How California Funds K-12 Education

7/21/2019 How California Funds K-12 Education

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HowCalifornia

Funds

K12Education

ThomasTimar

UniversityofCalifornia,Davis

September2006

InstituteforResearchonEducationPolicyandPractice

StanfordUniversity


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Acknowledgment

This research was conducted as one of more than 20 studies designed to provide

California's policy-makers and other education stakeholders with the comprehensive information

they need to raise student achievement and reposition California as an education leader. The

purpose of the research project, Getting Down to Facts, is to carve out common ground for a

serious and substantive conversation that will lead to meaningful reform by providing ground-

level information about California's school finance and governance systems necessary to assess

the effectiveness of any proposed reform. "Getting Down to Facts" was specifically requested by

Governor Schwarzenegger's Committee on Education Excellence, Democratic leaders in the

State Legislature and Jack O'Connell, Superintendent of Public Instruction.

IwishtothankJohnMockler,PaulGoldfinger,andRobertManwaringfortheir

assistanceinreviewingearlierversionsofthismanuscript. Theirindividualandcollective

knowledgeoftheCaliforniaschoolfinancesystemwasagreatresourceinthewritingofthis

paper.Itakefullresponsibility,however,forallomissionsanderrors.

Finally,IwanttothankSusannaLoebforherassistance,advice,andsupportinthe

preparationofthispaper.AndIwanttothanktheBillandMelindaGatesFoundation,the

WilliamandFloraHewlettFoundation,theJamesIrvineFoundation,andtheStuartFoundation

fortheirgeneroussupportoftheGettingDowntoFactsproject.

I.TheContextofCaliforniaSchoolFinance


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Sincetheearly1970s,traditionalpatternsofschoolgovernanceinCaliforniahave

changeddramatically.Thepresumptionoflocalcontrol,asystemofgovernancebasedonlocal

electoralaccountabilitythesysteminplacefortheprevious150yearshasbeensuperseded

byasystemofstatecontrol. Decisionsthatusedtobemattersoflocaldiscretionamongthem,

decisionsaboutresourceallocation,curriculum,studentassessment,andstudentpromotion

andgraduationarenowmattersofstatepolicy.

Districtsarenowsubjecttovoluminousstateandfederalregulationsandreporting

requirements.The

state

tells

teachers

how

to

teach

reading

and

tells

teachers

and

administratorshowtobehavewithparents. SinceenactmentofthePublicSchool

AccountabilityAct(PSAA)in1999,thestatecantakeoverfailingschoolsandfireteachers

andprincipals.Asaresultofgovernancechangesoverthepast35years,therearefewareasof

teachingandlearningthatarenotsubjecttolegislativemandate.

WhileCaliforniasstateconstitutionassignsresponsibilityforeducationtothestate,the

legislaturehasdelegatedmuchofthatresponsibilitytolocalschooldistricts.1 Createdaslegal

entitiesbythelegislature, schooldistrictsweregrantedauthoritytolevytaxes,enterinto

contracts,andenforcestatelawasitappliedtooperationofschools.Accountabilityfor

educationwassynonymouswithlocalpoliticalaccountability.Schoolboardmembersanswered

tolocalelectorates.Ifacommunitywasunhappywithitsschools,itcouldelectanewboard,

whichthenmightreplacetheexistingschoolsuperintendent.Thescopeandqualityof

educationalserviceswasdeterminedprimarilybylocalpreferencesforeducationandlocal

capacitytopayforthem.

1Delegates to the State Constitutional Convention in 1879 deliberately kept constitutional provisions weak so that the


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Nowherewithinthestateseducationpolicyarenaarechangesinstatelocalrelations

morestarklyexemplifiedthaninthefinancingK12publiceducation.Untilthelate1970s,local

propertytaxrevenuescomprisedthemajorshareofschoolfunding.Thestatesroleindirect

fiscalsupporttoschoolswasalimitedone. Itguaranteedafundingfloorfordistricts(aslongas

districtstaxedthemselvesatastatespecifiedminimumlevel)andprovidedadditionaldollars

forextraordinarycostsfortransportationinruralareas,forinstance.Localpropertytaxes

provided,onaverage,60percentofK12fundingwhilethestateprovided34percent. Federal

dollarsmade

up

the

remaining

6percent.

Most

importantly,

nearly

90

percent

of

adistricts

revenuesweregeneralpurposeorunrestricted,whichmeantthatdistrictshadafreehandin

decidinghowtoallocatethosefunds.

Thepresentschoolfinancesystemisradicallydifferent. In2004052,onaverage,schools

received67percentoftheirfundingfromthestate,22percentfromlocalsources,9percentfrom

thefederalgovernment,and2percentfromthestatelottery(Figure1).Moreover,ofthe60

percentfromthestate,40percentisrestricted,meaningthatmoneymustbeusedonlyforstate

specifiedpurposes.Howmuchmoneydistrictshavetospendeachyearisdeterminedalmost

entirelybythelegislature,notbythedistrict.Whiledistrictsdohaveauthoritytoaugmenttheir

revenuesthroughparceltaxes,onlyahandfulhavesucceededindoingso. Forallpractical

purposes,Californiahasastate,centralizededucationfinancesystem.

Thetransformationofthestatesschoolfinancesystemraisestheobvioussowhat

question.Whatdifferencedoesitmakewherethemoneycomesfrom? Whateffecthas

legislature could make modifications to the education system with changing needs and conditions. `22004-05 is generally used in this paper as it is the most current year for which district-level data is available.


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centralizationhadontheonthecapacityofthestatesnearly1000schooldistrictstoprovide

educationalservicesintheircommunities?Itisnotintuitivelyobvioustoalaypersonwhat

differencethesourceoffundingmakes.Afterall,moneyismoney.

Inthispaper,Iproposethatstatecentralizationhasmadeadifferenceinsomeimportant

ways.Amongthemaretheequity,rationality,transparency,efficiency,andadequacyofthe

existingfinancesystem.

Thepurposeofthispaperisthreefold: (1)toexplainbrieflythecausesofthe

transformationfrom

alocal,

decentralized

system

to

astate,

centralized

system

of

school

finance;(2)todescribetheworkingsofthecurrentsystemoffunding;and(3)toassessthe

impactofthesechanges.Thepaperisorganizedintothreesections:thefirstdiscussesthemajor

policiesoverthepast35yearsthatshapedthecurrentfinancesystem;thesecondexaminesthe

structureofthefinancesystemthesourcesanddistributionofstateandlocalrevenues.The

thirdexaminestheeffectsofthosechangesandsignificantpolicyissuesrelatedtotheschool

financesystem.

A.HowWeGotHere:MajorPolicyEventsinCaliforniaSchoolFinancesincetheEarly1970s

Sincetheearly1970sacombinationofcourtrulings,legislativeenactments,andvoter

initiativeshavefundamentallyalteredthesystemofschoolfinanceinCalifornia.Thissectionof

thepaperdiscussesthoseinitiativesandtheirimpact.

SerranoI(1971)andSerranoII(1976).3ThetwoSerrano rulingsbytheCaliforniaState

SupremeCourtstatedthatschooldistrictrevenuesweresoreliantonlocalpropertytax

revenuesthatstudentsinlowwealthdistrictsdistrictswithlowassessedvaluationof

3Serrano v. Priest, 5 Cal. 3rd584 (1971) and Serrano II 18 Cal 3rd728 (1976)


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propertyweredeniedanequaleducationalopportunityinviolationoftheEqualProtection

clauseoftheCaliforniaConstitution.Inequalitystemmedfromhugedifferencesinproperty

valuesmeasuredinassessedvalueacross thestate.Differencesamongafewselected

districtsintaxefforts,assessedvaluationandyieldareshowninTable1.

TABLE1

Table1shows

the

significant

differences

in

tax

effort

and

resulting

expenditures

per

ADA.BaldwinPark,forexample,hadataxrateof$5.48per$1000ofassessedvaluation,which

produced$577perADA. BeverlyHills,ontheotherhad,taxeditselfatabouthalftherate,at

$2.38per$1000ofassessedvaluation,yetgenerated$1,232perADA,overtwiceasmuchas

BaldwinPark.4DistrictslikeEmerybenefitedtremendouslyfromhavingfewstudentsanda

largestockofindustrialpropertyassessedathighrates.Disadvantageddistrictsweredistricts

likeNewark,suburbswithlowpropertyvaluesandlargenumbersofstudents. WhileSerranoI

foundtheexistingschoolfinancesystemtobeunconstitutional,SerranoIIrequiredthestateto

reducedisparitiesamongdistrictstoaninflationadjusted$100perpupilband.TheSerranoII

decisiondidnotmeanthatallrevenuesperpupilhadtobeequalizedtowithin$100acrossthe

state.Districtswereallowedtotaxthemselvesathigherratessolongaseffortandyieldwere

roughlythesame.Forexample,ifDistrictAtaxeditselfat$5andgenerated$2000perpupiland

DistrictBtaxeditselfat$2.50andgenerated$1000perpupil,itwouldbewithinthe

4Assessed value was not the same as market value. While assessments varied, assessed value was generally at 25 percentof market value.


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constitutionalmandateofSerrano,sinceequaleffortproducedequalresults.

SincepassageofProposition13,thisisnolongertrue. Proposition13imposedaone

percentpropertytaxrateandprohibitedlocalincreasesinadvaloremtaxesbeyondtheannual

twopercentallowedbyProposition13.

SenateBill90(Chapter1406,Statutesof1972). Thelegislatureenactedthismeasurein

responsetothefirstSerranodecision.Thebillestablishedasystemofrevenuecontrolsthat

limitedadistrictsgeneralpurposerevenues.Eachdistrictsrevenuelimitwasbasedonthe

stateaid

and

local

property

taxes

it

received

in

1972

73.

Each

year,

districts

revenue

limits

wouldbeadjustedforinflation.SocalledhighwealthdistrictsEmeryandBeverlyHills,for

instancewouldreceivelowerannualinflationadjustmentswhilelowwealthdistrictslike

NewarkandBaldwinParkwould receivehigherinflationadjustments.Overtime,this

schememeanttobringdistrictsintoparity.Thestrategywasknownasthesqueezeformula.

Criticsatthetimeestimatedthatthismethodwouldtake40yearstoachievethelevelof

equalizationthecourtrequired.

WhileSB90wasnotaboldsteptowardrevenueequalization,itwasthefirststepina

processthatreversedschoolfinancepolicyinplacesince1910whenthelegislatureassigned

propertytaxestolocalgovernments.

Proposition13wasapprovedbyvotersin1978.ItaddedArticleXIIIAtotheCalifornia

Constitution.Themeasurerolledbackpropertyassessmentstotheir19751976levels.Itlimited

propertytaxincreasesbasedonthevalueofpropertytotwopercentannually.New

constructionorpropertysoldafterProposition13istaxedatonepercentofthemarketvalue.It

prohibitsadditionalincreasesinadvaloremtaxes.Anynew,nonadvaloremleviesrequireda


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2/3voteoftheelectorate.

GannLimit.WithProposition13,votersalsoapprovedProposition4whichcametobe

knownastheGannLimit(ArticleXIIIBoftheStateConstitution)andrequiredthestateto

reimburselocalgovernmentsforallstatemandatedcosts.

AssemblyBill8(Chapter282,Statutesof1979.ThelegislaturesresponsetoProposition

13wastocushiontheimpactofrevenuelossesfrompropertytaxesondistrictsbypartially

compensatingthelossthroughstategeneralrevenues. Whiledistrictslostroughly50percentof

theproperty

tax

revenues

through

Proposition

13,

the

state

had

asizeable

general

fund

revenue

surplustoaidschooldistrictsandwasabletolimitactualrevenuelossestodistrictstoan

averageof15percent. Thiswasintendedonlyasastopgapmeasure,sincethesubsidytolocal

governmentsthestatesrevenuesurpluswouldeventuallybedepleted. Apermanent

solutionwasdevisedin1979whenthelegislatureshiftedalargeshareoflocalpropertytaxesto

localgovernmentsandcompensatedschooldistrictswithadditionalstateaid.

Proposition98(1988)andProposition111(1990). Proposition98gaveK12and

communitycolleges(commonlyreferredtoasK14)aconstitutionallyprotectedshareofthe

statebudget.Itspurposewastoprovideschoolsandcommunitycollegeswithaguaranteed

fundingsourcethatgrowswiththeeconomyandstudentenrollmentfromyeartoyear.5

ThefundingprovisionsunderProposition98aredeterminedbyoneofthreetests.The

thirdtestwasaddedbyProposition111.

Test1providesK12andcommunitycollegeswithatleastthesamepercentage

ofstateGeneralFundrevenuesasin198687.Atthetimethiswasroughly40

percent.

5Robert Manwaring. Proposition 98 Primer. Legislative Analysts Office. Sacramento, CA. February 2005.http://www.lao.ca.gov/2005/prop_98_primer/prop_98_primer_020805.pdf
http://www.lao.ca.gov/2005/prop_98_primer/prop_98_primer_020805.pdfhttp://www.lao.ca.gov/2005/prop_98_primer/prop_98_primer_020805.pdf


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Test2providesthatK14 receivesatleastthesameamountofcombinedstateaid

andpropertytaxrevenuesasinthepreviousyearadjustedforstatewideADA

growthandaninflationfactorequaltotheannualchangeinpercapitapersonal

income.

Test3isgenerallythesameasTest2,butusesadifferentinflationfactorone

thatisequaltotheannualpercentagechangeinpercapitastateGeneralFundtax

revenuesplus%ifthatinflationfactorislowerthantheTest2 inflationfactor.

Theintentofthethreetestsistoguaranteeapredictableshareofstaterevenuesforschools

undervariouseconomicconditions.Test1ensuresthatstateaidforK14growsproportionately

withstatetaxreceiptsduringyearsofrobustrevenuegrowth.Essentially,Test1requiresthe

statetoprovideK14educationatleast39percentoftheGeneralFundtaxrevenues.AsLAO

pointsout,however,thistestwasoperativeonlyinthefirstyearofProposition98andisnot

likelytobeoperativeanytimeinthenearfuture.6 Test 2ensuresthat,ataminimum,stateand

localfundingkeeppacewithADAgrowthandeconomicgrowth.Test3,createdbyProposition

111in1990,increasesprioryearfundingbygrowthinattendanceandpercapitaGeneralFund

revenues. ThisteststillconnectsK14fundingtochangesineconomicgrowth,butonlyinyears

whenstatetaxgrowthlagsbehindpersonalincomegrowth.ThelegislatureaddedTest3B,

whichrequiresthegrowthoffundingperADAtobeatleastasgreatasthegrowthinallother

statefundedprogramsonapercapitabasis.Itspurposeistoprotecthealthandsocialservices

fromdraconiancutsinlowrevenueyears.

AnotherfeatureofProposition98iswhatisknownastheMaintenanceFactor.This

referstothefundinggapthatoccurswhenK14receivedlessfunding(becauseofsuspensionof

Proposition98orapplicationofTest3)thanthegrowthintheeconomy.Whenthisoccurs,


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Proposition13containsaprovisionthatacceleratesfundinginfutureyearstocompensatefor

thefundinggap.

Table2showstheoperativetestssince198990. Asthedatashow,Test2appliesinyears

whenstategeneralfundrevenuesarerobust,whileTest3hasappliedwhengeneralfund

revenuesdeclinedfromthepreviousyearorgrewslowly.

TABLE2

II.TheStructureofCaliforniaSchoolFinance

WhileProposition98determinestheleveloffundingthestatemustprovideinagiven

year,howfundsareallocatedtoschooldistrictsislefttothediscretionofthegovernorand

legislature.Thissectionofthepaperdescribesthestructureoftheschoolfinancesystem.It

examinesthecombinationofstateandlocalrevenuesthatsupporteducationfundingandthe

sourcesanddistributionofthosefunds.7

AccordingtotheCaliforniaDepartmentofEducation(CDE),totalexpendituresforK12

educationforthe200405fiscalyearwere$59.3billionor$9,863perADA.Table3summarizes

thebudget.

TABLE3

A.FundingSources

Californiasstatesystemofpubliceducationissupportedbyacombinationofstate,

local,andfederalsources.Staterevenuesincludepersonalincometax,salestax,corporatetaxes,

6Robert Manwaring, op cit. pg. 3.


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statelotteryrevenue,andstatebondfundingforfacilities.Localsourcesincludepropertytaxes,

contributions,timbertax,interestincome,developerfees,otherfees, andlocalbondfunding.

Theareasofinterestforthispaperfocusonlyonthecurrentexpenseofeducationperpupil

fundingexclusiveoflongtermdebtfinancingforfacilitiesandcapitaloutlay. Revenuesources

toschooldistrictsarethefollowing.

1. GeneralPurposeFunding

a. BaseRevenueLimits

i. LocalPropertyTaxes

ii. StateAid

b.

Addons

c. ExcessTaxes

2. CategoricalFunding

3. OtherLocalFunding

Table 4 shows the distribution of K-12 revenues per ADA by district type in 2004-05. 8As

the

chart indicates, there is some variation in revenue limits per ADA among the three types of

districts. High school districts receive, on average, slightly under $1000 per ADA more than

elementary districts and $943 per ADA more than unified districts. The category Other State

funds comprise categorical fundsspecial purpose funds. In this funding category, unified

districts receive, on average, $270 per ADA more than elementary and $471 per ADA more than

high school districts. Under the current funding scheme, there is no adjustment to districts for the

cost of education by district type. District type has been used primarily for equalization purposes,

to bring districts within the $100 inflation-adjusted funding band.

TABLE4

7While federal funds are shown in some tables, the focus of this discussion is on state and local funds available for K-12.8The school year 2004-05 is the most recent year that statewide, district-level finance data is available at the time of


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1.GeneralPurposeFunding

GeneralPurposeFunding=Baserevenuelimits+revenuelimitaddons+excesslocal

propertytaxes.

(Base

revenue

limits

and

revenue

limit

add

ons

come

from

state

funds

plus

local

propertytaxes)

a. BaseRevenueLimits:LocalPropertyTaxesandStateAid

Thebaserevenuelimitistheprincipalcomponentoftheschoolfundingformula.Itis

theamountofgeneralpurposefundingperADAthatadistrictreceivesinstateaidandlocal

propertytaxes. Formostdistricts,itisthemainsourceofgeneralpurposefunding.Each

districthasauniquebaserevenuelimit.Differencesinrevenuelimitsamongdistrictsare

historical,basedontherevenuelimitsimposedbySenateBill90in197273.9Whencreated,each

districtsbaserevenuelimitwascalculatedbydividingits197273stateaidandtheschools

shareoflocalpropertytaxrevenuesbyitsADA.Theformulabelowisthebasicformulathat

wasusedtodetermineeachdistrictsuniquebaserevenuelimit.

BaseRevenueLimit/ADA=(StateAidtothedistrict+localpropertytaxcollectedbythedistrict)/ADA

AlldistrictsrevenuelimitswerereadjustedafterProposition13.Asthestate

compensateddistrictsfortheirlostpropertytaxrevenues(backfilledlostpropertytaxeswith

stategeneralfundrevenues),thelegislaturealsoadjustedrevenuelimitsinordertoequalize

funding.Thiswasreferredtoasthesqueezeformula,whichmeantthatlowpropertywealth

districtsreceivedmorestatemoneyperpupilthandidhighpropertywealthdistrictsinorder

bringdistrictswithinthe$100perpupilfundingband requiredbySerrano.Thesqueezefactor

writing this paper.9Since their creation, districts revenue limits have been adjusted by various factors. These include the so-called squeezeformula that attempted to bring districts within the Serrano equalization band, various equalization efforts, and anincrease in base revenue limits in 1998-99 to offset the loss of excused absences.


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wasanadjustmenttodistrictsrevenuelimits.Somedistrictsmayhavereceivedatenpercent

increaseinfundingwhileothersreceivedfivepercent.ForacoupleofyearsafterProposition

13,alldistrictswereguaranteedaminimumtwopercentincreaseeveniftheywerehighwealth.

Thebaserevenuelimitcomprisesabout95percentoftotalGeneralPurposefunding.10 (The

remainingfivepercentofGeneralPurposefundingisreferredtoasaddons. Theseare

augmentationstorevenuelimitsandarediscussedindetailbelow.) Thebaserevenuelimitfor

agivendistrictiscalculatedbythefollowingformula:

Base

Revenue

Limit/ADA

=

(Prior

Year

Base

Revenue

Limit/ADA

x

District

ADA)

+/

StateAdjustments11

Thebaserevenuelimitcomprisestwocomponents:localpropertytaxesandstateaid.

Undertherevenuelimitsystem,howmuchadistrictreceivesinstateaiddependsonhow

muchpropertytaxrevenueitgenerates. Eachdistrictsshareofpropertytaxrevenuesis

regardedasanoffsettostateaid.Thisisso,becauseadistrictsbaserevenuelimitisunaffected

byincreasesordecreasesinitsshareoflocalpropertytaxrevenues.Ifpropertytaxesina

districtincrease,thestatesharedecreasesdollarfordollar.Theconverseistrueshouldlocal

propertytaxesdecrease.Thisisshowninthefollowingexample.Ifadistricthasarevenuelimit

of$5,000/ADAandhaspropertytaxrevenuesof $2000/ADA,itsstateaidis$3000/ADA.If,in

thenextyear,itspropertytaxrevenuesincreaseto$3000/ADA,allotherthingsremainequal,its

stateaidisreducedto$2000/ADA.12Astheexampleshows,theformulaforcalculatingtheper

10Five percent is the average for all districts. However, that average masks considerable variation among districts. Thesevariations have the effect of disequalizing revenue limits.11The adjustments are discussed below. However, they include calculations of Average Daily Attendance (ADA),COLA, growth, equalization, and various other adjustments that are made periodically to a districts revenue limitcalculation.12Locally voted bond debt is excluded from the local tax calculation in determining a districts revenue limit.


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pupilstateaidportionoftherevenuelimitisthefollowing:

StateAid/ADA=BaseRevenueLimit/ADA LocalPropertyTax/ADA

Therevenuelimitformulaisusedtocomputeadistrictstotalrevenuelimit.The

computedrevenuelimitistherevenuelimitperADA(basedontheformula)whichisthen

multipliedbythenumberofallowableADAinthedistrict.Howadistrictstotalorallowable

ADAiscomputedfromyeartoyearhasvaried.In199899,forinstance,therevenuelimitADA

wasadjustedtooffsetrevenuelossesduetounexcusedabsences.(Thismainlybenefited

districtswith

high

absences.)

13Currently,

California

smethod

of

counting

students

is

average

dailyattendance(ADA),thetotaldaysofstudentattendance,dividedbythenumberof

instructionaldaysintheschoolyear.SchooldistrictsreportADAtotheCDEthreetimesayear,

ADAfiguresarereferredtoasFirstPrincipalApportionment(P1),SecondPrincipal

Apportionment(P2),andAnnualApportionment,thefinaloneinthesummer.14

Otheradjustmentstoadistrictscomputedrevenuelimitincludeinterdistricttransfers

andcharterschoolstudents.Districtswithdecliningenrollmentsareallowedtocushiontheloss

ofADAbyfundingdistrictsforthegreaterofcurrentorprioryearADA.

Asdiscussedearlier,theADAformulaishistoricallybasedondistrictspendingper

ADAin197273.Sincethen,ithasbeenadjustedanumberoftimesforequalization

particularlyafterProposition13andcontinuestobeadjustedperiodicallythroughthestate

budgetprocess.The200607budget,forinstance,provides$350millionforequalization.In

13There is an ongoing debate over the use of ADA or enrollments as the multiplier. School officials argue that a largepercentage of their costs are fixed long before the school term begins. These costs are fixed for the entire school year,regardless of changes in enrollments over the course of the year. ADA differs from enrollment. ADA is normally less(approximately 95%) than actual enrollment because absences, even if excused, are not included in ADA.

14There is an ongoing debate over the use of enrollment or ADA as the revenue limit multiplier. Arguments for


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additiontorevenuelimitequalizationadjustments,schoolsreceiveannualcostofliving

adjustments(COLA)totheirrevenuelimits.15TheCOLAcalculationisbasedontheannual

changeintheImplicitPriceDeflatorforStateandLocalGovernments.The200607budget

allocates$1.9billion(5.9%)fortherevenuelimitCOLA.

b.Addons

WhileBaseRevenueLimitfundingisonecomponentofdistrictsgeneralpurposefunding,

asecondcomponentiswhatisgenerallyreferredtoas addons.Theseaccount,onaverage,

forabout

5percent

of

General

Purpose

funding.

16

Table5shows

the

add

ons

to

districts

GeneralPurposefunds.Eachisdiscussedbelow.

TABLE5

NecessarySmallSchoolFormula. TheNecessarySmallSchoolFormulasupportsdistricts

thatoperateverysmallschools,mostofteninruraldistricts.Forelementaryschools,thisapplies

toschoolswithfewerthan96ADAandforhighschoolswithupto286ADA.Districtsthatare

under2,500ADAandmaintainsmallschoolsinremoteareasarealsoeligible.Thenecessary

smallschoolallowancesareallocationsonaclassroom,notperpupil,basis.Fundingisbasedon

acombinationoftheADAfortheschoolandthenumberofteachersintheschool.Accordingto

theLegislativeAnalyst(LAO),in200304,therewere149districtsthatreceivedfundingunder

theformula.AverageperADAfundingin200304forthesedistrictswas$4,235forelementary

and$2,979forhighschool.Thefundingrangewasaminimum$20andmaximum$11,167per

ADAforelementarydistrictsand$206and$14,464forhighschooldistricts.LAOcautions,

enrollment focus on the fact that about 80 percent of a districts cost are in personnel who are hired on an annual basis.15TheCOLAisstatutoryforrevenuelimitsandforcategoricalprograms.16While the state average is five percent, there is considerable variation among districts regarding individual add-onadjustments.


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however,thattheseaveragesaremisleadinginthat47smallelementarydistrictsarefunded

entirelyunderthenecessarysmallschoolssupportreceivingnorevenuelimitfunding.These

districtsreceive,onaverage,$11,000perADA.

ExcessTaxes.Districtsareallowedtokeepanyexcesstaxesthattheygeneratebeyond

theirrevenuelimits.Thedifferenceinperpupilrevenuebetweenadistrictsrevenuelimitand

propertytaxrevenuesaboveitsrevenuelimitareconsideredexcesstaxesandarecalculated

asanaddontoadistrictsgeneralpurposerevenues.

Minimum

Teachers

Salary

Provisions.In

1983,

Senate

Bill

813

(Chapter

498,

Statues

of

1983),

in1999(BTS1)andagainin2000(BTS2),thelegislatureencourageddistrictstoraiseminimum

teachersalaries.17TheminimumsalaryincentiveofSB813,paiddistrictsforthecostof

establishingahigherminimumteachersalary.Districtsarecurrentlyreimbursedbasedoneach

districtshistoricalparticipationinthesalaryincentiveprogram.Consequently,thereisawide

rangeamongdistrictsinfundinglevelsandsomedistrictsreceivenofundingeventhoughthey

meetthebasiceligibilityrequirements. BTS1raisedbeginningteachersalariestoatleast$32,000

andBTS2raisedthemto$34,000. In1999,theprogramprovided$9.50perADAtodistrictsthat

mettheminimumsalary,evenifminimumsalariesinthedistrictalreadyexceeded$32,000.The

programin2000providedtwofundingoptions:(1)$6perADAtoanydistrictmeetingthe

minimum,and(2)theamountneededtobringallcertificatedteachersto$34,000,whicheveris

greater. Inordertoreceivefunding,districtsmustcontinuetomeetthe199900or200001

minimumteachersalaries.18

17The first measure to increase teacher minimum salaries was in SB 813 in 1983.

18LAO, op cit 2003.


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17

MealsforNeedyPupils. PriortoProposition13,districtswereallowedtolevya

permissiveoverridepropertytaxformealsforneedypupils.Thisadjustmentappliestothose

districtsthatleviedthetaxin197778.In200405,therewere375districtsfundedunderthis

provision.Whilethetaxlevywasinitiallyfordistrictstoprovidemealsforneedystudents,

districtsarenolongerrequiredtousetheserevenuelimitfundsforsubsidizingmeals.Districts

areallowedtotreattheseasgeneralpurposefunds.

PERSReduction. ThePublicEmployees RetirementSystem(PERS)reductionisan

EducationCode

provision

that

reduces

each

school

district

srevenue

limit

payments

by

the

amountattributedas savings relatedtodistrictcontributionstoPERS.Throughacomplex

seriesofcalculations,thisprovisionreduceseachschooldistrictsrevenuelimitpaymentsonthe

basisthatschooldistrictcostsforcontributionstoPERSarelesstodaythantheywereinthe

198283fiscalyear.Ineffect,currentlaw captures forthestateallsavingsthatotherwise

wouldaccruetoschooldistrictsfromreducedemployercontributionratesforPERS.One

versionofthePERSreductionisthatitwassolelyforthepurposeofstrengtheningthestates

budgetcondition1981.Anotherversionisthatinthe1970sandearly1980s,thestateincreased

statefundingtodistrictsinrecognitionthatdistrictscostsforPERSwereincreasing.In198283,

whenthePERSratestartedtofall,thestatewantedtorecapturetheextrafundingithad

invested. Whatevertherationale,itisworthnotingthatthestatedoesnotadjustrevenuelimit

paymentsforchangesinthecostofotherspecificeducationinputs(suchasmaintenance,

utilities,orpayroll).19

UnemploymentInsurance.(UI)InanotherpostProposition13adjustment,thestatepays

19See the Legislative Analyst http://www.lao.ca.gov/analysis_2001/education/ed_07_Discretionary_anl01.htm


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18

districtsunemploymentinsurancecoststhatexceedtheamountincurredbydistrictsin1975

76.Theadjustmentiscalculatedbytakingtheunemploymentinsuranceexpendituresfora

givenyearandsubtractingthe197576unemploymentexpenditures. Ifadistricthad

unemploymentexpendituresof,say,$100,000inagivenyear,anditsactual197576

expenditureswere$50,000,itsunemploymentrevenueadjustmentwouldbe$50,000.

2.CategoricalFunding

Inadditiontogeneralpurposefunding,anothersignificantportionofdistrictsrevenues

arecategorical

aid.

There

are

four

types

of

categorically

funded

programs:

entitlement,

incentive,

discretionarygrants,andmandatedcostreimbursement.

Thesefundsaretargetedtocategoriesofchildrenwithspecialneedssuchasstudents

withdisabilitiesornonEnglishspeakers;districtcharacteristicssuchasahighnumbersof low

incomefamilies,highpupiltransportationcosts;andspecialprogramssuchasprofessional

developmentforteachersandadministratorsandclasssizereduction.

Entitlementprogramsareformuladriven.Theirfundingisbaseduponstudent

characteristicssuchasdisability,limitedEnglishspeakingability,orwealth.Suchprograms

recognizethatcertainstudentsrequiremoreintensiveorspecializededucationalservices.

Entitlementprogramsservetheequityobjectiveofgivingadditionalfundstodistrictsfor

studentswhohavegreaterneedforeducationalservices. Therootsofentitlementprogramsare

generallylegalandpolitical.Specialeducationprogramfunding,forinstance,grewoutof

severallawsuitsonbehalfofhandicappedchildren.Similarly,languageinstructionfornon

EnglishspeakingstudentshaditsoriginsintheUnitedStatesSupremeCourtdecisioninLauv.


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19

Nichols.20

Amongentitlementprogramsareeducationalservicesforchildrenwithdisabilities

whicharefundedthroughtheSpecialEducationprogram21.In200506statespendingfor

specialeducationwas$27billion.EconomicImpactAid(EIA)targetslowincomeandEnglish

learnerstudents.In200405,statespendingforEIAis$536.2million,about$236pereligible

child.22

Incentiveprogramstargetstatepolicyobjectivesbyprovidingdistrictswithadditional

resources.The

K

3Class

Size

Reduction

Program,

for

instance,

provides

funding

to

districts

thatreduceclasssizesinK3gradesto20orlower.Similarly,theclasssizereductionprogram

forgradenineprovidesfundingforschoolsthatreduceclasssizesto20inoneortwocoursesin

gradenine.TheEnglishLanguageAcquisitionProgramprovides$100perstudentingrades48

toparticipateinEnglishlanguageinstruction.Anotherexampleofanincentivecategorical

programincludesprofessionaldevelopmentprogramssuchasAB466formathematicsand

readingwerecreatedtoalignstatestandardswithteachingpractices.TheobjectiveofAB75,

thePrincipalsTrainingProgram,wastopromoteschoollevelleadershipforimplementing

statestandardsinmathematicsandlanguagearts.

Discretionaryorcompetitivegrantsprogramsareavailabletodistrictsonacompetitive

basis.Districtsmustwritesuccessfulgrantapplicationstoreceivefunding.Fundingisgenerally

foraspecifiedperiod.23Therangeandtypesofprogramsinthiscategoryareconsiderable.They

20Mills v. Board of Education 348 F. Supp 866 (D.D.C. 11972); Pennsylvania Association for Retarded Children (PARC) v.Commonwealth, 334 F.Supp. 1257 (E.D.Pa. 1971), 343 F.Supp. 279 (E.D.Pa. 1972); Lau v. Nichols. 414 U.S. 563 (1974).

21This is not to suggest that the amount of revenue per pupil for special education is sufficient to fund all services.22Since 2004-05, the state allocation formula for EIA has changed to target needy students.23There are exceptions, of course. The Miller-Unruh Reading Demonstration Program has funded some of the same


20/43

20

includetheHighPrioritySchoolGrantsProgram(HPSGP)andtheImmediate

Intervention/UnderperformingSchoolsProgram(II/USP)bothofwhichprovidefundingto

lowperformingschools. ItalsoincludesoutreachprogramssuchasAdvancementVia

IndividualDetermination(AVID)aswellasvarioustechnologyprograms.

MandatedCostReimbursement.TheCaliforniaConstitution(ArticleXIIIB,Section6)

requiresthestatetoreimbursedistrictsforthecostofanynewprogramorincreasedlevelof

serviceofanexistingprogrammandatedbystatuteorexecutiveorder.Inthe2003BudgetAct

andin

the

2004

Budget

Act,the

legislature

deferred

reimbursements

to

school

districts.

At

the

time,theLegislativeAnalystsOfficeestimatesthatthestatewouldowedistrictsover$1billion

fordeferredmandatereimbursements.24

Whilestatesandthefederalgovernmentoftenrelyoncategoricalfundinginorderto

influencelocalspendingdecisions,thegrowthofcategoricallyfundedprogramsinCaliforniais

unusualamongstates. Since1980,thelegislaturehasmultipliedthenumberofcategorical

programsmorethansixfold.By1980,therewere17statefundedcategoricalprograms

comprising,onaverage,13percentoftotalK12funding. InadditiontoSpecialEducationand

EIA,theyincludedprogramssuchasBilingualEducation,DriversTraining,MentallyGifted

Minors,EducationalTechnology,andEnvironmentalEducation. Mostprogramswerefunded

fromthestatesgeneralfund,otherssuchasEnvironmentalEducationwerefundedthroughthe

EnvironmentalLicensePlateFund.

Also,since1980,therehasbeenadramaticshiftintheshareoffundingbetween

districts since the late 1960s.24The 2006-07 State Budget, passed in June, provides about $900 million to eliminate the backlog of deferred constreimbursement.


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21

restrictedandunrestrictedfunds.Between1980and2000,averageperpupilfundingincreased

by15percentinconstant,2000,dollarsfrom$5,422to$6,232. Overthatperiod,thecategorical

shareofthosedollarsincreasedfrom$705to$1,870,anincreaseof165percent,whilethe

revenuelimitsharedeclinedbynearly8percent,from$4,717to$4,362.Foraclassof30

students,thatrepresentsadeclineindiscretionaryspendingof$10,650.

Inresponsetotheseeminglyexplosivegrowthofcategoricalprogramsandfunding,the

LegislativeAnalyst,in1993,conductedastudyofcategoricalprogramfundingineducation.

Thestudy,

Reform

of

Categorical

Education

Programs:

Principles

and

Recommendations,

identified57categoricalprogramsthatreceivedstatesupportduring199293.Thestudy

acknowledgesthedifficultyindeterminingtheexactnumberofcategoricalprogramsandof

classifyingthemaccordingtotheirpurpose.Thestudynotes,forinstance,thatChild

Developmentrepresentseightdistinctchilddevelopmentprogramsoperatedbylocalagencies,

whileSpecialEducationconsistsoffiveseparateprogramsforstudentswithdisabilities.25 The

Analystsstudyidentifiedfourcategoriesoffunding:(1)ProgramsforStudentswithSpecial

EducationNeeds,comprising12programs;(2)ProgramstoImproveInstructionand

Curriculum,comprising25programs;(3)ProgramsAddressingStudentSocialandHealth

Needs,comprising9programs;and(4)AdministrationandOtherPrograms,comprising11

programs.

In200405theCDEinitsStandardizedAccountingCodeStructuredatafiles(SACS)lists

233stateandfederal categoricalprograms.26Asin1993,theycoverawiderangeofprograms,

25Legislative Analyst. Reform of Categorical Education Programs: Principals and Recommendations. Sacramento, CA: Office of theLegislative Analyst (1993) p. 1026California Department of Education, Fiscal and Administrative Service Division. http://www.cde.ca.gov/ds/fd/fd/


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22

targetingavarietyofpolicyobjectives.Amongthemarefundsforcharterschools,various

provisionsoftheschoolaccountabilitylaw,professionaldevelopment,specialeducation,

studentservices,schoolsafety,vocationalandoccupationalprograms,technology,curriculum

andinstructionalimprovement,classsizereduction,andyearroundschooling.

Justascategoricalprogramsrepresentawiderangeofstatepolicyobjectives,thereis

considerablevariationamongtheminstatefundinglevels.Largestamongcategoricalprograms

areSpecialEducationProgramGrants,at$2.7billioninstatefundsandcomprisingaboutone

fifthof

total

categorical

funding.

At

the

other

extreme

is

Mathematics

Staff

Development

at

$5

million,comprising0.2percentofcategoricalfunding.Evenamongthoselargestprogramsthat

comprise88percentoftotalstatecategoricalfunding,thereisagainconsiderablevariationin

fundinglevels.FollowingSpecialEducationareClassSizeReductionfundedat$1.65billionin

200405andTargetedInstructionalImprovementGrants(formerlyCourtOrderedand

VoluntaryDesegregationFunding)atover$667.6million.AtthelowerendwereAfterSchool

andSafeNeighborhoodPartnershipProgramsat$121.6million.

Thedatashowthatbetween199899and200102,fundingamongcategoricalprograms

increasedby37percent,from$8.55billionto$11.7billion.27 Newprogramsaccountforalarge

shareofthatincrease.ThePublicSchoolAccountabilityActwithitsassociatedprograms

accountedfor$1.85billionofthe $3.16billion,nearly60percent,increasebetween199899and

200102.28 StaffDevelopmentaccountedforanother$180millionofnewfunding.

Amongthelargestcategoricalprograms,thereisconsiderableprogrammaticoverlap.

27The period between 1989-99 and 2001-02 is used to illustrate the increasing reliance on categorical funding. Totalcategorical funding declined somewhat in subsequent years, due largely to the states huge deficit. However, the 2006-07budget adds $400 million for new, ongoing categorical programs.28One feature of this program that gave financial rewards to schools that showed improvement has been discontinued.


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23

Twostaffdevelopmentprogramsaccountfor$404.6million.Thereareseveralprograms

targetedtoinstructionalimprovement.Classsizereductionprogramsattheelementaryand

secondarylevelamountedtoover$1.7billionin200405.AdultEducationandRegional

OccupationProgramsaccountedfornearlyonebilliondollars.EconomicImpactAid(EIA)

targetsadditionalresourcestodisadvantagedstudents.TheSchoolImprovementProgram(SIP)

providesmoneytoschoolstoengageinschoollevelinstructionalimprovements.Another

amongthemajorcategoricalprograms,providesinstructionalandlibrarymaterials.Finally,

SupplementalGrants

attempt

to

equalize

funds

by

providing

categorical

monies

to

districts

thatreceivelessthanthestateaverageincategoricalfunds,largelybecauseoftheir

demographics.29

Programmaticoverlapisevenmorepronouncedwhenonelooksattheentirearrayof

categoricalprograms. Thereareahalfdozenprogramsforstaffdevelopment(inadditiontothe

onesnotedabove);thereareprogramsfortrainingprincipalsandhighschoolathleticcoaches.

Thereareavarietyofschoolsafetyprograms,fundsforinstructionalmaterials,beforeandafter

schoolprograms,countyfiscaloversightofdistricts,technology,andschooltoworkprograms.

Thereare,forinstance,fourprogramsaimedatmakingadvancedplacementcoursesmore

accessibletostudents.Inadditiontothecategoricalprogramslistedhere,thereareyetothers

thatgotocommunitycolleges,campusesofthestateuniversityandtheUniversityof

California.Theseincludevariousoutreachandstudentservicesprograms.Whilefundingfor

theseprogramsflowstohighereducation,theytargetK12studentsorschools.Thisistruealso

forstaffdevelopmentandvarioussubjectmatterprograms.TheCaliforniawriting,science,and

29See T. Timar op cit 1994 and T. Timar op. cit. 2004


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24

mathprojectsarefundedthroughtheUniversityofCalifornia,OfficeofthePresident. The

categoricalprogramsrepresentabewilderingarrayoffundingstreamsandprogram

requirementsthat,oncecreated,takeonalifeoftheirownandarerarelyreviewedor

evaluated.

a.CategoricalReform

Theproliferationofcategoricalprograms,generalcomplaintsfromschoolsaboutthe

inflexibilityandbureaucraticcomplexity,andtheseeminglackoftransparencyinallocation

culminatedin

an

effort

in

2004

to

reform

categorical

program

funding.

Assembly

Bill

825

(Chapter871,Statutesof2004)attemptedtoconsolidateprogramsinsimilaroroverlapping

areas.Thelegislationcreatedsixnewblockgrantsconsolidating25categoricalprograms

comprisingroughly$1.82billionofthetotal$10.8billionintotalcategoricalprogramfunding

for200506. Thenewprogramsarethefollowing:

TeacherCredentialingBlockGrant

PupilRetentionBlockGrant

ProfessionalDevelopmentBlockGrant

TargetedInstructionalImprovementBlockGrant

SchoolandLibraryImprovementBlockGrant

SchoolSafetyConsolidationBlockGrant

Blockgrantfundingwasbaseduponeachdistrictsfundingforthecomponentprogramin

200304andadjustedforgrowthandcostofliving.

Thenewblockgrantsprovidedistrictswithvaryingdegreesofflexibilityinspending.

FundingfortheTeacherCredentialingBlockGrantandthePupilRetentionBlockGrantcanbe

usedonlyforprogramscomprisingtheblockgrant.Thosefunds,may,howeverbeaugmented

byanadditional20percentbytransfersfromanyoftheotherfourprograms.Theotherfour

programsallallowforfundstobetransferredouttoamaximumof15percentand


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25

transferredintoamaximumof20percent.Additionally,15percentofthefundingfromthe

latterfourprogramsmaybetransferredtoanyothercategoricalprogramsolongasitdoesnot

exceed20percentoftheprogramstotalfunding.

In1981,thelegislaturecreatedtheMegaItemthatalloweddistrictstomove10percent

inand15percentoutamongalimitednumberofcategoricalprograms.Districtscapacity to

shiftfundingamongprogramsasaresultoftheblockgrants isregardedbysomeasa

significantimprovementovertheMegaItem.

Inspite

of

efforts

to

consolidate

the

existing

array

of

categorical

programs,

major

flaws

persist.Chiefamongthemisthatonlyafractionofcategoricalprogramshasbeenconsolidated.

Moreimportantly,amongthosethathavebeenconsolidated, consolidationdidnothingto

addressequityissues.Pastanalyseshavepointedtofundingformulasthatseemtohaveno

connectiontospecificpolicyobjectives:fundsdonottargetintendedrecipientsand,conversely,

fundsflowtodistrictsthathavenodiscernibleneedforthem.30 TheTargetedInstructional

ImprovementBlockGrant,forinstance,foldsintheTargetedInstructionalImprovementGrant

programsthatusedtobecalledtheCourtMandatedandVoluntaryDesegregationProgram.

Schoolsthatreceivedthosefundsinthepastcontinuetoreceivethosefundsinthefuture.

Districtsarerequiredtousethosefundsforimprovinginstructioninschoolsinthe15deciles

ontheAPI. Onedistrictwithabout350studentsandover$26,000perADAinrevenuesin

200405receivedover$1600perADAwhileanotherdistrictwithsimilardemographicsand

muchlowerrevenuesandperpupilreceives$10perADA.

Generally,therehasbeenlittleaccountabilityforlocalexpenditureofcategorical

30. See LAO Legislative Analyst. Reform of Categorical Education Programs: Principals and Recommendations. Sacramento, CA:


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26

programfunds.Somedistrictofficialsreadilyadmitthattheyoftentreatcategoricalfundsasif

theyweregeneralpurposefunds.31Inaddition,thebasisforallocationisoftendifficultto

justify.EconomicImpactAid,oneoftheoldestandlargestprograms,flowsonlymarginallyto

thoseforwhomitwasintended.32Theimplicitallocationruleseemstobethatonceadistrict

receivesfundingforacategoricalprogram,itwillcontinuetoreceiveit.Sincecategorical

programfundingfallsoutsidetheSerranoequalizationband,therationaleforfundingshouldbe

carefullyscrutinized.Indeed,itisdifficulttounderstandthedifferencebetweensome

categoricalprograms

and

general

purpose

funding.

Class

size

reduction

funding,

for

instance,

flowsto99percentofdistricts.

3. OtherLocalRevenue

Thisisabroadcategoryoffundsthatincludesparceltaxes,reimbursementsand

donations,leases,transfers,fees,andothersourcesoflocalrevenue.Existinglocalrevenue

optionsarelimitedtoparcelorsquarefootagetaxes.

ParcelTaxes. Proposition13allowsdistrictstolevynonadvaloremtaxesiftwothirds

ofvotersapprove.Parceltaxpaymentsaregenerallyaflatfeeoneachparcelratherthanonthe

assessedvalueoftheproperty. Theproceedsarealmostalwaystiedtoeducationprograms

ratherthanconstruction.Theballotproposalpreparedbythedistrictseekingparceltaxes

describesthepurposeforwhichadditionalrevenueswillbeused.From1983through

Office of the Legislative Analyst (1993); Thomas Timar. Categorical School Finance: Who Gains, Who Loses: Berkeley, CA:Policy Analysis for California Education. 200431This information is anecdotal. However, there is generally little oversight and accountability for how state categoricalfunds are spent.32In itsAnalysis of the 2006-07 Budget Bill, the LAO argued that the EIA funding formula was outdated, resulting indistrict allocations appear arbitrary and unpredictable, and have become unworkable. The 2006-07 budget modifiedEIA by increasing funding by $350 million, using Title I as the poverty indicator and distributing funding based on ELpupil and Title I pupil counts, sets the equalization target at $600 per eligible student, and revises the existingconcentration grant.


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27

November2005,votersapproved20833 parceltaxesin405elections;137receivedmajorityvote,

butnotthenecessarytwothirdsapproval.

In200405,66districtsreceivedrevenuesfromparceltaxes.Therangewasaminimum

of$56perADAinHaywardUnifiedSchoolDistricttoahighof$3,239inBolinasStinsonUnion

ElementaryDistrictinMarinCounty.Themeanamongdistrictsimposingparceltaxeswas$717

perADA,whilethemedianwas$484perADA.34Whilemostdistrictswithparceltaxesarein

affluent,demographicallyhomogenous,andhighSEScommunities,notallare.EmeryUnified,

BerkeleyUnified,

and

Hayward

Unified

are

the

exceptions.

LocalOptionSalesTax(Chapter12X,Statutesof1991)permitsformationofalocalfinance

authoritythat,uponagreementof50percentoftheschooldistrictsinacounty,maycallforan

electiontoauthorizeacountywideonehalfcentsalestaxtosupportpubliceducationand

variousothercountyprograms.Thetaxcanbeapprovedbyasimplemajorityofacountys

voters.Whilethishasthepotentialofraisingsignificantrevenuesstatewidein199495,LAO

estimated$1.4billionannuallycourtdecisionscallintoquestionthelegalityofthesimple

majorityvote..Thetaxwasnotinvalidatedbythecourt,however,becausethemeasure

receivedmorethanthetwothirdsmajorityrequired.TheCityandCountyofSanFranciscohas

beentheonlycountytosuccessfullyimposethistax.

Table7showsthelevelandsourcesofOtherLocalRevenues.

TABLE7

AfterParcelTaxes,thenexthighestsourceofdiscretionaryrevenuetodistrictsisAll

OtherLocalRevenue,acategorythatincludesgiftsandcontributions,fines(library)and

33Some of the 208 were districts in which voters approved parcel taxes in more than one election.


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28

reimbursements.Becausethecategoryissomethingofagrabbag,itisdifficulttoknowthe

precisesourceoffunds.Thestatewidemeanforthiscategoryis$209perADA,withaminimum

ofzeroandamaximumof$3907perADA.Increasingly,districtsrelyonprivatedonationsand

foundationstoraiseadditionalfundswhichmaybeusedtohireart ormusicteachers,renovate

facilities,purchaseinstructionalmaterialsortechnology,orpayforanynumberof

supplementalservices.Generally,districtswiththehighestrevenuesinthiscategoryarelocated

inhighSEScommunities.

Mitigation/Developer

Feesare

fees

collected

by

agreement

between

developers

and

school

districtsand,technically,notimposedasaconditionofapprovingresidentialdevelopment.35

AnyfeescollectedasaconditiontoapprovingadevelopmentmustbedepositedintheCapital

FacilitiesFund.

ItisclearfromTable7thatdiscretionaryrevenuestodistricts,inadditiontotheir

revenuelimitsandcategoricalfunding,isratherlimited.Mostofthefundsinthiscategoryof

OtherLocalRevenuesarefromtransfers,leases,jointpowersagreements,andvariousfees

thatdistrictsmaycollect.Whilechargingfeesforcertaineducationalprograms,mainlythenon

statefundedadulteducationprogramsmaypayforthecostoftheeducationservicesthat

districtsprovide,thesearelimitedoptionsandtiedtospecificactivities.Mostimportantly,they

arenotrevenues,butfeesforservices.Jointpoweragreementsamongschooldistrictsandother

localgovernmentalentitiesmaycreatesomeefficienciesandcostsavings,andtherebyfreeup

generalfundrevenues,butagaintheiruseislimited.Howmuchsavingsadistrictmayrealize

34CDE: SACS 2004-05 data.35Some would argue that while technically this is so, developer fees are, in many instances, imposed as a condition toapproving residential development.


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29

fromthecreativeuseofsuchagreementsisdifficulttodetermine.

Whiledistrictsdohavesomeoptionsforgeneratingrevenuesbeyondtheirstatutory

limits,thoseoptionsarelimited.Thelimitationsareoftwosorts.Oneisthattherearefew

instrumentsavailabletodistricts.Theotheristhatexistinginstrumentsarenotrealisticformost

districtsbecauseofthetwothirdsvoterequirement. Asdiscussedabove,veryfewdistricts

havesucceededinpassingparceltaxinitiatives.Forthosedistrictsthathavebeensuccessful,

parceltaxesaregenerallyforfixedtime,threetofiveyears,atthemost.Whilesomedistricts

maybe

successful

in

getting

voters

to

approve

successive

parcel

tax

measures,

the

data

show

thatthosedistrictsaretheexceptions.Thecountywidesalestaxisanotherpotentialrevenue

source,ithasbeenusedinonlyonecountySanFrancisco.Itswidespreaduse,asthatofparcel

taxes,islimitedduetothetwothirdsvoterequirement.Othercurrentsourcesoflocalrevenues

areprettymuchconfinedtodonationsthroughfoundations.

V.IssuesRelatedtotheDistributionofK12Funds

HowschoolsarefundedinCaliforniahaschangeddramaticallysincetheenactmentof

revenuelimitsintheearly1970s.ThatchangewasacceleratedbyProposition13in1978. Prior

torevenuelimits,districtsdeterminedlevelsoffundingandexercisedspendingcontrolover

thosefunds.Inthecurrentsystem,thestatedeterminesfundinglevelsandmakesbroadpolicies

abouttheallocationoffunds.Localschoolboardsretainauthoritytodeterminehowfundsare

used,butthatauthorityhasbeenconsiderablydiminishedinseveralways.Themostobviousis

thelimited(andforsome,nonexistent)abilitytoincreasefundingthroughlocaltaxlevies. The

otherhasbeenthereducedshareofdiscretionaryfundingrelativetonondiscretionary,

categoricalfunding.


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30

Whilethediminutionoflocalcontroloverfundingisregardedbymanylocalschool

officialsasanegativefeatureofthefundingsystem,onthepositiveside,theaccretionofstate

authorityoverfundinghashadsomeimpactonequalizingfundingamongdistricts.Allbuta

handfulofsmalldistrictswithanequallysmallpercentageofthestatestotalstudentsfall

outsidetheinflationadjustedequalizationband.In197475,whenSerranowasdecided,51

percentofpupilswerewithinthespecifiedband. By199192,96percentofpupilsfellwithin

thespecifiedband(atthattime,about$300perpupilafteradjustingforinflation).Moreover,

studentswho

fall

outside

the

band

are

above

the

band,

not

below

it.

Obviously,

state

assumptionofschoolfinancehasbeengoodforreducinginterdistrictdisparitiesinfunding.36

However,equalizationhasaffectedonlyaportionofperpupilfundingtoschoolsbase

revenuelimits.Ontheotherhand,bothaddonscategoricalprogramsundermineequalization

duetosignificantvariationinfundingamongdistricts.37

Someobserversnote,however,thatstatecontroloverfunding hasdiffusedfiscal

accountabilityanderodedlocalcontroloverthelevelandtypeofeducationalservicesoffered.

38 Sincethe1990s,anumberofdistrictsOakland,Richmond,andCompton,amongthem

havegonebankrupt,forcingthemintostatereceivershipuntiltheybecomefiscallysolvent.

Whilethestateallocatesabout$14billionannuallytocategoricallyfundedprogram,those

programsarerarely,ifever,evaluatedfortheireffectivenessorauditedforcompliance.Schools

aregenerallylimitedtoprovidingonlythoseservicesthatthestatefunds.Thereislittle

discretionarymoneyavailabletodistrictsthatwanttostartanewprograms,theymustgoto

36LAO, 1994 p. 13937LAO, 2002-03; Timar, 1994, 2004.38LAO, 1994 p. 138


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31

thestatetogetspecialpurposefundingtopayforthem,asfewdistrictshaveanydiscretionary

moneyfornewprogramsorservices.39

Thecurrentsystemofschoolfinanceisonethathasbeencobbledtogetherin

responsetovariouspressuresoverthepastthirtysomeyears.Whatismissingfromthe

resultingpatchworkofpoliciesisanunderlyingframeworkorsetofprinciplestoguidethe

system.Asaresult,thesystemhaslittlecoherenceorclarity.Forinstance,thepolicygoalof

interdistrictequalizationisachievedthroughrevenuelimits,butundonebycategorical

programs.While

the

Supreme

Court

in

Serrano

excluded

categorical

programs

from

equalizationsince,intheoryatleast,theyaretargetedtospecialneeds.Asstudieshaveshown,

however,therationalityofsomeoftheseprogramsisnotobvious.40Thestateholdsschools

accountablefortheresultsofpupilperformance,butschoolsarenotgiventheresourcesand

flexibilitytoallocatethemtoachievethoseresults.Thecurrentfundingsystemoperateson

inputsandprocesseswhiletheaccountabilitysystemoperatesonstudentperformance.If

schoolsaretobeheldaccountableforresults,theyshouldbeabletodecidehowbesttoachieve

thoseresults.Forinstance,mostschoolsdonothavethediscretionaryfundstotailorstaff

developmentprogramstotheirparticularneeds.

Children,schools,anddistrictsalldiffer.Childrenarriveatschoolwithdifferent

expectationsforschooling,differentlevelsofpreparation,andcomefromvastlydifferenthome

environments.Schoolsthroughoutthestatehavedifferentmixesofstudents,rangingfromhigh

39The constraints on discretionary funding are particularly true with the increased cost of salaries and benefits.40See, for instance T. Timar. "Policy, Politics, and Categorical Aid: New Inequities in California School Finance,"

Education Evaluation and Policy Analysis16(2) 143-160 (1994); and Categorical School Finance: Who Gains, Who Loses?(Working Paper Series 04-2). Policy Analysis for California Education, School of Education, University of California,Berkeley and Davis, Stanford University. Also Legislative Analysts Office(http://lao.ca.gov/handouts/education/2006/EIA_050206.pdf)


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32

concentrationsoflowincome,disadvantagedstudentstoconcentrationsofhighincome,highly

advantagedstudents.Finally,districtsservecommunitieswithdifferentneedsandpreferences

foreducation.AsinglesystemsuchasCaliforniahascreatedsimplycannotmeetthosevarying

needs.

Ahealthypartnershipbetweenthestateandlocaleducationagenciesisessential

conditionofarobust,effectivesystemofeducation.Asapartnership,itarguesfortheneedto

developaframeworkforschoolfinance.Thereshouldbeasetofprinciplesthatdefinestateand

localroles

and

responsibilities

for

revenues,

program

control,

and

accountability.

A

coherent

frameworkandsetofprinciplesareclearlymissingfromthecurrentsystemwhichhasbeen

builtopportunisticallyinresponsetospecificneedsandproblems.Itisdoubtfulthatanything

shortofacomprehensiveoverhaulofthesystemislikelytoleadtoitsimprovement.


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33

Figure1

SourcesofFundingforK12Education

(200405)

FundingSource Distribution

State General Fund

67 %

Local Property Taxes

17%

Other Local5 %

Lottery2 %

Categorical

30 %

Miscellaneous

10 %

Federal9 %

General Purpose (60 %)Revenue LimitsAdd-ons


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34

Table1

ComparisonofSelectedTaxRatesandExpenditureLevels

inSelected

Counties

(1968

69)

County ADA

AssessedValue

perADA TaxRate

Expenditure

perADA

Alameda

EmeryUnified 586 $100,187 $2.57 $2,223

NewarkUnified 8,638 6,042 6.65 616

Fresno

CoalingaUnified

2,640

33,244

2.17

963

ClovisUnified 8,144 6,480 4.28 568

Kern

RioBravoElem. 122 136,271 1.05 1,545

LamontElem. 1,847 5,971 3.06 533

LosAngeles

BeverlyHillsUnified 5,542 50,885 2.38 1,232

BaldwinParkUnified 13,108 3,706 5.48 577

Source:LegislativeAnalyst,PublicSchoolFinance,PartV,CurrentIssuesinEducationalFinance(1971)p.8.


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35

Table2:

Proposition98OperativeTestbyYear

LAO,Proposition98:HowCaliforniaFundsK14Education.SacramentoEconomicsRoundtable2005,pg.4.

(http://www.lao.ca.gov/handouts/education/2005.
http://www.lao.ca.gov/handouts/education/2005http://www.lao.ca.gov/handouts/education/2005


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36

Table3

FundingforK12Education

AllSourcesandProposition98

(200405)

(Dollars

in

Thousands)

Sourcesof

Funding

Funding

from

AllSources

Proposition98

Sources

StateGeneralFund $34,050,000 $30,873,601

StateLottery 793,400

OtherStateFunds 85,800

FederalFunds 7,572,800

LocalProperty

Tax

11,441,100

11.213,733

LocalDebtServiceTax 1,195,900

OtherLocalFunds 3,794,500

Total $59,933,500 $42,087,334

Source: CDE


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38

Table5

MajorDistrictRevenueLimitSourcesperADA

(20042005)

AllDistricts

RevenueSource Mean

/ADA

Median

/ADA

Minimum

/ADA

Maximum

/ADA

TaxRelief,Subventions

Homeowners Exemptions

TimberTaxYield

OtherSubventions/InLieuTaxes

$32

18

2

$25

0

0

$0

0

0

$395

1377

1377

CountyandDistrictTaxes

SecuredRoll

Taxes

UnsecuredRollTaxes

PriorYearsTaxes

SupplementalTaxes

CommunityRedevelopmentFunds

PenaltiesandInterestfromDelinquent

Taxes

EducationRevenueAugmentationFund

(ERAF)

2209111

15

102

0

0

161

141566

3

76

0

0

53

112

0

0

0

0

0

0

268881516

812

1028

22

25

9798

Source:CDE,SACS200405


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40

Table7

OtherLocalRevenuesforSchoolsperADA

(200405)

RevenueSource Mean Median Min. Max

ParcelTaxes $49 0 0 $3229

OtherNonAdValoremTaxes(e.g.salestaxes,

maintenanceassessment)

0 0 17437

CommunityRedevelopmentFundsNotSubjectto

RevenueLimitDeduction

4 0 0 494

PenaltiesandInterestfromDelinquentNonRevenue

LimitTaxes

0 0 0 39

Nonresidentstudentfees 0 0 0 8

TransportationFeesfromIndividuals 4 0 0 170

InteragencyServicesBetweenLEAs 61 4 9

2

394

Mitigation/DeveloperFees 0 0 0 27

AllOtherFeesandContracts 14 0 0 696

AllOtherLocalRevenue 209 106 0 3907

Tuition 2 0 0 278

TransfersfromSponsoringLEAstoCharterSchools 11 0 0 4537

AllOtherTransfersfromDistricts 1 0 0 295

AllOtherTransfersfromCountyOffices 5 0 0 347

AllOtherTransfersfromJPAs 1 0 0 346

Transfersof

Apportionments

from

Districts

17

0

0

2145

TransfersofApportionmentsfromCountyOffices 214 181 0 4987

TransfersofApportionmentsfromJPAs 21 0 0 3205

Source:CDE,SACS200405

OtherTransfersInfromAllOthers 2 0 0 485

1..Examplesofrevenuerecordedinthisaccountarelibraryfines,contributions,gifts,andreimbursementforpracticeteaching


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41

REFERENCES

CaliforniaDepartmentofEducation,FiscalandAdministrativeServicesDivision.Report

ontheBudgetActof2004. http://www.cde.ca.gov/fg/fr/eb/

Elmore&McLaughlin, ReformandRetrenchment:ThePoliticsofSchoolFinanceReform.

Cambridge,MA:BallingerPress(1982)

Gndara,P.,Larson,K.,Mehan,H.,&Rumberger,R.(1998).CapturingLatinostudentsinthe

academicpipeline.Sacramento,CA:Chicano/LatinoPolicyProject.

Goldfinger,P.M.RevenuesandLimits:AGuidetoSchoolFinanceinCalifornia,2006Edition.

Sacramento,CA:SchoolServicesofCalifornia.

Goldfinger,P.M.&BobBlattner. RevenuesandLimits:AGuidetoSchoolFinanceinCalifornia,2005

Edition.Sacramento,CA:SchoolServicesofCalifornia.

LegislativeAnalyst.ReformofCategoricalEducationPrograms:PrincipalsandRecommendations.

Sacramento,CA:OfficeoftheLegislativeAnalyst.1993

LegislativeAnalystsOffice.AnalysisoftheBudget,200607.Sacramento,CA:Legislative

AnalystsOffice http://www.lao.ca.gov/

LegislativeAnalystOffice.Analysisof

the

Budget,

2005

06.Sacramento,CA:Legislative

AnalystsOffice.http://www.lao.ca.gov/

LegislativeAnalystsOffice(http://lao.ca.gov/handouts/education/2006/EIA_050206.pdf)

LegislativeAnalystsOffice.AnalysisoftheBudget,200405.Sacramento,CA:Legislative

AnalystsOffice http://www.lao.ca.gov

LegislativeAnalystsOffice.TheDistributionofK12EducationGeneralPurpose Funds..

Sacramento,CA:LegislativeAnalystsOffice.December22,2003http://www.lao.ca.gov/

Manwaring,R.Proposition98Primer.LegislativeAnalystsOffice.Sacramento,CA

(February,2005).

Serrano v.Priest,487P.2d1241(1971)and 557P.2d929(1976).

Sonstelie,J.ForBetterorWorse:SchoolFinanceReforminCalifornia.SanFrancisco,CA:Public

PolicyInstituteofCalifornia.(2000);
http://www.lao.ca.gov/http://www.lao.ca.gov/http://www.lao.ca.gov/http://www.lao.ca.gov/


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42

T.Timar.CategoricalSchoolFinance:WhoGains,WhoLoses: Berkeley,CA:PolicyAnalysisfor

CaliforniaEducation.(2004)

T.Timar. Policy,Politics,andCategoricalAid:NewInequitiesinCaliforniaSchoolFinance,

EducationEvaluation

and

Policy

Analysis16(2)143160(1994).


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APPENDIXCaliforniaStateBudgetforK12Education

20062007

Item

Amount

TotalGeneralFundBudget $67.1billion

Proposition98Funding $49.1billion

K12ADA 5,957,985

AmountperADA $8,244

AmountperADAfromallfundingsources1 $11,264

Source:LegislativeAnalyst,CaliforniaStateBudget200607

1.Source:CaliforniaDepartmentofFinance,K12Education,CaliforniaStateBudget200607

MajorFeatures

Item Amount

(inmillions)

Amount

perPupil

OngoingFunding

[email protected]% $1,1914.6 $321

[email protected]% $689.2 $116

DeficitReduction $308.6 $52

Equalization $350 n/a

EconomicImpactAidAugmentation $350 n/a

InstructionalMaterials $592 $96CaliforniaHighSchoolExitExamination $54.1 $500/12thgrader

Grade712 Counselors $200 $79/712grader

ArtsandMusic $105 $13

PreschoolExpansion $50 *

K8 PETeachers $40 $35,000perschool

SchoolMealReimbursement $37.8 $6

EnglishLanguageProfessionalDevelopment $25 n/a

OnetimeFunding

DiscretionaryBlockGrant $5325.5 $171

Mandates

$933.2

costreimbursement

InstructionalMaterials $135 n/a

Equipment (art,music,PE:$100;careertech:$40) $140 n/a

TeacherRecruitment $50 $28perdecile13

student

PreschoolFacilities $50 *

Documents

How California Funds K-12 Education