Analysis of the 2005-06 Budget Bill Legislative Analyst's Office February 2005

Categorical Reform

Recent categorical reform enacted through Chapter 871, Statutes of 2004 (AB 825, Firebaugh), consolidates 26 existing programs into six block grants to take effect in 2005-06. It requires that districts and county offices of education (COEs) use the consolidated funding for the purpose of the programs subsumed in each block grant. Figure 1 shows the programs included in the six block grants.

Chapter 871 contains several provisions pertaining to flexibility over the use of the block grant monies. The law, for instance, allows districts and COEs to transfer annually up to 15 percent of funding from four of the block grants into the other block grants or into other categorical programs. No funds, however, may be transferred out of the Pupil Retention and Teacher Credentialing block grants. The total funding a district or COE may expend for a program to which funds are transferred may not exceed 120 percent of the amount apportioned for that program in that fiscal year.

We have particular concerns about the Pupil Retention Block Grant (PRBG) and the two teacher training block grants. In the sections that follow, we discuss these concerns.

Categorical Reform and Supplemental Instruction

We recommend the Legislature adopt trailer bill language adding two supplemental instruction programs to the new Pupil Retention Block Grant along with a requirement specifying that "first call" on funds in the block grant must be for these supplemental instruction program costs.

The PRBG, one of the six block grants created by Chapter 871, consolidates 11 programs that support supplementary instruction and services for students at risk of academic failure. The budget includes $173 million for this block grant and will provide an additional $26.7 million of deferred amounts in a trailer bill.

Figure 2 shows the programs that are consolidated in the block grant. More than one-half of the funding comes from the "core" supplemental instruction program. Other programs included in the block grant support various other supplemental instruction programs and interventions for at-risk youth. Three programs, intensive reading supplemental instruction, algebra academies supplemental instruction, and Early Intervention for School Success, were not funded in 2004-05 and therefore do not add to the total amount in the block grant for 2005-06.

Complex "Holdback" for At-Risk Instructional Programs

Chapter 871 also creates a unique funding interaction between the PRBG and two programs for supplemental instruction that are not included in the block grant. These two programs provide extra help to students in grades 7 through 12 who are at risk of failing the California High School Exit Exam and students in grades 2 through 9 who have been recommended for retention. The 2005-06 budget proposes $165 million for the grades 7 through 12 program and $40 million for the grades 2 through 9 program. State law, however, entitles districts to full reimbursement for the number of instructional hours provided for at-risk students through the two supplemental instruction programs.

Chapter 871 establishes the following process to create a funding set aside for any unfunded costs of the two supplemental instruction programs:

• The act directs the State Department of Education (SDE) to allocate 75 percent of the block grant to districts.
• The other 25 percent will be held back until the required supplemental instruction has been fully funded.
• If the 25 percent holdback proves insufficient to cover the remaining costs of the additional supplemental instruction programs, the State Controller will transfer any amounts necessary from the current budget or subsequent budgets for the PRBG to cover the deficits.
• Any remaining block grant funds left from the 25 percent holdback will be distributed to districts.

Mandate Ruling Creates Another Cost Pressure

Recent action by the Commission on State Mandates (CSM) will increase the cost of the supplemental instruction program for students in grades 2 through 9. Current law requires districts to develop policies for retaining low-achieving students in grade. Students who are identified for retention under this policy must be offered supplemental instruction. The CSM found this state law to constitute a reimbursable state-mandated program.

The commission's findings are likely to substantially increase the cost of the grades 2 through 9 supplemental instruction program. In adopting the reimbursement methodology for the mandate (through the "parameters and guidelines"), CSM provided districts substantial latitude in determining the level of activities and services to comply with the state's mandate for the program. For example, the parameters and guidelines do not stipulate the allowed teacher-pupil ratios, number of hours of supplemental instruction, length of intervention, or proportions of the districts' students eligible to receive these services. While CSM's current estimate of the mandate's cost is low, districts are likely to adapt their service models to provide more costly instruction to take advantage of the uncapped funding. As a result, we think the cost is likely to grow substantially in the future—possibly into the tens of millions of dollars annually.

Block Grant Faces Implementation Problems

While the intent behind the holdback—to contain the statewide costs of the two supplemental instruction programs—has merit, it renders the PRBG unworkable from a district perspective. In addition, the holdback does nothing to alter district incentives that could significantly increase the cost of the required supplemental instruction. We describe these potential problems below.

Block Grant Robs Peter to Pay Paul. As currently structured, the holdback provision of the block grant does not encourage districts to contain the costs of the two supplemental instruction programs. Instead, Chapter 871 would pay for increased district costs for supplemental instruction by redirecting block grant funds away from other districts. As a result, districts have little incentive to contain the costs of the supplemental instruction programs.

Timing Problems Create Budget Uncertainties for Districts. Districts' efforts to plan and implement programs using the new block grant will be constrained by the timing of the 25 percent holdback provision. Current apportionment practices at SDE suggest that the department will not allocate the 25 percent holdback for at least two years after the close of the fiscal year in order to tally the final cost of the two instructional programs. As a result, districts will either have to fund programs before they know whether state dollars will be provided or reduce services to students.

Funding Inequities Among Districts May Result. Claims for the supplemental instruction programs are currently concentrated in relatively few districts. Our review shows that only 92 districts have filed any claims for the two instructional programs. As a result, these districts would likely receive funding for supplemental instruction through the holdback provision of Chapter 871. Districts that do not submit claims for the two programs may be disadvantaged, as their 25 percent holdbacks are used to fund the other districts' mandate claims. As a result, the holdback provision may increase funding inequities among districts.

Add the Required Supplemental Instruction Programs To the Block Grant

As described above, the holdback provision results in many problems. To address these concerns, we recommend the Legislature revise the structure of the PRBG to take advantage of the strengths of a block grant in encouraging districts to control the cost of the supplemental instruction programs. The current structure creates the wrong incentives for districts and makes administration of the fund problematic. Instead, we recommend the Legislature give districts freedom over the use of a fixed level of funding for all pupil retention and promotion programs. With this change, the state would create strong local incentives to promote the efficient and locally appropriate use of those funds.

Specifically, we recommend the Legislature:

• Adopt trailer bill language to eliminate the holdback provisions from the PRBG.
• Consolidate the two supplemental instruction programs into the new block grant. This would increase the amount in the block grant by $205 million in 2005-06 (plus $63 million in deferred payments).
• Add language in the budget bill and trailer bill to require that first call on the PRBG funds must be for all costs—including any mandated costs—of the two instructional programs. We also recommend the Legislature add trailer bill language that limits the hourly reimbursement rate under the grades 2 through 9 instructional program to the amount provided in the annual budget act. Together, these two changes would significantly reduce the likelihood of any additional district claims for the two programs.

By including the required programs in the block grant, our recommendation would require districts to determine how best to use funds in the PRBG. Consequently, districts would allocate the block grant resources among the various intervention programs. We think this would greatly strengthen local incentives for cost containment because any "excess" costs for the two programs would reduce the amount of block grant funds available for other programs funded from the grant. It also would eliminate the problem of the two-year delay in knowing the amount of block grant funds available to each districts.

Linking Teaching With Learning

For the last several years, we have expressed concern with the state's approach toward K-12 professional development—funding dozens of different programs that ostensibly serve the same general purpose, though they are not well coordinated and entail considerable state and local administrative burden. We also have had an overriding concern with the state's incapacity to determine the value of its various professional development investments. This incapacity is due largely to the lack of a state-level database that tracks program outcomes. Thus, we continue to recommend that the state build a teacher database that can be linked with its student database.

Below, we review recent developments relating to the state's teacher training programs. We then describe the Governor's budget-year teacher training block grant proposal and recommend specific changes to it. Most importantly, as a condition of receiving block grant monies, we recommend participating districts be required to supply the state with the data needed to do meaningful program evaluations.

Recent Developments Enhance Flexibility, Ignore Accountability

Chapter 871 established six block grants, including two teacher training block grants—the Teacher Credentialing Block Grant and the Professional Development Block Grant—that would take effect in 2005-06 (see Figure 3). The Governor's budget proposal would add three programs to the Professional Development Block Grant. The 2005-06 budget also includes trailer bill language that would nominally merge the two block grants into a new "Professional Development and Teacher Credentialing Block Grant," though the teacher credentialing component, for all practical purposes, would be preserved as a distinct program—having a separate appropriation, funding mechanism, and expenditure requirements.

Chapter 871 Provides Small Increase in Flexibility. As established by Chapter 871, the Professional Development Block Grant consolidates funding for the sizeable Staff Development Buyout Day program and two small intersegmental programs. The Professional Development Block Grant provides some additional flexibility by allowing districts to use block grant monies for teacher recruitment and retention (such as offering signing bonuses and housing subsidies) as well as professional development. It somewhat reduces this flexibility, however, by requiring districts to provide all K-6 teachers with professional development in reading language arts. The credentialing block grant is itself a misnomer. It contains only one existing program (Beginning Teacher Support and Assessment [BTSA]) and makes no changes to the associated spending requirements, thereby offering no additional flexibility.

Governor's Budget Proposal Would Provide Another Small Increase in Flexibility. As shown in Figure 1, the administration proposes to add three programs to the newly created Professional Development Block Grant—the most notable being the Peer Assistance and Review program. It also would slightly increase local flexibility by allowing block grant monies to be used for teacher training relating to the Advancement Via Individual Determination program. The block grant would not include the Mathematics and Reading Professional Development (MRPD) program—despite it being the state's largest existing professional development program.

Neither Chapter 871 Nor Governor's Proposal Enhances Accountability. Chapter 871 is clear in its intent to: (1) "refocus attention . . . on pupil learning rather than on state spending and compliance with operational rules for categorical programs" and (2) "provide schools increased flexibility in the use of available funds in exchange for accountability." The teacher training block grants, however, neither focus directly on student learning nor enhance accountability. Similarly, the Governor's proposal contains no link between teacher training and student learning, no data requirements, and no accountability provisions. It would provide $362 million for teacher training without any meaningful mechanism for assessing whether the state investment was worthwhile and cost-effective compared to other education programs.

Enhance Flexibility and Strengthen Accountability

We recommend the Legislature approve the Governor's proposed additions to the Professional Development Block Grant with three modifications. Unlike the Governor's budget proposal, we recommend including the Mathematics and Reading Professional Development program in the block grant and excluding Teacher Dismissal Apportionments.

Additionally, we recommend the Legislature require school districts, as a condition of receiving block grant monies, to provide the State Department of Education with specific teacher-level data that can be linked with student-level Standardized Testing and Reporting data.

In general, we recommend approval of the Governor's proposal to merge additional teacher training programs into the Professional Development Block Grant. We think, however, that increased local flexibility should be accompanied by enhanced accountability—particularly by strengthening the state's capacity to conduct comparative program evaluations. Below, we discuss our specific recommendations for changes to the Governor's budget proposal.

Include the MRPD Program. Established in 2001, the MRPD program provides teachers with 120 hours of highly structured, standards-aligned training—including 40 hours of initial intensive training and 80 hours of onsite follow-up support and coaching. School districts receive $2,500 per participating teacher and are required to use state-approved professional development providers. The Governor's proposal excludes this program because it "provide[s] specific training to teachers . . . during a limited time period." All professional development programs presumably provide some type of training to teachers, so it is unclear why this would be a criterion for exclusion from a teacher training block grant. Moreover, the MRPD program is to sunset on January 1, 2007, but it has been funded with ongoing Proposition 98 monies ever since its inception—indicating an intent to use the funds for an ongoing education purpose, such as professional development. Furthermore, the MRPD program is the state's largest remaining professional development program; excluding it would undermine one of the major advantages of block granting—increased flexibility. Finally, the Governor's proposal includes new budget bill language that would require all professional development activities to be aligned with the state's academic content standards and curriculum frameworks—what some believed to be the unique advantage of the MRPD program. For these reasons, we recommend including it in the Professional Development Block Grant.

Exclude Teacher Dismissal Monies. The administration proposes to include Teacher Dismissal Apportionments—a tiny budget item ($43,000) unrelated to professional development. As its name suggests, the program relates to teacher dismissal and suspension. If a governing school board seeks to dismiss or suspend a permanent employee of the district, the employee may request a hearing. The board and employee each select an individual to sit on a review panel (accompanied by an administrative law judge). If the panel members need to conduct the employee review during the summer or vacation period and they determine the employee should be dismissed or suspended, then the state (rather than the school district) reimburses them for their time (at their regular rate). It is unclear why the state would fold this item into a virtually unrelated block grant. Therefore, we recommend it be excluded.

Integrated Data System Essential for Meaningful State-Level Program Evaluations and Local-Level Accountability. If the state is setting aside monies specifically for a teacher training block grant to improve teacher quality, then it needs data on teachers' professional development activities and the effect of these activities on student learning. Under the current system (with a few exceptions), school districts fill out applications, the state gives them money, and the cycle begins anew. The state, however, does not know if programs meet their objective, if teaching and learning actually are improved, if any particular program achieves better results at a lower cost, or if certain program components are especially effective in helping schools with disadvantaged students. Without this type of information, the state will not be able to determine what types of professional development enhance student learning. With this information, professional development programs can be compared, their cost-effectiveness assessed, and budget decisions refined. This is why, for the last two years, we have recommended the state establish an integrated teacher-student data system. (Please see "Enhance State's Teacher Information System," 2003-04 Analysis of the Budget Bill [pages E-158 to E-161], and "Enhance Accountability for Improving Teacher Quality, 2004-05 Analysis of the Budget Bill [pages E-62 to E-64].) We would also note that many education groups have expressed interest in such systems (see nearby box).

To help the state collect the data needed for program evaluation, we recommend the Legislature require school districts, as a condition of receiving Teacher Credentialing or Professional Development Block Grant monies, to provide SDE with specific teacher-level data linked with students' Standardized Testing and Reporting (STAR) scores. Specifically, participating school districts should be required to:

• Identify the type of professional development undertaken and completed by each teacher, using a unique teacher identifier.
• Complete the currently optional STAR item identifying a student's teacher, using the same unique teacher identifier that is used to track professional development activities.

As a condition of receiving Teacher Credentialing Block Grant monies, we recommend participating BTSA programs be required to:

• Share with SDE teacher-level demographic, retention, and assessment information that it already collects, using the same unique teacher identifier. (The BTSA program currently uses a consent form to collect participating teachers' social security numbers, demographic information, teaching assignments, and education backgrounds.)

In conclusion, we recommend the Legislature establish an integrated teacher-student data system that would both promote meaningful state-level program evaluations and help hold districts accountable for using block grant monies in ways that actually improve teacher quality. Importantly, this state-level system would not be intended to replace existing processes for local teacher evaluations (some of which, however, already use locally integrated teacher-student systems). It would be intended to maximize the benefits of any potential categorical reform of K-12 professional development programs.

Assure Block Grant Monies Are Tied to Need

We recommend the Legislature adopt trailer bill language to change the funding mechanism for both the Teacher Credentialing and Professional Development block grants to ensure they remain responsive to changes in districts' needs. Specifically, we recommend Teacher Credentialing block grant allocations be determined annually based on the number of first-year and second-year teachers in the district. We recommend Professional Development Block Grant allocations be determined annually based on the number of teachers in the district with three or more years of experience.

In developing the new teacher training block grants, Chapter 871 changed the existing funding mechanisms from being dynamic and need-based to locking in the current funding distribution into perpetuity. Prior to Chapter 871, BTSA monies were allocated based on the number of participating first- and second-year teachers. Thus, it targeted funds to hard-to-staff schools with high teacher turnover as well as to growing schools with large numbers of first- and second-year teachers. Moreover, it annually adjusted districts' allocations in response to changes in staffing needs. Although less need-based, the Staff Development Buyout Day program was linked to the number of teachers attending professional development workshops. It too adjusted districts' allocations annually based on changes in the number of teachers receiving training.

Chapter 871 Severs Link to Need. By comparison, both of the new block grants lock in place the 2005-06 funding distributions and thereafter adjust them for inflation and growth in average daily attendance. Funding, therefore, will no longer be responsive to districts' staffing needs. Instead, they will create new funding inequities. Those areas most needing additional funding—those serving additional beginning teachers and those fastest growing—virtually are assured of not receiving it.

Re-Establish Link Between Funding and Need. We recommend re-establishing the link between districts' funding allocations and their staffing needs. Specifically, we recommend that districts' allocations for the credential and professional development block grants be made annually based on the number of beginning and veteran teachers, respectively. This will ensure that funding allocations remain dynamic and responsive to changing needs—providing more funding to those districts that most need it.