Our 2016-17 Proposition 98 Education Analysis provided an in-depth analysis of the county office of education "minimum state aid" provision. In this analysis, we provide an update on the escalating cost of the provision and recommend the Legislature repeal the provision.
Our 2016-17 Proposition 98 Education Analysis provided an in-depth analysis of the county office of education (COE) “minimum state aid” provision. Below, we provide an update on the escalating cost of the provision and, as last year, we recommend the Legislature repeal the provision.
COEs Receive Minimum State Aid Allotment. When the state adopted the Local Control Funding Formula (LCFF) for COEs in 2013-14, it included a provision that ensured each COE continued to receive moving forward at least as much state General Fund as it received in 2012-13 for categorical programs ($363 million for COEs statewide). Each COE’s minimum state aid allotment varies based on its historical participation in categorical programs. COEs that ran more and/or larger programs have a larger minimum state aid allotment.
Minimum State Aid Allotment Magnifying Rather Than Eliminating COE Funding Inequities. Under the LCFF for COEs (similar to school districts), local property tax is counted first for meeting each COE’s overall LCFF allotment, with the state making up any gap. In a county where local property tax revenue is sufficient to fund all of its LCFF allotment, the state still must provide its minimum state aid allotment. In these cases, the minimum state aid allotment is on top of the LCFF allotment rather than counting within it. In these cases, the minimum state aid allotment works directly counter to the purpose of LCFF—exacerbating funding inequities rather than eliminating them. In 2013-14 (the first year of implementation), $333 million in minimum state aid counted within COEs’ LCFF allotments and $30 million was provided on top of the LCFF allotments.
Cost of Minimum State Aid Provision Increasing Over Time. Over the past few years, growth in local property tax revenue has outpaced growth in COEs’ LCFF funding. (According to state law, COEs’ LCFF funding is adjusted annually for a statutory cost-of-living adjustment. In 2017-18, this adjustment is estimated to be 1.48 percent.) All else constant, having property tax growth outpace COEs’ LCFF funding yields state savings, as less state General Fund is required to meet COEs’ LCFF allotments. The minimum state aid provision, however, is leading to a different result, with an increasing number of COEs receiving state aid on top of their LCFF allotments. We project this trend will continue in the coming years, as growth in property tax revenue is projected to continue outpacing growth in LCFF allotments. We estimate the annual cost of the minimum state aid provision will increase from $30 million in 2013-14 to $140 million by 2020-21.
Governor’s Budget Underestimates Cost of Minimum State Aid. Providing 18 COEs minimum state aid supplements cost an estimated $66 million in 2015-16. The Governor estimates these costs will continue at the same level in 2016-17 and 2017-18. Our analysis of local property tax growth, however, projects notably higher costs. In 2016-17, we estimate 24 COEs will receive a partial or full minimum state aid supplement, costing $85 million ($19 million above the Governor’s estimates). In 2017-18, we estimate 25 COEs will receive the supplement at a cost of $100 million ($34 million above the Governor’s estimates).
Governor’s COE Cost Estimates Highlight Need to Address LCFF Design Flaw. We believe the minimum state aid provision is a fundamental design flaw of LCFF that works at cross-purposes to the formula’s intent by exacerbating funding differences among COEs. We recommend the Legislature repeal the provision. To address the funding implications, we recommend the Legislature (1) provide no increase in minimum state aid in 2017-18 and (2) enact a three-year statutory plan to phase out the existing minimum state aid supplement (the estimated $85 million 24 COEs are receiving in 2016-17). Over the course of the next three years, the Legislature could use the freed-up funds for any Proposition 98 priority.