Fixing California School Finance

The residents of California managed to spend more money for welfare than for education in 1994, according to the latest available statistics and are almost last on a nation level when it comes to per-capita spending on highways construction and repairing. This information is based upon the research contained in an American City Business Journals report, which has compiled data from the U.S. Census Bureau. This report put public state expenditure in five categories: public welfare, education, corrections, highways and governmental administration. Its findings are quite surprising.

For instance, California was once a state which boasted with one of the best interstate highway systems and with a very effective public education system. Still the numbers indicate that reputation is the only thing that has left from the state’s former glory. California managed in 1994 to spend more than $28.5 billion (about $908 per person) for welfare. Sen. Alfred Alquist, D-San Jose said that “It’s a shameful situation, but it’s the same old problem: People want to have the best school systems and roads to drive, but they don’t want to pay for them.”

Sen. Alquist, who has served 34 years in the Legislature and is retiring at the end of this term, thinks that the causes of the practical impossibility to raise funds for education are a constitutional amendment (Proposition 13) and the reluctance of legislators to increase taxes. The senator stated that “After Proposition 13 was enacted, the state had to pick up the lost {property tax} revenues that would have gone to education.” In the same context, it’s worth mentioning that Bay Area freeways represent another very annoying problem and that it would seem that Alaskans spend six times more money collected from taxes, per-capita, on highways than do the Californians.

The sources of revenue for schools in California. There are five places wherefrom cash flows into California’s school finance system. About 12% of the K-12 budget is the contribution of the federal government, which has raised from 8% in the 1996-1997 period. The state pays for about 55% of the expenses, with revenue generated by business and personal income taxes, sales taxes, and some special taxes. A quota of 25% is constituted by local property taxes. Less than 2% of the total amount (about $130 per student) comes from California Lottery. 7% of the total are miscellaneous local revenues.

The sources from which these proceeds are collected vary: special elections for parcel taxes (needs a two-thirds vote for approval); contributions from businesses, and individuals; foundations, food service sales, and interest on investments. These are the only sources with which the California K-12 public school system survives. All school expenses, ranging teacher salaries to energy costs are paid from each school’s budget.

Distribution of funds to local school districts. At the beginning of the first decade of the 21st century, almost 2/3 of the money were directed toward general purposes, and another 30% went to special purposes or relevant categories of students. Each district exercised the liberty to set whatever combination of local, state and federal sources it desired.

The total amount depends on several factors, such as: average daily attendance or ADA, which is the average number of students attending school over the school year, the revenue limit, which is the general purpose money the district receives for each student and the categorical aid, i.e. The support for specific programs for which it qualifies. Less than 10% of funding statewide represents discretionary funds, because, with few exceptions, there are on restrictions on how this sum should be used.

The specific amount received by each school district. The criterion used by the Legislature to distribute funds to each school district is to relate to the total expenditure each district made in 1972 regarding general education programs; the amounts were correlated with inflation afterwards. An equalization of general purpose money spent by districts, per-pupil, in each type of district (i.e. elementary, unified, high school) was done by the Serrano v. Priest court case (1976).

At the end of the 90’s, a $350 revenue limit was applicable to districts in which 97% of Calidornia’s students went to class. However, there are still inequalities, so legislators of 2001-2002 voted for a multiyear plan which should equalize revenue limits. It has provided that a district’s revenue limit may be increased only by law, and the influence of school boards, superintendents or local voters was eliminated. New construction or sales of houses bring important revenues to the state budget, by way of property taxes.

Still, there is no improvement to be felt by most schools. This additional tax pushes up the revenue limit and helps the state reduce its burden proportionately. 60 of the sun-state’s 986 school districts complete their school funds by property taxes proceeds, and therefore manage to exceed the revenue limit. The amount over that limit may be kept by the districts, but that doesn’t mean that the state’s contribution disappears, as the Californian constitution guarantees “basic aid” from the state, in amount of at least $120 per pupil.

Categorical aid. The criterion for distributing this kind of aid is represented by the specific needs of the children in one district and the special programs for which that particular district meets the required conditions. The aid comes from the state and the federal government and is more than a third of the income in some districts.

Beginning form 40 years ago, there have been more than 80 categorical programs, created by court decisions, legislative priorities, and pressure from interest groups. The targets of these aids are very diverse: they may be directed to provision of specific services (e.g. school lunches), or to the needs of traditionally underserved students. The most important categorical program is Special Education, which has the purpose of providing extra services that will improve the education of students with disabilities. The final purpose of these programs may be statutory or not.

Although there are some completely voluntary programs, most of them support districts when it comes to providing for services required by law. Others act as an incentive, such as the K-3 Class Size Reduction, and encourage the districts to implement a program or a reform. Legislators are currently debating the possibility of simplifying categorical aids provided by the state, in order to give more flexibility to school districts.

The problem of sufficient funding of California’s school system. The issue of funding adequacy is often discussed in California in relation to improving the financial situation of public schools. The main argument whereon the critiques are founded is that other states, who rely on local property taxes in order to finance school funds, manage to provide a much better funding, which lead to the conclusion that what California is doing for schools is insufficient. The cause of this apparent problem is that Proposition 13, passed in 1978, placed a cap on property tax increases, applicable on a state level, which lead to a lower funds available to schools. The shortfall was made up by the state, who took control of K-12 funding.

The education expenses were tied to the state budget in 1988, when Proposition 98 was passed. The minimum annual level of state and local property tax support for K-12 schools and community colleges is calculated by using a set of formulas, provided by the law and based on the economy’s health.

Starting with the 1970’s, per-pupil expenditures in California become lower and lower, compared to the national average. Due the fact that between 1998 and 2001, the state spent heavily on education, that situation has changed. The National Education Association indicated that the national average for 2001-2002 is at $8,087 and that California has spen t$7,324 per pupil. However, 2001 was the year when the state budget crisis began, so further increases in the education funding are improbable. Proper determination of the adequate level of funding for provision of education needs, so that all students meet the academic standards, and a new model of categorical funding, which should provide greater flexibility, are necessary.

From the 1970s to the mid-1990s, per-pupil expenditures in California lost ground compared to the national average. However, that trend reversed somewhat between 1998 and 2001 as the state invested more in K-12 education. National Education Association (NEA) data for 2001-02 indicate that at $7,324 per pupil, California spent about $760 less per pupil than the national average of $8,087. The state’s budget crisis, which began in 2001, is expected to prevent substantial increases in education spending for several years. Meanwhile, in 2003 state leaders are expected to appoint a commission to work on creating a Quality Education Model. The commission’s goal will be to help the state determine what level of funding would be adequate to provide the education services schools need to help all students meet the state’s academic standards. The model is also expected to include a re-thinking of categorical funding that provides greater flexibility but includes processes for holding local school districts more accountable for the impact of their management decisions.

The fair / unfair distribution of school resources. In 2000, the ACLU filed suit (Williams et al. v. State of California et al.), claiming that the obligation of the state to provide all students with “basic educational necessities” was not fulfilled. One million of California’s students are deprived of educational basics, such as qualified teachers, decent school facilities, and appropriate textbooks.

An important part of these problems are caused by the inadequacy of the school system funding in the state. Others are problems to be solved by individual school districts, since they are seen as a local management problem.

The new concept behind the reform of school finance of California is the “weighted student formula” or “student-based budgeting,” which is believed to be a way to a more equitable and effective school funding system. Still, skeptics doubt that it the concept is applicable to California’s 9,000 schools serving 6 million children and that there is an actual proof of the system’s effectiveness.

Equity of the school funding system has been a very debated subject. The Serrano v. Priest court decision in the 1970s concentrated on equalizing tax efforts among districts. In the previous years, the discussion focused more on accountability and standards than on improving equity. However, the new Williams v. California lawsuit has brought back to attention the issue, this time on a school – site level.

The “weighted student formula” concept began to attract peoples’ attention when former Los Angeles Mayor Richard Riordan was appointed Secretary for Education by Gov. Arnold Schwarzenegger. Soon after, Riordan began discussing about a major reform of the state’s educational system, which would imply a simplified finance system, more power for school site officials and extra funding of students with most needs.

The central idea behind the weighted student formula is quite simple. Money shall be allocated directly to schools, on a per-pupil basis. A base amount for the “average student” shall be allocated for each student, with extra funding for various categories, such as high-poverty students or English learners. These methods were applied in several districts and states and always contain some differentials for English learners, students with disabilities or form low-income families. There may also be incentives, or premiums, for certain grade levels or for gifted students. Vocational and other special approach programs may benefit form the same treatment. Weighs may be expressed in monetary units or percents. The idea of “weigh” was also implemented in some categorical funding programs, such as the Special Education to Economic Impact Aid (EIA) to Gifted and Talented Education (GATE), which stated that additional funds must be allocated for the education of students with special needs.

One issue to this concept is to provide adequacy to the program, in a sense that a very precise estimation of the level of funding each school needs in order to fulfill the needs of the students they serve. The Annenberg Institute for School Reform’s “First Steps to a Level Playing Field: An Introduction to Student-based Budgeting” report states that if equality is about leveling the playing field and providing all students the same opportunity, then weighting student funding to achieve this goal can be considered fair, even when it means that some students receive more dollars than others..” The distribution of funds from state to school districts has been the main subject of adequacy debates regarding the California school finance system. The weighed student formula brought up concerns relating to inequities that may occur within school districts. These inequities are caused by the method used by the districts to allocate resources to each school, which implies the involvement of district administrators, school board members and teacher union leaders.

Reforms regarding the distribution of resources to school sites. The state does not control at the moment how funds are distributed to each school site. All 982 school districts act as separate fiscal agents, liable for school operations. A much larger reform debate, regarding decentralizing budgetary control of schools, in a context of a framework of accountability for performance also involves the degree by which the weighted student formula shall affect school level resources.

The California State Senate Republican Caucus from March, this year summarizes the most important aspect of the weighted student formula and its application to school sites: “Budgetary control over per pupil funding is granted to individual schools where it is calibrated to the specific needs of the students. Funding decisions are based on three principles: resources follow the student; resources are denominated in dollars, not in staff ratios; and the allocation of resources varies by the education characteristics of the needs [of students]. The goal is to ensure more equitable distribution of resources while providing the flexibility necessary to meet the educational needs of different students.” According to this point-of-view, the responsibility of spending funds is attributed to school site leaders, teachers and parents. Test results may measure, for instance, the performance of a school and its corresponding principal, and so that he or she might be held accountable by the district superintendent. The republicans have a very market-oriented approach, claiming that “if schools fail to provide effective programs, students will leave — and their money follows them. Thus the arrival and/or departure of every student impacts a school’s budget.”

The decentralized approach doesn’t solve all the problems and must be integrated into a larger school reform program, as school officials and researchers have warned. Some other aspects that need consideration are maintenance of academic standards, accountability, an appropriate choice of schools and training for school officials. Another aspect is the determination of whether the resources available to schools are adequate to the task. A Quality Education Commission has been set up in California, which has the job of performing a costing-out study, in order to estimate the needed level of school funding.

Whatever the approach the legislators choose, redesigning California’s K-12 education funding shall have long-lasting impacts on public schools. A number of issues have to be resolved by reforming policymakers, such as how exactly the weighted student formula would influence the system. The decision regarding what students should receive extra funding is very much a political one and may initiate further inequity debates. The information sources available to the legislators are not only the experience of other states, but also the work of various researchers, including the Public Policy Institute of California (PPIC). Currently, issues such as teacher assignments and class sizes are decided on a district level, which does not coincide with the new approach. Federal regulations on Special Education may also conflict with the decentralization policy.

Another issue is purely administrative. It is not clear whether the state has a sufficient number of administrators who have the require capabilities in order to assume full budgetary control of their schools. Professional development and higher salaries would also probably be required. Although site flexibility shall be realized, the accountability for school performance is also a major problem, if there isn’t a clear method to identify underachievement when it comes to spending state funds. Policymakers assume that accountability mechanisms and market pressure based on parents’ choice would be enough to ensure similar educational opportunities for each child.

California is a very large state and has therefore a great number of school districts with various sizes, so the weighted student formula reform would have significantly different impacts, depending on the community. About 23% of the state’s school districts have only one school. Most districts are in rural areas, but there are also some in very crowded urban centers. There are just 12 districts with a student population of more than 50,000 students, with 700 school districts between the two extremes, with a wide variety of characteristics. District regions are also very diversified. In this context, knowing if a decentralized school funding system combined with school official accountability will actually work is a difficult problem.

As for the benefits Proposition 13 brings to California and its school system, opinions are divided. Stephen Moore, who is director of fiscal policy studies at the Cato Institute, argues: “Political analysts often argue about when the modern-day conservative movement in America began. Some say that it began with Barry Goldwater’s campaign in 1964. Others say it began with the election of Ronald Reagan in 1980. I believe that the conservative, anti-big-government tide in America began 20 years ago with the passage of taxpayer advocate Howard Jarvis’s Proposition 13 in California.”

The effects of Proposition 13 were felt all over the nation, as Jarvis’s initiative to put a cap the further increase of California’s property taxes and to reduce them to 30% preceded president Regan’s tax cuts in the 1980’s. California’s example was followed by other states, which also decided to limit the politicians’ possibility to raise taxes. Currently, most of the limitations set forth by Proposition 13 are in force.

Proposition 13 passed in 1978, despite of all expectations, because inflation had become such a problem that citizens were selling their homes in order to avoid paying taxes. Since it was adopted, this act has been subjected to constant critiques. The article “The Tax Revolt That Ruined California” by Richard Reeves blamed the recession, the loss of 600,000 jobs and the decline in family incomes in the early 1990s on the cumulative effects of Proposition 13

However, according to the same article, “The major effect of Proposition 13 has been to save the average homeowner in California tens of thousands of dollars in property tax payments over the past 20 years. That is money that would have fueled an even more rapid buildup in California’s state and local public bureaucracies if it had been sent to Sacramento and city hall. Californians intuitively understand this. That is why a large majority of California residents say that they would vote for Proposition 13 again if it were on the ballot this year — 20 years later.”

As a conclusion, it would seem that opinions about the effects of Proposition 13 and reforms of California’s school finance system are divided. However, in my opinion, the current road taken by policy makers is the right one. Resources should be divided on a local level, according to each student’s needs. Decentralizing and making the principals accountable for the performance of their schools, combine with a market-oriented approach seems the appropriate thing to do.

Reference:

1. Californians rank low in education, highway spending

Larry Barrett. The Business Journal. San Jose: Jun 17, 1996. pg. 1

2. Tiebout and tax revolts: Did Serrano really cause Proposition 13?

Kirk Stark, Jonathan Zasloff. UCLA Law Review. Los Angeles: Feb 2003.Vol.50, Iss. 3; pg. 801

3. EdSource report on the weighed student formula http://www.edsource.org/pub_brief_weighted.cfm

4. The basics of California’s School Finance System

http://www.edsource.org/pdf/QA_financefinal.pdf

5. Moore, S. “Proposition 13 Then, Now and Forever” July 30, 1998

http://www.cato.org/dailys/7-30-98.html

6. California Educational System’s Budgetary Allocations Complicated

Deb Kollars. Knight Ridder Tribune Business News. Washington: Dec 2, 2003. pg. 1

On the Internet at http://gateway.proquest.com/openurl-url_ver=Z39.88-2004&res_dat=xri:pqd&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&genre=article&rft_dat=xri:pqd:did=000000472854101&svc_dat=xri:pqil:fmt=text&req_dat=xri:pqil:pq_clntid=2877

Barrett, L.. Californians rank low in education, highway spending”

The Business Journal. San Jose: Jun 17, 1996. pg. 1

The basics of California’s School Finance System

http://www.edsource.org/pdf/QA_financefinal.pdf

EdSource report http://www.edsource.org/pub_brief_weighted.cfm

Moore, S. “Proposition 13 Then, Now and Forever” July 30, 1998

http://www.cato.org/dailys/7-30-98.html