Analysis of the 2005-06 Budget Bill Legislative Analyst's Office February 2005

After School Programs And Proposition 49

21^st Century Community Learning Centers Not Spending Federal Grants

The state has had problems in taking full advantage of federal funds for the 21^st Century Community Learning Centers Program (21^st Century program). By the end of 2004-05, the state could have up to $100 million in carryover funds. We suggest various steps the Legislature could take to reduce the carryover problems over the next several years.

Below, we first describe the purpose and structure of the 21^st Century program and compare it to the state's After School Education and Safety (ASES) Program. In the following section, we describe the problems with unspent funds and discuss possible causes. We then provide several recommendations to begin reducing the level of unspent funds.

Background

The 21^st Century program is a federally funded before and after school program that provides disadvantaged K-12 students with academic enrichment opportunities and supportive services to help the students meet state and local standards in core academic content areas. In the past, the federal Department of Education (DOE) awarded three-year competitive grants for these centers directly to school districts. In 2001, the reauthorized Elementary and Secondary Education Act converted the 21^st Century program to a state formula program. Starting in 2002, DOE began phasing out the direct federal grants and began transitioning the program to a state-administered one.

The federal grant to California, which was $41.3 million in 2002-03, has steadily increased since then. In 2005-06 the federal grant amount is $136 million. The state has 27 months from the date the state appropriates funding in the annual budget act to spend these 21^st Century program funds. Unspent funds are returned to DOE.

State Law Restricts 21^st Century Program. The state implemented the 21^st Century program at the elementary and middle school levels generally to parallel the state ASES program:

• Maximum Grants. Grant levels are capped at $75,000 for elementary schools with 600 or fewer students, $100,000 for middle schools with 900 or fewer students, and $250,000 for high schools. For larger schools, a per pupil funding formula allows higher maximum grant amounts.
• Per Pupil Reimbursement Rates. The elementary and middle school programs are reimbursed at a rate of $5 per student per day. (The state program, however, requires a 50 percent local match, increasing the total spending level to $7.50 per student per day. Federal law prohibits a local match on the 21^st Century program.)

Small portions of the federal funds are used for high school grants, "equitable access," and support of family literacy programs.

Funds Are Consistently Underutilized

Since the inception of the state-administered 21^st Century program, the State Department of Education (SDE) has experienced problems using these funds to serve eligible schools and students. Each year, SDE has carried over a substantial portion of appropriated funds into the following budget year. Figure 1 shows the state appropriations for the three years of the state-administered program and the amounts and proportions of funds that are expected to be spent by specified dates. For example, only 42 percent of the 2002-03 appropriation and 55 percent of the 2003-04 appropriation has been spent to date. The SDE has estimated that $119 million of the current year's appropriation (74 percent) will be spent. We think that this estimate is overly optimistic, given past experience, and would expect that much less will actually be spent.

Spending Roadblocks. The SDE and school districts are both responsible for these funds not being used to serve more students. Most of the problems are concentrated with the elementary and middle school grantees. Two primary issues appear to account for this:

• SDE Slow in Awarding Grants. First, SDE has not provided grant funds to grantees until the fiscal year is well underway in most years. For example, in 2002-03, grant award letters were not sent until April 2003, and in 2003-04, award letters for new grantees were not sent until July 2004—after the close of the fiscal year. For 2004-05, award letters were mailed in the late fall; however because of the paperwork requirements, funds were not disbursed until January 2005. When grantees do not know whether or when they will receive their grants, their efforts at program planning can be significantly hampered. For example, the new cohort of schools funded in 2003-04 only spent 15 percent of their funds in the fiscal year.
• Schools Do Not Fill All of Their Slots. The SDE grants a maximum dollar amount to a school—for example, $75,000 for an elementary school. The elementary and middle schools then must earn the grant at a rate of $5 per student per day (except for in the first year of the grant, when up to 15 percent can be used for start-up costs). Most schools are not able to earn their grant and must return funds to the state at the end of the fiscal year. Based on the short history of the program, schools on average have only earned about one-half of their grants, returning funds to the state at the end of the year.

Reversions of Federal Dollars a Threat by End of the Budget Year. The state avoided returning any 2002-03 federal monies (which had to be fully spent by September 2004) and it may spend enough by September 2005 to avoid reverting 2003-04 federal funds. However, available data from SDE suggest that $100 million of the 2004-05 federal funds will not be spent in the current year. As a result, these unspent funds could revert to DOE in September 2006 unless the Legislature takes action to change key aspects of the state's approach to disbursing 21^st Century program funds.

One-Time Grants a Bad Strategy. Late in spring 2004, SDE notified the Legislature of the large carryover balances in this program, leaving the Legislature little time to develop a longer-term strategy. So, the state gave providers one-time grants totaling $25 million on a statewide basis from these carryover funds. Because these funds must be used for one-time purposes, it is not likely that they were used to serve additional students—the goal of the program. A better approach for taking full advantage of these funds is to restructure the program. We discuss such an approach to serve more kids below.

Restructure Program and Serve More Kids

We recommend the Legislature pass legislation creating a new group of grantees to begin in late summer 2005. In addition, we recommend the Legislature increase reimbursement rates, annual grant caps, and start-up funding for the elementary and middle school programs in their first year.

We believe that the Legislature needs to take action immediately to restructure this program. We recommend a series of measures aimed at increasing the possibility that grantees will be able to earn their grants within the budget year. Our recommendations will establish funding rate parity between the 21^st Century program and ASES, provide grantees with the ability to establish program infrastructure prior to enrolling students, and enable grantees to start programs at the beginning of the fiscal year.

Create New Cohort. We recommend the Legislature pass urgency legislation this spring to appropriate funding for a new cohort of schools. This accelerated timeline would allow SDE to issue grants in summer 2005, and provide an opportunity for new grant recipients to earn a larger share of their grants in the first year by beginning the program with the school year.

Increase Elementary and Middle School Daily Reimbursement Rate and Increase Grant Caps. We recommend increasing the reimbursement rate for elementary and middle schools to $7.50 per student per day and increasing the statutory spending caps for the elementary and middle school programs. The current reimbursement rate for the elementary and middle school programs of $5 per pupil per day is less than the state rate of $7.50 per pupil per day (including the state required local match). Since the federal government prohibits a local match, the rate increase is a way to equalize funding between the state and federal programs.

If the Legislature acts to increase the reimbursement rate, we recommend it also increase the statutory schoolwide spending caps. The combination of the current $75,000 cap for an elementary school with 600 or fewer students and a $7.50 reimbursement rate would mean that elementary schools could serve a maximum of only 55 students per year. In a school with 600 students, 55 students would represent only 9 percent of the student body. We recommend the Legislature increase the school grant caps to $150,000 for elementary schools and $200,000 for middle schools.

Provide Larger Start-Up Grants for Elementary and Middle Schools. Currently, the elementary and middle school grantees must earn their grants by documenting student attendance. However, any program has We believe that this three-pronged approach of a new cohort, higher reimbursement rates, and larger start-up grants would help the state to begin reducing the level of unspent funds and serve more children.

Proposition 49: After School Education and Safety Program

We recommend the Legislature enact legislation placing before the voters a repeal of Proposition 49 because (1) it triggers an autopilot augmentation even though the state is facing a structural budget gap of billions of dollars, (2) the additional spending on after school programs is a lower budget priority than protecting districts' base education program, and (3) existing state and federal after school funds are going unused.

As approved by voters in 2002, Proposition 49 requires the state to provide substantially more funding for the ASES program beginning some time between 2005-06 and 2007-08. When certain conditions are met (please see nearby box next page), the proposition triggers an automatic increase in state funding for the program—from the $122 million provided in 2003-04 to $550 million (a $428 million increase). Importantly, when these additional funds are provided for the program, they will be "on top of" the state's Proposition 98 minimum funding guarantee (referred to as an "overappropriation"). Proposition 49 also converted after school funding to a "continuous appropriation" (that is, no annual legislative action is needed to appropriate funds).

We have serious concerns with the proposition, which we discuss in detail below.

Autopilot Spending Badly Timed. Proposition 49's intent was to give after school programs the first call on additional General Fund revenues. Since its passage, the fiscal environment has changed significantly—with the state struggling through several consecutive years of budget difficulties. Whether Proposition 49 triggers in the budget year or as late as 2007-08, the state is likely still to be facing a significant budget problem. Moreover, the autopilot formula that triggers Proposition 49 creates additional spending obligations without the Legislature and Governor being able to assess the merits of the augmentation. The additional spending also likely would require the state either to raise additional General Fund revenues and/or make program cuts in other areas.

Lower K-12 Education Priority. In previous sections, we have discussed the fiscal problems that school districts will face over the near future to maintain their base education programs. From our perspective, maintaining the base program is a higher priority than expanding after school funding. We think this is particularly the case given that some school districts are struggling with basic solvency issues. If the state were planning to overappropriate Proposition 98, we think providing the funding to address the $3.6 billion on the education credit card (discussed in the "Proposition 98 Budget Priorities" write-up in the "Crosscutting Issues" section of this chapter) would be a better strategy for helping districts address some of their current fiscal challenges.

Proposition 49 Funding Not Likely to Be Spent in a Timely Manner. As discussed above, the state is having a difficult time spending its relatively small increases in federal after school funding in a timely fashion. Since 2002-03, federal after school funding has grown to an annual level of $136 million, yet the state has been spending only about one-half its federal allotment and is now at risk of reverting federal monies. Since the late 1990s, the state also has had difficulty expending its state-funded ASES program. The program continues to revert funding annually, spending around 80 percent of the grant annually.

Given that the trigger mechanism likely would provide a $428 million augmentation all in one year, schools also are not likely to be able to spend much of the new funding in the near term. As with any new grant program, the state typically has a difficult time spending the allotted funds in the first couple of years. Given the size of the augmentation, as well as the poor track record of getting additional after school funding to schools, the state is likely to have hundreds of millions of dollars revert annually in the initial years of implementation.

In summary, because of the autopilot nature of the trigger, the impact that this appropriation could have on the budget problem, the relatively lower priority of after school programs compared to schools' base education program, and the small likelihood funding actually would be spent in the near term, we recommend the Legislature enact legislation placing before the voters a repeal of Proposition 49.