The 2018-19 Budget

California Spending Plan (Final Version)

Chapter 2: Spending by Program Area

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Proposition 98

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Annual school and community college spending levels are based primarily on Proposition 98 (1988), which established certain constitutional minimum requirements. In this section, we provide an overview of Proposition 98 spending under the enacted budget package and describe the new process the state adopted for finalizing the Proposition 98 calculations. We then highlight Proposition 98 spending changes specifically for K‑12 education, adult education, and community colleges. On the “EdBudget” portion of our website, we post many tables containing additional detail about the Proposition 98 budget (as well as the child care and higher education budgets).

Overview

Proposition 98 Establishes Minimum Spending Level. This minimum spending requirement is commonly called the minimum guarantee. The minimum guarantee is determined by three main formulas (known as tests) and various inputs, including General Fund revenue, per capita personal income, and K‑12 student attendance. The state can spend at the minimum guarantee or any level above it. If the minimum guarantee increases after budget enactment due to updated inputs, the state owes a “settle‑up” obligation. In some years, the state also creates or pays “maintenance factor.” Maintenance factor is created when General Fund revenue growth is weak relative to changes in per capita personal income. Maintenance factor is paid when General Fund revenue growth is stronger.

Higher Proposition 98 Spending in 2016‑17 and 2017‑18. Figure 1 shows how Proposition 98 spending has changed in 2016‑17 and 2017‑18 compared to the 2017‑18 Budget Act. From the June 2017 budget plan to the June 2018 budget plan, spending increased $252 million in 2016‑17 and $1.1 billion in 2017‑18. These upward revisions are attributable mainly to higher General Fund revenue. As part of the 2017‑18 increase, the state is making an additional maintenance factor payment of $789 million (on top of a previous $536 million payment). After making the $1.3 billion total payment, the state will have eliminated all remaining maintenance factor for the first time since 2005‑06. In both 2016‑17 and 2017‑18, the state is spending at the calculated minimum guarantee.

2018‑19 Spending Up Notably Over Revised 2017‑18 Level. For 2018‑19, total Proposition 98 spending across all segments is $78.4 billion, an increase of $2.8 billion (3.7 percent) from the revised 2017‑18 level (see Figure 2). Test 2 is the operative test in 2018‑19, with the increase in the guarantee attributable to a 3.67 percent increase in per capita personal income. Though the administration projects a 0.29 percent decline in student attendance for 2018‑19, the budget makes no downward adjustment to the minimum guarantee. This is because the budget assumes that attendance increases the previous year (in 2017‑18), thereby triggering a hold harmless provision in the State Constitution that negates any attendance declines over the subsequent two years. The budget sets total Proposition 98 spending in 2018‑19 equal to the administration’s May Revision estimate of the minimum guarantee.

About 40 Percent of Increase Covered With Higher Property Tax Revenue. Of total Proposition 98 spending in 2018‑19, $54.9 billion is state General Fund and $23.5 billion is local property tax revenue. From 2017‑18 to 2018‑19, General Fund spending increases $1.5 billion (accounting for about 60 percent of the $2.8 billion increase in spending) and property tax revenue increases $1.3 billion (accounting for the remaining 40 percent). The primary factor accounting for the growth in property tax revenue is an assumed 6.4 percent growth in assessed property values.

Spending Package Includes Settle‑Up Funding. In addition to the increases associated with 2016‑17 through 2018‑19, the budget plan provides a $100 million payment related to meeting the 2009‑10 minimum guarantee. Of this amount, $89 million is for K‑12 discretionary grants and $11 million is for community college deferred maintenance. This payment reduces the state’s outstanding settle‑up obligation from $440 million to $340 million. The budget scores all of the settle‑up payment as a Proposition 2 debt payment.

Budget Package Enacts New Proposition 98 Certification Process. Certification is the process of finalizing the calculation of the minimum guarantee after the fiscal year is over. State law previously required the Director of Finance, State Superintendent of Public Instruction, and Chancellor of the California Community Colleges to agree upon a final calculation nine months after the end of the fiscal year. Though intended to be an annual process, disputes among these three often delayed certification for many years. Chapter 39 of 2018 (AB 1825, Committee on Budget) revamps the certification process. Most notably, it assigns a lead role to the Director of Finance in making the Proposition 98 calculations; creates review periods for the Legislature, state agencies, and public to examine the Department of Finance’s (DOF) calculations; and creates a defined period for legal challenges. The new process is set to begin with certification of the 2017‑18 minimum guarantee in May 2019.

Package Also Includes a New Process to True‑Up Proposition 98 Spending. In addition to the new process for certifying the guarantee, Chapter 39 creates a companion process for adjusting school spending when the guarantee increases or decreases as a result of final calculations. For those years in which the guarantee ends up lower than previously estimated, the state is to credit spending above the minimum guarantee toward a new true‑up account called the “Proposition 98 Cost Allocation Schedule.” For years in which the guarantee ends up higher than previously estimated, the state is to apply any credits in the account toward the spending required to meet higher minimum guarantee. If the credits are insufficient to meet the higher guarantee, the state is required to make a settle‑up payment to schools and community colleges for the remaining difference. The State Controller is to distribute this payment automatically on a per‑pupil basis using a DOF‑developed schedule unless the Legislature adopts an alternative payment plan as part of the regular state budget process.

Parallel Process Established to Close the Books on 2009‑10 Through 2016‑17. Due to delays in past certifications, the state has not certified the minimum guarantee for any fiscal year since 2008‑09. To close the books on 2009‑10 through 2016‑17, the budget package establishes a process that parallels the one described above but runs on a modified timeline. The modified process is set to begin with the Director of Finance publishing a preliminary calculation for all uncertified years by July 11, 2018. Upon this publication, a review and public comment period follows, with final certification for those years completed by September 15, 2018. Final certification is followed by a 90‑day legal challenge period (the same time frame as used for future fiscal years).

K‑12 Education

$67.9 Billion Proposition 98 Spending on K‑12 Education in 2018‑19. The enacted 2018‑19 level is $2.4 billion (3.6 percent) more than the revised 2017‑18 level and $3.2 billion (4.9 percent) more than the 2017‑18 Budget Act level. The budget increases spending per student by $579 (5.2 percent) over the 2017‑18 Budget Act level, bringing Proposition 98 spending per student up to $11,645.

Package Includes Mix of Ongoing and One‑Time Spending. As Figure 3 shows, the budget includes $5.8 billion in Proposition 98 augmentations for K‑12 education across the three‑year budget period. Of the $5.8 billion, $4 billion (70 percent) is ongoing and $1.8 billion (30 percent) is one time. From an accounting perspective, the increase is scored across multiple fiscal years and includes settle‑up and some unspent funds from prior years that have been repurposed. In addition to the Proposition 98 increase, the budget includes $594 million in Proposition 51 bond authority for school facility projects and $100 million in non‑Proposition 98 funding for kindergarten school facilities. We describe major K‑12 changes below.

Core Program

Fully Implements the Local Control Funding Formula (LCFF) for Schools, Then Further Increases Rates. In the January budget, the Governor proposed fully implementing LCFF and reaching the target funding rates. The final budget reaches and then goes beyond full implementation. Specifically, the budget closes the gap to the target rates and funds the statutory 2.71 percent cost‑of‑living adjustment (COLA) to those rates. In addition, the budget provides nearly an extra 1 percentage point increase in the LCFF rates—effectively funding a 3.7 percent COLA in 2018‑19. The administration estimates that the combined ongoing cost of both full implementation and the augmented COLA is $3.7 billion. This augmentation brings total LCFF spending for school districts and charter schools to $61.1 billion, a 6.4 percent increase over the revised 2017‑18 level. School districts and charter schools may use LCFF monies for any educational purpose.

Makes Two Related Changes to School Planning. In addition to the LCFF augmentation, Chapter 426 of 2018 (AB 1840, Committee on Budget) appropriates $200,000 one time to the California Department of Education (CDE) for redesigning the Local Control and Accountability Plan (LCAP) template to make its content more accessible to parents and other community members. Chapter 32 of 2018 (AB 1808, Committee on Budget) provides $200,000 one time to CDE for developing a budget overview template—also specially designed for parents. The department is to pass through these funds to the San Joaquin County Office of Education (COE), which in turn is required to complete the two template‑related tasks.

Funds One‑Time Discretionary Grants. The largest one‑time spending initiative for K‑12 education is $1.1 billion that local education agencies (LEAs) may use for any educational purpose. Funding is distributed based on student attendance (an estimated $183 per average daily attendance). If an LEA owes any funding to the federal government according to a 2014 settlement over Medi‑Cal billing practices, the State Controller is to deduct this obligation from the LEA’s discretionary grant. The budget assumes that these Medi‑Cal obligations total $145 million statewide (though the administration believes actual payments likely will come in lower). The remainder of each LEA’s discretionary grant will be scored against any outstanding mandate claims. As less than one‑third of LEAs have any such claims, we estimate that only $202 million of the funding provided will count toward the K‑12 mandates backlog. We estimate that the total remaining mandate backlog at the end of 2018‑19 will be $668 million.

Provides COLA for COE Funding Formula. The budget provides $6.4 million to cover a 2.71 percent COLA for the 24 (out of 58) COEs that have LCFF allocations equal to their LCFF targets. Those COEs funded above their LCFF targets do not receive this COLA. In total, the 2018‑19 budget provides COEs with $1 billion in LCFF funding. Of this amount, $466 million is intended for district support (excluding the new district support add‑ons described below), $258 million is for alternative education, and $315 million is for existing add‑ons (effectively four LCFF hold harmless provisions).

Support for District and School Improvement

Increases COE Funding for Supporting Low‑Performing Districts. The budget includes $54 million ongoing for COEs (on top of the district support funding mentioned above) to provide low‑performing districts with technical assistance. Each COE will receive a $200,000 base amount, with remaining funding distributed based on the number and size of low‑performing districts identified within the county. For each identified district within the county, a COE will receive $100,000 for districts with less than 2,500 students, $200,000 for districts serving between 2,500 and 10,000 students, and $300,000 for districts with more than 10,000 students. Chapter 32 requires that COE technical assistance be focused on building district capacity to develop and implement improvement strategies. COE technical assistance may include helping a district to identify its weaknesses and select strategies to address those weakness. Alternatively, technical assistance may include helping a district to connect with another academic, fiscal, or programmatic expert, who, in turn, performs those functions. COEs also may request that a regional lead agency (described below) or the California Collaborative for Educational Excellence (the Collaborative) assist the school district directly. Though COEs must ensure that districts obtain support, COEs do not need to provide that support themselves.

Creates New Regional Support Network. The budget includes $14 million ongoing primarily to support COEs as they go about assisting low‑performing districts. Of the $14 million, $10 million is for up to ten Special Education Local Plan Areas (SELPAs) to serve as special education resource leads to assist COEs. The remaining $4 million is for six to ten COEs to serve as geographic lead agencies to assist other COEs.

Starts Giving the Collaborative Ongoing Funding. The budget also includes $12 million ongoing for the Collaborative to assist primarily the regional lead agencies and COEs. To this end, the Collaborative is to provide various statewide trainings. In prior years, the Collaborative was funded with one‑time Proposition 98 appropriations. The budget reappropriates $5.6 million from these prior‑year allocations. The Collaborative is to use these reappropriated funds for additional statewide trainings and technical assistance.

Provides One‑Time Funding to Districts Serving Certain Low‑Performing Students. The budget includes $300 million one time for districts to help certain low‑performing students. Specifically, the funds are allocated to districts based on the count of students who (1) did not meet achievement standards based on the latest results of statewide assessments of reading and math and (2) are not foster youth, low‑income students, English learners, or students with disabilities. Prior to receiving these funds, districts must develop a plan for how these funds will be used to improve the performance of qualifying students. By November 1, 2021, districts are required to report to CDE how funds were spent and the extent to which they impacted student outcomes. By February 1, 2022, CDE is to submit an aggregated report to the Legislature on the outcomes of the initiative.

Supports Low‑Performing Schools Identified Under Federal Accountability System. The federal Every Student Succeeds Act (ESSA) requires states beginning in 2018‑19 to set aside 7 percent of Title I funds to assist low‑performing schools in improving student performance. California has decided to identify low‑performing schools using the performance measures included in the California School Dashboard. In 2018‑19, the 7 percent requirement equates to $135 million. Of this amount, the budget allocates $125 million to low‑performing schools and $10 million to COEs. CDE is to develop formulas for distributing these funds. For the COE formula, CDE is to consider the number of low‑performing schools identified within the county. The funding provided to COEs essentially replaces $10 million Title I funding provided in previous years for the Regional System of District and School Support. These funds supported 11 COE leads—one in each of the regions set by the California County Superintendents Educational Services Association—to assist districts and schools in their improvement efforts.

Funds Pilot Project to Address School Climate Issues. The budget gives a total of $15 million to the Orange COE and Butte COE to evaluate new support strategies for addressing issues such as bullying and student trauma. Chapter 32 requires these two COEs—in partnership with a California institution of higher learning—to submit to the Legislature a plan how they will use these funds by December 1, 2018. In recent years, these two COEs received a total of $30 million (one‑time Proposition 98) to develop a set of multi‑tiered support strategies aligned with students’ academic and behavioral challenges and provide subgrants to schools interested in implementing those strategies.

Expands Role of the Fiscal Crisis and Management Assistance Team (FCMAT). The budget provides an ongoing augmentation of $972,000 for FCMAT to (1) provide additional assistance for fiscally distressed school districts and (2) provide additional training for COEs regarding fiscal oversight of school districts. This is the first increase in ongoing funding for FCMAT since 2014‑15.

Career Technical Education

Makes Career Technical Education (CTE) Incentive Grants Ongoing. The budget provides $150 million ongoing to extend the CTE Incentive Grant program indefinitely. This program was first established as part of the 2015‑16 budget package to provide a three‑year bridge until the LCFF funding targets were reached. Moving forward, school districts, COEs, charter schools, and Regional Occupational Centers and Programs may apply for the Incentive Grants. The program reserves separate pools of grant funding for large‑, medium‑, and small‑sized applicants. Recipients must provide a local match of $2 for every $1 of CTE Incentive Grant funding

Begins Funding High School CTE Also Through California Community Colleges’ (CCC) Strong Workforce Program. In addition to funding the CTE Incentive Grant program, the budget provides $150 million ongoing to support high school CTE through the CCC Strong Workforce Program. These funds are to be allocated to eight regional consortia based on a formula that considers both regional employment conditions as well as grades 7‑12 average daily attendance. Each consortium is to distribute funds to schools within its region on a competitive basis. As with the CTE Incentive Grant program, recipients must provide two local dollars for every one Strong Workforce dollar. The budget also provides $14 million ongoing to support administrative costs associated with the Strong Workforce program. Of this amount, a total of $12 million is for 72 high school Workforce Pathway coordinators—one for each community college district. Each coordinator would work with high schools in the area to coordinate their CTE programs with the region’s Strong Workforce plan. The remaining $2 million would support the community colleges’ costs in managing these high school coordinators.

Continues Direct Funding for Southern California Regional Occupational Center (SCROC). The budget provides SCROC $3 million for the second of four installments totaling $10 million over four years ($4 million in 2017‑18, $3 million in 2018‑19, $2 million in 2019‑20, and $1 million in 2020‑21). The state funds are intended to support SCROC’s general operations.

Teacher Workforce

Provides One‑Time Grants for Teacher Residency Slots. The budget includes $75 million to start new or expand existing teacher residency programs. Of the $75 million, $50 million is earmarked for special education teachers, with the remaining $25 million for bilingual education teachers and science, technology, engineering, and math (STEM) teachers. CTC is to award competitive grants to schools over several years. Schools can qualify for up to $20,000 per teacher candidate, with a dollar‑for‑dollar local match required. The funds can be used in a variety of ways, including providing stipends for teacher candidates and teacher mentors.

Provides One‑Time Local Solutions Grants. This $50 million initiative is intended to fund new or existing local efforts to recruit and retain special education teachers. As with the teacher residency grants, CTC is to award competitive grants to schools. Successful schools can receive up to $20,000 per teacher, with a dollar‑for‑dollar local match required. Chapter 32 gives districts broad discretion in how schools may use the grant funds.

Funds Two One‑Time Initiatives for Classified Employees. The budget includes a total of $95 million for these initiatives. Of this amount, $50 million is for a new Classified School Employee Summer Assistance Program. This program allows classified employees to deposit a portion of their income earned during the 2019‑20 school year into a fund that would be supplemented by state dollars and paid out in one or two installments during the summer months. The state matching dollars would be spread proportionally among participating employees. The remaining $45 million is for employee training. CDE is to distribute this funding among LEAs based on the number of classified school employees they employ. LEAs may use the funds for a wide range of possible training activities but must give highest priority to training activities relating to the implementation of school safety plans.

Information Technology

The 2018‑19 budget package makes three information technology‑related appropriations, described below.

Continues to Rely on Mix of Fund Sources to Support K‑12 High Speed Network (HSN). The budget authorizes HSN to spend $21 million, an increase of $1.1 million over the prior year. Of that amount, $11.2 million comes from federal E‑Rate and state Teleconnect subsidies (down $700,000 over the prior year) and $9.8 million comes from the Proposition 98 Broadband Infrastructure Improvement Grant Program (up $1.8 million over the prior year). The administration’s expectation is that HSN operate without a deficit in 2018‑19 and not fund additional network upgrade projects beyond those DOF informally approved in May.

Provides More Ongoing Funding for Student Friendly Services. The budget provides an ongoing augmentation of $1 million (bringing total Proposition 98 funding to $3.5 million), primarily to support additional workload generated by greater usage of the college planning website. The website is operated by the California College Guidance Initiative, a non‑profit entity housed within the Foundation for California Community Colleges, which is located in Sacramento.

Funds Higher First‑Year Costs to Upgrade School District Financial Reporting System. The budget provides a one‑time allocation of $716,000 from the Educational Telecommunication Fund (on top of $3 million in one‑time Proposition 98 funds previously approved in the 2016‑17 budget plan) to fund the first‑year costs of the Standardized Account Code Structure (SACS) replacement project. The entire project is estimated to take three years and cost $11.5 million.

Student Assessments

Provides $21.4 Million to Develop Computer‑Based Version of the English Language Proficiency Assessments for California (ELPAC). The ELPAC assesses whether students from non‑English speaking households require special support to learn English. The pencil‑and‑paper version of the ELPAC was rolled out in spring 2018. The ELPAC replaces the California English Language Development Test (CELDT), which is no longer aligned with state academic content standards. With the $21.4 million, CDE is to contract with a vendor, who in turn is to convert the assessment from pencil and paper to computer based.

Provides $5.9 Million to Develop Alternative ELPAC for Students With Disabilities. Some students with severe cognitive disabilities cannot be accurately assessed using the recently developed ELPAC. Under existing state law, these students’ Individualized Education Program (IEP) teams are tasked with identifying appropriate alternative assessments on a case‑by‑case basis. With the $5.9 million, CDE is to contract with a vendor to develop a single, statewide alternative assessment that would replace the case‑by‑case method of selecting alternatives.

Other Changes

Provides One‑Time Federal Funds for Academic Enrichment. The budget includes $165 million one‑time federal ESSA Title IV funding for academic enrichment. Specifically, LEAs may use the funding to improve (1) educational opportunities outside of core instructional areas, (2) school conditions for student learning, and (3) use of technology in schools. Of the $165 million, $121 million is to be distributed to LEAs based on their share of existing Title I funding, with the remainder distributed competitively. CDE will prioritize the competitive awards to LEAs that plan to use funds for visual and performing arts education or expanding access to physical and mental health care.

Makes Various Other Adjustments. The budget also funds the following:

• After School Coding Grant. The budget includes $15 million one time to create the After School Kids Code Grant Pilot Program. The funding will be distributed competitively to LEAs participating in the After School Education and Safety Program. Grant recipients are to include computer coding in their after school curriculum.
• Community Engagement Professional Learning Network. The budget includes $13 million one time for the Collaborative and a lead COE to jointly administer professional learning networks focused on community engagement. Funding would be used to operate the professional learning networks over the next six years.
• Fresh School Meals. The budget includes $1 million one time to the California‑Grown Fresh School Meals Grant Program. The program will provide grants to at least eight LEAs. Chapter 32 requires CDE to give grant priority to LEAs with high shares of low‑income students and English learners.
• California School Dashboard. The budget includes $300,000 one‑time Proposition 98 funding to the San Joaquin COE to improve the California School Dashboard website, which provides information on school and district performance.

State Operations

Supports New CDE Workload. The budget includes a $7.3 million augmentation for new CDE workload ($4.2 million non‑Proposition 98 General Fund and $3.1 million federal funds). Of the $7.3 million, 56 percent is ongoing and 44 percent is one time. Of the changes, three relate to legislation enacted in 2017, whereas most of the others relate to new initiatives. Among the most notable changes to CDE ongoing workload are additional monitoring of adult education programs receiving federal adult literacy grants, establishing a new unit to respond to special education litigation, and providing more technical assistance to LEAs for their sexual health education courses. Additionally, CDE received ongoing augmentations to help administer the new statewide system of support for low‑performing districts, to respond to recent expansion of the State Preschool program, and to address internal data security and privacy issues. Among the most notable changes to one‑time workload are supporting curriculum revisions for several academic subjects, paying certain legal fees, and administering new federal grants for schools affected by recent wildfires.

Directs CDE to Standardize Process for Reclassifying English Learners. Another notable one‑time increase in CDE workload is developing a standard reclassification process. Of the $7.3 million workload‑related augmentation, $437,000 is federal funding provided for this purpose. Currently, state law gives districts broad discretion to determine when students initially identified as English learners no longer require language‑specific instructional support. Chapter 32 seeks to standardize this process by requiring CDE to develop a uniform protocol for reclassifying English learners by June 30, 2020.

School Facilities

Provides Second Installment of Proposition 51 (2016) Bond Funding for School Facilities. Proposition 51 authorizes the state to sell $7 billion in general obligation bonds for school facilities. The state plans to issue $594 million of these bonds in 2018‑19. This is about the same amount of Proposition 51 school bonds issued in 2017‑18 ($592 million). As of May 31, 2018, the Office of Public School Construction had received school facility requests totaling $3.8 billion in state bond funding. The state generally funds school facility requests on a first‑come, first‑serve basis.

Kindergarten Facilities. The budget includes $100 million one‑time non‑Proposition 98 General Fund to help school districts cover facility costs associated with converting their part‑day kindergarten programs into full‑day programs. About one‑third of school districts currently offer part‑day programs. Funds can be used to construct additional classrooms or renovate existing space. Funding is to be distributed by the State Allocation Board, with local matching requirements similar to those of the School Facilities Program (SFP). Under SFP, the state typically covers 50 percent of new construction costs and 60 percent of renovation costs, with districts required to cover remaining costs. For both types of projects, the state can contribute up to 100 percent of project costs if a district faces exceptional challenges in raising its local share. Priority for grants will be given to districts with high proportions of low‑income students and districts that face challenges in raising their local shares.

Funds Shortfall in Charter School Facility Grant Program. This program helps certain charter schools occupying privately leased facilities cover their rent and other facilities costs. The budget includes $21 million one‑time Proposition 98 funding to fully cover an estimated shortfall in 2017‑18. (Beginning in 2017‑18, the state increased the maximum per‑student facility grant amount from $750 to $1,117. The per‑student grant had not been increased since the program was created in 2001.) In addition, retroactively beginning in 2017‑18, Chapter 32 limits the lease costs applicants can claim to their 2016‑17 lease costs plus the statewide K‑12 COLA rate. Absent the backfill and lease cap, the administration estimated the California School Finance Authority (which administers the program) would pro‑rate 2017‑18 awards downward by about 20 percent.

Increases Ongoing Funding for Charter School Facility Grant Program. In addition to funding the 2017‑18 shortfall, the budget includes a $25 million ongoing augmentation for the program in 2018‑19. Chapter 32 also makes the following three programmatic changes effective with the 2018‑19 grant year: (1) it eliminates an automatic backfill for prorated awards, (2) requires new applicants to receive an independent appraisal affirming their lease is either at or below market rates, and (3) requires the California School Finance Authority to first cover applicants’ lease costs before funding their other facilities costs in years when awards are prorated.

Provides $4 Million for Deferred Maintenance at the State Special Schools (SSS). This appropriation is in addition to a total of $7 million in one‑time funding provided for deferred maintenance at SSS in the 2015‑16 and 2016‑17 budgets. In addition, provisional language included in the annual state budget acts the past three years has required SSS to spend a total of $5.4 million from its operating budget on deferred maintenance projects. (Despite a total of $12.4 million in associated expenditures over the past three years, the administration reports the maintenance backlog at SSS decreased from $25.6 million in 2015‑16 to $21.3 million as of June 2018.)

Districts in Fiscal Distress

Gives Counties Greater Role in Taking Control of Fiscally Distressed Districts. In 1991, the state created a system to oversee district budgets and promote fiscal health. In the final few weeks of the 2018 legislative session, the state significantly changed the system by shifting primary responsibility for district takeovers from the SPI to the county superintendent of schools. Under the former system, COEs and county superintendents of schools were tasked with reviewing district budgets quarterly, disapproving unsound budgets, and supporting districts as they built fiscal recovery plans. If these efforts failed and a district needed an emergency state loan, then the state intervened, with the SPI appointing an administrator who assumed responsibility for the district. Chapter 426 gives control of the district instead to the county superintendent of schools, with concurrence from the SPI and the president of the State Board of Education.

Authorizes Special Appropriations for Two Fiscally Distressed Districts. Chapter 426 contains several provisions that depart from the regular emergency loan process and apply only to the Oakland Unified School District and the Inglewood Unified School District. For both districts, Chapter 426 specifies that the state is to provide budget appropriations covering up to 75 percent of their operating deficits in 2019‑20, 50 percent of their deficits in 2020‑21, and 25 percent of their deficits in 2021‑22. The size of the two districts’ operating deficits are to be determined by FCMAT, with the concurrence of DOF. Though the specific planning requirements vary, both districts are to update their operational and facility plans in 2018‑19. By March 1 of each year through 2021, FCMAT, with concurrence from the applicable county superintendent of schools, is to report to the Legislature and DOF on progress the districts have made to improve their budget conditions.

Creates Special Facility Rules for All Four Fiscally Distressed Districts. In addition to Oakland and Inglewood, two other districts—Vallejo City Unified School District and a high school district in Monterey County—currently are paying off emergency state loans. Chapter 426 allows these four districts to use proceeds from the sale or lease of their surplus property for helping to make their emergency loan repayments. Chapter 426 also specifies that using proceeds in this way does not affect the four districts’ eligibility for state facility funding. By comparison, state law generally requires districts to reinvest facility‑related proceeds into facility projects and counts such proceeds against eligibility to receive state facility funding.

Adult Education

$527 Million Proposition 98 Spending on Adult Education. The budget package increases funding for the Adult Education Block Grant (AEBG) from $500 million to $527 million. Most of the increase ($22 million) is attributable to the program receiving a 4.3 percent COLA. The higher rate is in recognition that the program did not receive a COLA the past few years. Specifically, the 4.3 percent equates to a 2.7 percent COLA associated with 2018‑19 and a 1.6 percent COLA associated with 2017‑18.

Additional Support for Tracking Student Outcomes. The budget also provides $5 million ongoing for the CCC Chancellor’s Office to undertake several data‑related projects. Most notably, the Chancellor’s Office is to enhance a data sharing platform intended to track student outcomes across providers and into the workforce. Provisional language requires the Chancellor’s Office to use up to $500,000 of the appropriation on a one‑time basis to contract with an outside entity to survey adult schools about their budgets.

Other Changes. In addition, the budget package (1) renames AEBG the “Adult Education Program,” (2) moves the deadline for regional consortia to adopt three‑year plans from 2018‑19 to 2019‑20, (3) requires all providers receiving state or federal adult education funding (including libraries and community‑based organizations) to participate in their regional consortium’s planning activities, and (4) places a cap on the amount school districts and community college districts may charge their adult education consortium for administrative costs.

California Community Colleges

$9 Billion Proposition 98 Funding for CCC in 2018‑19. The enacted 2018‑19 level is $479 million (5.5 percent) more than the revised 2017‑18 level and $612 million (7.1 percent) more than the 2017‑18 Budget Act level. The budget increases funding per full‑time equivalent (FTE) student by $635 (8.6 percent) over the 2017‑18 Budget Act level, bringing Proposition 98 funding per FTE student up to $8,051.

Package Includes Mix of Ongoing and One‑Time Spending. As Figure 4 shows, the budget includes $1.2 billion in Proposition 98 augmentations for community colleges across the three‑year period. Of the $1.2 billion, $797 million (67 percent) is ongoing and $398 million (33 percent) is one time. From an accounting perspective, the increase is scored across multiple fiscal years and includes some unspent funds from prior years that have been repurposed. In addition to the Proposition 98 increase, the budget includes $64 million in bond authority for community college facility projects. We describe major CCC changes below.

Apportionments

Creates New Credit Apportionment Funding Formula. The 2018‑19 budget package includes $175 million ongoing and $35 million one time to transition to the new formula. The formula includes three main components, described below. In future years, a COLA is to be applied to the funding rates underlying each of the three components.

Base Allocation Is Largest Component of New Formula. In 2018‑19, the new formula provides $3,727 per credit FTE student. A district’s FTE student count is calculated using its three‑year rolling average. The base allocation also includes an amount linked to the number of colleges and state‑approved centers in the district. In 2018‑19, roughly 70 percent of the formula appropriation is distributed through the base allocation. Chapter 33 of 2018 (AB 1809, Committee on Budget) reduces base rates over the subsequent two years, such that roughly 60 percent of formula funding will be distributed through the base allocation in 2020‑21.

Supplemental Allocation Designed Primarily to Benefit Low‑Income Students. The formula provides an additional $919 for every student who receives a Pell Grant, a need‑based fee waiver, or is undocumented and qualifies for resident tuition. Student counts are “duplicated,” such that districts receive twice as much supplemental funding ($1,838) for a student who is included in two of these categories (for example, receiving both a Pell Grant and a need‑based fee waiver). The allocation is based on student counts from the prior year. Roughly 20 percent of the formula appropriation is distributed through the supplemental allocation.

Student Success Allocation Linked to Colleges’ Performance. This component of the formula provides colleges with funding based on specified student outcomes—obtaining various degrees and certificates, completing transfer‑level math and English within a student’s first year, and having students obtain a regional living wage within a year of completing community college (see Figure 5). Districts receive additional funding for the outcomes of students who receive a Pell Grant or need‑based fee waiver, with somewhat greater amounts for the outcomes of Pell Grant recipients. In 2018‑19, roughly 10 percent of the formula appropriation is distributed based on the student success allocation. Chapter 33 increases award amounts over the subsequent two years, such that roughly 20 percent of the formula will be distributed based on performance in 2020‑21.

Includes Several Provisions Easing Transition to New Formula. Chapter 33 includes hold harmless provisions for community college districts that would have received more funding under the former apportionment formula than the new formula. For 2018‑19, 2019‑20, and 2020‑21, these community college districts are to receive their total apportionment amount in 2017‑18, adjusted for COLA each year of the period. Beginning in 2020‑21, districts are to receive no less than the per‑student rate they generated in 2017‑18 under the former apportionment formula multiplied by their current FTE student count. (In adopting the new funding formula, the state also retained its longstanding one‑year hold harmless provision that allows districts to receive the greater of their calculated current‑ or prior‑year allotments. This provision is designed to help districts with declining enrollment.)

Assigns Certain Monitoring and Oversight Responsibilities to Chancellor’s Office. Chapter 33 requires the Chancellor’s Office to develop processes for monitoring implementation of the funding formula. Most notably, the Chancellor’s Office is required to develop minimum standards for the types of certificates and awards that count towards the student success allocation. The primary objective is to monitor if any erosion in the quality of awards occurs because of the new fiscal incentives.

Creates Formula Oversight Committee. Chapter 426 creates a 12‑member oversight committee, with the Assembly, Senate, and Governor each responsible for choosing four members. The committee is tasked with reviewing and evaluating initial implementation of the new funding formula. It also is tasked with examining possible changes to the formula over the next few years. Specifically, by January 1, 2020, the committee is to make recommendations to the Legislature and Governor for including first‑generation college student data and incoming academic proficiency data into the supplemental allocation component of the formula. Then, by June 30, 2021, the committee is to make recommendations relating to including noncredit instruction into the base and supplement allocation components of the formula. The committee is scheduled to sunset on January 1, 2022. Chapter 426 requires the Chancellor’s Office to contract with a third party to staff the committee for its duration. The Chancellor’s Office is expected to absorb these contract costs within its existing budget.

Funds 1 Percent Enrollment Growth. The budget provides $60 million for 1 percent systemwide enrollment growth. This funding amount is based upon 2017‑18 apportionment rates (rather than upon the new formula’s base allocation). In addition to funding systemwide growth, the budget adjusts for enrollment declines that districts experienced in 2017‑18 and anticipated enrollment restoration in 2018‑19. After adjusting for declining enrollment (‑3.2 percent) and restoration (2.3 percent), the 2018‑19 budget supports net enrollment growth of 0.1 percent, representing about 1,000 FTE students.

Funds 2.71 Percent COLA. The budget also provides colleges a total of $173 million to provide the statutory 2.71 percent COLA for apportionments. Additionally, the budget includes a total of $12 million to provide COLA for four categorical programs: (1) Extended Opportunity Programs and Services, (2) Disabled Students Programs and Services, (3) CalWORKs Student Services, and (4) the Child Care Tax Bailout (which supports campus child care centers that serve as teaching labs for college students interested in early education).

Online College

Creates New Online Community College. Chapter 33 creates a new online community college to be administered by the CCC Board of Governors. The Board of Governors is to choose the chief executive of the college. The chief executive is required to establish an advisory council consisting of local trustees from other community colleges as well as employees of the online college.

Provides $100 Million for Startup and $20 Million for Ongoing Operations. The startup funding may be spread over a seven‑year period and used for technology, building space, and business plan development, among other things. The funding for ongoing operations is intended for the salaries and benefits of staff, staff training, and technology licensing and maintenance. When the college begins enrolling students, it is to receive apportionment funding similar to all other community college districts, with the apportionment funding coming on top of the college’s base $20 million ongoing allocation.

College Intended to Focus on Short‑Term Pathways. Initially, the online college is intended to focus on short‑term programs for working adults who have no postsecondary credentials. Over the next three years, the college is required to develop at least three short‑term program pathways linked with industry needs. These pathways may not be duplicative of programs offered at existing community colleges. In addition, for every 10 pathways offered by the online college, at least one pathway must be developed in collaboration with an existing community college. The online college also is to use existing industry certifications, competency‑based learning, and prior learning assessments to reduce the amount of additional courses students need to complete their pathway.

Several Milestones and Reporting Requirements for College. Chapter 33 requires the new college to meet certain program, administrative, and accreditation milestones within the first seven years. Most notably, the online community college must begin enrolling students by the last quarter of calendar year 2019; design and validate at least 13 program pathways by July 1, 2023; and obtain full accreditation by April 1, 2025.

College Exempt From a Few Requirements Applying to Other Colleges. Most notably, the new online college has flexibility with regard to setting its academic calendar and establishing its student fee structure. The new college, however, is subject to most other rules and regulations that apply to existing community colleges. The college, for example, is required to spend at least 50 percent of its general operating budget on salaries and benefits of faculty and instructional aides engaged in direct instruction. As with other colleges, it also is required to have its programs and courses reviewed and approved by the Chancellor’s Office.

Provides Competitive Grants for Existing Colleges to Develop New Online Programs. The budget provides $35 million one time for existing community college districts to develop online programs and courses that (1) lead to short‑term industry‑valued credentials or (2) enable a student who completed a program at the new online community college to continue his or her education at an existing community college. The Online Education Initiative, administered by Foothill‑De Anza Community College District, is to award these grants.

Requires Chancellor’s Office to Make Recommendations for Providing Existing Colleges More Flexibility. Chapter 33 requires the Chancellor’s Office, by January 1, 2019, to recommend to the Board of Governors ways of making online and competency‑based programs easier and more attractive for colleges to develop and operate. The Chancellor’s Office recommendations must include ways to streamline the processes for (1) funding noncredit competency‑based programs and (2) offering online courses under a flexible calendar.

Faculty

Funds More Full‑Time Faculty. The budget provides $50 million ongoing for colleges to hire more full‑time faculty. As a condition of receiving funding, districts must increase the percentage of their instruction taught by full‑time faculty.

Funds More Part‑Time Faculty Office Hours. The budget provides $50 million one time for part‑time faculty office hours. The program reimburses districts that compensate part‑time faculty members for office hours related to their teaching assignments. Districts must provide a one‑to‑one match for state funds.

Apprenticeships

Provides $37 Million One Time to Make Up for Pro‑Rata Reductions in Prior Years. These funds are intended to backfill apprenticeship sponsors (such as labor unions and businesses) for pro‑rata funding reductions that occurred from 2013‑14 through 2017‑18. Though Apprenticeship funding increased from $23 million in 2013‑14 to $40 million in 2017‑18 and the underlying statutory hourly reimbursement rate increased from $5.04 to $5.90, the number of apprenticeship instructional hours provided each year of the period notably exceeded budget assumptions. As a result, the state applied pro‑rata reductions to the program’s reimbursement rates throughout the period. Of the $37 million being provided to backfill these pro‑rata reductions, $27 million goes to programs affiliated with school districts and $10 million goes to programs affiliated with community college districts. Historically, programs for firefighting and the construction trades have been among the largest apprenticeship programs.

Provides $23 Million Ongoing Augmentation for Apprenticeships in 2018‑19. Of this amount, $19 million is associated with the number of instructional hours funded. Specifically, the budget funds the same level of instructional hours in 2018‑19 as the estimated level in 2017‑18 (nearly 10 million instructional hours)—about 3 million more hours than originally budgeted for 2017‑18. The remaining $4 million is associated with increasing the hourly instructional reimbursement rate from $5.90 to $6.26.

Authorizes Community Colleges to Earn Credit Funding Rate Under Certain Circumstances. Chapter 33 authorizes community colleges to generate the credit funding rate rather than the apprenticeship rate for instruction that (1) is offered on a credit basis and (2) is taught by a community college instructor (as opposed to an instructor employed by a sponsor, which currently is the most common staffing practice). The 2018‑19 credit rate equates to an hourly rate of $7.10 per student—13 percent higher than the hourly apprenticeship rate. Moving forward, apprenticeship programs will need to begin reporting how much instruction is funded through each of the two rate options.

Financial Aid

Funds Expanded Eligibility for Fee Waivers. The budget provides $46 million for the expansion of the California College Promise Grant program. Chapter 735 of 2017 (AB 19, Santiago) expanded the fee waiver program to students who do not demonstrate financial need. Specifically, it authorizes fee waivers for all resident first‑time, full‑time students during their first year of college. (Though the cost of the expanded program is calculated assuming all these students obtain fee waivers, the authorizing legislation allows colleges to use their program allotments for other purposes, such as providing more student support services.) To receive funding, colleges must meet various requirements, such as participating in the Guided Pathways initiative.

Restructures Some Financial Aid for Students’ Living Costs. Chapter 33 replaces the Full‑Time Student Success Grant and the Community College Completion Grant with a new program that has slightly different underlying rules. The new program—the Community Colleges Student Success Completion Grant—provides a $649 per semester grant for financially needy students enrolled in 12, 13, or 14 units and $2,000 for students enrolled in 15 or more units. The budget provides $132 million for the new program, an increase of $41 million over the combined cost of the two prior programs in 2017‑18. As with the prior programs, the new program is intended to help financially needy community college students with their living costs.

Provides Funding to Upgrade Financial Aid Management Systems. The budget provides $14 million one time and $5 million ongoing for colleges to upgrade these systems. The core associated objective is to process state and federal financial aid grants more efficiently, thereby reducing the staff time required to process aid applications and increasing the staff time available for student outreach and guidance.

Other Ongoing Programmatic Increases

Consolidates Large Student Support Programs Into Block Grant. Chapter 33 combines the Student Success and Support Program, including funding for student equity plans, and the Student Success for Basic Skills program into a block grant named the Student Equity and Achievement Program. As a condition of receiving funds, districts are required to develop student equity plans, deliver student matriculation services (such as orientation, counseling, and advising), and adopt assessment and placement policies, as specified under current law. Funding for the new program ($475 million statewide) is based on districts’ 2017‑18 allocations for the consolidated categorical programs. Chapter 426 additionally requires districts and the Chancellor’s Office to report annually on how block grant funds were spent and their effectiveness in advancing student outcomes.

Augments NextUp Program for Foster Youth by $5 Million. This program provides support services for current and former foster youth enrolled in the community colleges. The program—also known as the Cooperating Agencies Foster Youth Educational Support Program—initially received $15 million in 2015‑16 and was authorized to operate at up to ten community college districts. Chapter 722 of 2017 (SB 12, Beall) authorized up to 20 districts to participate in the program, but it did not provide additional funding to support the expansion. The additional $5 million provided in 2018‑19 is intended to support some expansion.

Provides Ongoing Funding for Course Identification (C‑ID) Numbering System. The budget provides $685,000 to the CCC Academic Senate in support of the C‑ID system. This system, which was created in 2007, is intended to promote common numbering of comparable courses offered by college campuses. The Academic Senate had previously received one‑time funding for the C‑ID system.

Increase for CCC Academic Senate. The budget increases ongoing funding for the CCC Academic Senate by $232,000, bringing total ongoing funding to $1 million.

Other One‑Time Initiatives

Funds Various Student Services. The budget includes several one‑time allocations for colleges to help students with various issues outside of core academic instruction. Specifically, the budget includes $10 million to provide mental health services to students, $10 million to address student hunger at community college campuses, and $10 million to provide legal services to undocumented students on community college campuses.

Funds Three College‑Specific Projects. Specifically, the budget provides $10 million for a new public safety training center at El Camino College, $5 million for a new early childhood education center at Norco College, and $800,000 for capital improvements at the Los Angeles Valley College Family Resource Center.

Creates New STEM Pathways Program. The budget includes $10 million for competitive grants to encourage schools and community colleges to work together with industry to develop workforce training programs spanning grades 9 through 14. The programs are to culminate in an associate in science degree in a high‑tech field or an associate degree for transfer in science, technology, engineering, or mathematics (STEM). Participating businesses must provide students with on‑the‑job experience and agree to give students who complete the program first priority for available full‑time jobs. The grants are to be spent over a six‑year period.

Other Augmentations. The budget also provides:

• $6 million one time for the CCC Academic Senate to develop and expand the use of open educational resources.
• $5 million one time to expand or create new veteran resource centers on community college campuses.
• $5 million one time for a competitive grant program intended to help colleges improve their support services for currently and formerly incarcerated students. Participating colleges must provide at least $50,000 in matching funds and develop a long‑term plan that describes how the college will ensure the services funded by the grant are sustainable in the long run.
• $5 million one time to support career pathways for refugees through the Strong Workforce Program. Grant recipients are to partner with nonprofit organizations to provide related social services.
• $5 million one time for training classified community college employees. Districts are required to consult with classified union staff in determining what type of training to provide.
• $2 million one time through the Strong Workforce Program to expand enrollment in CNA training programs.
• $1.9 million one time to backfill community college districts for losses in property tax revenue in 2017‑18 due to wildfires.

State Operations

Increases Chancellor’s Office Staffing. The budget provides a $2 million non‑Proposition 98 General Fund augmentation for the Chancellor’s Office, bringing total non‑Proposition 98 support up to $17 million. The budget package does not specify the number of new associated positions or the specific workload to be supported with the additional funds. Based upon information provided by DOF and the Chancellor’s Office, the funds are intended to cover workload associated with various recent initiatives—such as the Guided Pathways initiative and changes to student remediation and placement—as well as new initiatives adopted as part of the 2018‑19 budget package—such as the new funding formula and online community college.

Facilities

Provides Maintenance and Equipment Funding. The budget provides $28 million one‑time Proposition 98 funding that districts may use for scheduled maintenance, special repairs, hazardous substances abatement, architectural barrier removal, certain seismic retrofit projects, water conservation projects, and replacement of instructional equipment and library materials. The funds are allocated to districts based on their FTE enrollment (counting both credit and noncredit instruction).

Funds Six New Capital Outlay Projects. The budget authorizes $10 million Proposition 51 (2016) bond funding for six new capital outlay projects. The budget funds preliminary plans for all six projects and working drawings for five of the six projects. Three of the projects entail constructing new facilities whereas the other three projects involve renovating or replacing existing buildings. A list of all these projects is on our EdBudget website. The six projects were among the 15 projects approved by the Chancellor’s Office in fall 2017 and recommended for inclusion in the 2018‑19 budget. The state did not approve the remaining nine projects this year.

Funds Second Phase of Projects Approved Last Year. The budget also allocates $40 million in Proposition 51 bond funds for subsequent phases of 15 projects approved last year. For 14 projects, the budget includes funding for working drawings. For one project using a design‑build process, the budget includes funding for both design and construction. A list of all these projects also is on our EdBudget website.

Funds Construction Phase of One Previously Approved Project. The budget provides $14 million in Proposition 1D (2006) funds to replace an instructional building at Compton College. The state originally provided funding 2015‑16, but funding was not spent due to project delays.

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