Crosscutting Issues

Education

Federal Funding

We recommend that the Secretary of Education, Superintendent of Public Instruction, the University of California, the California State University, and the California Student Aid Commission report to the Legislature at budget hearings on efforts they are taking to apply for federal grant programs.

The federal 2000 budget introduced February 1, 1999 provides almost $2 billion nationally for new federal programs which are not reflected in the Governor's budget. The most significant federal initiative is the President's federal Class Size Reduction program. California is guaranteed $129 million of the $1.2 billion provided for class size reduction nationally.

The remainder of the new federal funds are for grant programs for which either the Secretary of Education, Superintendent of Public Instruction, UC, CSU, or the California Student Aid Commission would have to apply. Figure 1 (see next page) displays the major new federal initiatives. Most of these federal initiatives parallel new programs under legislative consideration or were newly adopted in the last couple of years.

Since none of this new federal funding is reflected in the Governor's budget, we recommend the appropriate state agencies report to the Legislature on efforts they are taking to apply for federal funds, and how federal programs will be coordinated with state programs.

Figure 1
Major New Federal Initiatives
(Dollars in Millions)
Program Amount Nationallya California's Potential Share
Class size reduction $1,200 $129
Reading excellence act 260 31b
Community learning centers (after school programs) 200 24b
Gear-up (college access programs) 120 14b
Improving teacher quality 75 9b
Technology training 75 9b
Bilingual education profession development 25 8c
Total $1,955 $224
a Federal Fiscal Year 2000 (October 1, 1999 to September 30, 2000).
b These estimates are based upon 12 percent of the federal funds, which is approximately California's historic share of federal funds.
c This estimate is based upon California's prior ability to access bilingual education grants.

Introduction

K-12 Education

The budget includes an increase in K-12 Proposition 98 funding of $1.5 billion in the budget year. This is $192 per student, or 3.3 percent more than the revised estimate of per-student expenditures in the current year. The budget also proposes to spend $108 million from current-year Proposition 98 funds for one-time purposes in 1999-00.

Figure 1 (see next page) shows the budget from all significant sources for K-12 education for the budget year and the two previous years. As the figure shows, K-12 spending from all sources is projected to increase by $2.8 billion, or 7 percent, above the current-year level.



Figure 1
K-12 Education Budget Summary
1997-98 Through 1999-00

(Funding in Millions)

Actual 1997-98 Estimated 1998-99 Proposed 1999-00 Change From

1998-99

Amount Percent
K-12 Proposition 98
State (General Fund)
Cash $20,098.0 $22,066.4 $23,075.8 $1,009.4 4.6%
Loan repayment 200.0 250.0 310.0 60.0 24.0
Local property tax revenue 9,076.8 9,252.2 9,730.8 478.6 5.2
Subtotals, Proposition 98 ($29,374.8) ($31,568.6) ($33,116.6) ($1,548.0) (4.9%)
Other Funds
General Fund
Teachers' retirement $876.9 $245.1 $854.3 $609.2 248.6%
Bond payments 780.2 859.4 956.9 97.5 11.3
Other programs 125.0 237.3 444.7 207.4 87.4
State lottery funds 582.0 757.1 785.6 28.5 3.8
Other state funds 65.7 57.5 47.0 -10.5 -18.3
Federal funds 3,255.7 3,610.6 3,931.6 321.0 8.9
Other local 2,756.0 2,759.3 2,763.3 4.0 0.1
Totals $37,816.3 $40,094.9 $42,900.0 $2,805.1 7.0%
K-12 Proposition 98
Average Daily Attendance (ADA) 5,337,036 5,443,440 5,519,732 76,292 1.4%
Amount per ADA (excluding loan) $5,466 $5,752 $5,944 $192 3.3%

Proposition 98 funding constitutes about three-fourths of overall K-12 funding. For 1999-00, the budget proposes to increase K-12 Proposition 98 funding by $1.5 billion. This represents an increase of $192 per student to $5,944, or a 3.3 percent increase from the revised 1998-99 per-student amount.

The levels of Proposition 98 spending for 1997-98 and 1998-99 remain above the minimum guarantee required for these fiscal years. Due to downward revisions in estimates of average daily attendance (ADA) and state population for these two years, the calculated minimum guarantee has fallen. The revised budget, however, maintains funding at or near previous levels. As a result, the amount by which spending is above the minimum in 1997-98 grows from $177 million to $299 million and in 1998-99 grows from $413 million to $1 billion. These overappropriations have the effect of increasing the Proposition 98 base for all subsequent years. In the budget year, the proposed Proposition 98 appropriations meet, but do not exceed, the minimum guarantee.

One-Time Spending of Current-Year Savings. The budget also proposes spending $108 million of unspent current-year Proposition 98 funds. Generally, unspent current-year Proposition 98 funds are used for one-time purposes to satisfy the minimum guarantee. Since appropriations in 1997-98 and 1998-99 exceed the minimums by large margins, the state does have the option of reverting these balances to the General Fund for other state priorities. The budget, however, proposes to maintain current-year appropriation levels by using the $108 million in savings (from mandates and California Community Colleges) to augment various K-12 program activities (see Figure 2). We discuss these proposals later in this Analysis.

Figure 2
K-12 Education Governor's Budget Proposals for Current-Year Revenue
(In Millions)
Proposed Augmentations
Special education deficit $52.2
Digital high school 44.2
California Student Information Services 5.0
Oxnard extended year pilot 4.3
Moorpark desegregation 1.5
Los Alamitos desegregation 0.1
Standardized accounting code structure 0.3
Total $107.5a
Sources:
1998-99 Proposition 98 Savings
K-12 mandates $93.4
Community Colleges 14.1
Total $107.5
a Total does not add due to rounding.

Program Redirections. With regard to the Proposition 98 base for 1999-00, the Governor effectively augments the amount of funds available for new programs by redirecting $191 million currently budgeted for four existing programs--deferred maintenance, after-school programs, Beginning Teacher Support and Assessment program, and the Healthy Start Pregnancy Prevention program. The budget proposes to delete in the budget year $115 million currently allocated to deferred maintenance in order to have this amount available for other ongoing purposes. Due to implementation delays in the other three programs, the budget assumes that $76 million currently appropriated to these programs will remain unspent at the close of the current year. The budget proposes to reappropriate these amounts for expenditures in 1999-00 in place of what the budget otherwise would have provided out of the 1999-00 Proposition 98 "base." This proposal, if adopted by the Legislature, would "free up" a total of $76 million in the 1999-00 base for new programs, but only on a one-time basis. The Legislature consequently would need to "find" $76 million in the 2000-01 base to cover the ongoing costs of the three programs.

Figure 1 also shows that the budget includes expenditures of $3.9 billion in federal funds in 1999-00. This is $321 million, or 8.9 percent, more than estimated federal expenditures for California's schools in the current year. This change results primarily from increases to existing programs--Title I ($174 million) and special education ($51 million).

Governor's Budget Proposals

The budget proposes a General Fund K-12 Proposition 98 funding increase of $1 billion for 1999-00. (After including $479 million in higher estimated property tax allocations, total new Proposition 98 spending in K-12 education is $1.5 billion.) Figure 3 highlights the major changes proposed for K-12 Proposition 98 funds in the budget year.

The major budget proposals funded under Proposition 98 include:

Figure 3
Governor's K-12 Budget Proposals

Proposition 98 General Fund

(Dollars in Millions)
1998-99 (revised) $22,066.4
Enrollment Growth
Revenue limits $288.5
Categorical programs 55.2
Subtotal $343.7
Cost-of-Living Increases
Revenue limits $464.7
Categorical programs 106.0
Subtotal $570.7
Funding Adjustments
Digital high school $56.9
Special education 55.3
High school class size reduction 44.5
Test development and administration 37.9
Child care 25.7
Adult education 25.0
Mandates -56.7
Other 10.5
Subtotal $200.2
Program Expansion
Paraprofessional training $6.6
Subtotal $6.6
New Programs
Deficit reduction $200.0
Accountability 160.0
Reading improvement initiatives 102.0
English language initiatives 74.0
Enhancing teacher quality 22.8
Subtotal $558.8
Offsetting Adjustments
Property tax growth -$478.4
Deferred maintenance reduction -115.0
One-time base adjustments -76.1
Subtotal -$669.5
1999-00 (proposed) $23,075.8
Change from 1998-99 (revised)
Amount $1,009.4
Percent 4.6%

Proposition 98 Spending by Major Program

Figure 4 (see page 18) shows Proposition 98 spending for major K-12 programs. "Revenue limit" funding (available for school districts to spend on general purposes) accounts for $22.4 billion in 1999-00, or about 68 percent of total Proposition 98 expenditures. The state General Fund supports about 57 percent of revenue limit funding, and local property taxes provide the remaining 43 percent.
Figure 4
Major K-12 Education Programs

Funded by Proposition 98

General Fund (Dollars in Millions)
Estimated 1998-99 Proposed 1999-00 Change From

1998-99

Amount Percent
Revenue Limits
Schools and counties $21,492.5 $22,154.9 $662.4 3.1%
Less local revenuea -9,081.3 -9,547.3 -466.0 5.1
Subtotals ($12,411.1) ($12,607.6) ($196.5) (1.6%)
Mega-Item
Desegregation $613.5 $644.5 $31.0 5.1%
Economic impact aid 400.9 414.0 13.1 3.3
Home to school transportation 519.1 538.1 19.0 3.7
School improvement 394.5 407.3 12.8 3.2
Other programs 435.8 454.0 18.2 4.2
Subtotals ($2,363.8) ($2,457.9) ($94.1) (4.0%)
Existing Programs
Special education $2,111.9 $2,231.9 $120.0 5.7%
K-3 class size reduction 1,545.5 1,540.6 (4.9) -0.3
Child development 843.6 835.9 (7.7) -0.9
Instructional materials 580.6 586.1 5.5 0.9
Adult education 497.8 544.6 46.8 9.4
ROC/P 309.4 321.7 12.3 4.0
Summer school 210.8 222.4 11.6 5.5
Staff development day buy-out 195.0 221.9 26.9 13.8
Deficit factor buy-out -- 200.0 200.0 --
Deferred maintenance 141.2 19.9 (121.3) -85.9
Other 774.9 857.4 83.6 10.8
Subtotals ($7,209.7) ($7,582.2) ($372.5) (5.2%)
New or Revised Programs
Accountability -- $160.0 $160.0 --
English language learner -- 60.0 60.0 --
Reading initiatives -- 108.0 108.0 --
Teacher review $80.6 100.0 19.4 24.1%
Subtotals ($80.6) ($428.0) ($347.4) (431.2%)
Totalsb $22,066.4 $23,075.8 $1,009.4 4.6%
a Local revenue is from local property taxes and is included to show the full amount provided for revenue limits.
b Totals may not add due to rounding.

The largest "categorical" program (an expenditure earmarked for a specified purpose) is special education. The budget proposes to increase special education funding by $120 million in 1999-00 to $2.2 billion. The K-3 class size reduction program, started in 1996-97, will be the second largest categorical program in 1999-00. Due to significant downward revisions in K-3 enrollment, total funding for class size reduction decreases by $5 million after including a COLA increase, resulting in total spending of $1.5 billion. All remaining categorical programs are proposed to increase by $351 million, due to enrollment growth and COLA.

Governor's "Raising Expectations, Achievement, And Development" in Schools Proposal

Essentially everything that is "new" in the Governor's budget for K-12 education is part of his proposal called "Raising Expectations, Achievement, and Development in Schools" (READ). His proposal calls for various new programs in three basic areas: (1) improving reading skills, (2) enhancing professional staff quality, and (3) improving accountability in schools. We examine the Governor's proposals in these three areas separately in the detailed analysis that follows this introduction.

The READ programs total $444 million in new spending as follows:

Figure 5 (see next page) shows the proposed spending for each program in READ. Although some of the proposed spending would occur in higher education, all of it is directed at improving outcomes in the public K-12 schools. As the figure shows, READ includes $7 million in proposed appropriations to the University of California (UC) and $22 million to the California Community Colleges (CCC).

Figure 5 also indicates that the Governor proposes that most READ funding be appropriated in the special session for education, rather than in the 1999-00 Budget Bill. In fact, the Governor seeks a total of $413 million in the four special session bills that constitute his legislative package for READ. (Because this amount includes $83 million of redirected funds, new spending in the four bills totals $330 million.) The remaining $114 million is funded through the budget bill.
Figure 5
Governor's "READ"a Proposals
1999-00

(In Millions)

Program Amount Fund Appropriation Authority
Improving Reading Skills:
Intensive reading instruction (K-4) $ 75.0 Proposition 98 AB 2 x
"Classroom Library" books (K-4) 25.0 Proposition 98 Bill unspecified
Public Involvement Reading Campaign 4.0 General AB 2 x
Reading awards 2.0 Proposition 98 AB 2 x
Secondary school reading instruction 5.0 Federal Budget bill
English Language Learners (ELL) supplemental instruction 50.0 Proposition 98 Budget bill
ELL: staff development 10.0 Proposition 98 Budget bill
English Language Development Test 14.0 Proposition 98 Budget bill
Preschool reading guidelines 1.0 Federal Budget bill
Enhancing Professional Quality:
Reading Professional Development Institutes:
Administration (UC) $6.0 General AB 2 x
Teacher stipends 6.0 Proposition 98 AB 2 x
Teacher scholars (UC) 0.5 General AB 2 x
Principal leader institutes (UC) 0.5 General AB 2 x
Teacher peer review and assistance 100.0 Proposition 98 AB 1 x
Teacher and reading development Partnerships (CCC) 10.0 Proposition 98 Budget bill
Paraprofessional teacher training 6.6 Proposition 98 Budget bill
3.4 Federal Budget bill
Teacher credential fee waiver 1.5 General Budget bill
Accountability:
High school exit exams $2.0 Federal SB 2 x
Planning/implementation grants 32.3 Federal SB 1 x
10.0 Proposition 98 SB 1 x
Performance awards 150.0 Proposition 98 SB 1 x
High School Report Cards (CCC) 10.6 Proposition 98 Budget bill
Middle College High Schools (CCC) 1.8 Proposition 98 Budget bill
Subtotals $527.2
Less redirected funds -83.2
Totals, new spending $444.0
a Raising Expectations, Achievement, and Development.

LAO Special Session Guide to K-12 Reform

Just before the start of the special session, we released A Special Session Guide to K-12 Reform. In that report, we outlined general principles that we felt would help guide the Legislature's consideration of issues in the special session. Those principles include:

Our special session guide also suggested principles for improving teacher quality and accountability, and outlined ways of reforming categorical program funding. Much of the detailed analysis of the Governor's budget that follows is based on, and will refer to, this special session guide.

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