BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
SB 69 (Liu) - Local Control Funding Formula
Amended: May 8, 2013 Policy Vote: Education 7-0
Urgency: No Mandate: Yes
Hearing Date: May 23, 2013 Consultant: Jacqueline
Wong-Hernandez
SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
Bill Summary: SB 69 replaces the existing revenue limit and
categorical school funding structure and establishes a Local
Control Funding Formula (LCFF), beginning in the 2014-15 fiscal
year, comprised of a base grant and a supplemental grant for
school districts, charter schools and county offices of
education. The bill provides supplemental grant funding equal to
35% of the base grant for every pupil identified as an English
learner (EL), eligible for a free or reduced price meal, or in
foster care. Pupils that fall into more than one category are
counted only once. This bill establishes an LCFF accountability
and intervention system, to be administered by the
Superintendent of Public Instruction (SPI).
Fiscal Impact: The education finance system proposed in this
bill would take effect beginning in 2014-15.
LCFF: Substantially increased per-pupil allocations,
beginning in 2014-15; the extent to which the new allocation
formula will drive costs and cost pressure in other Prop 98
General Fund supported programs and activities is unclear.
Mandates: Potentially substantial reimbursable mandates on
local education agencies (LEAs) to produce Local Control and
Accountability Plans (LCAPs) and provide data required by
the accountability mechanisms.
Accountability: Significant state administrative costs
(both upfront and ongoing), potentially offset over time by
savings from not having to administer a variety of
categorical programs that the LCFF would repeal. The CDE
estimates it would require up to 5 new Education Programs
Consultants ($105,284 per position) for one to two years to
prepare for LCFF. This would be short-term staff likely for
one to two years. Ongoing costs to manage LCAPs will depend
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upon the level of compliance and intervention necessitated
by LEAs, but is expected to be significant.
Background: The state's K-12 public school system is supported
predominantly with state funds. Of the state funds provided to
K-12 schools, there are two primary types of funding:
discretionary funds (revenue limits) and categorical funds.
Discretionary funds comprise approximately two-thirds of the
funds the state provides to school districts and categorical
funds comprise approximately a third.
Discretionary Funds / Revenue Limits are the general purpose
funds that school districts receive for each student, and are
provided to support the general costs of operating schools.
Established in 1972, the per student average daily attendance
(ADA) revenue limit varies slightly between districts. The
district revenue limit income is a
combination of local property taxes and state General Fund
support as determined statewide through the Proposition 98
funding formula. Generally, any increase in local property taxes
is offset by a reduction in state funds. In some school
districts, however, the amount of property taxes exceeds its
revenue limit. Historically, those districts (commonly referred
to as "Basic Aid districts") have kept all of their property tax
revenues and received approximately $120 per pupil or a minimum
of $2,400 per district consistent with the State Constitution.
Funding is provided to school districts and county offices of
education (COEs) by a continuous appropriation, based on a
formula that multiplies their ADA over the course of the year by
their individual funding rates (revenue limits). Each district
has its own unique revenue limit based on historical spending.
The end result is a school district's "apportionment funding."
Although this funding does not require an annual appropriation
in the Budget Act, the state can still affect the amount of
total funding that is provided for this purpose by increasing or
decreasing the revenue limits that are used to calculate
apportionments. Additionally, the Legislature has annual
authority to approve or deny a cost-of-living adjustment (COLA)
for revenue limits.
Currently, when state General Fund is insufficient to fully fund
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revenue limits statewide, a "deficit factor" is created to
reduce funding to all schools by the same percentage. The
deficit factor keeps track of reductions to school district
revenue limits, which will potentially be restored when
sufficient funding is available in the future. The deficit
factor reflects both the cumulative loss of purchasing power due
to inflationary cost increases that occurred in the years where
the statutory COLA was not funded, and the cuts to base funding
that were imposed on schools during state budget reductions in
recent years. Below is a table of the estimated undeficited
revenue limits by school district type. Actual funds currently
received by school districts are "deficited"; school districts
will receive a deficited revenue limit of approximately 22.5%
less.
-------------------------------------------------------
| | | |
-------------------------------------------------------
-------------------------------------------------------
| Undeficited Statewide Average Revenue Limit |
| |
-------------------------------------------------------
|-----------------+-------------------+-----------------|
|District Type |2012-13 |2013-14 |
|-----------------+-------------------+-----------------|
|Elementary |$6,449 |$6,555 |
|-----------------+-------------------+-----------------|
|High School |$7,747 |$7,875 |
-------------------------------------------------------
|Unified |$6,748 |$6,859 |
|-----------------+-------------------+-----------------|
| | | |
-------------------------------------------------------
Categorical Funds have been created over the years to provide
school districts funding for specific purposes and programs.
Unlike discretionary funds, categorical funds (also referred to
as "categorical programs") are all funded through the annual
Budget Act. They are usually accompanied by regulations
governing how the money can be spent.
As part of the February 2009 budget package, most categorical
programs were placed into three categories or "tiers." School
districts with categorical programs in "Tier III"
were allowed to use the funding associated with approximately 40
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categorical programs for any educational purpose. This change
essentially made roughly $4.5 billion in
previously-restricted funding discretionary. About 20
state-funded categorical programs totaling roughly $7.5 billion
were excluded from this flexibility. Categorical flexibility has
been authorized through the end of 2014-15.
Tier I: Tier I programs remained intact. No reductions were made
to their allocation, and no programmatic or funding flexibility
was granted. These programs included: Child Nutrition, Economic
Impact Aid (EIA), Charter EIA, K-3 Class Size Reduction, Special
Education, After-school programs, and Child Development.
Tier II: Programs in this tier were subject to funding
reductions, but the program requirements were kept in place.
These programs include: Apprenticeship programs, County Office
Oversight (FCMAT), Home-to-School transportation (HTS), Student
Assessments, Foster Youth Programs, Adults in Correctional
Facilities, Partnership Academies, Agricultural Vocational
Education, K-12 Internet Access, Charter School Facility Grants,
and Year Round Schools.
Tier III: The majority of categorical programs were included in
this category. Funding for roughly 40 programs was reduced and
then made flexible, that is, all program requirements were
removed, and the funding associated could be used for any
educational purpose.
More than half of California's 6.2 million K-12 students are
enrolled in free or reduced-price meal programs, and nearly
one-quarter are ELs.
Proposed Law: SB 69 replaces the existing revenue limit and
categorical funding structure with the LCFF, beginning in the
2014-15 fiscal year. The LCFF is comprised of a base grant and a
supplemental grant for school districts, charter schools and
county offices of education. Specifically, this bill:
1) Establishes an LCFF for school districts, charter schools,
and COEs.
2) Specifies legislative intent to: a) Phase-in implementation
of the LCFF in a manner and on a timeline that allows the
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state to restore local educational agency (LEA) funding
levels to those that existed prior to the past budget cuts;
b) Redirect funds that were proposed for concentration
grants to instead increase both base grants and
supplemental grants, in proportions to be determined; c)
Require that funding adjustments for grades 9-12 be spent
on programs that prepare pupils for college and career; d)
require funds allocated for HTS be spent accordingly; e)
Consider remedies for other funding allocations that are
distributed according to inequitable, historically-based
formulas; and, f) Provide some level of supplemental
support for ELs beyond any 5-year limit and ensure greater
transparency of instruction and services for EL pupils.
3) Provides an unspecified base grant that is based on the
statewide average undeficited revenue limit per unit of
average daily attendance (ADA).
4) Provides that the unspecified base grant per ADA shall be
adjusted by grade level as follows: a) grades
Kindergarten-3; b) grades 4-6; c) grades 7-8; and, d)
grades 9-12, with additional adjustments for grades K-3 and
9-12 of 11.23% and 2.8% respectively.
5) Establishes a phase-in formula, as specified, to gradually
close the gap between actual funding and the target level
of funding.
6) Establishes a supplemental grant equal to 35% of the base
grant for every pupil identified as either an EL, eligible
for a free or reduced price meal, or in foster care; LCFF
uses an "unduplicated count" for pupils who fall into more
than one category.
7) Specifies that a pupil cannot be classified as an EL for
more than 5 years in total.
8) 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 in collective
bargaining, and requires a gradual reduction to 24:1 during
the phase-in period.
9) Caps funding for HTS and the Targeted Instructional
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Improvement Program (TIIG) at their 2013-14 levels and
continues to provide this funding to school districts
currently receiving it in addition to their LCFF grants.
10) 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.
11) Repeals funding and program requirements for all other
categorical programs and redirects their funding to the
supplemental grant portion of the LCFF.
12) 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.
13) Provides, for basic aid districts, that local property tax
revenues be used to offset the entire LCFF allocation.
14) 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
account.
15) Requires each school district and COE, beginning in
2015-16, to adopt an annual LCAP using a template adopted
by the State Board of Education (SBE), and to file its LCAP
with the SPI, the county board of supervisors, and the
county auditor.
16) Requires each 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
pupils;
b) Increase the Academic Performance Index (API) for
each school and for each
numerically significant pupil subgroup and reduce gaps in
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the API and other measures of pupil achievement between
numerically significant pupil subgroups;
c) Improve pupil achievement of the content standards
adopted by the SBE;
d) Increase high school graduation rates and reduce
dropout rates;
e) Increase the percentage of pupils who have
successfully completed courses
that satisfy the University of California and
California State University
entrance requirements, Advanced Placement
courses, and CTE programs;
f) Identify and address the needs of pupils, and
schools predominately serving
pupils, who are ELs, qualify for free and reduced-price
meals, in foster care, or enrolled in a juvenile court
school;
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, creating other structures
to address complaints and other issues raised by parents.
17) Requires the county superintendent to develop, and present
at least twice per year, to parents and the county board of
education, information to enhance their understanding of
the LCFF and LCAP.
18) Requires the SPI to examine each LCAP budget, as specified,
and to approve or disapprove the budget by August 15 of
each year, based on specified criteria. If the budget is
disapproved, the SPI must provide written recommendations,
as specified. This bill outlines a process for multiple
disapprovals and revisions to a local budget.
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19) Specifies legislative intent to strengthen the
accountability provisions in the following ways:
a) Ensure supplemental funds generated by low income,
EL pupils, and foster
pupils are used to improve services to those pupils,
and not supplant existing
resources dedicated to those pupils.
b) Provide authority to state entities, county
entities, or both to intervene and
support school districts that do not demonstrate
improvements, as specified.
c) Rescind flexibility provisions for school districts
that do not demonstrate
improvements, as specified
d) Ensure more robust data collections for purposes of
state accountability and
state and local oversight.
e) Ensure that the majority of funds allocated through
any funding formula are
spent on services and programs with direct benefits
to pupils.
20) 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.
21) Requires the annual audit of school district and COE
expenditures to ascertain and verify whether funds have
been spent in accordance with the LCAP, the sufficiency of
textbooks, teacher misassignments, and proper accounting.
22) Requires the COE to review audits, and outlines procedures
for certifying reviews to the SPI, and establishes a
required process for the SPI to ensure any necessary
corrections are completed.
23) Requires the COE review of school district budgets to
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verify that funds will be spent in accordance with the
district's LCAP.
24) Requires charter schools to submit an annual LCAP to their
chartering authorities and COEs.
25) Replaces the existing funding model for COEs and with a two
part formula based on the cost of providing regional
services and alternative education.
26) Provides that the regional services component of the COE
funding formula consist of the following: a) the base
grant; b) an additional unspecified amount per school
district in the county; and, c) an additional unspecified
amount per ADA in the county (based on a sliding scale,
with less populated counties receiving more per ADA).
27) Provides that the alternative education component of the
COE funding formula include: a) An unspecified base rate
per eligible pupil (pupils who are incarcerated, on
probation, probation-referred, or mandatorily expelled);
and, b)
a weight of 35% for pupils who are ELs, receiving free or
reduced price meals, or are in foster care.
28) Continues funding for the Targeted Instructional
Improvement Block Grant program (TIIG) and the Home to
School Transportation program (HTS) to LEAs at current
levels.
29) Makes this bill contingent upon the enactment of SB 344
(Padilla) and SB 660 (Hancock).
30) Makes various technical and conforming changes to, among
other things, replace statutory references to the revenue
limit with references to the LCFF.
Related Legislation: As part of the 2013-14 Governor's Budget,
the Administration proposes to restructure the existing K-12
finance system and eliminate over 40 existing programs. The
Administration proposes to primarily fund LEAs using a new
formula known as the LCFF. The LCFF proposal would provide a
base grant for each pupil, a supplemental grant amounting to 35%
of the base grant for each pupil who is an EL or low-income, as
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specified; it also provides an additional grant for school
districts with concentrations of EL and low-income students
above 50%.The LCFF would consolidate the vast majority of state
categorical programs and revenue limit apportionments into a
single funding stream and would eliminate the statutory and
programmatic requirements for almost all existing categorical
programs.
AB 88 (Buchanan), which is very similar to the Administration's
LCFF proposal, also replaces the current system of K-12 finance
with an LCFF for school districts, COEs, and charter schools.
That bill is awaiting action in the Assembly Education
Committee.
Staff Comments: As part of the Governor's proposed 2013 Budget,
the Administration proposes a new K-12 school finance system, an
LCFF, beginning in 2013-14. That new funding formula provides
significant and permanent additional flexibility to local
districts by consolidating the vast majority of state
categorical programs and revenue limit apportionments into a
single source of funding. The proposal would provide a base
grant of funding for every pupil, by grade span, and
supplemental funding for: a) pupils who are likely to require
additional resources: EL pupils, low-income pupils, and pupils
in foster care (supplemental grants); and, b) schools districts
with more than 50% of their unduplicated pupils falling into
those categories (concentration grants).
The Governor proposes an additional $1.9 billion in Prop 98
funding to begin implementation of the new formula in 2013-14,
and to raise the annual school funding level by approximately
$15.5 billion over a 7-year "roll-out" period. The formula will
distribute these combined resources to schools using base grants
and funding supplements that account for the variability in
costs of educating specific student populations. Some
categorical programs would remain intact, providing additional
revenue to schools that administer them. The proposal would also
hold LEAs harmless during the roll-out period.
This bill starts from the same premise as the Administration's
proposal: providing a base grant of funding for every pupil, by
grade span, and supplemental funding for EL pupils, low-income
pupils, and pupils in foster care. Like the Administration's
proposal, it also incorporates hold harmless provisions, seeks
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to allow basic aid districts to retain their excess property tax
revenues, and keeps both HTS and TIIG intact.
It does not, however, provide a concentration grant to school
districts with more than 50% of their pupils being ELs, in
foster care, or qualifying for free or reduced-price meals.
Rather, it expresses the intent to increase the base grant
amount to all school districts instead. The bill also expresses
intent to continue some amount of additional resources for EL
pupils beyond the 5-year limit on LCFF supplemental funding for
ELs. This bill further deviates from the Administration's
proposal in providing greater accountability, at the state
level, for how LEAs spend the funding they receive; the SPI is
specifically required to review LCAPs and intervene in specified
ways under certain circumstances. Most significantly, this bill
does not begin its LCFF until the 2014-15 fiscal year.
The apportionment costs of this bill's LCFF proposal cannot be
determined, because the bill does not specify what the base
grant amount will be. Without a number, it is not possible to
calculate the overall fiscal implications for the state, nor the
implications for individual school districts and charter schools
compared to the status quo or to the Administration's proposal.
This bill imposes new reimbursable mandates on LEAs; most
significantly, to follow the prescribed process for developing
and implementing LCAPs. The actual local workload may be offset
by eliminating the reporting and administrative workload for a
variety of categorical programs; however, those activities were
not mandated (they were conditions for receiving elective
categorical funds). These activities are required of every LEA,
and the SPI has the authority to enforce their compliance, not
related to specialized funding stream.
The accountability measures included in this bill, as well as
those alluded to in its expressions of legislative intent, are
likely to result in significant state administrative costs.
Because the LCFF will not be implemented until 2014-15, the CDE
will incur costs in 2013-14 to continue all of its existing
duties, while taking on additional work to prepare for the
transition. The CDE estimates it would require up to 5 new
Education Programs Consultants ($105,284 per position) for one
to two years to prepare for LCFF. This would be short-term staff
likely for one to two years. Ongoing costs to manage LCAPs will
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depend upon the level of compliance and intervention
necessitated by LEAs, but is expected to be significant.
This bill is contingent upon the enactment of SB 344 (Padilla),
which will also be heard in this Committee on May 20, 2013. That
bill would require approximately $1 million - $1.3 million in
annual staffing costs to the CDE.
This bill is also contingent upon the enactment of SB 660
(Hancock), which is currently on the suspense file in this
Committee. That bill would remove certain programs from
categorical flexibility, and divert $390 million in currently
flexible educational funds to them. It appears that the
contingent enactment would continue those programs and dedicated
funding outside the LCFF base grant proposed by this bill.
AS PROPOSED TO BE AMENDED: Amend per author to increase data
collections and data sharing to improve oversight and
accountability, and to revise district flexibility provisions.
Amend per author increase target base and supplemental grant
levels.