The Governor proposes to restructure the way the state allocates funding to school districts, charter schools, and county offices of education. We believe the Governor’s proposed new formulas would address many problems inherent in the state’s existing K-12 funding approach, and we recommend the Legislature adopt most components of the proposal. Unlike the current system, the proposed formulas would be simple and transparent, fund similar students similarly, and link funding to the cost of educating students. We believe the proposed approach could be improved, however, with some notable modifications. We suggest a number of specific changes to better align funding levels with anticipated costs, eliminate irrational funding differences across districts, simplify the formulas, and ensure important state priorities are addressed.

The Governor’s 2013‑14 budget includes a plan to implement the provisions of Proposition 39, which increases state corporate tax (CT) revenues and requires that half of these revenues for a five-year period be used for energy efficiency and alternative energy projects. The Governor proposes to count all associated revenues toward the Proposition 98 minimum guarantee for schools and community colleges. The Governor also proposes to designate all energy-related Proposition 39 funds to schools ($400.5 million) and community colleges ($49.5 million) in 2013‑14 and for the following four years. The Governor’s proposal to count all Proposition 39 revenues toward the Proposition 98 calculation is a significant departure from our longstanding view that revenues are to be excluded from the Proposition 98 calculation if the Legislature cannot use them for general purposes. In addition, the proposal excludes other eligible projects besides schools and community colleges (such as public hospitals) that potentially could achieve greater energy benefits. Further, the proposal does not coordinate Proposition 39 funding with the state’s existing energy efficiency programs. In view of the above concerns, we recommend the Legislature exclude from the Proposition 98 calculation all Proposition 39 revenues required to be used on energy-related projects and not count spending from these revenues as Proposition 98 expenditures. In addition, we recommend the Legislature direct the California Energy Commission (CEC) to administer a competitive grant process in which all public agencies, including schools and community colleges, could apply and receive funding based on identified facility needs.

The Governor's 2013-14 budget provides $56.2 billion in total Proposition 98 funding--a $2.7 billion (5 percent) increase from the revised current-year level. The Governor dedicates new monies to paying down school and community college deferrals, transitioning to a new K-12 funding formula, restructuring adult education, funding Proposition 39 energy projects for schools and community colleges, and adding two mandates to the schools mandates block grant. The Governor also proposes various changes and consolidations relating to special education funding. Though we think the Governor's basic approach of dedicating roughly half of new funding to paying down existing obligations and the other half to building up base support is reasonable, we have concerns with many of his specific Proposition 98 proposals. In the areas of adult education, Proposition 39 energy projects, mandates, and special education, we provide alternatives for the Legislature 's consideration. Our assessment of an alternative to the Governor's Proposition 39 proposal can be found both in the Proposition 98 report and in a standalone budget brief--2013-14 Budget: Analysis of Governor's Proposition 39 Proposal.

Special education is the catch-all term that encompasses the specialized services that schools provide for disabled students. Developing a more thorough understanding of how California’s disabled students are served is the first step towards improving their educational outcomes. Toward this end, our primer is intended to provide the Legislature and public with an overview of special education in California—conveying information on special education laws, affected students, services, funding, and academic outcomes.

The Governor’s Proposition 98 budget package is built on two main assumptions regarding the creation and payment of “maintenance factor.” These two assumptions produce unreasonable outcomes for schools and the rest of the state budget in the near term and long term. In particular, the Governor’s approach would ratchet down the Proposition 98 base in some years (including 2011-12), ratchet up the base in other years (including 2012-13), and, in some cases (including 2012-13 and 2014-15), lead to schools receiving almost exclusive benefit from any growth in state revenues. We recommend the Legislature reject the Governor’s approach and adopt a budget package based upon a more reasonable approach. Specifically, under our recommended approach, maintenance factor is created any time school funding falls below the level otherwise needed to keep pace with growth in the economy, and maintenance factor is paid such that school funding is built up to the level it otherwise would have been absent the earlier shortfalls. We believe our recommended approach both keeps the underlying rationale for the creation and payment of maintenance factor linked and goes furthest in honoring the intent of Proposition 98 and Proposition 111.

This report summarizes findings from our third annual finance survey of California public school districts. Survey responses indicate that districts have experienced notable changes as a result of recent budget reductions, including a smaller workforce, larger class sizes, shorter school years, and less extensive programmatic offerings. Given the slow pace at which the economy is recovering, combined with uncertainty over the outcome of the November election, school districts indicate they are planning for additional reductions in 2012-13. Given these findings, we recommend the Legislature take immediate actions to assist districts in managing their fiscal challenges in 2012-13, as well as initiate long-term improvements to the K-12 funding and accountability systems.

This report provides an overview and assessment of the state's comprehensive system for monitoring the fiscal condition of school districts. Under this system, County Offices of Education review the fiscal condition of school districts at several points during the year and provide additional support for districts showing signs of fiscal distress. In the most serious case—when a district no longer appears able to meet its financial obligations—the state provides the district with an emergency loan and assumes administrative control. Our review indicates that the oversight system has been effective in preserving school district fiscal health and preventing districts from requiring an emergency loan. Most notably, during the more than 20 years the new system has been in effect, 8 districts have received emergency state loans whereas 26 districts required such loans in the 12 years prior to the new system. Additionally, the number of districts experiencing fiscal distress has increased in tight budget times, but without a corresponding increase in the number of emergency loans required. This suggests the system’s structure of support and intervention is serving a critical early warning function—allowing districts to get the help they need while fiscal problems tend to be smaller and more manageable. Given its effectiveness, we recommend preserving the existing system, as it has shown to be a vital tool for fostering the ongoing fiscal well-being of districts.

Reductions to school district budgets over the past five years have resulted in a sharp decline in the teacher workforce, with the number of full–time teachers decreasing by 32,000 since 2007–08. This has led to an increased focus on how the teacher layoff process works. This report gives an overview of the existing layoff process, evaluates how well the process is working, and makes recommendations for improving its effectiveness. For our analysis, we distributed a survey to all public school districts in the state asking them about their implementation of the teacher layoff process, used information provided by two state agencies--the California Department of Education (CDE) and the Office of Administrative Hearings (OAH)--and included information from the California Teachers Association (CTA).

The Governor proposes to reduce funding for the CalWORKs program and state-subsidized child care programs. Under his budget plan, these programs would be reduced a total of $1.4 billion or about 20 percent in 2012-13 compared to what current law otherwise would require. These savings would be achieved by imposing stricter limits on which families are eligible to receive which types of services, as well as lowering state payments for CalWORKs recipients and child care providers. Additionally, the Governor’s proposal would make major changes to the way the state administers both welfare-to-work and child care services. In this report, we describe and analyze the Governor’s proposals related to the CalWORKs program and then turn to a similar discussion of the proposed changes to child care programs. We conclude by providing the Legislature with illustrative packages of ways to achieve savings in these two areas using different approaches than the Governor's.

This report analyzes the Governor's Proposition 98 budget package, including his basic budget plan and back-up plan as well as his multiyear plan to retire the "Wall of Debt" as it pertains to outstanding education obligations. The report makes a number of recommendations, including designating new revenues for paying down existing K-14 payment deferrals; replacing the education mandate system with a discretionary block grant; adopting some version of the Governor’s K-12 funding restructuring proposal, with general spending requirements that districts dedicate additional resources to their disadvantaged students; expanding community college categorical flexibility; canceling initiation of the transitional kindergarten program scheduled to begin in 2012-13; and prioritizing access to subsidized preschool for affected low-income children.

The 1992 legislation that authorized charter schools in California created a funding model intended to provide charter schools with the same per-pupil operational funding as received by other schools in the same school district. The state subsequently modified this policy in 1998, enacting legislation specifying that “charter school operational funding shall be equal to the total funding that would be available to a similar school district serving a similar pupil population.” This policy remains in place. In this report, we assess whether operational funding received by charter schools and their school district peers is comparable. We (1) describe the funding models used for charter schools and school districts, (2) compare funding rates for the two groups, and (3) provide recommendations to simplify the funding system, maximize flexibility for both school types, and equalize funding rates for charter schools under the current funding system or under a fundamentally restructured system.

In 2010-11, several County Offices of Education (COEs) reported difficulties balancing their court school budgets. Partly due to the concerns they raised, the Supplemental Report of the 2010-11 Budget Act directed our office to (1) assess whether county court schools have access to an appropriate array of categorical funds and (2) compare court school funding with funding rates for other alternative programs. Our review indicates that COEs, which allot funding to county court schools, generally have access to an appropriate array of categorical funds. Although access to categorical funds does not appear to be a problem, we did identify local cost pressures that could explain why some COEs are having difficulty balancing their court school budgets. While the state’s options for affecting these local decisions are limited, the state could take actions to reduce cost pressures on court schools. We also recommend the state standardize per-pupil funding rates across its alternative education funding system, which could also help COEs manage their court school budgets.

In this report, we investigate the competing claims made in support and opposition of combining smaller school districts into larger districts. We find some small districts’ spending patterns and student performance differ slightly from larger districts, but very small districts have notable and troubling differences. We also find that substantial funding advantages and certain disincentives keep small districts from opting for consolidation. Our analysis suggests the state should not pursue a one-size-fits all approach for district configuration or require all small school districts to consolidate, but it does suggest the state should remove existing disincentives. To increase efficiencies and accountability, we also recommend the state increase the minimum size for districts to at least 100 students.

Since 2007-08, state support for K-12 education has dropped notably, though this reduction has been partly offset by one-time federal aid and state K-12 payment deferrals. Per-pupil programmatic funding was down 3.7 percent in 2009-10 and 5 percent in 2010-11. To help school districts manage this reduction, the state temporarily removed the strings associated with roughly 40 categorical programs and eliminated various other requirements. We surveyed school districts to gather information regarding how they were being affected by recent federal and state actions. Most importantly, the survey responses show that many districts: (1) have reserved some federal Ed Jobs for 2011–12; (2) would find an additional deferral in 2011–12 more difficult to accommodate; (3) have benefited notably from existing flexibility provisions and desire additional flexibility; and (4) already have increased class sizes notably, instituted furlough days, laid off some teachers, and shortened the school year. Given these survey findings, we identify several ways the Legislature could provide school districts with more flexibility in the short term. We also provide the Legislature with a relatively simple approach for making more lasting improvements to California’s K–12 finance system.

The Governor’s budget plan provides $2.2 billion for child care and development (CCD) in 2011-12—a reduction of $535 million, or 19 percent, compared to the current year. To achieve these savings he proposes several significant changes to current policies. In assessing the Governor’s CCD proposals and building its own CCD package, we recommend the Legislature: (1) balance access to and quality of care, (2) prioritize services for those who most need them, and (3) prioritize direct service over administrative activities. Consistent with these principles, we recommend the Legislature reject the Governor’s proposal to cut state subsidies by 35 percent, reconsider the Governor’s proposal to restore CalWORKs Stage 3 child care, and approve—perhaps in modified form—his proposals to change eligibility criteria and reduce administrative and support activities. We also offer the Legislature a menu of additional CCD savings options and build three illustrative CCD packages.

Over the last several years, the state has deferred payments to school districts as a way to achieve significant Proposition 98 savings. Relying on deferrals has allowed the state to achieve significant one-time savings while simultaneously allowing school districts to continue operating a larger program by borrowing or using cash reserves. As the magnitude and length of payment deferrals have increased, however, school districts have found fronting the cash required to continue operating at a higher programmatic level increasingly difficult. As part of his 2011-12 budget plan, the Governor continues to rely heavily on payment deferrals. His one major budget proposal for K-12 education is a $2.1 billion deferral. In this report, we track the state's increased use of deferrals, discuss the advantages and disadvantages of deferrals, and highlight several other major factors the Legislature should consider as it decides whether to approve additional K-12 deferrals.

We surveyed public school districts in California to see how they are responding to various state and federal developments. In particular, the survey asked districts to report how they were responding to the newly granted flexibility to shift funds among, as well as away from, approximately 40 state-funded categorical programs. The survey also asked districts to report how they were using federal stimulus funding. We found that categorical flexibility is having a positive impact on local decision making and that the majority of districts generally appear to be using freed-up categorical funds to support core classroom instruction. Also, roughly two-thirds of the federal stimulus funds were used to minimize teacher layoffs and the remainder used to backfill reductions to categorical programs and make various one-time purchases. Finally, we lay out a package of recommendations that the Legislature could adopt in 2010-11 to provide school districts with additional flexibility.

(Short video introducing this report)

Currently, the state requires K-12 and community college districts to perform hundreds of mandated activities, the majority of which provide little benefit to students or teachers. Since the state does not pay for K-14 mandates on a regular basis, the result is billions in outstanding costs the state must eventually pay. In this report, we recommend comprehensively reforming K–14 mandates. If a mandate serves a purpose fundamental to the education system, such as protecting student health or providing essential assessment and oversight data, it should be funded. If not, the mandate should be eliminated. Taken as a whole, our reform package would relieve school districts and community colleges of performing hundreds of activities that provide little value to students while providing them with adequate and timely compensation for the activities still required of them. In addition, comprehensively reforming mandates would reduce the state’s annual obligations by more than $350 million—funds that could be saved or allocated to districts for higher priorities.

Seventy-five percent of California foster youth perform below grade level standards, and by third grade 83 percent of foster youth have had to repeat a grade. We believe the state and local programs must reprioritize the way existing funds are spent in order to improve educational opportunities for foster youth. We recommend changing guidelines to provide certain services to all current and recent foster youth, expanding programs to include academic counseling and completion of education passports, and consolidating programs at County Offices of Educations. We also suggest convening a workgroup to address the transportation needs of K-12 and postsecondary foster youth.

California’s economically disadvantaged (ED) students are failing to meet federal and state academic standards and generally perform below their non-economically disadvantaged peers. This trend appears in all grade levels, with nearly two-thirds of second grade ED students and nearly three-fourths of eighth grade ED students performing at low levels. Given these shortcomings, we believe the state needs to be both more strategic and more flexible in its approach to supporting ED students. Specifically, we recommend: redefining the conversation to focus on the barriers impeding academic success; simplifying the system for all involved; refining funding formulas to reflect the pervasiveness and severity of students’ academic challenges; strengthening overall accountability by measuring year-to-year growth in student achievement; and, identifying and facilitating the sharing of best practices.

California currently operates two systems designed to turn around low–performing schools—one for state purposes and one for federal purposes. The two systems are uncoordinated and often duplicative, in addition to being poorly structured. We recommend replacing the two systems with an integrated system that serves both state and federal purposes. Under the new system, the state would support district reform efforts. Districts would receive different levels of support depending on the severity of their underlying performance problem and be given short–term funding linked to specific short–term district reform activities. By virtue of being integrated and district–centered, the new system would cost substantially less than the existing system and could be supported entirely with federal funding.

Existing state and federal laws will limit the ability of California to use the state’s new longitudinal student data system once it is completed in 2010. To ensure the full benefits of the new system can be achieved, we recommend the state adopt a new data access policy, expanding the capacity of instructors and policy makers to use student data to improve instruction while preserving student privacy protections.

The Supplemental Report of the 2006 Budget Act directed our office to examine instructional material costs and assess California’s process for adopting kindergarten through eighth grade (K-8) instructional materials. This report details our findings. Most importantly, we identify several shortcomings with California’s K-8 adoption process. To address these shortcomings, we recommend the Legislature adopt a package of six reforms designed to lower instructional material costs, expand school district choice, and enhance program effectiveness.

Between 10 percent to 15 percent of high school students enroll in one of the state’s four alternative programs each year. These programs serve many of the state’s at-risk students. We recommend fixing the state and federal accountability programs so that schools and districts are held responsible for the success of students in alternative programs. We also recommend funding reforms that reinforce the district’s responsibility for creating effective options for students.

Although the state licenses about 58,000 child care facilities serving up to 1.2 million children, there is little information readily available to parents about the safety and quality of this care. This report describes options to improve the availability of such information. We recommend that the availability of existing information be improved and that ratings be established based on a provider’s safety history.

State law establishes the Commission on Teacher Credentialing (CTC) and entrusts it with accrediting teacher preparation programs, credentialing teachers, and monitoring teacher conduct. In this report, we describe each of these three teacher-quality functions, identify related shortcomings, and propose various recommendations for overcoming them. The recommendations seek to simplify existing teacher-quality processes, reduce redundancies, strengthen accountability, and foster greater coherence among education reforms. Taken as a package, these recommendations would improve how the state ensures teacher quality and eliminate CTC.

The Migrant Education Program is a federally funded program that provides supplemental education services to migrant children. This report reviews the state’s implementation of the program. We find that the state could better target resources and better serve migrant students by implementing a comprehensive package of reforms. Specifically, we recommend a number of modifications related to the program’s: (1) funding and service model, (2) data system, and (3) carryover funding process. We also identify funding available to help in implementing these changes. (The California Department of Education has translated this report into Spanish. El Departamento de Educación de California ha traducido este informe al español.)

In 2004, we published A Look at the Progress of English Learner Students, which analyzed the 2002 results of the California English Language Development Test (CELDT). This update assesses student performance on the test in 2003 and 2004, concluding that gains made by students in 2003 and 2004 are roughly the same as 2002. We also make two recommendations for steps the Legislature can take to improve the way CELDT data are used.

This paper summarizes our recent report on the success and shortcomings of high schools in California. High school represents a critical phase in the educational development of K-12 students. Our report examines high schools through the lens of three groups of high school students.

Our Findings

Dropouts (Students Who Fail to Graduate). About 30 percent of the entering ninth grade class fails to graduate on time. Research and data suggest that the factors leading to student dropouts are in place by the time students enter ninth grade. Despite decades of trying, research has not identified programs or services that consistently reduce dropout rates.
The "General" Track (Students Who Graduate Without Qualifying for a Four-Year University). This includes about 45 percent of entering ninth grade students. About one-half of this group attends college after graduation and the other one-half enters the labor force. Research and data indicate that many in this group do not have clear postgraduation goals, which prevents these students from using high school most effectively to make a smoother transition to adult life.
The "University" Track (Students Who Graduate and Qualify for Admission to the State’s Public Four-Year Universities). These students account for about one-quarter of entering ninth grade students. Entering college freshmen frequently lack the English or mathematics skills required for study at the university level. Higher education admissions and placement policies contribute to the problem, as they fail to clearly communicate the skill levels needed for success in college.

Our Recommendations

Despite considerable differences in the problems facing these groups, several themes emerge in our recommendations that are consistent across the groups. Our recommendations address the problems experienced by high school students by strengthening accountability, improving information, and increasing flexibility.

Accountability

We recommend the Legislature "fine tune" accountability programs by:

• Adjusting existing accountability programs to focus more attention on the needs of students who are likely to drop out of school.
• Establishing accountability for improving student transitions to college and work.
• Aligning K-12 and higher education standards by using Standardized Testing and Reporting scores as admissions data for the University of California and the California State University.

Information

We also suggest several ways the Legislature could employ information to help make high schools more responsive to student needs by:

• Obtaining accurate dropout data by school and district within two years.
• Evaluating state supplemental instruction and social promotion programs for elementary and middle school students.
• Providing additional information and choices to help parents and students use high school to reach student goals for work and school.

Flexibility

Flexibility also is a theme of our report. Improvements could be made by:

• Encouraging schools to provide a greater range of curricular options that respond to the needs and interests of students.
• Giving districts greater latitude to use existing state and federal resources effectively to meet the needs of students.

The Bottom Line

While many critical factors are outside of the state’s control, we think our recommendations provide a strategic approach for how the state can contribute to improving high schools.

Proposition 98 is a complex formula for setting a minimum annual funding level for K-12 schools and community colleges. This primer is intended to assist the Legislature in understanding the basic "mechanics" of the proposition and showing how it has affected school spending since its passage in 1988. We also describe the Governor's proposed changes to Proposition 98 and discuss our concerns about how they would diminish legislative budget authority.

The 2002 California English Language Development Test documents the progress of more than 1.3 million English learner students in the state. This reports summarizes student achievement as measured by the test and evaluates the rate at which students' English skills improve. On the whole, student progress is slow, although some groups of students appear to make rapid progress.

Chapter 465, Statutes of 2000 (SB 1913, McPherson), requires the Legislative Analyst‘s Office (LAO), in consultation with the California District Attorney’s Association and the State Department of Education, to report to the Legislature regarding the implementation of newly established penalties for parents who violate the state’s compulsory education laws. In this report, we: (1) provide background information on the state’s compulsory attendance laws and the interventions to be taken if these laws are violated, as well as explain how homeschooling served as the impetus for important provisions of Chapter 465 and (2) review the implementation of these laws and interventions. We also recommend the Legislature: (1) clarify existing laws related to homeschooling and truancy penalties and (2) improve related data collection efforts.

We recommend that the Legislature (1) remove the cap on the number of charter schools that may operate in the state, (2) restructure the charter school categorical block grant, (3) strengthen charter school oversight by permitting school districts to opt out of charter authorizing, allowing for multiple authorizers, and creating safeguards to promote stronger accountability and (4) modify fee policies by delineating more clearly between facility fees and oversight fees, capping these fees, and eliminating the mandate-claims process for oversight costs.

The K-12 revenue limit formula distributed more than $28 billion in resources to school districts in 2002-03. We document the components of the revenue limit formula and how they affect the distribution of general purpose funds to school districts. We also recommend that the Legislature consolidate most of the existing revenue limit adjustments into one new general purpose grant which would make K-12 funding much easier to understand.

Chapter 421, Statutes of 2001 (AB 1402, Simitian) authorizes school districts to enter into "design-build" contracts for specified construction projects and to submit specific information about these projects to the LAO upon completion of construction. This interim report describes the design-build process and reports that, thus far, no districts have reported to the LAO that they are using the design-build authorization provided by Chapter 421.

Much of the data being reported to the Legislature and the public regarding crimes on school campuses is of questionable use for the development of effective policies for crime prevention and thus is not serving the legislative intent behind the school crime reporting system. We recommend budget bill language to correct this problem.

When the state issues a bond to pay part of the cost of constructing and remodeling schools, school districts are unsure when and how much funding will be available, or what rules will govern eligibility. We recommend that the state identify the average cost of providing educational facilities and provide a share of this amount to every school district as an annual, per-pupil, facilities grant.

Proposition 1A of 1998 authorized $9.2 billion to finance school facilities. Its companion legislation appropriated $160 million to reimburse school facility fees paid for new homes. In this report we recommend that the Legislature eliminate the $60 million in scheduled appropriations for these reimbursements in 2001-02 and 2002-03.

The district has been unable to provide complete and reliable data to permit evaluation of the impact of the ESY program on student achievement. We recommend that the Legislature extend the program for two years, sharing the cost with the district.

We recommend various modifications to the method and level of funding for K-12 special education facilities. These include establishing a uniform facility grant for all pupils, establishing a separate facility grant for county offices of education in recognition of the special education pupils served at county facilities, and requiring county offices of education to provide local matching funds except in financial hardship cases.