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  • 1. The 2013-14 Budget:Restructuring theK-12 Funding SystemM A C Tay l o r • L e g i s l at i v e A n a l y s t • F e b r u a r y 2 2 , 2 0 13
  • 2. 2013-14 Budget2 Legislative Analyst’s Office www.lao.ca.govContentsExecutive Summary...................................................................................................3Introduction...............................................................................................................5School Districts and Charter Schools.......................................................................5Background.......................................................................................................................................5Governor’s Proposal.......................................................................................................................6LAO Assessment...........................................................................................................................15Recommendations......................................................................................................................21County Offices of Education...................................................................................23Background....................................................................................................................................23Governor’s Proposals..................................................................................................................27LAO Assessment...........................................................................................................................32Recommendations......................................................................................................................34Conclusion................................................................................................................36
  • 3. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 3Executive SummaryGovernor Proposes to Restructure State’s Approach to Allocating Education Funding. TheGovernor proposes to restructure the way the state allocates funding for K-12 education. Under theGovernor’s plan, the state would replace the vast majority of existing revenue limit and categoricalfunding formulas with a new, streamlined set of funding formulas—one applying to school districtsand charter schools and the other applying to county offices of education (COEs). The Governorrefers to his collection of proposals as the “Local Control Funding Formula” (LCFF). The Governor’sbudget provides $1.6 billion in 2013-14 to begin implementing the new formulas.School Districts and Charter SchoolsNew Formula Based on a Uniform Per-Pupil Base Rate and Four Supplemental Grants. Underthe current system, districts receive notably different per-pupil funding rates based on historicalfactors and varying participation in categorical programs. In contrast, the Governor’s proposalwould provide a uniform base per-pupil rate for each of four grade spans. These base rates wouldbe augmented by four funding supplements for: (1) students needing additional services, definedas English learners (EL), students from lower income (LI) families, and foster youth; (2) districtswith high concentrations of EL/LI students; (3) students in grades K-3; and (4) high school students.The Governor’s proposal establishes target base rates that, when combined with the proposedsupplements, exceed the per-pupil funding levels most districts currently receive. As such, theadministration estimates it would take several years to reach the target funding levels. As opposedto the specific programmatic activities required under the current system, the Governor’s proposalwould require districts to develop local plans describing how they intend to educate their students.Governor’s Proposal Has Many Strengths . . . We believe the Governor’s proposed LCFF wouldaddress many problems inherent in the state’s existing K-12 funding approach, and we recommendthe Legislature adopt most components of the proposal. Unlike the current system, the proposedformula would be simple and transparent, fund similar students similarly, and link funding to thecost of educating students. In our assessment, the proposed rates for both base per-pupil fundingand the EL/LI supplement are reasonable (though using alternative methodologies to developsomewhat different rates also would be reasonable). The proposed approach would increase districts’ability to design programs that best meet the needs of their students, as well as refocus the state’srole on monitoring student performance and intervening when districts show signs of struggling.. . . But Proposal Could Be Improved by Some Notable Modifications. We recommend theLegislature modify several components of the proposed formula. Specifically, we recommendmaking a few changes to the way the proposed EL/LI supplement and concentration grants wouldbe calculated and strengthening spending requirements for these supplements to ensure that theadditional funds translate into additional services for the target student groups. Additionally, werecommend against providing separate funding supplements for K-3 and high school students.Instead, we recommend adjusting the base rates to account for any notable grade-span costdifferences. We also recommend adding two categorical programs to the new formula, maintaining
  • 4. 2013-14 Budget4 Legislative Analyst’s Office www.lao.ca.govsome spending requirements for facility maintenance, and changing the way the formula wouldoperate for “basic aid” school districts.COEsProposal Would Replace Multiple Funding Streams With Two-Part Funding Formula. Underthe current system, COEs perform a range of activities and are funded by a variety of sources. TheGovernor would collapse most existing funding streams into a simplified, two-part formula forCOEs to (1) provide regional services to districts and (2) educate students in COE-run alternativeschools. While the amounts associated with these two responsibilities would be calculated throughtwo separate formulas, the funds would be combined into one allocation that COEs could usefor either purpose. Similar to his district proposals, the Governor also proposes to (1) eliminatemost categorical program requirements for COEs and (2) establish a funding target for each COEand build toward those targets over a number of years. The Governor’s 2013-14 budget includes a$28 million augmentation to begin this process. Because many COEs currently receive a substantialamount of categorical funds to provide regional services, the administration estimates that fewerthan half of COEs currently receive less than their target levels.Move Towards Simplifying and Streamlining Makes Sense, but Fundamental Questions toResolve and Proposed Rates Too High. We think the Governor’s general framework of combiningmultiple funding streams and simplifying allocation formulas makes sense. Additionally, theGovernor’s alternative education proposal addresses some existing inconsistencies in how thestate funds students in alternative schools. We are concerned, however, with the lack of clarity andaccountability regarding the role of COEs in the education system. We also are concerned that theGovernor’s proposed funding rates for both regional services and alternative education exceed theassociated costs. We recommend the Legislature identify the services expected of COEs, ensureaccountability mechanisms are in place to encourage COEs to provide cost-effective services, andreduce the rates associated with each of the two COE formula components to better align fundinglevels with required services.ConclusionRecommend the Legislature Act Now to Make Critical Improvements to Funding System.Adopting the Governor’s proposed formula is not the only way to improve the existing fundingsystem. A wide variety of restructuring approaches still would meet the guiding principles ofsimplicity, transparency, rationality, and flexibility in K-12 funding. Restructuring the fundingsystem will be a complex undertaking, and it will not solve every K-12 challenge. Changing thefunding approach, however, would address some fundamental problems. We believe that neitherthe complexities associated with implementing broad-based change nor the need to better developother areas of the K-12 system should preclude the state from making significant, necessary, andimmediate improvements to school funding.
  • 5. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 5IntroductionThe Governor proposes to dramaticallyrestructure the way the state allocates funding toschool districts, charter schools, and COEs. Similarto his proposal from last year, the Governor’splan would replace existing revenue limit andcategorical funding with a streamlined formulabased on uniform per-pupil rates and supplementalfunding for certain student groups. The proposalalso would fund COEs to provide regional servicesto their local districts. The Governor refers tohis collection of proposals as the LCFF. Perhapsmost notably, the Governor’s proposed approachwould contain very few spending or programmaticrequirements.This report is divided into two mainsections—one focused on the changes that applyto school districts and charter schools and onefocused on the changes that apply to COEs. Ineach of these sections, we begin by explainingthe current funding system, then describe theGovernor’s proposals, next assess the strengths andweaknesses of his approach, and finish by offeringrecommendations for how the Legislature mightimprove his proposals.School Districts and Charter SchoolsAs described below, the Governor proposesmajor changes to the way the state allocatesfunding to school districts and charter schools.BackgroundBeing familiar with both the basic componentsand widespread criticisms of the state’s existingschool funding system is an essential first step inunderstanding the rationale behind the Governor’sproposed changes.Current Funding System Based on RevenueLimits and Categorical Programs. The state’scurrent approach to allocating funding toschool districts consists primarily of revenuelimits (general purpose funds) and categoricalprograms (grants that carry specific spendingand programmatic requirements). In 2012-13, thestate spent about $47 billion in Proposition 98funds for K-12 education, of which approximatelythree-quarters (roughly $36 billion) was providedthrough revenue limits and about one-quarter(roughly $11 billion) was allocated via individualcategorical grants. (As described below, however,almost half of this categorical funding hasessentially become general purpose fundingin recent years.) Revenue limits currently arecontinuously appropriated, while most categoricalprograms currently are appropriated through theannual budget act.Spending Requirements TemporarilySuspended for Some Programs. To assist districtsin dealing with tight budgets, in 2009 the statesuspended categorical program requirements forroughly 40 of the state’s 60 categorical programs.As a result, districts were granted discretion to usethe $4.7 billion associated with these programsfor any purpose. (A small portion of these fundsare allocated to COEs.) According to surveys ouroffice has conducted in recent years, most districtshave responded to this flexibility by redirecting themajority of funding away from most of the affectedcategorical programs to other local purposes. Thecurrent flexibility provisions are scheduled toexpire at the end of 2014-15.Categorical System Has Major Shortcomings.As our office has discussed numerous times in
  • 6. 2013-14 Budget6 Legislative Analyst’s Office www.lao.ca.govprior years, the existing approach—particularlyhaving so many categorical programs—has majorshortcomings. First, little evidence exists that thevast majority of categorical programs are achievingtheir intended purposes. This is in part becauseprograms are so rarely evaluated. Second, separatecategorical programs often contain overlappinggoals but distinct requirements. This magnifies thedifficulty districts have in offering comprehensiveservices to students. It also blurs accountabilityand increases administrative burden. Third,having so many different categorical programswith somewhat different requirements creates acompliance-oriented system rather than a student-oriented system. These problems are furtherexacerbated by categorical programs that haveantiquated funding formulas, which over timehave become increasingly disconnected from localneeds.Broad Consensus That Current FundingSystem Is Deeply Flawed. For all these reasons,several research groups over the last decade haveconcluded that California’s K-12 finance system isoverly complex, irrational, inefficient, and highlycentralized. Although recent categorical flexibilityprovisions have temporarily decentralized somedecision making, the provisions have done little tomake the funding system more rational, linked tostudent needs, or efficient.Governor’s ProposalGenerally, the Governor proposes to replace thenumerous streams of funding the state currentlysends to school districts with one simplifiedformula. (All proposals for districts also wouldapply to charter schools.) Below, we begin witha general overview of the Governor’s proposaland then describe the various components of theproposal in greater detail.OverviewReplaces Existing System With New FundingFormula, Removes Most Spending Requirements.The Governor’s new LCFF would replace revenuelimits and most categorical programs with a morestreamlined formula and remove most existingspending restrictions. As a result, the majority ofcurrently required categorical activities—includingpurchasing instructional materials, conductingprofessional development, and providingsupplemental instruction—instead would be left todistricts’ discretion. Figure 1 displays the existingProposition 98-funded categorical programs thatwould be eliminated and the associated fundingthat would become part of the new formula.(Federally funded grants would remain unaffectedby the LCFF.) As shown, the proposal affects mostof the programs and an associated $3.8 billioncurrently subject to flexibility provisions, as wellas an additional six programs and $2.3 billionfor which programmatic requirements currentlystill apply. (As described in more detail later, theGovernor also would allow two programs totaling$1.3 billion to remain as permanent add-ons to thenew formula.)Maintains a Few Categorical Programs. Whilethe Governor’s proposed new funding formulawould incorporate most existing state categoricalprograms, he would maintain a few Proposition 98programs, totaling $5.7 billion, with their existingallocation formulas and requirements. Figure 2(see page 8) lists these programs and the rationalefor excluding them from the new formula. Asdescribed in the figure, these programs tend toserve unique populations or involve specializedspending requirements. Not listed in the figureare two existing K-12 activities—adult educationand apprenticeship programs—which under theGovernor’s proposal would remain as discretecategorical programs but would be administered
  • 7. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 7by community collegesinstead of school districts.(For more information onthese proposals, please seeour report, The 2013-14Budget: Proposition 98Education Analysis.)New Formula WouldBuild Towards UniformPer-Pupil Rates, FourSupplemental Grants.Under the current system,districts receive notablydifferent per-pupilfunding rates based onhistorical factors andvarying participationin categorical activities.In contrast, under fullimplementation of thenew system proposedby the Governor, alldistricts and charterschools would receivethe same per-pupil rates,adjusted by a uniform setof criteria. Figure 3 (seepage 9) highlights themajor characteristics ofthe Governor’s proposal,which we describe indetail below. As shown inthe figure, the proposalwould provide a baseper-pupil rate for each offour grade-span levels.These base rates wouldbe augmented by fourfunding supplements.The Governor’s proposalestablishes target baseFigure 1Categorical Programs Governor Would ConsolidateInto Local Control Funding Formulaa2012‑13 (In Millions)Program AmountCurrently FlexibleAdult Education $634Regional Occupational Centers and Programs 384School and Library Improvement Block Grant 370Summer School Programs 336Instructional Materials Block Grant 333Charter School Block Grant 282Deferred Maintenance 251Professional Development Block Grant 218Grade 7‑12 Counseling 167Teacher Credentialing Block Grant 90Arts and Music Block Grant 88School Safety 80High School Class Size Reduction 79Pupil Retention Block Grant 77California High School Exit Exam Tutoring 58California School Age Families Education 46Professional Development for Math and English 45Gifted and Talented Education 44Community Day School (extra hours) 42Community-Based English Tutoring 40Physical Education Block Grant 34Alternative Credentialing 26Staff Development 26School Safety Competitive Grant 14Educational Technology 14Certificated Staff Mentoring 9Specialized Secondary Program Grants 5Principal Training 4Oral Health Assessments 4Otherb 5 Subtotal ($3,804)Newly ConsolidatedK-3 Class Size Reduction $1,326Economic Impact Aid 944Partnership Academies 21Foster Youth Programs 15Community Day Schools (for mandatorily expelled) 7Agricultural Vocational Education 4 Subtotal ($2,318) Total $6,122Maintained as Permanent Add-Ons to Formula:Targeted Instructional Improvement Block Grantc $855Home-to-School Transportationc 491a For some programs, county offices of education receive a share of the funding amounts displayed.b Includes five programs.c Associated program requirements would be eliminated, but funding allocations locked in at 2012-13 levels.
  • 8. 2013-14 Budget8 Legislative Analyst’s Office www.lao.ca.govrates that, when combined with the proposedsupplements, exceed the per-pupil funding levelsthe vast majority of districts currently receive. Assuch, the administration estimates it would takeseveral years to reach the target funding levels. TheGovernor’s 2013-14 budget includes $1.6 billionto begin building towards the target rates. Initialimplementation of the new formula—and removalof categorical spending requirements—would beginin 2013-14. Moreover, all LCFF funds would becontinuously appropriated beginning in 2013-14.Base and Four Supplemental GrantsSets Grade-Specific Target Base Grants.Figure 3 displays the proposed per-pupil target basefunding rates for each of the four grade spans. Theproposed variation across the grade spans is basedon the proportional differences in existing charterschool base rates. The distinctions are intended toreflect the differential costs of providing educationacross the various grade levels. The target ratesreflect current statewide average undeficited baserates. That is, the targets reflect what averagerevenue limit rates would be in 2012-13 if thestate restored all reductions from recent years(roughly $630 per pupil) and increased rates forcost-of-living adjustments (COLAs) that schooldistricts did not receive between 2008-09 and2012-13 (roughly $940 per pupil). The Governoralso proposes to annually adjust these rates bythe statutory COLA rate, beginning in 2013-14.(The current estimated COLA rate for 2013-14 is1.65 percent.) Base rate funds would be allocatedbased on average daily attendance (ADA) in eachgrade level.Provides Four Supplemental Grants. Inaddition to the base funding rate districts wouldreceive for each student they serve, the LCFFwould provide supplemental funds based on fourspecific criteria. Specifically, districts would getadditional funding for certain student groups, highconcentrations of these groups, K-3 students, andhigh school students. We describe each of thesefour funding supplements in detail below.Provides Supplemental Funding for CertainStudent Groups. Under the current system,Figure 2Governor Would Exclude a Few Categorical Programs From New Formula2013-14 (In Millions)Program Reason for Exclusion AmountaSpecial Education Federal law requires state to track and report specific expenditure level.Also, majority of funding is allocated to regional entities rather thanindividual LEAs.$3,740bAfter School Education and Safety Voter-approved initiative precludes major changes to funding allocationor activities (Proposition 49, 2002).547State Preschool Funding supports unique population and set of activities. Not part of coreK-12 mission.481Quality Education Investment Act Scheduled to sunset in 2014-15. 313Child Nutrition Federal law requires state to track and report specific expenditure level. 157Mandates Block Grant Linked to constitutional requirements to fund mandates. 267Assessments Necessary to meet state and federal accountability requirements. 75American Indian Education Centers andEarly Childhood Education ProgramFunding supports unique population and set of activities. Not part of coreK-12 mission.5 Total $5,685a Some county offices of education receive a small share of these funds.b Includes local property tax revenue. LEAs = local educational agencies.
  • 9. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 9districts receive funding through the EconomicImpact Aid (EIA) program to provide supplementalservices for students who are EL and from LIfamilies. In lieu of EIA, the proposed LCFF wouldprovide districts with an additional 35 percent oftheir base grant for these same student groups.For example, an EL or LI student in grades K-3would generate an additional $2,220 for the district(35 percent of $6,342, the K-3 target base rate). TheGovernor would provide these supplements forstudents who (1) are EL, (2) receive free or reducedprice meals (FRPM), or (3) are in foster care. Theformula would count each student only once for thepurposes of generating the supplement. (Because allfoster youth are eligible for FRPM, throughout thisreport we typically include them when referencingthe LI student group.) As shown in Figure 4(see next page), the Governor’s proposed EL/LIsupplement differs from the existing EIA programin several notable ways.Figure 3Overview of Governor’s Local Control Funding Formula for School DistrictsaFormula Component ProposalTarget amount for base grant (per ADA) • K-3: $6,342• 4-6: $6,437• 7-8: $6,628• 9-12: $7,680Supplemental funding for specific studentgroups (per EL, LI, or foster youth)• 35 percent of base grant.• Provides EL students with supplemental funding for maximumof five years (unless students also are LI).Supplemental concentration funding • Each EL/LI student above 50 percent of enrollment generatesan additional 35 percent of base grant.Supplemental funding for K-3 and highschool students (per ADA)• K-3: 11.2 percent of base grant.• High school: 2.8 percent of base grant.Higher level of funding for necessarily smallschools• Provides minimum grant (rather than ADA-based funding) forvery small schools located in geographically isolated areas.“Add-ons” to new formula • Locks in existing Targeted Instructional Improvement BlockGrant and Home-to-School Transportation district-levelallocations and provides as permanent add-ons to the newformula.Spending requirements • Removes all categorical spending requirements for programsincluded in formula and two add-ons, effective 2013-14.• Requires that EL/LI and concentration supplemental funds bespent for a purpose that benefits EL/LI students.• When fully implemented, only provides K-3 supplement ifdistrict’s K-3 class sizes do not exceed 24 students, unlesscollectively bargained to another level.• Requires districts to develop, make publicly available, andsubmit to the local COE an annual plan for how they will spendfunding and improve student achievement.Transition plan • Uses portion of annual growth in Proposition 98 funding togradually increase each district’s funding rate up to the targetlevel. Districts that currently have lower rates would get largerper-pupil funding increases each year.• Estimates full implementation by 2019-20.a Also applies to charter schools. ADA = average daily attendance; EL = English learner; LI = lower income; and COE = county office of education.
  • 10. 2013-14 Budget10 Legislative Analyst’s Office www.lao.ca.govCalculates EL/LI Student Supplement Basedon Districtwide Averages, Not Grade-SpecificStudent Counts. To calculate each district’sEL/LI student supplement, the formula assumesthe districtwide proportion of EL/LI students alsoapplies in each grade span level. For example, if60 percent of the students enrolled in a unifieddistrict were EL/LI, the formula would calculate asupplement for 60 percent of students in each gradespan level—even if the actual proportions of EL/LIstudents differ across the grade spans.Provides Supplemental Funding toDistricts With Higher Concentrations of EL/LIStudents. The Governor’s proposal provides anadditional funding supplement to districts whoseEL/LI student populations exceed 50 percentFigure 4Comparing Proposed and Existing Methods of Funding EL and LI Students99Changes Measure of LI. For the purposes of calculating the EL/LI funding supplement, the Governor’sproposal would count students as LI if they receive a free or reduced price meal. The current EconomicImpact Aid (EIA) formula instead uses federal Title I student counts as the measure for funding studentsfrom LI families.99Includes Funding for Foster Youth. Under the Governor’s proposal, supplemental funding for fosteryouth would be funded through the EL/LI supplement. Currently, special services for foster youth arefunded through a separate categorical grant, not through EIA.99Individual Students Generate Only One Supplement. The Governor’s proposal would count eachstudent who meets more than one of the EL/LI characteristics only once for the purposes of calculatingsupplemental funding. In contrast, the EIA formula currently provides double funding for EL studentswho also are from LI families.99Provides Notably More Supplemental Funding. The proposed 35 percent supplement wouldgenerate notably more funding for most districts than the supplemental funds provided through existingcategorical programs. Currently, EIA provides districts with an average of $350 per EL or LI student,or an average of $700 for students who meet both criteria. Additional existing categorical programsintended to serve these students provide an average of $75 per EL/LI student. The new formula rateswould range from $2,220 to $2,688 per EL/LI student, depending upon the grade level.99Links Supplement to Level of Funding for General Education. The Governor’s proposedapproach explicitly would link the amount the state provides in supplemental funding to the amountprovided for general education services, such that when the base amount increases, so would thesupplement. Currently, the amount provided for EIA is not directly connected to how much is provided forother education services.99Institutes Time Limit for EL Funding. The Governor’s proposal would cap the amount of time an ELstudent could generate supplemental funds at five years (though districts could decide to continuespending more on the student and the student would continue to generate more funding if also LI).Currently, EL students can generate EIA funding until they are reclassified as being fluent in English,even if this takes 13 years.99Provides More Flexibility Over How Supplemental Funds Could Be Spent. The Governor’sproposal provides districts with greater discretion over how to use the EL/LI funds compared to currentrequirements for EIA funds. Districts would be required to use the supplemental funds to meet the needsof their EL/LI student groups, but they would have broad flexibility in doing so. Current law is morestringent, in that the state requires and monitors that districts use EIA funds to provide supplementalservices for the targeted student groups beyond what other students receive. EL = English learner and LI = lower income.
  • 11. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 11of their enrollment. Specifically, districtswould receive an additional 35 percent of theirgrade span base grant for each student abovethe 50 percent threshold. (For the purposes ofcalculating this supplement, a charter school’sEL/LI concentration could not exceed that of theclosest school district.) Figure 5 illustrates howconcentration funding would work. As shown, allEL/LI students in the illustrative district wouldgenerate a $2,220 supplement (35 percent of thebase grant), but those comprising more than halfof the district’s enrollment would generate anadditional $2,220. (As with the EL/LI studentsupplement, the concentration supplement alsowould be calculated assuming the districtwideproportion of EL/LI students is applied to eachgrade span.) The existing EIA formula alsoprovides supplemental funds for districts wheremore than half of the student population areEL/LI; however, students over the 50 percentthreshold only generate an additional half EIAsupplement, rather than double the supplement.Requires That Districts Use EL/LI andConcentration Supplemental Funds to BenefitEL/LI Students. The Governor would requirethat districts use the supplementalEL/LI and concentration funds for purposes that“substantially benefit” the target student groups.These spending parameters are somewhat broaderthan current EIA constraints, which explicitlyrequire that EIA funds be used to providesupplemental services beyond what other studentsreceive. In the initial implementation years of theLCFF, interim spending requirements would apply.Specifically, in 2013-14 and until target fundinglevels have been achieved, districts would have todemonstrate they spent at least as much on servicesfor EL/LI students as they did in 2012-13.Provides Supplemental Funding for K-3Students. Currently, the state funds a categoricalHow the Proposed Concentration Funding Supplement Would WorkIllustration Based on an Elementary District of Ten StudentsFigure 5Base K-3 GrantEL/LI SupplementConcentration Supplement$6,342 $6,342 $6,342Totals, Per Pupil $8,562 $8,562 $8,562 $8,562 $8,562 $10,782 $10,782 $6,342 $6,342 $6,342= EL/LI Student = Non-EL/LI StudentEL = English learner and LI = lower income.$6,342 $6,342 $6,342 $6,342 $6,342 $6,342 $6,3422,220 2,220 2,220 2,220 2,220 2,220 2,2202,220 2,220
  • 12. 2013-14 Budget12 Legislative Analyst’s Office www.lao.ca.govprogram designed to provide additional fundingto districts if they offer smaller class sizes in gradesK-3. The proposed LCFF would continue thispractice. Specifically, the formula would providean additional 11.2 percent of the K-3 base grantfor students in these grades ($710 per ADA basedon the target K-3 rate). The Governor intendsthat districts use these funds to maintain classesof 24 or fewer students in these grades. Once alldistricts have reached their LCFF funding targets,a district only would receive these funds if itmaintains K-3 class sizes of 24 or less—unless thedistrict and local teachers’ union agreed throughcollective bargaining to larger class sizes. (In theyears before the formula is fully implemented,districts would have to “make progress” towardK-3 class sizes of 24, unless collectively bargainedotherwise.)Provides Supplemental Funding for HighSchool Students. The Governor also proposesto provide districts with supplemental fundingfor high school students—in addition to thehigher 9-12 per-pupil base rate. This supplementis intended to replace the categorical programfunding high schools currently receive for careertechnical education (CTE) services. (RegionalOccupational Centers and Programs, or ROCPs, isthe largest of the existing CTE programs proposedfor consolidation under the Governor’s approach.)Specifically, the supplement would provide districtswith an additional 2.8 percent of the high schoolbase grant (or about $215 per ADA based on thetarget 9-12 rate). The proposal intends this fundingbe used to provide CTE, but districts would havediscretion to spend the funds for any purpose.Additional Funding ProvisionsMaintains Two Large Existing Grants asAdd-Ons to New Formula. The Governor proposesto maintain existing funding allocations for twoof the largest categorical programs—TargetedInstructional Improvement Block Grant (TIIG)($855 million) and Home-to-School (HTS)Transportation ($491 million)—separate from thenew LCFF. Unlike the other categorical programsthe Governor explicitly excludes from the newformula, however, spending requirements for thesetwo programs would be permanently repealed.Additionally, existing district allocations would bepermanently “locked in,” regardless of subsequentchanges in student population.Modifies Basic Aid Calculation. The Governorproposes to change how local property tax (LPT)revenue factors into K-12 funding allocations, whichcould change whether districts fall into basic aidstatus. (See the nearby box to learn about basic aiddistricts and how they are treated under currentlaw.) Currently, a district’s LPT allotment servesas an offsetting revenue only for determining howmuch state aid it will receive for revenue limits,not for categorical aid. The Governor proposes tocount LPT revenues as an offsetting fund sourcefor the whole LCFF allocation—base grant andsupplements. The proposal, however, has onenotable exemption. All districts (including basic aiddistricts) would be given the same level of per-pupilstate categorical aid they received in 2012-13 intoperpetuity. Thus, in the future a basic aid districtwith LPT revenue that exceeded its total LCFF grantwould maintain this additional LPT revenue andalso receive its 2012-13 per-pupil state allocation.Continues Alternative Funding Approach forNecessarily Small Schools (NSS), but TightensEligibility Criteria. Under current law, schools thatare located specified distances from a comparableschool in the same district and whose ADA fallsbelow certain thresholds are defined as NSS.Because of their small size, an ADA-based fundingformula would not generate sufficient revenue forNSS to operate. As such, NSS currently receive ageneral purpose block grant instead of—and inan amount exceeding—per-pupil revenue limits.
  • 13. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 13The Governor proposes to maintain this practice,providing NSS with a block grant in lieu of anADA-based LCFF grant. The Governor’s proposalchanges the definition for NSS, however, suchthat only geographically isolated schools wouldbe eligible for the additional funds. This wouldeliminate an existing statutory clause that allows aschool to claim NSS status (and additional funding)even if it is located near a similar public school,provided it is the only school in the district. Manyschools currently receive NSS funding by virtue ofbeing a school district consisting of a single school,not because they are geographically isolated.Permanently Repeals Facility MaintenanceSpending Requirements. Spending requirementsrelated to facility maintenance are among the manyexisting activities slotted for elimination underthe Governor’s proposed approach. Prior to 2009,school districts receiving state general obligationbond funding for facilities were required to deposit3 percent of their General Fund expenditures in aroutine maintenance account. In addition, districtsreceived one-to-one matching funds for deferredmaintenance through a discrete categoricalprogram. Under the temporary categoricalflexibility provisions adopted in 2009, the routinemaintenance requirement decreased from3 percent to 1 percent. These flexibility provisionsalso allowed school districts to use deferredmaintenance categorical funds for any purposeand suspended the local match requirement. TheGovernor’s proposal would permanently removeall state spending requirements as well as dedicatedfunding for both routine maintenance and deferredmaintenance. How much LCFF funding to dedicatefor facility needs would be left to individualdistricts’ discretion.Reestablishes Minimum School Year of180 Days in 2015-16. In addition to suspendingfacility maintenance requirements, in recent yearsthe state temporarily allowed districts to reducetheir school year by up to five instructional dayswithout incurring fiscal penalties—dropping therequirement from 180 to 175 days. These provisionscurrently are scheduled to expire in 2015-16. TheGovernor’s proposal would maintain this plan andreestablish the 180 day requirement after two moreyears.“Basic Aid” School DistrictsIn most school districts, revenue limit funding is supported by a combination of both localproperty tax (LPT) revenue and state aid. For some districts, however, the amount of LPT revenuereceived is high enough to exceed their calculated revenue limit entitlements. These districts arereferred to as basic aid or “excess tax” districts. (The term basic aid comes from the requirementthat all students receive a minimum level of state aid, defined in the State Constitution as $120 perpupil, regardless of how much LPT revenue their district receives.) Generally, basic aid districtsare found in communities that have (1) historically directed a higher proportion of property taxesto school districts, (2) relatively higher property values, and/or (3) comparatively fewer school-agechildren. In 2011-12, 126 of the state’s 961 school districts were basic aid. These districts retained theLPT revenue in excess of their revenue limits and could use it for any purpose. The amount of excesstax revenue each basic aid district received in 2011-12 varied substantially, but was typically about$3,000 per pupil. Under current law, basic aid districts do not receive any state aid for their revenuelimits, but they do receive state categorical aid similar to other school districts.
  • 14. 2013-14 Budget14 Legislative Analyst’s Office www.lao.ca.govAccountabilityReplaces Most State Spending RestrictionsWith Annual District Plans. As opposed to specificprogrammatic requirements, the Governor’sproposal would require districts to document howthey plan to educate their students. Specifically,concurrent with developing and adopting theirannual budgets, districts would annually developand adopt a “Local Control and AccountabilityPlan.” Figure 6 displays the required componentsof this plan. The Governor would require the StateBoard of Education to adopt a specific template forthese district plans that also incorporates existingfederal plan requirements. District accountabilityplans would be approved by local school boards,made publicly available for community members,and submitted to COEs for review.Requires That COE Budget Approval ProcessIncorporate Review of District AccountabilityPlans. The COEs would be required to reviewdistrict plans in tandem with their annual reviewand approval of district budgets. While the COEwould not have the power to approve or disapprovea district’s accountability plan, approval of thedistrict’s budget now would be additionallycontingent on the COE confirming that (1) the plancontains the required components listed in Figure 6and (2) the budget contains sufficient expendituresto implement the strategies articulated in the plan.TransitionMost Districts Currently Funded BelowLCFF arget Levels. The administration estimatesthe cost of fully implementing the new system toFigure 6Required Components of Proposed Local Control and Accountability PlansGoals and Strategies for:99Implementing the Common Core State Standards.99Improving student achievement, graduation rates, and school performance.99Providing services for EL students, LI students, and children in foster care.99Increasing student participation in college preparation, advanced placement, and CTE courses.99Employing qualified teachers, providing sufficient instructional materials, and maintaining facilities.99Providing opportunities for parent involvement.Analysis of:99Student achievement.99Progress made in implementing goals since the prior year.Cost Projections for:99Implementing the plan.99Meeting the needs of EL, LI, and foster students (projected costs must equal amount of supplementalfunds received for those groups). EL = English learner; LI = lower income; and CTE = career technical education.
  • 15. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 15be roughly $15.5 billion, plus additional fundingfor annual COLAs moving forward. As the statedoes not yet have sufficient available funds to meetthis need, the proposal would gradually increasedistricts’ funding until they reached their targetlevels. Each district’s “current base” would becalculated according to the amount it received in2012-13 from revenue limits and the categoricalprograms included in the LCFF. Based on theadministration’s estimates, this calculation yieldsan amount lower than LCFF target levels for about90 percent of districts. Most districts, therefore,would receive per-pupil funding increases in2013-14 and future years. In contrast, districts withcurrent funding bases that meet or exceed theirnew LCFF targets (plus COLA) would not receiveadditional funds in 2013-14, but they would be heldharmless against per-pupil funding losses.Phases-In New Formula as New FundingBecomes Available. The proposed 2013-14 budgetprovides $1.6 billion—or about 10 percent of thetotal implementation cost—to begin the processof implementing the new formula. Consequently,in 2013-14 most districts would receive fundingincreases such that they move about 10 percentcloser to their new funding targets. Districts whoseexisting funding levels are close to their targetlevels would receive less new funding per pupilthan those that currently are farther away fromtheir targets, but the same proportional share ofeach district’s individual funding “gap” would bereduced. The Governor plans that over the nextseveral years, roughly half of the annual growthin K-12 Proposition 98 funds would be allocatedto implement the new funding system (with theother half used to pay down deferrals). Underthis approach (and based on the administration’srevenue estimates), the Governor estimates the newfunding formula could be fully implemented—witheach district funded at the COLA-adjusted targetlevels plus supplemental grants—by 2019-20.LAO AssessmentWe believe the Governor’s proposed LCFFrepresents a positive step in addressing the manyproblems inherent in the state’s existing K-12funding approach. As such, we believe manycomponents of the proposal merit serious legislativeconsideration. We are concerned, however, thatsome elements of the Governor’s approach eithermiss opportunities to address existing issues orcould create new problems. Below, we discuss ourassessment of the strengths and weaknesses of theGovernor’s proposed funding formula for schooldistricts and charter schools. Figure 7 (see nextpage) summarizes our assessment.Governor’s Proposal Has Many StrengthsIs Simple and Transparent. Currently, thestate’s categorical programs, as well as the broadereducation funding system, are based on overlycomplex and complicated formulas. Very fewpolicy makers, taxpayers, school board members,or parents understand or can explain why aparticular district receives a particular level offunding. In contrast, the Governor’s proposedLCFF would distribute the vast majority of K-12funds at uniform per-pupil rates with a few easilyunderstandable, consistently applied adjustmentfactors. The transparency of such a simple systemcould in turn help engender greater publicunderstanding, involvement, and confidence inlocal school budgets and decisions.Funds Similar Students Similarly. Becausetoday’s K-12 funding system largely is based onoutdated data and historical formulas, fundingacross districts varies in illogical ways. For example,similar students attending similar schools may befunded at different rates simply because they attend(1) a charter school rather than a district school,(2) a single-school district rather than a multi-schooldistrict, or (3) a district that applied to participate
  • 16. 2013-14 Budget16 Legislative Analyst’s Office www.lao.ca.govin a particular categorical program decades earlier.Under the Governor’s proposal, funding rateswould be based on current data and consistentcriteria. This approach would address longstandingand arbitrary funding distinctions across districts(including single-school districts currently claimingNSS funding located close to other districts) andbetween districts and charter schools. Subsequentfunding differences would be due to differencesin student populations, such that similar studentsattending similar schools would receive similar levelsof funding.Sets Reasonable Target Base Rates. TheGovernor’s approach to developing target base ratesgenerally is reasonable. The proposed rates wouldrestore reductions made over recent years, includingforegone COLAs, and subsequently would increasefunding levels for the vast majority of districts. TheFigure 7Strengths and Weaknesses of Governor’s ApproachStrengths99Is simple and transparent.99Funds similar students similarly.99Sets reasonable target base rates.99Links funding to students’ needs.99Sets reasonable supplemental EL/LI rate.99Sets reasonable expectations for EL students.99Provides more flexibility in addressing local priorities.99Refocuses state and local responsibilities.99Increases funding for vast majority of districts while progressing towards uniform target rates.Weaknesses99Perpetuates irrational funding differences by preserving two add-on programs.99Does not ensure supplemental funding translates to supplemental services for EL/LI students.99Does not target concentration funding to those districts with highest concentrations of EL/LI students.99Supplement calculation could more accurately reflect student need.99Adds unnecessary complexity by including separate K-3 and high school supplement.99Maintains historical advantages for basic aid districts.99Does not adequately protect investments in facilities. EL = English learner and LI = lower income.
  • 17. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 17Legislature could use other methods to set the targetbase rates, however, which also would be reasonable.(See nearby box for a description of one alternativeapproach.) Regardless of the specific approach, webelieve the policy of setting target rates that exceedexisting levels but are attainable within a few years isreasonable.Links Funding to Students’ Needs. While theadministration’s specific grade span differentialrates and 35 percent supplemental funding rate forEL/LI students might not exactly reflect associatedcosts, we believe the underlying policy of providingadditional funds based on student needs makessense. Providing increasing levels of fundingfor different grade spans recognizes the highercosts of providing an education to older students.Specifically, instructional minute requirements andfacility and equipment needs tend to increase asstudents progress through the grades. (High schoolcosts are particularly high because they must offercollege and career readiness training, which tendsto require more specialized classes, facilities, andmaterials.) Similarly, providing supplementalfunds for EL and LI students recognizes that tobe successful, these students frequently requireservices above and beyond the education programthe district provides to all students. (Thesesupplementary support services often includetutoring, counseling, health services, smaller classsizes, and specialized educational materials.)Sets Reasonable Supplemental EL/LI Rate.In an attempt to assess the appropriateness ofAn Alternative Approach to Establishing Local Control Funding Formula Target Base RatesThe Governor proposes to set target base funding rates based on the statewide averageundeficited revenue limit rate. This generates a statewide average target rate of about $6,800, whichthe Governor then converts into four unique grade span rates. An alternative approach would be toset the target rate based on the amount the state currently provides for general education servicesplus funding to address base reductions made in recent years. The average rate derived by thisalternative approach totals about $6,200, or approximately $600 lower than the Governor’s proposedrate. Under this approach the state would develop target rates by adding:• Existing average revenue limit levels ($5,250).• An amount equal to the average base revenue limit reductions made in recent years ($630).• Average per-pupil categorical funding that districts currently receive to serve the generalstudent population ($320). This estimate includes average funding rates for programsintended to benefit all students, such as the Professional Development Block Grant, theInstructional Materials Block Grant, and the Arts and Music Block Grant.We suggest this approach as an option because it approximates what the state is providing ingeneral purpose funding today plus funding to address recent base reductions in general purposefunding. We exclude from these estimates the funding associated with existing programs intendedto serve specific student groups, given that the Governor’s proposed supplements would be designedto take the place of most of those programs. This approach also excludes funding associated withforegone cost-of-living adjustments (COLAs), as no other state program is receiving foregone COLAs.
  • 18. 2013-14 Budget18 Legislative Analyst’s Office www.lao.ca.govthe Governor’s proposed EL/LI supplement, weconducted a review of “weights” used in other statesand suggested by relevant academic literature.Our research found that the Governor’s proposed35 percent supplement is somewhat high but fallswithin the range of practices used and mentionedelsewhere. (Please see the nearby box for a moredetailed discussion of our findings.) The lack ofagreement across states and the literature, however,indicates there is no “perfect” or “correct” amountof funding for EL/LI students. These findingssuggest the Legislature reasonably could adopt theGovernor’s proposed rate or opt for a somewhatdifferent rate and still meet the important policyobjectives addressed by his proposal.Sets Reasonable Expectations for EL Students.Having a working knowledge of English is crucialif students are to be able to access the schoolcurriculum. By establishing a five-year time limitfor EL students to generate supplemental funds,the Governor appropriately focuses attention onproviding intensive initial services. (Because ofthe spending discretion built into the Governor’sproposal, the new timeline would not precludedistricts from continuing to provide languageservices for those students who continue to needthem after five years.) Moreover, almost two-thirdsof EL students across the state (and many more insome districts) also are LI, so most districts wouldcontinue to receive supplemental funding for mostEL (and former EL) students even after five years.As such, we believe the Governor’s proposal sendsan important message and creates a correspondingfiscal incentive for districts to focus on EL students’language needs in their initial schooling years,while in most cases maintaining supplementalfunds for students who may continue to requireadditional services thereafter.How Much Additional Funding Should the State Provide forEnglish Learners (EL) and Lower Income (LI) Students?Other States’ Supplements Vary Widely. California is not the first state to grapple with howmuch additional funding to provide for meeting the additional needs of EL/LI students. Ourreview of the roughly 60 percent of other states that provide such supplements found that fundingrates vary notably. States also vary in their approaches to providing supplemental funding, withsome taking the “weighted” approach the Governor proposes using in his new formula, and othersproviding block grants similar to California’s existing Economic Impact Aid categorical program.Additionally, most states provide separate supplemental funding streams for EL and LI studentsrather than a combined supplement to serve both populations as proposed by the Governor. Basedon our review, the Governor’s proposed supplemental rate (35 percent of the general educationrate) is higher than the rate provided for either EL or LI students in most other states. A few states,however, provide notably more for EL-specific supplements.Research Findings Also Differ Significantly. Our review of academic research on EL/LI studentsrevealed a similar lack of consensus regarding the “right” level of supplemental funding to provide.For example, one California-specific study suggested an additional 23 percent of “base” educationfunding would be sufficient to support the needs of LI students, but an additional 32 percent would beneeded for EL students. Another study (conducted in a different state) found that LI students requiretwice as much funding as their mainstream peers, and EL students require three times as much.
  • 19. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 19Provides More Flexibility in AddressingLocal Priorities. As a result of the state’s approachto categorical funding, today’s K-12 educationaldelivery system largely is state-directed—districts’activities and programs are prescribed ratherthan developed based on local needs. While thestate has temporarily suspended many spendingrequirements in recent years, most of theseflexibility provisions currently are scheduled toexpire at the end of 2014-15. The Governor’s planwould allow districts to retain and increase localdiscretion over almost all Proposition 98 funds,enabling districts to more easily dedicate resourcesto local priorities. This flexibility would givedistricts the opportunity to pursue innovative andlocally driven activities that may not be feasibleunder current state programmatic requirements.Refocuses State and Local Responsibilities.Given the state now has a rather extensiveaccountability system for monitoring studentoutcomes, the rationale for the state to so closelymonitor educational inputs—or specific districtactivities—has become less compelling. TheGovernor’s proposal to repeal most categoricalspending requirements would help to refocusresponsibilities at both the state and local levels.The state’s primary focus could shift frommonitoring compliance with spending rules tomonitoring student performance and interveningwhen districts show signs of struggling. Districtscould shift their focus from complying withstate requirements to best meeting the needs oftheir students. Moreover, communities couldmore confidently hold local school boards andsuperintendents accountable for district outcomes,since under the new system local entities—notthe state—would largely be in charge of designinginstructional programs.Increases Funding for Vast Majority ofDistricts While Progressing Towards UniformTarget Rates. By simultaneously raising fundinglevels for the vast majority of districts andequalizing rates across districts, the Governor’sapproach concurrently addresses two importantpolicy goals. Over the past few years, all districtshave experienced budget cuts. While addressingexisting disparities across districts is important,so too is ensuring that all districts are able toaddress the programmatic effects of recent budgetreductions, such as larger class sizes and shorterschool years. The Governor’s proposal recognizesthese needs and would increase funds acrossthe majority of districts. At the same time, theproposed approach would provide districts that arefurther away from their targets with comparablygreater annual funding increases. This approach issimilar to how the state has equalized disparities indistrict revenue limit rates in prior years.Some Components of Proposal Raise ConcernsPerpetuates Irrational Funding Differencesby Preserving Two Add-On Programs. Toimprove a funding system he describes as “deeplyinequitable,” the Governor consolidates themajority of existing categorical programs into hisnew formula. Excluding two of the largest andmost outdated among them, however, perpetuatesfunding disparities across districts. Both the TIIGand HTS Transportation programs have outdatedformulas that allocate funds disproportionatelyacross districts for no justifiable reason. Forexample, HTS Transportation allocations arebased more on historical costs than existingtransportation needs, and nearly 60 percent offunding from the $855 million TIIG program isallocated to just one school district. Furthermore,removing the spending requirements andlocking-in existing allocations negates anyargument that the programs are being maintainedbecause they currently serve an importantfunction.
  • 20. 2013-14 Budget20 Legislative Analyst’s Office www.lao.ca.govDoes Not Ensure Supplemental FundingTranslates to Supplemental Services for EL/LIStudents. We are concerned that the Governor’sproposed approach to ensuring districts serveEL/LI students—requiring them to document howthey plan to spend funding for these students—does not provide sufficient assurance that EL/LIstudents would receive services in addition to thosethat all students receive. While COE budget reviewspresumably would confirm that supplemental fundswould somehow benefit EL/LI students, the COEwould not be empowered to intervene if the fundswere not being used effectively or in a targeted way.Under the proposal, for example, a district couldchoose to spend the supplemental funds to providean across-the-board salary increase for teachers,justifying this approach by stating that offeringhigher salaries would provide EL/LI students(and all other students in the district) with higherquality teachers. This type of approach, however,“spreads” the benefit of the supplemental fundsand does not result in additional services for thestudents with additional needs who generated theadditional funding.Does Not Target Concentration Funding toThose Districts With Highest Concentrationsof EL/LI Students. The Governor’s proposalrecognizes that as a district’s concentration ofEL/LI students increases, the need for, intensity of,and costs associated with supplemental servicesalso tend to go up. We believe the Governor’sthreshold for providing the concentrationsupplement, however, is too low to focus additionalfunds on those districts that face disproportionatelygreater challenges. Currently, half of all districts inthe state have EL/LI student populations making upat least 50 percent of their enrollment. Thus, underthe Governor’s proposal, half of all districts wouldreceive supplemental concentration funding. Bysetting this relatively low threshold, the Governordoes not prioritize funding for districts facingextraordinary levels of additional need over thosefacing what are essentially average levels of need(which the base grant itself presumably is intendedto address).Supplement Calculation Could MoreAccurately Reflect Student Need. The Governor’sapproach to calculating individual districts’ EL/LIstudent supplement misses an opportunity tomore closely align funding with student need. TheGovernor’s proposal uses districtwide averagesof EL/LI students to calculate supplements acrossgrade spans, rather than using the counts ofhow many EL/LI students actually are enrolledin each grade level. Grade-specific informationon EL/LI students is available and would allow amore accurate calculation of supplements acrossgrade spans. Moreover, the Governor’s proposedapproach may overestimate costs and provideexcessive funding in some districts. For example,in many unified districts, applying the districtaverage across all grades likely would overstate theactual proportion of EL/LI students in high schooland understate the actual proportion in elementaryschool, since EL students tend to be moreconcentrated in the lower grades. Consequently,this likely would result in many unified districtsreceiving a larger supplement than actual studentcounts would generate, because a larger portionof their supplements would be calculated from thehigher high school base grant rate.Adds Unnecessary Complexity by IncludingSeparate K-3 and High School Supplements. TheGovernor’s plan provides grade-span adjustedbase funding rates to address differing costs acrossgrades. Applying K-3 and high school supplementsin addition to the unique base grants thereforeadds complexity to what is an otherwise relativelystraightforward formula. Additionally, becausethe Governor’s proposal does not provide anyassurance that the additional funds would be usedfor their intended purposes, the programmatic
  • 21. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 21rationale for maintaining the two supplements isnot particularly compelling. In the case of K-3,given that districts and local bargaining unitswould be able to jointly determine any classsize—even exceeding 24 students—and still receivethe proposed K-3 funding supplement, offeringthis funding outside the K-3 base rate would notnecessarily lead to smaller class sizes. In the caseof high school, the supplement would not containany spending requirements to ensure that the fundswould be used to provide CTE services.Maintains Historical Advantages for BasicAid Districts. Despite an implied intention toremove the historical funding advantages currentlybenefiting basic aid districts, the “hold harmless”clause included in the Governor’s proposal wouldpreserve a historical artifact in a new system thatis intended to reflect updated data. Guaranteeingthat all districts would forever receive the sameamount of per-pupil state aid as they did in 2012-13would continue to augment basic aid districts’per-pupil funding at a level that exceeds that ofother districts.Does Not Adequately Protect Investments inFacilities. The Governor’s proposal would leave thedecision of how much (or how little) to spend onmaintaining their facilities up to districts. We areconcerned that repealing spending requirementsfor maintenance would jeopardize the largelocal and state investments in school facilitiesmade over the past decade. Data on how districtshave responded to recent categorical flexibilityprovisions suggest that competing spendingpriorities at the local level can lead districts tounderinvest in maintaining their facilities. Suchpractice could result in unsafe conditions, a pushto pass new state bonds, and/or additional lawsuitsagainst the state. (The 2001 Williams v. Californiaclass-action lawsuit was related to improperconditions at school facilities.)RecommendationsWe think the Governor offers a helpfulframework for restructuring the funding system,and therefore recommend the Legislature adoptmost components of his proposal. We believe,however, that the proposed approach would beimproved by some notable modifications. Figure 8(see next page) summarizes our recommendedchanges to the Governor’s proposed LCFF,described in more detail below.Include TIIG and HTS TransportationFunding in New Formula. To maintain consistentfunding policies across districts, we recommendthe Legislature include both the TIIG and HTSTransportation programs in the proposedcategorical consolidation and new funding formula.This would treat these two categorical programscomparably to the vast majority of other existingcategorical programs. Excluding these programswould permanently maintain significant fundingdifferences across districts without a rational basisfor doing so.Require That EL/LI Supplemental FundsBe Used to Provide Supplemental Servicesfor EL/LI Students. To help ensure that EL/LIstudents receive additional services—beyond thosethat all students receive—we recommend theLegislature place somewhat stronger restrictionson how districts may use the supplemental andconcentration funds generated by EL/LI students.Specifically, we recommend adopting broad-basedrequirements—similar to those of EIA or thefederal Title I and Title III programs—that requirethe supplemental funds be used for the targetstudent groups to supplement and not supplant thebasic educational services that all students receive.(Title I provisions allow schools with sufficientlyhigh proportions of EL/LI students to use the fundsto enhance services for all students. The Legislaturecould consider developing similar “schoolwide”provisions for the new state supplement.)
  • 22. 2013-14 Budget22 Legislative Analyst’s Office www.lao.ca.govTarget Concentration Funding to DistrictsWith Highest Concentrations of EL/LI Students.To better align funding with the greatest need, werecommend the Legislature raise the thresholdat which districts qualify for supplementalconcentration funding. For example, the additionalsupplement could be limited for districts inwhich 70 percent of the student population isEL/LI, rather than 50 percent. We estimate thatraising the eligibility threshold in this way wouldnarrow the beneficiaries of the concentrationsupplement to one-quarter of all districts, asopposed to half of all districts under the Governor’sproposal. The Legislature could thereby target thesupplemental funds for those districts facing thegreatest challenges. Limiting the concentrationsupplement in this way would free up funds thatcould be used for other elements of the formula(such as increasing all districts’ funding levels tomore quickly attain the target rates). Alternatively,the Legislature could consider providing tieredconcentration funding rates, such that the districtswith the highest concentrations of EL/LI studentsget the greatest amount of additional resources.For example, districts with 75 percent EL/LIstudents might get 20 percent more funding fortheir additional students, whereas districts with90 percent EL/LI students might get 35 percentmore funding.Calculate EL/LI Student Supplement Basedon Actual Grade-Level Data, Not DistrictwideAverages. To improve the accuracy of the newfunding formula, we recommend the EL/LI studentsupplement be calculated based on the actual ratesof EL/LI students by grade. This approach—incontrast to the Governor’s proposal to applydistrictwide average rates of EL/LI students acrossall grade spans—would fund districts in a waythat more closely reflects actual student need andassociated costs.Reject K-3 and High School Supplements.To avoid adding unnecessary complexity, werecommend against including the proposed K-3and high school funding supplements in the newfunding formula. Should the Legislature wish tofacilitate districts’ abilities to offer lower K-3 classsizes or high school CTE courses, we recommendit simply increase the applicable base rates aboveFigure 8Recommended Modifications to Governor’s School District LCFF Proposal99Include TIIG and HTS Transportation funding in new formula.99Require that EL/LI supplemental funds be used to provide supplemental services for EL/LI students.99Target concentration funding to districts with highest concentrations of EL/LI students.99Calculate EL/LI student supplement based on actual grade-level data, not districtwide averages.99Reject K-3 and high school supplements.99Minimize historical advantages for basic aid districts.99Maintain basic requirements for facility maintenance. LCFF = Local Control Funding Formula; TIIG = Targeted Instructional Improvement Block Grant; HTS = Home-to-School; EL = English learner;and LI = lower income.
  • 23. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 23the levels proposed by the Governor. (This wouldhave the effect of increasing funding for EL/LIstudents as well, since the 35 percent supplementwould be calculated off of higher base rates.)As the Legislature considers whether to adjustthe proposed base rates, we would note that theGovernor’s proposed 9-12 base rate already is nearly16 percent (or about $1,000) above the 7-8 rate. Thisamount may already be sufficient to provide a fullhigh school program, including CTE services.Minimize Historical Advantages for BasicAid Districts. To prioritize limited state funds forthose districts that do not benefit from excess LPTrevenue, we recommend rejecting the Governor’sproposal to guarantee districts the same level ofstate aid they received in 2012-13. We do, however,recommend adopting the Governor’s proposal tocount LPT revenue towards a district’s entire LCFFgrant, including both the base and supplementalgrants. Under our modified approach, basicaid districts whose LPT revenues exceed theircalculated LCFF levels would not receive anystate aid beyond the minimum constitutionalobligation of $120 per pupil. This would end thecurrent practice of providing basic aid districtswith state categorical aid in addition to their excessLPT revenue—often resulting in notably higherper-pupil funding rates compared to other districts.Maintain Basic Requirements for FacilityMaintenance. To ensure that districts continueto protect state and local investments andmaintain safe school facilities, we recommend theLegislature require districts to dedicate a portionof their General Fund expenditures—between3 percent and 4 percent—to facility maintenance.This approach would establish requirements notincluded in the Governor’s approach, but would bemore streamlined than previous practice (whichincluded two distinct spending requirements, onefor routine and one for deferred maintenance).County Offices of EducationThis section describes and assesses the changesthe Governor proposes for COEs.BackgroundBelow, we provide background on the fourmajor functions of COEs. These functionsencompass a range of activities and are funded by avariety of sources.General OverviewCalifornia’s 58 COEs Serve School Districtsand Students. The State Constitution establishesthe County Superintendent of Schools positionin each of the state’s 58 counties. Most countysuperintendents are elected, but five are appointedlocally. All county superintendents have establishedCOEs to fulfill their duties. Initially, these dutiesconsisted of broadly defined responsibilities, suchas to “superintend the schools” of the county and to“enforce the course of study” at those schools. Overtime, however, the state has tasked COEs with somemore specific responsibilities and funded them toprovide numerous regional services.COEs Have Multiple Responsibilities. TheCOEs conduct a variety of activities, some ofwhich serve school district staff and some ofwhich serve students directly. In 2012-13, COEsreceived roughly $1 billion in state funds andLPT revenue to support these activities. Figure 9(see next page) provides an overview of currentCOE responsibilities and their associatedfunding. These activities generally fall into fourmajor areas: (1) regional services, (2) alternativeeducation, (3) additional student instruction and
  • 24. 2013-14 Budget24 Legislative Analyst’s Office www.lao.ca.govsupport, and (4) academic intervention. Giventhe notable diversity of district and studentcharacteristics across counties, the extent ofthese activities varies widely by COE. Below, wedescribe each of these responsibilities in greaterdetail.Regional ServicesAll COEs Provide Some AdministrativeServices for School Districts. The COEs provide avariety of administrative and business services fordistricts in their counties. Some of these activitiesare required by state law, such as verifying theFigure 9County Offices of Education (COEs) Have Several ResponsibilitiesApproximate Funding Levels in 2012‑13Regional Services ($380 Million)99Administrative Services for School Districts ($300 Million). Administrative and business servicesprovided to school districts within the county.99Additional Services for Small Districts ($10 Million). Additional administrative services for smallschool districts within the county.99Programmatic Services for Districts ($60 Million). Certain types of support provided for schooldistricts within the county, such as professional development, services for beginning teachers, andtechnology support.99District Oversight ($10 Million). Oversight of district budgets and monitoring district compliance withtwo education lawsuits.Alternative Education ($300 Million)99Juvenile Court Schools ($100 Million). Instruction and support for incarcerated youth.99County Community and County Community Day Schools ($160 Million). Instruction and support forstudents who cannot or opt not to attend district-run schools, including those who have been expelled orreferred by a probation officer or truancy board.99Categorical Funding for Alternative Education ($40 Million). Additional funding for services in COEalternative settings. Examples of specific funding grants include the Instructional Materials Block Grant,Economic Impact Aid, and the Arts and Music Block Grant.Additional Student Instruction and Support (Funding Varies)99Regional Occupational Centers and Programs ($150 Million). Career technical education andtraining for high school students.99Other Student Services (Funding Varies). Includes instruction and services for specific studentpopulations, including foster youth, pregnant and parenting students, adults in correctional facilities,migrant students, and young children needing child care and preschool.Academic Intervention (Funding Varies)99Support and Intervention (Funding Varies). Various services for schools and districts identified asneeding intervention under the state or federal accountability systems. Specific initiatives include theState System of School Support, District Assistance and Intervention Teams, and Title III assistance.
  • 25. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 25qualifications of teachers hired by school districts.Additionally, many COEs have opted to provideother administrative services based on localcircumstances and district needs. For example,most COEs operate countywide payroll systemsand provide human resources support for theirdistricts. Generally, these activities are fundedby a base revenue limit grant of general purposefunds, although some districts also purchasesome services from COEs on a fee-for-servicebasis. The base grant provides each COE with aper-pupil funding rate based on countywide ADA.These per-pupil rates range from $24 to $465 perADA and are determined primarily by historicalfactors. The base grant also supports general COEoperational costs.Many Small Districts Require AdditionalServices. The COEs tend to provide greater levels ofadministrative support for smaller school districts.Smaller districts often lack economies of scaleand tend to rely on their COEs to provide suchservices as school nurses, guidance counselors,and librarians, instead of hiring these personnelon their own. In addition to the base grant, COEslocated in counties containing smaller schooldistricts receive supplemental general purposefunding. For the purposes of this funding, a smallschool district is defined as one serving 1,500 orfewer ADA. (Lower ADA thresholds apply forelementary and high school districts.) The COEsreceive between $52 and $143 per ADA in thesedistricts, with the specific rates differing acrosscounties. Like the base revenue limit grants, theseper-pupil funding rates are determined largely byhistorical factors.Most COEs Provide Programmatic Servicesfor Their Districts. The COEs also perform avariety of other tasks to meet the needs of schooldistricts within their counties. Examples includeproviding professional development, supportfor beginning teachers, technology services,and technical assistance for various district-runcategorical programs. Many of these activities arefunded through state categorical grants, the largestof which are the Beginning Teacher Support andAssessment (BTSA) program and the CaliforniaTechnology Assistance Program (CTAP). Theamount of funding each COE receives to provideprogrammatic support varies based on historicalparticipation in individual programs. Additionally,districts sometimes purchase these types of servicesfrom COEs. For example, some COEs chargefees when a district’s teachers attend professionaldevelopment sessions.All COEs Tasked With Overseeing SomeDistrict Activities. The state has established threespecific district oversight roles for all COEs—funded through three discrete categorical grants—relating to monitoring districts’ fiscal status andcompliance with two lawsuits. Legislation adoptedin 1991 requires all COEs to review and approvethe annual budgets of school districts within theircounty. The legislation further requires COEs tomonitor districts during the year and interveneif their financial situations begin to deteriorate.(These responsibilities sometimes are referred toas “AB 1200” requirements after the establishinglegislation.) Additionally, the state requires COEsto monitor school districts’ activities associatedwith two lawsuits (Williams v. Californiaand Valenzuela v. O’Connell). The Williamsrequirements relate to maintaining adequateschool facilities, sufficient instructionalmaterials, and qualified teachers. The Valenzuelarequirements relate to providing supplementalservices for high school seniors who fail to pass thehigh school exit examination.Alternative EducationThe COEs Run Alternative Schools for CertainStudents. Besides providing support services fordistricts, one of the primary functions of COEs
  • 26. 2013-14 Budget26 Legislative Analyst’s Office www.lao.ca.govis to provide classroom instruction for studentswho cannot (or, in some limited cases, opt not)to attend their local district-run schools. Thesestudents need alternative settings for a variety ofreasons, including chronic truancy, expulsion,or incarceration. Most individual districts arenot equipped to provide such services for the fewstudents in the district who require them.Three Types of COE Alternative Schools.The COEs operate three types of alternativeschools—juvenile court schools, county communityschools, and community day schools (CDS)—forstudents needing alternative education settings.In these schools, the COE employs the teachers,oversees the students’ instructional program, andruns the facility. The basic funding model for theseprograms is similar to school districts—the stateprovides the COEs with a per-pupil revenue limitand various categorical grants for the studentsattending their schools. The revenue limit ratefor most students in COE alternative educationprograms is roughly 40 percent higher than theaverage revenue limit rate in a high school district.(Most, but not all, students in alternative settingsare in high school.) This higher rate is intended tosupport smaller class sizes, individualized studentsupport, and more rigorous security precautions.Below, we describe some of the basic componentsof each type of COE alternative school. Generally,the schools represent a continuum—with courtschools serving the students with the most severechallenges in the most secure settings, and CDSserving students with relatively fewer challenges inless restrictive school settings.• Juvenile Court Schools. These programsserve students under the authority ofthe juvenile justice system. All studentsgenerate a higher revenue limit rate, whichaveraged $8,550 per ADA in 2012-13. Theseschools must offer at least four hours ofdaily instruction.• County Community Schools. Theseprograms serve several types of students.Students who have been mandatorilyexpelled, referred by a probation officer, orare on probation generate funding at thesame rate as court school students ($8,550per ADA). In contrast, students who areexpelled for non-mandatory reasons,referred by a truancy board, or voluntarilyplaced in a community school generatethe revenue limit rate of their home schooldistrict (on average, $6,000 per ADA in ahigh school district). These schools mustoffer at least four hours of daily instruction.• COE CDS. These programs serve studentswho have been expelled for any reason,referred by a probation officer, or referredby a truancy board. Students at theseschools generate $12,750 per ADA—consisting of the base court school rate($8,550 per ADA) plus $4,200 per ADA forproviding a longer school day (six hours).Some school districts also operate CDSfor similar students, but district CDS arefunded at the district’s revenue limit rateplus additional funding for the fifth andsixth hour. (Since 2009, most CDS fundingallocations for the fifth and sixth hour havebeen “frozen” and subject to categoricalflexibility provisions.)Additional Student Instruction and SupportAlternative schools are the largest COEinstructional programs, and students attendingthose programs are the only students for whomCOEs maintain full responsibility for educating.Yet many COEs also operate specialized programsthat provide instructional services to other types ofstudents. All of these activities are funded throughdiscrete state or federal categorical grants.
  • 27. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 27Many COEs Provide ROCP Services forStudents Attending Local Districts. The ROCPsare among the most substantial of COE-runinstructional activities. The ROCPs provide CTEservices to students ages 16 and older. Courseworktypically takes place both in traditional classroomsettings as well as at employer job sites. About halfof total state funding for ROCPs is allocated to38 COEs to provide services mostly for studentswho attend district-run high schools in theregion. (The remaining ROCP funds are providedto individual school districts and consortia ofdistricts.) The ROCP grant is among the programsaffected by recent categorical flexibility provisions.Since 2009, COEs receiving ROCP grants havebeen allowed to use the funds for any purpose.Other Student Services. Many COEs providedirect instruction or support services for specialgroups of students. For example, the state fundsmany COEs to provide educational support forfoster youth, pregnant and parenting students,and adults in correctional facilities. A federalgrant funds many COEs to provide educationalsupport for migrant students, and child careservices are funded through a combination ofstate and federal sources.Academic InterventionThe COEs Support Struggling Schools andDistricts. In recent years, the state has taskedCOEs with providing specialized support andintervention for schools and districts that have beenflagged as low performers in the state and federalaccountability systems. Generally, these initiativesrequire COEs to provide intensive professionaldevelopment, data analysis, curriculum review,monitoring, and other technical assistance toschools and/or districts. Specific initiatives haveincluded the State System of School Support,District Assistance and Intervention Teams, andTitle III accountability intervention. Most ofthe funding to support these activities has beenprovided through federal grants.Governor’s ProposalsThe Governor proposes to change the state’sapproach to funding many COE responsibilities.Specifically, he would collapse many existingfunding streams into a simplified, two-partformula.General OverviewReplaces Much of Existing System WithTwo-Part Funding Formula. The Governorproposes replacing the existing COE fundingmodel with a new two-part funding formula. Asshown in Figure 10 (see next page), the formulaincludes funding to (1) provide regional servicesto districts and (2) educate students in COE-runalternative schools. While the amounts associatedwith these two responsibilities would be calculatedthrough two separate formulas, the funds wouldbe combined into one allocation that COEscould use for either purpose. Consistent with hisoverall approach for districts, the Governor wouldestablish funding targets for each COE and buildtoward those targets over a number of years. EachCOE’s funding target would be the sum of itscalculated allotments under the regional servicesformula and the alternative education formula.The Governor’s 2013-14 budget proposal includes a$28 million augmentation to begin this process forCOEs.Eliminates Some Categorical ProgramRequirements. Similar to his district proposals, theGovernor proposes eliminating many categoricalprogram requirements for COEs. The most notableeliminations for COEs include requirements relatedto ROCPs, BTSA, CTAP, foster youth services,and services for pregnant and parenting students.Districts essentially would assume responsibility forthe functions COEs currently perform with these
  • 28. 2013-14 Budget28 Legislative Analyst’s Office www.lao.ca.govfunds, and districts would have discretion over howmuch—if any—of their LCFF allocations to usefor maintaining similar activities. (The proposeddistrict funding supplements for high school andEL/LI are explicitly designed to help districtsaddress CTE and foster youth needs.) Despite theseshifts in responsibility, the Governor proposesallowing COEs to keep the funding they currentlyreceive for these categorical programs. These fundswould become general purpose and apply towardseach COE’s funding target under the new formula.(One additional COE categorical-funded activity—educating adults in correctional facilities—wouldbe eliminated and likely would not shift to districts,but rather would be left up to COEs to continue—ornot—using COE LCFF funds.)Maintains Some Categorical Programs. Someprogrammatic requirements would continue toapply to COEs. Some of these requirements alsoapply for school districts and were described earlierin this report (such as after school programs, childnutrition, and special education). In addition, theGovernor would maintain existing requirementsfor three grants that are allocated to individualCOEs to perform statewide functions—theK-12 High-Speed Network, California SchoolInformation Services, and the Fiscal Crisis andManagement Assistance Team. The Governor alsowould maintain child care, migrant education,and academic intervention as separately fundedactivities.Regional ServicesCreates New Approach for Funding RegionalServices. The Governor would fund the majorityof COE activities—other than alternativeFigure 10Overview of Governor’s Local Control Funding Formula for COEsFormula Component ProposalRegional ServicesTarget amount per COE • $655,920 for base grant.• Additional $109,320 per school district in the county.• Additional $40 to $70 per ADA in the county (less populous counties would receivehigher per-ADA rates).Required oversight activities • Reviewing school district budgets and accountability plans.• Monitoring district activities related to Williams v. California lawsuit.Alternative EducationEligible student population • Students who are (1) incarcerated, (2) on probation, (3) probation-referred, or(4) mandatorily expelled.Target amount for base grant (per ADA) • $11,045.Supplemental funding for EL, LI, andfoster youth• Additional 35 percent of COE base grant.• Juvenile court schools: assumes 100 percent of students fall into these groups(provides additional 35 percent grant for all students).Supplemental concentration funding • Additional 35 percent of COE base grant for EL/LI students above 50 percent ofenrollment.• Juvenile court schools: assumes 100 percent of students are EL/LI (providesadditional 35 percent grant for half of all students).Annual Plan and Transition • Annual local accountability plan would be submitted to State Superintendent of PublicInstruction.• Transitions to target amounts within a few years. COE = county office of education; ADA = average daily attendance; EL = English learner; and LI = lower income.
  • 29. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 29education—with one allotment for regionalservices. This grant would replace the roughly$380 million in state funding COEs currentlyreceive for (1) administrative services for districts,(2) small district services, (3) programmaticservices for districts, and (4) district oversight.New Regional Services Formula IncludesThree Components. The top part of Figure 10describes the Governor’s proposed approach tocalculating funding for COE regional services.Under the proposed approach, each COE’s targetfunding level would be calculated based on threecomponents. (The administration derived thespecific funding amounts for each componentthrough consultation with county superintendentsfrom across the state.)• Base Grant. Each COE would get$655,920. This amount is intended to coverbasic COE operations.• District-Based Grants. Each COE wouldreceive an additional grant of $109,320 foreach school district within its county. Thisapproach is based on the assumption thatadditional districts generate additionalresponsibilities and costs for COEs.• ADA-Based Grants. Each COE wouldreceive additional funding per countywideADA. The per-pupil rates would be tiered.Specifically, the COEs would receive $70per ADA for the first 30,000 ADA in thecounty; $60 per ADA between 30,000and 60,000; $50 per ADA between 60,000and 140,000; and $40 for any ADA above140,000. This approach is based on theassumption that COEs in more populouscounties face additional responsibilities andcosts, but that economies of scale reducethe magnitude of these cost differentials.Based on the different components, we estimatefunding targets for individual COEs wouldrange from about $775,000 (Alpine County) toabout $73 million (Los Angeles County). At fullimplementation, we estimate statewide regionalservice funding would total approximately$450 million. This includes about $40 million forbase grants, $110 million for district grants, and$300 million for ADA grants. The Governor alsoproposes providing an annual COLA for eachcomponent of the formula, such that each COE’sfunding target would grow over time.Leaves COEs With Broad Discretion Over Howto Use Funds. The proposed regional services grantwould be unrestricted and available for any COEactivity. The COEs still would be required to performa few activities, including AB 1200 and Williamsoversight responsibilities. (The administrationbelieves Valenzuela-related oversight no longer wouldbe required under the proposed LCFF approach.)As described above, however, several existingprogrammatic requirements would be removed. EachCOE would have discretion over whether to (1) use itsregional service funding to continue providing similarservices, (2) support such activities by charging fees toschool district participants, or (3) discontinue some ofits current activities.Requires Additional Oversight of SchoolDistricts. As discussed in the first part of thisreport, the Governor would place a new oversightresponsibility on COEs. Specifically, the proposalwould require each COE to review the localaccountability plans of all school districts withinits county concurrently with its review of districtbudgets. The COE would perform this reviewannually or as often as the district updated its plan.Separately, each COE would be required to validateeach district’s count of its EL/LI students—also anew responsibility compared to current law. TheCOEs would use their regional services funding tosupport these new activities.
  • 30. 2013-14 Budget30 Legislative Analyst’s Office www.lao.ca.govAlternative EducationCreates Alternative Education Formula.Separate from the amount calculated for regionalservices, the Governor would calculate a fundingallotment to support COE alternative schools. Theproposed approach for COE alternative schools isvery similar to that proposed for school districtsin that it (1) replaces the current revenue limit andcategorical approach; (2) includes a base grant foreach student plus supplemental and concentrationfunding for EL and LI students; and (3) removesspending requirements, leaving expendituredecisions largely to COEs’ discretion. The base ratesand funding supplements proposed for alternativeschools differ somewhat from the district proposal,however, as described below.Includes Target Base Funding Rate. Similarto his approach for establishing school districttarget base rates, the Governor would set the COEalternative education target base rate at the currentundeficited COE juvenile court school revenue limitrate, which reflects the rate COEs otherwise wouldhave received were it not for recent base reductionsand foregone COLAs. This rate is designed to behigher than the average district revenue limit rate.The Governor proposes a target base rate of $11,045per ADA for students in COE alternative educationprograms. Moving forward, this target rate wouldbe adjusted for annual COLAs, similar to thedistrict rates. (The COE base funding rate alreadyincorporates a COLA for 2013-14.) In contrastto the district proposal, however, the Governorwould provide a uniform base rate for all COEstudents, rather than a rate based on grade span.The proposed COE formula also excludes the K-3and high school funding supplements that districtswould receive. The new COE rate would apply forall COE alternative settings, and CDS no longerwould be eligible for separate additional funding ifstudents attend for six hours.Includes Supplemental and ConcentrationGrants, Calculated From Higher Base Rate.Similar to his proposal for school districts, theGovernor would provide a supplemental grantequal to 35 percent of base funding for eachCOE alternative education student identified asEL, LI, or foster youth. Also comparable to hisschool district proposal, the Governor wouldprovide an additional concentration grant toCOEs if at least half of all students attending theiralternative schools are EL/LI. Because the EL/LIand concentration supplemental grants would becalculated as 35 percent of the higher COE basegrant of $11,045, however, COEs would receivesignificantly more supplemental funding thanschool districts. (A student attending a COE schoolcould generate up to $7,732 in supplemental andconcentration funding, while an EL/LI studentattending a district-run high school could generateup to $5,376 in additional funding.)Juvenile Court Schools Automatically WouldReceive EL/LI and Concentration Supplementsfor All Students. The Governor’s proposal wouldfund juvenile court schools based on the assumptionthat all their students are EL, LI, or foster youthand therefore generate the additional EL/LI andconcentration funding supplements. (This approachis the equivalent of providing $16,844 for everystudent in a court school.) This contrasts withthe funding approach for school districts, charterschools, county community schools, and countyCDS, where supplemental funds only wouldbe provided based on how many students withthese characteristics had been documented. Theadministration proposes this approach becausejuvenile court schools tend to have high rates ofstudent turnover, so collecting individual studentdemographic data can be difficult.Defines Which Students the State WouldFund COEs to Serve . . . As shown in Figure 11, theGovernor’s proposal explicitly defines four groups of
  • 31. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 31students who would be the responsibility of COEs.Specifically, COEs would be funded at the higherbase rate for students who are (1) incarcerated,(2) on probation, (3) referred by a probation officer,or (4) mandatorily expelled. The COEs no longerwould receive funding directly from the state forother types of alternative students they sometimesnow serve (such as students referred by truancyboards or students expelled for non-mandatoryoffenses). The proposed delineation differs fromcurrent law, under which similar types of studentscan be assigned either to COE-run programs (andfunded at the court school rate) or district-runprograms (and funded at the district rate).. . . But Continues to Allow Districts andCOEs to Negotiate Other Service Arrangements.The Governor would allow districts and COEsto negotiate funding pass-through agreementswhereby a district could contract with a COE for theeducation of alternative students who are not amongthe four identified COE groups. Under such anarrangement, the state still would provide fundingto the district for these students (at the district rate),but the district wouldtransfer this base andsupplemental funding tothe COE. (Current lawalready allows this typeof local pass-througharrangement with revenuelimit funding.)Establishes Four-HourMinimum InstructionalDay for All COEAlternative Settings. TheGovernor would eliminatethe requirement thatCOE-run CDS operatea six-hour instructionalday. Instead, all COEalternative settings wouldbe required to offer a minimum of four hoursof daily instruction. The COEs would have theoption of operating a longer school day, but wouldnot receive additional funding for doing so. (Theadministration indicates it intends to establish afour-hour minimum day for district-run CDS too.)Accountability and TransitionRequires Adoption of Local AccountabilityPlan. Similar to school districts, the Governor’sproposal would require COEs to develop annualLocal Control and Accountability Plans describinghow they would use LCFF funds to serve theschool districts and students within their counties.Related to regional services, the plans would haveto describe which services the COE planned toprovide for districts within the county. Relatedto alternative education, the plans would have tocontain similar elements as described earlier for thedistrict plans (including how supplemental EL/LIand concentration funds would support EL/LIstudents). The COE governing boards annuallywould adopt these plans and make them availableFigure 11Governor’s Proposal Clarifies Which StudentsWould Be Served in Which Alternative ProgramsCurrent Law Governor’s ProposalStudents funded onlythrough COE• Incarcerated• On probation• Incarcerated• On probation• Referred by probation officer• Mandatorily expelledStudents funded onlythrough district• Suspended• Irregular attendance• Volunteers for alternativeplacement• Suspended• Irregular attendance• Volunteers for alternativeplacement• Referred by truancy board• Non-mandatorily expelledStudents funded throughCOE or district• Mandatorily expelled• Non-mandatorily expelled• Referred by probation officer• Referred by truancy boardNoneaa Under the Governor’s proposal, each type of affected student would be assigned directly to either the COE or the district. COE = county office of education.
  • 32. 2013-14 Budget32 Legislative Analyst’s Office www.lao.ca.govfor public review. The State Superintendent ofPublic Instruction (SPI) would play the same rolein reviewing these COE plans as COEs would fordistrict plans. That is, concurrent with a reviewof the COE’s budget, the SPI would verify that itsaccountability plan contained all required elementsand its budget provided sufficient resources toimplement the activities described in the plan.The SPI’s approval of a COE’s budget would becontingent on confirming that the plan and budgetmet these requirements—essentially the samestandard school districts would need to meet whensubmitting their budgets to COEs.Transitions to New Formula as Funds BecomeAvailable. The Governor estimates the cost of fullyimplementing the new two-part COE fundingformula to be roughly $59 million. Similar tohis proposal for school districts, the Governorgradually would increase the funding for eachCOE until the target levels were reached. The2013-14 Governor’s Budget proposes a $28 millionaugmentation to begin this process, or roughly halfof the total implementation cost. Each COE thatcurrently is funded below its target level wouldget a share of the new funding sufficient to closeabout half of its individual funding gap. Similarto districts, COEs with current funding bases thatmeet or exceed their new LCFF targets would notreceive additional funds in 2013-14, but they wouldbe held harmless against funding losses.“Freed Up” Categorical Funds Diminish GapBetween Existing and Target Funding Levels forMany COEs. As with districts, each COE’s currentbase would be calculated according to the amountit received in 2012-13 from revenue limits andstate categorical programs. For COEs, this wouldinclude funds that currently support both servicesfor districts (such as administrative support andregional categorical activities) and services forstudents (such as alternative education and ROCP).The administration estimates that about 25, orfewer than half of COEs, currently receive less thantheir target levels. This is notably lower than theproportion of school districts (about 90 percent)that are below their targets. This is because manyCOEs currently receive a substantial amount ofcategorical funds to provide regional and studentservices—particularly from the ROCP, BTSA, andCTAP programs—that now would be freed up andbecome part of their general purpose funding base.LAO AssessmentFigure 12 summarizes our assessment ofthe Governor’s COE funding proposal. As withhis district proposal, we believe the Governor’sproposed approach to restructuring the way thestate funds COEs has positive elements. We thinkthe general framework of combining multiplefunding streams and focusing on core areas ofresponsibility makes sense. We are concerned,however, that some elements of the Governor’sapproach are not well developed. Principally, we areconcerned that the Governor’s proposed fundingrates for both regional services and alternativeeducation exceed the associated costs. Below,we discuss our assessment of the strengths andweaknesses of the Governor’s proposed fundingformula for COEs.Governor’s Proposal Has Two Key StrengthsSimplifies COE Funding and EliminatesFunding Disparities. The Governor’s proposedCOE funding formula represents a notableimprovement over the existing complicated mix ofmultiple funding streams. The existing formulasapportioning COE funds are poorly understoodand provide divergent funding rates across countiesfor historical—rather than rational—reasons. Incontrast, the Governor’s proposed two-part formulawould be relatively simple and streamlined, be basedon factors that are easy to calculate and understand,and fund all COEs based on the same criteria.
  • 33. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 33Improves Alternative Education System byEstablishing Consistent Policies and FundingRates. The Governor’s proposal addresses someexisting inconsistencies in how the state organizesand funds alternative education. Under currentlaw, similar students can be subject to differentfunding rules. For example, under current law,mandatorily expelled students can be served byeither COEs (in a county community school or aCDS) and funded at the higher COE revenue limitrate of approximately $8,550 per ADA, or by schooldistricts (in a district CDS) and funded at the lowerdistrict rate of approximately $6,000 per ADA.There also are discrepancies within COE programs.For example, a student at a CDS operated by aCOE is eligible for supplemental funding whenattending school for a full six hours, but the sametype of student served in a county communityschool generates no additional funding for anyinstructional time beyond the four hour minimumschool day. The Governor’s proposal eliminatesthese distinctions between similar settingsand similar students and instead (1) clarifieswhich students the state would assign to COEalternative schools and which to district schoolsand (2) establishes consistent rates for all studentsassigned to any COE-run alternative school.Some Components of Proposal Raise ConcernsIncreases Funding Levels for Regional ServicesWhile Reducing Statutory Responsibilities.The Governor proposes to increase funding forCOEs while requiring them to do less. Underthe Governor’s LCFF proposal, individual COEswould be allocated at least as much funding as theycurrently receive from the funding streams beingmerged into the new regional services formula.Specifically, we estimate this component of theLCFF would total roughly $450 million once fullyimplemented, compared to the roughly $380 millionCOEs receive for regional services today. At thesame time, however, the Governor would eliminaterequired programmatic activities (such as BTSAand CTAP) associated with roughly $60 millionof these funds. Combining these freed up fundswith the estimated $70 million overall increase forregional services, the Governor essentially wouldbe increasing general purpose funding for COEsby about $130 million, or almost 35 percent, whileonly adding one new responsibility (reviewing localdistrict accountability plans).Makes Holding COEs Accountable forRegional Services Even More Difficult. TheGovernor’s proposal compounds the existing lack ofFigure 12Strengths and Weaknesses of Governor’s Approach for COEsStrengths99Simplifies COE funding and eliminates funding disparities.99Improves alternative education system by establishing consistent policies and funding rates.Weaknesses99Increases funding levels for regional services while reducing statutory responsibilities.99Makes holding COEs accountable for regional services even more difficult.99Substantially increases alternative education funding without clear justification.COE = county office of education.
  • 34. 2013-14 Budget34 Legislative Analyst’s Office www.lao.ca.govaccountability over how COEs spend their regionalfunding allotments. Under the current system, thestate requires COEs to use a portion of these fundsto conduct a few specific activities, but generally thecosts of performing statutory requirements are muchlower than the amount of funding provided. Thestate largely leaves it up to each COE to define whatto do with these funds. Guaranteeing each COE asizeable regional service funding allotment withouta clear mission or well-defined expectations providesfew fiscal incentives for COEs to provide the mostcost-effective and beneficial services for districts.Moreover, few benchmarks exist by which the publiccan assess whether COEs are fulfilling their missionand providing valuable services. By increasingfunding, doing nothing to clarify COEs’ coremission, and reducing expectations, the Governor’sproposal compounds all these existing problems.Substantially Increases Alternative EducationFunding Without Clear Justification. TheGovernor’s formula would provide substantiallymore funding for alternative schools without a clearrationale for why these higher rates are warranted.Once target rates are achieved, juvenile court schoolswould receive a total of $16,844 per ADA. Becausecounty community schools and county CDS alsotend to serve high concentrations of EL/LI students,they also would receive high per-pupil rates. Incontrast, we estimate the state currently provides anaverage of $10,050 for students in court schools andcounty community schools—$8,550 in base revenuelimit funding and about $1,500 in categoricalfunding (with higher rates applying to CDS).Although some COEs have indicated spendingmore on their alternative programs than the statecurrently provides in funding (by redirecting generalpurpose dollars to alternative schools), this assertionis not substantiated by state accounting data. (Seethe nearby box for a discussion of expenditures.)Even at the higher undeficited revenue limit rate,court school rates would average about $12,500per ADA (including base and categorical funding).The Governor does not provide a clear rationale forproposing a funding rate that so notably exceedsexisting levels. Furthermore, even at these highfunding rates, COEs’ alternative schools would berequired to offer only a four-hour instructional day.RecommendationsAs with his school district proposals, we thinkthe Governor’s COE proposals offer a helpfulfunding framework, but we think they could beimproved with some modifications. In particular,we suggest the Legislature reconsider the targetfunding rates the Governor proposes for the twocore COE responsibilities. Figure 13 summarizes ourState Accounting Data Shows Relatively Low Per-Pupil ExpendituresThe state requires all school districts and county offices of education (COEs) to report theirannual expenditures to the state using uniform accounting codes. In 2010-11 (the most recent yearfor which data are available), COEs reported spending about $9,000 per average daily attendance(ADA) in juvenile court schools and county community schools. In community day schools, whichoffer a longer school day, spending was closer to $14,000 per ADA. Representatives from severalCOEs with whom we spoke indicated that COEs spend considerably more on their alternativeschools than indicated by these data, but that COEs frequently do not accurately identify theseexpenditures within the state’s accounting system. To date, however, COEs have provided no otherconcrete, uniform, statewide expenditure data for the state’s review.
  • 35. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 35three specific recommendations for modifying theGovernor’s proposed COE LCFF, which we discussin more detail below.Define Which Services the State ShouldRequire COEs to Provide. We recommend theLegislature carefully consider what role COEs shouldplay in the state’s education delivery system andexplicitly require them to perform any activities theLegislature deems vitally important. The Governor’sproposal includes relatively few mandatoryresponsibilities for COEs, leaving it up to individualCOEs to define their roles and menus of servicesat the regional level. The Legislature could scaleback COE requirements significantly, consistentwith the Governor’s proposal. Alternatively, theLegislature could require that at least some COEsprovide other high priority services—such asadditional educational oversight responsibilities. Forexample, the state could empower some or all COEsto assess the effectiveness of districts’ instructionalapproaches and intervene or provide technicalassistance when necessary.Align Regional Service Funding Rates WithRegional Services Required. While the Governor’soverall approach of calculating COE regional servicefunding based on the number of districts andstudents in the county generally is reasonable, webelieve the proposed rates are too high. Whether theLegislature adopts the Governor’s proposal to reduceCOE responsibilities orspecifies some additionalCOE responsibilities, werecommend the Legislatureset COE regional servicefunding rates based onthe costs associated withthe specific activitiesCOEs would be requiredto perform under the newsystem. We recommendthat any other servicesbe determined and funded at the district level. Ourapproach likely would result in reductions to existingCOE regional service funding rates, as they currentlyreceive notable amounts of general purpose funds.While there are benefits to letting individualCOEs customize specific services based on localneeds, providing a sizeable and guaranteed statefunding grant to support such activities does notincentivize or hold COEs accountable for providingcost-effective services. Our alternative would allowlocal districts to fund COEs—through local fee-for-service arrangements—for any discretionary localactivities that districts find helpful. A number ofschool districts already have established this typeof relationship with their COE for various services.This arrangement leaves programmatic decisions atthe local level, provides fiscal incentives for COEsto offer cost-effective support, and allows districtsto hold COEs accountable by deciding whether topurchase COE services based on their value.Establish Alternative Education Rate ThatAligns With Differential Cost of ProvidingInstruction. We recommend the Legislature basethe COE alternative education funding rate onthe cost differential COE alternative schools face.Under current law, the per-pupil funding rate formost students attending COE alternative schoolsis roughly 40 percent higher than the average highschool district rate. While the actual cost differentialFigure 13Recommended Modifications toGovernor’s COE LCFF Proposal99Define which services the state should require COEs to provide.99Align regional service funding rates with regional services required.99Establish alternative education rate that aligns with differential cost ofproviding instruction.COE = county office of education and LCFF = Local Control Funding Formula.
  • 36. 2013-14 Budget36 Legislative Analyst’s Office www.lao.ca.govbetween alternative schools and traditional highschools is not entirely clear (given some concernswith the underlying data), alternative schools tendto have higher costs due to smaller class sizes andmore instructional aides. (Court schools and countycommunity schools, however, typically have ashorter school day that offsets some of these highercosts.) Whereas a 40 percent differential might notbe a precise reflection of the actual cost differential,available data appear to suggest that the differentialis no greater than 40 percent. Were the state tomaintain this differential, the total COE alternativeschool per-pupil rate would be $14,515 (40 percentmore than Governor’s proposed high school targetrate of $7,680 plus a 35 percent EL/LI supplement).While this is about $2,000 lower than what theGovernor proposes to provide, it is about $4,500more than what the state currently provides forthese students. Moving forward, if the Legislaturewere to increase the alternative school funding ratethis significantly, it may want to consider whetheralternative schools should be required to run aregular six-hour instructional day.ConclusionIn conclusion, we believe there are a few keyissues for the Legislature to keep in mind as itconsiders how to proceed with the Governor’sLCFF proposal.Current System Is Untenable. How best toimprove upon the existing K-12 funding systemhas been discussed by many groups for manyyears. We believe, however, that the need for actiongrows increasingly urgent. Aside from all of thelongstanding, underlying problems with the state’scategorical programs, changes resulting from thestate’s decision in 2009 to temporarily removespending restrictions from about 40 categoricalprograms have made the current system evenmore irrational. Specifically, data indicate thatmost districts have shifted substantial fundingaway from many “flexed” categorical programs.Additionally, the state has frozen districtallocations for these programs at 2008-09 levels,continuing to distribute the same proportion offunds to each district regardless of changes instudent enrollments during the ensuing years.These two trends have increasingly disconnectedexisting funding allocations from the originalcategorical purposes and student needs for whichthey were originally intended. Moreover, thesechanges make the prospect of reestablishingthe previous programmatic requirements seemincreasingly impractical—yet categorical flexibilityprovisions currently are scheduled to expire at theend of 2014-15.Projected Growth in Proposition 98 FundingCan Facilitate Transition to New System. Notonly does a strong rationale exist for restructuringthe current flawed system, but projected annualgrowth in the Proposition 98 minimum guaranteefor 2013-14 and the ensuing several years provides aunique opportunity to transition to a more rationalsystem without redistributing funding away fromany district. The growth in funding can be used tophase in a new formula, restoring recent reductionsfor the majority of districts and allocating a shareof new funds in a way that more closely aligns withcurrent student needs.Governor’s Restructuring Approach Is JustOne of Several Options. Adopting the Governor’sproposed formula is not the only way to improvethe existing K-12 funding system. The Legislaturecould opt to modify various componentsof the Governor’s proposal—based on our
  • 37. 2013-14 Budget www.lao.ca.gov Legislative Analyst’s Office 37recommendations, or in other ways—or opt for asomewhat different allocation methodology, suchas block grants. A wide variety of restructuringapproaches still would meet the guiding principlesof simplicity, transparency, rationality, andflexibility in K-12 funding.Simplifying a Complex System Will NotBe Simple. Adopting any large-scale change toK-12 funding will necessitate reconsideration ofnumerous requirements associated with previouscategorical programs. For example, requirementsrelated to how teachers achieve “clear” teachingcredentials, which textbooks schools use, and howdistricts assist students who have not passed thehigh school exit exam all are linked to currentcategorical programs. Thus, a myriad of statutoryand regulatory changes likely will need to be madeas a new funding approach is being developed.The fact that it will be an involved and complexendeavor, however, is not in and of itself a reason toavoid changing the fundamentally flawed existingsystem.Funding Reform Is Not a Panacea . . .Regardless of which funding approach theLegislature ultimately adopts, restructuring thestate’s allocation formulas will not be a panaceafor all of the state’s K-12 education challenges.Changing the funding system will not guaranteeimproved student outcomes; providing additionalfunding for EL/LI students will not automaticallylead them to overcome the additional challengesthey face; and increasing flexibility will notnecessarily translate to improved instruction inall schools. These desired outcomes, however,also are not guaranteed—or uniformly takingplace—under the current categorical system. Thereclearly are other K-12 issues outside the scope ofthis report that merit additional action, includinghow to identify and assist struggling schools anddistricts, develop strong local leaders, and refineaccountability systems. Yet the need to addressthese concerns will exist regardless of whether thestate chooses to modify or maintain the existingfunding structure.. . . But Improving the State’s School FundingSystem Is Critical. Restructuring the fundingsystem will be a complex undertaking, and itwill not solve every K-12 challenge. Changingthe funding approach would, however, improveupon some fundamental problems. We believethat neither the complexities associated withimplementing broad-based change nor the needto better develop other areas of the K-12 systemshould preclude the state from making significant,necessary, and immediate improvements to schoolfunding.
  • 38. 2013-14 Budget38 Legislative Analyst’s Office www.lao.ca.gov
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  • 40. 2013-14 BudgetLAO PublicationsThis report was reviewed by Jennifer Kuhn. The Legislative Analyst’s Office (LAO) is a nonpartisan office that providesfiscal 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 95814.40 Legislative Analyst’s Office www.lao.ca.govContact InformationRachel Ehlers Principal Analyst, Education 319-8330 Rachel.Ehlers@lao.ca.govCarolyn Chu School districts and charter schools 319-8326 Carolyn.Chu@lao.ca.govKenneth Kapphahn County offices of education 319-8339 Kenneth.Kapphahn@lao.ca.gov