Requiring Clear Baseline and Transparency Is Key in Crafting Rules for New School Funding Formula

December 19, 2013

Update: The State Board of Education initially planned to post the agenda materials for its January 2014 meeting on December 20, but has delayed that release until January 3, 2014. This blog post has been updated to reflect that change.

Last summer, when the Governor and Legislature approved California’s new education funding formula, the Local Control Funding Formula (LCFF), they deferred to the State Board of Education (SBE) key decisions regarding accountability — specifically, how to ensure that school districts spend LCFF dollars to provide additional services for disadvantaged students. The Legislature set a January 31, 2014 deadline for the SBE to adopt regulations for how schools can spend LCFF dollars. At the core of the debate regarding these regulations is how to strike a critical balance: ensuring that LCFF dollars are spent to support the disadvantaged students for whom they are intended while providing school districts more authority over how to spend those dollars.

On Friday, January 3, the SBE will post the agenda for its next meeting, scheduled for January 15 and 16, 2014, at which the SBE will need to approve regulations in order to meet the legislative deadline. As we blogged about before, the preliminary draft spending regulations released earlier this year provided far too much discretion to school districts — so much so that these regulations likely would have undermined the LCFF’s goal of addressing the inequities in the former school finance system. Other stakeholders also shared this concern. When the SBE reviewed the draft regulations at its meeting in early November, it inspired nearly five hours of public testimony by more than 180 people. Among them was Senator Holly Mitchell, who echoed the sentiments of many others when she expressed alarm that the draft regulations did not live up to the spirit of the LCFF law.

It appears that the public outcry over the preliminary draft spending regulations made a difference. Last week, the consultant advising the SBE — WestEd — released a paper (PDF) outlining key issues they had identified based on public comments made at last month’s SBE meeting. They also released a draft of the Local Control and Accountability Plan (LCAP) template (PDF) that districts will use to demonstrate compliance with SBE spending regulations. As part of this release, WestEd indicated that the revised regulations and the LCAP “will reflect significant changes based on the provided input” from the November SBE meeting.

In light of the shortcomings of the preliminary regulations, this is encouraging. However, stakeholders who want to ensure that LCFF dollars allocated for disadvantaged students are actually used to support these students should focus on whether the regulations adopted by the SBE abide by two important principles: establishing a baseline and ensuring transparency.

  • Establishing a baseline: The first key issue reported in the WestEd paper states that school districts need to spend more money in order to demonstrate they are increasing or improving services for disadvantaged students. A related concern reported by WestEd highlights the need to define “a methodology for calculating” a proportional increase in funding for these students. However, their paper does not indicate that the SBE will establish a baseline to gauge whether school districts have increased spending to support disadvantaged students. If schools are not required to adhere to such a baseline, it will be difficult to determine whether additional LCFF dollars provided for disadvantaged students are actually used to support them. The proposed LCAP template would require school districts to list and describe the spending needed to meet goals identified in their LCAPs. But the SBE should go further and explicitly require school districts to annually show how schools spent base, supplemental, and concentration grants generated by disadvantaged students in a way that can be easily compared to the baseline amount spent to support these students.
  • Ensuring transparency: A key objective of the LCFF is to increase accountability so that local education stakeholders can ensure that student needs drive the allocation of resources. For stakeholders to have the information needed to make this assessment, school district spending and revenue data must be reported in a timely manner and in a format that is easily understood and that can be readily obtained by stakeholders in multiple languages. Moreover, to allow for comparisons among districts, the SBE should require a standard methodology for school district reporting of spending and revenue data. Fortunately, school districts already report expenditures and revenues based on an accounting manual that allows for transparency and comparability. But currently, these data are only reported to the state and in a format that is difficult for the public to access or understand. The SBE should adopt spending regulations that require school districts to post this accounting data online in a timely manner and in a format the public can easily obtain and comprehend.

The January SBE meeting, with the expected adoption of the spending regulations, is a critical moment for implementation of California’s new school funding formula. While the delayed release of the agenda materials leaves little time for public comment, education stakeholders should heed the upcoming meeting — and the period preceding it — as an opportunity to provide input on the proposed regulations. Ultimately, what’s at stake is to what degree LCFF dollars are spent to support the disadvantaged students who need them the most.

— Jonathan Kaplan

State Revenues Continue to Bear the Mark of the Great Recession

July 18, 2013

The budget signed by Governor Brown last month assumes that state revenues will total $137.0 billion in 2013-14. This consists of $97.1 billion in General Fund revenues — the primary source of funding for state services — and $39.9 billion in special fund revenues — proceeds of taxes, licenses, and fees that are designated by law for specific purposes.

These estimates are remarkable for a couple of reasons. First, revenues as a percentage of the California economy in 2013-14 are projected to be roughly equal to the 40-year average, which is 7.5 percent. In other words, as a share of the state’s $1.8 trillion economy — as measured by state personal income — revenues in 2013-14 are expected to come in right around the historical trend line going back to 1974-75. This is notable because California voters approved two tax measures last November — Propositions 30 and 39 that are projected to boost state revenues by about $7 billion in 2013-14. The fact that revenues are expected to be near the historical average in 2013-14 even with the new revenues approved by voters — rather than significantly above that average — highlights the deep hole that the Great Recession and years of tax cuts created in the state’s tax system, which Propositions 30 and 39 helped to fill.

The 2013-14 revenue estimates are also remarkable for a second reason: Total projected revenues — $137.0 billion — are more than $20 billion below the level they likely would have reached if the Great Recession had not occurred, as we explained in a blog post earlier this year. In other words, if California’s economy hadn’t hit a steep downward slide in 2008 and instead had increased to $2.2 trillion by 2013 (as state analysts expected back in 2007), total state revenues likely would exceed $160 billion in 2013-14, based on revenues comprising 7.5 percent of the state’s economy. Instead, California’s smaller-than-expected $1.8 trillion economy is projected to generate less than $140 billion to support state services during the current fiscal year. This $20 billion-plus revenue gap represents dollars that are not available to support state investments in education, child care for working families, transportation, and other public systems and services that promote economic growth and broadly shared prosperity.

Of course, it’s possible that revenues will surpass the level assumed in the 2013-14 budget. For one thing, lawmakers adopted the Governor’s relatively conservative General Fund revenue projection for 2013-14, which was $2.7 billion below the Legislative Analyst’s forecast. For another thing, the state finished 2012-13 — which ended on June 30 — with General Fund revenues running just over $2 billion (2.1 percent) ahead of the Governor’s May Revision forecast. Yet, even if total state revenues in 2013-14 come in a few billion dollars higher than anticipated, that larger amount would still be close to the historical average as a share of California’s economy (7.5 percent) and would remain far below the level that revenues likely would have reached but for the Great Recession.

— Scott Graves

The CBP Examines the 2013-14 Budget

June 28, 2013

Yesterday Governor Jerry Brown signed the 2013-14 budget bill and related legislation. The CBP has released its initial analysis of the 2013-14 budget, examining key provisions and their implications. Check back to California Budget Bites and the CBP’s website in the coming days and weeks for additional analysis and commentary on the 2013-14 budget agreement.

— Steven Bliss

Some Initial Reflections on the 2013-14 Budget Deal

June 24, 2013

The pause between the Legislature’s recent passage of the 2013-14 budget bill and the Governor’s action on the full budget package provides an opportunity to reflect on the emerging budget agreement and what it means for Californians.

In many respects the 2013-14 state budget is poised to be a historical turning point. In the short term, California is continuing to turn the corner on years of severe budget shortfalls. Thanks to new revenues approved by voters last November and the state’s gradual economic recovery, the 2013-14 budget boosts state spending for schools and other key public systems and services, pays down budgetary debt, and provides a sizeable reserve — a far cry from the budget shortfalls of recent years.

Considered in a broader, longer-term context, the 2013-14 budget takes two significant strides forward: (1) restructuring California’s K-12 school finance system through the new Local Control Funding Formula (LCFF), which allocates additional resources for educating disadvantaged students, and (2) expanding the state’s Medi-Cal Program to make more than 1 million low-income Californians eligible for affordable coverage as part of federal health care reform. These fundamental advances in policy position the state to improve education and health care outcomes for Californians in the coming decade and beyond.

While there is much to like in the soon-to-be-finalized budget, the budget deal struck between the Governor and both houses of the Legislature does fall short in a number of important respects, and some key issues remain unresolved. Here is a bit of what we like, what could be improved, and what we’ll be watching in the coming weeks.

Funding K-12 Schools, Higher Education, and Adult Education

The LCFF is an important step forward in making the state’s system of school funding more transparent, rational, and equitable than it is today. The LCFF compromise accepts a key premise of the Governor’s proposal: that it takes additional resources to educate disadvantaged students. However, compared to the Governor’s original LCFF proposal, the compromise version provides fewer resources specifically for these students. Key decisions remain on the issue of funding accountability — that is, how to ensure that school districts spend the LCFF dollars allocated for disadvantaged students to directly benefit these students.

The budget deal also adopts notable improvements for higher education and adult education. The budget deal includes a new scholarship program for California college students from middle-class families. In addition, policymakers have produced a budget that maintains existing funding and structures for adult education programs, while planning for a new regional-partnership system of adult education providers within two years.

Expanding Medi-Cal

The expansion of Medi-Cal eligibility in January 2014 to more than 1 million low-income Californians will substantially broaden access to affordable health care coverage. However, the budget deal also shifts to the state a significant share of the dollars that counties currently use to fund health care for uninsured Californians, many of whom are expected to enroll in Medi-Cal in 2014 under the expansion. It’s uncertain — given this shift in funds to the state — whether counties will be left with sufficient resources to provide health care for the 3 to 4 million Californians who are expected to remain uninsured even after full implementation of health care reform.

The budget agreement also leaves in place the Medi-Cal provider rate cut enacted in 2011, which has not yet taken effect due to litigation. A federal appeals court has ruled in the state’s favor, and the Administration intends to move forward with implementation as soon as it gets the final go-ahead. The cut will be applied retroactively to June 2011 and means that doctors and other health care providers will face Medi-Cal payment cuts of 15 percent or more at the very time the state is expanding the program.

Also on the Medi-Cal front, one especially positive outcome of the budget deal is the partial restoration of adult dental benefits starting next May.

Beginning to Reinvest in Human Services

The budget deal makes a number of enhancements to CalWORKs, such as retaining “early engagement” investments proposed in the Governor’s May Revision, providing a “child-poverty adjustment” to the CalWORKs grant, and increasing the CalWORKs vehicle asset limit in recognition of the fact that many parents need a reliable vehicle in order to successfully secure and retain employment. The CalWORKs changes are considerably more modest than some proposals that had been considered, but nevertheless represent a step in the right direction. More will be needed in the future, especially given that many Californians are still hurting in the aftermath of the Great Recession.

What to Watch For: Restructuring Enterprise Zones and the Final Budget Agreement

Still to be resolved in this year’s budget deal is the potential reform of the state’s Enterprise Zone (EZ) Program. Established in 1984, the EZ Program provides a variety of tax credits to encourage business location in economically distressed areas and to promote job creation. While well intended, the EZ Program as currently structured fails to achieve its goals — and at a significant financial cost to the state. The Governor’s May Revision included a set of proposals to narrow and better target the EZ tax credits, and legislation that would reform the EZ Program has been under consideration. Our recent analysis of the EZ program provides updates on the cost and use of the EZ credits and offers a set of recommendations for reform.

Stay tuned in the coming weeks for more from the CBP, including our analysis of the final budget agreement and a series of publications expanding on the issues summarized here.

— Chris Hoene