-day programs, children must Preschool programs from licensing standards. come from families earning below 70 percent of the state median income. In 2017-18, this threshold RATES AND SLOTS equated to $52,076 for a family of three. (The threshold increases as family size increases.) To qualify for full-day Below, we provide an overview of the State programs, parents have the added requirement that Preschool program, analyze the Governor’s they must be working or in school. proposals for this program, and offer associated recommendations. State Preschool Is Offered by LEA and Non-LEA Providers. Roughly half of State Preschool providers are LEAs (school districts or COEs). LEAs provide about two-thirds of all State Preschool slots. The remaining www.lao.ca.gov 45 analysis full gutter 2018-19 BUDGET half of preschool providers are non-LEAs, typically Legislature and the Governor agreed on a multiyear nonprofit agencies. These agencies provide about plan to increase rates and slots for child care and one-third of State Preschool slots. preschool programs. The preschool part of this Program Length and Funding Rates Differ for agreement was to be funded within Proposition 98. In Part-Day and Full-Day Programs. The rules for the 2016-17, the state provided Proposition 98 General programs are: Fund of $44 million for rate increases and $8 million for an additional 2,959 slots initiated April 1, 2017. In • Part-Day Program. A part-day program must 2017-18, the state provided Proposition 98 General operate at least 3 hours a day for 175 days of the Fund of $61 million for rate increases and $8 million for year. In 2017-18, providers received $4,956 per an additional 2,959 slots initiated April 1, 2018. child. Governor’s Proposal • Full-Day Program. A full-day program must operate at least 6.5 hours per day for 250 days Increases Funding for Rates. In accordance of the year. In 2017-18, providers received with the multiyear budget agreement, the Governor’s $11,433 per child. budget includes $32 million Proposition 98 General Fund (and $16 million non-Proposition 98 General The difference between the full-day and part-day Fund) for a 2.8 percent rate increase to state preschool funding rates ($6,477 in 2017-18) is associated with the and certain child care programs. The budget also “wrap” portion of the full-day program. includes $28 million Proposition 98 General Fund (and Funding Source for Wrap Portion of Full-Day $22 million non-Proposition 98 General Fund) for a Program Varies by Provider Type. State Preschool 2.51 percent COLA. In total, the Governor’s budget is funded using a combination of Proposition 98 and increases State Preschool rates 5.4 percent, with the non-Proposition 98 General Fund. All funding for part-day State Preschool—whether provided by Figure 24 LEAs or non-LEAs—is provided with State Preschool Relies on Mix of Fund Sources Proposition 98 General Fund (see 2017‑18 Rates Figure 24). For the wrap portion of full-day programs, LEAs are funded with Proposition 98 General Fund whereas non-LEAs are funded with Non Proposition 98 non-Proposition 98 General Fund. Proposition 98 Funding Source for Wrap Has Wrap Shifted in Recent Years. Prior to $6,477 $6,477 add-on 2011-12, all State Preschool was funded within Proposition 98. In 2011-12, the state shifted the wrap portion (as well as all other child care programs) outside of Proposition 98. In 2015-16, the wrap portion for LEA-run full-day programs was Part-day shifted back into Proposition 98, rate $4,956 $4,956 while non-LEA wrap funding remained outside of Proposition 98. Multiyear Budget Agreement Committed to Rate and Slot LEA Non-LEA Increases. As part of the 2016-17 budget package, the LEA = local education agency. 46 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET part-day rate rising to $5,222 and the full-day rate Different Funding Sources Reduces State rising to $12,047. We have no concerns with the rate Flexibility in Adding Full-Day Slots. Prior to 2015-16, increase proposals. the state funded the wrap portion of all full-day State Provides Funding for Full-Day LEA Slot Preschool slots from the same fund source. As a Increases. The Governor’s budget includes $19 million result, budgeting was more straightforward. Since to annualize the cost of 2,959 full-day State Preschool 2015-16, splitting the fund source for wrap between slots for LEAs approved in the 2017-18 budget and set Proposition 98 and non-Proposition 98 General Fund to be initiated April 1, 2018. The budget also includes has complicated budgeting and the allocation of $8 million to add 2,959 new full-day State Preschool slots. The department typically has had to run multiple slots at LEAs starting April 1, 2019. These increases are application rounds and has been unable to offer full-day in accordance with the final augmentations set forth in slots to interested non-LEAs until the second or third the multiyear budget agreement. rounds. Assessment Recommendations Recent Slot Increases for LEAs Have Not Been Shift All State Preschool Wrap Into Fully Utilized. To allocate new slots across the state, Proposition 98. We recommend the Legislature shift CDE requests applications from interested entities all non-LEA wrap ($176 million) into Proposition 98. and awards contracts to those that demonstrate they Having all State Preschool programs funded entirely can meet the minimum program requirements. Of the within Proposition 98 provides the state with flexibility to 2,959 slots funded beginning April 2017, CDE issued distribute slots to any interested provider. 1,768 to interested LEAs in its first-round application. Moving Forward, Make Any New Slots Available Due to lack of applicants, CDE used its administrative for Both Type of Providers. If the Legislature is flexibility to issue the remaining slots in different ways. interested in supporting more full-day State Preschool When CDE ran a second request for applications, it slots either in 2018-19 or future years, we recommend issued 2,799 additional part-day slots to LEAs. For it make any new slots available to both LEA and the new slots to be funded beginning in April 2018, non-LEA providers. Such an approach would ensure CDE has run a request for applications. It has received that all providers have access to new funding and applications from 33 LEAs seeking 1,043 full-day slots increase the likelihood that slots will be fully utilized. and 55 non-LEAs seeking 2,544 full-day slots. CDE has not yet made award decisions. LICENSING Non-LEAs Have Utilized Full Day Slots When Below, we provide background on licensing Given the Opportunity. Data from 2015-16 shows requirements for State Preschool providers and high utilization of new slots among non-LEAs. In describe recent legislation exempting LEAs from 2015-16 non-LEAs fully utilized 1,200 new State these requirements. We then share the conclusions Preschool slots earmarked for them in the budget. of a recent stakeholder group we were tasked with Non-LEAs also utilized much of the funding that had convening to ensure LEAs exempt from licensing been initially set aside for new slots at LEAs. Of the requirements still have safe and healthy preschool 5,830 full-day state preschool slots for LEAs added settings. We end by offering a few comments relating to in 2015-16, CDE issued only 1,646 of the 5,830 further work the Legislature could consider in this area. full-day State Preschool slots for LEAs. To distribute the remaining available funding, the department Background converted and eventually issued 3,700 part-day LEA slots, 851 part-day non-LEA slots, and 1,490 full-day State Preschool Providers Must Meet Health non-LEA slots. As noted above, non-LEAs continued to and Safety Standards. These standards are show interest in full-day slots in 2016-17, and they very commonly referred to as Title 22 standards—named likely will end up using some of the 2017-18 slots that after the regulations creating them. The standards remain after soliciting applications from LEAs. currently apply to all preschool centers in the state. Title 22 regulations include many requirements. For www.lao.ca.gov 47 analysis full gutter 2018-19 BUDGET example, the regulations require that classrooms be CDE in resolving an issue. LEAs must investigate each clean and sanitary, children be constantly supervised, UCP complaint and issue a written decision within 60 teachers be trained in first aid, and medication and days. LEAs and non-LEAs receiving State Preschool cleaning supplies be stored out of reach of children. funding must follow UCP to address complaints The standards are established and periodically revised involving the developmental aspects of preschool by Community Care Licensing (CCL)—a division of the programs. Under current regulations, complaints related Department of Social Services (DSS). to preschool health and safety go directly to CCL for CCL Is Responsible for Monitoring and Enforcing investigation. Title 22 Standards. The CCL processes applications Expedited UCP Timelines for Complaints Related for licenses, conducts regular inspections, responds to Williams Lawsuit. The state has more expedited to public complaints, and maintains a database of timelines for certain categories of complaints relating licensing violations. The CCL typically visits licensed to a lawsuit filed against the state in 2000 and settled facilities every three years, with more frequent in 2004. Specifically, the Williams case focused on inspections under certain circumstances. In addition, facility conditions that posed a health or safety risk, CCL visits facilities in response to complaints from teacher misassignments or vacancies, and availability the public. After receiving a public complaint, CCL is of instructional materials. For these issues, LEAs required to visit the facility within 10 days and determine must resolve complaints within 30 days and notify the whether a violation has occurred. complainants of their decision within 45 days. Unlike State Preschool Providers Also Must Meet for the general UCP process, members of the public Developmental Standards. These standards are can anonymously submit complaints related to Williams commonly referred to as Title 5 standards, after the issues. regulations creating them. The standards include a mix LEA-Run State Preschools to Be Exempt From of health, safety, and programmatic requirements. For Title 22 Standards. Last year, the budget package example, Title 5 regulations require that furniture and included trailer legislation—Chapter 15 of 2017 (AB 99, toys be clean and classrooms be set up with multiple Committee on Budget)—that affected LEAs operating stations to support different types of learning (for State Preschool programs. Specifically, beginning example, classrooms could have separate science and July 2019, Chapter 15 exempts LEA-run State art areas). State Preschool providers also must include Preschool programs from Title 22 licensing standards cognitive development and an educational component if they operate in a facility that meets school building as part of their programs—commonly referred to standards. as “learning foundations.” The learning foundations Prior to Exemption Going Into Effect, State to describe the skills that preschool-age children should Consider Whether Standards Should Be Added be able to exhibit. for LEAs. Chapter 15 required our office to convene a CDE Is Responsible for Monitoring Title 5 stakeholder group to discuss whether additional statute Compliance. The CDE monitors and approves or regulations should be adopted to ensure LEAs all contracts for State Preschool. As part of their continue to meet basic health and safety standards. As contract requirements, providers must conduct annual set forth in Chapter 15, the stakeholder group was to self-evaluations and submit the results to CDE. In include LEA and non-LEA experts on early childhood addition, CDE conducts monitoring visits every three health and safety issues, as well as various state-level years (or as resources allow). Providers that do not representatives. Although not limited in its review, the meet Title 5 standards are placed on conditional status stakeholder group was specifically required to review and cannot receive additional funds until they address standards related to (1) outdoor shade structures, the specific issues identified by CDE. (2) access to age-appropriate bathroom and drinking State Preschool Providers Must Follow Uniform water facilities, and (3) processes for parent notification Complaint Procedures. All LEAs are required to and resolution of violations. Chapter 15 required respond to certain types of complaints using Uniform us to report the group’s findings to the Legislature Complaint Procedures (UCP). The state’s UCP establish by March 15, 2018. Below, we fulfill this statutory the basic responsibilities of complainants, schools, and requirement. 48 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Stakeholder Group or fees from private-pay families) are exempt from licensing. This lack of clarity may create confusion Group Included LEA and Non-LEA Providers. Our among providers and the state agencies responsible for office convened four meetings of the stakeholder group monitoring them. between October and December 2017. The group included three LEA providers, three non-LEA providers, Comments and representatives from the Legislature, DSS, CDE, Stakeholder Recommendations Are Reasonable. and the Department of Finance. The state exempted LEA-run State Preschools Stakeholder Group Recommends Adding Several from licensing with the intent of providing greater Health and Safety Requirements to Title 5. As flexibility to align State Preschool with other LEA-run Figure 25 shows, the stakeholder group recommends programs, including preschool classes for students adding several new requirements to Title 5 standards. with disabilities and kindergarten. By adding only a In all cases, the recommendations are very similar to small fraction of existing Title 22 requirements to Title 5, existing Title 22 standards. To assist with monitoring the recommendations of the stakeholder group would these new health and safety requirements, the group continue to provide significant flexibility for LEAs. By recommends CDE develop a health and safety checklist using the existing UCP process, the recommendations to be used by CDE staff in its monitoring visits. also allow LEAs to use their existing complaint policy Group Also Recommends Expedited UCP and procedures and avoid creating an entirely new Process for Preschool Health and Safety Issues. structure solely for State Preschool complaints. Given With regards to notifying parents and resolving the recommended new standards focus on health complaints involving preschool health and safety issues, and safety issues, we also think using the expedited the stakeholder group recommends using the existing Williams-related UCP timelines is a reasonable UCP process, with timelines similar to those of Williams approach. complaints. This would allow members of the public Monitor and Align State Agency Funding Based to submit complaints anonymously, require complaints on Workload. Exempting LEA-run State Preschool be resolved within 30 days, and require complainants programs from licensing likely will reduce CCL’s be notified of a decision within 45 days. The group associated monitoring and enforcement workload. also recommends requiring LEAs to begin investigating Adding new requirements to Title 5 regulations, complaints within 10 days of submittal—the same time however, could increase workload at CDE. Specifically, requirement that currently applies to CCL investigations. CDE could have minor one-time workload increases In addition, the group recommends requiring LEAs related to developing new regulations and guidance, post in each State Preschool classroom information regarding health and safety standards and the process for filing a complaint. Figure 25 This is the same as existing Williams Stakeholder Group Proposes requirements. Several New Title 5 Requirements Ambiguity Regarding Exemptions for Classrooms With • Providers must have outdoor shade that is safe and in good repair. Mixed Funding Sources. In its • Drinking water must be accessible and readily available throughout the discussions, the stakeholder group day. identified ambiguity under the new law • Facilities must have one toilet and handwashing fixture for every with regards to which LEAs may be 15 children. Facilities must be safe and sanitary. exempt from licensing requirements. • Restrooms must only be available for preschoolers and kindergartners. Specifically, state law is not clear • Staff must maintain visual supervision of children. on whether preschool classrooms • Indoor and outdoor space must be properly contained or fenced and funded through a combination of provide sufficient space for the number of children using the space at any State Preschool and other sources given time. Playground equipment must be safe, in good repair, and age (for example, federal Head Start appropriate. www.lao.ca.gov 49 analysis full gutter 2018-19 BUDGET as well as ongoing workload increases if its monitoring for LEAs, it could apply the exemption broadly to visits become more extensive. Over the next few years, any classroom serving at least one State Preschool we recommend the Legislature monitor workload at student. Such an approach would give LEAs authority both agencies to determine if funding should be shifted to provide preschool to any child without needing to be to better align with changes in their workload. licensed from CCL. Alternatively, the Legislature could Clarify Which Classrooms Are Exempt. To provide limit the exemption only to classes fully supported by clarity and prevent related implementation delays, State Preschool funds. This approach would limit LEAs’ we recommend the Legislature clarify whether the flexibility to integrate their State Preschool funds with licensing exemption applies to mix-funded classrooms. their other preschool funding. The exemption, however, If the Legislature is interested in maximizing flexibility still would provide districts some additional flexibility relative to the existing licensing rules. KINDERGARTEN Chapter 15 of 2017 (AB 99, Committee on Budget) State Funds Both Full-Day and Part-Day required our office to identify options for incentivizing Kindergarten at Same Rate. Under longstanding full-day kindergarten programs. In particular, we were budget practice, school districts generate the same directed to examine an option that would offer different amount of state funding for a child enrolled in full-day funding rates for full-day and part-day programs. In kindergarten as one enrolled in part-day kindergarten. this section, we provide background on kindergarten In 2017-18, school districts are receiving an estimated programs in California, analyze available data on base rate of $7,700 in LCFF funding per kindergarten full-day and part-day programs, and fulfill our statutory student, the same base rate generated by students in requirement to identify options for incentivizing full-day grades 1-3. (State law does not distinguish between programs. full-day and part-day kindergarten. In this section, we define part-day kindergarten as programs operating Background fewer than 4 hours per day.) California Kindergarten Programs Serve About Analysis 535,000 Children. Of these children, about 453,000 attend kindergarten, which serves children who turn Most Districts Already Operate Full-Day five before September 2. An additional 82,000 children Kindergarten Programs. CDE recently surveyed a attend transitional kindergarten, serving those who turn random sample of 62 school districts and found about five between September 2 and December 2. (We refer 60 percent operate only full-day kindergarten programs, to both kindergarten and transitional kindergarten as 20 percent operate both full-day and part-day “kindergarten” throughout this section.) programs, and about 20 percent operate only part-day Kindergarten Programs Must Satisfy Basic programs. Among survey respondents, the average State Requirements. State law requires all elementary full-day kindergarten program lasted 5.6 hours per day, and unified districts to offer kindergarten classes that whereas the average part-day program lasted 3.5 hours are taught by credentialed teachers and adhere to per day. California’s content standards. Each program must Part-Day Programs Typically Cost Only operate for at least 180 minutes (3 hours) a day. Some Somewhat Less Than Full-Day Programs. Among schools, however, operate longer programs, up to 6.5 the costs associated with kindergarten programs, hours per day. State law forbids schools from having a teacher compensation is by far the largest on a single teacher lead two separate kindergarten classes per-child basis. Importantly, districts hire mostly full-time in a single day, such that schools running part-day teachers, and they pay their kindergarten teachers the kindergarten programs must hire separate teachers for same salaries regardless of whether they participate in their morning and afternoon classes. full-day or part-day programs. Whereas a teacher in a full-day program instructs a certain number of children 50 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET throughout the day, a teacher in a part-day program possible savings generated from option two to cover typically instructs about the same number of children in the costs of option one). either a morning or afternoon session, while serving in State Could Incentivize More Full-Day other district capacities throughout the remainder of his Kindergarten Programs by Providing Facility or her work day (often as an aide in other classrooms). Funding. Given many districts cite a lack of facilities as The associated compensation costs are the same an impediment to full-day kindergarten, the Legislature in these two cases. Part-day kindergarten programs could allocate more facility funding to districts looking could cut costs by employing part-time teachers, but to switch from part-day to full-day programs. The it appears that such practice is rare. Theoretically, they Legislature would have various options to consider also could cut costs by having one teacher lead two when designing such a facility program, including separate kindergarten classes—one in the morning and grant and loan options. Regarding a grant program, the other in the afternoon—but state law forbids this the Legislature, for example, could provide one-time practice. For most part-day programs, the only notable incentive grants equal to a share of the cost of a savings relative to full-day programs comes from new kindergarten facility. Similarly, for a possible loan sharing some instructional materials, equipment, and program, the Legislature could allow school districts to facilities between two classes. qualify for a loan equal to a share of their costs, with Districts Cite a Lack of Facilities as Main specified loan conditions, including certain interest Impediment to Full-Day Kindergarten. In its terms and repayment period. recent survey, CDE found most districts offering State Could Further Incentivize Full-Day part-day programs were interested in offering full-day Kindergarten by Reducing Part-Day Rates. The kindergarten but did not have enough facility space. Legislature specifically directed us to consider how Part-day kindergarten reduces the need for facility the state could incentivize full-day kindergarten by space by allowing one morning and one afternoon establishing different funding rates for part-day and class to share the same space. CDE’s findings confirm full-day programs. The Legislature could incentivize what we have heard in many interviews with local full-day kindergarten by reducing part-day funding administrators—facilities are a major impediment to rates. For example, it could reduce part-day funding full-day kindergarten. rates by the difference in hours between the average Existing State Kindergarten Funding Policies Not part-day and full-day programs in CDE’s survey sample Hindering Full-Day Programs. Given more than half (about 35 percent). Assuming the 2018-19 funding of districts already offer exclusively full-day programs rates in the Governor’s budget, this would equate and another 1 in 5 districts offer a mix of full-day and to about $5,300 in base LCFF funding per child in part-day programs, the state’s current funding policies part-day programs compared to $8,100 per child in appear sufficient for incentivizing full-day programs. full-day programs. If the change were implemented in 2018-19, we estimate possible savings of hundreds of Options for Legislative Consideration millions of dollars statewide, as many districts might not Two Options to Consider. If the Legislature were be able to convert immediately to full-day programs, interested in taking additional steps to incentivize particularly given their facility constraints. Over the full-day kindergarten, we think the following two long run, the savings would evaporate if districts found options are promising. If desired, the Legislature could facility solutions and converted to full-day programs, implement both of the options simultaneously (using thereby “earning” back the higher funding level. PENSION COSTS In this section, we provide background on the two districts’ Proposition 98 funding, highlight a few other state pension systems covering school employees, key pension issues, and make pension-related budget compare growth in pension costs with growth in recommendations. www.lao.ca.gov 51 analysis full gutter 2018-19 BUDGET Background pension legislation known as PEPRA (Public Employees’ Pension Reform Act). The legislation State Has Two Pension Systems Covering affected many state and local government employees, District Employees. Nearly all school and community including school and community college employees. college employees in California are eligible to receive Specifically, PEPRA reduced pension benefits for new a pension when they retire. Depending upon their job, CalPERS and CalSTRS hires and required employees they participate in one of two pension systems. The in both systems to pay half the annual cost of their California State Teachers’ Retirement System (CalSTRS) pension benefits. These changes, in combination with administers pensions for certificated employees, numerous other changes, are expected to reduce state including teachers and administrators. The California and local government pension costs by tens of billions Public Employees’ Retirement System (CalPERS) of dollars in the coming decades. administers pensions for all other employees, including State Approved CalSTRS Funding Plan in 2014. paraprofessionals, office workers, and maintenance Around the time the Legislature adopted PEPRA, staff. Both systems are funded through contributions it began studying ways to pay down the unfunded from districts and employees. In addition, CalSTRS CalSTRS liability. After two years of hearings, the receives a direct appropriation from the state. CalSTRS Legislature enacted a statutory plan designed to is the only pension system in California for which the eliminate this liability gradually over the next few state makes direct contributions on behalf of local decades. As Figure 26 shows, the plan phased in agencies. Of all district employees participating in these higher contributions from the state, districts, and pension systems, about 60 percent are members of teachers over multiple years. The top section of the CalSTRS and 40 percent are members of CalPERS. figure shows the required contribution rates as a Unfunded Pension Liabilities Have Been Growing percent of salary and the bottom section shows the Since Early 2000s. Both CalSTRS and CalPERS were associated contribution costs. Though the funding fully funded for a brief period around 2000. This means plan will improve the CalSTRS funding situation over they had enough assets on hand to pay for the future time, the current estimate of the unfunded CalSTRS benefits that members were estimated to have earned liability remains high—standing at $97 billion. The state to that point. Around this time, the state increased attributes about two-thirds of this liability to districts and pension benefits for CalSTRS and CalPERS employees one-third to the state. The share of the liability borne by and reduced state contributions to CalSTRS. These districts and the state will change somewhat over time, actions, combined with weak investment returns during as the state share is more sensitive to various factors, the early 2000s, resulted in significant “unfunded including fluctuations in CalSTRS investment returns. liabilities” at both pension systems. These unfunded CalPERS Also Taking Action to Address Its liabilities grew notably during the Great Recession when Unfunded Liabilites. Whereas the governing board both systems experienced large investment losses. of CalSTRS has limited authority to change district Growth in Unfunded Liabilities Prompts contribution rates, the governing board of CalPERS has Legislative Concern. By the latter years of the Great much greater authority. In recent years, CalPERS has Recession, CalSTRS was projected to run out of money been increasing the district rate to address its unfunded in the mid-2040s—a short time horizon for a pension liability (see Figure 27). Despite these rate increases, system. This development spurred a sense of urgency the CalPERS unfunded liabilty associated with school among the Legislature, as waiting to address the and community college districts currently stands at problem would have made any eventual solution even nearly $22 billion. harder on district budgets. Similarly, in the wake of the Great Recession, policies in place at CalPERS meant Comparing Pension Costs and that it would take many decades to pay off its unfunded District Funding liabilities. Concerns on both fronts prompted legislative action. District Pension Costs Rising by Around $1 Billion Per Year. Figure 28 (see page 54) shows State Modified Pension Benefits for Employees school and community college districts’ pension Hired After 2012. In 2012, the Legislature enacted contribution costs from 2013-14 through 2020-21, 52 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Figure 26 Contributions to CalSTRS (Dollars in Billions) 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 Rates Statea 5.2% 5.7% 7.1% 8.6% 9.1% 9.6% 10.1% 10.6% School/College Districts 8.3 8.9 10.7 12.6 14.4 16.3 18.1 19.1 Teachers (pre-PEPRA) 8.2 9.2 10.3 10.3 10.3 10.3 10.3 10.3 Teachers (PEPRA) 8.2 8.6 9.2 9.2 9.2 10.2 10.2 10.2 Costs Stateb $1.4 $1.5 $1.9 $2.5 $2.8 $3.1 $3.4 $3.8 School/College Districtsc 2.3 2.7 3.4 4.2 4.9 5.8 6.7 7.4 Teachersc 2.3 2.5 3.0 3.4 3.4 3.6 3.8 3.9 Totals $5.9 $6.7 $8.3 $10.1 $11.1 $12.4 $13.9 $15.1 a Includes state contributions to Supplemental Benefits Maintenance Account. b Amounts through 2017-18 are actuals. Thereafter, amounts are LAO estimates. c Amounts through 2016-17 are based on tables in the annual Governor’s Budget. Thereafter, amounts are LAO estimates. CalSTRS = California State Teachers’ Retirement System and PEPRA = Public Employees’ Pension Reform Act. with actual costs shown through 2016-17 and $10.7 billion—more than three times greater than the estimated costs shown thereafter. In 2017-18, district 2013-14 contribution level. contributions are estimated to total $6.9 billion, an Proposition 98 Funding Has Increased More increase of $3.3 billion over the 2013-14 level (the Quickly Than Pension Costs Over the Past Four year prior to the adoption of the CalSTRS funding Years. The Proposition 98 minimum guarantee has plan). Of this $3.3 billion increase, $3 billion is higher increased significantly in recent years. Between school costs and $308 million is higher community 2013-14 and 2017-18, the guarantee grew by more college costs. Over the next three years, we expect than $16 billion (28 percent). Of this increase, about school and community college pension contributions $14 billion was for school districts, $1.7 billion for to increase another $3.8 billion. By 2020-21, we community colleges, and $500 million for the Adult estimate that total district contributions would approach Education Block Grant (part of the community college Figure 27 Contributions to CalPERSa (Dollars in Billions) 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 Rates School/college districts 11.4% 11.8% 11.8% 13.9% 15.5% 17.7% 20.0% 22.7% Employees (pre-PEPRA) 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 Employees (PEPRA) 6.0 6.0 6.0 6.0 6.5 7.3 7.3 7.3 Costsb School/college districts $1.3 $1.3 $1.4 $1.8 $2.0 $2.4 $2.8 $3.2 Employees 0.7 0.8 0.9 0.9 0.9 0.9 1.0 1.0 Totals $2.1 $2.1 $2.3 $2.7 $2.9 $3.3 $3.7 $4.2 a Does not reflect effects of new actuarial assumptions adopted by the CalPERS board in December 2017. b Amounts through 2016-17 from CalPERS’ Comprehensive Annual Financial Report. Thereafter, amounts are projections based on CalPERS data. CalPERS = California Public Employees’ Retirement System and PEPRA = Public Employees’ Pension Reform Act. www.lao.ca.gov 53 analysis full gutter 2018-19 BUDGET budget). The state has allocated the bulk of the respectively. Districts in the former group likely have additional Proposition 98 funding through the LCFF and been able to increase programs and services notably, community college apportionments, which carry fewer even with the pension rate increases. By comparison, spending restrictions than categorical programs. The districts in the latter group have had less ability to $3.8 billion increase in school and community college expand programs. Although funding increases also vary pension costs over this same period equates to about across community college districts, these differences one-fifth of the increase in Proposition 98 funding. The tend to be smaller because their funding formulas are large increase in funding beyond the growth in pension linked to enrollment and have not changed significantly costs means that most school and community college over the past four years. districts have been able to expand programs, increase Pension Costs Likely More Difficult to staffing, and provide raises over this period. Accommodate Over the Next Three Years. Even Funding Increases Vary Across Districts. under favorable economic conditions, pension Whereas all districts face the same increases in pension costs are likely to be more difficult for all districts to contribution rates, district funding increases vary accommodate over the next three years. Under the notably. Under the LCFF, school districts with relatively economic growth scenario we developed for our high numbers of EL/LI students and below-average November fiscal outlook, we calculated the minimum historical funding rates have been receiving relatively guarantee would grow nearly $9 billion from 2017-18 to large increases. Conversely, school districts with 2020-21. Over that same period, annual school and fewer EL/LI students and above-average historical community college pension contributions would funding rates have been receiving relatively smaller increase by $3.8 billion. That is, the increase in pension increases. Over the past four years, we estimate that costs would equate to more than 40 percent of the the 20 percent of school districts with the greatest increase in projected Proposition 98 funding. If pension and lowest growth experienced per-pupil funding cost increases comprise a larger share of growth in increases averaging about 50 percent and 15 percent, Proposition 98 funding moving forward, districts would Figure 28 District Pension Costs Are Rising School and Community College Contributions (In Billions) $12 Projections 10 CalPERS 8 CalSTRS 6 4 2 2013-14 14-15 15-16 16-17 17-18 18-19 19-20 20-21 CalPERS = California Public Employees’ Retirement System and CalSTRS = California State Teachers’ Retirement System. 54 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET have correspondingly less funding to expand programs, typically make these deposits when they have one-time staffing, and salaries. Some districts will be more funds or an unexpected surplus. For most districts, constrained than others due to their particular budget the goal of an earmarked reserve or trust account is conditions, including their projected growth in funding to establish a source of funding they can draw upon and previous spending decisions. during tighter fiscal times. By setting aside funds Covering Costs Would Be Much More Difficult now—a period of sustained economic growth—these Under a Recession Scenario. Whereas funding districts are better prepared than other districts to outpaces pension costs under an economic growth manage their pension costs during an economic scenario, a recession would pose a much greater downturn. challenge. In our November outlook, we modeled a Few Practical Options for the State to Delay scenario that assumed a moderate recession began CalSTRS Rate Increases. Given the cost pressures in the summer of 2019. By 2020-21, the minimum imposed by rising pension costs, some districts guarantee under this scenario was more than $4 billion have asked whether the state could delay or reduce below the 2017-18 level. Faced with economic the contribution increases scheduled under the downturns and declining revenue, districts typically CalSTRS funding plan. In our view, such proposals respond through various actions, including lay-offs, face significant legal and fiscal challenges. The courts increasing class sizes, furloughs, salary reductions, and generally have considered pension funding to be a eliminating or consolidating programs. In this recession contractual commitment designed to protect already scenario, districts would have to make even greater agreed-upon pension benefits. That is, courts tend to reductions than usual because their budgets would view delaying or reducing pension funding the same have to accommodate the higher pension contribution way they would view breaking a contract. Moreover, a rates scheduled over the next several years. delay or reduction in the district rate would eliminate the investment returns that CalSTRS could have earned Key Considerations on those contributions. These foregone returns would Pension Costs Affected by District Payroll compound significantly over time and almost certainly Decisions. Although districts do not control their result in higher long-term district costs and larger pension contribution rates, they do control their salary unfunded liabilities. Given these factors, the state likely and staffing levels. These decisions about payroll, in could delay or reduce district rate increases only if it turn, affect their pension costs. In recent years, some provided CalSTRS with additional funding from the districts have granted relatively large salary increases state General Fund. and hired additional staff, whereas others have granted Districts Also Face Retiree Health Liabilities. smaller increases and hired fewer staff. For example, Separate from pension benefits, about two-thirds school district data show that cumulative teacher salary of school districts provide health benefits for their increases over the past three years have ranged from retired employees. Traditionally, most districts have 17 percent (the average among the highest 20 percent funded their retiree health benefits by paying costs of districts) to 4 percent (the average among the lowest as they come due, rather than setting aside money 20 percent). The districts agreeing to the larger staffing during their employees’ working careers. By deferring and salary increases are experiencing faster growth in these payments, we estimate school districts have their pension costs than districts agreeing to smaller accumulated an unfunded liability of approximately increases. $24 billion statewide. Though the majority of this Some Districts Are Setting Aside Funds for liability is concentrated among about a dozen large Future Pension Cost Increases. Available data school districts, nearly all districts that offer retiree suggest that roughly 10 percent of districts in the health benefits have at least some unfunded liability. In state have set aside funding to pay for future CalSTRS 2015-16, the latest year for which data are available, or CalPERS contributions. In some districts, these school districts spent $1 billion on retiree health funds consist of an earmark within their General Fund benefits. This amount is likely to grow more quickly reserves, whereas other districts have established trust than inflation for the near future as health care costs accounts where they invest their deposits. Districts continue to rise and districts pay the obligations www.lao.ca.gov 55 analysis full gutter 2018-19 BUDGET associated with their unfunded liability. If districts were difficult, as funds get tied up for specific state purposes to set aside more funding for these benefits now, they that might not align well with every districts’ local could mitigate some of these future cost increases. priorities and budget-balancing strategies. This is because over time investment returns on those Modify Language Accompanying School District funds would cover an increasing share of the benefits Discretionary Grants to Include Retirement Costs. paid to retirees. (Though we have not yet examined The Governor proposes trailer legislation encouraging the comparable data for community colleges, our school districts to use one-time discretionary grants understanding is that some community colleges also for various purposes, including employee benefits. have unfunded liabilities associated with retiree health Although this language is not legally binding, some benefits.) school districts indicate that it influences how they use Share of School Districts in Fiscal Distress these funds. We recommend the Legislature replace the Remains Relatively Low. In 1991, the state adopted language concerning employee benefits with an explicit a system of fiscal oversight that requires COEs to reference to retirement liabilities. School districts could review the financial condition of their school districts take a variety of actions consistent with this modified at various points during the year. During this review, language, including setting aside funds in a pension COEs assign “positive” ratings to school districts that reserve or trust account or prefunding their retiree are projected to meet their financial obligations in the health benefits. This change would encourage school current and subsequent two years, “qualified” ratings to districts to consider their long-term cost pressures in districts that may be unable to meet their obligations at addition to their near-term spending priorities. some point during this period, and “negative” ratings to Consider Making Additional CalSTRS Payment districts at imminent risk of being unable to meet their and Designating for Tighter Fiscal Times. Another obligations. In building their projections, most districts way the state could consider helping districts is to assume they will receive modest COLAs over the next make an additional CalSTRS payment on districts’ two years. During the fall 2017 review, 39 districts behalf. By making this payment now, the state could (4.2 percent of all districts in the state) received qualified mitigate the need for district rate increases later. Rather or negative ratings. As Figure 29 shows, this share remains low by Figure 29 historical standards. School district fiscal health, however, could look Share of School Districts in much different were the state to Fiscal Distress at Historically Low Levelsa experience an economic downturn. 20% Recommendations Prioritize General Purpose 15 Funding for Schools and Community Colleges. One way the state can help districts manage pension costs is to 10 allocate Proposition 98 funds through general purpose grants like LCFF and community college 5 apportionments. Allocating funding in this way provides districts the flexibility to make difficult trade-offs in ways that reflect local priorities. 2001-02 05-06 09-10 13-14 17-18 In contrast, creating new ongoing categorical programs can make a “Fiscal distress” defined as a district receiving a qualified or negative rating from its county office of education. balancing district budgets more 56 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET than providing immediate relief, the state could keep the state were to pursue this approach, we suggest district rates at the level they would have been absent making a payment of at least several hundred million the additional payment. Later, during the next economic dollars. We think the state could use Proposition 98 or downturn, the Legislature could choose when to allow non-Proposition 98 General Fund to make the payment. CalSTRS to factor in the payment and reduce district In either case, funding could come from various rates. Such an approach could be particularly beneficial sources—including additional revenue materializing because districts typically face the greatest difficulty in May or discretionary proposals in the Governor’s balancing their budgets during tight fiscal times. If budget that the Legislature chooses not to fund. www.lao.ca.gov 57 analysis full gutter 2018-19 BUDGET 58 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET SUMMARY OF RECOMMENDATIONS Proposition 98 • Continue to rely upon a mix of one-time and ongoing spending, as this approach would minimize the likelihood of programmatic cuts to schools were the state to experience an economic downturn after 2018-19. • Adopt a more efficient method of paying down the mandate backlog. Our recommended alternative reduces costs by having districts write off all remaining mandate claims as a condition of receiving proposed one-time discretionary grants. • Carefully examine 2017-18 attendance data. If growth does not materialize, expect the 2018-19 guarantee to drop by a few hundred million dollars. • Expect the 2017-18 and 2018-19 minimum guarantees not to increase by more than a few hundred million dollars even if state revenue increases by billions of dollars in either or both years. Local Control Funding Formula • Approve Governor’s proposal to provide $2.9 billion to fully fund the Local Control Funding Formula (LCFF)—reaching target funding rates two years ahead of schedule. • Going forward, determine core policy objectives before adjusting formula. • Reject Governor’s proposal to create an addendum to district budgets that specifies how district expenditures align with their Local Control and Accountability Plans (LCAPs). The proposed addendum would largely replicate information already available in LCAPs and would lengthen an already long and complex document. Statewide System of School Support • Reject Governor’s $76 million package of support proposals. • Consider an alternative approach to supporting districts with identified performance issues. • Require county offices of education (COEs) to work with identified districts to examine the root causes of their performance issues. Given COE’s current level of LCFF funding already is more than sufficient to provide district support, do not augment their funding for these activities. • Allow districts to access support from experts contracted through the California Collaborative on Educational Excellence (CCEE), thereby giving districts greater choice of their support providers. • Provide CCEE $30 million annually to award limited-term grants, oversee contracts, monitor identified districts, and conduct statewide trainings. • Monitor the number of identified districts and improvement trends over the next few years prior to fully developing Level 3 support. www.lao.ca.gov 59 analysis full gutter 2018-19 BUDGET Career Technical Education • Use LCFF to fund high school career technical education (CTE). • If Legislature has concerns that high schools will not provide CTE, modify funding formula (for example, by increasing the high school base rate) or modify the accountability system (for example, by establishing separate college and career readiness indicators). • Reject Governor’s proposal to create a new CTE program. • If Legislature chooses to take a categorical approach, modify the existing CTE Incentive Grant program to require more coordination between high schools, community colleges, and industry partners. Specifically: — Require a minimum portion of high school CTE courses be aligned with regional workforce needs. — Require school districts and community colleges to share CTE student-level data to track longer-term outcomes. Add these outcome data to school districts’ college and career readiness indicator and to colleges’ Strong Workforce performance measures. — Fold the funding associated with four other high school CTE programs into the CTE Incentive Grant program. One consolidated program would streamline planning, promote better coordination, and reduce administrative burden. • Establish a clear objective for what the CTE Incentive Grant is to achieve and set specific associated performance targets. Measure progress each year by enacting clear data collection and reporting requirements. • Make the CTE Incentive Grant program limited term and revisit the program in future years to see if it has met its goals. • Weigh trade-offs when determining funding level for CTE Incentive Grant program. Providing more categorical funding for CTE would guarantee that schools offer more CTE but would reduce funding available for LCFF. Special Education Staffing • Reject the Governor’s proposals to provide $50 million one time for teacher residency programs and $50 million one time for the Local Solutions Grant Program. Neither proposal addresses the root causes of special education staffing shortages. Recommend the Legislature pursue actions that do address root causes (see below). • Encourage school districts to establish ongoing pay differentials for special education teachers. • Repeal an existing statute that sets a uniform salary schedule as the default district policy. • Consolidate the mild/moderate and moderate/severe special education credentials into one core special education credential. • Eliminate two special education teaching credentials: (1) the physical and health impairment credential and (2) the language and academic development credential. • Authorize a degree option that would allow a student to obtain a bachelor’s degree in special education and a teaching credential in special education within four years of study. Provide one-time start-up grants for universities to redesign curriculum. • Provide targeted enrollment funding for the California State University to admit more graduate students into its occupational therapy and speech and language pathology training programs. 60 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET “Inclusive Early Education” Expansion • Reject the Governor’s proposal to provide $125 million one-time Proposition 98 funding and $42 million federal funding for a one-time competitive grant initiative to increase the availability of mainstream child care and preschool opportunities for children with disabilities from birth through age 5. • Consider reallocating existing quality improvement funding to prioritize special education-related training. Also could consider increasing the total amount of ongoing funding for professional development. • Explore ways to make the Child Care Facility Revolving Fund (CCFRF) program more attractive to providers—for example, by making a portion of CCFRF available as grants, extending the repayment period, and/or broadening the allowable uses of the funds to ensure providers could make special education-related renovations. State Preschool • Shift $176 million non-Proposition 98 General Fund for State Preschool wrap into Proposition 98 to provide the state with greater flexibility to distribute full-day slots. • If additional full-day slots are funded in 2018-19 or in future years, allow all types of providers, not only local education agencies, to apply for them. Pension Costs • Prioritize general purpose funding to give districts greater flexibility in accommodating higher pension costs and local priorities. • Modify trailer bill language guiding the use of one-time discretionary grants so that it specifically encourages districts to use these funds for addressing retirement liabilities. • Consider making an additional CalSTRS payment of at least several hundred million dollars and designating this funding for district rate relief during the next economic downturn. www.lao.ca.gov 61 analysis full gutter 2018-19 BUDGET Contact Information Ryan Anderson Local Control Funding Formula 319-8308 Ryan.Anderson@lao.ca.gov Kindergarten Natasha Collins Career Technical Education 319-8335 Natasha.Collins@lao.ca.gov Sara Cortez Statewide System of Support 319-8348 Sara.Cortez@lao.ca.gov “Inclusive Early Education” Expansion State Preschool Dan Kaplan K-12 Education in Context 319-8353 Dan.Kaplan@lao.ca.gov Special Education Staffing Kenneth Kapphahn Overview of Governor’s Proposition 98 Budget 319-8339 Kenneth.Kapphahn@lao.ca.gov Pension Costs LAO PUBLICATIONS This report was reviewed by Edgar Cabral and Jennifer Kuhn. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 62 LEGISLATIVE ANALYST’S OFFICE