The 2011-12 Budget: Year-Two Survey - Update on School ...

[Pages:32]The 2011-12 Budget: Year-Two Survey

Update on School District macTaylor

Legislative Analyst

Finance in California

February 7, 2011

2011-12 Bud g e t 2 Legislative Analyst's Office lao.

2011-12 Bud g e t

Executive Summary

Since 200708, state support for K-12 education has dropped notably. The reduction in state funding, however, has been partly offset by one-time federal aid and state K-12 payment deferrals. After accounting for these and other related budget actions, per-pupil programmatic funding was down 3.7 percent in 200910 and 5 percent in 201011 from the 200708 prerecession level. To help school districts manage this reduction, the state temporarily removed the strings associated with roughly 40 categorical programs and eliminated various other requirements. To better understand how school districts have responded to these recent changes, as well as to help the Legislature in crafting its 201112 education budget, we sent a budget survey to all public school districts in California during the fall of 2010. Out of roughly 1,000 districts statewide, 382 completed the survey. In total, the districts that responded represent 58 percent of the state's average daily attendance (ADA).

School Districts Using Federal Funds, Deferrals to Reduce Programmatic Cuts. The survey results confirm that school districts have relied heavily on one-time federal aid to maintain teacher jobs. The results also indicate that school districts have reserved about two-thirds of the $1.2 billion in federal Education Jobs funding in 201112. Regarding deferrals, the vast majority of school districts are first drawing down their reserves to access the cash needed to sustain programs until state payment is provided. Many districts also are relying on internal and external borrowing, though about one in five districts are having difficulty accessing sufficient cash and, as a result, are having to make some programmatic reductions. Survey results show that almost half of districts would have difficulty accommodating a new 201112 deferral and would therefore make some corresponding programmatic reductions.

School Districts Relying Very Heavily on Flexibility Provisions. Survey responses show that districts, most of which took advantage of the state's flexibility provisions in 200910, are relying even more heavily on flexibility in 201011. Districts overwhelmingly continue to report that flexibility helps them make strategic decisions, devote funding to local priorities, and balance their budgets. Compared to 200910, however, a higher percentage of districts in 201011 are either diverting funding from flexed categorical programs or discontinuing them altogether. In addition, a large and growing percentage of school districts are taking advantage of other flexibility provisions, such as shortening the school year.

Recommend Providing School Districts More Flexibility in Short Term. Based on the responses we received from districts, we recommend taking several steps to expand flexibility in 201112. Specifically, we continue to recommend removing the strings associated with the K-3 Class Size Reduction (CSR), Home-to-School (HTS) transportation, and After School Education and Safety (ASES) programs. Additionally, we recommend linking flex funding to ADA to ensure the state has a rational basis for making district allocations and responding to changes in the student population. We also continue to recommend removing restrictions on contracting out for noninstructional services as well as the hiring and pay of long-term substitute teachers. Immediate changes such as these will both help districts balance their 201112 budgets and set the foundation for longer-term improvements to the K-12 finance system.

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2011-12 Bud g e t Recommend Making Lasting Improvements to K-12 Finance System. Even with the categorical flexibility now in place, the state's K-12 finance system is riddled with problems--characterized by various research groups as overly complex, irrational, inequitable, inefficient, and highly centralized. Though the state's current categorical flexibility provisions have temporarily decentralized some decision making, they have done little to make the K-12 finance system more rational, equitable, and efficient. Rather than address these fundamental problems, the Governor proposes to extend most flexibility provisions by two years. While such action would help school districts in building and balancing their budgets over the next few years, it postpones important decisions that the state ultimately must confront. Rather than postpone these decisions, we recommend the state act now to improve its K-12 system. Specifically, we recommend the state consolidate existing funding sources into revenue limits and a few block grants. Such an approach would provide districts flexibility to spend state dollars while still ensuring at-risk and high-cost students receive the services they need.

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2011-12 Bud g e t

Introduction

To help the Legislature in crafting its 201112 education budget, we distributed a budget survey to all California public school districts in the fall of 2010. The survey was designed to gather infor mation about the effects of recent state and federal actions on school district finance and operations. Below, we (1) provide background information on these recent actions, (2) present major findings from the survey on how these actions have affected

K-12 programs, and (3) provide the Legislature with some recommendations that would provide school districts with additional flexibility in the short term as well as some recommendations that would help improve the state's K-12 finance system in the long term. The report also has an Appendix that contains a complete listing of 2010 survey questions and results.

Recent Actions Affecting School District Finance

In recent years, California's school districts have seen a notable decrease in programmatic funding. As shown in Figure 1, programmatic funding for school districts is 5 percent lower in 201011 compared to 200708. Under the Governor's January proposal, programmatic per-pupil funding for 201112 would fall slightly further--down

6.4 percent from the 200708 level. The K-12 programmatic reductions would have been even deeper over the last few years had they not been mitigated by one-time federal aid and state payment deferrals (which essentially supported program using funds borrowed from the next fiscal year). Nonetheless, because programmatic reductions still

Figure 1

K-12 Programmatic Fundinga

(Dollars in Millions Unless Otherwise Specified)

200708 Final

200809 Final

200910 Final

201011 Revised

201112 Proposed

Programmatic Funding K-12 ongoing fundingb New payment deferrals Settle-up payments Public Transportation Account Freed-up restricted reservesc ARRA fundingc Federal education jobs fundingc

Totals

$48,883 -- -- 99 -- -- --

$48,982

$43,215 2,904 1,101 619 1,100 1,192 --

$50,130

$40,717 1,679 -- -- 1,100 3,575 --

$47,070

$42,945 1,719 267 -- -- 1,192 421

$46,544

$43,131 2,063 -- -- -- -- 781

$45,975

Per-Pupil Programmatic Funding K-12 attendance

5,947,758

5,957,111

5,933,761

5,951,826 5,964,800

K-12 Per-Pupil Funding (InDollars)

$8,235

$8,415

$7,933

$7,820

$7,708

Percent Change From 200708

--

2.2%

-3.7%

-5.0%

-6.4%

a Excludes federal funds not associated with stimulus package, lottery, and various other local funding sources. b Includes ongoing Proposition98 funding, Proposition98 accounting adjustments, and funding for the Quality Education Investment Act. c Reflects LAO estimates of funds spent in each year.

ARRA = American Recovery and Reinvestment Act.

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2011-12 Bud g e t

were needed, the state also adopted various policy State Government Relies Heavily on

changes intended to help school districts make the Deferrals to Avoid Deeper Cuts

reductions in ways that had the least adverse effect on students and teachers. Below, we discuss each of these developments in more detail.

At the state level, programmatic impacts also have been mitigated by K-12 payment deferrals. The state has used deferrals as a way to avoid

Federal Government Provides Over $7 Billion in One-Time Aid

One of the most significant developments affecting school districts over the last couple of years has been the infusion of one-time federal aid. In total, California received $7.3 billion in additional one-time federal education funding--much of which could be used to mitigate reductions in state funding for school districts. As shown in Figure 2, the largest source of federal funding came from the American Recovery and Reinvestment Act (ARRA) of 2009, which provided California with $6.1 billion to help stabilize the state's education budget. These ARRA funds (set

programmatic cuts in one year by relying on funds borrowed from the next fiscal year. As shown in Figure 3, the state has relied heavily on deferrals the last three years--with K-12 payment deferrals now totaling $7.4 billion. At existing levels, 17 percent of K-12 Proposition 98 programmatic support is paid using funds borrowed from the next fiscal year. The Governor's January budget proposes an additional $2.1 billion K-12 deferral, bringing total K-12 deferrals up to $9.4 billion or 21 percent of K-12 Proposition 98 support. (For more information on these deferrals, please see our 2011 budget brief, To Defer or Not Defer? An Analysis of the Effects of K-12 Payment Deferrals.)

to expire in September of 2011) were virtually all

State Removes or Relaxes Various

used to support operations during the 200809,

Programmatic Requirements

200910, and 201011 school years--leaving many districts potentially facing a significant decrease in programmatic funding for the 201112 school year. Partially in response, the federal government passed The Education Jobs Fund ("Ed Jobs") Act of 2010. This act provided

Despite the infusion of one-time federal aid and the state's reliance on payment deferrals, school districts still have needed to make programmatic reductions since 200708. To provide school districts more options to make these reductions in

California school districts with $1.2 billion to retain or create K-12 education jobs. Though the state authorized distribution

Figure 2

One-Time Federal Aid for K-12 Education

(In Millions) Program

Funding

of Ed Jobs funds to the field in September of 2010, these funds do not expire until September of 2012, allowing districts, if desired, to spread the funds across the 201011 and 201112 school years.

American Recovery and Reinvesment Act (ARRA) State Fiscal Stabilization Fund Special Education/Individuals With Disabilities Education Act Title I program for low-income students School Improvement Grant Enhancing Education Through Technology Other Subtotal, ARRA

Education Jobs Fund

Total

$3,243 1,327 1,125 352 72 15

($6,134) $1,202

$7,336

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2011-12 Bud g e t

ways that have the least adverse effect on students approve the proposed use of these "flexed" funds at

and teachers, the state has made various policy

a regularly scheduled public hearing. From a fiscal

changes. Among the most significant of these

perspective, the "flex item" effectively converted

changes has been the removal or relaxing of certain $4.5 billion, or about 40 percent of all categorical

state requirements, discussed in more detail below. funding, from restricted to unrestricted monies.

Many Categorical Program Requirements

Under current law, school districts have been

Suspended. Among the most significant policy

granted this flexibility from 2008-09 through

changes has been the suspension of many

2012-13. The state continues to separately fund the

categorical program requirements. As part of the

remaining approximately 20 categorical programs

200910 budget package, the state removed the

(see Figure 5 on page 9)--reflecting $6.7 billion,

requirements associated with about 40 categorical or about 60 percent, of all categorical funding.

programs (see Figure 4 on next page). Prior to

Funding for these excluded programs remains

2008-09, the state separately funded approximately linked to associated program requirements.

60 K-12 categorical programs. For each of these

"Locked In" District Allocations. Prior to

categorical programs, school districts were

2008-09, funding for the categorical programs that

required to use program monies to meet associated are now flexed was allocated to school districts

program requirements. Chapter 2, Statutes of

based mostly on program-specific factors. For

2009 (ABX4 2, Evans), essentially allowed funding example, a district's Teacher Credentialing Block

associated with 40 of these categorical programs

Grant allocation was based on its number of first-

to be used for any educational purpose. Local

and second-year teachers, its Peer Assistance and

governing boards are required to discuss and

Review allocation was based on 5 percent of its total

certificated classroom

Figure 3

K-12 Payment Deferrals Have Risen Steeply Since 2007-08

(In Billions)

$10

teacher count, and its Art and Music Block Grant allocation was based on its K-12 pupil count. For the next few years, however, districts'

9

allocations will no

8

New Deferrals

7

Existing Deferrals

6

5

longer be linked to these program-specific factors. Instead, a district's allocation for each flexed program will be based on

4

its share of total program

3

funding either in 2007-08

2

or 2008-09 (the earlier

year was used for certain

1

participation-driven

2007-08

2008-09

2009-10

2010-11

2011-12 (Proposed)

programs). As a result, total funding provided

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2011-12 Bud g e t

for the flexed programs could change over the next proposes to extend most flexibility options for

few years depending on state actions, but districts' another two years. The two-year extension would

proportional share of the

total allocation will not change.

Adopted Several Other Flexibility Options. In addition to freeing up substantial categorical funding, the state has adopted various other flexibility provisions over the last few years (see Figure 6). Among the most notable of these changes are provisions (1) allowing school districts to shorten the school year by as many as five days, (2) making more modest funding reductions for K-3 classes that exceed 20 students, and (3) eliminating or suspending some K-12 mandates. Similar to categorical flexibility, these other flexibility options largely are intended to provide districts some relief during a difficult fiscal climate, with most of the options operative through 2012-13.

201112 Governor's Budget Proposes to Extend Flexibility for Two Additional Years. As shown in Figure 6, the Governor's budget

Figure 4

State Removes Strings Tied to About 40 Categorical Programs

(In Millions)

Program

Targeted Instructional Improvement Block Grant Adult education Regional Occupational Centers and Programs School and Library Improvement Block Grant Supplemental instruction Instructional Materials Block Grant Deferred maintenance Professional Development Block Grant Grade 712 counseling Charter schools categorical block grant Teacher Credentialing Block Grant Arts and Music Block Grant School Safety Block Grant Ninth-Grade Class Size Reduction Pupil Retention Block Grant California High School Exit Exam supplemental instruction California School Age Families Education Professional Development Institutes for Math and English Gifted and Talented Education Community Day Schools Community Based English Tutoring Physical Education Block Grant Alternative Credentialing/Internship programs Peer Assistance and Review School Safety Competitive Grants California Technology Assistance Projects Certificated Staff Mentoring County offices of education Williams audits Specialized Secondary Programs Principal Training American Indian Education Centers Oral health assessments Advanced Placement fee waivers National Board certification incentive grants Bilingual teacher training assistance program American Indian Early Education Program Reader services for blind teachers Center for Civic Education Teacher dismissal apportionments California Association of Student Councils

Total

a Statewide, less than $500,000 is spent on each of these programs.

201011 Funding

$855 635 385 370 336 334 251 218 167 142 90 88 80 79 77 58 46 45 44 42 40 34 26 24 14 14 9 8 5 4 4 4 2 2 2 1 --a --a --a --a

$4,537

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