LAO 2003-04 Budget Analysis: Education

Legislative Analyst's Office

Analysis of the 2003-04 Budget Bill


K-12 Education Introduction

The budget includes an increase in K-12 Proposition 98 funding of $624 million in the budget year. This is $6,723 budgeted per pupil, or 0.6 percent more than the revised estimate of per-pupil expenditures in the current year. Adjusting funding for deferrals and realignment of child care, funding is $6,762 per pupil, or 1.8 percent more than the revised estimate of per-pupil expenditures in the current year.

Figure 1 displays all significant funding sources for K-12 education for the budget year and the two previous years. As the figure shows, Proposition 98 funding constitutes over three-fourths of overall K-12 funding. For 2002-03, the Governor proposes a mid-year reduction in K-12 Proposition 98 funding of $2,242 million, or 5.4 percent, to bring Proposition 98 appropriations down to the revised calculation of the minimum guarantee. This brings budgeted Proposition 98 per-pupil spending down from $7,067 per average daily attendance (ADA) in the 2002-03 Budget Act to $6,684. For 2003-04, the budget proposes to increase K-12 Proposition 98 funding by $624 million above the Governor's proposed mid-year revisions. This represents an increase of $39 per pupil, or 0.6 percent, bringing budgeted Proposition 98 per-pupil spending to $6,723. This increase in Proposition 98 funding is supported by a forecasted $677 million increase in local property taxes. General Fund support of Proposition 98 falls slightly.

The growth pattern of Proposition 98 spending is distorted because expenses were deferred from one fiscal year to another from 2001-02 through 2003-04. In addition, the Governor proposes realigning child care expenditures to counties, moving funding out of Proposition 98 in 2003-04, which makes cross-year comparisons difficult. Figure 2 displays the impact that the deferrals and child care realignment have on the growth of per-pupil spending. It moves deferred funds to the years when the expenditures occurred, and keeps child care expenditures in Proposition 98 for comparison purposes. Using this calculation, per pupil spending increased by $120, or 1.8 percent over the 2002-03 mid-year revision. The Legislature should focus on the programmatic funding outlined in Figure 2 when wanting to assess spending from a school district's perspective.

Figure 1

K-12 Education Budget Summary

2001-02 Through 2003-04 (Dollars in Millions)

 

Actual 2001-02

Mid-Year Revision 2002-03

Proposed 2003-04

Change From 2002-03

Amount

Percent

K-12 Proposition 98

 

 

 

 

 

State General Fund

$27,105.4

$26,372.7

$26,319.8

-$52.9

-0.2%

Local property tax revenue

11,717.9

13,033.1

13,709.8

676.8

5.2

Subtotals, Proposition 98a

($38,823.4)

($39,405.8)

($40,029.7)

($623.9)

(1.6%)

Other Funds

 

 

 

 

 

General Fund

 

 

 

 

 

 Teacher retirement

$805.5

$901.4

$51.0

-$850.4

-94.3%

 Bond payments

1,014.9

809.8

907.5

97.7

12.1

 Other programs

996.8

982.6

112.0

-870.6

-88.6

 State lottery funds

826.6

799.6

799.6

Other state funds

146.0

113.0

80.0

-33.0

-29.2

Federal funds

5,365.0

6,599.0

6,397.0

-202.0

-3.1

Other local funds

4,699.5

4,719.6

4,609.1

-110.5

-2.3

 Subtotals, other fundsa

($13,854.3)

($14,924.9)

($12,956.2)

(-$1,968.8)

(-13.2%)

  Totals a

$52,677.6

$54,330.7

$52,985.8

-$1,344.9

-2.5%

K-12 Proposition 98

 

 

 

 

 

Average daily attendance (ADA)

5,809,083

5,895,275

5,954,154

58,879

1.0%

Budgeted amount per ADA

$6,683

$6,684

$6,723

$39

0.6%

a Totals may not add due to rounding.

Spending for K-12 education from all sources is projected to decrease by $1.3 billion, or 2.5 percent, below the Governor's mid-year revisions. This reflects decreases in most K-12 funding sources. Key changes in non-Proposition 98 funds include:

Figure 2

K-12 Proposition 98 Spending Per Pupil Adjusted for Child Care Realignment and Funding Deferrals Between Years

2001-02 Through 2003-04

 

Actual 2001-02

Mid-Year Revision 2002-03

Proposed 2003-04

Budgeted Funding

 

 

 

Dollar per ADA

$6,683

$6,684

$6,723

Percent growth

0.6%

Programmatic Fundinga

 

 

 

Dollar per ADA

$6,844

$6,642

$6,762

Percent growth

-2.9%

1.8%

a To adjust for the deferrals, we counted funds toward the fiscal year in which school districts had programmatically committed the resources. The deferrals meant, however, that districts technically did not receive the funds until the beginning of the next fiscal year. To adjust for realignment, we counted 2003-04 child care spending in the budget-year per-pupil amount to make it comparable with prior-year numbers.

The budget includes $1.5 billion in new resources for K-12 Proposition 98 for 2003-04. The budgeted Proposition 98 increase for K-12 education is $624 million. In addition, the Governor proposes to transfer child care funding and responsibilities to counties, which frees up $879 million in Proposition 98 for other uses. Figure 3 shows how the budget proposes to spend this $1.5 billion in new resources. Major changes recommended for 2003-04 include:

 $931 million freed up from one-time costs of deferrals from 2001-02 to 2002-03.

 $648 million in 2002-03 program costs deferred to 2003-04.

 Building $648 million in programs back into the 2003-04 base.

Figure 3

Governor's K-12 Budget Proposals 2003-04 Proposition 98

(In Millions)

 

Amount

Available Resources

 

Increase in K-12 spending

$623.9

Funding "freed up" by realigning child care

878.8

 Total

$1,502.7

Program Allocations

 

Backfill programs funded from Proposition 98 Reversion Account

438.0

Public Employees' Retirement System offset

381.7

Net impact of funding deferrals

364.0

Revenue limit growth

321.5

Equalization

250.0

Cost-of-living increases

Public School Accountability Act reductiona

-153.8

Instructional materials reductiona

-145.8

Special education federal fund offseta

-115.8

Net other

163.0

 Total

$1,502.7

a Proposals which free up funds for other K-12 purposes.

Proposition 98 Spending by Major Program

Figure 4 shows Proposition 98 spending for major K-12 programs. "Revenue limit" funding (available for school districts and county offices to spend on general purposes) accounts for $29 billion in 2003-04, or over two-thirds of Proposition 98 expenditures. The General Fund supports about 53 percent of revenue limit funding, and local property taxes provide the remaining 47 percent.

The Governor proposes to consolidate most "categorical programs" into a $5.1 billion block grant. The two largest categorical programs, special education and K-3 class size reduction (CSR), would remain separate programs. The budget proposes $2.7 billion from Proposition 98 sources for special education, a decrease of $9 million. K-3 CSR funding remains the same at $1.5 billion.

Enrollment Trends

Enrollment growth significantly shapes the Legislature's annual K-12 budget and policy decisions. When enrollment grows slowly, for example, fewer resources are needed to meet statutory funding obligations for revenue limits and K-12 education categorical programs. This leaves more General Fund resources available for other budget priorities both within K-12 education and outside it. Conversely, when enrollment grows rapidly (as it did in the 1990s), the state must dedicate a larger share of the budget to education. In light of the important implications of enrollment growth, we describe below two major trends in the K-12 student population.

The enrollment numbers used in this section are from the Department of Finance's Demographic Research Unit, and reflect aggregate, statewide enrollment. While the enrollment trends described here will likely differ from those in any given school district, they reflect the overall patterns the state is likely to see in the near future.

Figure 4

Major K-12 Education Programs Funded by Proposition 98

(Dollars in Millions)

 

Mid-Year Revision 2002-03

Proposed 2003-04

Change

Amount

Percent

Revenue Limits

 

 

 

 

General Fund

$15,019.5

$15,289.3

$269.8

1.8%

Local revenue

13,033.1

13,709.8

676.8

5.2

 Subtotals

($28,052.6)

($28,999.1)

($946.5)

(3.4%)

Categorical Block Granta

 

 

 

 

Targeted instructional grantb

$668.7

$662.4

-$6.3

-0.9%

Adult educationb

506.9

500.4

-6.5

-1.3

Home to school transportationb

475.7

467.3

-8.4

-1.8

Economic impact aid

444.7

439.0

-5.7

-1.3

School improvementb

389.6

386.0

-3.6

-0.9

Regional Occupational Centers and Programsb

359.3

342.3

-17.0

-4.7

Instructional/library materialsb

373.6

224.9

-148.7

-39.8

Supplemental grantsb

229.9

229.9

Staff development day buy-out

204.8

202.2

-2.6

-1.3

Deferred maintenance

183.4

181.0

-2.3

-1.3

Deferrals paid

931.3

647.7

-283.6

-30.5

Other

853.4

859.3

5.9

0.7

 Subtotals

($5,621.3)

($5,142.4)

(-$478.8)

(-8.5%)

Other Categorical Programs

 

 

 

 

Special education

$2,667.8

$2,659.0

-$8.8

-0.3%

Class size reduction

1,479.7

1,479.7

Child development

1,199.6

421.5

-778.1

-64.9

Summer school/after school

433.3

436.8

3.6

0.8

Public schools accountability act

419.5

288.3

-131.2

-31.3

Mandates

111.9

110.4

-1.4

-1.3

Assessments

99.7

101.8

2.1

2.1

Other

406.4

390.7

-15.7

-3.9

 Subtotals

($6,817.6)

($5,888.1)

(-$929.5)

(-13.6%)

Adjustmentsc

-1,085.6

1,085.6

-100.0

  Totals

$39,405.8

$40,029.7

$623.9

1.6%

a Amounts shown for each program in categorical block grant for 2003-04 for illustrative purposes only.

b Includes funds deferred in 2002-03 and paid in 2003-04 and funds paid from reversion account for these programs.

c Adjustments include deferred amounts appropriated in 2003-04 and programs funded by a Proposition 98 Reversion Account swap.

K-12 Enrollment Growth to Slow Significantly

K-12 enrollment is projected to increase by about 1 percent in 2003-04, bringing total enrollment to about 6.2 million students. Figure 5 shows how enrollment growth has slowed since 1996-97. Over the next ten years, K-12 enrollment growth will continue to slow and actually decline beginning in 2008-09. This contrasts with growth averaging 2.2 percent annually during the 1990s.

Divergent Trends in Elementary and High School Enrollment

Figure 6 shows that the steady decline in K-12 enrollment growth masks two distinct trends in elementary (grades K-8) and high school (grades 9-12) enrollment. Elementary school enrollment growth has gradually slowed since 1996-97. Growth rates are expected to become negative in 2004-05 and remain negative through 2010-11. From the current year through 2010-11, K-8 enrollment is expected to decline by 87,100 pupils (2 percent).

In contrast, high school enrollment growth is expected to accelerate in the short term, reaching a 4.1 percent growth rate in 2004-05. Then, growth is expected to slow sharply, becoming negative in 2010-11. Expected growth from the current year to 2010-11 is approximately 246,000 pupils (14 percent).

Budget and Policy Implications

These trends have significant budgetary and policy implications for issues such as class size reduction, teacher demand, and facilities investment. A few of the major implications include:


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