In the May Revision, the Governor proposes to fund a new mandate relating to the Cal Grant program. In this post, we provide background on the mandate, discuss the Governor’s proposal, share our assessment, and provide an associated recommendation. This post fulfills a requirement for our office to analyze new mandates, as specified in Section 17562 of the Government Code.
Cal Grant Program Provides Financial Aid to Students Meeting Certain Requirements. The Cal Grant program provides need-based financial aid to students attending California colleges and universities. Recent high school graduates are guaranteed an award if they meet certain financial, academic, and other requirements. The California Student Aid Commission (CSAC), which processes Cal Grant applications, requires a certified grade point average (GPA) for high school graduates to determine whether they meet the minimum academic requirements.
In Past Years, Some School Districts Automatically Submitted GPAs to CSAC. Until 2015-16, students interested in receiving Cal Grants were responsible for ensuring that their Cal Grant applications included a certified GPA. Some school districts opted to assist students by submitting GPAs for all their graduates to CSAC electronically. In 2013-14, 71 districts out of approximately 400 total unified or high school districts electronically submitted GPAs. These districts accounted for about 70 percent of all GPAs submitted to CSAC. Students who did not attend one of these districts were responsible for obtaining a paper form, having a school official certify their GPA, and mailing the form to CSAC before the application deadline. Students who did not submit the form would not receive Cal Grants.
New Law Requires Districts to Submit GPAs Automatically. To streamline the GPA submission process and encourage higher Cal Grant participation, Chapter 679 of 2014 (AB 2160, Ting) requires that all high school seniors in public schools be considered Cal Grant applicants unless they opt out during their junior year. The legislation also requires school districts to electronically submit GPAs to CSAC for all seniors starting July 1, 2015. In addition, the legislation requires districts to provide juniors and their parents/guardians with a written notice that they can opt out of this process. This second requirement is intended to promote compliance with federal law on the sharing of student information. (Under federal law, districts may share student information among government agencies without first obtaining written consent if the purpose is to facilitate receipt of financial aid.) The required notice to juniors and their families provides an opportunity for students who have no intention of applying for financial aid to keep their GPAs from being shared with CSAC.
Commission on State Mandates (CSM) Recently Found New Cal Grant Requirements to Be a Mandate. In January 2018, CSM found that the requirements to (1) electronically submit GPAs to CSAC and (2) provide written opt-out notifications to high school juniors constituted reimbursable mandated activities. In the nearby box, we provide background on how the state identifies mandates and provides the associated reimbursements.
Constitution Requires the State to Reimburse Local Governments for Mandated Activities. Proposition 4, a constitutional measure approved in 1979, requires the state to reimburse school districts and other local governments for the cost of new programs and higher levels of service imposed by the state. The Commission on State Mandates (CSM) is statutorily responsible for determining if a new state law, regulation, or executive action constitutes a reimbursable mandate. The CSM also is responsible for developing an estimate of the statewide cost of newly identified mandates.
Districts Receive Reimbursement Through Mandates Claims Process or Block Grant. The state reimburses school districts for mandated activities either through a claims-based process or from the K-12 mandates block grant. Under the state’s traditional mandate reimbursement process, districts submit claims for the actual cost of performing each mandated activity. The State Controller’s Office (SCO) pays claims from funds appropriated in the state budget. The SCO audits some claims and reduces payments accordingly. As an alternative to the claims-based process, the state in 2012-13 created a K-12 mandates block grant. The block grant provides upfront per-student funding in lieu of submitting claims. Currently, all active mandates are included in the block grant. Most districts participate in the block grant rather than the traditional claims-based process.
CSM Estimates Statewide Mandate Costs of $3.5 Million Ongoing. Based on the 20 districts that filed claims for the mandated activities in 2016-17, CSM calculated average ongoing per-student costs of $1.39 for providing an opt-out notice, $2.83 for electronically submitting a GPA to CSAC, and $1.47 for overhead costs. The CSM used these per-student costs to estimate the total statewide cost of performing these activities. The CSM’s estimate of ongoing statewide cost consists of $661,000 for providing an opt-out notice to all juniors, $1.4 million for electronically submitting GPAs to CSAC for seniors who do not opt-out, and $1.4 million for overhead costs (applied to all juniors and seniors).
Augments K-12 Mandates Block Grant by $300,000 for Cal Grant Mandate. The Governor proposes to add the new Cal Grant mandate to the K-12 mandates block grant and provide an associated augmentation to the block grant of $300,000 (ongoing Proposition 98 General Fund). This funding would increase the per-student grant rate for high school students by $0.16 (raising the rate for school districts to $61.94). Though a detail explanation was not provided, the Department of Finance believes the CSM cost estimate is too high.
Mandate Appears to Be Achieving Intended Objective. Our analysis found that the share of high school seniors with a GPA filed with CSAC grew from 79 percent in 2014-15 (prior to the mandate) to 98 percent by 2017-18. This amounts to roughly 100,000 more GPAs submitted to CSAC. When we spoke to CSAC staff, they attributed this increase to the mandate for districts to electronically submit GPAs. Moreover, the share of high school students who eventually filed a complete Cal Grant application rose from 49 percent in 2014-15 to 57 percent in 2017-18. Given the growth in GPAs reported and Cal Grant applications filed, we believe the mandate is accomplishing the Legislature’s intended objective.
Mandate Is a Cost-Efficient Approach. We believe this mandate is an efficient approach to achieving the state’s goal of increasing Cal Grant applications. First, it allows students applying for Cal Grants to rely on their district to submit GPAs. This saves students from having to check proactively whether their district automatically filed their GPAs with CSAC or from having to obtain and send their certified GPAs to CSAC in paper form. Second, requiring districts to submit GPAs electronically likely reduces personnel costs for both them and CSAC compared to the more cumbersome paper-based method. Prior to the mandate, CSM indicates it received more than 70,000 paper GPA forms, which required significant staff time to process. Further, high school counselors had to complete these paper forms to certify student GPAs prior to sending to CSAC, which likely also required significant staff time.
Opt-Out Notice Promotes Compliance With Federal Law. We think the requirement for districts to provide all juniors and their parents/guardians a written opt-out notice is a relatively efficient way to promote compliance with federal law concerning protection of student privacy. An alternative approach would be to require each parent/guardian of a high school junior to provide written permission for the district to share GPAs with CSAC. This approach would be more time intensive for many more parents/guardians as well as the staff processing the responses. It also potentially could reduce the total number of GPAs submitted to CSAC if districts do not receive responses from all parents/guardians. Another option would be for the state to allow each district to develop its own procedures for complying with federal law, but this option likely also entails higher staff time and associated costs. Further, without a consistent statewide process, some districts might be more vulnerable to legal challenge.
Cost Estimate Prepared by CSM Is Likely Too High. The approach used by CSM in developing its statewide cost estimate assumes that the per-student costs reported by the 20 districts filing claims in 2016-17 are representative of per-student costs for all districts. The disadvantage of this approach is that it is based on a small set of initial claims—only 5 percent of all districts required to undertake the mandated activities. Moreover, this set of initial claimants likely is not representative of all districts (as districts filing initial claims tend to have more mandate expertise and consultants). The average cost reported by this small set of districts likely is notably higher than the average cost incurred by all districts required to undertake the mandated activities. We also note that many districts were undertaking the activities at issue before the state mandated them—accommodating the cost of those activities within their existing resources.
We Estimate Statewide Costs of $1 Million. To develop our statewide cost estimate, we analyzed the claims data submitted by 52 districts that filed for reimbursement in 2017-18. Despite the drawback of using a small sample, the sample size is bigger than what was available at the time CSM made its estimate. The data also is more recent. Using this data, we ranked districts according to their per-student cost for each activity and set per-unit rates at the 33rd percentile. Setting at the 33rd percentile is intended to acknowledge that the initial claimants likely are not representative of all districts, with the weighted average of this small set of districts likely much higher than the weighted average of all affected districts. Setting the state rate at the 33rd percentile of the small initial set of claimants results in a per-student cost of $0.71 for juniors, $1.24 for seniors, and $0.06 for overhead costs. We then applied these rates to all juniors and seniors in the state. Based on these calculations, we estimate the statewide cost of this mandate to be $1 million. Although this statewide cost estimate is below the one prepared by CSM, it is above the $300,000 augmentation to the block grant proposed by the Governor.
Add Mandate and $1 Million to the K‑12 Mandates Block Grant. Because the mandate appears to be achieving its intended objective in a cost-efficient manner, we recommend adopting the Governor’s proposal to add it to the block grant. Instead of increasing block grant funding by $300,000, as proposed by the Governor, we recommend increasing funding by $1 million. We believe this amount is sufficient to cover associated costs were districts to undertake the required activities efficiently. The recommended augmentation would increase the block grant per‑student funding rates by $0.54 (raising the high school rate for school districts to $62.32).