Legislative Analyst's Office, September 2001

California
Spending Plan
2001-02

Chapter 3

Part 1

Expenditure
Highlights

K-12 Education

Total Proposition 98 Spending

The budget package includes $45.4 billion in Proposition 98 spending in 2001-02 for K-14 education. This represents an increase of $2.5 billion, or 5.9 percent, from past-year spending. 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
2000-01 and 2001-02 (Dollars in Billions)
	2000-01 Budget Package		2001-02
	As Enacted	Revised	2001-02
K-12 Proposition 98
General Fund	$27.3	$27.3	$28.8
Local property taxes	10.7	10.8	11.7
Subtotals, K-12	($38.0)	($38.1)	($40.5)
Average Daily Attendance (ADA)	5,682,112	5,700,987	5,780,737
Amount per ADA	$6,696	$6,678^a	$7,002
California Community Colleges
General Fund	$2.7	$2.7	$2.7
Local property taxes	1.7	1.7	1.8
Subtotals, Community Colleges	($4.4)	($4.4)	($4.5)
Other
Other agencies	$0.1	$0.1	$0.1
Loan repayment	0.4	0.4	0.4
Totals, Proposition 98	$42.8	$42.9	$45.4
General Fund	$30.4	$30.4	$31.9
Local property taxes	12.4	12.5	13.5
^{aAmount declines because of increased ADA over the period.}
Totals may not add due to rounding.

The Proposition 98 totals (including the revised total for 2000-01) reflect the Legislature's actions to appropriate more General Fund monies than required to meet the constitutional minimum. Specifically, the Legislature appropriated $415 million more than the 2000-01 minimum funding level and about $4 billion more than the guarantee in 2001-02.

K-12 Program Impacts

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

2000-01. Revised funding of $6,678 per pupil.
2001-02. Funding of $7,002 per pupil, which represents an increase of $324, or 4.9 percent, above the revised current-year level. These numbers do not include $250 million—provided to defray energy-related costs at schools—that counts toward prior-year Proposition 98 obligations.

Figure 2 displays K-12 per-pupil funding amounts from 1994-95 through 2001-02. After adjusting for the effects of inflation and changes in attendance accounting, per-pupil funding has increased $1,481, or 27 percent, over the period.

2001-02 Baseline Increases

Compared to current-year spending, K-12 Proposition 98 funding increased by $2.4 billion. The budget allocates almost $2 billion to provide for inflation and growth adjustments. Specifically, the budget includes about $565 million to accommodate a projected 1.4 percent increase in the student population, and $1.4 billion for a 3.87 percent cost-of-living adjustment (COLA) which applies to most program funding.

The budget directs the remaining funds for other purposes, including new and existing programs (see Figure 3). The major increases are described below.

Low-Performing Schools Initiative ($200 Million). The Legislature approved $200 million for a new program focusing resources on schools in the lowest deciles of the academic performance index (API). In AB 961 (Steinberg) the Legislature expanded eligibility for schools to participate in the Immediate Intervention/Underperforming Schools Program (II/USP), with priority given to schools in the lowest deciles. The $200 million is estimated to provide augmented funding to most schools in the lowest decile of the API. These schools would receive $400 per pupil, twice the current funding level of the II/USP.

Special Education Settlement ($125 Million). The budget package includes $125 million in 2001-02 as part of a settlement of school district claims for the cost of certain special education programs. This amount includes the first of a series of ten annual payments of $25 million for general educational purposes. The remaining $100 million will be provided on an ongoing basis to special education local plan areas. The settlement, contained in SB 982 (O'Connell), also provides a $270 million one-time payment to school districts, primarily in compensation for prior-year costs. This amount is attributed to the 1999-00 fiscal year for Proposition 98 purposes.

Figure 3
Major K-12 Increases
2001-02 (In Millions)
Purpose	Amount
Cost-of-living adjustments	$1,406
Enrollment growth	565
Low-performing schools	200
Special education settlement	125
Child care	99
Before/after school programs	30

Child Care Increases ($99 Million). The budget includes an increase of $99 million in ongoing funds for child care and development programs. The Legislature approved a $109 million augmentation proposed by the Governor to (1) cover the expansion of child care and state preschool programs begun in January 2001 ($67 million) and (2) provide continuous child care under the California Work Opportunity and Responsibility to Kids (CalWORKs) Stage 3 "set-aside" for former families who reach the end of their two-year Stage 2 time limit by the end of July 2001 ($42 million). The Governor, however, vetoed $10.5 million of these funds based on a revised caseload estimate for the Stage 3 set-aside.

The Legislature also added $66 million in one-time Proposition 98 funds to fully fund the estimated need under the Stage 3 set-aside during 2001-02. However, the Governor reduced the Legislature's augmentation by $33.5 million to leave only enough to fund the estimated number of former CalWORKs recipients expected to "time out" of Stage 2 before February 1, 2002. This represents a potential shortfall of about $24 million for the child care needs of families expected to time-out during the last five months of 2001-02. The Governor stated that he would approve a restoration of $24 million in one-time funds if legislation is enacted by January 31, 2002, that reforms the state's subsidized child care programs. At the time this report was prepared, the administration had not specified the desired reforms. The budget, however, includes $300,000 for the State and Consumer Services Agency to continue its review of child care policies and resources for the administration that began two years ago.

Before/After School Programs ($30 Million). The Legislature added $30 million for the existing After School Learning and Safe Neighborhoods Part

Additional Special Education Augmentations

The state received an increase of federal funds for special education. The Legislature allocated most of these funds in the following two ways:

Special Education Equalization ($52 Million). The Legislature allocated part of the additional federal funds—about $52 million—to further equalize special education funding levels.
Special Education Per-Average Daily Attendance (ADA) Increase ($45 Million). The budget provides approximately $45 million of additional federal funds for special education to be distributed on an equal per-ADA basis.
nership Program to provide homework assistance and recreational activities to an additional 41,000 pupils in kindergarten and grades 1 through 9. This increase consists of $15 million for the establishment of before-school programs as proposed in AB 6 (Cardenas) and $15 million for the expansion of after-school programs. The combined augmentation brings annual state funding for this grant program to almost $118 million. If the State Department of Education (SDE) is unable to encumber the entire augmentation in 2001-02, the budget includes language redirecting $2 million on a one-time basis for regional resource centers to increase technical assistance and training for schools operating before/after school programs.

One-Time Funds

As mentioned above, the budget package includes $270 million of one-time General Fund support for school districts as part of a settlement of special education claims. In addition, the budget includes $250 million of one-time General Fund monies for "school energy" and $702 million from the Proposition 98 reversion account for various purposes (both discussed further below). Figure 4 summarizes the major K-12 expenditures authorized from these one-time funds.

Figure 4
Major K-12 Expenditures One-Time Funds
(In Millions)
Program	Amount
Special education settlement	$270
School energy	250
Prior-year mandate claims	91
Math and reading professional development	80^a
Mandate claims	75^a
K-12 per-pupil block grant	68^a
PERS reduction (general purpose)	35^a
Child care (Stage 3 set-aside)	33
^{aProgram has ongoing funding implications.}

School Energy Funds. The Governor's May Revision proposed a one-time General Fund payment of $541 million to help school districts defray increased energy costs and to fund energy conservation measures. This amount was intended to satisfy a prior-year Proposition 98 obligation. This obligation came about because the Department of Finance (DOF) and the SDE have not agreed on final Proposition 98 numbers for the prior years (under a certification process required by state law), leaving the guarantee requirements for those years open to change due to revised population estimates in the 2000 census.

After the May Revision, the DOF corrected its estimate of the prior-year obligation to $352 million. The Legislature, however, eventually reduced the school energy proposal to $250 million. As a consequence, the state has an unfulfilled obligation to provide the remaining $102 million. The Legislature could solve this problem by enacting legislation re-designating $102 million of Proposition 98 funds already provided in the 2001-02 Budget Act as counting toward the prior-year "settle-up" obligation. This action would meet the obligation without affecting current education programs or funding levels.

Reversion Account Funds. The Legislature also approved $702 million from the Proposition 98 reversion account for various purposes. The Governor, however, reduced this amount by $100 million. Funds in this account are unspent balances from prior Proposition 98 appropriations that ultimately must be spent on some K-14 education purpose. As Figure 4 indicates, some of the programs funded from this account have spending implications beyond 2001-02, and probably will require General Fund augmentations in 2002-03 and beyond.

One of these programs is the Mathematics and Reading Professional Development program—a four-year effort to provide intensive, standards-based, 120-hour training sessions to all 221,000 core subject-matter teachers, all 28,000 special-education teachers, and 22,000 instructional aides. The program is estimated to cost a total of $588 million over the four years. The 2001-02 budget includes $80 million in first-year funds to train slightly more than 13,000 teachers and 2,500 aides. The program provides $2,500 per teacher and $1,000 per aide. Additionally, the first-year funds: (1) provide school districts with $500 per teacher for all teachers they send to a University of California Professional Development Institute and (2) reimburse districts for almost 8,000 teachers previously trained. Based on current plans for ramping up program participation, the program likely would require an augmentation from the General Fund of $160 million in 2002-03.

Revenue Limit Equalization ($40 Million—Governor's Veto). The Legislature added $40 million from the General Fund as a partial payment toward equalizing school districts' revenue limit funding. The appropriation was included in AB 441 (Simitian), which also states legislative intent that by 2006-07 no school district's base revenue limit be below the 90^th percentile amount (as calculated for 2001-02) for the appropriate school district size and type. Once this goal is reached, at least 90 percent of the average daily attendance (ADA) in the state would receive specified minimum revenue limit amounts, with the remaining ADA receiving higher amounts based on historical factors. Since the $40 million appropriation is not sufficient to fully fund the estimated $400 million cost to reach this goal, the appropriation would be allocated to districts on a pro rata basis in 2001-02. The Governor vetoed the appropriation, stating that he would sign legislation providing the $40 million from the Reversion Account instead of the General Fund. The Legislature subsequently provided these funds from the Reversion Account in SB 735 (Senate Budget and Fiscal Review Committee).

Higher Education

In general, the enacted budget provides full funding for enrollment growth, avoids any fee increases, and increases base funding for various programs. (However, vetoes resulted in base funding for two California Community College [CCC] programs being reduced by a total of $98 million as discussed below.) Figure 5 shows the change in funding for each major segment of higher education for 2001-02 from the General Fund and local property tax revenue.

Figure 5
Higher Education Budget Summary General Fund and Local Property Tax Revenue
(Dollars in Millions)
	2001-02 Budget^a	Change From 2000-01
		Amount	Percent
^{University of California}	^$3,357.7	^$152.2	^4.7%
^{California State University}	^2,607.4	^142.6	^5.8
^{California Community Colleges}	^4,516.5	^129.3	^3.0
^{General Fund}	^(2,686.0)	^(-6.7)	^(-0.2)
^{Property taxes}	^(1,830.5)	^(136.0)	^(8.0)
^{Student Aid Commission}	^634.6	^137.9	^27.8
^{Hastings College of the Law}	^15.1	^0.8	^5.4
^{California Postsecondary Education Commission}	^3.9	^0.1	^-1.3
Totals, Higher Education	$11,136.2	$562.9	5.3%
^{aDoes not include reappropriations of prior-year funds.}

Governor's Vetoes. The Governor deleted a total of $171.8 million from the higher education budgets passed by the Legislature. The University of California (UC) budget was cut by $26.3 million through a variety of reductions. The California State University (CSU) budget was reduced by $20.9 million, which was primarily due to a $12.5 million reduction in the Education Technology Professional Development Program and a $5 million reduction in funding for high-cost programs. The CCC budget was reduced by $124.6 million. This reflects: (1) the elimination of baseline funding ($98 million) for scheduled maintenance and replacement of equipment and library materials, (2) the elimination of an $11 million augmentation for Cal Grant outreach, and (3) a variety of smaller reductions. The Legislature passed legislation (SB 735) restoring the $98 million cut in CCC's budget, as well as $14.9 million (bond funds) of capital outlay projects. As this report was going to press, the Governor had not yet acted on this bill. Enactment of this bill would add to the spending totals reflected throughout this report.

University of California

The budget provides $3.4 billion in General Fund support for UC in
2001-02. This is a $152.2 million, or 4.7 percent, more in General Fund support than in 2000-01. The increase includes:

$75.6 million ($19.7 million ongoing) for increased natural gas costs.
$65 million for a 4.1 percent growth in enrollment (7,100 full time equivalent [FTE] students).
$59.8 million for a 2 percent increase in base support.
$21.5 million in lieu of raising student fees.
$20.7 million for additional support for the summer term at three UC campuses (Berkeley, Los Angeles, and Santa Barbara).
$2 million for start-up costs associated with recruiting faculty at UC Merced. (The budget also provides $1.9 million from the General Fund and $158.5 million from general obligation bonds for four capital outlay projects at the Merced campus.)

California State University

The budget provides $2.6 billion in General Fund support for CSU in
2001-02. This is a $142.6 million, or 5.8 percent, increase over the 2000-01 budget. The increase includes:

$55.7 million for a 3 percent increase in enrollment (8,760 FTE students).
$46.8 million for a 2 percent increase in base support.
$34.1 million ($15.5 million ongoing) for increased natural gas costs.
$16.6 million in lieu of raising student fees.
$12.4 million for additional support of the summer term at four CSU campuses (Fullerton, Long Beach, San Diego, and San Francisco).
Second-year funding for two initiatives—$17.5 million more for the Governor's Teaching Fellowships (for a total appropriation of $21 million) and $6 million more for the Education Technology Professional Development Program (for a total appropriation of $12.5 million).

California Community Colleges

The budget provides $129.3 million, or 3 percent, more in General Fund support and property taxes in 2001-02 than in the prior year. In addition, the budget includes another $126.3 million in reappropriations from prior year funds. Major augmentations include:

$114.5 million to accommodate a 3 percent increase in enrollment growth.
$150.4 million for a 3.87 percent cost-of-living adjustment in apportionment and categorical funding.
$57 million to increase part-time faculty salaries.

Student Aid Commission

The budget provides $634.6 million in General Fund support for the Student Aid Commission in 2001-02. This is a $137.9 million, or 27.8 percent, increase over 2000-01. Almost the entire augmentation—$127.9 million—results from the first-year implementation of the new Cal Grant entitlement program and the competitive grant program. Chapter 403, Statutes of 2000 (SB 1644, Ortiz), established the entitlement program, which provides financial assistance for higher education to every qualified graduating high school senior. It also provides 22,500 competitive awards to financially and academically eligible students. The augmentation also includes a $9.1 million increase in the Assumption Program of Loans for Education. The remainder of the augmentation is due to slight adjustments in various other financial aid programs.

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