LAO 2006-07 Budget Analysis: Education

Analysis of the 2006-07 Budget Bill

Legislative Analyst's Office
February 2006

After School Programs and Proposition†49

As approved by voters in 2002, Proposition†49 requires the state to increase funding for the After School Education and Safety (ASES) program beginning in 2006-07 (based on a complicated trigger calculation). The initiative requires an increase of $426†million from the $122†million currently provided for ASES, for a total funding level of $548†million (there is also roughly $2†million used for California Department of Education (CDE) administration and evaluation costs). These additional funds are provided for the program ďon top ofĒ the stateís Proposition†98 minimum funding guarantee (referred to as an ďoverappropriationĒ). Proposition†49 also converts after school program funding to a ďcontinuous appropriationĒ (that is, no annual legislative action is needed to appropriate funds).

Background on Current Program

Both the ASES program and a related federal program-the 21st Century Community Learning Centers (21st Century)-provide competitive grants to elementary and middle schools primarily for after school services to students between the hours of 3 p.m. and 6 p.m. The program provides both an academic component and an educational enrichment component. The academic component generally consists of tutoring and/or homework assistance in core academic subjects. The enrichment component generally involves physical activities, art, or other general recreation activities.

Under ASES, schools are reimbursed at a rate of $5 per student, per day. The initiative establishes caps on grants to participating schools, which vary depending on when a school entered the program, and whether one-half of the students in the school are eligible for a free or reduced cost meal. Under Proposition†49 all schools would be effectively guaranteed a grant-$50,000 for an elementary school and $75,000 for a middle school-regardless of the size of the school. Schools are required to provide 50 cents in local match for each state dollar provided. If the annual appropriation is insufficient to fund all grant applications, priority is given to schools with more than one-half of their students eligible for the federal free or reduced-price lunch program.

From our review of the Governorís proposal for implementing Proposition†49, we have identified the following issues:

We discuss these issues below.

Recommend Legislature Repeal Proposition†49

We continue to recommend the Legislature enact legislation placing before the voters a repeal of Proposition†49 because (1) it triggers an autopilot augmentation even though the state is facing a structural budget gap of billions of dollars, (2) the additional spending on after school programs is a lower budget priority than protecting districtsí base education program, and (3) existing state and federal after school funds are going unused.

In the 2005-06 Analysis, we recommended the Legislature repeal Proposition†49. We continue that position, recommending that the Legislature place the repeal of Proposition†49 before the voters on the June 2006 ballot for the following reasons: (1) it triggers badly timed autopilot spending, (2) the program is a lower priority than other K-12 needs, (3) the program may crowd out K-12 spending on higher priority programs, and (4) Proposition†49 funds are not likely to be spent in a timely manner.

Autopilot Spending Badly Timed. Proposition†49ís intent was to give after school programs the first call on additional General Fund revenues. Since its passage, the fiscal environment has changed significantly-with the state struggling through several consecutive years of budget difficulties. The state continues to face a significant budget problem with a multibillion dollar structural budget gap for the near future. Moreover, the autopilot formula that triggers Proposition†49 creates additional spending obligations without the Legislature and Governor being able to assess the merits of the augmentation compared to other budget priorities.

Lower K-12 Education Priority. In previous sections, we have discussed the fiscal problems that school districts face over the near future to maintain their base education programs. From our perspective, maintaining the base program is a higher priority than expanding after school funding. We think this is particularly the case given that some school districts are struggling with basic solvency issues. For example, providing extra after school funding for Oakland Unified will not help the district improve its local budget to get out of state receivership, and in fact may make its fiscal situation worse (for example, if Oakland used local funds to meet the Proposition†49 matching requirements). If the state wants to provide additional funds to schools, we think providing funding to address basic solvency issues or pay down the education credit card would be a higher priority.

Proposition†49 May ďCrowd OutĒ Spending for Other, Higher Priority K-12 Programs. The finance mechanism in Proposition†49 requires the state to fund Proposition†49 as an appropriation in excess of the Proposition†98 minimum guarantee. Under the Legislative Analystís Office (LAO) and the Department of Finance (DOF) reading of the measure (discussed in detail later in this analysis), these additional funds would restore Proposition†98 ďmaintenance factor,Ē that, absent the measure, would be restored to K-14 education in future years. What may appear to be a technical matter, has a practical effect. It means that, in the near future, the funding for Proposition†49 will likely come at the expense of other K-14 spending priorities, not non-Proposition†98 General Fund priorities. Similarly, while some in the education community disagree with this interpretation, it is our view that Proposition†49 expenditures will count toward the Proposition†98 minimum under Test 1. We forecast the state transitioning to a Test 1 minimum guarantee starting as early as 2008-09. Under Test 1, K-14 education will receive a specific percentage of General Fund revenues, and Proposition†49 funds will count toward that spending level. Once this transition occurs, Proposition†49 funding would come at the expense of other K-14 priorities.

Proposition†49 Funding Not Likely to Be Spent in a Timely Manner. The state has had a difficult time spending ASES funds as well as federal after school funding in a timely fashion. The state program reverts around $30†million out of $122†million each year because of problems with the reimbursement process and budget and contracting delays. (We discuss these problems in detail below.) The federal after school program has had a worse usage rate. While the Legislature took some steps in the 2005 session to improve the usage of funding, a large amount of the Proposition†49 augmentation would likely go unused, particularly in the near term. We are also concerned that a large portion of the funds would be used inefficiently in early years of the programís implementation.

In summary, because of the autopilot nature of the trigger, the impact that this appropriation could have on the budget problem, the relatively lower priority of after school programs compared to schoolsí base education program, and the small likelihood funding actually would be spent in the near term, we continue to recommend the Legislature enact legislation placing before the voters a repeal of Proposition†49. Absent a full repeal of Proposition†49, the Legislature could place a measure before the voters to either delay implementation until the state has balanced its structural budget gap or phase in the program over several years.

The Legislature Faces Legal†Constraints†and†Uncertainties

We recommend the Legislature seek legal advice on the extent to which it can statutorily alter the provisions of Proposition†49.

If the Legislature chooses not to repeal Proposition†49, it will still face various legal issues regarding the programís implementation. Specifically, since Proposition†49 was passed by the voters, there are restrictions on the type of changes that can be made to its provisions without returning the measure to the voters for clarification. Second, there are differences of opinion on how Proposition†49 interacts with the Proposition†98 minimum guarantee.

What Changes Can the Legislature Make Without†Going†Back†to†the†Voters?

The administration proposes numerous changes to the ASES program and provisions of Proposition†49 to attempt to address some of the problems with the current program. (We discuss these changes in detail in the next section of this write-up.) It is unclear, however, whether the Legislature can make these changes through statute, or whether they would have to be approved by voters.

Some Program Elements Can Only Be Changed With Voter Approval. The initiative prohibits legislative amendments to key portions of the measure. The Legislature would need to seek voter approval if it wanted to: (1)†delay program implementation, (2) change the amount of funds provided (including those related to the ďno supplantingĒ provisions), or (3) change the provisions guiding how the initiative interacts with the requirements of Proposition†98. Some have questioned, for example, the administrationís interpretation of the Proposition†98 portions of the measure. If the Legislature wanted to clarify the impact that this measure would have on the Proposition†98 calculation, it would have to submit changes to the voters.

The initiative also prohibits using ASES funds to supplant existing funds, and the Legislature is barred from amending this portion of the act. Yet the Governorís budget proposal appears to use Proposition†49 funds to supplant other monies. Specifically, the administration proposes to allow elementary and middle schools currently supported by federal 21st Century funds to transfer into ASES. This proposal would free up 21st Century funds that the administration redirects to high school after school programs to help assist students in passing the high school exit exam. We think that this is a clever way of addressing a current state need. It would appear, however, that the Legislature would need to go back to the voters to implement this part of the Governorís proposal.

What ďFurthers the PurposeĒ of ASES Programs? The remainder of the Proposition†49 requirements can be amended by a majority vote of the Legislature to further the purpose of the program. But, exactly what qualifies as furthering the purpose of the measure is in the eye of the beholder. For example:

While both of these proposed changes may make the program more effective from the stateís viewpoint, they represent significant departures on key program elements that were approved by voters. For this reason, we recommend the Legislature seek legal advice on the matter.

Clarify the Interaction With Proposition†98 and How†the†State†Should†Treat†Unused†Funds

The Proposition†49 trigger mechanism requires the state to provide an additional $426†million after the state has fully met its Proposition†98 minimum guarantee. The measure is clear that these new funds become part of the Proposition†98 base in future years. As discussed earlier, both LAO and DOF read these requirements as counting toward the restoration of Proposition†98 maintenance factor in 2006-07. The maintenance factor is an obligation that the state created in 2004-05 when the Legislature suspended the Proposition†98 minimum guarantee. When Proposition†98 was suspended, a maintenance factor was created that is the difference between the required minimum guarantee for that year and the actual spending level. In future years, this maintenance factor is restored in years of strong General Fund growth or when the state appropriates above the minimum guarantee.

Since Proposition†49 requires appropriations above the minimum guarantee, these appropriations restore a part of the outstanding maintenance factor. So, in effect the Proposition†49 funds will reduce the Proposition†98 obligations for future years. Some in the education community, however, believe that LAO and DOFís reading is counter to the intent of Proposition†49. The Legislature may want to clarify this issue, either through statute or by taking the issue back to voters.

What Happens to Proposition†49 Funds That Are Not Spent? Depending on how the Legislature chooses to implement Proposition†49, the program could result in hundreds of millions of dollars going unspent. As discussed above, the current ASES program reverts about a quarter of its funds annually (these funds are sent to the Proposition†98 Reversion Account). From past experience, as new cohorts were created under either the state or federal after school program, over one-half of the new funds generally went unused in the first year. Since Proposition†49 does not address what should occur with unused after school funds, it will be up to the Legislature to determine how to treat them. We see three options for ASES funds:

How the Legislature decides to handle these issues could affect other changes it decides to make to the program.

A Framework for Evaluating Competing After†School Proposals

In this section, we provide a framework for the Legislature in evaluating the Governorís proposal for after school programs (both ASES and the 21st Century). We then provide a summary of our concerns with the proposal.

Governorís Proposal Makes Significant Program Changes

As of this writing, the Governorís proposed changes to the Proposition†49 initiative language, ASES program, and 21st Century program had not yet been submitted to the Legislature, so we are unable to comment on the details of the Governorís proposal. The following reflects our understanding of the key components of the proposal based on information shared by DOF:

Some of the changes proposed by the Governor would significantly improve ASES and 21st Century programs. However, Proposition†49 places restrictions on how, and for what purposes, the initiative can be changed. Below, we provide a framework for evaluating whether the Governorís proposal would improve the after school program.

Balancing Competing Policy Goals

Given that Proposition†49 resources are fixed, the Legislature will either explicitly or implicitly determine a balance of several potentially competing policy trade-offs. Proposition†49 has two main goals-keeping students safe after school and improving student academic outcomes. The cost structure of achieving these two goals differs significantly. As discussed below, supervising students after school is cheaper than providing a program that improves academic achievement. The Legislature will determine through its policy and finance structure for these programs the balance between serving more students in a low-cost enrichment program, and supporting the academic needs of the students served. In addition, there is a similar tension between providing a program that is universal versus a targeted program that focuses on the schools with the greatest need.

Safety Versus Improving Academic Outcomes. One of the primary goals of the stateís after school program is to keep students out of harmís way in the early afternoon hours (3 p.m. to 6 p.m.). These three hours are peak hours for students either committing crimes or being the victims of crime. In addition, supervising students during these hours may reduce student exposure to drugs and alcohol. Because many parents are working during these hours, after school programs can play a role in helping keep students safe. The funding rate structure of the current ASES program may be sufficient to meet the costs of providing adult supervision between 3†p†m. and 6 p.m. So, if the legislative goal for this program is to provide as many students as possible with a safe after school setting, keeping reimbursement rates low would help the Legislature achieve that goal.

Improving Academic Outcomes More Costly. If, on the other hand, the primary goal of the program is to improve academic outcomes, then the current reimbursement rate may be significantly underfunded. While the current program can provide students a time during the day to work on homework or engage in other recreational activities, the funding level is not sufficient to provide significant academic support for students. Providing the small group settings to give struggling students an opportunity to have direct assistance or instruction from a trained adult is much more costly. Currently, the state reimburses supplemental instruction (summer or after school academic instruction) at a rate of $3.87 per pupil, per hour. This program generally supports a teacher for every 25 to 30 students. To help struggling students meet the high expectations that the state has set may take more intensive adult-student interaction.

If all the new resources from Proposition†49 were invested in an intensive academically focused program with a low student-to-teacher ratio, the per-pupil cost of such a program would require the state or schools to target funds to needier students. If the Legislature wants to focus Proposition†49 resources to improve academic outcomes, then it may want to either significantly increase the reimbursement rate or allow the funds to be mixed with other school resources like supplemental instruction funds. Figure†1, illustrates this trade-off between higher reimbursement rates (higher quality program) and the number of students that can be served with the combined $548†million that Proposition†49 and the current state program would provide in 2006-07. It shows that twice as many students could be served at the $5 rate specifically included in the measure.

 

Figure 1

How the Proposition 49
Reimbursement Rate Effects
The Number of Students Served

Funding rate

Maximum
Students Served

Percent of K-8 Students served

$5.00

608,661

14%

7.50

405,774

9

10.00

304,331

7

 

Universal or Targeted Grants? A second decision the Legislature will face is whether to provide grants to all schools (universal) or target schools based on need. This issue is primarily determined by how high the grant caps are set. Under the terms of the initiative, all schools would receive at least a grant of $50,000 (elementary) or $75,000 (middle school). In contrast, because of its larger proposed grants, the Governorís proposal would limit participation to around 60†percent of schools.

Figure†2 shows that there are four different after school funding models which could be used to implement Proposition†49 depending on how the Legislature sets reimbursement rates and grant caps. For example, if the Legislature sets a low reimbursement rate and a low grant cap, then all schools will be able to participate in the program, and each program would serve a moderate number of students. Because the reimbursement rate will be low, these programs would likely address basic safety concerns, but probably not be academically focused. If the Legislature keeps a low reimbursement rate, but sets a high grant cap, then the Legislature may want to target these grants to schools serving low income students in order to use the more limited number of grants in areas of the state where after school programs are most needed. While not all schools could participate, the larger grants would allow schools to serve a large proportion of their students.

 

Figure 2

Proposition 49: Funding Models and Policy Tradeoffs

 

Reimbursement Rate

Grant Cap

Low

High

Low

Small safety
program at all schools.

Small academic/
safety program at most schools.

High

Fewer safety
programs, but
proportional to school size.

Academic/safety programs at fewer schools.

 

Assessing the Governorís Proposal

The current ASES program provides a low grant cap and a low reimbursement rate. This type of program would provide all schools in the state with small grants, and each school would be able to offer a program to around 50 students in an elementary school and 70 students in a middle school. For large urban schools, which are sometimes quite large, Proposition†49 grants would allow a small portion of the schoolís enrollment to participate. The current program would force schools to focus largely on the student safety portion of the program, because the reimbursement rate is too low to provide a program that can focus on academic achievement.

The Governorís approach would increase both the grant cap and the reimbursement rate modestly. We estimate this program would allow roughly 60†percent of schools to participate in the program, and offer a program that would serve up to 70 students per day (elementary) or 95 students (middle school). This would still be a small proportion of a schoolís enrollment in many urban districts. For example, for Gage Middle School in Los Angeles Unified School District serving 95 of the schoolís 3,900 students would only serve 2.4†percent of the students in the school. On the other hand, in some areas of the state, the funding would provide a slot for every student in the school.

The administrationís proposal requires schools to make significant academic progress as a result of participation in this program. However, the proposal has not made the case for how the proposed funding rates will support an after school program focused on academic improvement. The slightly higher funding rate may allow schools to hire some additional staff, but in our view, would not likely result in the improved academic outcomes the administration is expecting.

In conclusion, expansion of the current program would provide a small program at any interested school in the state. It is not likely to improve student achievement, and may only serve a small proportion of students in large urban schools. In contrast, the Governorís proposal would provide a somewhat richer program, serving more students on each school site, but would not be available to all schools and would only serve a small portion of students on large urban school campuses. This approach is also not likely to improve student achievement.

Other Program Considerations

Parts of the Governorís proposal make improvements in the current program. Below, we discuss the problems with the current program and how the Governorís proposal addresses these concerns.

Program Underutilizes Funds. The current ASES program reverts around 25†percent of the appropriated funds annually. During periods when the program was expanding, the rate of unused funds was much higher (often over 50†percent). This unused funding results from two main factors-the reimbursement system, and budget and contracting delays. The system of allocating all of the funding through grants, but then requiring schools to earn the grants through a daily reimbursement system results in many schools not fully earning their grants. Delays in enacting the state budget combined with CDE contracting delays has resulted in grant funds not being available until after the start of the school year. These delays have been even longer for new cohorts, taking into springtime before contracts are in place.

The Governorís proposal solves this problem by (1) converting the funding system into a direct grant, and (2) requiring CDE to contract out the funds within a specific time period after enactment of the budget. This approach, however, is likely to result in large amounts of funds being used inefficiently in the start-up phases of the program. Basically, schools will receive funding yet may not have the program in place to serve the students.

Grant Process May Discourage Many Applicants. Currently, there are several factors that could discourage many schools from applying for after school grants including: low funding rate, no transportation funding, time consuming application process, local match requirements, and required partnerships with law enforcement. The proposal increases the funding rate, attempts to streamline the application process, and lowers the matching requirement. However, the proposal may still not go far enough in these areas to encourage participation.

Current Governance Provides Little Oversight. The direct grant approach may lead to little state or local oversight. While CDE is charged with administrating the grant program, departmental staff may not do the type of oversight that would ensure that the state is investing in quality programs. Because of the number of grants, CDE may not be able to do more than fiscal and compliance oversight. This means that staff spend little time investigating the quality of programs or closing poorly run programs. While a district or county office of education is required to be a partner in an ASES grant, the program often is administered by an external provider using external staff. Thus, the current finance and governance structure leads to little state oversight. This structure remains under the Governorís proposal.

Restricted Ability to Carry Over Funds Across Fiscal Years. Under ASES, schools are restricted from carrying funds over from one year to the next without direct permission from CDE. Given that grantees often do not receive funding until after the school year has begun, restrictions on carry over reduce the ability of schools to manage their cash flow. This is likely to be more difficult for schools on a year-round calendar. The proposal makes no changes in this area.

In summary, the current program has numerous problems as discussed above. The Governorís proposal successfully addresses some of these problems, but creates others. In the last section, we provide an alternative approach to using the expanded amount of after school funds.

An Alternative Approach to Reforming Proposition†49

If the Legislature decides not to repeal Proposition†49, we recommend it enact legislation placing before the voters a package that significantly revamps the after school program described in the initiative. Instead of uniform school grants, we recommend distributing the after school funds to districts based on a weighted-pupil formula. This approach would reflect differential needs across districts, but would provide districts the flexibility to make the trade-offs between the number of students served and the academic richness of the program.

In the previous section, we described problems and trade-offs with both ASES and the Governorís proposal. Both programs virtually ignore factors such as school size or needs in the distribution of funds. The Governorís proposed reimbursement rates would provide a safe after school setting, but may be insufficient to address the academic goals of the program. Under both current law and the Governorís proposal, districts would have little choice about how to target funds within the district or the balance in the local program between academics and safety. Below, we provide an alternative approach that provides funds directly to school districts and allows the districts to determine the priority for after school funds in their community. Our approach would also allow schools to better integrate their after school programs with other programs focused on similar goals.

Specifics of the LAO Proposal

We recommend the Legislature amend the ASES program to transform the program from a school level competitive grant program to a formula-driven district level grant. Because school districts face different challenges depending on the students they serve, we recommend distributing the funds on a weighted per-pupil basis. A weighted pupil formula simply distributes funds based on the number of students in each district. The formula, however, also provides a district a larger grant based on the number of certain types of students-such as low-income, English learner or special education students-attending schools in each district. In addition, the proposal would provide flexibility for small school districts to provide them additional resources in a way that those districts could actually use.

Our proposed district grants would increase local flexibility over the use of after-school funds while also addressing other problems with the existing program. Specifically, our approach would:

In the past, we have recommended consolidating categorical programs into more flexible block grants as a way of avoiding the types of distributional and programmatic problems such as those contained in Proposition†49. Our proposal would resolve these problems by transforming the ASES program into a formula-driven grant that is provided to participating school districts based on a weighted pupil formula. Because our proposal would make major changes to the program, it would be necessary for the Legislature to place a measure before the voters to implement it. It would make sense to do this soon, before the program is implemented and the various problems become more difficult to resolve. In addition, as discussed earlier in this section, there are numerous other fiscal and legal issues that may require voter approval to change. As such, we think the Legislature should not consider voter approval as a barrier to making needed program revisions.


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