BILL ANALYSIS SENATE COMMITTEE ON EDUCATION Jack Scott, Chair 2005-2006 Regular Session BILL NO: SB 1358 AUTHOR: Simitian INTRODUCED: February 21, 2006 FISCAL COMM: Yes HEARING DATE: April 5, 2006 URGENCY: Yes CONSULTANT:James Wilson SUBJECT : School District Revenue Limit Equalization SUMMARY This bill, an urgency measure, establishes a statutory formula to make equalizing adjustments to school district revenue limits with a goal of raising per pupil revenue limits to a fixed point at which 90 percent of all pupils would be attending school districts with revenues that are equal to other districts of the same size and type. BACKGROUND "Equalization" is a term that has traditionally been applied to the process of revising school funding formulas in order to reduce per pupil funding differences in general aid (revenue limit funding). Revenue limit equalization was initiated in response to the Serrano decisions that ordered the reduction of wealth related (assessed value related) disparity in general funding for school districts of similar size and type. Although the last Serrano case was closed in 1986, the state has continued to make equalizing adjustments to per pupil revenue limits which have a tendency to become less equalized as a result of various forces such as statutory revisions of the definition of ADA, declining enrollment adjustments, and district mergers and territory transfers. In sum, most differences in today's per pupil revenue limits cannot be ascribed to "wealth related disparities" but rather result from policy changes unrelated to equalization. For purposes of equalization, school districts are divided into six "size and type" groups that were recognized by the Serrano courts as having legitimate reasons for differences in revenue limits. Among the types; high school districts SB 1358 Page 2 have the highest per pupil costs, elementary districts are the lowest, and unified districts that serve all grade levels have per pupil revenue limit averages that are between the other two. Each type of district is also divided into large and small groups, reflecting the economy of scale associated with size. Traditional equalization formulas are aimed at raising district per pupil revenues that are below average up to the average for their size and type group. Because the very act of adding equalization funding to revenue limits caused the average to grow, this method had the drawback of leaving ever larger number of districts "below" the new higher average, albeit by a small increment. At the suggestion of the Legislative Analyst, the equalization proposals that have been under consideration in the recent past have aimed not at the average but at the "90th percentile." Under the new methodology, districts are still grouped by size and type but the goal is set so that 90% of the pupils will be attending districts with the same per pupil revenue limits (for their size and type) and the remaining 10% of pupils will have marginally more revenues per pupil. Categorical funding programs have generally not been subject to equalization because their funds may have to be distributed to meet specific needs that are not equally distributed among school districts. For example, some districts may have higher transportation costs because they serve a widely dispersed population. Because there is a "rational basis" for these differences, the Serrano courts allowed categorical funding to remain outside of equalization mandates. ANALYSIS This bill, an urgency measure: 1) Establishes a formula for the equalization of school district revenue limits so that per pupil revenues may be increased to a target level at which, in the 2005-06 year, 90 percent of pupils attended districts with lower per pupil revenues and 10 percent of pupils attended districts with per pupil revenues that were equal to or greater than the target level. SB 1358 Page 3 2) Provides that revenues, for purposes of this equalization formula, will not include revenue received for the 1999 Beginning-Teacher Salary incentive program or the 1983 "longer day and year" incentive. 3) For the purpose of this equalization formula, divides school districts into the traditional size and type groups, as follows: a) Small elementary, less than 101 ADA b) Large elementary, more than 100 ADA c) Small high school, less than 301 ADA d) Large high school, more than 300 ADA e) Small unified, less than 1,501 ADA f) Large unified, more than 1500 ADA STAFF COMMENTS Related legislation . AB 2070 (Daucher), would establish an equalization formula that is identical to this measure. SB 1077 (Simitian), in the Assembly Education Committee, would establish a very similar equalization formula in that it would also equalize to the 90% target. SB 1077 differs from this measure by including, rather than excluding, funds from the beginning teacher and instructional time incentives, as well as including funds from two other revenue limit "add-on" programs, in the base of funding to be equalized under the formula. This difference could affect the eligibility of individual districts for equalization funding, but it is unlikely to make a substantial difference in the statewide cost of implementation. Another piece of related legislation is AB 2531 (Goldberg). AB 2531 would recalculate all district revenue limits into separate weighted amounts by grade span (K-5, 6-8 and 9-12) and then recombine the amounts to create a new district revenue limit that would be equalized to the 90% target. Like SB 1077, AB 2531 would include incentive and "add-on" programs in the equalization calculation. SUPPORT SB 1358 Page 4 California Association of School Business Officials Small School Districts' Association OPPOSITION None received.