Establishing Proposition 98 Priorities

Given all these factors, we do not know what level of K–14 reductions the Legislature will feel compelled to make in the budget year. We therefore use a tiered approach to identify potential reductions. Under such an approach, the Legislature could begin by making tier 1 budget reductions and then work its way through the tiers until it achieved the desired amount of K–14 budget solution. If the Legislature were to adopt every option in each of the three tiers, it could achieve slightly more than $5 billion in Proposition 98 savings (reflecting a 10 percent programmatic reduction) and slightly more than $600 million in non–Proposition 98 General Fund savings.

Budget Crisis Leaves Few Easy Choices. Figure 7 summarizes the value of the Proposition 98 reductions included in each tier for K–12 education and the community colleges. While the state’s fiscal crisis leaves few easy choices, we believe some program reductions would be less harmful than others. In all of our tiers, we avoid reducing funding for districts’ base academic program—making this our top priority. As described in more detail below, tier 1 consists primarily of program eliminations and technical adjustments we recommend that the Legislature make in any fiscal environment. In tier 2, we offer additional options that would result in some reduced K–14 services, whereas tier 3 options would have relatively significant programmatic effects. Under tier 3, virtually all categorical programs would experience some level of reduction, though we suggest smaller reductions to programs serving at–risk students, with larger reductions to instructional support programs. While the proportions vary slightly by tier, cumulatively, K–12 education would absorb 88 percent of the reductions under our approach, with community colleges absorbing the remainder.

Block Grants Can Help Legislature Prioritize. In the categorical reform write–up of the “Other Issues” section of this report, we recommend the Legislature consolidate 42 K–12 programs and 8 CCC programs into 5 block grants. One benefit of a block grant approach is that it can help decision makers more easily prioritize among education programs and services. That is, by pulling together like programs, block grants allow decision makers to judge among broad categories of services rather than having to evaluate the merits of dozens of individual programs that serve similar purposes. Under our tiered approach, we apply smaller reductions to programs serving at–risk students, including those who are economically disadvantaged, English learners, in special education services, or in need of remediation. As a result of this prioritization, we take increasingly deep cuts to our K–12 “Instructional Support” and CCC “Faculty Support” block grants. We take no cuts, however, to funding for districts’ base academic program (K–12 revenue limits and CCC apportionments).

Tier 1: Recommended Reductions

In tier 1, we identify $1.1 billion in Proposition 98 reductions and $152 million in non–Proposition 98 reductions—for total K–14 General Fund savings of $1.3 billion. Figure 8 lists the Proposition 98 reductions. We have recommended many of these reductions in the past, as they would eliminate activities that are duplicative, funded in excess of estimated need, or capable of being run more efficiently. Even if taken in total, these tier 1 reductions would have minimal effect on K–14 education. Below, we briefly describe each of the recommended Proposition 98 reductions in order of magnitude, beginning with K–12 education and continuing with CCC. We then discuss the non–Proposition 98 reductions. (Included in the tier 1 list are savings from eliminating two mandates—one related to K–12 behavioral intervention plans and one related to CCC health services. These are not discussed below, as we cover them in the “Other Issues” section of this report.)

Capture Savings From Block Grant Efficiencies. Our categorical reform proposal consolidates 33 K–12 programs and 8 CCC programs into 4 large block grants—Instructional Support, “Opportunity to Learn” (OTL), ”Student Success,” and Faculty Support. (A fifth block grant concerns special education programs, which are tied to a federal maintenance–of–effort [MOE] requirement.) Because our approach would eliminate most of the underlying requirements and reporting currently associated with these programs, less funding would be needed for completing paperwork and general compliance and administrative activities. As such, we believe districts and colleges could offer the same level of services at a lower cost. We recommend the Legislature reduce each of these block grants by 5 percent to account for these efficiencies. This would have virtually no effect on student and faculty services.

Eliminate the High Priority Schools Grant Program (HPSGP). This is one of several school improvement programs. Not only is the program duplicative, it has proved ineffective in improving student achievement. We recommend the Legislature eliminate the program for state savings of $114 million. The vast majority of HPSGP schools would continue to receive support through a federal school improvement program.

Align After School Funding With Estimated Expenditures. Currently, California spends $550 million in state funds on the After School Education and Safety (ASES) program. Nearly every year, it has received more funding than needed to cover all ongoing program costs. We estimate the Legislature could reduce ASES funding by $100 million, with no reduction in the number of students currently served. (A similar federal after school program provides more than $100 million annually and also routinely carries forward unspent funds.) Because ASES funding was established by a voter initiative, voter approval would be required before this option could be implemented. (As a part of this approval, we recommend that voters allow the Legislature to make ASES funding decisions as part of the regular budget process without a guaranteed set–aside.)

Eliminate Year Round Schools Program. Currently, the Year Round Schools program provides incentive funding for school districts that operate on a multitrack, year round calendar and enroll more students than the state’s facility capacity standards. Over the last few years, the program has experienced a significant decline in participation, with only four school districts currently receiving funding. In addition, a number of participating schools are planning to move off multitrack calendars in the near future. Thus, we recommend eliminating the program, for savings of $58 million.

Align Adult Education Funding With Growth in Adult Population. State law authorizes 2.5 percent enrollment growth in adult education each year. Since the 1990s, however, the adult population has grown at a rate well below 2.5 percent. Over the last two decades, the adult education program and associated funding has grown about 25 percent larger than justified based on growth in California’s adult population. As a result, many adult education providers cannot serve enough students to earn their full state entitlements, and those who can, often do so in large part by offering enrichment classes. We recommend reducing the program by $57 million to adjust for excess growth that has occurred since 2004–05. We further recommend tying future growth in adult education spending to the adult population. (This reduction would have virtually no impact on core adult education classes such as English as a second language and adult basic education.)

Use More Accurate Method to Build Budget for Regional Occupation Centers and Programs (ROC/Ps). Currently, state law requires certain “excess” local revenues to be used for ROC/Ps. Specifically, if local revenues alone prove sufficient to fund all of a county office of education’s revenue limit, then state law directs the county to apply any remaining local revenues to its ROC/P. Though these excess local revenues have materialized over the last several years, the state has not been accounting for them when building the ROC/P budget. Rather than achieving offsetting state savings, the “left over” state funding has been redistributed to all ROC/Ps, essentially providing each program with a small, unanticipated additional payment. We see no policy rationale for such a practice. Instead, we recommend the state use a more accurate method of budgeting for ROC/Ps—one that would use prior–year excess local revenues to offset program costs in the next year. For 2009–10, we recommend reducing state support by $40 million to account for this excess local revenue.

Reduce CalWORKs Child Care Due to Declining Caseload. Demand for Stage 2 and 3 CalWORKs child care is projected to decline in 2009–10. We recommend the Legislature reduce funding by $37 million to account for the anticipated decline in caseload.

Align Charter School Facility Funding With Estimated Expenditures. Currently, the Charter School Facility Grant program provides per–pupil funding to assist some charter schools with rent and lease costs. To be eligible for the program, schools cannot use facilities from their chartering authority and must be located in an attendance area or have a student population with more than 70 percent of students eligible for free and reduced–price meals. Last year, legislation was passed that augmented funding for the program. Because the significant funding increase was not accompanied by a corresponding expansion of eligibility, we estimate funding will exceed program costs over the next few years. For 2009–10, we recommend the Legislature reduce funding by $29 million to align the appropriation with anticipated program costs. Such action would have no effect on the ability of charter schools to access state funds for facilities.

Phase Out National Board Certification Program. This program, currently budgeted at $6 million, provides a $5,000 annual stipend for four years to any teacher who both becomes certified by the National Board for Professional Teaching Standards and agrees to work in a low–performing school. While attracting and retaining high–quality teachers in low–performing schools is certainly a worthwhile endeavor, we question whether this program is effective statewide policy. Currently, the program benefits only about 700 teachers a year (less than 1 percent of the state’s teaching force). Moreover, virtually all teacher compensation decisions are made at the district level, and districts have full discretion to offer financial or other types of incentives to help recruit and retain quality teachers at hard–to–staff schools. Districts may decide that national board certification is worthy of financial reward or select another method of identifying, attracting, and recognizing good teachers in their community. For these reasons, we recommend the state phase out this program but honor existing commitments to teachers who have already become certified and begun working in low–performing schools. This would result in about $3 million in savings in 2009–10, with $1 million in additional savings each year for the next three years until the final cohort has exited the program.

Increase CCC Fees to $30 Per Unit. The CCC’s enrollment fees, which are currently $20 per unit, are the lowest in the country. We recommend the Legislature raise fees to $30 per unit. This action would generate about $120 million in new fee revenue—replacing a like amount of General Fund support. Financially needy students would not be affected by this increase given they qualify for a full fee waiver. In addition, middle–income students would continue to qualify for a full or partial federal tax offset to their fees. Even with our recommended increase, CCC fees would remain the lowest in the country. (See our 2009–10 Budget Analysis Series: Higher Education, page HED–24 for more detail on this proposal.)

Reduce Governor’s Proposed Enrollment Augmentation to Reflect Fee Increases. The Governor’s budget includes $175 million to provide a 3 percent increase in CCC enrollment in 2009–10. Additional enrollment funding for CCC is appropriate given recent growth trends. The size of CCC’s growth is likely to be tempered, however, to the extent that fees are raised. We therefore recommend a smaller amount of enrollment funding if the Legislature approves a fee increase. Enrollment growth of 1 percent would cost about $58 million, resulting in savings of $117 million relative to the Governor’s proposal. (See our Higher Education publication, page HED–20) for more detail on this proposal.)

Achieve Savings by Prepaying “Settle–Up” Obligation. In addition to our recommended Proposition 98 reductions, we recommend the Legislature achieve $150 million in non–Proposition 98 savings by prepaying the 2009–10 settle–up obligation in 2008–09, as proposed by the Governor.

Eliminate the Office of the Secretary of Education (OSE). We also recommend the state eliminate the OSE, for non–Proposition 98 savings of $2 million. The office, led by the Secretary of Education (Secretary), has 18 positions and is responsible for advising the Governor on education policy. Additionally, the state funds the California Department of Education (CDE), led by the publicly elected Superintendent of Public Instruction (SPI). The department administers programs, reports to the federal government, and provides technical assistance to local educational agencies (LEAs). It also supports the State Board of Education (SBE) in setting long–term education policy, granting waivers, and hearing appeals. Together, the CDE and SBE annual budget is more than $225 million. The Legislature could eliminate the OSE and reassign the Secretary to work with CDE and SBE. This would not only generate savings and eliminate redundant positions but also would pave the way for future education governance reforms consistent with the California Master Plan for Education (2002) and the Governor’s Committee on Educational Excellence’s technical report (2007). (Under these governance reforms, the Secretary would head CDE, and the SPI would become responsible for oversight and accountability.)

Tier 2: Reductions With Some Programmatic Effects

In tier 2, we identify $1.8 billion in Proposition 98 reductions and $450 million in non–Proposition 98 reductions—for total K–14 General Fund savings of $2.3 billion. Similar to tier 1, we continue to preserve funding for certain programs—including those that serve disadvantaged student populations, provide fiscal oversight services, and/or leverage substantial federal funding. In contrast to tier 1 recommendations, however, these tier 2 options would result in some reduced services for K–14 students. Nonetheless, we believe these options—if needed—would be less severe than other types of cuts. Figure 9 lists the reductions, which we describe below.

Reduce K–12 Instructional Support Block Grant by 25 percent. Our proposed K–12 Instructional Support block grant includes funding for a variety of services and activities, including reducing class sizes, providing professional development for teachers, and enrichment in subjects such as art and music. While these activities can be valuable, we believe they are of lower priority compared to the core instructional program and supplemental services for at–risk students. The Legislature could reduce this block grant by 25 percent, for savings of almost $1 billion. School districts presumably would respond by narrowing their focus to those instructional support activities deemed most important to their local communities.

Eliminate Deferred Maintenance Program. Currently, the Deferred Maintenance program provides one–to–one matching funds to help school districts make major facility repairs or replace existing school building components. We recommend eliminating the program in 2009–10 for savings of $313 million. Although delaying major repairs can lead to greater future facility costs, we do not think funding for this program should take priority over core educational activities. Additionally, school districts that have critical repair needs could do the repairs using general purpose funding. In the future, rather than resurrecting this program, we recommend the Legislature increase the amount districts must deposit in their routine maintenance accounts. To the degree the state has funding available, it could provide additional revenue limit funding to support this higher requirement. This would provide similar funding to districts but would do so in streamlined fashion—without separate programs for “routine” and “deferred” maintenance.

Speed Up Timeline for Reducing Adult Enrollment in ROC/Ps. In 2006, legislation shifted the educational mission of ROC/Ps to focus more on serving high school students and less on serving adults. Specifically, the 2006 law imposed a timeline for ROC/Ps to reduce adult enrollment to 10 percent or less by July 1, 2010. The Legislature could move up the final deadline to the beginning of the 2009–10 fiscal year. Changing the timeframe for phasing out adult services could save the state roughly $100 million (though savings could be lower depending on how far ahead of schedule some ROC/Ps are in reducing adult enrollment). This would result in fewer adults being offered no–fee career technical education in 2009–10.

Lower Child Care Reimbursement Rates. Currently, CalWORKs providers are reimbursed for services up to a maximum rate equivalent to the 85th percentile of the rates charged by private–market providers in the same region (determined by a “regional market rate survey” conducted every two years). The Governor is proposing to lower that maximum reimbursement rate to the 75th percentile of the regional market rates. In tier 2, we suggest the Legislature implement the Governor’s proposal and save at least $38 million in 2009–10. There is a risk, however, that some providers will forego subsidized clients in favor of higher paying private clients, thereby increasing the difficulty some low–income families could have in finding available child care.

Suspend Early Mental Health Initiative (EMHI). Currently, EMHI provides short–term matching grants to help LEAs provide mental health services to students with mild to moderate school adjustment difficulties. Given the severe budget reductions LEAs could face in 2009–10, local matching funds may not be available and demand for the program could be low. On this assumption, the Legislature could suspend funding. This may result in students with mild to moderate school adjustment difficulties receiving less additional support.

Increase Family Fees for Child Care. The Governor has proposed a revised family fee schedule that increases fees for nearly all families currently paying fees. The Legislature could adopt the Governor’s proposal, with offsetting state savings of at least $14 million. (Family fee schedules can be modified in several ways to achieve a desired amount of savings. For example, the schedule could be adjusted based on changes to the starting income level, rate at which fees increase, or maximum percentage of income paid.)

Eliminate Funding for Adult Home Economics Classes. Adult education programs receive state funding to offer home economics classes at no cost to students. These classes cover topics such as knitting, quilting, food preparation, and interior design. While home economics classes can be of value to students, they fall outside the core mission of adult education. Thus, we recommend eliminating state funding for these courses. (Schools still could offer the courses on a fee basis, if so desired.)

Reduce Special Education to Federally Required Minimum. Under the Governor’s 2009–10 budget proposal, special education funding is above the minimum level required by the federal government. The Legislature could reduce special education spending to the federally required minimum without losing federal dollars. This would result in state savings of $10 million (compared to total spending of $3.1 billion) with virtually no effect on the level of service provided to special education students.

Reduce Funding Rate for CCC Recreational Courses. The CCC system provides a variety of recreational courses (such as archery, badminton, and art appreciation) on a credit basis. Districts that offer these courses receive the same per–student funding rate as credit–bearing academic and vocational courses (such as mathematics and automotive repair). All CCC courses can be of value to students. Recognizing resource limitations, however, the Legislature has established statutory priorities for the CCC system that emphasize developing basic skills (such as communicating in English) and preparing students for careers. Given the state’s fiscal condition, it is more important than ever to ensure that available resources are put to their highest use. Thus, we recommend the Legislature reduce funding for physical education and other enrichment courses to the rate that districts receive for regular non–credit courses. This action would result in state savings of up to $120 million in 2009–10. (See our Higher Education publication, page HED–33 for more detail on this proposal.)

Increase CCC Fees to $40 Per Unit. Whereas we recommend increasing CCC per unit credit fees from $20 to $30 under tier 1, the Legislature could increase fees to $40 per unit if it determines additional state savings are needed. Even at $40 per unit, financially needy students would not be affected (because of the state’s fee waiver program) and middle–income students would qualify for a full or partial fee refund from federal tax credits and deductions. Fees of $40 per unit would generate a total of roughly $225 million (twice as much as under tier 1) in additional revenue for CCC, with virtually no programmatic effect.

Reduce Funding for Various Other CCC Categorical Programs. Currently, the state provides funding for six CCC categorical programs that are nonworkload–based programs (such as physical plant and technology services). In tier 2, the Legislature could reduce funding for these programs by 25 percent. These programs do not provide direct student support or classroom instruction.

Reduce Funding for Faculty Support Block Grant. Our proposed CCC Faculty Support block grant would provide additional funds—on top of general–purpose apportionment monies—for professional development and other full– and part–time faculty programs. While these activities can be valuable, we believe they are of lower priority compared to core instruction and direct student support services. The Legislature could reduce this block grant by 25 percent, for savings of $14 million. Community colleges presumably would respond by narrowing their focus to those instructional support activities deemed most important to their local communities.

Suspend Quality Education Investment Act (QEIA). In addition to these tier 2 Proposition 98 reductions, the Legislature could achieve $450 million in non–Proposition 98 General Fund savings by suspending QEIA. This program provides K–12 funding ($402 million) to a small set of low–performing schools for implementing a uniform set of requirements, including class size reduction. Community colleges also receive QEIA funding ($48 million), primarily for supplemental support related to career and vocational education. If the Legislature were to suspend QEIA funding, the vast majority of K–12 QEIA schools would continue to receive support through a federal school improvement program. Community colleges likely would reduce certain career and vocational education support, such as curriculum planning and outreach.

Tier 3: Reductions With More Significant Programmatic Effects

In tier 3, we identify $2.2 billion in additional K–14 reductions (all Proposition 98 savings). When combined with the other tiers, cumulative General Fund savings would be $5.7 billion ($5.1 billion Proposition 98 and $652 million non–Proposition 98). Figure 10 summarizes this final grouping of reductions. Relative to tier 1 and tier 2 reductions, these cuts represent more drastic options. Nonetheless, we include them to aid the Legislature if additional budget solutions are needed beyond the level proposed by the Governor.

Virtually All Programs Would Experience Reduction. As shown in the figure, virtually every sector of K–14 education and child care is affected under tier 3. Virtually the only funding left untouched would be for the base academic program (K–12 revenue limits and CCC apportionments). The list includes options for reducing instructional support, student support, special education, after school programs, charter schools, subsidized child care slots, outreach, and CCC faculty support. In several of these cases, funding would be dramatically reduced. For example, funding for K–12 instructional support, K–12 after school programs, and CCC faculty support would be cut in half. Charter schools would be reduced comparable to public non–charter schools. Tier 3 also includes eliminating funding for K–12 regional technology support (with hopes that the K–12 High Speed Network program might be able to assume some of these responsibilities) and reducing the amount districts are required to deposit in their routine maintenance funds from 3 percent to 1 percent.

Some Programs Experience Smaller Cuts Than Others. Though virtually every K–14 service is affected under tier 3, some programs would be less affected than others—reflecting our judgment of educational priorities. In particular, we apply smaller reductions to programs serving at–risk students and special education students. Specifically, the K–12 OTL block grant, special education, and CCC Extended Opportunity Programs and Services (EOPS) would be reduced by 10 percent. In addition, subsidized child care would be reduced about 3 percent (as the program serves low–income families and currently has a long wait list).

Unappealing Trade–Offs Associated With Tier 3 Options…Realizing savings from these tier 3 options is not without trade–offs. To accommodate 50 percent reductions to some programs would mean dramatic reductions in service levels. The 10 percent special education reduction, though modest compared to other cuts, would put California out of compliance with the federal government’s “MOE” requirement and could result in a loss of federal funds, meaning a double hit to districts. Reducing OTL funds might mean a widening achievement gap between economically disadvantaged students and English learners as compared to their higher achieving peers. A $100 million reduction in CCD funding would result in a loss of approximately 18,000 child care or preschool slots. Cutting CCC programs would reduce students’ access to support services such as counseling.

…But Other Options May be Worse. Although tier 3 reductions have downsides, we believe other options for realizing these savings could be worse. Large reductions to revenue limits and CCC apportionments likely would have a greater effect on students, including significantly larger K–12 class sizes and fewer CCC course sections. Additionally, larger cuts to the OTL block grant, special education, and CCC EOPS would further disadvantage already needy students. In short, we see no way to cut billions of dollars from K–14 education without confronting difficult trade–offs.