The 2024-25 Budget: Proposition 98 and K-12 Education

2024-25 BUDGET The 2024-25 Budget: Proposition 98 and K-12 Education GABRIEL PETEK | LEGISLATIVE ANALYST FEBRUARY 2024 www.lao.ca.gov 1 2024-25 BUDGET 2 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Table of Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 The Minimum Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 K-12 Spending Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 School Nutrition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Education Workforce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Literacy Screening . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Mathematics Framework Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Teacher Credentialing and Authorization Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Attendance Recovery and Instructional Continuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Education Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 www.lao.ca.gov 3 2024-25 BUDGET 4 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Executive Summary In this report, we assess the architecture of the Governor’s overall Proposition 98 budget and analyze his major proposals for K-12 education . Overall Proposition 98 Budget $13.7 Billion in Solutions and Reductions Affecting Schools. Proposition 98 (1988) sets aside a minimum amount of funding for schools (and community colleges) based upon a set of constitutional formulas . Due to reductions in state revenue, the Governor’s budget estimates this funding requirement is down significantly over the 2022-23 through 2024-25 period . To align spending with these lower estimates, the Governor proposes $13 .7 billion in reductions and other solutions affecting schools . The largest proposal is a funding maneuver that would “accrue” $7 .1 billion in previous payments to schools (and $910 million in previous payments to community colleges) to future years . Under this proposal, schools would retain these payments but the state would take the associated costs off its books for several years . The other significant proposal is a $4 .9 billion withdrawal from the Proposition 98 Reserve to cover school spending in 2023-24 and 2024-25 . The budget also recognizes savings from lower student attendance ($1 .2 billion) and proposes a one-time reduction to preschool funding that would otherwise go unused ($446 million) . $1.4 Billion in New Proposition 98 K-12 Spending Proposals. Of this amount, $784 million is for ongoing increases and $599 million is for one-time activities . The largest ongoing proposal is to cover a 0 .76 percent cost-of-living adjustment (COLA) for existing programs and the largest one-time proposal is to provide additional funding for zero-emission school buses . Overall Messages Recommend Alternative Approach That Prioritizes Core Programs and Budget Stability. The Governor’s budget avoids immediate reductions to school programs but relies heavily on solutions that shift expenditures into the future . Specifically, the budget would worsen future state budget deficits (through the funding maneuver) and set up future shortfalls in ongoing school programs (by using reserves and other one-time funds to cover ongoing costs) . This approach positions the state poorly—making spending commitments the state would have difficulty sustaining and setting up more difficult choices next year . We recommend an alternative approach that prioritizes core school programs and also promotes budget stability and aligns school spending with the funding available under Proposition 98 . Plan for Further Decreases in Proposition 98 Funding by June. State revenue collections have been notably weak since the release of the Governor’s budget . Based upon our most recent forecast (released in February), we estimate that funding for schools under Proposition 98 is $5 .2 billion lower than the Governor’s budget level in 2023-24 and $2 .5 billion lower in 2024-25 . We recommend the Legislature use the coming months to establish its priorities and examine the additional reductions and solutions that would be needed to address these decreases . Significant Concerns With Proposed Funding Maneuver, Recommend Rejecting. Under this proposal, the state would be using its cash resources to finance payments to schools and creating an obligation to recognize the underlying budgetary cost in the future . In addition to worsening future budget deficits, the proposal sets a problematic precedent by decoupling payments to schools and state recognition of costs for an extended period . As an alternative, we recommend using Proposition 98 Reserve withdrawals to cover the costs of these payments . www.lao.ca.gov 5 2024-25 BUDGET Proposed COLA Adds to Ongoing Program Shortfall, Recommend Rejecting. The 2023-24 enacted budget relied upon nearly $1 .6 billion in one-time funds to pay for ongoing school programs, and the proposed COLA in the Governor’s budget would increase this shortfall to $2 .2 billion in 2024-25 . Given that the current Proposition 98 funding level cannot even support the cost of existing programs, we recommend rejecting the proposed COLA . Other Ongoing and One-Time Increases Unaffordable, Recommend Rejecting. We recommend rejecting virtually all of the other increases in the Governor’s budget . These proposals do not seem urgent enough to justify their additional costs amidst tight fiscal times . Explore Additional Solutions. We recommend the Legislature consider these options: • Reductions to Unallocated Grants. We estimate the state has about $4 .5 billion in funding set aside for competitive grants that have not yet been awarded . Rescinding some of these grants would generate one-time savings . • Temporary Reductions to Certain Programs. The state has a few ongoing programs for which districts have significant amounts of unspent carryover funding . The state could temporarily reduce funding for these programs with the expectation that districts would support the underlying activities with unspent local funds . • Ongoing Reductions to Certain Programs. The state has provided significant increases for the Expanded Learning Opportunities Program, State Preschool, school nutrition, school transportation, and transitional kindergarten staffing in recent years . The Legislature could restructure these programs to reduce their costs . • Ongoing Reductions to Antiquated Add-Ons. The state could obtain savings and reduce funding disparities among districts by phasing out funding that it allocates to districts based on programs they operated decades ago . Messages on Specific Programs In addition to our overall message on spending, we discuss several other issues that are either not specifically connected to budget proposals or have no associated costs . School Nutrition. Given recent changes in federal regulations, we recommend the Legislature remove the mandatory participation requirement for schools newly eligible for the federal Community Eligibility Provision option . We also provide several options the Legislature may want to consider for containing future cost growth of the school nutrition program . Educator Workforce. The Legislature may want to more carefully consider the trade-offs associated with the proposed new authorization for teaching arts in elementary schools . The proposal may make it easier for schools to hire arts teachers, but these teachers may not be as prepared to teach in an elementary and early childhood setting . Attendance Recovery and Instructional Continuity. Although the Governor’s budget does not include any funding associated with these proposed new programs, they likely would result in ongoing cost increases . If the Legislature is interested in implementing these programs, we recommend delaying them for at least one year . We also identify several associated implementation issues for the Legislature to consider . Education Technology. Instead of providing additional Proposition 98 funding, we recommend the Legislature maximize the use of grantee reserves and carryover funds to offset operational costs of the California College Guidance Initiative and K-12 High Speed Network . 6 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET INTRODUCTION In this report, we analyze the Governor’s the merits of this approach, and provides our Proposition 98 proposals in K-12 education . recommendations for the Legislature to consider . The first section analyzes the administration’s The four remaining sections of this report examine estimates of the Proposition 98 minimum guarantee the Governor’s major proposals involving K-12 and explains how the guarantee is likely to change education . Specifically, we analyze his proposals in the coming months . The second section for (1) school nutrition, (2) the education workforce, describes the Governor’s plan for allocating (3) attendance recovery and instructional continuity, Proposition 98 funding to schools, assesses and (4) education technology . THE MINIMUM GUARANTEE Proposition 98 (1988) established a minimum at or near the guarantee . With a two-thirds vote funding requirement for schools and community of each house of the Legislature, the state can colleges commonly known as the minimum suspend the guarantee and provide less funding guarantee . In this section, we (1) provide than the formulas require that year . The guarantee background on the guarantee, (2) analyze the consists of state General Fund and local property administration’s estimates of the guarantee, and tax revenue . (3) explain how the guarantee is likely to change in At Key Points, the State Recalculates the the coming months . Minimum Guarantee. The state makes an initial estimate of the guarantee when it enacts the annual BACKGROUND ON budget, but this estimate typically changes as the THE GUARANTEE state updates the relevant Proposition 98 inputs . Minimum Guarantee Depends on Various Inputs and Formulas. Figure 1 The California Constitution sets forth three main tests for Three Proposition 98 Tests calculating the Proposition 98 minimum guarantee . Each test Test 1 Test 2 Test 3 takes into account certain inputs, Share of General Change in Per Change in General including General Fund revenue, Fund Revenue Capita Personal Fund Revenue Income (PCPI) per capita personal income, and student attendance (Figure 1) . General PCPI Fund Test 1 links school funding to a minimum share of General Fund About ADA ADA 40% revenue, whereas Test 2 and Test 3 Prior-Year Prior-Year build upon the amount of funding Funding Funding provided the previous year . The Constitution sets forth rules for comparing the tests, with one of Guarantee based on share Guarantee based on prior- Guarantee based on prior- the tests becoming operative and 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 used for calculating the minimum education in 1986-87. in K-12 attendance and in K-12 attendance and guarantee that year . Although the California PCPI. state General Fund revenue. state can provide more funding ADA = average daily attendance. than required, it usually funds www.lao.ca.gov 7 2024-25 BUDGET Specifically, the state recalculates the guarantee at In addition, a district can receive an exemption the end of the year based on revised estimates of from its county office of education (COE) for up to these inputs, followed by a second recalculation at two consecutive years . The cap became operative the end of the following year . When the guarantee for the first time in 2022-23 and remains operative exceeds the initial budget estimate, the state in 2023-24 . must make a one-time payment to “settle up” for the difference . If the guarantee drops, the state ADMINISTRATION’S ESTIMATES can reduce spending to the lower guarantee . OF THE GUARANTEE After making these revisions, the state finalizes Major Downward Revision to Revenues in its calculation of the guarantee through an annual 2022-23. The state receives most of its revenue process called “certification .” Certification involves from the personal income tax, corporation tax, the publication of the underlying Proposition 98 and sales tax . The state ordinarily receives these inputs and a period of public review . The most revenues on a predictable schedule and adjusts recently certified year is 2021-22 . its future revenue estimates based on trends in the Proposition 98 Reserve Sets Aside Funding tax collection data . To conform with federal action, for Tighter Times. Proposition 2 (2014) created the state delayed the deadline for some personal a state reserve specifically for schools and income and corporation tax payments that normally community colleges—the Public School System would have been due in the spring and summer Stabilization Account (Proposition 98 Reserve) . of 2023 until November 16, 2023 . The delay The Constitution generally requires the state to obscured significant weakness in state revenue deposit Proposition 98 funding into this reserve collections that otherwise would have been evident when the state receives high levels of capital gains earlier . Specifically, the delayed payments show revenue and the minimum guarantee is growing that state tax collections for 2022-23 were nearly relatively quickly . The Constitution also requires $26 billion lower than the levels the state estimated the state to withdraw funding from the reserve in June 2023 . under certain conditions—generally when funding Proposition 98 Guarantee Revised Down is growing slowly relative to inflation and student Substantially in 2022-23. Compared with the attendance . If the Governor declares a budget estimates from June 2023, the administration emergency, the Legislature can make discretionary revises its estimate of the guarantee down nearly withdrawals . Unlike other state reserve accounts, $9 .1 billion for 2022-23 (Figure 2) . Test 1 is the Proposition 98 Reserve is available only to operative, meaning the guarantee increases or supplement the funding schools and community decreases nearly 40 cents for each dollar of higher colleges receive under Proposition 98 . or lower General Fund revenue . In Test 1 years, Proposition 98 Reserve Linked With Cap on changes in local property tax revenue also School Districts’ Local Reserves. A state law have dollar-for-dollar effects on the guarantee . enacted in 2014 and modified in 2017 caps school The reduction in the guarantee primarily reflects district reserves after the Proposition 98 Reserve the significant drop in General Fund revenue, but reaches a certain threshold . Specifically, the cap is offset slightly by a small increase in property applies if the funds in the Proposition 98 Reserve tax revenue . This downward revision is the largest in the previous year exceeded 3 percent of the reduction to the guarantee in a prior year since the Proposition 98 funding allocated to schools that passage of Proposition 98 in 1988 . By contrast, year . When the cap is operative, medium and large previous downward revisions to the prior-year districts (those with more than 2,500 students) must guarantee have never been larger than a couple limit their reserves to 10 percent of their annual hundred million dollars . expenditures . Smaller districts are exempt . The law also exempts reserves that are legally restricted to specific activities and reserves designated for specific purposes by a district’s governing board . 8 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Figure 2 Tracking Changes in the Prior- and Current-Year Proposition 98 Guarantee (In Millions) 2022-23 2023-24 June 2023 January 2024 June 2023 January 2024 Estimate Estimate Change Estimate Estimate Change General Fund $78,117 $68,563 -$9,554 $77,457 $74,633 -$2,824 Local property tax 29,241 29,742 501 30,854 30,953 99 Totals $107,359 $98,306 -$9,053 $108,312 $105,586 -$2,725 General Fund tax revenue $204,533 $178,952 -$25,581 $201,213 $193,185 -$8,028 Moderate Reduction in the Guarantee in (In 2022-23, the state began implementing plan 2023-24. The administration anticipates a relatively to make TK available to all four-year old children rapid recovery for state revenues in 2023-24 . over a four-year period . As part of the plan, the Specifically, the Governor’s budget assumes an state is adjusting the guarantee upward for the 8 percent increase in General Fund revenue relative additional students enrolling in the program each to the lower 2022-23 level, including a 12 percent year .) Mechanically, the state implements these two increase in personal income tax receipts . Under this adjustments by increasing the minimum share of assumption, state revenues would be moderately General Fund revenue reserved for schools under below the June 2023 estimate and the Proposition 98 Test 1 from 38 .6 percent in 2023-24 to 39 .5 percent guarantee would be $2 .7 billion (2 .5 percent) below in 2024-25 . the enacted budget level . Test 1 remains operative in 2023-24, with the Figure 3 change in the guarantee reflecting the Proposition 98 Key Inputs and Outcomes Under decrease in General Fund revenue and Governor’s Budget a small offsetting increase in property (Dollars in Millions) tax revenue . Moderate Growth in Guarantee 2022-23 2023-24 2024-25 in 2024-25. The administration Minimum Guarantee estimates the guarantee is General Fund $68,563 $74,633 $76,894a $109 .1 billion in 2024-25, an increase Local property tax 29,742 30,953 32,185 of $3 .5 billion (3 .3 percent) over the Totals $98,306 $105,586 $109,080 revised 2023-24 level (Figure 3) . Change From Prior Year Test 1 is operative in 2024-25, with General Fund -$15,190 $6,070 $2,261 Percent change -18 .1% 8 .9% 3 .0% modest increases in General Fund Local property tax $2,942 $1,211 $1,232 revenue and local property tax Percent change 11 .0% 4 .1% 4 .0% revenue both contributing to growth Total guarantee -$12,248 $7,281 $3,493 in the guarantee . Nearly half of the Percent change -11 .1% 7 .4% 3 .3% increase, however, is due to two General Fund Tax Revenueb $178,952 $193,185 $194,941 special adjustments . First, the state Growth Rates adjusts the guarantee up by more K-12 average daily attendance 0 .9% 0 .1% -0 .03% Per capita personal income (Test 2) 7 .6 4 .4 4 .8 than $930 million to account for the Per capita General Fund (Test 3)c -17 .9 8 .6 1 .4 arts education program established Operative Test 1 1 1 by Proposition 28 (2022) . Second, it a Includes adjustment for arts education funding under Proposition 28 (2022) . makes a further upward adjustment of b Excludes nontax revenues and transfers, which do not affect the calculation of the guarantee . more than $630 million to account for c As set forth in the State Constitution, reflects change in per capita General Fund plus 0 .5 percent . the continued expansion of eligibility Note: No maintenance factor is created or paid over the period . for transitional kindergarten (TK) . www.lao.ca.gov 9 2024-25 BUDGET Moderate Growth in Property Tax Revenue below projections . Consistent with these trends, Anticipated. The most important factor affecting economic indicators that are important for state local property tax revenue is the rate of growth revenue collections also have remained weak . in assessed property values . Three main factors For example, investment in California startups and drive this growth: (1) construction of new technology companies remains depressed, and properties, (2) sales of existing properties (and their relatively few California companies are going public subsequent reassessment to market value), and (selling stock to public investors for the first time) . (3) the annual 2 percent adjustment in the assessed Our February General Fund Revenue value of all other properties . The administration Estimates Are Well Below the Governor’s estimates assessed values will grow 5 .1 percent in Budget Level. Based on the recent tax collection 2023-24 and 4 .7 percent in 2024-25 . This growth data, we see a high level of downside risk to the assumption is somewhat below the historical revenue estimates in the Governor’s budget . average of about 5 .5 percent . The administration Specifically, our updated estimate of General Fund also anticipates that some smaller property tax revenue (released in February) is $15 .3 billion lower components will grow more slowly . Accounting for than the administration anticipates in 2023-24 all of these factors, the overall increase in local and $8 .4 billion lower in 2024-25 . (Across both property tax revenue is about 4 percent in years, these estimates are $8 .4 billion lower each year . than the estimates from our December outlook .) Guarantee Estimated to Grow Slowly in As Figure 4 shows, uncertainty remains for both 2025-26. Under the administration’s multiyear years and final tax receipts could be higher or forecast, the Proposition 98 guarantee would lower than we anticipate . Despite this uncertainty, grow to $111 .9 billion in 2025-26, an increase of our assessment of the most plausible scenarios $2 .8 billion (2 .6 percent) from the 2024-25 level . (represented by the shaded area in the figure) This relatively small increase builds upon underlying indicates a low probability that revenues approach assumptions of minimal growth in General Fund the levels in the Governor’s budget . revenue (0 .5 percent) and moderate growth in Our Local Property Tax Estimates Are property tax revenue (4 .3 percent) . Approximately Slightly Above the Governor’s Budget Level. $1 .1 billion of this increase in the guarantee is Whereas our estimates of General Fund revenue attributable to an adjustment for TK . are well below the levels in the Governor’s budget, our estimates of property tax revenue ASSESSING ESTIMATES are somewhat higher . Specifically, the estimates OF THE GUARANTEE State Tax Collections Through January Have Figure 4 Been Weak. Whereas the Governor’s budget General Fund Revenue Estimates anticipates a relatively strong rebound in General Are Below Governor's Budget Level Fund revenue for 2023-24, state tax collections LAO Forecast Minus Governor's Budget (In Billions) through January point to continuing weakness . Tax receipts from regular income tax withholding (the $10 largest portion of the personal income tax) came in $1 billion (11 percent) below the estimates in the Governor’s budget . Receipts from the quarterly -10 estimated payments (the other major contributor -20 to personal income tax revenue) were even -30 worse, coming in $3 billion (27 percent) below the -40 Governor’s budget estimate . The state experienced additional weakness in its two other major revenue -50 2022-23 2023-24 2024-25 sources, with corporation tax payments significantly below projections and sales tax revenue slightly 10 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET from our December outlook are $590 million higher in 2023-24 and Figure 5 $682 million higher in 2024-25 . LAO Estimates of Proposition 98 Guarantee Below Approximately one-third of this Governor’s Budget Estimates difference is due to our higher estimates of growth in assessed (In Millions) property values, another one-third Three-Year is due to our higher estimates of 2022-23 2023-24 2024-25 Totals supplemental taxes (taxes levied Governor’s January Budget on properties sold during the year), General Fund $68,563 $74,633 $76,894 $220,091 and the remaining one-third is due Local property tax 29,742 30,953 32,185 92,881 to various differences in several Totals $98,306 $105,586 $109,080 $312,972 smaller property tax components . LAO February Estimates Preliminary data suggest that General Fund $68,563 $68,815 $73,702 $211,081 property tax revenues are tracking Local property tax 29,742 31,543 32,867 94,153 Totals $98,306 $100,358 $106,570 $305,234 closer to our higher estimates . Most notably, recent data from the Board Change From Governor’s Budget General Fund — -$5,818 -$3,192 -$9,010 of Equalization show that assessed Local property tax — 590 682 1,272 property values grew nearly Totals — -$5,228 -$2,510 -$7,738 6 .7 percent in 2023-24, compared with the estimate of 5 .1 percent in the Governor’s budget . Figure 6 Our Estimates of the Guarantee Are Estimates of the Proposition 98 $7.7 Billion Below the Governor’s Budget Guarantee Have Deteriorated Level. In Test 1 years like 2023-24 and 2024-25, (In Billions) changes in General Fund revenue and local property tax revenue both have direct effects on $111.6 the Proposition 98 guarantee . Specifically, our $107.4 $108.3 $109.1 $106.6 lower General Fund revenue estimates reduce $105.6 the guarantee by nearly 40 cents for each dollar $100.4 $98.3$98.3 of lower revenue . Increases in local property tax, however, increase the Proposition 98 guarantee on a dollar-for-dollar basis . Accounting for our February estimates of General Fund revenue and 2022-23 2023-24 2024-25 our December 2023 estimates of local property Enacted Budget (June 2023) Governor's Budget (January) LAO (February) revenue, we estimate the Proposition 98 guarantee is $7 .7 billion lower than the Governor’s budget level over the period . Specifically, our estimates are $5 .2 billion lower in 2023-24 and $2 .5 billion lower in 2024-25 (Figure 5) . For 2022-23, our estimates are unchanged from the Governor’s budget level . As Figure 6 shows, our estimates of the guarantee represent even steeper reductions when measured against the levels the state anticipated in June 2023 . www.lao.ca.gov 11 2024-25 BUDGET K-12 SPENDING PLAN In this section, we analyze the Governor’s plan budgetary recognition of the expenditure for several for allocating Proposition 98 funding to schools . years . The budget also contains discretionary reserve First, we describe the Governor’s overall approach withdrawals, baseline savings, and a one-time and review the major spending-related solutions reduction to unallocated preschool funds . and proposed increases . Next, we assess the $7.1 Billion One-Time Savings From Proposed merits of this approach and analyze the most Funding Maneuver. The school spending level the significant proposals . Finally, we provide our state previously approved for 2022-23 exceeds the recommendations for the Legislature to consider . revised estimate of the Proposition 98 guarantee in In contrast to most previous years, the largest the Governor’s budget by $7 .1 billion . The largest proposal in the Governor’s K-12 plan has significant solution in the Governor’s K-12 plan is a proposal to implications for the rest of the state budget . The “accrue” spending above the guarantee in 2022-23 nearby box summarizes the overall condition of the to future years . (The budget also proposes a similar state budget to provide context for this proposal . shift affecting $910 million in community college (We analyze proposals affecting community spending .) Under the proposal, the state would colleges separately in a forthcoming report .) reclassify the $7 .1 billion above the guarantee as a non-Proposition 98 expenditure . It would remove GOVERNOR’S BUDGET this expenditure from its books in 2022-23, then Below, we explain the major components of the recognize the expenditure gradually over a five-year Governor’s plan for K-12 education . We begin by period, beginning in 2025-26 . The state would explaining the overall approach, then describe the not reduce any previous payments to schools or specific solutions and proposed increases . attempt to recoup any of this funding in subsequent years . In effect, the state would be using its cash Overall Approach resources to finance payments to schools that Governor’s Budget Funds at the Estimates exceed the Proposition 98 guarantee in the prior year of the Minimum Guarantee. The Governor’s and creating an internal obligation to recognize the budget proposes to reduce General Fund spending underlying budgetary cost at some point in the future . on schools to align with the lower estimates of Unlike a traditional loan, however, the state would not the minimum guarantee . The budget implements score this mechanism as borrowing, make payments these reductions primarily through cost shifts and to an external creditor, or accrue any interest . (The other one-time solutions that would not have any administration very recently released the trailer bill immediate effect on school district budgets . The language associated with this proposal . We did proposed solutions also free-up Proposition 98 not receive this language in time to review it for this funding for several one-time and ongoing funding analysis . However, this analysis reflects our best increases . Figure 7 on page 14 lists all of the understanding of the proposal, which was confirmed Proposition 98 solutions and spending proposals by the administration .) affecting schools . $4.9 Billion Discretionary Withdrawal From the Proposition 98 Reserve. The Governor Budget Solutions proposes a $4 .9 billion discretionary withdrawal Budget Contains $13.7 Billion in K-12 Spending to cover school spending that would otherwise Solutions. The Governor’s budget contains four exceed the minimum guarantee . Of this amount, main solutions that would reduce General Fund the budget would use $2 .8 billion for the Local spending by $13 .7 billion across 2022-23 through Control Funding Formula (LCFF) in 2023-24 2024-25 . The largest solution is a funding maneuver and $2 .1 billion for LCFF in 2024-25 . (The that would move some prior-year school spending to Governor also proposes a similar withdrawal the non-Proposition 98 side of the budget and delay of $722 million for community college programs .) 12 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Overall Condition of the State Budget State Facing Serious Budget Problem. A budget problem arises when the resources for an upcoming budget are insufficient to cover the costs of currently authorized services . As we explain in The 2024-25 Budget: Overview of the Governor’s Budget, we estimate that the Governor had to solve a budget problem totaling $58 billion . The adjacent How the Governor Addresses a figure shows the actions the Governor $58 Billion Budget Problem proposes to address the problem . The largest set of solutions are spending Revenue Related related and include a mix of outright Cost reductions, expenditure delays, shifts Shifts of costs from the General Fund to Reduction other funds and future years, and the recapture of unspent funds (reversions) . Reserve Withdrawals These solutions are broad-based and Other Spending-Related Solutions Delay affect nearly all areas of the budget . The Governor also proposes withdrawing School and funds from state reserve accounts Community College Fund Shift Spending (Proposition 98) and reducing school and community Reversion college spending to the constitutional minimum level . Large Operating Deficits Anticipated Over the Next Several Years. Although the Governor proposes a number of spending-related solutions, the budget is likely unsustainable moving forward . As the figure below shows, both our office and the Department of Finance anticipate deficits of roughly $30 billion per year beginning in 2025-26 . To place these deficits in context, they represent about 15 percent of the General Fund revenue the state expects to collect each year of the period . In terms of State Faces Significant Operating Deficits spending, these annual deficits (In Billions) are larger than the annual amount the state currently spends on the 2024-25 2025-26 2026-27 2027-28 University of California, California State University, university financial -$10 aid, and child care programs combined . Although state revenues -20 potentially could exceed our estimates for the next several years, -30 they are unlikely to approach the -40 level required to eliminate these LAO Budget Problem deficits altogether . Moreover, if -50 DOF Budget Problem (LAO Estimate) the Legislature were to adopt the LAO Ongoing Deficits Governor’s budget, the state would -60 DOF Ongoing Deficits enter future years with fewer tools -70 to manage these deficits (such as reserves) than it has available today . DOF = Department of Finance. www.lao.ca.gov 13 2024-25 BUDGET declines in 2024-25 as their higher Figure 7 attendance levels from earlier Governor’s K-12 Proposition 98 Package years continue phasing out of (In Millions) their average . The Governor’s budget estimates this phaseout Solutions and Reductions will reduce LCFF statewide by Shift prior-year costs to future budgets -$7,097 $2 billion (2 .6 percent) . Partially Discretionary reserve withdrawal -4,946 offsetting this reduction, the LCFF attendance changesa -1,217 State Preschool savings -446 budget estimates an LCFF increase Total -$13,705 of $796 million related to the Ongoing Increases expansion of TK . This increase LCFF COLA (0 .76 percent) $564 consists of $635 million for base, Universal school meals 122 supplemental, and concentration COLA for select categorical programs (0 .76 percent)b 64 grant funding generated by Training for literacy screenings 25 CA College Guidance Initiative 5 students who are newly eligible Inclusive College Technical Assistance Center 2 in 2024-25 and $161 million to Homeless Education Technical Assistance Centers 2 support lower staffing ratios for Total $784c these students . Accounting for One-Time Increases the attendance phaseout Green school bus grants (second round) $500 and the expansion of TK, the 2023-24 universal school meals increase 65 Training for new mathematics framework 20 overall reduction in LCFF costs Item bank for science performance tasks 7 is $1 .2 billion . Instructional continuity 6 $446 Million One-Time FCMAT long term planning 1 Science safety handbook —d Reduction for State Preschool . Total $599 The Governor’s budget proposes a Consists of a $2 .6 billion reduction from the continuing phaseout of pre-pandemic attendance reducing Proposition 98 funding funding, partially offset by a $796 million increase related to transitional kindergarten . b Applies to Adults in Correctional Facilities, American Indian programs, Charter School Facility Grant for State Preschool by $446 million Program, Child and Adult Care Food Program, Child Nutrition program, Equity Multiplier, Foster on a one-time basis in 2024-25 . Youth Program, K-12 mandates block grant, and Special Education . c The budget also proposes $2 million ongoing for a program supporting state parks access for fourth This reduction reflects the graders . This program is an existing pilot the state funded previously with non-Proposition 98 funds . administration’s estimate of d Reflects $150,000 . State Preschool funds that would LCFF = Local Control Funding Formula; COLA = cost-of-living adjustment; and FCMAT = Fiscal otherwise go unused . The proposal Crisis and Management Assistance Team . is not intended to reduce rates or slots . (The Governor also proposes These withdrawals would leave $3 .9 billion in the a reduction of $172 million for non-Proposition 98 reserve for future use . This balance exceeds the State Preschool programs . This proposal also is threshold triggering the cap on local school district intended to only reduce funds that would otherwise reserves, meaning the cap would remain operative go unused .) for at least another year . $1.2 Billion Reduction in LCFF Costs From Spending Proposals Lower Attendance. For the purpose of allocating Budget Proposes Spending Increases funding under the LCFF, the state credits school Totaling $1.4 Billion. The Governor’s budget districts with their attendance in the current year, proposes $1 .4 billion in new spending for K-12 previous year, or average of the three previous years programs . Of this amount, $784 million is for (whichever is highest) . Due to large decreases in ongoing increases and $599 million is for one-time attendance over the past few years, approximately activities . From an accounting perspective, nearly 80 percent of school districts currently are receiving all of the new spending is attributable to 2024-25 . funding based on their three-year average . Most of these districts will experience funding 14 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET The only exception is a portion of the increase involve teacher training and professional for universal school meals ($65 million) that is development activities or education technology attributable to 2023-24 . initiatives . The largest ongoing amount is $628 Million for 0.76 Percent Statutory $25 million to fund a new literacy screening Cost-of-Living Adjustment (COLA). The state mandate . The largest one-time amount is calculates the COLA each year using a price $20 million to provide training for teachers on the index published by the federal government . state’s new mathematics framework . This index accounts for changes in the cost of goods and services purchased by state and ASSESSMENT local governments across the country during the Below, we provide our assessment of the preceding year . For 2024-25, the administration Governor’s budget . We begin with the overall estimates the statutory COLA rate is 0 .76 percent . architecture, then analyze the specific one-time (This rate is relatively low by historical standards, actions and ongoing proposals . likely reflecting decreases in energy prices that have occurred since the summer of 2022 .) Overall Comments The Governor’s budget provides an ongoing Governor’s Plan Recognizes a Budget increase of $628 million to cover the associated Problem and Introduces a Few Reasonable cost for K-12 programs—$564 million for LCFF and Ideas. The state faces a much larger budget $64 million for various categorical programs . problem now than the one it confronted $500 Million for Second Round of Green when it adopted the June 2023 budget plan . School Bus Grants. The June 2022 budget plan The Governor’s plan for schools recognizes that established a program to fund zero-emission school the state likely cannot balance its budget without buses and related infrastructure (such as charging solutions that align school spending with the stations) . Trailer legislation requires the California lower estimates of the Proposition 98 guarantee . Air Resources Board and the California Energy Regarding the specific solutions, the budget sets Commission to award grants to interested school forth a few reasonable ideas . Most notably, the districts on a competitive basis . The Legislature Governor signals that he is willing to work with the previously approved $500 million to fund the first Legislature to access funds in the Proposition 98 round of grants under the program and adopted Reserve and identify savings in the State Preschool intent language to allocate additional funding in the program . Although we critique some aspects of future . The Governor’s budget provides $500 million these ideas, they represent reasonable initial steps for a second round of grants . toward resolving the budget shortfall . $187 Million for Universal School Meals. Major Concerns With Proposed Funding The state implemented a universal meals program Maneuver. We have major concerns with the in 2021-22 that reimburses schools for the cost Governor’s proposal to allow schools to keep cash of serving two daily meals to every student . disbursements above the minimum guarantee The Governor’s budget provides a one-time without recognizing the budgetary cost of those allocation of $65 million in 2023-24 and an ongoing payments . This proposal creates a new type of increase of $122 million in 2024-25 to support this budget solution: effectively, an interest-free loan program . As we explain in a later chapter, these from the state’s cash resources and, as such, it sets increases are based on estimated growth in the a problematic precedent . It also creates a binding number of meals served and an adjustment to align obligation on the state—one which will worsen the the state reimbursement rate with the federal rate . state’s already large forecasted deficits, requiring even more difficult decisions by the Legislature in $67 Million for Other Increases. the future . It also raises transparency concerns The Governor’s budget proposes several smaller by obfuscating the true condition of the budget . increases consisting of nearly $34 million for We discuss our concerns with this proposal in ongoing programs and nearly $34 million for more detail in The 2024-25 Budget: The Governor’s one-time activities . Most of these augmentations Proposition 98 Funding Maneuver. www.lao.ca.gov 15 2024-25 BUDGET Significantly More Budget Solutions Needed December 31, 2023, districts held nearly $5 billion Address the Shortfall. Given the numerous in unspent federal funds from the American Rescue drawbacks of the proposed maneuver, the Plan Act . (These funds are available for expenditure Legislature likely will want to explore alternative through September 30, 2024 .) These three fund solutions . To avoid this proposal entirely, the state sources represent a much larger cushion for would need to identify $7 .1 billion in one-time (or districts compared with the amount of local funding ongoing) K-12 education solutions (and $910 million available during previous downturns . in community college solutions) . In addition, One-Time Solutions the Proposition 98 guarantee is likely to decline further over the coming months . Under our latest Discretionary Reserve Withdrawal Is estimates, the guarantee is $7 .7 billion below the Warranted—if Used as a Solution for 2022-23. Governor’s budget level across the three-year Discretionary withdrawals from the Proposition 98 period . Assuming the state attributes 89 percent Reserve are contingent upon the Governor of this reduction to schools (and 11 percent to declaring a budget emergency and the Legislature community colleges, consistent with its historical enacting a law authorizing the withdrawal . practice), the funding available for schools would Although the Governor has not yet declared a be $6 .9 billion lower . If the Legislature were to budget emergency, the proposal for a withdrawal avoid the funding maneuver entirely and reduce signals the Governor is open to using reserves as funding to our lower estimates of the guarantee, a solution . We share the Governor’s view that a the state would need to identify a total of $14 billion reserve withdrawal is warranted, but have concerns in reductions or solutions affecting schools . As we about the way the budget would use these funds . describe later, some of these solutions could Reserves generally provide the greatest benefit consist of larger required reserve withdrawals . Even for the state budget—and for schools—when the after accounting for larger withdrawals, however, state is facing a large, unexpected shortfall and the Legislature likely would need to explore a broad would need to adopt disruptive alternatives if it swath of options, make reductions in multiple areas, did not withdraw reserves . The significant drop and reassess its approach to ongoing programs . in the guarantee in 2022-23 meets all of these conditions . The Governor’s budget, however, Districts Have Local Funds That Could would use reserves to cover costs in 2023-24 and Help Address Reductions in State Funding. 2024-25, including to free-up funding for spending Districts have three main sources of funding in their increases . Using reserve withdrawals to support local budgets that could help address potential new spending seems contrary to the core purpose reductions in state funding: (1) two large and of the reserve—protecting existing programs—and relatively flexible multiyear block grants, (2) general diminishes an important tool that could mitigate purpose reserves, and (3) unspent federal the prior-year shortfall . In addition, the estimate of funds . Regarding the block grants, districts have the Proposition 98 guarantee is higher in 2024-25, received $6 .8 billion from the Learning Recovery making the case for reserve withdrawals that year Emergency Block Grant (available through 2027-28) less compelling . and $3 .4 billion through the Arts, Music, and Instructional Materials Discretionary Block Grant Formulas Could Require Withdrawal of (available through 2025-26) . Regarding reserves, Remaining Reserve Balance. The constitutional the available data show that as of June 30, 2022, formulas governing the Proposition 98 Reserve districts held $10 .4 billion in reserves designated generally require withdrawals when the for general purposes or economic uncertainty Proposition 98 guarantee is growing slowly relative (equivalent to 11 .5 percent of their annual to changes in inflation and student attendance . expenditures) . Although more recent data are not Whereas the Governor’s budget anticipates yet available, our understanding is that district relatively strong growth in the guarantee from reserves remained near these levels entering 2022-23 to 2023-24, our estimate of the guarantee 2023-24 . Finally, the available data show that as of in 2023-24 reflects notably weaker growth . 16 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Assuming the state uses a discretionary withdrawal applications or not yet disbursed funding . The grant to cover at least a portion of the drop in 2022-23, with the largest amount of unallocated funds is the constitutional formulas likely would require the Community Schools Partnership Program the state to withdraw the remaining balance in ($2 .6 billion) . Many of the other grants with 2023-24 . Whereas the Governor’s budget has unallocated funds involve teacher training and $3 .9 billion remaining in the reserve, the state under professional development initiatives . In contrast to our estimates would have to allocate this amount the approach for most other areas of the budget, for programs . the Governor does not propose revisiting any of State Preschool Reduction Is Reasonable, these one-time allocations or reverting unspent but Needs Additional Monitoring. The proposed funds . If the Legislature were to reduce any of these reduction for State Preschool is intended to align unallocated grants, it could use the savings as a the budgeted amount with anticipated costs of one-time budget solution . the program . While a reduction is reasonable, Ongoing Spending the Legislature will want to wait for additional program data before determining the amount Growing Shortfall in Ongoing Programs necessary to continue covering program costs . Sets Up Difficult Decisions Next Year. Turning to ongoing programs, the Governor’s budget One uncertainty is program enrollment . If program would expand the state’s reliance on one-time enrollment increases, the costs associated with Proposition 98 funding to cover ongoing program providing certain payments in 2024-25 will increase . costs . Under the June 2023 budget plan, the Alternatively, the state could identify other unspent state used nearly $1 .6 billion in one-time funds funds the administration has not yet included, to cover ongoing costs in 2023-24 . This shortfall such as funds set aside for unallocated slots in the increases under the Governor’s budget, growing current year . to nearly $2 .2 billion in 2024-25 . (This shortfall State Could Achieve Additional One-Time reflects the $2 .1 billion reserve withdrawal and an Savings by Reducing Unallocated Grants. additional $37 million from other one-time funds .) Over the past three years, the state has approved Entering 2025-26, the state would need to make up more than $18 billion for one-time grants supporting this shortfall before it could fund other priorities . various school activities . As of January 2024, we Accounting for a similar use of one-time funds estimate that about $4 .5 billion of this amount for community college apportionments, the total remains unallocated (Figure 8) . The unallocated shortfall across all K-14 programs is $2 .7 billion— funds generally consist of competitive grants for equivalent to nearly all of the growth in the which the state has either not finished reviewing Proposition 98 guarantee the budget anticipates in 2025-26 . Having an ongoing shortfall places Figure 8 the state and schools in a relatively risky financial Estimate of Unallocated One-Time position and increases the likelihood the state is Grants unable to maintain its commitments to existing LAO Estimates (In Millions) programs next year . Funding Statutory COLA Contributes to Amount Ongoing Shortfall. State law automatically Program available increases most ongoing programs by the statutory Community schools $2,594 COLA rate unless the Proposition 98 guarantee Green school bus grants (first round) 500 is insufficient to cover the associated costs . Golden State Pathways Program 475 Teacher and counselor residency grants 330 In these cases, the law authorizes the Department National board certification grants 205 of Finance (DOF) to reduce the COLA rate to fit Inclusive Early Education Expansion Program 163 within the K-12 portion of the guarantee . Instead Dual enrollment access 122 of invoking this exception, the Governor’s budget Other 108 funds the full COLA in 2024-25 even though the Totals $4,495 www.lao.ca.gov 17 2024-25 BUDGET guarantee cannot even support existing program at somewhat lower cost . Reductions to any of costs . This budgeting approach accounts these programs would help the state help the state for $628 million of the $2 .2 billion shortfall in address the current budget problem and align its 2024-25 and requires the state to rely even ongoing spending level with the funding available more heavily on one-time solutions like reserve under Proposition 98 . withdrawals . Moreover, it represents the second consecutive year in which the Governor has RECOMMENDATIONS not aligned the COLA rate with the guarantee . Below, we provide our recommendations for Whereas the estimates of the Proposition 98 addressing the budget shortfall . We begin by guarantee from May 2023 showed the state could outlining an overall approach, then recommend cover a 5 .1 percent COLA in 2023-24, the Governor specific one-time solutions and ongoing actions instead proposed funding an 8 .22 percent statutory consist with this approach . COLA . If the state had reduced the COLA rate for 2023-24, it would face little or no ongoing Overall Approach shortfall in 2024-25 . Build Alternative Budget Package That LCFF Cost Estimates Likely Too High. Prioritizes Core Programs and Budget Stability. Separate from our assessment of the COLA, we The Governor’s budget would avoid immediate think the baseline estimates of LCFF costs in the reductions to school programs, but it relies heavily Governor’s budget are likely too high . Our latest on solutions that shift expenditures into the estimates are about $1 .8 billion lower—$690 million future . The Governor’s proposals would worsen lower in 2023-24 and $1 .1 billion lower in 2024-25 . future state budget deficits (through the funding The largest contributing factor is our treatment of maneuver) and increase the ongoing shortfall TK . Although our underlying attendance estimates in LCFF (through reliance on one-time funds) . are similar, the Governor’s budget scores the LCFF This budgeting approach positions the state costs for these newly eligible students immediately . poorly—making spending commitments the state If a district receives funding based on its average would have difficulty sustaining and setting up more attendance over the past three years, however, difficult choices for next year . We recommend the the full effect of this additional attendance will Legislature take a different approach—one that not materialize for several years . Given that most prioritizes core school programs but also promotes districts are funded this way, we anticipate that TK stability for the budget moving forward . Taking expansion will have only modest effects on LCFF this approach would require the Legislature to costs in 2023-24 and 2024-25 . make some difficult choices this year, but offers State Likely Could Achieve Additional Savings substantial advantages . Specifically, it would by Revisiting Recent Program Expansions. (1) reduce the overall state deficit and the shortfall in Over the past three years, the state has established ongoing programs, (2) position the state to provide or significantly expanded several large ongoing funding increases for schools in the future as state programs . Most notably, the state established revenues improve, and (3) allow the Legislature to the Expanded Learning Opportunities Program preserve its highest priorities . Figure 9 summarizes (ELOP), made all students eligible for free school our recommendations . meals, significantly increased funding for State Reject Funding Maneuver. The Governor’s Preschool, provided much larger reimbursements proposed funding maneuver is bad fiscal policy, for school transportation, and funded lower staffing sets a problematic precedent, and creates a ratios for TK students . In 2023-24, the state will binding obligation on the state that will worsen spend more than $9 billion on all of these programs future deficits and require more difficult decisions . combined . The Governor’s budget does not We strongly recommend the Legislature reject it . propose any changes to these programs except for The state has other options to achieve budgetary the one-time reduction to State Preschool . If the savings in 2022-23 without the problematic Legislature were to revisit any of these programs, downsides of this specific proposal . it could likely find ways of achieving its core goals 18 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Begin Identifying Additional Reductions and provide a mix of one-time and ongoing savings . Solutions Now. We recommend the Legislature use Adopting more of these options reduces the its upcoming budget hearings to begin identifying likelihood that the Legislature would need to make the alternative reductions and solutions it would reductions to core programs like LCFF to address need to balance the budget . The next few months the shortfall . provide an opportune time to establish priorities, One-Time Solutions consider options, and assess trade-offs . Waiting to begin this work in May, by contrast, would place the Use Reserve Withdrawal to Address 2022-23 Legislature in a difficult position and provide little Shortfall. We recommend building a budget that time for careful deliberation . Moreover, replacing the (1) contains a discretionary reserve withdrawal and funding maneuver and addressing the drop in the (2) directs the entire withdrawal toward addressing guarantee would involve identifying up to $14 billion the shortfall in 2022-23 . Using reserves in this in alternatives—likely requiring the Legislature to sift way would help the state accommodate the drop through a large number of options . The rest of this in the prior-year guarantee without resorting to report begins this process . Specifically, it critiques reductions in school programs . In contrast to the the Governor’s proposals with a view to reducing Governor’s funding maneuver, this alternative works costs and introduces additional options that would within an existing legal framework, avoids setting a troubling fiscal precedent, and does not worsen future budget Figure 9 deficits . To the extent the state is LAO Recommendations for Addressing the required to withdraw any funds K-12 Budget Shortfall that remain in the reserve after covering the shortfall in 2022-23, Overall Approach we recommend directing those 9 funds toward existing program Build Alternative Budget Package That Prioritizes Core Programs and Budget Stability costs that would otherwise exceed 9 the guarantee in 2023-24 . Using Reject Proposed Funding Maneuver the reserve withdrawals in this 9 way would help the state balance Begin Identifying Additional Reductions and Solutions Now its budget with fewer disruptive One-Time Solutions changes for schools . 9 Use Reserve Withdrawal to Address 2022-23 Shortfall Reject All One-Time Spending Increases. We recommend 9 Reject All One-Time Spending Increases the Legislature reject all of the 9 one-time increases proposed in Review Unallocated Funds and Reduce Lower Priority Grants the Governor’s budget to achieve 9 Explore One-Time Reductions to Certain Ongoing Programs savings of $599 million . The largest proposal affected by this Ongoing Spending recommendation is the $500 million 9 Reject Statutory Cost-of-Living Adjustment Increase allocation for green school bus grants . Although the Legislature 9 Reject Most Other Ongoing Proposals previously expressed its intent to 9 provide additional funding for this Plan for Lower Attendance-Related Costs program, the state has not yet 9 Explore Changes to Ongoing Programs That Could Generate Additional awarded any grants from the initial Savings $500 million it provided in previous 9 budgets . In addition, federal grants Consider Reducing Funding Streams That Are Based on Antiquated Factors (administered by the Environmental www.lao.ca.gov 19 2024-25 BUDGET Protection Agency) and local funding (administered funding districts had for each program at the end of by air quality districts) are available to support the 2022-23 . A related solution would be to pause new purchase of low- and zero-emission school buses . grants under existing programs . For example, the Regarding the other one-time increases, we do not state could temporarily stop making new awards think any of the proposals are urgent enough to under the Career Technical Education Incentive justify the additional spending reductions or reserve Grant Program (the state currently provides withdrawals that would be needed to fund them $300 million per year for these grants) . in 2024-25 . We provide additional analysis and Ongoing Spending considerations for a few of these proposals later in this report . Reject Statutory COLA Increase. We recommend zeroing out the COLA for the Review Unallocated Funds and Reduce upcoming year . Rejecting the COLA would reduce Lower-Priority Grants. We recommend the the ongoing shortfall by $628 million and help the Legislature review existing grants with unallocated state avoid committing to an ongoing spending level funding and reduce or eliminate any grants that do it would have difficulty maintaining in the future . not represent its highest priorities . One reasonable An additional consideration is that a zero COLA for starting point would be to rescind some of the 2024-25 would follow several years of very large funding for community schools . For example, funding increases for LCFF . Between 2019-20 and the Legislature could rescind $1 billion out of 2023-24, the state increased LCFF funding rates per $2 .4 billion currently set aside for future rounds student by nearly 30 percent . of implementation grants and extension grants for current grantees . This would leave about Reject Most Other Ongoing Proposals. $1 .1 billion for providing implementation grants In addition to the COLA, we recommend rejecting to roughly 400 grantees that are currently in the most other ongoing increases in the budget, planning process and eligible for implementation including the increases for school meals and grants this year and next year, as well as maintain the funding for literacy screeners . (We do not $280 million for providing two-year extension grants recommend delaying expansion of TK .) This to current grantees . This reduction also accounts recommendation would reduce ongoing costs by for the likelihood that in tighter fiscal times, districts $156 million . Regarding the additional funding for are likely to have less interest in implementing the school meals, the state could address the shortfall community schools model this grant is intended by prorating the reimbursement rate . Regarding to support . Any savings the Legislature identifies literacy screening, we think the proposed increase is from unallocated grants would help address the premature given that the state has not yet adopted budget shortfall and reduce the likelihood of other the literacy screening tool . reductions that districts might find more disruptive . Plan for Lower Attendance-Related Costs. Explore One-Time Reductions to Certain We recommend the Legislature (1) plan to adopt Ongoing Programs. For a few ongoing programs, lower LCFF cost estimates than Governor’s budget the state likely could make one-time reductions anticipates for 2023-24 and 2024-25 and (2) use that districts could accommodate by drawing upon updated data that will be released within the next unspent carryover funding . Two of the programs for few weeks to calibrate its estimates . Related to these which we anticipate districts have unspent funds recommendations, we recommend ensuring these available are ELOP and the Special Education estimates account for the interaction between the Early Intervention Grant . If the state were to reduce expansion of TK and the three-year rolling average funding temporarily, most districts likely could attendance calculation . Under our latest estimates, continue to support the underlying activities by the overall cost of LCFF would be $1 .8 billion lower drawing upon their unspent funds from previous across 2023-24 and 2024-25 . The updated data, years . Temporary reductions to programs like these however, easily could change these estimates likely would be less disruptive than reductions to by several hundred million dollars in each year . programs for which districts currently have little or Adopting lower LCFF cost estimates would reduce no carryover funding . In March, the state will receive the size of the budget problem the Legislature needs updated information about the amount of unspent to address . 20 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Explore Changes to Ongoing Programs education and parity agreement . Beginning That Could Generate Additional Savings. If the 2025-26, the state will again have anticipated Legislature were to revisit some recent program unspent funds that could be used to ease expansions, it could likely find ways of achieving future budget pressure . In a forthcoming brief, its core objectives in less costly ways . The ongoing our office will discuss this issue in more detail . savings the state identifies through this process • School Nutrition ($1.7 Billion). would help the state address the current shortfall The implementation of universal school and ease future budget pressure . Below, we outline meals in 2022-23 and an increase in the options for reducing costs in five large programs reimbursement rate have resulted in an (the amounts in parentheses indicate total spending 827 percent increase in state funds provided in 2023-24): to the program compared to 2018-19 funding • ELOP ($4 Billion). The state created this levels . Program costs are higher than program in the 2021-22 budget to further anticipated and recent projections from the fund educational and enrichment activities for California Department of Education (CDE) K-12 students outside of normal school hours . indicate an additional state fund shortfall . ELOP allocations are based on attendance in In the “School Nutrition” section of this report, elementary grades and calculated using two we discuss options to contain future cost different per-student rates . We understand growth in the program while maintaining the that some districts are not on track to requirement for public schools to continue spend all of their ELOP funds in part due offering free meals to all their students . These to challenges in hiring staff and given that, options include setting rates at a lower level similar to other after school programs, not all and revisiting the approach to COLA . students are participating . The state has an • School Transportation ($1.2 Billion). opportunity to reevaluate whether the ELOP School districts historically received a fixed funding model can be simplified amount of funding for transportation based and/or restructured to further incentivize on the size of the programs they operated student participation . One option is to during the 1970s . The June 2022 budget plan strengthen the fiscal incentive for districts significantly increased funding so that every to serve more students by distributing funds district would receive an allowance equal to based on actual student participation rather 60 percent of its transportation expenditures than assume 100 percent participation . during the previous year . If the Legislature Even a relatively modest change to assume reduced the rate to 50 percent, the state could 90 percent participation would reduce save approximately $200 million per year while costs by several hundred million dollars . still minimizing historical funding disparities (Regardless of how the Legislature proceeds, among districts . we recommend the state require districts to • TK Staffing Add-On ($505 Million). In report data on program participation to help 2022-23, the state began providing additional the state gauge student interest and ensure funding based on TK attendance . (This is in alignment with overall program goals .) addition to funding the state already provided • State Preschool ($1.8 Billion). The state for these students through LCFF .) To receive made programmatic changes to State this funding, districts must maintain an Preschool in 2021-22 and 2022-23 . The actual average of 1 adult for every 12 students in costs associated with implementing these TK classrooms at each school site . Beginning changes were less than budgeted, resulting in 2025-26, districts must maintain an in funds that were anticipated to go unused . average of 1 adult for every 10 students . The 2023-24 budget package redirected Our understanding is that the existing rates these funds to cover costs associated with were calculated based on an assumption a new two-year collectively bargained early that TK classrooms would have 20 students, www.lao.ca.gov 21 2024-25 BUDGET aligning with the policy to have 1 adult for • Targeted Instructional Improvement every 10 students . The Legislature could Block Grants ($855 Million). This add-on modify the rates to align with the current provides additional funding for school districts ratio . If the Legislature were to fund based that (1) operated desegregation programs on the assumption that TK classrooms have during the 1980s, and/or (2) benefited from 24 students (consistent with a 1-to-12 ratio), general-purpose grants intended to equalize it would result in savings of about $100 million . district funding levels during the 1990s . Next year, the Legislature could assess its The add-on is a fixed amount and unrelated fiscal situation and determine whether higher to whether a district currently operates a staffing ratios and associated rates could be desegregation program or the level of funding covered within its ongoing Proposition 98 the district receives relative to other districts . funding levels . • Minimum State Aid ($356 Million). This add-on provides additional funding for school Consider Reducing Funding Streams That districts and COEs with high levels of local Are Based on Antiquated Factors. Another property tax revenue per student . The add-on way the Legislature could obtain ongoing savings amount is based on the level of state funding is by revisiting three LCFF add-ons that provide the district or COE received prior to the LCFF additional funding for certain districts based on and is unrelated to the programs it currently historical factors . Unlike the core components operates or the characteristics of its students . of the formula, these add-ons are not based on the number of students districts currently • Economic Recovery Targets ($61 Million). enroll or the needs and characteristics of those The state created this add-on to ensure students . Instead, they provide additional funding all districts would receive at least as much based primarily on the size of certain programs funding under the LCFF as they would have districts operated decades ago . Eliminating received if the state had retained its former or scaling back these add-ons would reduce funding system and increased it for the historical funding inequities among districts, statutory COLA . Over the past decade, the simplify the LCFF, and provide ongoing savings . state has provided multiple LCFF increases If the Legislature were concerned that eliminating beyond the statutory COLA . Based on these these add-ons immediately would be disruptive increases, all districts are likely receiving more for district budgets, it could provide for a gradual funding than they would have received under phaseout . Below, we profile these three add-ons the former system, adjusted for COLA . (the parenthetical amounts indicate expenditures in 2023-24): SCHOOL NUTRITION In this section, we provide background on school breakfast and one free lunch per school day to any nutrition in California, describe the Governor’s student requesting a meal . (Under a temporary proposed augmentations, and offer options to federal pandemic policy, schools had the option reduce costs within the program . to provide free meals to all students prior to the enactment of state legislation .) The 2023-24 Background budget includes $1 .6 billion Proposition 98 General State Implemented Universal Meals in Fund and $2 .6 billion federal funding to provide California. Trailer legislation related to the a projected 813 million school meals during the 2021-22 budget package required that, beginning academic year . in 2022-23, all public schools provide one free 22 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Universal Meals Relies on School 50 cents for lunches served at the paid rate . Federal Participation in Both Federal and State meal reimbursement rates are adjusted annually Programs. To receive the state reimbursement by a federal price index that reflects changes in the rate, schools must participate in two federal costs of meals purchased away from home . nutrition programs—the National School Lunch Federal Government Gives School Districts Program and School Breakfast Program . These Alternative Reimbursement Options. To be federal programs have many requirements that reimbursed by the federal government, schools schools must follow, such as serving meals that typically must track which student is served a meal meet certain nutritional standards . The federal to determine the reimbursement rate . The federal government reimburses schools for each meal government offers some alternative reimbursement served . The state supplements federal funds with options aimed at reducing administrative burden . additional state funds . The most common of these options is the Federal Reimbursement Rate Varies by Community Eligibility Provision (CEP), but there are Household Income of Students Served. three other provisions school districts can choose . The federal nutrition programs reimburse schools Figure 10 illustrates how CEP works compared to based on the number of meals they serve, with the the traditional approach . Most notably, CEP relies per-meal reimbursement rate varying by student on an Identified Student Percentage (ISP), which household income . Students from households is a calculation of the share of enrolled students with incomes at or below 130 percent of the “directly certified” for free meals . Students that federal poverty level ($32,318 annually for a family are directly certified are automatically eligible for of three) receive meals reimbursed at the “free” free meals due to their participation in CalFresh, rate . Students from households with incomes at CalWORKs, or Medi-Cal . (These are state programs or below 185 percent of the federal poverty level for low-income individuals and families that provide ($45,991 annually for a family of three) receive food assistance, cash grants and supportive meals reimbursed at the “reduced” rate . All other services, and health care services, respectively .) meals are reimbursed at the “paid” rate . In 2023-24, The state shares participation information with the federal government reimburses schools up to school districts, so these students do not need to $4 .35 for lunches served at the free rate and up to fill out meal applications to determine eligibility . Figure 10 Comparing Reimbursement Options Traditional Community Eligibility Provision Site Eligibility All schools . In 2023-24 and prior years, only schools with an Identified Student Percentage (ISP) at or above 40 percent . ISP is calculated by the share of students directly certified for free lunch, based on participation in certain programs . Beginning in 2024-25, program is available to schools with an ISP at or above 25 percent . Method of Determining Schools directly certify students and collect Schools directly certify students . They do not collect meal Student Eligibility meal applications . applications . Federal Reimbursement Schools reimbursed at free, reduced, or paid ISP is multiplied by 1 .6 to determine the share of meals Rates rate . Based on meal count and student served that will be reimbursed at the free rate . All other household income . meals will be reimbursed at the paid rate . Federal Reimbursement School A serves ten lunches to students with School B serves 20 lunches and has an ISP of 50 percent . Example household incomes at the free level and School B would have 80 percent of meals served ten lunches to students with household reimbursed at the free rate . School B would receive incomes at the reduced level . School reimbursement for 16 meals at the free rate and 4 meals A would receive meal reimbursement for at the paid rate . 20 lunches, half at the higher free rate and half at the lower reduced rate . www.lao.ca.gov 23 2024-25 BUDGET If Eligible, State Requires Schools to Opt the state provided $164 million for the state in to Federal Reimbursement Flexibility. rate of school meals . This amount has grown to To increase federal reimbursements, state law $1 .5 billion in 2022-23 (an 831 percent increase), requires schools eligible for CEP to participate due to both universal meal implementation in either CEP or one of the other alternative and the 63-cent rate increase . Of this amount reimbursement options . This has resulted in $1 .1 billion is for lunch reimbursements, with the significantly higher CEP participation . In 2018-19, remainder provided for breakfast reimbursements . 24 percent of schools participated in CEP, As Figure 13 shows, most of the state funds compared to 51 percent of schools in 2022-23 . provided in 2022-23 ($1 billion), are to reimburse State School Nutrition Program paid meals . Supplements Federal Reimbursement. State law sets a specific state rate for meals Figure 11 reimbursed by the federal government at the Example of Combined Lunch Rates free rate . For meals reimbursed by the federal government at the reduced or paid rates, the 2023-24 state provides the amount of funds necessary to ensure the combined state and federal rate is $6 Federal Funds State Funds equal to combined rate for free meals . This results 5 in free, reduced, and paid meals generating the same total reimbursement for schools . Figure 11 4 shows a school lunch reimbursement example 3 (the combined rate for breakfast is lower) . A meal reimbursed by the federal government at the 2 free rate receives the smallest amount of state 1 funds whereas a meal reimbursed at the paid rate receives the largest amount of state funds . Free Reduced Paid State Contribution to School Meals Has Grown Significantly in Recent Years. Prior to 2022-23, the state contributed roughly 25 cents per free and Figure 12 reduced meal served (the state did not reimburse paid meals) . State Reimbursement Rate for School Lunches In 2022-23, the state provided a discretionary rate increase of $5 63 cents per meal—a 238 percent increase to the state rate for a free 4 meal . Figure 12 shows the state contribution rate over the past six Free 3 Reduced years . The state reimbursement Paid rate for school meals is grown 2 annually by the statutory COLA provided for LCFF and select K-12 1 categorical programs . Total State Funds Provided for School Meals Has Increased 2018-19 2019-20 2020-21 2021-22 2022-23ª 2023-24 Significantly. In 2018-19, the last year of comparable data a Growth attributed to rate increase and universal meals implementation. not impacted by the pandemic, 24 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Governor’s Proposal Figure 13 Increases Funding by $65 Million One Time in Most State Funds are Provided for Paid Meals the Current Year. The Governor’s budget includes 2022-23, Totals $1.5 Billion $65 million to cover an anticipated shortfall in 2023-24 . The bulk of this adjustment, $48 million, is attributed to an anticipated increase in meals served in 2023-24 compared to the amount budgeted . The administration estimates lunches Free served will increase by 1 percent and breakfasts served will increase by 3 percent above 2022-23 meals served . The Governor also proposes to Paid backfill $12 million that was initially provided for 2023-24 school meals, but was shifted to cover a Reduced shortfall in 2022-23 . Lastly the Governor’s budget includes $5 million to account for an increase in the federal COLA made available in July . An increase in the federal rate results in higher state costs for meals reimbursed at the paid rate . State Recently Established Automatic Backfill for School Nutrition. Beginning in Increases Funding by $122 Million Ongoing 2022-23, the budget included provisional language in 2024-25. For 2024-25, the Governor’s budget requiring DOF to augment the appropriation for increases funding by $122 million compared to the school nutrition if expenditures are projected to 2023-24 budgeted level, which is intended to cover exceed the amount available . CDE is to report to the cost of the existing school nutrition program . the administration and Legislature on or before Of this amount, $53 million is associated with the January 20 whether the amount included in the anticipated shortfall in 2023-24 that is expected budget is sufficient to address these costs . Prior to carry forward into 2024-25 . The remainder of to the inclusion of this provisional language, the the growth ($69 million) is primarily attributed Legislature had discretion over how to address the to the anticipated federal COLA that would shortfall . If no additional funding was provided to increase the state contribution for meals at the address a shortfall, the state meal rate was to be paid rate . The Governor’s budget assumes the prorated administratively . Since 2013-14, the state paid state rate will increase to $5 .13 per lunch, meal rate was prorated three times, but the rate was reflecting a 6 percent increase from 2023-24 . restored in all three cases . In two instances, CDE The administration indicated this estimate will be determined there were enough funds to restore revised as more data becomes available . the rate once it received final meal counts . In one Increases Funding by $13 Million to Provide instance the Legislature provided additional funds State COLA. The Governor’s budget also provides to cover the shortfall . $13 million to provide a 0 .76 percent COLA for New Federal Rule Expands CEP Eligibility. school nutrition rates . This increases the state In the fall of 2023, the federal government enacted contribution for a free meal from 96 .9 cents new regulations that lowered the eligibility threshold to 97 .6 cents . for schools to participate in CEP . Beginning in 2024-25, a school can participate in CEP if it has an ISP of 25 percent or higher . Previously the requirement was an ISP of 40 percent or higher . This rule change means that schools with an ISP between 25 percent and 40 percent are now required under state law to participate in one of the federal alternative reimbursement options . www.lao.ca.gov 25 2024-25 BUDGET Assessment Provisional Language Limits Options to Contain Nutrition Program Costs. Provisional Program Costs Have Been Higher Than language added as part of the 2022-23 budget Anticipated. In the first two years of implementing package requires the administration provide universal school meals, costs for the program additional funds for school nutrition programs if have exceeded estimates in the enacted budget CDE projects a shortfall . Prior to this provisional (see Figure 14) . In 2022-23, the state budgeted language, a shortfall would result in meal rates $1 .4 billion for school nutrition programs, while being prorated, unless the Legislature provided an costs came in $122 million higher . For 2023-24, additional augmentation . While the new provisional the Governor’s budget includes a $65 million language was intended to give schools more increase to the $1 .6 billion included in the certainty regarding their state funding, it limits June 2023 budget plan . CDE’s recent required Legislative options in cases where the number of January report, however, anticipates needing an meals served or the cost of those meals exceeds the additional $61 million above what was proposed projected amount included in the annual budget . at the Governor’s budget to cover current-year nutrition costs . This would bring total costs to $1 .8 billion . CDE also projects 2024-25 costs will be Figure 14 $226 million higher than proposed in the Governor’s State Has Increased Funding to budget . As we discuss below, these higher costs Account for Projected Shortfalls are associated with its estimates of implementing (In Billions) the new federal rule change . $2.5 Increase in Share of Meals Served in the CDE Projected Shortfall Paid Category. One reason school nutrition costs Revised Funding 2.0 Budgeted have been higher than expected is the change in the category of meal served . Figure 15 shows 1.5 lunches served by category in 2018-19 compared 1.0 to 2022-23 . Although the total number of lunches served was relatively stable, schools served 0.5 78 million more lunches in the paid category in 2022-23 compared to 2018-19 . This contributes 2022-23 2023-24 2024-25 to increased state costs since the state share of CDE = California Department of Education. reimbursement is higher for meals at the paid level compared to those at the free or reduced level . Figure 15 During this period, the share of students that qualify for free or reduced-price lunch has remained stable . Higher Share of Lunches In 2018-19, 59 .4 percent of students were eligible Served Are in Paid Category for free and reduced-price meals compared to Number of Lunches Served (In Millions) 59 .9 percent in 2022-23 . State Costs Grow Due to Federal COLA. Under 600 the Governor’s budget, the combined federal and 500 state reimbursement for lunch is projected to grow Free 4 .7 percent in 2024-25 . This is a much higher rate of 400 Reduced growth than the 0 .76 percent COLA that is assumed Paid 300 under the Governor’s budget in other select K-12 education programs . Under the Governor’s budget, 200 state costs for lunches reimbursed by the federal 100 government at the paid rate are anticipated to grow 6 .6 percent . This higher growth rate in costs is due 2018-19 2022-23 to the state’s policy that paid meals receive the same combined rate as free meals . 26 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Federal Rule Change Could Increase State would be multiplied by 1 .6 to determine the share Costs. Both DOF and CDE have provided estimates of meals reimbursed at the free rate [46 percent] . of state costs associated with the federal rule The remainder would be reimbursed at the paid change that expands CEP eligibility . DOF assumes rate .) If this school had been required to participate that the rule change will not impact the number of in CEP in 2022-23, it would have received less school meals served, but will impact the categories federal funding due to the increase in lunches in which the meals are reimbursed . DOF assumes reimbursed at the paid rate . This also would have the shifts in categories will result in minor state resulted in a corresponding increase in state funds costs of $172,000 . These costs are included in the needed to cover these meal costs . Requiring these Governor’s budget . CDE alternatively estimates schools to participate in a federal reimbursement roughly 81 million more meals will be served as option would result in the state paying for a higher a result of the rule, resulting in a $226 million share of their meal costs . This analysis does not increase in state costs above the funding level in the account for anticipated meal growth from either Governor’s budget . universal meals or CEP participation . Required Participation in Federal Alternative Options for Containing Reimbursement Options May No Longer Future Cost Growth Maximize Federal Funding. A key goal of requiring schools to participate in an alternative federal Given the budget situation, the Legislature may reimbursement option is to maximize federal want to be proactive in containing future cost reimbursements (thereby reducing state costs of growth in the school nutrition program . In the implementing universal school meals) . However, “K-12 Spending Plan” section of this report, we some newly eligible CEP schools may be better off recommend the Legislature reject the COLA for from a federal meal reimbursement perspective all K-12 programs this year and reject the other using the traditional reimbursement process . This is proposed adjustments to school nutrition . This is because the CEP formula sets the proportion of because Proposition 98 funding is not sufficient meals reimbursed at the free and paid rates using a to cover the state’s current ongoing spending school’s ISP—a metric that is not used in traditional level . In this section, we identify several options for reimbursement . The effect of participating in CEP further containing the growth of the school nutrition will depend on each school’s specific ISP and the program in 2024-25 and future years . These options share of meals it serves at each rate . To assess are focused on reducing state reimbursement rates the effects of these schools shifting to CEP, we and maximizing the amount of federal funding the developed projections of school reimbursement state receives for school meals . They would not amounts using 2022-23 meal data . Based on our change the requirement that public schools offer analysis, we estimate roughly half of schools newly free meals to all their students . eligible for CEP would receive greater federal Set Nutrition Rates at a Lower Level. Given reimbursement under CEP . The other half of newly the budget condition, the Legislature may want to eligible schools would receive greater federal consider reducing the state reimbursement rate . reimbursement under the traditional approach . The Legislature could provide an across-the- board To explain how a school could receive more federal reduction where all meals served would receive reimbursement under the traditional approach, a lower state contribution per meal . We estimate we can use as an example a school that received reducing the state rate by 63 cents (the size the free or reduced-price rate for two-thirds of of the discretionary rate increase provided in the lunches it served in 2022-23 and has an ISP 2022-23) would result in $541 million in savings in of 29 percent . Under the traditional approach, the 2024-25 . Alternatively, the Legislature could take school received the state paid rate for one-third of a more targeted approach and decide to reduce lunches served . In contrast, under CEP the school reimbursement rates for a specific reimbursement would have 54 percent of its meals reimbursed level, such as paid meals . at the paid rate . (The school’s ISP of 29 percent www.lao.ca.gov 27 2024-25 BUDGET Revisit Approach to COLA. Given the current nutrition programs if CDE projects a shortfall . approach to the COLA in school nutrition is much The Legislature could instead decide on an more generous compared to other areas in K-12 amount through the budget process . In the event education, the Legislature may want to revisit how of a projected shortfall and if budget conditions it sets annual rate increases . One option is to no allow, the Legislature could provide an additional longer provide the federal COLA to the paid rate . augmentation . This allows the Legislature to This would mean that the combined state and consider increases in the school nutrition program federal free rate would grow at a different pace from along with other priorities within K-12 education . the combined state and federal paid rate . A second Remove Mandatory Participation option is for the state to suspend the automatic Requirement for Newly Eligible CEP Schools. COLA adjustment for school nutrition and decide Given the likely state costs associated with newly on an appropriate inflationary adjustment annually eligible schools using CEP, we recommend the as part of the budget process . In deciding the Legislature amend the existing state participation annual change to rates, the Legislature could take requirement . The Legislature could maintain the into consideration the projected federal COLA and requirement for previously eligible CEP schools anticipated total meal costs . (schools with an ISP of 40 percent or higher) . Suspend Administrative Augmentation For newly eligible CEP schools, the Legislature Authority. The Legislature could remove could allow CEP participation only if schools the provisional language that requires the demonstrate their projections indicate this option administration to provide additional funds for school would maximize federal meal reimbursements . EDUCATION WORKFORCE In this section, we analyze key educator is identified as being at risk of having reading workforce proposals included in the Governor’s difficulties, LEAs—school districts, charter schools, budget . Overall, we recommend rejecting all new and COEs—will be required to provide the student spending proposals given the state does not have with targeted supports and services, such as sufficient Proposition 98 funding to meet existing one-on-one or small group tutoring, early reading commitments . We also recommend rejecting one interventions, or further diagnostic assessments . new spending proposal due to the premature or Students would be screened for risk of reading duplicative nature of the proposal . We also assess difficulties in their primary language, to the extent the possible benefits and trade-offs of proposals a tool is available in that language . Parents or that have no associated costs . guardians can request their child be exempt from the reading difficulty screening . LEAs may only LITERACY SCREENING use a screening tool that has been included in the state’s pre-approved list . To develop this list, the Background 2023-24 budget included $1 million for the State Beginning in 2025-26, Local Education Board of Education to convene an independent Agencies (LEAs) Must Annually Screen K-2 panel of experts to choose the approved screening Students for Risk of Reading Difficulties. instruments . As of January 2024, all panel members Enacted as part of the 2023-24 budget package, have been selected and monthly panel meetings are the required screenings are meant to assist with expected to take place from February 2024 through early identification of students that may benefit December 2024 . The list of pre-approved screening from additional support with literacy . They are not tools must be completed by December 31, 2024 . intended to diagnose disabilities that would make a student eligible for special education . If a student 28 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET State Provides LEAs Funding for Required The Approved List of Screening Tools Has Not Activities Through the K-12 Mandates Block Been Finalized. The selection panel for the reading Grant. In some cases, when the state enacts difficulties screener tool is scheduled to meet a new requirement for schools, it appropriates on a monthly basis from February 2024 through funds in the annual budget to cover the associated December 2024 . The panel likely will finalize the costs . In other cases, the state uses the mandates list of approved tools sometime at the end of process, which is administered by the Commission 2024 . This means that LEAs would have about six on State Mandates (the Commission) . After a months to select a screening tool, create or procure new requirement takes effect, school districts training, and administer the training activities prior can submit a test claim with the Commission to to the start date of the required annual screenings . seek reimbursement for actual implementation Given this time line, LEAs may not be able to spend costs . State law creates two options for receiving these funds in 2024-25 . Moreover, estimating the reimbursement: through a claims-based process costs associated with these training activities is or from the K-12 mandates block grant . The vast difficult given the screening tools have not yet been majority of LEAs participate in the block grant . selected . We believe the state would be in a better The block grant provides LEAs with a fixed position to accurately estimate the scope and total per-student rate that varies by LEA and grade level . costs of implementation activities next year . For example, in 2023-24,districts that chose to be Adds Funds to K-12 Mandates Block Grant reimbursed through the block grant received $37 .81 Earlier Than Needed. Under the normal K-12 for each K-8 student and $72 .84 for each high mandates block grant process, funding is not school student . The per-student rate is adjusted added to the block grant until the required activity every year by the K-12 COLA . The state also has become state law, the Commission has increases the block grant rates when a new activity deemed the activity to be a reimbursable mandate, is found to be a reimbursable mandate . Typically, and districts have submitted claims for actual costs the increase is developed as part of the annual associated with required activities . This means that budget process and is based in part on an analysis districts would submit a mandate claim associated of claims submitted by school districts . with the reading difficulties screener after the requirement has taken effect . One reason the state Governor’s Proposal takes this deliberate process is to ensure that the Adds $25 Million Ongoing to the K-12 amount added to the block grant reflects costs Mandates Block Grant for Training on Reading LEAs will face on an ongoing basis . However, the Difficulties Screening Tools. These funds are Governor’s budget proposal augments the mandate intended to primarily cover costs associated with block grant without conducting a realistic cost trainings for educators to administer the reading estimate . Furthermore, the Governor’s budget difficulties screener tools . The funds would be proposal keeps training costs flat on an ongoing distributed to LEAs based on their enrollment of K-2 basis, while we believe training costs would likely students in the prior year (excluding TK) . decrease after the first year . We understand that the administration intends to revisit the training Assessment augmentation and possibly adjust funding levels Proposed Training Funds for Reading based on actual cost data in 2025-26 . However, Difficulties Screening Tool Are Premature. We the Governor’s budget does not include trailer find the proposed training funds to be premature bill language that would require this to occur . since the approved list of screening tools has not Additionally, once the costs for a new mandate are been finalized and funds are being added to the added to the K-12 mandates block grant, the state block grant earlier than needed under the traditional typically does not revisit the amounts in the future . claims-based process . We provide more detail on these two reasons below . www.lao.ca.gov 29 2024-25 BUDGET Recommendation Additionally, the Mathematics Framework offers multiple strategies to support learning recovery . Delay Implementation Date of Reading Screening Requirement Until the State Can Learning Recovery Emergency Block Properly Assess Ongoing Training Costs. Grant Created to Support Academic Learning We believe it is premature to provide funding on Recovery and Social and Emotional Well-Being an ongoing basis for training activities prior to of Students and Staff. The Learning Recovery knowing the exact screener tools LEAs could Emergency Block Grant was created as part of use, the number of educators that would need the 2022-23 budget package . The state initially to be trained, and the scale of ongoing training provided $7 .9 billion in one-time Proposition 98 needs . Additionally, LEAs may have a limited funding for the block grant, but this was revised amount of time to start up and complete training to $6 .8 billion in the 2023-24 budget package . activities prior to the required implementation LEAs may use funds for a variety of academic and date . By delaying the implementation date of the social-emotional activities, including increasing reading difficulties screening requirement, the instructional learning time, providing tutoring state would have time to calculate a realistic and and other academic services, offering additional appropriate cost estimate . Additionally, delaying instruction to students not on track to graduate, the implementation date would give the Legislature and addressing other barriers to learning . Funding more time to consider the benefits and trade-offs is distributed to LEAs based on the number of of funding training activities either through the K-12 students who are EL or low income and is intended mandates block grant or annual budget process . for learning recovery initiatives through 2027-28 . For example, funding training activities through Governor’s Proposals the annual budget process gives the Legislature more flexibility to right-size funding levels Clarifies LEAs Could Use Learning Recovery based on actual expenditures in any given year . Emergency Block Grant Funds for Mathematics Delaying implementation also would avoid adding Framework Professional Development. These $25 million in ongoing Proposition 98 costs in a professional development activities could include time when Proposition 98 funding cannot support hiring math coaches, providing training, and existing commitments . contracting with external organizations to create math-based instructional tools . MATHEMATICS Provides $20 Million One-Time Proposition 98 for Instructional Resources and Training for FRAMEWORK ACTIVITIES Math Coaches. The funds would be awarded to Background one or more COEs to assist educators in delivering high-quality math instruction pursuant to the The State Board of Education Adopted Mathematics Framework . Specifically, the COEs New California Mathematics Framework in would be required to partner with the California June 2023. The state periodically enacts curriculum Mathematics Project to develop a training model frameworks associated with the state’s academic for math coaches and provide other resources content standards . These frameworks are intended to educators on how to deliver high-quality math to provide guidance on how to teach each content instruction based on the Mathematics Framework . standard in a given subject . The newly adopted (The California Mathematics Project is part of the Mathematics Framework provides guidance to University of California Subject Matter Projects, educators on various curriculum and instruction which provide professional learning in nine K-12 approaches to help students achieve math subject areas .) These funds would be available to proficiency based on current content standards . spend through June 30, 2028 . Specific guidance is provided for different grade levels, math subjects, and students, such as high achieving students and English learners (ELs) . 30 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Assessment Moreover, existing Proposition 98 funding is not sufficient to cover the state’s existing commitments . Seems Reasonable to Clarify Block Grant If the Legislature wanted to require LEAs to Could Be Used for Mathematics Framework implement a specific professional development Professional Development. Providing professional model, it could instead require a portion of existing development opportunities to help educators block grant funds be used for this purpose . implement the Mathematics Framework guidance is aligned with the broader block grant objective TEACHER CREDENTIALING AND of accelerating student academic proficiency and closing learning gaps . Between 2019 and AUTHORIZATION PROCESS 2022, the share of California students that met or exceeded state standards in math decreased from Background 39 .7 percent to 34 .6 percent . Training to implement Commission on Teacher Credentialing the Mathematics Framework can help educators (CTC) Issues Teaching Credentials, Permits, implement instructional and curriculum approaches and Authorizations to Qualified Individuals. that successfully accelerate learning . Individuals must meet a number of requirements Proposed Funding for Instructional to receive a teaching credential, permit, or Resources and Training Math Coaches Seems authorization . These requirements vary but can Duplicative of Existing Block Grant Activities. include obtaining a bachelor’s degree; completing Under current law, Learning Recovery Emergency a teacher preparation program; demonstrating Block Grant funds can already support learning subject matter competency; and demonstrating recovery programs and materials designed basic skills proficiency in reading, writing, to accelerate student academic proficiency . and mathematics . In general, individuals must Additionally, the proposed clarification of demonstrate basic skills proficiency and subject allowable block grant activities would further matter competency prior to receiving their teaching allow LEAs to train math coaches and provide credential . Individuals can demonstrate basic skills educators with other math instruction resources . proficiency and subject matter competency by As a result, providing additional funds for passing certain state-approved exams . Additionally, instructional resources and training math coaches in 2021, the state also allowed teacher candidates seems duplicative . to meet both requirements through previously completed college coursework . In the case of the Recommendations subject matter competency requirement, teacher Approve Clarification That Learning Recovery preparation programs determine whether previous Emergency Block Grant Funds Can Be Used coursework satisfies the requirement by reviewing for Mathematics Framework Professional transcripts and verifying if listed coursework aligns Development. Using block grant funds for with certain subject matter domains . Mathematics Framework professional development Several Options for Teaching Arts in aligns with and further supports the overall goal of Elementary Schools. Individuals who are accelerating learning and closing the learning gaps . interested in teaching arts in an elementary school Reject Duplicative Funding for Instructional setting have various options for obtaining the Resources and Training for Math Coaches. We necessary credentials . For example, individuals may recommend rejecting the proposed augmentation obtain a single subject teaching credential in Art, given that it is duplicative of existing block Music, Dance, or Theater . In addition, teachers with grant activities . LEAs can use existing Learning an existing multiple subject credential may obtain a Recovery Emergency Block Grant funds for these supplementary authorization in Art, Music, Dance, activities, and could choose to partner with the or Theater . To obtain the authorization, individuals California Mathematics Project to develop and must complete 20 units of college coursework in administer professional development activities . the specific subject area . www.lao.ca.gov 31 2024-25 BUDGET CTC Authorizes Individuals to Teach Arts, • Exempts Individuals With a Bachelor’s Media, and Entertainment in a Career Technical Degree From Basic Skills Proficiency Education (CTE) Setting. The CTE classroom Requirement. Given that teaching credentials setting is structured to provide technical, trade, and that require basic skills proficiency also require vocational lessons primarily to students in grades individuals to obtain a bachelor’s degree, this 7 through 12 and in classes organized primarily proposed change would effectively eliminate the for adults . The CTE credential in designated basic skills proficiency requirement in teacher subjects is issued to individuals who are deemed credentialing programs . qualified to teach in 1 of 15 subject areas, including • Makes Changes Intended to Streamline Arts, Media, and Entertainment . This credential Transcript Review for Determining Subject requires individuals to have at least a high school Matter Competency. Specifically, the diploma and three years of work experience in Governor’s proposed trailer bill language would one of the designated areas, or one year of work require CTC to create broad subject matter experience plus 48 units of college coursework in domains that can be used when reviewing the same area . transcripts and determining whether previous Voters Recently Enacted Funding for coursework satisfies the subject matter Arts Education. State law requires schools competency requirement . to provide instruction in visual and performing arts (including music) to all students in grades Assessment 1 through 6 . Additionally, voters recently approved Demand for Arts and Music Teachers Likely Proposition 28 (2022), which requires the state Increased in Recent Years. Given the passage to provide funding specifically for arts education . of Proposition 28, schools likely will be expanding As required by the measure, the state currently arts and music programs over the next few years . provides over $900 million for Proposition 28 However, some schools may be struggling to find activities, based on a statutory formula . Funds are certificated arts and music education teachers . distributed to schools based on overall enrollment Although it is common for schools to have difficulty and the share of their students who are low income hiring educators in certain subject areas initially after or EL . These funds are primarily to be used for program expansion, over time, the supply of teachers hiring new staff to expand arts education programs . may increase to meet this demand . Unclear if Proposed Elementary Arts and Governor’s Proposals Music Authorization Will Effectively Prepare The Governor proposes trailer bill legislation Individuals to Teach in an Elementary School to make the following changes to the teacher Setting. Credentialing programs for elementary credentialing and authorization process: school educators generally focus on teaching • Creates Elementary Arts and Music individuals how to design, implement, and facilitate Education Authorization. The new learning according to the cognitive, emotional, and authorization would allow individuals to teach linguistic levels of young children . Existing CTE art, music, dance, or theater in preschool authorizations do not require the completion of through grade 6 . To be eligible for this coursework on developmentally appropriate content authorization, an individual must (1) have a and curriculum . The Governor’s budget proposal, clear designated subjects CTE credential however, aims to ensure that individuals with an in Arts, Media, and Entertainment, and elementary arts and music education authorization (2) complete 24 units of coursework that are are prepared to teach young children in elementary intended to help the individual prepare for schools by requiring (1) two years of mentorship teaching in an elementary or early childhood from a credentialed teacher, and (2) completion of setting . LEAs would be required to provide two 24 units of coursework related to early childhood years of mentorship and support for teachers development and the elementary school context . with this new authorization . The mentorship However, it is unclear if all schools have the capacity must be provided by a teacher with a clear to provide two years of mentorship and if the single or multiple subject credential . 32 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET required coursework for this new authorization would less effective reference point when determining provide the same level of preparation as current whether coursework satisfies the subject matter elementary school credentialing requirements in arts competency requirement . Our understanding is and music . that the Governor’s proposed trailer bill language Basic Skills Proficiency Exams Can Be intends to address this problem by allowing CTC to Unnecessary Barrier for Otherwise Effective create broader subject matter domains that shall be Teacher Candidates. The majority of teacher specifically used for the transcript review process . candidates choose to satisfy the basic skills Recommendations proficiency requirement through the state-approved exam . Historically, about 30 percent of candidates Consider Benefits and Trade-Offs of did not pass the exam the first time . This is more Elementary Arts and Music Education pronounced among teacher candidates of color, Authorization. The proposed elementary arts and music education authorization may make it easier for with more than half of Black and Latino/a candidates schools to hire arts and music teachers . However, the not passing the basic skills proficiency exam the Legislature may want to weigh this benefit against the first time . During the COVID-19 pandemic, the likelihood that teachers with the new authorization state temporarily extended the amount of time may not be as prepared to teach in an elementary teacher candidates had to complete the basic and early childhood setting as teachers with a single skills requirements due to test center closures . subject credential in arts or music . Additionally, This effectively meant that candidates could the Legislature may want to consider whether the begin teaching without completing the basic skills Governor’s proposal can be amended to address any requirement . Upon the expiration of this COVID-19 potential trade-offs, or if the administration should flexibility in June 2022, candidates were required present a revised proposal next year that addresses to complete the basic skills requirement in order to these issues . continue teaching . Based on anecdotal information from school administrators, it is our understanding Approve Changes to Basic Skills and Subject many teacher candidates who proved to be effective Matter Competency Requirement and Continue instructors during the COVID-19 flexibility period have to Investigate Other Possible Improvements. been struggling to pass the basic skills proficiency Given how burdensome the basic skills proficiency exam . Additionally, new teacher candidates continue exam and current subject matter transcript review to struggle to pass the basic skills proficiency process is for teacher candidates, we recommend exam the first time . As a result, some schools have the Legislature approve the relevant changes expressed that the basic skills requirement has included in the Governor’s proposed trailer bill created an unnecessary barrier to hiring and retaining legislation . The Legislature may also want to consider otherwise effective teachers . further identifying other barriers that exist within the current teacher credentialing and authorization Current Transcript Review Process Reported process . For example, CTC identified that the to Be Burdensome and Complex. In a recent current subject matter transcript review process report, CTC found that the current transcript review could be further improved by (1) creating a single, process is time-consuming and complex for teacher statewide master list of courses across all regionally preparation programs, in part, because of the subject accredited institutions that meet specific subject matter domains . Specifically, teacher preparation matter domains, and (2) providing ongoing outreach programs currently determine whether coursework to increase the awareness among candidates that satisfies the subject matter competency requirement the subject matter competency requirement could by comparing course content to subject matter be satisfied through coursework . (We would note domains . However, these subject matter domains that, due to the budget deficit, improvements to were originally created to inform the development the credentialing process that require additional of questions in the state-approved exams used resources cannot be supported without making to measure subject matter knowledge . Teacher reductions in other areas at this time . The Legislature preparation programs have reported that while the could consider adopting these improvements in the domains are effective in developing exam questions, future when budget conditions improve .) they are too narrow, too specific, and overall a www.lao.ca.gov 33 2024-25 BUDGET ATTENDANCE RECOVERY AND INSTRUCTIONAL CONTINUITY In this section, we provide background on the is higher . Charter schools, by contrast, are funded various ways LEAs can provide instruction and according to their attendance in the current year generate funding for students . We then describe and only . Most school districts are funded on their assess the Governor’s proposal to allow LEAs to attendance from the average of their three prior operate attendance recovery programs for students years, due in part to ongoing declines in enrollment who are absent throughout the school year and statewide . In addition to experiencing reductions instructional continuity programs in cases where in enrollment, schools also experienced steep students cannot attend school on a short-term declines in attendance rates during the COVID-19 basis . Given the current Proposition 98 shortfall, the pandemic . Although statewide attendance rates state likely cannot support costs associated with have been improving, they still have not returned to these new programs . If the Legislature is interested pre-pandemic levels . in implementing these programs, we recommend State Sets Minimum Instructional Day and the Legislature delay them for at least one year . Time Requirements. The state sets a number of We also identify several implementation issues if the requirements related to the amount of instruction Legislature is interested in adopting the proposals . students must receive during the school year . School districts and charter schools are required Background to provide 180 days and 175 days of instruction, Most K-12 Funding Is Allocated Through respectively . (COEs are not subject to instructional LCFF. LCFF is the primary source of funding for day requirements .) Both school districts and school districts and charter schools . The formula charter schools are subject to the same number provides a base amount for each student in different of required minutes of instruction for the school grade spans, plus additional funding for low-income year . These requirements vary by grade level and students and Els . Schools pay for most of their range from 36,000 minutes (for kindergarten) to general operating expenses (including employee 64,800 minutes (for grades 9-12) . Additionally, salaries and benefits, supplies, and student services) school districts are required to offer a minimum using these funds . For 2023-24, the state is estimated amount of instruction time per day . This minimum to spend about $80 billion on LCFF—an average of requirement also varies by grade span, from about $14,750 per student for more than 5 .4 million 180 minutes (for kindergarten) to 240 minutes (for students attending school districts and charter grades 9-12) . Charter schools do not have any schools statewide . (COEs have a somewhat more required amount of daily instruction, while COEs complex LCFF formula, but also receive a portion of have minimum daily minute requirements that vary their funding based on the number of students they based on instructional setting . serve and their student demographic characteristics .) Regular Instruction Can Be Provided LCFF Is Based on Average Daily Attendance Based on In-Person Attendance or Through (ADA). The state allocates LCFF to LEAs based on Independent Study. LEAs most commonly their ADA—the average number of students in class receive funding based on student attendance in an each day throughout the school year . (COE LCFF in-person instructional program, where students is determined partially by ADA, as well as several are under the direct supervision of a certificated other factors, including the number of school teacher . In addition, they can receive funding to districts and students that are enrolled within operate programs with a more flexible structure the county in which they operate .) For funding through independent study . Rather than generating purposes, the state credits school districts and funding solely based on in-person attendance, COEs with their ADA in the current year, prior year, independent study programs also generate or rolling average of three prior years, whichever funding based on remote instruction and the 34 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET work completed by students . Independent study Students are exempt from these requirements programs range from fully online virtual academies if they are participating in independent study to hybrid programs where instruction can be due to necessary medical treatments, or delivered on-site and off-site . Instruction could other inpatient treatments, under the care of a involve real-time interaction between students licensed professional . (synchronous) or could be accessed at students’ “Short-Term” Independent Study Is Exempt own pace (asynchronous) . State law allows LEAs From Some Requirements. For a situation in to offer these programs, but they are not required which a student might be absent from school for a to do so . (Due to the COVID-19 pandemic, school period of 3 to 14 days, but wants to remain enrolled districts were required to offer independent study in their classroom-based program, LEAs can offer in 2021-22 .) Under current law, charter schools that short-term independent study . The requirements for provide more than 20 percent of their instruction short-term independent study are somewhat more through independent study are considered lenient that under traditional independent study . “nonclassroom-based .” Most notably, LEAs are not required to comply Independent Study Programs Require with the recently established requirements to offer Written Agreements With Families. To operate synchronous instruction, have tiered reengagement, an independent study program, an LEA’s local or have a plan for transitioning students back to governing board must adopt a written policy regular instruction . LEAs also have more flexibility that adheres to the independent study rules and regarding when parents or guardians must sign the regulations set by CDE . A student’s parent or written agreement . Rather than having to sign the guardian must sign a written agreement before the agreement prior to a student’s enrollment, parents student can enroll in the program . This agreement or guardians must sign the agreements within ten must include specific information regarding the days following the commencement of independent student’s instructional program, such as the study instruction . duration of the agreement, learning objectives, School Districts and COEs May Offer expectations around a student’s coursework and “Saturday School” for Students to Make Up assignments, and the supports that the program Absences. School districts and COEs may will provide the student . offer classes on the weekends for a variety of State Established New Independent Study reasons, including to make up absences during Requirements in 2021-22. Most notably, the week . (Since classes are typically offered only independent study programs must: on Saturdays, we will refer to this as Saturday school .) Students attending makeup classes can • Offer synchronous instruction to independent generate attendance-based funding, though they study students throughout the school year, cannot generate funding for more than five days with frequency varying by grade level . of attendance per week . Any class that is offered • Establish procedures for reengaging through Saturday school must be a class that is with students who do not meet certain offered during the regular school week . School requirements, such as those who have districts and COEs may require truant students to completed less than 60 percent of their attend Saturday school programs, but participation assigned work in one week, participated for other students must be voluntary . Truancy is in less than 60 percent of scheduled defined as either missing three days of school with synchronous instruction in one month, or unexcused absences throughout the school year, or violated their independent study agreement . being tardy for more than 30 minutes without a valid • Have a plan for transitioning students back excuse on three occasions throughout the school to in-person instruction within five days, if year . (The state sets specific circumstances under requested by the family . which absences may be excused—such as for illness or doctor visits—though excused absences do not generate any additional funding .) www.lao.ca.gov 35 2024-25 BUDGET State Provides Funding for Expanded of five performance levels . School districts and Learning Programs . The state has three expanded charter schools are identified for differentiated learning programs that districts use to offer assistance based on the performance of their academic and enrichment activities to students student subgroups on the measures included in the before and after school and during intersessions, Dashboard . Under current law, an LEA must receive such as during the winter and summer breaks . Most additional support if they have at least one student notably, the state provides $4 billion annually group that has received the lowest performance through ELOP for school districts and charter level in two or more priority areas . During the schools to offer programming to students in TK pandemic, chronic absenteeism rates increased through grade 6 . ELOP grants are distributed to all significantly statewide . Prior to the pandemic, in districts and classroom-based charter schools that 2020-21, Chronic absenteeism rates increased from serve grades TK-6 . As a condition of receiving ELOP 14 percent (in 2020-21) to 30 percent (in 2021-22) . funds, school districts and charter schools are Although rates somewhat decreased to 25 percent required to provide at least nine hours of combined in 2022-23, they still remain almost double the in-person instructional time and expanded learning pre-pandemic rates . opportunities during the school year and for Proposal 30 days during the summer . As part of a program’s enrichment activities, ELOP funding can also be Authorizes New Attendance Recovery used to hire literacy coaches, tutors, counselors, Programs. The administration proposes to and instructional day teachers and aides . allow LEAs to provide instruction outside of the regular school day through “attendance State Sets Requirements to Receive recovery programs .” The intent is to allow Emergency Attendance Funding . Existing opportunities for students who were absent law establishes a process for LEAs to earn to recover lost instructional time, as well as to attendance-based funding when they must close offset funding losses associated with student schools or experience significant attendance absences . Attendance recovery programs would declines due to an emergency (such as a fire, flood, only be made available for students enrolled or epidemic) . LEAs must certify they have a plan in classroom-based instructional programs . for offering online instruction or independent study Nonclassroom-based charter schools would be to students affected by the emergency within ten prohibited from offering attendance recovery days of a closure or major decline in attendance . programs . In addition to generating additional In addition, LEAs are required to reopen for funding for students that participate in attendance in-person instruction as soon as possible, unless recovery programs, a student’s attendance in these prohibited under the direction of the local or state programs may be included in a school’s chronic health officer . absenteeism calculations . By June 30, 2025, trailer State Displays Chronic Absenteeism Data legislation would require CDE to develop and on the California School Dashboard. The state maintain a webpage that provides guidance to LEAs publicly displays outcomes on several performance in creating and developing attendance recovery measures on a website known as the California programs, in conjunction with state-funded before School Dashboard . One of the measures included and after school programs, such as ELOP . in the Dashboard is chronic absenteeism, which is defined as students who are absent for more than Sets Programmatic Requirements for 10 percent of the time they are enrolled at a school . Attendance Recovery. The proposed attendance recovery programs may operate before and after (A student enrolled at a school district for a full school, and during intersessions . (School districts academic year is considered chronically absent if and COEs could continue to offer weekend makeup they miss 18 or more days of school .) Performance courses through their existing Saturday school is shown for each LEA and school, as well as programs .) Participating in these programs would disaggregated by up to 13 student subgroups . be voluntary for all students . In addition, academic For each performance indicator shown by LEA, recovery programs must meet several requirements: school, or subgroup, the Dashboard assigns one 36 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET • Include content that is substantially equivalent Instructional Continuity Limited to 15 Days to what the student would have received Per Year, With Exceptions. Students could as part of their regular classroom-based generate up to 15 days of attendance through instructional program . participation in instructional continuity programs • Have instruction provided by certificated staff . throughout the school year . The proposed language allows students to participate for longer under • Have a maximum student-to-teacher of 20:1 certain circumstances . Students could participate for all grades except TK, which would have a for longer if they are undergoing necessary medical maximum of 10:1 . treatments, or other inpatient treatments, under Attendance recovery programs would be exempt the care of a licensed professional . Students could from daily minimum minute requirements, and also participate for longer if they are participating students would generate attendance in 15 minute due to emergency situations or are experiencing increments for their participation . A student would “significant personal difficulties” that impact their be credited with a full day of attendance once they ability to attend school, such as homelessness or have met the minimum daily minute requirement housing instability, family illness, or bereavement . for their grade level and school type . Students CDE would be required to develop rules and would not be able to generate more than one day of regulations around instructional continuity attendance per calendar day through participating programs . Local governing boards would be in attendance recovery programs . Furthermore, required to adopt policies that follow the new rules students would not be able to generate more than and regulations . Beginning in 2024-25, LEAs that 15 days of attendance through attendance recovery operate instructional continuity programs would programs within a school year . The proposal also be subjected to regular audits through their annual specifies that for purposes of implementing an audit process . attendance recovery program, charter schools Proposes Changes for Emergency would need to comply with minimum daily minute Attendance Funding. Trailer legislation proposes requirements . Beginning in 2024-25, LEAs operating to change the requirements for LEAs to receive attendance recovery programs would be subjected emergency-related attendance funding in the to regular audits through their annual audit process . event of school closures or significant declines in Replaces Short-Term Independent Study attendance . LEAs must certify they have a plan With New Instructional Continuity Program. to offer instruction following an emergency event The administration proposes to replace within five calendar days of the first day of the short-term independent study programs with new closure—compared with ten days under current “instructional continuity” programs . (The Governor’s law . Additionally, after June 30, 2025, LEAs would budget does not propose any changes to other have additional requirements within five days independent study program requirements .) of a closure . Specifically, LEAs would need to Similar to current short-term independent study, demonstrate that they have offered all students instructional continuity programs would provide either (1) access to instruction (either in-person or limited-term options for students enrolled in remotely) or (2) support to enroll or be temporarily classroom-based programs . Additionally, students assigned to another LEA . that participate in instructional continuity programs Provides $6 Million One-Time Proposition 98 would generate attendance through the time they to Research Models of Instruction and Student spend in synchronous or asynchronous instruction, Information Systems. The Governor’s budget as well as through coursework they complete . includes $6 million for two separate grants which Written agreements would be more limited in scope would allow CDE, with approval from the State compared to current short-term independent study Board of Education, to select a COE to conduct and may be signed at any point throughout the research . Of the total, at least $4 million would be school year . provided to a COE to research best practices for using hybrid and remote models of instruction, as well as to provide guidance, support, and resources www.lao.ca.gov 37 2024-25 BUDGET to school districts to support their instructional it may take time for districts to implement their continuity programs . The selected COE must new programs . Charter schools, however, would make their research, guidance, support, and see immediate increases in funding given they are resources available to the public through a website funded based on their attendance in the current that links to CDE’s website, as well as through year . Over the longer run, the programs likely widely available and free trainings and convenings would increase LCFF costs more substantially . for LEAs and teachers . Up to $2 million would Although the estimated effects of the proposals be provided to a COE to research local student are unknown, even a 0 .1 percent increase in information systems to identify opportunities statewide ADA could result in LCFF costs of roughly for more nuanced tracking of student absence $100 million statewide . (Of the two proposals, data, with a particular focus on absences due to attendance recovery programs likely would have emergencies . The selected COE must provide higher costs in the long run . Since instructional recommendations by January 1, 2026 that would continuity programs would be replacing short-term change the current absenteeism tracking system independent study, they are less likely to result to allow for better tracking of the reasons for in significant additional costs .) If the Legislature absences, including by student subgroup, and allow is interested in implementing these programs, for calculating an adjusted chronic absenteeism we recommend the Legislature delay them for rate that excludes absences due to emergencies . at least one year . In future years, the Legislature may want to consider whether it can cover the LAO Comments associated costs of this proposal within its ongoing Proposals Could Potentially Address Key Proposition 98 funding levels . Below, we describe Issues for Schools and Students. The proposed other specific issues the Legislature may want to attendance recovery and instructional continuity consider if it does adopt this proposal, or if it is programs could be effective ways to address interested in adopting the proposal in future years . key issues currently facing schools . Attendance Implementing Changes Immediately Would recovery programs could help students mitigate Be Logistically Challenging. Under the Governor’s learning loss due to absences . They could also proposal, LEAs could implement attendance help LEAs recover lost funding associated with recovery and instructional continuity programs increased rates of student absences while beginning in 2024-25 . Even if the state can afford incentivizing additional instruction . The added to pay for these new programs immediately, the flexibility provided to students through instructional Legislature may want to delay the effective date continuity programs, relative to current short-term to give the state and LEAs more time to carefully independent study, could potentially help students implement these programs . For attendance have an easier transition in and out of their recovery, LEAs would need time to integrate classroom-based instructional program as issues attendance recovery into their existing programs . arise throughout the school year, while also making Trailer legislation directs CDE to develop guidance the process less administratively burdensome for on attendance recovery programs by June 30, school districts . 2025 . Delaying implementation would give LEAs State Likely Cannot Support Costs the opportunity to incorporate this guidance into Associated With New Programs. The Governor’s their initial plans . Regarding instructional continuity, budget does not include any funding associated LEAs cannot generate funding through the program with the cost of attendance recovery or instructional unless their governing board adopts a written policy continuity programs . Given most school districts in line with rules and regulations set forth by CDE . are experiencing declining enrollment and are Given the typical time lines for adopting regulations, being funded based on the rolling average of final regulations may not be available in time for three prior years, they likely would not generate local governing boards to develop and adopt significant additional funding in the first year of written policies in 2024-25 . In the meantime, under implementation . Additionally, as we discuss below, the proposed language, LEAs would not be able 38 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET to offer short-term independent study . Delaying limit the amount a student can generate to no implementation would allow for more time for the more than the amount of absences they have state and LEAs to more deliberately work through within the school year . the details and would ensure that LEAs would not • Overlap Between Attendance Recovery generate funding from these programs until they and Other Programs. Attendance recovery comply with rules and regulations set by CDE . programs also could be integrated with other Attendance Recovery Language Raises existing programs that occur after school and Several Implementation Issues. Many of these in intersessions, such as high school credit issues are related to how this proposal interacts recovery . Under the existing proposal, LEAs with existing statute related to calculating likely could generate attendance recovery attendance for funding purposes . Prior to adopting funding for students participating in existing this proposal, the Legislature will want to ensure credit recovery programs . This could result in it understands how the proposed changes could significant statewide costs without necessarily affect attendance, which would, in turn, affect higher levels of service . LCFF costs . • Expectations Around Instruction. The • Proposal Creates Two Attendance Governor’s proposal provides significant Recovery Programs With Different discretion to LEAs in deciding the type of Requirements. Under the Governor’s instruction that will be provided in attendance proposal, new attendance recovery recovery programs . The Legislature may want programs would operate before or after to consider setting more specific expectations school and during intersessions, while the for instruction provided in these programs . existing Saturday school program would For example, the Legislature could direct operate on weekends . This would result in LEAs to focus their before and after school two programs with different requirements . programs for high school students on helping Currently, Saturday school makeup classes them keep up with their existing coursework, do not have any cap on the number of days while intersession instruction could prioritize of attendance a student can generate and do credit recovery . In deciding on the level of not have comparable requirements around specificity, however, the Legislature will want student-to-teacher ratios . To provide a more to weigh the benefits of these requirements consistent set of standards, the Legislature with the loss of flexibility that may reduce LEA may want to align current Saturday school participation in the program . requirements with the proposed attendance • Lack of Clarity Regarding Implementation recovery program requirements, or for Charter Schools. The proposed trailer consolidate both into one program . legislation specifies that, for the purposes • Student Participation Is Not Limited of calculating ADA generated through by Their Absences. The proposed trailer attendance recovery programs, the minimum legislation specifies that students cannot instructional day requirements apply to all generate more than 15 days of attendance LEAs, including charter schools . However, it through attendance recovery . The language, is unclear how this would be implemented . however, does not require that the amount For example, the proposed language does not of attendance generated be less than the specify whether charter schools would need student’s absences . This means that a student to comply with the daily minimum minutes could potentially generate attendance for of school districts or programs operated more than 180 days in the year . (For example, by COEs . The Legislature may want to add a student who attends school for 170 days and more specificity to the language to ensure participates in 15 days’ worth of attendance expectations for charters schools are clear . recovery could generate 185 days’ worth of attendance .) We recommend the Legislature www.lao.ca.gov 39 2024-25 BUDGET Instructional Continuity Exception Language agreement be signed by the student and parent or Is Too Broad. Although instructional continuity is guardian prior to enrolling in instructional continuity intended to be used for short periods of time, the more than 15 days . This would ensure that students language provides broad exceptions with no limit with longer-term needs are enrolled in independent on how long instructional continuity could be used study, where LEAs are required to implement tiered in these cases . The proposed language provides reengagement strategies to better support students a broad definition of what it means for a student who are not completing their coursework . to be facing significant personal difficulties that Consider Feasibility of Changes to make them unable to attend school . (We have no Emergency Planning. The Legislature may want to concerns with the other two proposed exceptions, consider whether requiring LEAs to offer instruction for students dealing with an emergency or to all students within five calendar days of an undergoing medical or other inpatient treatments .) emergency (rather than ten days) is feasible under Moreover, students exempt from the 15 day cap emergency circumstances . Providing instruction would have no limit on the amount of time they as soon as possible can mitigate possible learning could be enrolled in an instructional continuity loss and could benefit students socioemotionally program . This creates an opportunity for students by giving them the opportunity to interact with to be enrolled in instructional continuity for up to a familiar peers and adults in times of possible full year . Considering the proposal also does not distress . In cases of major emergencies, however, require written agreements be signed until the end offering instruction within five calendar days may be of the school year, students could be enrolled in an particularly challenging . instructional continuity program for a long period Recommend Rejecting $6 Million Grants. of time without having understood expectations Due to the Proposition 98 shortfall, we recommend of the program, and without having known key rejecting the one-time funding for COEs to conduct details required to be included in the written research . Although the specific activities proposed agreement (such as that the program is voluntary) . to be funded could be beneficial, the state We recommend the Legislature set narrower currently cannot support its existing Proposition 98 exemptions to the 15 day cap . The Legislature may commitments . The Legislature could consider also want to set more specific rules for students providing funding for this purpose in the future who remain enrolled beyond the 15 day cap . For when more funding is available . example, the Legislature could set a maximum cap for all students, or it could require that a written EDUCATION TECHNOLOGY In this section, we describe and assess the BACKGROUND Governor’s budget proposals related to the California College Guidance Initiative (CCGI) and CCGI K-12 High Speed Network (HSN) . Overall, we CCGI Is a College Planning and Advising Tool. recommend the Legislature maximize reserves CCGI offers access to college planning, financial aid, and one-time carryover funds to offset CCGI and career exploration tools to students from grades and HSN operational costs . Additionally, given 6 to 12 through its online platform CaliforniaColleges . the Proposition 98 shortage, we recommend the edu . CCGI also partners with school districts to Legislature reject any proposals that increase streamline the college application process through ongoing cost pressures . verified electronic transcripts . Partner districts can upload verified academic transcript data onto the platform and into students’ accounts . When students from these partner districts apply to a 40 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET California Community College (CCC) or California HSN State University (CSU), relevant high school data is State Created HSN to Primarily Connect automatically shared . The college or university, in turn, COEs to High-Speed Broadband Internet. In the can use the data to inform decisions about admissions early 2000s, the state decided to link COEs to and course placement . (CCGI is currently working with a high speed network, or “backbone,” servicing the University of California (UC) Office of the President mostly educational institutions . Years earlier, UC to provide the same transcript functionality to UC and private research universities had formed a applicants .) As of February 2024, nearly 240 of 417 joint nonprofit organization called the Corporation eligible school districts partner with CCGI . for Education Network Initiatives in California CCGI Offers Two Types of Student Accounts. to build and maintain this backbone . Beginning Students in districts that partner with CCGI have in the early 2000s, the state decided to pay for access to transcript-informed accounts in the internet connections from the backbone to all CaliforniaColleges .edu platform, which allow them COEs . The state named the connections among to use all available tools and features, including the the 58 COEs the “K-12 High Speed Network,” or ability to import verified transcript data into CSU HSN . School district offices and schools then were and CCC applications . Students in districts that encouraged to connect to the HSN via their COE are not partnered with CCGI can choose to create network “hubs .” (CSU, CCC, and local libraries basic accounts to access non-transcript-informed also are joined to the backbone .) In 2004, Imperial resources, such as lessons in financial aid process, COE was selected as the grantee tasked with high school coursework planning, and career coordinating HSN-related activities . A decade later, planning . CCGI is in the process of scaling up the this included the administration of the Broadband ability to automatically generate universal basic Infrastructure Improvement Grant (BIIG) program . In accounts for all students in grades 6 to 12 in districts 2014-15, the state created the BIIG program to help that are not CCGI partners . schools administer online tests by increasing their CCGI Is Funded Through Mix of Proposition 98, internet speeds . Between 2014-15 and 2015-16, the Fee Revenue, and Philanthropy. In 2023-24, state provided a total of $77 million Proposition 98 the state provided CCGI $18 .4 million ongoing to support the BIIG program . Imperial COE, in Proposition 98 for operational costs . The state its role as the HSN grantee, was tasked with currently funds CCGI as part of CDE’s budget, with distributing funds to schools and supporting Riverside COE and the nonprofit Foundation for network connectivity . CCC acting as intermediaries . CCGI generates some State Previously Zeroed Out Proposition 98 additional funding by collecting fees from participating Appropriation Due to Large Reserve Levels. districts and charter schools . Fee revenue for 2023-24 The HSN grantee generally carries a reserve is projected to be slightly less than $700,000 . balance, which consists of delayed reimbursements CCGI also receives funding from private philanthropy and undesignated revenues . In 2015-16, the state and institutional partners, which is projected to be less eliminated the HSN grantee’s Proposition 98 than $1 million in 2023-24 . appropriation in recognition of large reserve levels . CCGI Carried Forward $3.9 Million Unspent Specifically, HSN reserve levels increased from Proposition 98 into 2023-24. The 2022-23 budget $2 .8 million in 2006-07 to nearly $15 million in increased CCGI funding by $9 .2 million Proposition 98 2014-15 . This required the HSN grantee to spend (bringing total Proposition 98 funding to $16 .8 million) . down some of its reserve, reaching $5 .2 million by These funds were meant to cover the costs of the end of 2022-23 . Reserve levels at the end of technological development projects, new staff, and 2023-24 are projected to be $4 .5 million, which will new districts joining the platform . By the end of carry forward into 2024-25 . 2022-23, $3 .9 million of Proposition 98 funds went unspent due to hiring and project delays . These unspent funds carried forward into 2023-24 on a one-time basis . www.lao.ca.gov 41 2024-25 BUDGET In Recent Years, HSN Grantee Received school districts, enhancing the functionality of Revenue Primarily From the BIIG Program CaliforniaColleges .edu, and further supporting and Two Internet Subsidy Programs. Since the communications with other state agencies and suspension of Proposition 98 funds in 2015-16, offices to promote use of CaliforniaColleges . the HSN grantee began to use unspent BIIG edu . The proposed augmentation would bring funds to cover operational expenses, including total ongoing Proposition 98 funding levels to equipment maintenance, staffing, and new internet $23 .4 million (a 24 percent increase relative to connectivity and upgrade projects . Additionally, 2023-24) . The 2024-25 budgeted authority does not the HSN grantee draws down funds from E-Rate include any expected one-time Proposition 98 carry and the California Teleconnect Fund (CTF) . E-Rate over funds . is a federal telecommunications subsidy that Adds Requirements Intended to Encourage provides reimbursements of up to 90 percent for Additional Utilization of CaliforniaCollege.edu Internet service . The CTF is a state special fund that and Streamlines Data Transfer to CCGI. Current provides reimbursements of 50 percent for internet law requires LEAs provide students entering grade service, after all E-Rate discounts are applied . Both 12 with information about the college financial aid subsidies are funded by telecommunication user application process . Additionally, LEAs are required surcharges . The HSN grantee typically receives to ensure high school seniors apply for college E-Rate subsidies on a lagged basis (usually several financial aid unless the student has opted out of months or, in some cases, years after services the requirement . The Governor’s budget proposes were provided) . trailer bill language that would require LEAs to State Provided $3.8 Million Ongoing direct students to complete financial aid lessons Proposition 98 in 2023-24 to Backfill BIIG Funds. and submit financial aid applications through the Since 2014-15, the HSN grantee has steadily spent CaliforniaColleges .edu platform . The Governor’s down BIIG funds, reaching a remaining balance of proposed trailer bill language also requires all nearly $8 million by the end of 2022-23 . As a part LEAs enter into a data sharing agreement with of the 2023-24 budget, the HSN grantee projected CCGI to support the implementation of universal that all remaining BIIG funds would be spent by the basic accounts . In addition, the Governor’s end of June 2024 . As a result, the state provided proposed trailer bill language requires community $3 .8 million ongoing Proposition 98 to backfill the colleges and student information system ramp down of BIIG funds and maintain budgeted contractors to share additional student data for revenues at around $18 million in 2023-24 . purposes of improving the functionality of Actual 2022-23 Revenues and Expenditures CaliforniaColleges .edu . Estimated to Be $3 Million Lower Than Provides $3 Million Proposition 98 to Budgeted Levels. The state budgeted around Partially Backfill Temporary Funds for HSN. $19 million in total HSN revenues and expenditures The Governor’s budget projects about a $6 million for 2022-23 . However, based on the most recent decrease in HSN revenues . The Governor’s budget estimate of 2022-23 actuals, both revenues and provides an additional $3 million Proposition 98 on expenditures are expected to come in $3 million an ongoing basis to partially backfill the projected lower than budgeted levels . (We are working loss in revenue . In addition, the Governor’s budget with the administration to better understand the assumes the HSN grantee will draw down $3 million reasons behind the lower-than-expected revenues from expected $4 .5 million reserves to cover and expenditures .) the remaining amount of the projected revenue decrease . As a result of these proposed revenue GOVERNOR’S PROPOSAL actions and assumptions, the Governor’s budget provides $18 million total expenditure authority Provides $5.1 Million in Additional in 2024-25, which is relatively equal to estimated Proposition 98 to Support CCGI Expansion. expenditures in 2023-24 . This funding is intended to cover costs associated with providing universal accounts to all students in grades 6 to 12, expanding the number of partner 42 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET ASSESSMENT 2023-24 HSN and CCGI Expenditures May Be Lower Than Budgeted, Resulting in Additional Proposed CCGI-Related Trailer Bill Language One-Time Carry Over Funds for 2024-25. In May Increase District Participation in CCGI. 2022-23, both CCGI and HSN actual expenditure In a recent report, CCGI noted that small districts levels were about $3 million below budgeted levels . generally do not have the sufficient information (The HSN grantee is still in the process of finalizing technology staff to transfer the necessary student the audit of 2022-23 expenditures .) Expenditures data to CCGI in order to support transcript-informed came in lower, in part, due to delays in hiring new accounts for students . The Governor’s budget staff and delays in technology projects . Based on proposes to reduce this burden by requiring student most recent 2023-24 expenditure data, we believe information system contractors automatically that HSN and CCGI expenditures may come in lower transfer this information to CCGI instead . This could than budgeted by a similar amount as 2022-23 . be an effective way to increase participation of small These unspent funds would carry forward into school districts . The proposal that requires LEAs 2024-25 and would further offset operation costs . to direct students to use financial aid resources from CaliforniaColleges .edu seems reasonable, as RECOMMENDATIONS it would take advantage of existing resources that are free to students . These proposed changes, Consider Workload Costs Associated With however, may increase workload for school districts . CCGI-Related Trailer Bill Language. While the (We are in the process of learning more about proposed changes may improve the reach of the possible workload impacts of the Governor’s CaliforniaColleges .edu across eligible districts, proposed trailer bill language .) the Legislature may want to consider if these HSN Reserve Levels Projected to be changes would require additional resources to $1.5 Million by the End of 2024-25. The implement . To the extent these changes require Governor’s budget assumes the HSN grantee additional resources, the Legislature could consider will end 2023-24 with a $4 .5 million reserve that delaying the implementation date until budget will carry forward into 2024-25 . This reserve conditions improve . consists of $3 .3 million in delayed E-Rate subsidy Reject Proposed CCGI Augmentations. reimbursements and $1 .2 million of undesignated Due to the Proposition 98 shortfall, the state revenues . The Governor’s budget assumes the cannot support additional spending without making HSN grantee will draw down $3 million in reserves reductions to existing commitments . As a result, to keep HSN revenue and expenditure levels flat we recommend the Legislature reject the proposed in 2024-25 . As a result, total reserve levels are increase to Proposition 98 funding levels in CCGI . projected to be $1 .5 million by the end of 2024-25 . Given that this recommended action would HSN Grantee Not Required to Maintain delay CCGI expansion activities, the Legislature Reserves. The HSN grantee chooses to maintain could consider amending statute to delay the reserves to support any unanticipated expenses, implementation date of impacted activities . such as fully covering budgeted expenditure levels Maximize Use of HSN Reserves to Cover in cases where actual revenue levels come in lower Baseline Operational Costs. The Governor’s than expected . For example, in 2020-21, total HSN budget assumes the HSN grantee will draw down expenditures exceeded actual revenues by about $3 million in reserves to cover 2024-25 operation $500,000, which the HSN grantee covered with costs, leaving an estimated reserve balance of reserves . In general, it is uncommon to ask grantees $1 .5 million . The Legislature could consider the to maintain reserves on the state’s behalf . An benefits and trade-offs of increasing the reserve alternative approach would be for the Legislature to draw down in order to offset Proposition 98 establish a certain reserve threshold and reevaluate costs . While requiring a greater draw down of this threshold as a part the annual budget process . reserves would reduce state costs, there is a risk of overdrawing from the HSN reserve if the actual collections of delayed E-Rate subsidies come in lower than expected . www.lao.ca.gov 43 2024-25 BUDGET Reassess HSN and CCGI Budgets in of unspent funds in 2023-24 and adjust 2024-25 May. Similar to 2022-23, total HSN and CCGI Proposition 98 levels accordingly . Additionally, expenditures in 2023-24 may come in lower given the Proposition 98 shortfall may be greater than budgeted levels by a couple of millions of than initial Governor’s budget estimates, we dollars . These unspent funds would carry over into believe the Legislature may need to reconsider and 2024-25 . As a part of the spring hearing process, weigh existing funding commitments across all we recommend the Legislature request an estimate Proposition 98 activities, including HSN and CCGI . K-12 EDUCATION UNIT Michael Alferes Attendance Recovery and Instructional Continuity Michael.Alferes@lao.ca.gov (916) 319-8338 Jackie Barocio Education Workforce Jacqueline.Barocio@lao.ca.gov Education Technology (916) 319-8333 Sara Cortez School Nutrition Sara.Cortez@lao.ca.gov (916) 319-8348 Kenneth Kapphahn The Minimum Guarantee Kenneth.Kapphahn@lao.ca.gov K-12 Spending Plan (916) 319-8339 LAO PUBLICATIONS This report was reviewed by Edgar Cabral. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 44 LEGISLATIVE ANALYST’S OFFICE