BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 88
                                                                  Page  1

          Date of Hearing:   May 1, 2013

                           ASSEMBLY COMMITTEE ON EDUCATION
                                Joan Buchanan, Chair
                    AB 88 (Buchanan) - As Amended:  April 3, 2013
          SUBJECT  :   School finance:  new pupil funding formula

           SUMMARY  :   Replaces the current system of K-12 finance with a  
          Local Control Funding Formula (LCFF) for school districts,  
          county offices of education (COEs), and charter schools and  
          makes numerous conforming changes.  Specifically,  this bill  :  

          1)Establishes a Local Control Funding Formula for school  
            districts and charter schools comprised of a base grant and a  
            supplemental grant.

          2)Provides that the base grant shall be based on the statewide  
            average undeficited revenue limit, estimated to be $6,816 per  
            average daily attendance (ADA).

          3)Provides that the base grant per ADA shall be adjusted by  
            grade level as follows:

             a)   Grades K-3, $6,342; 
             b)   Grades 4-6, $6,437;
             c)   Grades 7-8, $6,628; and 
             d)   Grades 9-12, $7,680.

          4)Provides that the K-3 base grant be increased by 11.2% for  
            Class Size Reduction (CSR), and the 9-12 base grant be  
            increased by 2.8% for career-technical education (CTE).

          5)Establishes a phase-in formula, as specified, to gradually  
            close the gap between actual funding and the target level of  

          6)Requires the pupil-to-teacher ratio in grades K-3 to be no  
            more than 24-1 when the formula is fully implemented, unless a  
            higher ratio is negotiated through collective bargaining, and  
            requires a gradual reduction to the 24-1 ratio during the  
            phase-in period.

          7)Establishes a supplemental grant equal to 35% of the base  
            grant for every pupil identified as either an English learner  


                                                                  AB 88
                                                                  Page  2

            (EL), eligible for a free or reduced price meal (FRPM), or in  
            foster care (the 35% "weight" that is applied to the K-3 and  
            9-12 bases is applied before the CSR and CTE add-ons); and  
            uses an "unduplicated count," meaning that pupils that fall  
            into more than one category are counted only once

          8)Establishes a "concentration factor," which provides an  
            additional 35% weight for every EL, FRPM, or foster care pupil  
            in excess of 50% of the district's ADA.

          9)Provides that an EL pupil can generate supplemental funding  
            for a maximum of five years.

          10)Caps funding for home-to-school transportation and the  
            Targeted Instructional Improvement Program (TIIG) at their  
            current total levels and continues to provide it to districts  
            currently receiving it in addition to their LCFF allocation.

          11)Maintains funding and program requirements for the following  
            categorical programs:

             a)   Special education;
             b)   After School Education and Safety Program;
             c)   State Preschool;
             d)   Quality Education Investment Act;
             e)   Assessments;
             f)   American Indian Education Centers; and
             g)   Early Childhood Education Programs.

          12)Repeals funding and program requirements for all other  
            categorical programs and redirects their monies to the  
            supplemental grant portion of the LCFF.

          13)Establishes a hold harmless provision to maintain total  
            revenue limit and categorical program funding for each  
            district and charter school at its 2013-14 level, unadjusted  
            for changes in ADA or COLA.

          14)Provides, for basic aid districts, that local property tax  
            revenues be used to offset the entire LCFF allocation.

          15)Repeals the requirement that districts receiving state  
            general obligation bond funding for facilities set aside 3% of  
            the general fund expenditures in a routine maintenance  


                                                                  AB 88
                                                                  Page  3

          16)Requires school districts and COEs to adopt an annual Local  
            Control and Accountability Plan (LCAP) to identify goals and  
            describe the specific actions and strategies they will use to  
            achieve all of the following:  

             a)   Implement the Common Core content standards for all  
             b)   Increase the Academic Performance Index (API) for each  
               school and for each numerically significant pupil subgroup  
               and reduce gaps in the API and other measures of pupil  
               achievement between numerically significant pupil  
             c)   Improve pupil achievement of the content standards  
               adopted by the State Board of Education (SBE);
             d)   Increase high school graduation rates and reduce dropout  
             e)   Increase the percentage of pupils who have successfully  
               completed courses that satisfy the UC and CSU entrance  
               requirements, Advanced Placement courses, and CTE programs;
             f)   Identify and address the needs of pupils, and schools  
               predominately serving pupils, who are English learners,  
               qualify for free and reduced-price meals, in foster care,  
               or enrolled in a juvenile court school operated by a county  
               superintendent of schools;
             g)   Remedy deficiencies in any school in the areas of  
               textbooks and instructional materials; safe, clean, and  
               adequate school facilities; and qualified teachers; and
             h)   Provide meaningful opportunities for parent involvement,  
               including, at a minimum, supporting effective schoolsite  
               councils or other structures at each school and advisory  
               panels to the governing board or, if parents so choose,  
               creating other structures, such as an ombudsman for  
               parents, to address complaints and other issues raised by  

          17) Requires the COE plan to also describe specific actions and  
            strategies to:

             a)   Conduct effective fiscal oversight of school districts;
             b)   Provide support to school districts in the county, as  
               specified; and
             c)   Coordinate instruction for expelled pupils.

          18)Requires the annual audit of school district and COE  


                                                                  AB 88
                                                                  Page  4

            expenditures to ascertain and verify whether funds have been  
            spent in accordance with the LCAP.

          19)Requires the COE review of school district budgets to verify  
            that funds will be spent in accordance with the district's  

          20)Requires charter schools to submit an annual LCAP to their  
            chartering authorities and COEs.

          21)Replaces the existing funding model for COEs and replaces it  
            with a two part formula based on the cost of providing  
            regional services and alternative education.

          22)Provides that the regional services component of the COE  
            funding formula consist of the following:
             a)   A base grant of $655,920;
             b)   An additional amount of $109,320 per school district in  
               the county; and
             c)   An additional $40 to $70 per ADA in the county (based on  
               a sliding scale, with less populated counties receiving a  
               higher amount per ADA).

          23)Provides that the alternative education component of the COE  
            funding formula include:

             a)   A base rate of $11,045 per eligible pupil (pupils who  
               are incarcerated, on probation, probation-referred, or  
               mandatorily expelled);
             b)   A weight of 35% for pupils who are EL, receiving free or  
               reduced price meals, or in foster care; and
             c)   A concentration factor of an additional 35% for EL,  
               FRPM, or foster care pupils above 50% of enrollment.

          24)Makes various technical and conforming changes to repeal  
            categorical program requirements and replace statutory  
            references to the revenue limit with references to the LCFF.

           EXISTING LAW  provides a system of K-12 finance based on revenue  
          limits (general purpose funding) and categorical program funding  
          (funding for specific purposes).

           FISCAL EFFECT  :   Unknown

           COMMENTS  :   The LCFF was proposed by Governor Brown in January  


                                                                  AB 88
                                                                  Page  5

          as part of his 2013-14 budget proposal.  It is similar to the  
          Weighted Pupil Formula he proposed last year, but was not  
          adopted.  According to the Governor's Budget Summary,  
          "California's school finance system?has become overly complex,  
          administratively costly, and inequitably distributed."  The  
          Governor argues that the LCFF "will increase local control,  
          reduce state bureaucracy, and ensure that pupil needs drive the  
          allocation of resources."  In addition, it "will also greatly  
          increase transparency in school funding."

           Current system vs. LCFF  .  State and local funding is provided to  
          school districts in two major forms:  revenue limit funding and  
          categorical program funding.  Revenue limit funding comprises  
          about two-thirds of total state-local funding and may be used by  
          school districts for general purposes.  By contrast, categorical  
          program funding must be used for the purposes of the categorical  
          program.  Some programs are directed to specific populations,  
          such as special needs pupils, adults, English learners, or needy  
          pupils, as measured by eligibility for free or reduced priced  
          meals.  Other programs are directed to specific purposes, such  
          as class size reduction, instructional materials, or  
          professional development.  

          Categorical programs have been established by the Legislature  
          over the years to ensure that specific funding and policy  
          priorities are addressed by local districts.  In some cases, the  
          establishment of categorical programs grew out of the  
          Legislature's concern that local decision-making was not  
          resulting in sufficiently high priority being placed on specific  
          state priorities, such as providing programs and services to  
          better serve English learners.  In other cases, categorical  
          program funding was demanded by local districts to cover the  
          costs of specific programs or services, such as special  
          education and home-to-school transportation.  Since 2009-10,  
          funding for most categorical programs (representing less than  
          half of total categorical program funding) has been provided to  
          districts as general purpose funding (i.e., the funds have been  
          "flexed").  Flexibility was provided to help districts better  
          manage 20% budget cuts and is scheduled to expire in 2014-15.

          The LCFF eliminates both the funding and requirements for nearly  
          all state categorical programs.  (Federal funding accounts for  
          about 12% of total K-12 funding in California, and both the  
          funding and requirements attached to the federal programs would  
          be unchanged by the LCFF.)   Categorical programs that would be  


                                                                  AB 88
                                                                  Page  6

          retained are:

                 Special Education
                 After School Education and Safety
                 State Preschool
                 Quality Education Investment Act
                 Child Nutrition
                 American Indian Education Centers
                 Early Childhood Education Program

          Districts would still need to comply with the requirements of  
          these programs.  In addition, the mandates block grant would  
          continue to be funded separately.  Funding for two other  
          programs-Targeted Instructional Improvements Grants (TIIG) and  
          home-to-school transportation would be frozen at their current  
          levels and provided to districts that currently receive them,  
          but they could be used for general purposes.  Funding for these  
          two programs would not be adjusted for changes is a district's  

          The LCFF replaces revenue limit and most categorical program  
          funding with a single allocation comprised of a base grant and a  
          supplemental grant.  The base grant is based on the current  
          undeficited statewide average revenue limit, which is estimated  
          by the Department of Finance (DOF) to be $6,816 per average  
          daily attendance (ADA).  The base grant would be adjusted for  
          the ADA in four grade spans as follows:

                 Kindergarten-Grade 3, $6,342/ADA
                 Grades 4-6, $6,437/ADA
                 Grades 7-8, $6,628/ADA
                 Grades 9-12, $7,680/ADA

          The K-3 grade level amount would be increased by 11.2% of the  
          K-3 base grant (estimated to be $710 per ADA in 2013-14) for  
          class size reduction (CSR), and the 9-12 grade level amount  
          would be increased by 2.8% (estimated to be $215 per ADA in  
          2013-14) for career-technical education (CTE).  To qualify for  
          the K-3 class size reduction supplement, a district must either  
          maintain a 24-to-1 pupil-teacher ratio in those grades or  
          negotiate a higher ratio in the local collective bargaining  
          contract once the formula is fully implemented.  The grade 9-12  
          CTE supplement could be used for any locally-determined purpose.


                                                                  AB 88
                                                                  Page  7

          The supplemental grant would be based on the number of English  
          learners (EL pupils), pupils eligible for free or reduced price  
          meals, or pupils in foster care attending the district.  As a  
          practical matter, all foster youth are also eligible for free or  
          reduced price meals.  The formula uses an unduplicated count,  
          meaning a pupil who falls into more than one of those three  
          categories would be counted only once.  Each such pupil would  
          generate a weight of 35% of the base grant.  In other words, an  
          EL pupil would generate 135% of the base grant amount of revenue  
          for the district.  The weights for grades K-3 and 9-12 would be  
          applied to the base grant exclusive of the CSR and CTE add-ons.

           A "concentration factor" is applied if more than half of a  
          district's ADA falls into one of the three targeted categories.   
          In that case, each identified pupil above 50% would generate an  
          additional 35% weight, for a total weight of 70%.  

          The formula treats charter schools essentially the same way as a  
          district, except a charter school cannot have a concentration  
          factor that is higher than the concentration factor of the  
          district in which is resides.  

          The total amount of funding generated for a district under the  
          formula for the base grant, the supplemental grant, and the  
          concentration factor is a target, and does not reflect actual  
          funding levels.   The DOF estimates the cost of funding the  
          target level is $15.5 billion and that the target will be  
          reached in seven years, or in 2019-20, based on current revenue  
          projections.  During the projected seven year phase-in period,  
          the amount each district and charter school receives will be  
          based on the level of funding provided in the budget and the  
          amount needed to reach its target.  For example, if the budget  
          appropriates enough to close the statewide gap between the  
          target and the actual level of funding by 10%, then each  
          district and charter school will receive an amount equal to 10%  
          of its own gap between its target level and actual level of  
          funding.  In this way, a district that is further from its  
          target will receive a larger increase, both as a percentage of  
          its budget and per ADA, than a district that is closer to its  

          Eliminates continuous appropriation for revenue limit  .  Under  
          existing law, funding for the revenue limit is continuously  


                                                                  AB 88
                                                                  Page  8

          appropriated.  That means it is not appropriated in the annual  
          Budget Act.  This protects school funding whenever the budget is  
          enacted late, because the continuous appropriation allows  
          revenue limit apportionments to be made, even in the absence of  
          a budget.  It also protects revenue limit funding from the line  
          item veto.  Eliminating revenue limits and the continuous  
          appropriation shifts significant control over the largest  
          segment of school funding from the Legislature to the Governor.

           Reduces  transparency  .  Although the LCFF is promoted as a way  
          to make school funding more transparent, in important ways it  
          results in less transparency.  Currently, the total amount of  
          funding that districts receive is the sum of distinct,  
          identifiable parts.  As a result districts and the public have  
          historically known how much they are getting for, for example,  
          Economic Impact Aid, professional development, or instructional  
          materials.  Under LCFF, nearly all funding will be blended  
          together in a lump sum allocation to districts.  The simplicity  
          of the LCFF concept belies the fact that the complex  
          calculations used to determine a district's apportionment will  
          be made in a black box.  Unless one knows and understands the  
          underlying formula, it will not be evident how much money is for  
          the base grant, the different grade level ADA, the supplemental  
          grant, grade 9-12 CTE, growth, COLA, etc.   If the public cannot  
          identify the amount of a district's total funding that is for  
          the supplemental grant, then the public cannot determine whether  
          those supplemental funds are being spent on programs and  
          services for the pupils who generate them.

           Distorts funding for growth and COLA during the phase-in period  .  
            Annual increases for enrollment growth and COLA get added to  
          each district's target grant.  Then, the funding each district  
          receives is based on the gap between its actual level of funding  
          and its growth and COLA adjusted target and the amount  
          appropriated in the Budget Act to close that gap.  For example,  
          if a district's target is $10,000 and its actual level of  
          funding is $8,000, then its funding gap is $2,000.  If enough  
          money is appropriated to close the gap by 10%, then the  
          district's increase will be $200.  Because enrollment growth is  
          not funded directly, the closer a district's actual level of  
          funding is to its target, the less funding per ADA it will  
          receive.  The following table illustrates this:  
          |                    | District 1  |         District 2          |


                                                                 AB 88
                                                                  Page  9

          |                    |Year  |Year  |Year  |Year  |  Year 2 (No   |
          |                    |1     |2     |1     |2     |    Growth)    |
          |ADA                 | 100  | 110  | 100  | 110  |      100      |
          |Target @$100/ADA    |$10,00|$11,00|$10,00|$11,00|    $10,000    |
          |                    |  0   |  0   |  0   |  0   |               |
          |Actual Prior Year   |$6,000|$6,400|$8,000|$8,200|    $8,200     |
          |Funding             |      |      |      |      |               |
          |Gap                 |$4,000|$4,600|$2,000|$2,800|    $1,800     |
          |                    |      |      |      |      |               |
          |Funding for 10% of  | $400 | $460 | $200 | $280 |     $180      |
          |Gap                 |      |      |      |      |               |
          |Current Year        |$6,400|$6,860|$8,200|$8,480|    $8,380     |
          |Funding             |      |      |      |      |               |
          |CY Funding per ADA  | $64  | $62  | $82  | $77  |$83.80         |
           As the table shows, districts 1 and 2 are identical in every  
          respect except for the size of the gap between their actual  
          funding and their targets.  Both have 100 ADA in year one and  
          110 ADA in year two.  The ADA growth increases their targets in  
          year 2.  However, in year 2, funding drops by $5 per ADA (a 6%  
          drop) for district 2, which is closer to its target than  
          district 1.  Funding per ADA drops by $2 (or 3%) in district 1.   
          In general, if a district's actual funding is more than 50% of  
          its target, its funding per ADA will be reduced.  At full  
          implementation, this reduced level of funding will be locked in.  
           If a district's actual level of funding is less than 50% of its  
          target, its total funding per ADA will increase.  

          The table also shows that, if District 2 has no growth in year  
          2, its funding per ADA would increase.  The committee may wish  
          to consider whether the state should adopt a policy of reducing  
          funding per ADA for growing districts during the phase-in  

          Under existing law, funding per ADA drops only when overall  


                                                                  AB 88
                                                                  Page  10

          funding is reduced.  Under the LCFF, funding per ADA in  
          individual districts can drop even when there is an overall  
          increase in funding.  The LCFF distorts the application of the  
          COLA in a similar way.  These phenomena will occur only during  
          the phase-in period and are intentional.  This is the mechanism  
          that brings all districts to the same base level of funding per  
          ADA when full implementation occurs.  It is a combination of  
          leveling up for some districts and leveling down for other  
          districts.  In the past, the Legislature has chosen to use only  
          a leveling-up approach, as with revenue limit equalization.

           Hampers multi-year projections  .  The distortion of growth and  
          COLA funding makes it more difficult for districts to project  
          revenue in future years.  Existing law requires districts to  
          prepare budgets showing that they are able to meet their  
          financial obligations not only for the current year but also for  
          the next two fiscal years.  County superintendents of schools  
          are required to consider a district's multiyear budget  
          projections as part of their oversight responsibility.  A  
          primary determinate of a district's revenue is ADA, so the less  
          predictable funding per ADA is, the more difficult it will be to  
          make multi-year revenue projections.  This difficulty will be  
          felt both by districts and by the county superintendents who  
          review district budgets.

           Fails to restore all districts to their 2007-08 purchasing  
          power  .  The LCFF uses the current level of funding as the  
                                                       starting point for the allocation of funds.  The current level  
          of funding is more than 20% below the level provided in 2007-08.  
           Pinning each district's target level of funding to the  
          statewide average undeficited revenue limit means that districts  
          with above average revenue limits will have a target that is  
          below their 2007-08 funding level.  In other words, even if they  
          hit their targets in seven years, as projected by the  
          Administration, their purchasing power will lag below what it  
          was 12 years earlier.  This conflicts with a principle of school  
          finance reform suggested by Alan Bersin, Michael Kirst, and  
          Goodwin Liu in their 2008 paper, "Reforming California School  
          Finance," upon which the LCFF proposal is based.  Specifically,  
          they argue that "Reforms should apply to new money going  
          forward, without reducing any district's current allocation."   
          Consistent with that principle, and since all districts shared  
          equally in the cuts that have occurred since 2007-08, the  
          committee may wish to consider whether all districts should be  
          restored to that level of funding, either before a new formula  


                                                                  AB 88
                                                                  Page  11

          is enacted or concurrently with the phase-in of a new formula.  
            Eliminates categorical programs that serve the general pupil  
          population  .  Districts currently receive about $2.5 billion  
          (about $400 per ADA) for categorical programs that serve the  
          general pupil population.  Instructional materials, deferred  
          maintenance, and professional development are examples of such  
          programs.  The LCFF eliminates these programs and their funding  
          by excluding them from the base grant and using the funding for  
          the supplemental grant.  Districts with relatively few targeted  
          pupils will lose much of this funding altogether.  Districts  
          with relatively large numbers of targeted pupils will receive  
          the funds formerly associated with these programs in their  
          supplemental grants.  However, they will be required spend the  
          supplemental grant moneys to "substantially" benefit the pupils  
          that generate them.  These districts will be restricted in their  
          ability to use these funds for their former purposes.  Thus,  
          resources targeted to programs that support all pupils, like  
          instructional materials and professional development, will be  
          eliminated in all districts.  Put another way, all districts  
          will have only their base grant funds to use for purposes for  
          which they have historically received categorical funds.  This  
          is an important point for the committee to consider in light of  
          the increased demand for these programs to successfully  
          implement the Common Core content standards for all pupils.  

          Retains large inequities  .  The proposal fails to resolve the two  
          most inequitably-funded programs-TIIG and HTS transportation.   
          Both are continued at their current levels of funding and  
          current distribution.  TIIG was established by AB 825  
          (Firebaugh, Chapter 871, Statutes of 2004), by consolidating  
          funding for two programs-court-ordered and voluntary  
          desegregation and supplemental grants.  About half of the  
          state's school districts receive TIIG funding, ranging from less  
          than $1,000 for a few very small districts to more than $400  
          million for Los Angeles Unified.  The five districts that  
          receive the largest amount of TIIG funding in 2012-13 funding  

          |District                   |Total TIIG      |TIIG Funding per    |
          |                           |Funding         |Pupil               |
          |Los Angeles Unified        | $406.5 million |        $620        |


                                                                  AB 88
                                                                  Page  12

          |San Jose Unified           | $27.1 million  |        $816        |
          |San Bernardino City        | $14.9 million  |        $277        |
          |Unified                    |                |                    |
          |Oakland Unified            |  $8.9 million  |        $191        |
          |Long Beach Unified         |  $8.5 million  |$103                |
          |                           |                |                    |

          Disparities in funding per pupil are even greater than indicated  
          in the table above. For example, Santa Ana enrolls a larger  
          percentage of English learners than Los Angeles (55% vs. 41%),  
          yet Santa Ana receives $7 per pupil in TIIG funding compared to  
          LA's $620 per pupil.  The LCFF proposal perpetuates these  

          The current home-to-school transportation funding formula was  
          enacted in 1983.  The formula provides that the amount of  
          transportation aid a district receives is equal to the lesser of  
          its prior year approved expenses or its prior year state aid,  
          adjusted for whatever COLA may be provided in the budget.   
          Accordingly, state aid does not keep pace with increased costs  
          if a district's costs are growing at a faster rate than  
          inflation.  In addition, if a district did not provide  
          transportation in the year prior to the enactment of the  
          formula, then that district is not entitled to any state  
          funding, because its prior year aid will always be zero.  There  
          are 18 districts with approved transportation costs that do not  
          receive any state aid because of this.

          By capping aid at the level of prior year aid, the formula has  
          failed to keep pace with actual workload increases, especially  
          for growing districts, and the amount of aid a district receives  
          no longer bears any relationship to its costs or workload.   As  
          a result, the percentage of approved costs that are reimbursed  
          by state aid ranges from 0% to 97%, and averages 43%.   
          Unreimbursed costs result in inequitable educational  
          opportunities, because districts must redirect general purpose  
          funds to cover them-funds that would otherwise be available for  
          the classroom.  

           Repeals provisions related to the Valenzuela CAHSEE settlement  .   
          AB 347 (Nava, Chapter 526, Statutes of 2007) enacted statutory  


                                                                  AB 88
                                                                  Page  13

          changes to implement the settlement agreement in Valenzuela v.  
          O'Connell.  The plaintiffs challenged the California High School  
          Exit Examination (CAHSEE) as a graduation requirement on  
          constitutional grounds, arguing that pupils who failed the exam,  
          but were otherwise eligible to graduate, were victims of an  
          unequal education system that did not adequately prepare them to  
          pass the test.  The Court of Appeals upheld implementation of  
          the CAHSEE, but also recommended that the parties "find the  
          pathways necessary to provide equal and adequate access to  
          meaningful remedial assistance to students."  AB 347 implements  
          the court directive by requiring school districts to take  
          specified steps to inform pupils who failed the CAHSEE of their  
          right to receive intensive instruction and to provide a method  
          for pupils to seek redress through the uniform complaint  
          process.  The bill also requires county superintendents of  
          schools to determine the extent to which districts have provided  
          intensive instruction to pupils who failed the CAHSEE and the  
          extent to which pupils elected to receive the instruction.  The  
          LCFF proposal repeals these requirements.
          Base grant  .  The target level of funding for the proposed base  
          grant is based on the statewide average undeficited revenue  
          limit.  Monies for all of the categorical programs-other than  
          the ones excluded from the LCFF-would be shifted to the weighted  
          portion of the formula.  This raises three inter-related  
          questions:  How large should the base be?  How large should the  
          weight be? And what is the relationship between the base and the  

          Providing that the base should be comprised only of the  
          undeficited revenue limit assumes that this level of funding is  
          sufficient to adequately serve the needs of the general pupil  
          population.  Historically, however, revenue limit funds have  
          been supplemented by certain categorical program funds to help  
          meet the needs of the general pupil population.  This includes  
          funding for instructional materials, professional development,  
          deferred maintenance, and the Arts and Music Block Grant, among  
          others.  As discussed, the formula eliminates funding for these  
          programs.  To ensure that the base grant is sufficient to meet  
          existing general purpose programs, the committee may wish to  
          consider whether it should be based only on the revenue limit or  
          whether it should be increased to include funds for categorical  
          programs that serve the general pupil population.

          Using the undeficited revenue limit as the target level of  


                                                                  AB 88
                                                                  Page  14

          funding for the base grant implies that this level of funding is  
          adequate to meet the needs of the general pupil population.   
          According to the National Education Association's annual  
          "Rankings & Estimates" report, California was $2,489 per ADA  
          below the national average in school spending in 2010-11.  Only  
          four states-Arizona, Nevada, Mississippi, and Idaho-ranked below  
          California in expenditures per ADA.  It would cost an additional  
          $15 billion per year to get to the national average.  This is  
          roughly the same amount the Governor projects will accrue to  
          schools at full implementation of the LCFF, in seven years.

          The most recent "Quality Counts" report, prepared annually by  
          Education Week, ranks California 49th in the nation in school  
          expenditures per pupil.  "Quality Counts," which adjusts each  
          state's spending to account for regional cost differences,  
          reports that California's spending of $8,482 is $3,342 (28%)  
          below the national average.  According to these estimates, it  
          would cost California $20 million to get to the national  

          In 2007, California engaged in a number of "Getting Down to  
          Facts" studies, which studied various aspects of K-12 education  
          in this state.  One of those studies, "Aligning School Finance  
          with Academic Standards," concluded that school funding in  
          California would need to increase by 40%, or about $20 billion  
          to provide schools with the resources to achieve expected  
          outcomes.  That was before school funding was reduced by more  
          than 20%.  The report concludes that most of the 40% increase  
          should be targeted to low-income and EL pupil to meet their  
          needs.  By contrast, the proposed LCFF would redirect funds from  
          the existing revenue stream to high-need pupils, rather than  
          adding new funds.  The committee may wish to consider whether  
          the target level of funding for the base grant should reflect an  
          aspirational level of funding-such as the national average or a  
          specified adequate level of funding-rather than an existing  
          level of funding that is among the lowest in the nation and has  
          been determined to be inadequate.

           Supplemental grant  .  The DOF has indicated that the weight of  
          35% applied to targeted pupils represents a midpoint of weights  
          applied in other states.  However, only one other state-Hawaii,  
          which is a single school district state-uses a pure weighted  
          pupil formula (WPF).  Other states use a hybrid formula that  
          uses weights to allocate a portion of overall funds to districts  
          based on pupil needs, but they do not use a weighted formula to  


                                                                  AB 88
                                                                  Page  15

          allocate nearly all school funds.  The paper by Bersin, et al.  
          estimates that the additional cost of serving EL and FRPM pupils  
          ranges from $1,500 to $3,000 per pupil.  This is 22% to 44% of  
          base target.  The proposed 35% weight is near the midpoint of  
          this range.  The Bersin et al. finding raises the question of  
          whether the additional cost of serving EL and FRPM  pupils is  
          best estimated as a dollar amount (as they do) or as a  
          percentage of the base amount (as the Governor proposes).  And  
          if it is best expressed as a percentage, then what is the  
          relationship between the base and the supplement?  Intuitively,  
          one could argue that, as the base amount get higher, the  
          percentage weight should get lower, but there is little research  
          to inform this issue.  

          Similar questions arise around the concentration factor.   
          Bersin, et al., recommend that the concentration factor take  
          effect when at-risk pupils exceed 50% of a district's  
          enrollment.  This is based on 1992 and 1997 studies published by  
          the U. S. Department of Education.  Some have argued for a  
          higher threshold (such as 75%) coupled with a higher base grant,  
          but there is little recent research on this issue.  In addition,  
          some have argued that the concentration factor should be applied  
          at the school site level, as well as the district level, because  
          some districts that wouldn't qualify for the concentration as a  
          district have school sites with high concentrations of at-risk  
          Allocation of LCFF vs. current formula  .  The DOF has produced a  
          computer analysis showing that, under their revenue assumptions,  
          the target level of funding would be reached in 2019-20 and that  
          funding per ADA for all districts grows.  However, this  
          conclusion conceals that fact that, as discussed, a feature of  
          the LCFF is that the target level of funding for some districts  
          is below their actual 2007-08 level of funding in terms of  
          inflation-adjusted purchasing power.  The DOF analysis also  
          fails to compare what districts would get under the LCFF with  
          what they would get under current law.  The CDE has done such an  
          analysis and found that more than 500 districts and charter  
          schools would lose more than $1,000 per ADA and about 400 other  
          districts and charter schools would lose between $500 and $1,000  
          per ADA under the LCFF.  Although many of these are small  
          district and schools, some are relatively large and also serve  
          high numbers of needy pupils.  A few districts with more than  
          50% EL/FRPM pupils that would lose funding under LCFF are:


                                                                  AB 88
                                                                  Page  16

               Oakland Unified               60% EL/FRPM-$226/ADA
               San Miguel Jt. Union          64% EL/FRPM-$253/ADA
               Sweetwater Union High    59% EL/FRPM-$555/ADA
               Elk Grove Unified             56% EL/FRPM-$180/ADA
               ABC Unified                   55% EL/FRPM-$625/ADA

          A possible explanation for this is that the current system may  
          do a better (if imperfect) job than it is given credit for of  
          allocating dollars to districts with high needs pupils.  A  
          recent study by the Public Policy Institute of California  
          (PPIC), "California School District Revenue and Pupil Poverty:   
          Moving toward a Weighted Pupil Funding Formula," looked at the  
          relationship between total revenue for unified school districts  
          and the percentage of pupils in those districts eligible for  
          free or reduced price meals.  The PPIC found that total funding  
          increases as the percentage of FRPM pupil increases, and  
          computed an average "implicit" weight of 36%.  However, the PPIC  
          found that there is much variation around this average,  
          indicating a need to better target resources among districts  
          with high percentages of high-need pupils.  An alternative and  
          more transparent means for achieving this goal may be to  
          increase funding for the Economic Impact Aid (EIA) program and  
          modifying the EIA distribution formula.

          About three-quarters of high school districts would receive less  
          funding under the LCFF than under current law.  This may result,  
          in part, from the way needy pupils are counted.  Specifically,  
          the formula defines needy pupils as pupils eligible for free or  
          reduced-price meals.  Students and families must self-identify  
          themselves as eligible, and many low income high school pupils  
          do not fill out the form to establish their eligibility.   
          Accordingly, the true number of low-income pupils in high  
          schools that should receive supplemental services may be under  
          counted by the formula.

          About 300 districts and charter schools would see their funding  
          increase by more than $1,000 per ADA, with implementation of the  
          LCFF, and about 200 would see their funding increase by from  
          $500 to $1,000 per ADA.  

           Local Control and Accountability Plans  .  Funds received through  
          the LCFF would be unrestricted and available for any  
          locally-determined use.  However, governing boards would be  
          required to adopt an annual Local Control and Accountability  
          Plan (LCAP) to describe the specific actions and strategies the  


                                                                  AB 88
                                                                  Page  17

          district will use to achieve specified objectives.  One of the  
          eight requirements of the plan is to identify and address the  
          needs of pupils, and schools predominately serving pupils, who  
          are English learners, qualify for free and reduced-price meals,  
          in foster care, or enrolled in a juvenile court school operated  
          by a county superintendent of schools.  In addition, the  
          proposal requires that the supplemental grant funds be used to  
          substantially benefit the targeted pupils as provided for in the  
          local control and accountability plan.  Monitoring this will be  
          difficult, however, because it will be hard to ascertain how  
          much of a district's total apportionment is due to the  
          supplemental grant.

          A school district's LCAP is subject to review and approval by  
          the county superintendent of schools as part of the AB 1200  
          financial oversight process.   County superintendents would be  
          required to disapprove a district's budget if he or she  
          determines that the plan is not consistent with the LCAP  
          template adopted by the SBE or that it does not reflect the  
          costs necessary to implement the LCAP.  This goes beyond the  
          current responsibilities that county superintendents have with  
          respect to school district oversight.  In addition, the annual  
          external audit must include a determination of whether funds  
          were expended in accordance with the LCAP.  The committee may  
          wish to consider whether this goes beyond the scope of normal  
          audits and whether auditors have the training and expertise to  
          make this determination.

           At what point does the "Principle of Subsidiarity" outweigh  
          statewide policy objectives and priorities  ?  Categorical program  
          have been adopted in part to ensure that state policy objectives  
          and priorities are addressed at the local level.  For example,  
          the EIA program was established to ensure districts address the  
          needs of low income pupils and English learners.  The Mentally  
          Gifted Minor program was changed to Gifted and Talented  
          Education (GATE) to ensure that districts went beyond culturally  
          biased IQ tests to identify more pupils of color for the  
          program.  By eliminating categorical programs, the LCFF  
          eliminates the lever by which the Legislature ensures state  
          priorities are addressed.  The Principle of Subsidiarity assumes  
          that school districts are the best entities for establishing  
          policies and setting priorities, but that may not always be the  
          case.  For example, if the benefit of a program accrues more to  
          the state at large than to an individual school district, such  
          as citizenship courses for adults or regionalized programs for  


                                                                  AB 88
                                                                  Page  18

          career-technical education (such as programs offered through  
          Regional Occupational Programs and Centers), then districts  
          would have little incentive to offer that program, even if it is  
          a high priority for the state.  

           Related legislation:  

          AB 200 (Hagman), which is pending in the Assembly Education  
          Committee, eliminates the sunset date on the Tier 3 categorical  
          programs and provides that, beginning in 2014-15, funds for  
          those programs shall be allocated based on the amount per ADA  
          each recipient received in 2013-14.

          AB 470 (Mullin), which is pending in the Assembly Education  
          Committee, removes the Teacher Credentialing block Grant from  
          Tier 3 flexibility and requires the SPI and the California  
          Commission on Teacher Credentialing to perform onsite reviews  
          for all California Beginning Teacher support and Assessment  
          programs (BTSA), implement high-quality teacher induction  
          programs, and enforce existing BTSA program standards.

          AB 558 (Cooley), which is currently pending in the Assembly  
          Education Committee, extends the phase out of the reduced  
          penalties for exceeding K-3 class size reduction  
          pupil-to-teacher ratios.

          AB 1152 (Ammiano), which is pending in the Assembly Education  
          Committee, removes the California School Age Families Education  
          Program (Cal-SAFE) from Tier 3.

          AB 1186 (Bonilla), which is pending in the Assembly Education  
          Committee, extends the flexibility for Tier 3 categorical  
          program funds, provided, beginning with the 2013-14 fiscal year,  
          a school district that receives them agrees to use at least 9%  
          of the total funds for professional development for certificated  
          and administrative employees related to implementation of the  
          common core content standards; purchasing technology to  
          implement assessments aligned with the common core content  
          standards; or implementation of programs to integrate science,  
          technology, engineering, and mathematics (STEM) in grades 7 to  
          12, inclusive.

          AB 1215 (Muratsuchi), which is pending in the Assembly Education  
          Committee, requires that an annual appropriation from the  
          General Fund be made directly to  the Southern California  


                                                                  AB 88
                                                                  Page  19

          Regional Occupational Center for the purposes of providing  
          career and technical education services.  

          SB 223 (Liu), which passed the Senate Education Committee on a  
          9-0 vote and is pending in the Senate Appropriations Committee,  
          extends categorical flexibility in exchange for the recipient  
          LEA agreeing to specified accountability preconditions.

          California Collaborative on District Reform
                                                                Delano Joint Union High School District
          Education Trust-West
          Jon R. Gundry, Superintendent, Pasadena Unified School District
          Kern County Office of Education
          Los Angeles County Office of Education
          Los Angeles Unified School District

          None received
          Analysis Prepared by  :    Rick Pratt / ED. / (916) 319-2087