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Analysis of the 2008-09 Budget Bill: Education

K–12 Mandates

Mandate Funding Is Part of the Base

We recommend the Legislature fully fund the annual estimated costs of state–mandated local programs.

The Governor's budget again proposes to defer the costs of state–mandated local programs in K–12 education in 2008‑09. (Technically, the budget includes $1,000 for each of the 38 currently recognized mandates affecting K–12 districts and county offices of education.) Even though payments are deferred, schools districts would be required to perform the mandated activities. We estimate that district claims for 2008‑09 for reimbursable mandates will total about $180 million.

The annual budget has not contained ongoing funding for K–12 mandates since 2001–02. Periodically, however, the state has appropriated “one–time” Proposition 98 funds to pay a portion of past mandate claims. The proposed budget, for instance, includes $125 million in one–time funds that would reduce the backlog of mandate claims for past years. (These one–time “settle–up” payments satisfy outstanding Proposition 98 obligations from 2002–03 and 2003–04.)

As a result of past deferrals, the state has accumulated a significant debt in the form of unpaid K–12 mandate claims. As discussed in the "Proposition 98 Technical Update” section of this chapter, we estimate that outstanding claims through 2008‑09 for approved K–12 mandates total $430 million under the Governor's plan. In addition, districts have submitted claims of $560 million for multiple years of costs for four mandates that are now in the approval process (two are discussed below). In total, therefore, we estimate districts would have almost $1 billion of unpaid mandate claims on file with the state by the end of 2008‑09.

Unlike K–12 mandates, the state is constitutionally barred from deferring local government mandate payments. Proposition 1A, passed in 2004, requires the state to reimburse local governments each year for mandated costs or relieve the local agencies of the required activities. In November 2007, five school districts and the California School Boards Association sued the Department of Finance and the State Controller seeking payment of past mandate claims and an end to deferrals.

Mandates Are Part of the Base K–12 Budget. We have recommended in the past that the Legislature pay for the annual expected cost of mandates as part of the budget act. State–mandated programs are not fundamentally different than other K–12 categorical programs. Mandates represent programmatic activities the state requires districts to perform each year—such as collective bargaining, state testing programs, and student health screenings. In fact, because mandates require very specific activities, districts often have less flexibility over mandated activities than they have over the level of services provided through other categorical programs.

If mandates are part of the state’s base K–12 program, funding for mandates should be part of its base K–12 budget. For these reasons, we recommend the Legislature add funding to the 2008‑09 Budget Bill to pay for the ongoing costs of reimbursable state–mandated local programs. Under current law, this budget–year amount would be $180 million—estimated budget–year district claims. The administration, however, proposes to change the timing of mandate payments. If adopted, the 2008‑09 mandate payment for K–12 education would be $165 million—the amount claimed by districts for the 2006–07 fiscal year. (Please see our assessment of this proposal in the “General Government” chapter—Item 8885—of this Analysis.)

Commission Approves Two New Mandates

Chapter 1124, Statutes of 2002 (AB 3000, Committee on Budget), requires the Legislative Analyst’s Office to review each mandate included in the Commission on State Mandate (CSM) annual report of newly identified mandates. In compliance with this requirement, this analysis reviews two new education mandates. Figure 1 displays the new mandates and the associated costs. Neither of the new mandates is recognized in the 2008‑09 Governor's Budget.

 

Figure 1

New K-12 Mandates Approved by the
Commission on State Mandates in 2007

(In Millions)

Mandate

Requirement

Accrued Costs Through
2007‑08

Estimated Cost in
2008‑09

Stull Act teacher evaluation

Evaluate teacher performance
in specific areas

$165.8

$22.0

High School Exit Examination

Administer state test to high  school students

37.4

7.7

    Totals

 

$200.2

$29.7

 

The Stull Act requires districts to evaluate teachers periodically. Originally passed in 1971, the commission determined that updates of the law passed in 1983 and 1999 created new reimbursable mandates. The CSM reports total district claims of $166 million for the Stull Act mandates for the period 1997–98 through 2007–08. Based on these reported claims, we estimate the budget–year cost of the Stull Act mandates at about $22 million.

The commission also approved a finding of reimbursable costs for administering the California High School Exit Examination (CAHSEE). Districts submitted $37 million in claims for eight years of costs. Presumably, these claims represent costs on top of the $5 per test the state apportions to districts each year through the budget. We project costs of $7.7 million in 2008‑09 based on the district data.

Our review of the two mandates identified three issues for the Legislature’s consideration. First, we recommend the Legislature refer the Stull Act mandate back to the CSM to assess whether legislation created offsetting savings that would reduce district claims for this mandate. We also propose a method for developing unit costs for mandates that will reduce district workloads and provide greater assurance that local claims are reasonable. We conclude with a discussion of whether the Stull Act evaluations are cost–effective in the current policy environment.

CSM Decision Misses Offsetting Savings

We recommend the Legislature adopt trailer bill language requesting the Commission on State Mandates to review its “statement of decision” in the Stull Act mandate to determine whether there are offsetting savings to the mandated costs identified by the commission.

Our review of the new mandates raised only one issue with the commission’s decisions. Specifically, the commission failed to recognize that the 1999 statute that created the mandated Stull Act costs also created savings for school districts. The original Stull Act was passed in 1971—before the passage of the constitutional provision requiring the state to reimburse local governments for new mandate costs. This original law required districts to evaluate most teachers every two years.

Ensuing legislation, passed in 1983 and 1999, expanded the scope of the evaluation process, which the commission determined created new reimbursable mandates. The 1983 law focused the required evaluations on instructional techniques and strategies and required districts to conduct annual evaluations of employees who receive an unsatisfactory performance review. The 1999 changes required districts to review student test results as part of each teacher’s performance evaluation.

The 1999 law, however, also reduced the scope of the original mandate by scaling back the frequency of evaluations for more experienced teachers beginning in 2004. The legislation reduced evaluation requirements to every five years for “highly qualified” teachers (as defined by federal law) with at least ten years of experience. The CSM decision fails to recognize the reduction in district workload that is created by this change. Specifically, senior teachers, who were subject to evaluations every other year under the original Stull mandate now must undergo reviews once every five years. Since many teachers have ten years of experience and meet the federal definition of highly qualified, the district savings may be considerable.

When the Legislature believes the commission has erred in its assessment of a mandate, the standard procedure is to refer the mandate back to CSM with a request to reconsider its previous statement of decision. In this case, the appropriate action would be to request the commission review whether the 1983 or 1999 legislation created offsetting savings that should be reflected in district claims. Because the Stull Act is a new mandate, the Legislature should also make clear that it expects the reconsideration would apply to district claims back to 1997–98.

Therefore, we recommend adoption of trailer bill language requesting CSM reconsider its statement of decision on the Stull Act mandate to determine whether legislation creating the new mandates also created offsetting savings in district personnel evaluation costs.

Develop “Unit Costs” for New Mandates

We recommend the Legislature add trailer bill language directing the Commission on State Mandates to reconsider the “parameters and guidelines” established for the, California High School Exit Examination and Standardized Testing and Reporting mandates. We also recommend the language require the State Controller to submit to the commission a proposed reasonable reimbursement methodology based on district “cost profiles” as part of the reconsideration of the cost guidelines for these mandates.

In the development of statewide cost estimates for the two new mandates, CSM found a number of problems with district claims. These problems will be familiar to those who follow mandate reimbursement issues in K–12 education. For the CAHSEE mandate, for example, CSM reports that a significant number of districts—including large districts—failed to submit a claim for specific years. This suggests that districts do not have the cost documentation they need to submit a valid claim for those years. The CSM also reports widely different cost estimates from districts for the same required activities. Underlying assumptions in some claims also appear to conflict with the commission’s parameters and guidelines. The CSM also found claims that failed to recognize offsetting revenues that are available to pay for mandated activities.

The State Controller’s Office (SCO) audits of school district mandate claims find these same problems—and more. In particular, large disallowances frequently result from the auditors’ findings of inadequate documentation for the claimed costs. In fact, it is common for the Controller’s audits to disallow most of a district’s mandate claim. As a result, mandate payments have developed into a source of considerable conflict between the state and school districts.

Responding to school district concerns, SCO helped two districts develop a revised claim for a mandate related to Standardized Testing and Reporting (STAR) testing. In both districts, the SCO’s initial audits disallowed virtually the district’s entire claim—in part, because claims sought reimbursement for nonmandated activities. Recognizing that the districts performed the mandated testing duties, the SCO developed a methodology to estimate what each district could reasonably claim from the state. Based on this process, the SCO issued a revised audit statement that allowed a portion of the claims submitted by the two districts.

While the SCO’s approach to the STAR audits represents a significant change in the role of auditors, we think it may offer a way to simplify the mandate reimbursement process. Specifically, instead of requiring all districts to develop detailed expenditure reports to justify their annual mandate claims, the state could adapt the methodology used by the Controller’s staff to develop a proposed reasonable reimbursement methodology (RRM).

State law permits the use of an RRM as a way of simplifying mandate claims based on a representative sample of local cost data. The underlying concept of the RRM is to develop an average cost estimate that establishes a fair, but approximate, reimbursement level for state–mandated local programs. One of the barriers to developing an RRM has been the state’s lack of confidence in district claim data. The cost profile approach used for two districts’ STAR mandate claims provides a possible way to collect consistent, reliable, cost data that would provide the basis for a proposed RRM.

We think the STAR and CAHSEE mandates are good candidates for such an approach for several reasons. First, since costs for these mandates will vary primarily depending on the number of students tested, it is possible that an RRM could fairly reimburse districts based on a standard per student amount. Second, an RRM would reduce audit disallowances of past–year claims for the two mandates. According to our review of the two new mandates, significant disallowances in district claims could be avoided through the RRM approach. Unfortunately, the need to reconsider the Stull Act mandate on the issue of offsetting savings precludes the development of an RRM at this time (please see our recommendation above).

The development of an RRM for STAR offers a way to resolve the backlog of payments for this mandate. Districts have filed STAR claims totaling about $200 million for the years 1997–98 through 2004–05. In 2005, however, CSM determined the STAR mandate applied to only a small portion of the testing program. As a result, it appeared likely that district STAR mandate claims included reimbursement for activities that are not recognized as a reimbursable mandate by the commission. This concern was validated by the SCO audits. Unless school districts and the state agree on an RRM, the state has little recourse but to withhold payment on STAR until district claims are audited.

From a district perspective, an RRM has several advantages. It minimizes district paperwork, offering local cost savings, and provides greater certainty over future state mandate payments. An RRM also provides a fairer distribution of funding for mandates, especially for smaller districts that find the claiming process difficult. For the state, the RRM provides greater assurance that the state is paying a reasonable amount for the mandated activities.

The advantages of developing a reimbursement methodology are clear if the state and districts can agree on an amount. We think the Controller’s cost profile process offers the best avenue for obtaining data needed for developing a methodology that both the state and districts would support. We think this process would work well for the two new mandates as well as the STAR mandate. For these reasons, we recommend the Legislature add trailer bill language requiring the CSM to reconsider the approved parameters and guidelines for the CAHSEE and STAR mandates. To assist the commission in its reconsideration, we also recommend that trailer bill language require the State Controller to submit to the commission a proposed RRM using data from a representative sample of districts.

Are Stull Act Evaluations Worth the Money?

The Stull Act evaluations exist in a system that provides little local flexibility for building stronger employee incentives into the evaluation process. We suggest the Legislature undertake a broad review of teacher policies, including the Stull Act, as part of future K–12 reform discussions.

The Stull Act requirements raise a major policy consideration: What does mandating teacher evaluations accomplish for the state? Employee evaluations represent an important management activity that can help improve employee performance. These evaluations, however, are typically part of a broader set of processes and incentives for employees. For many employers, staff salary increases are linked to evaluations. Similarly, in cases where employees fail to perform to expectations over an extended time period, they may be terminated.

In K–12 education, however, teacher raises are not linked to evaluations or performance. In fact, state law requires that districts provide salary increases based on educational attainment and years of service. Other salary arrangements are permitted only with the agreement of the local union (and, to our knowledge, none have been negotiated to date). In addition, while state law does permit districts to fire teachers for unsatisfactory performance, this tenure law has proved to be very difficult to use at the local level. As the recent Getting Down to Facts studies found, one–quarter of surveyed principals would like to dismiss or transfer three or more teachers at their schools but believe it is “almost impossible” to do so.

Thus, the Stull Act requirements exist within a system that severely limits district flexibility to establish a broader system of incentives for employees. In addition, mandates represent a particularly clumsy way to encourage effective evaluation practices. A state mandate can force districts to conduct the required evaluations, but it cannot require districts to make the process meaningful.

In this policy environment, it seems difficult to conclude that the Stull Act produces benefits that justify its cost. Eliminating the mandate, however, could erode management practices in schools. The mandate provides leverage for districts and principals that understand the importance—to the district and to its employees—of providing clear and honest feedback on employee performance. In addition, because the law requires a minimal level of evaluations, districts cannot trade teacher evaluations for another district priority during collective bargaining.

Now that the requirements have become reimbursable, the state faces the question of whether, on net, the mandate is worth paying for. In most circumstances, we would recommend eliminating requirements like the Stull Act mandate. At the current time, however, issues of teacher tenure and compensation are at the core of educational reform debates in California. In this environment, therefore, we think the Legislature should undertake a broad review of the state’s teacher policies—including the Stull Act—to give districts better tools for managing employees and creating a cadre of skilled and motivated teachers.


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