The 2022-23 Budget: Local Control Funding Formula

The 2022-23 Budget: Local Control Funding Formula JANUARY 2022 Summary. In his January budget, the Governor State Makes Several Adjustments to proposes to provide a 5.33 percent cost-of-living Prior-Year Attendance Calculation. When the adjustment (COLA) to the Local Control Funding state calculates the change in a district’s Formula (LCFF) and change the formula to soften attendance from the prior year to the current the impact of declining attendance on school year, it makes a number of adjustments. Most districts. In this post, we provide background notably, it disregards the portion of any attendance on LCFF, describe and assess the Governor’s reduction attributable to students shifting from proposals, and provide our recommendations schools operated by the district to charter schools to the Legislature. sponsored by that same district. In order to make this adjustment, a school district must ascertain BACKGROUND the portion of its prior-year attendance attributable to students who attend charter schools in the Most K-12 Funding Is Allocated Through LCFF. current year. Districts report this information to the The LCFF is the primary source of funding for school California Department of Education, which updates districts and charter schools. The formula provides the attendance calculation accordingly. a base amount for each student, plus additional funding for low-income students and English State Temporarily Modified Attendance learners. Schools pay for most of their general Policies to Address the Pandemic. operating expenses (including employee salaries The emergence of the COVID-19 pandemic in the and benefits, supplies, and student services) using spring of 2020 resulted in the closure of virtually these funds. For 2021-22, the state is estimated to all schools in the state. For most students, remote spend more than $66 billion on LCFF—an average of learning replaced classroom instruction for some about $11,600 per student for more than 5.7 million or all of the 2020-21 school year. In response to students attending school districts and charter these changes, the state temporarily modified schools statewide. its approach to attendance. For 2019-20, the state provided that attendance levels would LCFF Is Based on Average Daily Attendance. depend only on average daily attendance The state allocates LCFF to school districts and through February 2020. For 2020-21, the state charter schools based on their average daily suspended the collection of attendance data attendance—the average number of students in and credited districts and charter schools with class each day throughout school year. For funding their 2019-20 attendance levels. (Growing school purposes, the state credits school districts with their districts and classroom-based charter schools average daily attendance in the current or prior year, could receive credit for additional students under whichever is higher. In 2019-20, about 570 school certain conditions.) For 2021-22, the state returned districts (60 percent) had prior-year attendance to its previous policy—crediting school districts levels exceeding their current-year levels. These with the greater of their attendance in 2021-22 or districts received credit for approximately 2020-21. Charter schools will be funded based on 50,400 students above their current-year 2021-22 attendance levels only (consistent with attendance levels. Based on 2019-20 per-pupil the previous policy). rates, the associated cost was nearly $530 million. Charter schools, by contrast, are funded according to their attendance in the current year only. State Typically Provides COLA for LCFF. ASSESSMENT The COLA rate is based on a price index published In this section, we provide our assessment of by the federal government. This index reflects the Governor’s two proposals related to LCFF. changes in the cost of goods and services purchased by state and local governments across Declining Attendance Policy the country. State law provides an automatic COLA Proposal Addresses Short-Term Funding for LCFF unless the associated cost would exceed Drops Attributable to the Pandemic. the constitutional funding requirement established Our discussions with district budget experts by Proposition 98 (1988). In these cases, the law suggest that the ongoing effects of the pandemic— reduces the COLA rate to fit within the available such as school closures, student and staff funding. The state also provides COLA for a few quarantines, and challenges implementing other K-12 categorical programs, and it typically remote learning—are continuing to affect school aligns the COLA rate for these programs with attendance levels. (Preliminary attendance for the LCFF rate. 2021-22 is not yet available.) Although districts are insulated from these declines in 2021-22, they PROPOSALS would experience notable declines in funding to Adjusts LCFF for 5.33 Percent COLA and the extent attendance remains at lower levels 2.19 Percent Attendance Decline. The Governor’s in 2022-23. Adding a three-year average to the budget estimates the COLA rate is 5.33 percent declining attendance adjustment for school in 2022-23 and provides roughly $3.3 billion to districts would soften the declines in LCFF funding cover the associated LCFF costs. The budget attributable to the pandemic. also assumes statewide attendance declines Allows Districts More Time to Plan for 2.19 percent from 2021-22 to 2022-23 and Sustained Declines. Districts with declining correspondingly adjusts costs down by roughly attendance over a sustained period typically $1.2 billion. These two adjustments combined result manage the reductions to their funding with a in an additional $2.1 billion in ongoing LCFF costs range of actions that can include reducing staff, in 2022-23. consolidating programs, closing schools, and Proposes Adding Three-Year Rolling Average reorganizing administrative functions. Some of to School District Attendance Calculations. these actions can take a few years to plan and The Governor proposes to create an additional implement. The Governor’s proposal would slow adjustment for school districts with declining future funding reductions, allowing districts attendance, beginning in 2022-23. Under this more time to adjust their educational programs. proposal, districts would be credited with their The proposal could promote fiscal stability average daily attendance over the three prior for these districts and allow them to prioritize years if it exceeds their current- and prior-year programs that best serve the needs of their attendance. (For 2022-23, attendance would be remaining students. In addition, the three-year based on the average of 2019-20, 2020-21, and average would help reduce future fluctuations in 2021-22.) The administration estimates that the funding from temporary changes in average daily proposal would increase LCFF costs by roughly attendance levels. $1.2 billion in 2022-23—essentially offsetting the Maintains Funding Increases for Growing attendance-related reduction that would occur Districts. Although many districts were under current law. The Governor does not propose experiencing attendance declines—even before the any specific changes for charter schools, but pandemic—about 40 percent had been growing. indicates the administration will explore options for The Governor’s proposal would continue crediting extending a declining attendance adjustment to districts with their current-year average daily charter schools in the future. attendance levels, which means growing districts would receive funding for their additional students. 2022-23 Budget Series 2 Long-Term Cost Likely Around $650 Million RECOMMENDATIONS Per Year. The Governor’s budget estimates that Adopt Governor’s Proposal. We recommend the expanded adjustment for declining attendance the Legislature approve the Governor’s proposal will cost $1.2 billion in 2022-23, but this estimate to credit districts with the higher of their current is relative to the above-average attendance drop year, prior year, or average of three prior years for assumed for 2022-23. To understand how the purposes of their LCFF allocations. The proposal proposal would impact school districts in a normal would address short-term drops in funding due to year, we simulated LCFF funding levels for 2019-20 the pandemic, as well as provide declining districts as though the proposal had been in place for more time to adjust educational programming for several years. We found that districts would have their remaining students. In addition, districts that been credited with roughly 53,000 students more are growing will continue to be receive increases in than current law provides. Based on estimated their LCFF funding. 2022-23 per-pupil rates, the increased LCFF costs Consider Temporary Adjustment for would be approximately $650 million. Charter Schools. We think the Governor’s plan Proposal Would Require Tracking More Data. to study potential attendance adjustments for Under the Governor’s proposal, districts would charter schools is reasonable. The proposed need to track some additional attendance data. discussions could help identify various options For example, a district would need to identify the for the Legislature to consider. Unlike school students currently attending charter schools and districts, however, charter schools face the determine how much attendance those students prospect of immediate funding reductions based had generated for the district in each of the three on attendance declines they experience in 2021-22. prior years. The California Department of Education The Legislature could consider providing some also would need to collect and process this type of temporary adjustment—one option would additional information. be to allow charter schools to receive funding based on their pre-pandemic attendance for Estimated COLA another year. This would provide the Legislature COLA Likely to be Higher in May The federal and the administration more time to examine government released additional data used to longer-term alternatives. calculate the COLA on January 27. Using this data and our updated projections, we estimate the COLA for 2022-23 will be closer to 6.17 percent. Covering this higher COLA rate for LCFF would cost approximately $2.6 billion, an increase of $500 million compared with the estimate in the Governor’s budget. The federal government will release the final data for the 2022-23 COLA on April 28, 2022. 2022-23 Budget Series 3 LAO PUBLICATIONS This post was prepared by Michael Alferes, and reviewed by Kenneth Kapphahn and Edgar Cabral. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. 2022-23 Budget Series 4