The 2019-20 May Revision

Analysis of the May Revision Education Proposals

Introduction

The May Revision contains more than 100 proposed changes to education programs. The changes range from large new policy proposals, to major modifications of January proposals, to small adjustments relating to revised student attendance estimates. In this post, we focus on the first two categories of proposals. The post has six sections. The first section provides an overview of the proposals. The next four sections cover specific proposals relating to (1) early education, (2) K-14 education, (3) the universities, and (4) financial aid. The last section covers library-related proposals and a crosscutting proposal relating to education innovation.

Overview

New Policy Proposals Raise Many Important Issues for the Legislature to Consider. The May Revision contains more than a dozen major new policy proposals. Among the most notable of these policy proposals are creating an emergency child care program, creating rapid rehousing programs for homeless college students, and offering loan forgiveness to teachers agreeing to work in shortage areas. Whereas we do not have notable concerns with a few of these new proposals, we think many of them raise important issues for the Legislature to consider. Were the Legislature interested in pursuing these new proposals, we think it has opportunities to improve them.

Modifications to January Proposals Reflect Some Steps Forward, Some Back. The May Revision also contains several modifications to policy proposals the Governor first presented in January. In some cases, we think the modifications are improvements. For example, the May Revision reduces proposed funding for kindergarten facility grants and makes the program more targeted. In other cases, the changes heighten our original concerns. For example, the May Revision increases ongoing funding for special education concentration grants without addressing any of the poor incentives the proposal would create for schools to retain students in special education. In yet other cases, the modifications in the May Revision do not change our overall assessment of the original proposals (as reflected in our Proposition 98 Analysis, Higher Education Analysis, and spring budget analyses).

Post Highlights New Concerns and Considerations. Figure 1 lists the May Revision proposals that we believe raise new concerns or issues for consideration. The list includes both new policy proposals as well as notable modifications to January policy proposals. The rest of the piece focuses on analyzing these proposals.

Early Education

Below, we analyze the May Revision proposals relating to (1) State Preschool; (2) Alternative Payment Program slots; (3) CalWORKs Stage 1 child care; (4) emergency child care; and (5) the one-time facility, workforce, and planning initiatives. (The May Revision also contains a proposal to shift funding for CalWORKs Stage 1 child care out of the block grant that county welfare departments receive for helping CalWORKs families.)

State Preschool

New State Preschool Slots to Start in April 2020 Rather Than July 2019. The May Revision maintains the Governor’s January proposal to authorize 10,000 additional State Preschool slots but reduces associated funding in 2019-20 by $93 million (ongoing Proposition 98 General Fund) to account for the later start date. We recommend adopting the later start date to give the California Department of Education (CDE) time to review applications and make program awards.

Withdraws Three-Year Plan to Serve All Low-Income Four-Year Olds. The administration withdraws its plan to fund State Preschool for all income-eligible four-year olds by 2021-22, citing concerns about the state’s multiyear fiscal outlook.

Removing Work Requirement Now of Even Greater Concern. In our February Early Education Analysis, we raised concerns with the Governor’s January proposal to eliminate the work requirement for full-day State Preschool. Without additional funding, that proposal would result in fewer total children being served and fewer working families being served (as lower-income nonworking families would receive priority for full-day slots). Now, without a multi-year plan to serve all low-income children and correspondingly increase State Preschool funding, our concerns with removing the work requirement are magnified. We continue to recommend the Legislature keep the work requirement to ensure the program supports working families with their child care needs.

Shifts Federal and State Funds to Comply With Federal Eligibility Requirements. As a condition of using federal child care funds, states must operate programs that require parents to either work or go to school. Since the Governor proposes to remove the work requirement, the state can no longer use federal funds for full-day State Preschool. The May Revision makes a number of shifts between state and federal funds to ensure full-day State Preschool provided by non-local education agencies (non-LEAs) is funded entirely with non-Proposition 98 General Fund and no federal funds. This change  limits non-LEA providers’ ability to transfer funds between the General Child Care program (which receives federal funds and adheres to federal rules) and the State Preschool program (which would no longer adhere to federal rules). Currently, providers have the flexibility to transfer funds between these two programs. The change also limits the state’s future budget flexibility. The state would not have much room to change other child care programs in ways that do not comply with federal rules.

Alternative Payment Program Slots

Funds Additional Child Care Slots With Proposition 64 Revenue. In the May Revision, the administration specifies its intent to use a portion of revenues from Proposition 64 (marijuana legalization) for Alternative Payment child care slots. The administration estimates $80 million would be allocated for these additional voucher slots in 2019-20. The amount is expected to fluctuate but generally grow over time. Revenue from Proposition 64 is continuously appropriated, so allocations will not be included in the 2019-20 Budget Act or associated trailer bill.

Unclear How Slots Would Be Prioritized Across the State. Given certain language in Proposition 64, the Legislature’s role in directing the use of associated revenue is unclear. The Legislature, however, may want to ask the Department of Finance and CDE how they plan to allocate the funds across the state.

CalWORKs Child Care Stage 1 Program Changes

Programmatic Changes to CalWORKs Stage 1 Child Care. The May Revision includes $41 million in 2019-20 (increasing to $54 million in 2020-21) to implement certain changes to CalWORKs Stage 1 child care. Specifically, the May Revision proposes to lengthen the amount of time a family stays in Stage 1 child care. Under current law, families in Stage 1 child care transfer to Stage 2 when the county deems them stable. (Every county has its own definition of stability.) The May Revision proposes that a family receive Stage 1 child care for at least twelve months before being transferred to Stage 2 child care. The proposal also reduces the frequency with which Stage 1 families must be recertified for child care. These proposals would become effective beginning October 1, 2019. Many key implementation details remain unclear. For example, the administration is not yet clear on what CalWORKs requirements, if any, a family must meet in order to continue receiving Stage 1 child care. The Legislature may want to revisit the administration’s cost estimate of the proposal once it receives additional clarification. The implementation details could significantly change the proposal’s effect on CalWORKs child care caseload and the associated cost of the program.

Emergency Child Care Pilot Program

Creates Emergency Child Care Pilot Program. The May Revision provides CDE with $13 million to select up to 12 Alternative Payment (AP) agencies to participate in the pilot. AP agencies would award grants to select families that need immediate access to subsidized child care. Grants are available on a one-time basis for up to three months to families where a lack of subsidized child care would result in a family losing their job, job opportunity, or other earned income. To participate, families must have incomes at or below 85 percent of the state median income (currently $65,604 for a family of three). This is the existing income threshold for state subsidized child care programs. Families are not eligible for the pilot program if they are receiving assistance through CalWORKs or the bridge program for foster children. Trailer bill language specifies intent for the program to be funded at the $13 million level annually through 2021-22. In addition, trailer bill language requires AP agencies to collect and report information on the number of families served and the reason they had for needing assistance.

The Legislature May Want to Consider the Tradeoffs of Creating New Program. The Legislature has broad discretion over how to use the federal CCDF augmentation. Instead of creating a new program that provides short-term care, the Legislature could use these funds to provide ongoing child care slots. With the funds used for the pilot, the state could add 1,300 AP slots. Alternatively, the state may want to implement the pilot program given the uncertainty regarding whether the federal augmentation will be ongoing. Presumably, eliminating funding for the pilot program and not giving new families three months of care would be somewhat less disruptive than eliminating funding for families that currently benefit from ongoing care. Conversely, if funds were available on an ongoing basis and the program was found to be effective in providing stability for families in emergency situations, the state could consider continuing the program. Although the May Revision proposal includes some reporting requirements for participating AP agencies, the Legislature could consider additional reporting requirements to better evaluate the program. For example, the Legislature could require AP agencies to report on what happened to families after they participated in the pilot. Knowing, for example, if a family was able to enroll in subsidized care or have its emergency resolved in another way could inform the state in determining the benefits of the pilot program.

One-Time Facility, Workforce, and Planning Initiatives

Proposes Several Modifications to One-Time Facility, Workforce, and Planning Initiatives. The administration continues to designate $500 million (one-time non-Proposition 98 General Fund) for improvements to the state’s child care system. The administration proposes no change to the basic allocation of the $500 million ($245 million to increase the educational attainment of the child care workforce, $245 million to expand facilities for subsidized child care, and $10 million to develop a master plan for early education). Trailer bill language proposed in the May Revision, however, makes several changes, which we describe below.

• The  trailer bill language relating to child care and preschool facilities specifies that, by March 1, 2020, the Superintendent and the Department of Finance will determine a number of key implementation details, including establishing a system for overseeing grant recipients, ensuring grant funds are used as intended, and the identifying the types of technical assistance to provide grantees. The Superintendent is to notify the Joint Legislative Budget Committee (JLBC) when these decisions have been made.
• The language also specifies that the infrastructure and workforce grants will continue to be funded in equal portions for five years beginning in 2019-20, but, after October 1, 2020 (presumably the second year the program is implemented), funds will be spent based on the recommendations and priorities of the administration’s early education master plan.
• The Superintendent may use 1 percent of workforce funds to help grant applicants develop proposals and help grantees implement their grant awards. 
• The master plan could be a report or a series of reports released on a flow basis conducted by one or more nongovernmental research and policy agencies.

May Revision Changes Minimize Legislative Input. Most notably, the administration intends to allocate most of the one-time funds based on the recommendations of a master plan, without giving the Legislature any role in the development of the plan. The Legislature may want to determine whether its priorities align with the recommendations of the master plan before allowing the administration to move ahead with allocating funds. The Legislature could require the administration to submit expenditure proposals as part of the regular budget process. Using the standard budget process would provide the Legislature a regular opportunity to be apprised of the administration’s priorities, assess the use of any previously allocated funding, and make modifications based upon better information.

Master Plan Still Seems Duplicative of Recent Efforts. We continue to recommend rejecting the $10 million the Governor proposes to use to develop a master plan. If the Legislature wants to fund studies to inform future decisions, we recommend the Legislature designate $1 million each for two focused studies, described below.

Facility Arrangements. This study would survey subsidized providers and collect information on how they obtained their facility, if they rent or own, the amount of their monthly facility payments, their interest in expanding, and the associated challenges they face. The survey would also collect information on providers’ maintenance issues and how they cover the cost of major maintenance projects.

Child Care and Preschool Accessibility. This study would survey parents eligible for child care benefits to better understand their needs. The survey would ask parents about the hours they need child care, existing child care and preschool arrangements, and the key considerations affecting their child care arrangements. The survey would attempt to include eligible families currently not receiving child care benefits due to the capped nature of some child care programs.

K-14 Education

Below, we analyze the May Revision proposals relating to (1) pension rate relief for school districts and community colleges, (2) kindergarten facility grants, (3) special education concentration grants, (4) the Classified School Employee Summer Assistance program, (5) the Educator Workforce Investment Grant, (6) school broadband connectivity grants, (7) new staff at the Chancellor’s Office, and (8) the community college apportionment funding formula. (The May Revision also contains a proposal to allow school districts to use surplus property for teacher housing.)

CalSTRS Rate Relief

In our February Proposition 98 Analysis, we analyzed the Governor’s proposal to allocate $700 million (non-Proposition 98 General Fund) for school and community college pension rate relief in 2019-20 and 2020-21. In that analysis, we noted that the administration’s proposal comes when school funding is at a historically high level and growing. We acknowledged that districts view rising pension costs as one of their most significant fiscal challenges, but noted that those challenges would be more severe if the state were to enter a recession. We recommended setting aside the funding proposed by the Governor but not adjusting district contribution rates until the next economic downturn. The May Revision builds upon the January proposal by providing an additional $150 million for pension rate relief specifically in 2019-20. Although this proposal would reduce pressure on district budgets next year, we continue to think that rate relief would be even more effective at promoting fiscal stability if the state were to designate it for tight fiscal times.

Full-Day Kindergarten Facility Grants

May Revision Reduces Funding for Kindergarten Facility Grants by $150 Million. In the May Revision, the Governor reduces funding for kindergarten facility grants from $750 million to $600 million (non-Proposition 98 General Fund). The May Revision also proposes making the funding available through 2021-22. For the first two years (2019-20 and 2020-21), funding would be limited to school districts that plan to convert their part-day kindergarten programs to full-day programs. For the third year, grant funding would be opened up for districts already running full-day kindergarten programs. The May Revision also increases the state share of project costs to 75 percent, reducing the local share from 50 percent to 25 percent for new construction projects and from 40 percent to 25 percent for renovation projects. As in January, school districts facing challenges raising their local match could qualify for additional state funding, up to 100 percent of project costs.

Proposed Changes Move in Reasonable Direction, but Grants Could Be Further Targeted. The May Revision limits grants to districts interested in converting part-day programs to full-day programs, which is a more targeted approach to meeting the objective of creating more full-day programs. In addition, lowering the required local match might encourage more low-income districts to apply for grant funding. Though we view these May Revision changes as reasonable, the Legislature could further target the grants by earmarking them only for low-income districts. Of the 160 districts currently running part-day programs, we estimate almost 100 are not low income (based upon the grant program’s existing prioritization criteria—having at least 60 percent of district students eligible for the federal school meals program). Higher-income districts likely have other means for creating more full-day kindergarten programs. Moreover, some research suggests low-income students benefit most from longer-day kindergarten programs. 

Proposed Amount May Overestimate Demand, Consider Providing Lower Amount. We remain concerned that even the reduced funding level in the May Revision might be higher than district demand for converting part-day kindergarten programs to full-day programs. Based on our analysis of the first-round of facility grant applicants and the results from a survey we recently sent to 59 low-income districts running part-day kindergarten programs, we have identified four funding alternatives for the Legislature to consider (see figure). The alternatives range in cost from $50 million to $200 million. These alternatives would allow the Legislature to continue promoting more full-day kindergarten while freeing up some non-Proposition 98 General Fund for other legislative priorities.

Special Education

Provides More Ongoing Proposition 98 Funding for Proposed Special Education Concentration Grants. The May Revision retains the Governor’s January proposal to provide special education concentration grants to districts serving large numbers of low-income students, English learners, and students with disabilities, but it increases total grant funding. Whereas the Governor’s budget proposed $577 million ($390 million ongoing and $187 million one time), the administration now proposes $696 million (all ongoing) for these grants.

May Revision Exacerbates Weaknesses of Governor’s January Proposal. By increasing ongoing funding for this proposal, we believe the administration further undermines its own policy goals. The administration intends this funding to support early intervention programs that aim to reduce the number of students identified for special education. The design of the proposal, however, has an inherent contradiction by fiscally rewarding districts that maintain above-average special education identification rates. Districts that achieved the administration’s goal and reduced the number of students identified for special education could lose substantial funding. Specifically, we estimate districts under the program would lose about $15,000 in ongoing funding for every student they no longer identified for special education. (By comparison, we estimate schools currently spend on average a little over $10,000 in local unrestricted funding per student with a disability.) Consequently, the roughly one-quarter of school districts that benefit from the administration’s proposal would have a strong fiscal incentive to maintain high special education identification rates.

Recommend Considering Alternatives for Augmenting Special Education Funding. If it is interested in increasing special education funding, we believe the Legislature has better options than introducing a new categorical program. In particular, we have long recommended equalizing per-student special education funding rates, which vary from less than $500 to more than $900 for historical reasons. Another option is to modify the state’s special education funding formula to allocate some funding specifically for preschool special education, which schools are required to provide but for which they currently receive no dedicated state funding. We estimate the state could fund both of these options for the cost of the administration’s May Revision proposal.

Classified School Employees Summer Assistance Program

Extends Summer Matching Program for Classified Employees. The May Revision provides $36 million (one-time Proposition 98 settle-up) to fund a second year of the Classified School Employees Summer Assistance Program. This program allows classified employees to deposit a portion of their income earned during the school year into a fund that is supplemented by state dollars and paid out in one or two installments during the summer months. The state matching dollars are spread proportionally among participating employees. The program received  $50 million one-time funding in 2018-19, but lower-than-anticipated participation resulted in only $36 million being spent. The administration anticipates a similar level of participation if the program is renewed for a second year.

Raises Issues to Consider. The administration’s proposal would help some classified employees receive higher income for a summer. Many other classified employees, however, would not benefit from the program. This is because the program is somewhat complex to administer. In 2018-19, only about one-fifth of eligible local education agencies chose to operate the program. The program also is not a long-term solution to what might be viewed as a long-term issue. If the underlying issue is related to classified employee pay, the Legislature might want to consider more ways to bolster that pay on an ongoing basis. Schools typically use their Local Control Funding Formula (LCFF) allocations (their main discretionary funding) for employee compensation. By increasing LCFF funding and providing districts with more unrestricted funding, the Legislature could help all schools have more resources for employee compensation.

Educator Workforce Investment Grant

Creates the Educator Workforce Investment Grant. The May Revision provides $34.8 million (one-time non-Proposition 98 General Fund) to provide teachers with professional development opportunities in various topics, including inclusive practices, social emotional learning, and computer science. Of the proposed funding, $1 million would fund one new computer science coordinator position at CDE over four years.

Several Key Issues to Consider. First, professional development for teachers is commonly funded using Proposition 98 monies, but this proposal uses non-Proposition 98 monies. The Legislature may wish to consider whether teacher training is among its highest priorities for non-Proposition 98 funds. Second, the state funds most professional development indirectly through LCFF and the statewide system of school support. The administration has not made an explicit case that funding through these other means in insufficient. Third, the administration has not made a clear case that the proposed focus areas (such as social emotional learning and computer science) are the areas where teachers statewide have the greatest need for additional training. Computer science, for example, is already a required course for teachers prior to receiving their clear teaching credential. If the Legislature does want to provide professional development funding in specific classroom areas, it may want to develop a clear methodology for selecting which areas are of highest statewide priority. For example, the Legislature may want to use the School Dashboard outcomes to identify areas where districts have poor outcomes. Lastly, the Legislature may want to consider giving priority for teacher professional development to districts receiving differentiated assistance under the statewide system of support.

Broadband Connectivity Grants

Proposes New Broadband Infrastructure Grants. The May Revision provides $15 million (one-time non-Proposition 98 General Fund) to expand fiber broadband at schools that are considered poorly connected. In contrast to the Broadband Infrastructure Improvement Grants that the state funded in 2014-15 and 2015-16, which focused on connectivity required to support statewide standardized testing, this proposal intends to enhance digital learning opportunities more generally. Trailer bill language specifies that CDE is to contract with the Corporation for Education Network Initiatives in California (CENIC). CENIC, in turn, is to (1) identify “solutions that provide fiber broadband connectivity to the most poorly connected schools,” (2) submit identified solutions to the Department of Finance for approval, and (3) implement the approved solutions. CENIC may use up to $1 million of grant funding to complete these tasks, with CDE allowed to retain up to $100,000 for its administration of the program.

Proposal Has Several Notable Shortcomings. First, the proposal aims to target the most poorly connected schools, without clearly defining what it means to be poorly connected. The administration leaves it to CENIC to define and identify these schools. Second, the administration also has not provided a needs assessment examining which schools currently are poorly connected, where they are located, and the number of students they serve. Third, the administration has not provided a fiscal analysis examining what connectivity options are available for these schools, the associated costs, and the potential fund sources. Fourth, the proposal has no benchmark for what the grant funding is intended to achieve—that is, what level of connectivity improvement (or increase in Internet speeds) is sought. Fifth, it has no method for tracking progress towards the goal of increasing digital learning opportunities in schools.

If Grants Are Funded, Recommend Modifications. If the Legislature wishes to fund additional broadband grants, we encourage it to consider several modifications to the May Revision proposal. First, we recommend the Legislature define “poor connectivity” for schools as well as identify what connectivity (or Internet speed) is sought for grant recipients. Second, we recommend allowing schools to use whichever method of connectivity is most cost-effective in their area for achieving the program’s goal, instead of limiting the grants only to fiber solutions. For example, in some areas, options such as satellite or microwave technologies, which do not require installing cables across areas that may be difficult to reach, might be less costly. Third, we recommend adding reporting language to enhance legislative oversight. Specifically, we recommend the Legislature require the Department of Finance to notify the Joint Legislative Budget Committee prior to approving project proposals and submit a final report that identifies each project, its location, project cost, the connectivity solution implemented, and the resulting increase in Internet speed and functionality.

Chancellor’s Office Staffing

Funds Three New Positions. The May Revision provides $381,000 (ongoing non-Proposition 98 General Fund) for three new positions at the Chancellor’s Office—two accountant positions and one position to assist with monitoring the fiscal health of community college districts.

Continue to Have Concerns With Transparency Regarding Recent Augmentation. We have no specific concerns with the positions included in the May Revision. However, we continue to have concerns with the lack of transparency regarding how the Chancellor’s Office is using the $2.6 million in General Fund staffing augmentations it received over the past two years. To date, the Chancellor’s Office has not been able to report on the new positions hired with those funds (indicating that a recent reorganization has made tracking of positions more difficult). Given this information is not available, we are concerned that any further augmentations for staffing might not be used for their intended purposes.

If Authorizing New Positions, Consider Adding Provisional Language and Reporting Requirements. The Legislature could authorize the new positions proposed in the May Revision without adding funding, effectively encouraging the Chancellor’s Office to fill the unspecified staff positions funded last year with the specific positions requested this year. Regardless of whether new funding is provided, we recommend the Legislature add provisional language to any new positions stating their specific purpose, thereby helping to ensure the Legislature’s objectives are met. The Legislature also may want to consider requiring the Chancellor’s Office to report on how it has spent recent budget augmentations and how it has reorganized its operations to better support community colleges. Better staffing information would help the Legislature in assessing future budget change proposals.

Funding Formula Hold Harmless Provision

Extends A Hold Harmless Provision Through 2021-22. Last year’s budget package included numerous hold harmless provisions to provide more funding stability for community college districts in transitioning to a new apportionment formula. Most notably, for 2018-19, 2019-20, and 2020-21, community college districts are to receive no less than their total apportionment amount in 2017-18, adjusted for cost of living each year of the period. The May Revision proposes to extend this hold harmless provision for a fourth year (through 2021-22).

No Need to Extend Provision Now. In January, the administration proposed changes to the community college apportionment formula that generally are intended to make community college funding more stable. (Specifically, the administration proposed to postpone the scheduled changes in certain funding rates and cap year-over-year growth in the student success allocation.) Given these proposed changes (or related variants of these proposals currently being considered that also promote greater funding stability), we see no strong rationale for why the hold harmless provision needs to be extended for an additional year at this time. Moreover, colleges already have a hold harmless provision in place for 2019-20 and 2020-21 under existing law, such that no urgency exists for deciding now whether to keep the hold harmless provision in place for a fourth year.

Consider Extending Hold Harmless Provision in the Future. We recommend the Legislature make no changes to the existing hold harmless provisions at this time. In our conversations, DOF has indicated that it will spend the summer and fall gathering more information about how colleges are responding to the new formula and likely will consider further changes to the formula in the 2020-21 budget. After receiving the benefit of this additional information, the Legislature could then consider whether extending the hold harmless provision for a fourth year is warranted. Extending the hold harmless provision will come at an added cost to the state in 2021-22 (likely increasing costs by tens of millions). 

Universities

Below, we analyze the May Revision proposals relating to (1) the University of California’s Retirement Plan (UCRP), (2) rapid rehousing of homeless university students, (3) a UC San Francisco Dyslexia Center pilot program, (4) a new campus study, (5) First Star foster youth, and (6) UCPath implementation at the Hastings College of the Law (Hastings).

UC Retirement Program

Addressing Liabilities Generally Good Use of One-Time Funding. The Governor proposes providing UC $25 million (one-time General Fund) to help pay down UCRP’s $10 billion unfunded liability. We commend the administration on its efforts to address the state’s long-term pension liabilities, including its use of one-time funding to pay down these liabilities.

Consider How to Prioritize Funds. Each of the state’s three pension systems—the California Public Employees’ Retirement System (CalPERS), the California State Teachers’ Retirement System (CalSTRS), and the University of California Retirement Plan (UCRP)—have notable unfunded liabilities. To prioritize limited resources, the state could continue to address its unfunded pension liability at CalPERS or CalSTRS before focusing on UCRP. For both CalPERS and CalSTRS, the state has a clearer responsibility to address unfunded liabilities, as the state sets associated pension benefits and contribution rates. By contrast, the state has no direct role in establishing the benefit level or funding policy of UCRP. Instead, the UC Board of Regents makes these decisions. Because of this less direct state role, the state’s obligation to pay for UCRP’s unfunded liabilities resulting from shortfalls in past funding policies is not as clear as with CalPERS and CalSTRS. Nonetheless, the Legislature could provide funding for UCRP’s unfunded liability if it would like to reduce cost pressures at UC. We believe any appropriation to UCRP, however, should include the Governor’s proposed budget bill language clarifying that the appropriation in no way creates a future obligation for the state.

Legislature Lacks Analysis on Proposal’s Estimated Savings. The administration has not provided the Legislature an analysis estimating the likely savings resulting from providing the one-time funding to UCRP. Such an analysis would allow the Legislature to weigh the tradeoffs of this proposal over other one-time priorities, such as additional supplemental payments to CalPERS or CalSTRS. We specifically recommend that the Legislature request two analyses—one assuming UCRP hits all of its investment assumptions (known as an “actuarial” analysis) and one that considers many possible investment and other future scenarios (known as a “stochastic” analysis).

Consider Sharing UCRP Costs With UC’s Nonstate Funds. UCRP’s $10 billion unfunded liability represents the university’s combined liability across both its state-funded, core academic programs and its nonacademic programs. To ensure UC’s nonacademic programs (such as the medical centers and student housing) are also paying for their share of UC’s unfunded liability, the Legislature could require UC to match the state’s one-time funding with nonstate funding. As a rough rule of thumb, we think a $2 nonstate match for every $1 of General Fund would be reasonable. That is, UC would match the Governor’s proposed $25 million one-time General Fund with $50 million one-time nonstate funds. Alternatively, the Legislature could work with UC to develop a more refined matching expectation.

Rapid Rehousing Program

Rapid Rehousing Is Seen as a Best Practice for Assisting Homeless Individuals. The May Revision proposes to provide $10 million for rapid rehousing of homeless students at the California State University (CSU) and UC. Of this amount, $6.5 million is designated for CSU and $3.5 million for UC. The proposal is part of a larger package of May Revision proposals related to homelessness. Rapid rehousing programs are widely used throughout the country, including in California. They typically entail immediate counseling for homeless students and bridge funding to help them secure new housing. Research indicates these programs generally are effective at transitioning homeless individuals to permanent housing.

May Revision Proposal Would Help Only a Small Proportion of Students and Create Substantial Cost Pressure. Existing rapid rehousing programs tend to be costly, with annual per-participant costs sometimes exceeding $10,000. Because the program is costly, the Governor’s proposed funding level likely would serve only a fraction of the tens of thousands of students across CSU and UC who report experiencing homelessness each year. Bringing the program to scale and serving all eligible students would cost significantly more than the proposed May Revision amount, creating substantial outyear cost pressure on the state.

Unclear How Governor’s May and January Food and Housing Proposals Are to Interact. While proposing funding for rapid rehousing programs, the administration retains its January proposals to fund other food and housing initiatives at CSU and UC ($15 million one-time at CSU and $15 million ongoing at UC). The administration has not explained how these proposals are intended to interact. Before approving the proposals, the Legislature may want to know how they will complement each other rather than create two siloed programs with blurred lines of responsibility and accountability. In addition, the Legislature may wish to consider (1) how much funding overall it would like to provide for food and housing issues and (2) how prescriptive it wishes to be with the funds. The January proposals provided campuses broad flexibility in how they could use the funds, whereas the May Revision proposals restricting funding for one specific type of housing intervention.

If Legislature Wishes to Fund Governor’s Proposal, Much More Detail Is Needed. This May Revision proposal contains no associated trailer bill language. Were the Legislature interested in funding rapid rehousing programs in the budget year, we recommend it enact clear authorizing language. We recommend such language include what is meant by rapid rehousing, how funds are to be allocated to campuses (such as through a competitive process), conditions that campuses must meet to operate a program (such as partnering with a local homeless service agency), how campuses are to identify program participants, and how the program is to be evaluated and the results shared with the Legislature.

UC San Francisco Dyslexia Center

Explore Three Key Issues. According to the administration, this proposal would fund a pilot program at 15 to 20 schools. The pilot would entail training schools how to use a new application that tests for dyslexia and other learning disabilities among students. In addition, the pilot would aim to develop ways to imbed new special education interventions into school curriculum. When weighing this proposal, we recommend the Legislature explore three key issues. First, the administration states that the center has successfully raised tens of millions in private philanthropy to support its operations and activities. The Legislature may wish to better understand whether the center could identify funds from these sources to cover the cost of the pilot ($3.5 million one time). Second, given the ultimate goal of the pilot is to scale these activities across the state, the Legislature could ask the administration to estimate the cost of such an expansion before approving the pilot. Third, the Legislature could ask the administration how this special education pilot is intended to be coordinated with other state special education initiatives. For example, the state also funds special education regional planning areas, special education regional diagnostic centers, and regional special education resource hubs. These various entities also are intended to provide support in diagnosing and serving students with learning disabilities.

Proposals Lacks Reporting Language. While the administration indicates that a portion of the proposed one-time funding would support data collection and evaluation of the pilot, the proposed budget bill language includes no required reporting to the Legislature on the pilot’s results. In our view, such reporting is essential given the administration’s high expectations for the pilot. Such reporting, at a minimum, should include:

• The number of participating schools, school districts, and students.
• The number and percent of participating students who were diagnosed with a learning disability before the pilot compared to during the pilot year.
• How the one-time state General Fund was spent, as well as how any additional private or other nonstate funds were used to fund the pilot.
• The developed interventions resulting from the pilot.
• To the extent the results of the pilot are promising, a plan to expand the interventions in schools throughout the state. The plan should include the estimated cost of scaling the program statewide and identify all possible fund sources to cover this cost.

New Campus Study for San Joaquin County

LAO Produced a New Campus Study Two Years Ago. In 2017, the Legislature asked our office to assess whether a new four-year campus was justified based primarily on two factors—projected student enrollment and facility capacity of existing campuses. In that report, we found that the state could accommodate enrollment growth in most regions—including the Central Valley—by using existing facilities consistent with legislative guidelines and building-out existing campuses according to their master plans.

Authorizing New Study Raises Key Issues to Consider. By proposing $2 million (one-time General Fund) for a new study, the administration appears to have additional factors in mind for why the state would fund a new university campus. One of these key factors appears to be economic development in the region surrounding the new campus. Based on the May Revision provisional budget language, the administration appears focused on spurring economic development specifically for the local Stockton area. In assessing this proposal, the Legislature may want to decide whether it agrees that economic development should be a key factor justifying a new campus. If it agrees with the administration in this regard, then we encourage it to consider other regions of the state that might also benefit from greater economic development. Basing new campus decision on regional economic development, however, likely would generate significant pressure for more campuses in more areas of the state.  Even one new campus would increase the state’s outyear costs substantially, as initial capital and operating costs are much greater at a new campus compared to an existing campus. In turn, the state’s fiscal outlook would be significant impacted.

First Star Foster Youth Cohort at the Sacramento Campus

Program Is Aligned With Legislative Priorities . . . Providing support to foster youth has been a high legislative priority for many years. Based on a brief review of data provided by First Star, the program appears to result in positive outcomes for participants. For example, high school graduation and college participation rates for program participants appear to be much higher than rates among other foster youth in the state.

. . . But Proposal Raises Key Issues to Consider. First, the proposal serves only one cohort of approximately 30 foster youth over a four-year period at only one CSU campus (Sacramento)—raising notable equity issues for other foster youth located in other areas of the state as well as other foster youth located in Sacramento that do not make it into the one cohort of participants. Second, were the Legislature to expand the program to treat foster youth across the state similarly, the cost of the program would be much higher. Third, were the state to treat the program as ongoing (to serve additional cohorts of foster youth in subsequent years), the cost pressure issue would persist into the future, affecting the state’s fiscal outlook.

UCPath Implementation at Hastings

UCPath Implementation Proposal Raises Questions About Budget-Year Priorities. According to Hastings, the cost to align its administrative procedures with UCPath has increased due to a timing issue. Specifically, UC decided to delay Hastings’ integration into the UCPath system by two months (from January 2020 to March 2020). The key question for the Legislature is whether Hastings should accommodate this cost within its budget or if additional state funding is warranted. As broader context, the May Revision retains the Governor’s January proposal to give Hastings a $1.4 million ongoing General Fund base increase in 2019-20—reflecting a 10 percent increase to its ongoing General Fund appropriation and a 2.3 percent increase to the school’s total ongoing core budget. The proposed base increase is not restricted for any specific purpose. If the Legislature were to approve this base increase, Hastings would have flexibility to allocate the funds for employee compensation increases, operating expenses and equipment, employee benefit cost increases, and other operating costs, such as its transition into the UCPath system.

Financial Aid

Below, we analyze the May Revision proposals relating to (1) Teacher Service Credit Scholarships, (2) child savings account grants, and (3) student loan awareness.

Teacher Service Credit Scholarships

Proposal Is Unlikely to Lead to Sustained Reduction in Teacher Shortage. The administration proposes $90 million (one-time non-Proposition 98 General Fund) to provide 4,500 teachers up to $20,000 each to incentivize them to pursue jobs in subject areas and schools that have teacher shortages. Teachers would qualify for the program if they had student loan debt. They would receive $5,000 of loan forgiveness upon completing each year of service in a shortage area or school, for up to four years. While this approach might assist with teacher recruitment and retention, its effect likely would be short term. Because only 4,500 teachers would benefit and the fiscal incentive they receive would expire after four years, this initiative is unlikely to result in a notable, sustained increase in the availability of credentialed teachers.

Proposed Incentive Might Not Change Teachers’ Career Decisions. For the grant to serve as an effective incentive, prospective teachers would need to know about it before they decide which subject areas and schools to teach in. In conversations with our office, the administration has indicated priority schools (schools where a high percentage of teachers hold temporary licenses) likely would inform job candidates of the grant opportunity during the recruitment process. Candidates would then apply to CSAC, and CSAC would prioritize applicants according to the school’s need for credentialed teachers. We think this approach would decrease the effectiveness of the incentive because most teachers would find out about the grant after they have already completed their teacher preparation program and received their teaching credential in a certain subject area. The approach also is problematic because teachers might need to respond to job offers before finding out whether they have been selected for a grant.

If Legislature Wanted to Improve Proposal, Recommend Reaching Teachers Earlier in Pipeline. The Legislature may wish to consider an alternate approach to identifying and selecting applicants. For example, it could direct CSAC to work with universities to select students enrolled in teacher preparation programs to receive the grant. (This resembles the approach taken under the Assumption Program of Loans for Education, a previous program administered by CSAC that provided loan forgiveness grants to teachers serving in shortage areas.) This would ensure that prospective teachers find out about the grant—and potentially receive a grant offer—early enough to influence their career decisions. (CSAC would still disburse the awards after students completed each qualifying year of work, as currently proposed.) The Legislature may also wish to require CSAC to report on program outcomes, including the number of teachers receiving grants, the subject areas they obtain credentials in, the schools they work in, and the length of time they remain in their jobs. This information could inform future decisions the Legislature may face regarding the use of grants to address teacher shortages.

Grants for Child Savings Accounts

Creating Another Child Savings Account Program Could Be Viewed as Premature. The administration proposes $50 million (one-time non-Proposition 98 General Fund) to create a new child savings account grant program. In 2017-18, the Legislature created the Every Kid Counts College Savings Program and provided $3 million one time for this initiative. CSAC recently awarded grants to nine local entities operating child savings account programs. During the grant period (which lasts through June 2021), grantees are required to participate in an evaluation intended to assess program outcomes and identify best practices. Given that the state is already funding a child savings account initiative, we think it may be premature to create a new initiative before results are available and lessons are learned from the existing one.

If Legislature Wanted to Improve Proposal, Recommend Strengthening Legislative Oversight. The Legislature may wish to include trailer bill language that would require CSAC to report on (1) the outreach activities, matching incentives, and other strategies grantees use to increase participation; and (2) the number of participating families, their income distribution, and the amount of their own funds contributed to their accounts. Such information would allow the Legislature to assess whether the program has the intended effect of increasing college savings, particularly among low-income families. (Long-term outcomes such as the impact of child savings accounts on college attendance would be more challenging to measure, partly because results would not occur for over a decade.) In addition, the Legislature may wish to have its own representative on the proposed Child Savings Account Grant Program Council to provide ongoing input on the initiative.

Student Loan Awareness

Need for Proposal Is Unclear. The administration proposes $5 million (one-time non-Proposition 98 General Fund) to provide information to students on loan borrowing. The proposed activities, however, appear to duplicate existing federal, state, and institutional efforts. In particular, the U.S. Department of Education already provides mandatory entrance and exit counseling to all borrowers of federal loans (which account for the vast majority of student loans). These online tutorials provide information on student budgets, borrowing terms, repayment options, and loan default. The U.S. Department of Education also requires all colleges participating in federal financial aid programs to provide students with certain consumer information regarding student loans. In addition, the segments offer financial literacy services that cover student loans, among other topics. For example, the California Community Colleges have a systemwide financial literacy initiative that provides students with online and in-person resources, as well as a systemwide default prevention initiative that helps colleges monitor default rates and communicate with borrowers. Finally, the Legislature provides funding to the Bureau for Private Postsecondary Education (through the recently established Office of Student Assistance and Relief) to offer outreach and information on student loans to prospective students considering a for-profit college.

Recommend Rejecting Governor’s Proposal. Because prospective and current students have various sources of information on student loans, an additional loan awareness initiative does not appear necessary. Accordingly, we recommend rejecting the Governor’s proposal to create a loan awareness initiative at CSAC.

Other

Below, we analyze the May Revision proposals relating to (1) libraries and (2) education innovation grants.

Library Initiatives

Library Proposals Raise Key Issues for Consideration. Each of the new proposals relating to the State Library and its local library initiatives raise issues for the Legislature to consider. In a few cases, the Legislature could work with the administration to clarify the proposals’ objectives and goals. The Legislature also could request the administration provide a cost estimate for bringing the proposal to scale and funding it statewide. In addition, we recommend adding parameters to the proposed budget bill language to ensure the funds are allocated according to legislative priorities. Finally, for every proposal, we recommend adopting reporting language to enhance legislative oversight. Figure 2 summarizes the key considerations for each proposal. We describe these considerations below, beginning with the largest of the proposals.

After School Programs. The May Revision proposes $5 million (one-time General Fund) for the State Library to offer grants to local libraries for additional after school programs. According to the administration, grant funding would be prioritized for local libraries with low per capita library spending. According to the staff at the State Library, the grants would encourage local libraries to partner with First 5 and other groups to provide children educational and other support services. The State Library appears to have flexibility to determine other key grant parameters, including developing the specific criteria used to allocate funds and identifying the specific activities that could be funded. In reviewing this proposal, we encourage the Legislature to consider the extent which First 5 groups already partner with libraries to provide services to children, why additional state funding is needed to foster these partnerships, and the potential future cost pressure to sustain new partnerships on an ongoing basis. If the proposal were approved, we recommend expanding provisional language to specify the criteria the State Library is to use in allocating grant funds and the allowable uses of grant funding. We also recommend requiring the State Library to report on the program, with the report including the grant amounts allocated to each library jurisdiction, how each library jurisdiction spent the funding, the number of students served by the grants, the amount and source of other funding used to support grantees’ after school activities, and a quantitative assessment of how these activities improved students’ learning outcomes.

Local Library Bookmobiles. The May Revision proposes $3 million (one-time General Fund) for a one-time initiative to offer grants to local libraries for the purchase of bookmobiles. Purchasing bookmobiles is a good example of one-time costs. We encourage the Legislature, however, to understand the potential cost pressure of this proposal. The administration has not yet surveyed the number of local libraries interested in having bookmobiles but not able to cover the associated cost with their local funds. The State Library also appears to have flexibility to establish many of the proposal’s parameters, including how to prioritize among applications. If the Legislature were to approve the proposal, we recommend adding provisional language specifying how the funds will be prioritized if library demand exceeds available funding. We also recommend requiring a report that includes a list of the grant recipients and the amount of their grants, a narrative summary of the services offered by the bookmobiles, the number of individuals served by the bookmobiles and the amount and source of other funding used for the initiative.

Digital Preservation Activities. The May Revision proposes $1 million (ongoing General Fund) for the State Library to add three staffing positions and contract for certain digital preservation activities. Specifically, the three new staff would form an ongoing team that works with state agencies to identify materials to be digitized. The team would then contract with private vendors to digitize these materials. In reviewing the proposal, we encourage the Legislature to consider the state’s overall preservation objectives, including which assets in which locations face risks of not being well preserved and have the greatest statewide benefit from being preserved. We also encourage the Legislature to consider how best to coordinate the digital preservation activities of the State Library with the ongoing efforts of other state agencies to preserve their important materials digitally. If the Legislature were to approve additional funding for preservation activities in 2019-20, we recommend it adopt reporting language that describes which agencies participated and provides a list of resources that were digitized.

Statewide Cultural Inventory Development. The May Revision proposes $700,000 (one-time General Fund) for the State Library to contract with a private vendor to develop a census of cultural assets across the state. The contract would be overseen by the newly established three-position team described in the previous paragraph. The administration states that the overarching objective is to identify which cultural resources are at greatest risk for loss or damage and develop strategies to protect these assets. According to staff at the State Library, the state’s previous efforts to develop such an inventory have been unsuccessful. Staff at the State Library indicate the proposed funding would support the first stages toward developing an inventory, with funding potentially requested in later years to complete it. We encourage the Legislature to consider the additional future costs needed to complete the inventory, maintain and update it on an ongoing basis, and implement strategies to preserve at-risk resources. Furthermore, we encourage the Legislature to explore why past efforts to create an inventory have not succeeded and what steps the State Library plans to undertake to ensure the success of this project. If the Legislature were to approve this proposal, we recommend adding a reporting requirement. We recommend the report provide an update on the status of the statewide inventory, a list of the remaining institutions to be surveyed, and whether any funds remain unspent.

Grants Web Portal. Recently enacted legislation authorized creation of a web portal that lists all state grant opportunities. The authorizing legislation did not include funding for the project. An April Finance Letter proposed providing the State Library with $641,000 ($391,000 ongoing General Fund and $250,000 one-time General Fund) for the project. The ongoing funding would be for the State Library to add two staff to manage development of the site and maintain it moving forward. The one-time funding would be to contract with a private vendor to develop the website and train the newly hired staff to use it. In 2019-20, the proposed costs appear reasonable, as the State Library will likely face considerable workload to enter into agreements with state agencies, interact with key stakeholders, manage the contract, and debug potential glitches with the newly developed website. We are concerned, however, with making the two staff positions ongoing. Under some possible constructions of the portal, very little work might be entailed in managing the site on an ongoing basis. For example, state agencies might have their new grant opportunities automatically uploaded to the site each year. If this were to be the case, the State Library in future years might be able to accommodate such work within its ongoing budget. To ensure staffing remains aligned with the website’s workload over time, we recommend making the positions limited-term and revisiting the ongoing cost to maintain the system after it has been built.

Other Preservation Activities. The May Revision proposes $500,000 one-time General Fund in local assistance to organizations that specialize in preservation of artifacts relating to Lesbian, Gay, Bisexual, Transgender, and Queer history. In reviewing this proposal, the Legislature may wish to consider how these funds would be allocated and what materials would be preserved as a result of the funding. If approved, we recommend adding reporting language to enhance legislative oversight. We recommend the report include a list of the grant recipients and how the recipients spent their funds.

Education Innovation Grants

May Revision Modifies and Adds More Detail to Governor’s Innovation Grant Proposal. The Governor’s budget included $10 million one-time General Fund for OPR to administer a higher education innovation grant program. Under the January proposal, grants would be available to higher education institutions in the San Joaquin and Inland Empire regions to implement innovative educational strategies. The May Revision adds budget bill language to this proposal specifying the following changes:

• The $10 million in grants would be available to both K-12 schools and higher education institutions in the region.
• The grants would support innovations that emphasize aligning secondary and postsecondary programs, reducing achievement gaps, and/or improving student degree and certificate completion.
• OPR’s administrative costs would be limited to 5 percent of the funding.
• OPR would be required to report the program’s outcomes to the Director of Finance and the Legislature by July 1, 2020.

Proposal Does Not Include Assurances of Statewide Benefit. The proposed education innovation grants appear to have the same shortcoming as recent higher education-specific innovation grant programs in that it provides no assurance of statewide benefit. For several years, the Brown administration proposed funding one-time grant initiatives aimed at supporting innovative strategies in higher education, with the Legislature adopting some of these proposals. We consistently advised against the proposals, as they provided relatively large sums to a small number of institutions to implement local initiatives without clear plans for broader dissemination. Past proposals also did not include incentives to promote buy-in among institutions to implement those innovations determined to be effective. The new innovation grants appeared structured in the same problematic ways.

Proposal Also Duplicates Other State Efforts Intended to Improve Student Outcomes. In addition to the concerns described above, the state has already taken many more impactful steps to improve student education outcomes. These steps include: (1) creating the Local Control Funding Formula, Local Control and Accountability Plans, the School Dashboard, and the statewide system of school support; (2) creating the Student Success and Support program at the community colleges, combining major community college student support programs into a block grant, and changing the community college allocation formula to include student outcomes; and (3) ongoing budget augmentations to support CSU’s Graduation Initiative. In each one of these initiatives, campuses are provided considerable flexibility to allocate the funds and develop innovative strategies to improve student outcomes. The Legislature monitors these efforts on an ongoing basis. Given these and other initiatives, the added benefit of a relatively small, one-time program is likely very limited.

Recommend Rejecting Proposal. Given the issues we raise above, we recommend the Legislature reject this proposal and use the associated $10 million one-time non-Proposition 98 General Fund for other priorities.