LAO 2005-06 Budget Analysis: General Government

Analysis of the 2005-06 Budget Bill

Legislative Analyst's Office
February 2005

Commission on Teacher Credentialing (6360)

The Commission on Teacher Credentialing (CTC) was created in 1970 to establish and maintain high standards for the preparation and licensing of public school teachers and administrators. The CTC issues permits and credentials to classroom teachers, student services specialists, school administrators, and child care instructors and administrators. In total, it issues almost 200 different types of documents. In addition to setting teaching standards and processing credentials, the commission (1) performs accreditation reviews of teacher preparation programs; (2) develops, monitors, and administers licensure exams; and (3) investigates allegations of wrongdoing made against credential holders. The CTC also administers two local assistance activities—the Internship and Paraprofessional Teacher Training programs.

The CTC receives revenue from two primary sources—credential application fees and teacher examination fees. Application fee revenue is deposited into the Teacher Credential Fund (TCF) and examination fee revenue is deposited into a subaccount within the TCF, the Test Development and Administration Account (TDAA). These revenues support CTC's operations. The General Fund supports CTC's two local assistance programs.

Below, we discuss concerns we have with CTC's TCF and TDAA fund conditions for 2004-05 and 2005-06. We first discuss discrepancies in the current-year TDAA fund condition. We then discuss the Governor's budget proposal, under which both the TCF and TDAA would end 2005-06 without a prudent reserve.

Revised TDAA Fund Condition Requires Additional Explanation

We recommend the Legislature direct the Commission on Teacher Credentialing to explain during budget hearings why its 2004-05 beginning balance and revenue assumptions have changed so significantly within such a short amount of time.

Figure 1 compares the 2004-05 TDAA fund condition as estimated in January 2004 and November 2004. The January fund statement is critical because it was presented to the Legislature as part of the 2004-05 proposed budget, and its revenue and expenditure estimates form the basis of the 2004-05 Budget Act. The November fund statement revises the 2004-05 budget and establishes a base for the Governor's 2005-06 budget proposal.

Figure 1

Large Current-Year Fund Changes
Require Additional Explanation

Test Development and Administration Account
(In Millions)

 

2004‑05

 

January
2004

November 2004

Revenues

 

 

Beginning balances

$5.1

$2.5

Revenues

13.9

9.8

  Subtotals

($19.0)

($12.3)

Expenditures/
Transfers

 

 

Expenditures

$9.7

$9.7a

Transfers to TCF b

0.3

  Subtotals

($9.7)

($10.0)

Ending Balances

$9.3

$2.3

a  Expenditures have increased by $56,000.

b  Teacher Credential Fund.

As Figure 1 shows, there are large differences between the original and revised TDAA fund condition for 2004-05. In every respect, the revised fund condition is troubling. The CTC now expects to have a 2004-05 beginning balance only one-half of what it had originally estimated. In addition, its revenue estimate is down by $4.1 million. This represents a substantial decline (41 percent) even though the TDAA revenue stream tends to be rather stable. Whereas revenues are now expected to be much lower than originally anticipated, expenditures have increased slightly. The result of all these revisions is that CTC now expects to end the current year with a reserve of $2.3 million rather than the $9.3 million assumed in the 2004-05 Budget Act.

In response to our inquiries, CTC was not able to provide clear answers as to why its current-year budget had experienced such unforeseen changes. It asserts that the changes are due to a transition it currently is undergoing with its test contractors. Rather than test fees being funneled through CTC, test fees are now to flow directly from test takers to test contractors. Changing its relationship with its test contractors in this way would reduce the amount of test revenue it reflects in its fund condition, but it also would reduce, dollar-for-dollar, its expenditures. Thus, it seems very unlikely that this transition is explaining the large discrepancies noted above in the TDAA fund balance.

The Legislature needs an accurate current-year fund statement both to ensure CTC has proper fiscal management and to make well-informed budget-year decisions. One of the reasons the Legislature did not raise the credential application fee in 2004-05 was because the TDAA was projected to end the year with a substantial reserve. Without confidence in the fund statements, the Legislature is likely to have difficulty deciding how to proceed in the budget year, and it might be placed in the awkward position of increasing the credential application fee unnecessarily or having CTC run a deficit without a reserve to cover it. For these reasons, we recommend the Legislature direct CTC to explain (1) why such large changes to its TDAA fund statement have occurred in such a short amount of time and (2) if other revisions are expected.

If Fund Statements Reliable, Action Should Be Taken to Keep CTC Solvent

If the Commission on Teacher Credentialing (CTC) can show that it will not have a prudent reserve at the end of 2005-06, then we recommend the Legislature consider various options for maintaining CTC's solvency.

One of the reasons the current-year TDAA fund balance is so critical is because, under the Governor's budget proposal, both the TCF and TDAA would end 2005-06 with no reserve. Figure 2 shows the TCF and TDAA fund balances for the prior year, current year, and budget year.

Figure 2

If Fund Statements Reliable,
CTC Would End 2005‑06 With No Reserve

(Dollars in Millions)

 

2003‑04
Actual

2004‑05
Estimated

2005‑06
Budgeted

Teacher Credential Fund (TCF)

 

 

 

Revenues/Transfers

 

 

 

Beginning balances

$0.4

$1.3

  —

Revenues

13.2

13.2

$13.2

Transfers from TDAA

3.0

0.3

1.9

  Subtotals

($16.6)

($14.8)

($15.1)

Expenditures

$15.4

$14.8

$15.1

Ending Balances:

 

 

 

Amount

$1.3

    —

  —

Percent of expenditures

8%

    —

  —

Test Development and
Administration Account (TDAA)

 

 

 

Revenues

 

 

 

Beginning balances

$4.9

$2.5

$2.3

Revenues

11.5

9.8

9.8

  Subtotals

($16.3)

($12.3)

($12.1)

Expenditures/Transfers

 

 

 

Expenditures

$10.9

$9.7

$10.2

Transfers to TCF

3.0

0.3

1.9

  Subtotals

($13.8)

($10.0)

($12.1)

Ending Balances:

 

 

 

Amount

$2.5

$2.3

  —

Percent of expenditures

23%

23%

  —

If CTC can provide clear and accurate fund statements that show it would end 2005-06 without a prudent reserve, then we recommend the Legislature consider the following options for maintaining CTC's solvency.

Increase the Credential Application Fee. Every $5 increase in the application fee generates an estimated $1.1 million. This amount equates to a TCF reserve of 7 percent, which typically would be deemed a modest reserve for a small state agency. (Given the TDAA also is to end the budget year without a prudent reserve, the Legislature might want to consider a slightly larger fee increase in 2005-06 or 2006-07.)

Automate or Devolve Credentialing Authority. The Governor's budget includes a proposal that would entrust accredited university-run teacher preparation programs with essentially preapproving the credential applications they submit to CTC, and CTC in turn would grant the official credential without further review. As CTC currently evaluates more than 50,000 applications submitted from universities, this would notably re duce CTC's workload. Given it represents a reasonable and feasible option for achieving greater efficiencies, the Legislature may want to approve this proposal.

The Legislature also may want to consider related options that might achieve even more substantial efficiencies. It could consider authorizing a similar preapproval process for district-run teacher preparation programs and community college child development programs. (In addition to the credential applications noted above, CTC currently reviews approximately 10,000 child development permits.)

Alternatively, the Legislature could consider establishing a pilot program that would devolve issuance authority to teacher preparation and child development programs. These programs already hire their own credential/permit analysts, already review their students' applications, and already recommend approved candidates to the CTC. A pilot program would entrust these campuses with actually issuing the credential/permit to the applicants, thereby eliminating CTC's cursory review process altogether. Participating campuses could be required to issue their credentials/permits prior to the beginning of the school year. This in turn would reduce county workload because county offices of education must issue temporary county certificates to credential applicants who, prior to the beginning of the school year, have not yet received their official CTC document.

Pursue Additional Efficiencies. The 2004-05 Budget Act included budget bill language requiring CTC to submit a report to the Legislature and the Department of Finance that identified "at least three feasible options to further reduce processing time that could be implemented in 2005-06." The CTC submitted its report, which contains five efficiency options. (The commission is in the process of implementing some of these options.) Among the options is a proposal to conduct a public relations campaign to encourage more teachers to renew their credentials online and two proposals to eliminate hard copies of documents and instead provide only online access. Several of these proposals hold promise. The public relations campaign, for instance, could yield considerable long-term pay-off (as only 36 percent of eligible applicants currently renew online). The two online proposals also would reduce workload and postage costs. The Legislature may want CTC to provide periodic updates on its implementation of these efficiency initiatives.

In sum, the Legislature has a number of options for addressing a funding shortfall. Unless CTC can provide more reliable fund statements, it will however have difficulty knowing whether CTC is actually likely to experience a shortfall. If CTC can provide clear and accurate fund statements that show a likely budget-year shortfall, then it should offer the Legislature viable alternatives for addressing it. Ideally, CTC would submit a proposal that contains revenue options (for example, an increase in the credential application fee) and expenditure options (for example, an estimate of personnel savings under various efficiency options). We recommend the Legislature direct CTC both to provide more reliable fund statements and present various options for addressing a potential shortfall.


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