Legislative Analyst's Office, August 2000

California Spending Plan 2000-01 Chapter 3 Part 1

Expenditure Highlights

Proposition 98 Education

Proposition 98 Provisions

The budget includes $43 billion in Proposition 98 spending in 2000-01 for K-14 education. This represents an increase of $5 billion, or 13 percent, from last year's budget package. Figure 1 summarizes for the two fiscal years the effect of the budget package on K-12 schools, community colleges, and other affected agencies.

Figure 1
Proposition 98 Budget Summary
(Dollars in Billions)
	1999-00 Budget Package		2000-01 Enacted
	As Enacted	Revised
K-12 Proposition 98
General Fund	$23.7	$25.1	$27.3
Local property taxes	9.9	10.0	10.7
Subtotals, K-12	($33.6)	($35.1)	($38.0)
Average Daily Attendance (ADA)	5,578,766	5,600,743	5,682,112
Amount per ADA	$6,025	$6,266	$6,694
California Community Colleges
General Fund	$2.3	$2.4	$2.7
Local property taxes	1.6	1.6	1.7
Subtotals, Community Colleges	($3.9)	($4.0)	($4.4)
Other
Other agencies	$0.1	$0.1	$0.1
Loan repayment	0.3	0.3	0.4
Totals, Proposition 98	$37.8	$39.5	$42.8
General Fund	$26.4	$27.9	$30.4
Local property taxes	11.4	11.6	12.4
Totals may not add due to rounding.

The Proposition 98 totals (including the revised total for 1999-00) reflect the Legislature's action to appropriate more General Fund monies than required to meet the constitutional minimum funding guarantee. Specifically, the Legislature appropriated $1.5 billion more than the 1999-00 minimum funding level and $1.3 billion more than the guarantee in 2000-01, based on revenue estimates adopted in the 2000-01 Budget Act.

K-12 Program Impacts

The K-12 portion of the Proposition 98 budget package includes:

• 1999-00. Funding of $6,266 per pupil, or $241 more per pupil than anticipated in the 1999-00 Budget Act.
• 2000-01. Funding of $6,694 per pupil, which represents an increase of $669, or 11 percent, above the budget package adopted last year.

Figure 2 displays K-12 per-pupil funding amounts from 1993-94 through 2000-01. After adjusting for the effects of inflation and changes in attendance accounting, per-pupil funding has increased $1,465, or 28 percent, over the period.

2000-01 Baseline Increases

Compared to last year's budget package, K-12 Proposition 98 funding increased by $4.4 billion. The budget allocates almost $1.6 billion to provide for inflation and growth adjustments. Specifically, the budget includes about $490 million to accommodate a projected 1.45 percent increase in the student population, and almost $1.1 billion for a 3.17 percent cost-of-living adjustment (COLA) applicable to most program funding.

The budget directs the remaining $2.8 billion for other purposes, including new and existing programs (see Figure 3). The major increases are as follows:

• Revenue Limit "Deficit Reduction" ($1.84 Billion). This action eliminates a deficit in school district and county office of education revenue limits that existed since the early 1990s when the state did not fully fund COLAs. It provides a significant increase in general purpose funding for school districts (about 7 percent) and county offices (about 9 percent).
• Teacher Recruitment/Retention--Low-Performing Schools ($143 Million). The Governor proposed a total of $143 million for four new categorical programs to recruit and retain credentialed teachers in low-performing schools (defined as schools in the lowest half of test scores according to the Academic Performance Index [API]). The Legislature consolidated two of these proposed programs into a $119 million block grant, allowing local school districts flexibility in the use of recruitment/retention incentives. (The Legislature approved the remainder of the Governor's request--$24 million--as budgeted.) The Legislature targeted the block grant, giving schools in the lowest 30 percent of test scores 1.5 times the funding per pupil as other low-performing schools. Thus, these schools would receive $1.50 for each $1 received by other block grant recipients.
• Child Care Increases ($138 Million). The budget includes an increase of $138 million for child care and development programs. The budget funds the Governor's proposal for an increase of $47 million for State Preschool which will support an additional 100,000 children (over a two-year period that began in January 2000). The Legislature added $133 million for various child care increases, including an increase in the standard reimbursement rate for child care providers ($33 million), and half-year costs for 24,000 new child care slots ($75 million, ages infant to five). However, the Governor reduced the Legislature's augmentations by $42 million including a reduction of $35 million intended for new child care slots. In his veto message, the Governor set the $42 million aside for subsequent legislation to fund one-time child care programs. At the time this report was prepared no such legislation had been adopted.
• Summer School/After School Programs ($102 Million). The Governor's January budget proposed $62 million to increase the reimbursement rate for supplemental instruction (summer school/after school) from $2.53 to $3 per pupil-hour. The Legislature added $40 million in order to increase the reimbursement rate to $3.25 per pupil-hour. In a budget trailer bill, Chapter 72, Statutes of 2000 (SB 1683, Escutia), the Legislature also (1) eliminated the reimbursement cap for retained pupils in grades 2 through 6 and (2) suspended the reimbursement cap that applied to remedial instruction for pupils in grades 2 through 6 at risk of retention.
• School and Certificated Staff Performance Awards ($85 Million). The Legislature approved a $50 million augmentation proposed by the Governor for purposes of the Certificated Staff Performance Incentive Act (Chapter 52, Statutes of 1999 [AB 1114, Steinberg]). This program provides bonuses to teachers and other certificated staff at "low-performing" schools that achieve specified increases in pupil test scores. Bonuses range from $5,000 to $25,000 per teacher. The augmentation brings the budget-year amount for the program to $100 million. The Legislature also approved a $35 million augmentation for the Governor's Performance Awards Program. (The Governor had requested $40 million.) This program awards schools that achieve specified increases in pupil test scores (both low- and high-performing schools are potentially eligible). The augmentation brings the budget-year amount for this program to $227 million, including a carryover of $96 million that was not allocated in the current year.
• Beginning Teacher Salary Increases ($55 Million). The budget provides $55 million (including $20 million from current-year savings) to raise beginning salaries for credentialed teachers to $34,000 pursuant to Chapter 69, Statutes of 2000 (SB 1643, O'Connell). Participating school districts and county offices of education may choose to be funded based upon the actual costs of raising salaries to $34,000 or at a rate of $6 per average daily attendance (ADA).
• Access to Advanced Placement (AP) Courses ($26 Million). The budget provides $26 million in new funds for initiatives aimed at increasing the availability of AP courses. This amount includes $16.5 million to fund the Governor's proposal to provide competitive grants of up to $30,000 to at least 550 high schools for AP expansion activities. A trailer bill, Chapter 73, Statutes of 2000 (SB 1689, Escutia) establishes this AP grant program. The budget also includes $4 million (non-Proposition 98) for the University of California (UC) to develop more on-line AP courses for students attending high schools with few or no AP courses.

Governor's Vetoes. The Governor vetoed a total of $128 million in ongoing K-12 Proposition 98 funding, including a $61 million legislative augmentation for school safety. As previously noted, the Governor set aside $42 million of the vetoed amount for subsequent legislation to fund one-time child care programs.

Current-Year Funds

The budget adds $1.5 billion of one-time funds to the $33.6 billion of Proposition 98 funds approved for K-12 education in the 1999-00 Budget Act. We summarize the most significant of these one-time allocations below in Figure 4 (see page 24).

• School Improvement and Pupil Achievement Block Grant ($425 Million). The budget includes $425 million in one-time funds for a two-part block grant for school districts and school sites. Of this amount, $245 million is provided to school districts, county offices of education, and charter schools for any combination of the following: technology staff development, Internet connections, school safety, deferred maintenance, and facility improvement. The remaining $180 million is provided to school sites, including charter schools, for local priorities as determined by school site councils. Both parts of the block grant are distributed based on ADA.
• The API School Site Employees Performance Bonus ($350 Million). The Governor proposed a $500 million one-time allocation to teachers at low- and high-performing schools meeting test score improvement criteria. The Legislature reduced this amount to $350 million, and changed the nature of the allocation. Half the monies will go to eligible schools for purposes decided on by the school sites and half will fund performance awards for all employees at these schools.
• English Language and Intensive Literacy Program ($250 Million). The budget provides $250 million in one-time funding for the English Language and Intensive Literacy Program, a new summer school/after school program for English language learners in kindergarten and grades 1 through 12. The program, proposed by the Governor in the May Revision, provides competitive grants to school districts, charter schools, and county offices of education to improve the English skills of English language learners. The budget provides $10 million of one-time funds (non-Proposition 98) to the State Library for a similar program directed at English language learner pupils and their families, to be offered at participating local libraries.
• Education Technology ($175 Million). The budget provides $175 million in one-time funds for high schools to purchase or lease computers, pursuant to the program established in budget trailer legislation (Chapter 78, Statutes of 2000 [AB 2882, Reyes]). The Secretary for Education will administer this new program, which provides a per-pupil amount to all high schools (based on grade 9 through 12 enrollment). Funds not encumbered by March 15, 2001 will revert to the school district block grant described above.
  

Non-Proposition 98 Provisions

The budget package also includes the following significant provisions for K-12 education involving funds "outside" of Proposition 98.

• Teacher Tax Credit. Under budget trailer legislation (Chapter 75, Statutes of 2000 [AB 2879, Jackson]), credentialed teachers at public and private schools would receive a tax credit ranging from $250 (for those with four or five years of experience), to $1,500 (for those with 20 or more years). The tax credit would be limited to 50 percent of the tax liability attributable to teaching-related income. This provision would result in an estimated General Fund revenue loss of $218 million in the budget year, with comparable losses annually thereafter.
• State Teachers' Retirement System (STRS) Enhanced Retirement. In budget trailer legislation (Chapter 74, Statutes of 2000 [AB 1509, Machado]), the Legislature established a new retirement benefit under STRS. Specifically, the measure creates a tax deferred annuity for teachers equal to 2 percent of their salary. Contributions from the STRS fund for these annuities would be made for a ten-year period. The total cost of the benefit over that period would be $2.9 billion and would be paid for out of the existing STRS actuarial surplus.
• Merit Scholarships ($118 Million). The budget provides $112 million for the Governor's Scholars Program that would be established under a budget trailer bill (SB 1688, Polanco). Under the program, public high school students in grades 9 through 12 scoring in the top 10 percent at each school, or top 5 percent statewide, on the Stanford-9 test, would receive $1,000 scholarships. Scholarship amounts would be held in trust for each student's qualifying higher education expenses in accounts administered by the state's Scholarshare Investment Board. The bill also establishes the Governor's Distinguished Mathematics and Science Scholars Program, providing $2,500 scholarships to students achieving high scores on advanced placement tests in calculus, biology, chemistry, or physics. The budget provides $6 million for this program. Senate Bill 1688 will become operative if it and SB 1644 (Ortiz) are both chaptered. Senate Bill 1644 which is expected to become law, would entitle all academically and financially eligible students to receive a Cal Grant award beginning in the 2001-02 budget year.
• K-12 Professional Development ($109 Million). The budget includes a $109 million augmentation in non-Proposition 98 General Fund monies for professional development programs provided by a higher education consortium, led by the UC and including the California State University (CSU), and independent colleges and universities. The consortium will offer training in a variety of subject areas to public school teachers and administrators through two programs--the California Subject Matter Projects and the California Professional Development Institutes (PDIs)--at numerous locations across the state. The funding provided will train approximately 70,000 school teachers and administrators, or four times the number served by the consortium in the current year. Expansion of the California PDIs is authorized in Chapter 77, Statutes of 2000 (AB 2881, Wright). The augmentation brings total funding for the two programs to $147 million. Of this amount, $98 million is to cover operating costs and the other $49 million is to pay stipends to institute attendees to help defray travel, lodging, and other expenses.

Higher Education

The budget includes significant funding increases for the UC, CSU, California Community Colleges (CCC), and the Student Aid Commission. It provides for employee compensation increases and significant enrollment growth, as well as several programmatic expansions. Figure 5 shows the change in funding for each major segment of higher education for 2000-01 from the General Fund and local property tax revenue.

Governor's Vetoes. The Governor deleted $170.1 million from the amount approved by the Legislature for higher education in 2000-01. Of this amount, the Governor deleted $14 million from UC, $6.5 million from CSU, $97 million from CCC, and $51.6 million from the Student Aid Commission.

University of California

The budget provides $487.7 million, or 18 percent, more in General Fund support for UC in 2000-01 than in 1999-00. Of this amount, $108.9 million is for various programs to assist K-12 education, consisting of:

• $71.9 million to lead a consortium of UC, CSU, and independent colleges and universities in training K-12 teachers and administrators.
• $32 million to provide access for K-12 schools to Internet II (broadband) services.
• $4 million to provide advanced placement courses on line.
• $1 million to conduct science and math summer school.

The budget also includes $13.8 million to reduce summer fees on UC campuses to the levels charged in fall, winter, and spring. Figure 6 shows the major funding increases.

Figure 6
University of California Major Increases 2000-01
General Fund (In Millions)
Purpose	Amount
Employee compensation increases	$128.7
Various K-12 initiatives	108.9
Enrollment growth (3.75 percent)	51.2
UC Davis MIND Institute to study neurodevelopmental disorders	30.0
Reduce summer fees	13.8

California State University

The budget provides $278.9 million, or 13 percent, more in General Fund support for CSU in 2000-01 than in 1999-00. This includes $19.9 million to reduce summer fees on CSU campuses to levels charged in the fall, winter, and spring. Figure 7 (see page 28) shows the major funding increases.

Figure 7
California State University Major Increases 2000-01
General Fund (In Millions)
Purpose	Amount
Increase in compensation pool (6 percent)a	$113.2
Enrollment growth (4.5 percent)	73.1
Reduce summer fees	19.9
a How these funds are used (for cost-of-living adjustments, merit increases, and parity adjustments) will be determined through collective bargaining.

California Community Colleges

The budget package contains major funding increases for community colleges. General Fund spending for community colleges totals approximately $2.7 billion in the budget year. This represents a $372 million, or 16 percent, increase above 1999-00 expenditures. The budget also added $105 million in one-time expenditures in 2000-01 that will be accounted for in 1999-00 Proposition 98 funding. Figure 8 shows the major program increases funded in 2000-01. Of the increase for 2000-01, $155 million is for expanding the Partnership for Excellence program to a total of $300 million. These are additional general purpose funds provided to all districts to assist them in improving their productivity and student outcomes. As noted above, the Governor vetoed $97 million in community college funding, including $45 million for equalization.

Figure 8
Community Colleges Major Increases 2000-01
General Fund (In Millions)
Purpose	Amount
Partnership for Excellence	$155.0
Cost-of-living adjustment (4.17 percent)	149.1
Enrollment growth (3.5 percent)	122.9

Student Aid Commission

The budget appropriates $531.5 million from the General Fund for the Student Aid Commission in 2000-01. This is $142 million, or 37 percent, above expenditures in 1999-00. The increase includes provisions to:

• Add approximately 22,500 additional Cal Grant awards ($76.6 million).
• Increase the annual Cal Grant B subsistence award from $1,410 to $1,548 ($9.3 million).
• Increase the maximum annual award for independent colleges from $9,420 to $9,730 ($2.2 million).

The Governor vetoed $51.6 million from the amount of legislative augmentations scaling back increases in Cal Grant award levels.

The Legislature and Governor have agreed to significantly expand the Cal Grant program beginning in the 2001-02 budget year. Senate Bill 1644, which is expected to become law, would entitle all academically and financially eligible students to a Cal Grant. The Student Aid Commission estimates that SB 1644 could increase annual Cal Grant costs from $570 million to roughly $1.2 billion when fully implemented.

Continue to California Spending Plan 2000-01 Chapter 3, Part 2

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