Download - How California Funds K-12 Education
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HowCalifornia
Funds
K12Education
ThomasTimar
UniversityofCalifornia,Davis
September2006
InstituteforResearchonEducationPolicyandPractice
StanfordUniversity
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2
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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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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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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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
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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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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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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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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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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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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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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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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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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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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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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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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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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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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 *