Child Development

The budget includes $1.6 billion for the State Department of Education (SDE) for subsidized child care and development programs, an increase of $365 million, or 33 percent, over the amount adopted in 1998-99. Most of this increase is due to an additional $280 million in federal Child Care and Development Block Grant funds for child care for California Work Opportunity and Responsibility to Kids (CalWORKs) recipients and former recipients, and implementation of the $50 million After School Learning and Safe Neighborhoods program.

The Subsidized Child Care System

The SDE administers a variety of subsidized child care programs that serve low-income families at little or no cost. As Figure 1 indicates, there is a separate category of funding reserved for CalWORKs recipients and former recipients. All other programs, however, are also open to CalWORKs recipients and former recipients when they leave CalWORKs-funded child care, based on space availability and income eligibility.

Families receive subsidized child care funded by SDE in one of two ways: either by receiving vouchers from Alternative Payment program providers that operate under contracts with SDE, or by being assigned space in centers or family home networks that contract with SDE to provide child care. As indicated in Figure 1, of the $1.6 billion total for SDE child development local assistance for the budget year, $714 million is for centers and family home networks contracting with SDE, $553 million is for the CalWORKs Alternative Payment program, and $226 million is for the non-CalWORKs Alternative Payment program.

Another $700 million is provided for CalWORKs child care in 1999-00 in other departmental budgets, including $685 million in the Department of Social Services (DSS) budget (including the reserve). This brings the state's total child care and development expenditures from state and federal funds to over $2.3 billion in the budget year. This total does not include another important piece of California's subsidized child care system--the federal Head Start program, which provides preschool services at many sites in California but is managed directly by the federal government without state involvement. In federal fiscal year 1997, the federal government spent nearly $460 million on Head Start programs in California, serving 80,000 children.
Figure 1
Department of Education Child Care and

Development Programs (Local Assistance)

(Dollars in Millions)
1998-99 1999-00 Percent Change from 1998-99
General Fund Totala General Fund Totala
Contracted Centers and Family Homes:
General Child Care $344 $428 $372 $458 7.0%
Preschool 136 136 182 182 33.3
Other Centers 66 71 69 74 4.7
Subtotals ($547) ($635) ($623) ($714) (12.4%)
Alternative payment CalWORKs:
Stage II $74 $217 $74 $470 116.9%
Stage III "Set Aside" 50 57 50 83 45.1
Subtotals ($124) ($274) ($124) ($553) (101.9%)
Other alternative payment $48 $220 $51 $226 2.9%
After School Learning -- -- $50 $50 N/A
Resource and Referral 15 15 15 15 1.6
Otherb 38 82 44 66 -19.2
Totalsc $771 $1,226 $907 $1,625 32.5%
a Includes federal funds.
b Quality services, cost-of-living adjustment, facilities loans, etc.
c Totals do not add due to rounding.

In calendar year 1997, the latest year for which complete data are available, approximately 425,000 children were served through SDE and DSS child care programs. We know these programs are growing, but the state does not have current data for the number of children served in 1998 and, therefore, has no good basis for making projections for the budget year. We discuss this data problem later in this section.

The CalWORKs Child Care Program

Chapter 270, Statutes of 1997 (AB 1542, Ducheny, Ashburn, Thompson, and Maddy), reformed California's welfare system and created the CalWORKs program. Under CalWORKs, program participants are (1) required to engage in work and/or work-preparation activities and (2) provided an array of support services, including child care.

CalWORKs delivers child care in three "stages." Stage I is administered by the DSS through county welfare departments (CWDs) and begins when a participant enters the CalWORKs program. In Stage I, CWDs typically refer families to resource and referral agencies to assist them with finding child care providers. The welfare department then pays providers directly for the child care services.

The CWDs will transfer a family to Stage II when the CWD determines that the family situation has become "stable," in the sense that the family has a plan for moving from welfare to work and has found a child care arrangement that allows them to fulfill that plan. Stage II is administered by SDE through its voucher-based Alterative Payment programs (APs). Participants can stay in Stage II while they are still in CalWORKs and for up to two years after the family stops receiving a CalWORKs grant.

Although Stage I and Stage II are administered by different agencies, families do not need to switch child care providers when they move into Stage II. The real difference between the stages is who pays providers--CWDs pay in Stage I and APs, operating under contracts with SDE, pay in Stage II.

Stage III refers to the entire subsidized child care system administered by SDE. A family can move from Stage II to Stage III at any time as long as the family remains eligible for SDE child care and a space in the program becomes available for them. If space does not become available before the end of their Stage II eligibility, they can continue to receive care under a special Stage III CalWORKs set aside (discussed later in this analysis).

Figure 2 provides an overview of the Governor's proposed funding for the CalWORKs stages and the distribution of funds between Stage I administered by CWDs, and Stages II and III, administered by SDE. (In the Health and Welfare Chapter of this Analysis we recommend modifications to this distribution.)

Figure 2
Governor's Proposal for

CalWORKs Child Care

(In Millions)
1998-99 1999-00
Stage I (DSSa):
Base $679.5 $392.6
Reappropriation (87.7) 87.7
Cal-Learn (DSS) 6.3 6.8
Health and Safety (DSS) 9.6 13.9
Stage I Subtotals ($607.8) ($501.0)
Stage II (SDE) $216.8 $470.3
Stage III for CalWORKs "Set Aside"(SDE) 57.2 83.0
Stage II/III Subtotals ($274.0) ($553.2)
Community Colleges $15.0 $15.0
Reserve (DSS) allocated 183.0
Totals $896.7b $1,252.2b
a Department of Social Services.
b Totals do not add due to rounding.

Budget Restricts Child Care Funding for Former CalWORKs Recipients

We recommend that the Legislature reject the Governor's proposal to cut off child care to former California Work Opportunity and Responsibility to Kids (CalWORKs) recipients who have been unable to secure subsidized child care outside of the CalWORKs program. Instead, we recommend allowing former recipients to continue to receive child care under the CalWORKs Stage III "set aside" if certain conditions are met.

The Governor's budget proposes an important policy change for CalWORKs child care administered by SDE regarding the length of time CalWORKs recipients can continue to receive subsidized child care.

Limiting How Long CalWORKs Recipients Can Use Subsidized Child Care. Currently, CalWORKs recipients and former recipients in Stages I and II are eligible to receive CalWORKs funded child care for as long as they receive CalWORKs aid and for up to two years after that aid ends, as long as they continue to meet income eligibility requirements. CalWORKs recipients and former recipients are expected to transfer to Stage III, the general subsidized child care system, as rapidly as possible including, if possible, before the two-year period after CalWORKs aid has expired. If, however, they are unable to secure child care in the general subsidized system, the Legislature created a "set aside" in Stage III reserved for former CalWORKs recipients that have exhausted the two-year limit. Under current law these recipients can continue to receive CalWORKs funded child care through this Stage III set aside for as long as they remain income eligible and until their children reach age 13 (subject to the availability of Stage III set-aside funds).

The 1999-00 Budget Bill includes a provision to restrict the use of the Stage III set aside so that former CalWORKs recipients may not receive child care under the set aside beyond the expiration of the two-year period after they leave cash aid (Item 6110-196-0001, provision 9). This effectively eliminates the Stage III set aside, as it no longer offers any benefits beyond those provided in Stage II.

Argument for the Budget Proposal. The argument in favor of this change relates to the shortage of general subsidized child care "slots." Under state law, families are eligible to receive general subsidized child care for their children up to the age of 14 if their income is below 75 percent of the state's median family income, adjusted for family size. Children referred by county child protective services have first priority for subsidized child care. After that, families are taken off waiting lists, with lowest income families receiving first priority. Once families enter the subsidized child care system, they are eligible to continue to receive subsidized child care (they pay a sliding scale "family fee") until their income exceeds 75 percent of the state's median income. Thus, families receiving subsidized child care may be earning much more than families on the waiting lists, but they can continue to receive subsidized care until their children "age out."

An unknown but sizable number of working poor families who meet the basic eligibility standard for general subsidized care never receive this care because they are not poor enough. That is, they weren't poor enough to be in CalWORKs (or elected not to be in CalWORKs) and receive child care through that avenue, and they weren't poor enough to be a priority recipient through SDE's general program. The argument in favor of limiting a family's ability to receive CalWORKs subsidized child care to two years rests on the perceived unfairness of giving priority--basically an entitlement to child care as long as they remain income-eligible--to former aid recipients over the working poor. This unfairness is heightened in those instances where the working poor may be earning less than former aid recipients.

Arguments Against the Budget Proposal. There are two arguments against eliminating this "fail-safe" Stage III set aside for former CalWORKs recipients. The first is one of fairness. County welfare departments provide families entering the CalWORKs system with Stage I CalWORKs child care. Only later in Stage II do these families put their names on waiting lists to receive child care through the general child care system. By the time their names come up on these waiting lists, if the parents have found employment and left aid, their income may be too high for them to picked up off a waiting list. If, on the other hand, these families had put their names on these waiting lists when they first entered the CalWORKs system and their income was very low, their chances of securing child care through the general subsidized child care system would have been higher. Thus, because of the way the system is designed, some of these families miss the chance to get their children into the subsidized child care system over the long-term.

The other argument against eliminating the Stage III set aside is one of cost. If former CalWORKs recipients are unable to find care for their children in the general subsidized child care system and consequently "fall back" on CalWORKs aid, the public cost of the welfare grants could be large.

It is not possible to get much further in evaluating the merits of this proposed change due to the lack of child care data. The state does not know the extent of the unmet need for child care because it does not have adequate data collection and reporting systems. Neither does it know how the income levels of families on the waiting lists and of families receiving subsidized child care compare. It also does not know how many former CalWORKs recipients would be likely to lose subsidized child care with the budget's proposed policy change.

Recommended Approach. Given the lack of data by which to predict the effects of this proposed change, we recommend a different approach. We recommend that the Legislature adopt in budget bill language a waiver provision which would allow former CalWORKs recipients to continue to receive CalWORKs subsidized child care even after they have been off aid for two years (under Stage III set aside), if certain conditions are met. Specifically, we recommend changing the budget bill provision to require CWDs to review the cases of families reaching the end of the two-year period, and to determine whether the family needs subsidized child care in order for the parent or parents to continue working. If the CWD makes a finding that this is the case, and so certifies, the family would continue to receive CalWORKs subsidized child care from the Stage III set aside. We believe this approach is consistent with previously expressed legislative intent.

Specifically, we recommend modifying the last sentence of Provision 9, Item 6110-196-0001, to read:

$75,786,000 of the funding in Schedule (b)(5.2) is reserved exclusively for child care for former CalWORKs recipients who have left cash aid but who still meet eligibility requirements for receipt of child care services, provided that former CalWORKs recipients who have left cash aid for longer than two years, but who still meet eligibility requirements for receipt of child care services, shall be eligible to continue to receive child care services funded through Schedule (b)(5.2) if the county welfare department, following a review of the former recipient's situation, determines, and so certifies, that the recipient needs subsidized child care in order to continue working.

Family Fee Schedule Reform

We recommend that the State Department of Education forward the draft report proposing a new family fee schedule for subsidized child care services to the Legislature so that public hearings can be held on its recommendations.

The 1997-98 Budget Act (Item 6110-196-0001, provision 14) directed the Department of Social Services (DSS) and the State Department of Education (SDE) to develop new criteria to be included in a legislative proposal by January 1, 1998, to (1) establish standard entry and exit income eligibility levels for all child care and development programs and (2) adopt a new family fee schedule for all families receiving subsidized child care. The budget language directed that the eligibility levels should ensure the eligibility of low-income families and those attempting to stay off welfare or transition off welfare, and be adjustable through the annual budget act to reflect changes in the size of the eligible population and levels of available funding. The language directed that fees should be charged for each child (with a charge for each additional child in the same family at reduced rates), and that there should be a cap on the percent of gross income that can be charged in fees.

A draft report with recommendations for changes in the family fee schedule was prepared by a legislative and agency staff working group during the fall of 1997 and submitted to DSS and SDE. The status of these recommendations was discussed during last year's budget hearings, and language was added to the budget bill directing DSS and SDE to submit a proposed family fee schedule to the Legislature by December 15, 1998 for the purpose of adopting authorizing legislation. (The Governor vetoed this language, stating that SDE already has statutory authority to implement a new fee schedule. This action does not, however, change the 1997 legislative direction to DSS and SDE to submit a proposal to the Legislature.) The DSS has signed off on a proposed new fee schedule but the Superintendent of Public Instruction has not acted on it. The Governor's budget calls on the Superintendent of Public Instruction and DSS to finalize the effort begun pursuant to the 1997-98 Budget Act provisions.

The family fee schedule for subsidized child care in California has not been comprehensively revised since 1980. The Legislature has been aware of the need for a comprehensive review for some time. The 1997-98 Budget Act language directing SDE and DSS to develop new criteria resulted from the August 1996 recommendations of a report prepared pursuant to 1991 legislation--AB 2184 Task Force (or PACE) final report, which was prepared pursuant to 1991 legislation (Chapter 1205, Statutes of 1991 [AB 2184, W. Brown]).

Since the draft report is more than a year overdue, we recommend that the Superintendent of Public Instruction forward the draft report to the Legislature without further delay so that public hearings can be held on the report. The DSS and SDE should explain to the Legislature at these hearings which of the report's recommendations they support or disagree with and why.

Lack of Policy-Relevant Data

We recommend that during budget hearings the department report on its time line for development of the child care data collection and analysis system for which the Legislature authorized $20 million in the 1997-98 Budget Act.

We have noted above the lack of data available for child care policy and budgeting decisions, including the lack of data on the extent of unmet need for child care by eligible low-income families. In our Analysis of the 1997-98 Budget Bill, we pointed out this lack of policy-relevant data and recommended that the Legislature provide funds for SDE to develop a data collection system that meets the state's need for policy-relevant data.

The 1997-98 Budget Act provided $20 million in federal funds for SDE to develop a child care data collection and analysis system. Of this amount, $2 million was for development of a feasibility study report for the system, and for interim data collection and reporting while the overall system was being developed. The remaining $18 million was for additional costs of implementing the data collection system. The Legislature also approved three additional positions for SDE's Child Development Division's Data Automation and Analysis Unit.

The department made little progress on the development of this system during 1997-98, and these funds were carried over by the l998-99 Budget Act for the same purposes as the previous year. As of this writing, the department has yet to contract for the feasibility study.

We understand that the department has been focusing on complying with new federal data reporting requirements related to the implementation of the CalWORKs program, which are part of the overall data system. The data unit has also had difficulty retaining and recruiting staff with the expertise needed to develop the system. (As of this writing, two of the unit's seven positions were vacant.) We also note that the department has recently brought in an extra staff person to assist in the development of the new system. Nevertheless, given the importance of acquiring adequate data upon which to base policy and budgeting decisions for this $1.6 billion program, and the amount of time that has passed since the Legislature first appropriated funds for this purpose, we recommend that during budget hearings the department report on its progress in developing the child care data collection and analysis system. This report should include the department's time line for completing the feasibility study report, and its detailed plans and time line for development of the key elements of the overall system. If the department is experiencing particular difficulties in developing the data system, it should explain to the Legislature the nature of these problems, how it expects to solve them, and how the Legislature can help in solving them.

Other Issues

Matrix Testing

We recommend that the State Department of Education report to the Legislature at budget hearings whether (1) the matrix test will be ready for statewide student testing by spring 2000 and (2) the matrix test should incorporate student responses from the Standardized Testing and Reporting test (in order to reduce matrix test costs). Pending receipt and review of this information, we withhold recommendation on $32.2 million requested in the budget for development and administration of the matrix test.

The Governor's budget provides $42.1 million in Proposition 98 funds to administer the Standardized Testing and Reporting (STAR) program to all students in grades 2-11. In addition, the budget provides $12 million in one-time Proposition 98 funds to continue development of the test of applied academic skills known as the "matrix" test, and $20.2 million in ongoing Proposition 98 funds to administer the matrix test to all students in grades 4 or 5 and in grades 8 and 10.

Slow Progress Continues on State Standards and Assessments

California's assessment system continues to make progress toward the goals established in Chapter 975, Statutes of 1995 (AB 265, Alpert). This act called for state-level academic content and performance standards and a two-tiered system for assessment of student performance. Content standards outline what a student should learn in each grade in four subject areas--language arts, math, history/social science, and science. Performance standards define the level of understanding that is considered advanced, proficient, basic, or below basic in each subject area.

The first tier of the assessment system, the STAR, uses a nationally normed, multiple choice test that produces individual student scores. A nationally normed test allows the state to compare California students against a national average. To obtain comparable and reliable student scores, the STAR test necessarily measures student advancement in a relatively narrow portion of the content standards. The second tier, the applied academic skills or matrix test, gauges student performance over the entire content standards, using essays, and short, open-response questions in addition to multiple choice. The matrix test does not produce a student-level result because different students are tested on different parts of the matrix. Instead the test permits schools and districts to be assessed on how their students perform on all facets of the curriculum.

STAR Test Developments

In the spring of 1998, the state administered the STAR for the first time to all students in grades 2 - 11. The results showed that California public school students lagged behind the national average, especially for the 20 percent of California students who are limited-English proficient (LEP). As Figure 1 shows, only 9 percent of fourth grade LEP students in the state's public schools scored above the national average in reading on the STAR compared to 49 percent of the non-LEP students.
Figure 1
STAR Test Results--1998
Percent of California Public School Pupils Above the National Average
Grade 4 Grade 8 Grade 10
Non-LEP LEP Non-LEP LEP Non-LEP LEP
Reading 49% 9% 53% 7% 36% 3%
Math 46 17 48 13 44 17
Language 54 18 54 12 41 6
Spelling 42 12 38 6 -- --
Science -- -- -- -- 48 13
Social Science -- -- -- -- 42 8

In the fall of 1998, the State Board of Education adopted the last of the four subject area content standards. The 1998 STAR test did not reflect the newly adopted state content standards. The board revised the 1999 STAR test to reflect state standards in reading, language, spelling, and math. The board plans to align STAR with science and history/social science standards as part of the test administered in the spring of 2000.

Matrix Sample Test Under Development

The board and State Department of Education (SDE) continue to work on the development of the matrix test and the performance standards. Chapter 300, Statutes of 1998 (SB 1564, Schiff), sets the following deadlines for the board in the budget year:

The board may not be able to issue a request for proposal (RFP) to design the matrix test in time to stay on schedule to administer the test in spring 2000. The board is currently working with SDE, and the Advisory Panel on Assessments to resolve three important issues prior to issuing an RFP:

In order to stay on track to administer a matrix test in the budget year, the board must issue an RFP in the next couple of months. As of this writing, we think that the test may be delayed until the 2000-01 fiscal year. If it is not administered in the budget year, $20.2 million would be available for one-time purposes in 1999-00. We recommend that SDE report to the Legislature at budget hearings on whether the matrix test will be designed in time to be administered in spring 2000.

The 1999-00 budget requests $12 million to design the matrix test, and $20.2 million to administer the test in spring 2000. This assumes the test is built from scratch. The 1999 STAR test, however, also will cover a portion of state content standards in language arts and mathematics. As a result, the matrix test could build upon the STAR results and therefore reduce the length of the matrix test. Such a reduction in scope would reduce the cost of designing, administering, and grading the matrix test. We further recommend that SDE report to the Legislature on whether the matrix test design can incorporate student responses from the STAR test, and what the cost implications are.

Pending receipt and review of both of the above reports, we withhold recommendation on the $32.2 million requested in the budget for matrix test design and administration.

California School Information Services

The Governor's budget proposes $6 million in one-time local assistance funding ($5 million Proposition 98 and $1 million audit recovery funds) for the California School Information Services (CSIS) program.

The CSIS is a multiyear project to develop, implement and manage a statewide student level data base and information transfer network. The program is administered by the Fiscal Crisis and Management Assistance Team (FCMAT), a part of the Kern County Office of Education. The FCMAT, under a contract with the state, provides fiscal advice, management assistance, and training to school districts. Although FCMAT administers CSIS, the State Department of Education (SDE) is the state's responsible agent for the local assistance grants to FCMAT and is integrally involved in advising on the student level data base.

The CSIS has three main program goals:

The FCMAT has approximately $11 million from prior appropriations available, which it will use in the current year to provide grants to local consortia of districts to implement Phase I, the test phase of CSIS. First, however, the State Board of Education (SBE) must approve the CSIS development plan before FCMAT can issue a request for proposal for Phase I grants. The board could approve the CSIS plan as early as its February meeting. The $6 million provided in the Governor's budget would be used by FCMAT to expand the number of districts using CSIS through a second round of grants distributed in the spring of 2000.

Benefits of a Student Level Database

We believe that a student level database could play a fundamental role in education improvement efforts in California, as it has in many other states. Benefits of a student level database include:

Create External Technical Oversight

We recommend that the Department of Education (SDE) report prior to subcommittee hearings on the results of a formal risk assessment for the California School Information System (CSIS). We recommend that SDE also present the Legislature with a timeline and cost estimate to contract with an external evaluator to conduct a technical evaluation of CSIS, and develop a mitigation plan for high-risk areas. Pending SDE's response, we withhold recommendation on the $6 million budget request.

The CSIS represents a major technical and organizational challenge to implement. The sheer size of the state school system--with more than 1,000 independent school districts and 8,000 schools--makes implementation difficult. As past experience has shown, other attempts by the state to construct large data systems have been plagued with serious problems.

Generally, state departments are subject to Department of Information Technology (DOIT) oversight in efforts to develop data systems. The DOIT has no oversight role in CSIS, however, because CSIS is administered by FCMAT. The SBE does have some oversight of the CSIS effort, but lacks expertise in implementing large database systems.

As part of its oversight responsibilities of large technology projects, DOIT requires state agencies to (1) conduct a risk assessment and (2) develop a risk mitigation plan for the proposed system design and implementation. In such an analysis, an agency evaluates the risks posed by its proposed system in five areas:

At the time this analysis was written, FCMAT had not conducted a risk assessment of CSIS or a mitigation plan, nor was a risk assessment or mitigation plan underway.

This leaves the Legislature without a clear sense of the likelihood that CSIS will be successful and whether state funds would be used efficiently. In view of the above, we recommend that FCMAT, in coordination with SDE, use DOIT's risk assessment model to conduct a self-risk assessment of CSIS and report on its outcome to the Legislature prior to subcommittee hearings. We recommend that the department also present the subcommittees with a timeline and cost estimate for contracting with a private vendor to (1) conduct a technical evaluation of the proposed CSIS design and (2) develop a mitigation plan for high-risk areas identified by the DOIT risk assessment model. Pending SDE's response to the subcommittees, we withhold recommendation on the $6 million requested for CSIS in the Governor's budget.

Due to the potential value of CSIS, we think the system should be implemented as expeditiously as possible once a technical evaluation and risk mitigation plan are in place. We are hopeful, that with appropriate oversight from an external evaluator, many of the uncertainties currently surrounding CSIS can be removed.

Does SDE Have Adequate Staff Resources?

We recommend that the Department of Education report to the Legislature at budget hearings on resources that the department is dedicating to the California School Information Services Program development.

One of the benefits of the CSIS is that districts will be able to electronically report information that the state requires instead of sending hardcopy reports. However, SDE will have to coordinate with FCMAT, to ensure that CSIS will be able to generate state reporting forms automatically and transfer the data electronically to SDE. The department must be integrally involved in CSIS to ensure that FCMAT's design is coordinated with state reporting goals, and that the department is prepared to receive the data electronically. It is not clear, at present, that SDE has adequate staff resources assigned to this project. We therefore recommend that SDE report to the Legislature at budget hearings on the staff resources that it is dedicating to CSIS.

Deferred Maintenance

We recommend that the Legislature restore $115 million for deferred maintenance deleted by the Governor's budget proposal, so that the massive backlog of deferred maintenance of school facilities can continue to be addressed.

The 1998-99 Budget Act added $115 million in ongoing Proposition 98 funds to help school districts address the state's backlog of deferred maintenance of school buildings (a backlog measured in the billions of dollars). These funds require a dollar-for-dollar match from local sources. The 1999-00 Governor's Budget proposes to delete this funding, on the basis that the school and higher education facilities bond measure enacted in November 1998 takes care of the deferred maintenance problem by providing funds for modernization of existing school buildings.

The bond measure (Proposition 1A) authorizes $2.1 billion for school building modernization over the next four years. (As of July 1998, applications submitted by school districts for state funding of modernization projects totaled $2.9 billion.) The bond measure and its related legislation (Chapter 407, Statutes of 1998 [SB 50, Greene]) restrict modernization funding to buildings that are at least 25 years old (20 years old in the case of portable classrooms). It also requires a local match of 20 percent of project cost.

According to the administration, these modernization projects will address deferred maintenance needs sufficiently to permit the state to abandon the deferred maintenance funding commitment made by the Legislature last year (made, not coincidentally, at the same time it was enacting the bond measure). In our view, the modernization projects will address a relatively small fraction of the state's massive deferred maintenance backlog. First, deferred maintenance needs will be handled only as a component of the modernization projects. Most project expenditures will be directed at nonmaintenance aspects of facility need such as installation of air conditioning equipment, fire safety improvements, asbestos removal, seismic upgrades, and the wiring of classrooms to accommodate educational technology. In fact, the bond legislation prohibits use of the modernization funds for "routine maintenance and repair." Second, many of the school buildings with deferred maintenance needs will not be modernized, because $2.1 billion is not enough to modernize every eligible school building in the state.

It should be further noted that the bond measure requires school districts to make a significant commitment to ongoing facility maintenance and repair. As a condition of receiving state bond funds for either modernization or new construction projects, Chapter 407 requires districts to establish ". . .a restricted account within the district's general fund for the exclusive purpose of providing moneys for ongoing and major maintenance of school buildings. . ." The act requires districts to deposit annually at least 3 percent of their general fund budget into the maintenance account for the first 20 years following receipt of bond funds. Of particular note, the act permits these deposited funds to count toward the local match requirements of the state's current deferred maintenance program. This provision of the bond measure makes it clear that the Legislature intended the state's deferred maintenance program to continue for some period of time.

In view of the above, we believe that the commitment toward facility maintenance made by the Legislature in last year's budget act was intended to complement the bond measure. Accordingly, we recommend that the Legislature restore $115 million for deferred maintenance deleted by the Governor's budget proposal, so that the state's backlog of deferred maintenance of school facilities can continue to be addressed. Elsewhere in our analysis of K-12 issues, we make recommendations that make possible this $115 million allocation within the minimum spending amount of Proposition 98.

K-12 Education for Adults in Correctional Facilities

We recommend that the Legislature (1) approve $15 million of one-time Proposition 98 monies to reimburse local education agencies for inmate education costs in 1998-99 and (2) redesignate the $16.3 million in Item 6110-158-0001 for 1999-00 program costs, in order to give the Legislature more control over program costs and funding levels. We further recommend conforming budget bill and statutory language changes.

The budget includes $16.3 million from Proposition 98 funds to reimburse local education agencies for costs of providing adult education to inmates in county correctional facilities (Item 6110-158-0001). The 1998-99 Budget Act provided $15.6 million for this purpose, but only $14.2 million was allocated by the State Department of Education (SDE) to participating county offices of education and school districts. This discrepancy was not because local education agencies spent only $14.2 million on inmate education. To the contrary, they spent more.

The discrepancy between appropriation and allocation arises from two related factors. First, unlike almost all other education programs, which are funded on a current basis, this program is funded on a reimbursement basis, a year in arrears. Second, this reimbursement basis of funding led the state to adopt rules to "cap" growth in program spending. (This was needed to minimize the state's exposure to potentially open-ended reimbursement claims.) These rules work "too well" in some circumstances. For example, Los Angeles County recently moved its female inmates into a new facility. During the move, a temporary decrease in program average daily attendance (ADA) was necessitated by a temporary loss of classroom space. The state's reimbursement rules, however, will subsequently apply annual growth caps to the reduced ADA base. This, despite the fact that after the moves are completed, the county intends to restore its educational program to the prior level of ADA. In this case, the state rules will prevent the county from ever recovering funding for its "lost" ADA (about $290,000 for 180 ADA). With similar experiences elsewhere, each year the amount of the budget act appropriation that is not spent for the program's purposes grows. In 1997-98, the unallocated amount was $447,000. In 1998-99, the unallocated amount was $1.4 million, or 9 percent of the amount appropriated by the Legislature.

In our view, the best solution to this problem is to place funding for the program on a current basis. This would make program funding consistent with almost all other K-12 programs and would give the Legislature greater control to prevent unintended and unfair consequences caused by the current fiscal arrangement. The existence of a large amount of one-time Proposition 98 funding resulting from recommendations elsewhere in this Analysis provides the opportunity to accomplish this. Accordingly, we recommend that the Legislature (1) appropriate $15 million from one-time funds to reimburse local agencies for their 1998-99 correctional facilities program costs and (2) redesignate the $16.3 million in Item 6110-158-0001 as payments for the 1999-00 program year. We further recommend conforming budget bill language and statutory language changes.

Charter Schools

Increase Federal Grants for Charter Schools

We recommend that the Legislature direct the State Department of Education to petition the federal government to increase the maximum amount for federal charter school implementation grants from $150,000 per school to $250,000, in order to more effectively use increased federal funds.

Under the federal Public Charter Schools grant program, the State Department of Education (SDE) receives funding from the federal Department of Education (DOE) to provide planning and implementation grants to organizations creating new charter schools. In 1998-99, the federal government awarded SDE a three-year, $32.8 million grant, representing a significant increase in funding from the previous three-year grant. In the current year, the Legislature had budgeted $3.4 million in federal funds for charter school grants, based upon the previous federal funding level. Under the new federal grant, SDE instead received $7.6 million for the current year, and $12.6 million per year for 1999-00 and 2000-01.

Since the federal budget was not enacted until October 1998, SDE had already issued a request for proposal (RFP) for local planning and implementation grants based upon the $3.4 million level. The department estimates that it will only be able to allocate $5.4 million of the $7.6 million available in the current year. This will leave a carryover of $2.2 million. When added to the $12.6 million already available from the federal grant for the budget year, SDE will have a total of $14.8 million to allocate in 1999-00--almost three times the amount it plans to allocate in the current year.

Based on California's current grant application to DOE, SDE could allocate a maximum of $50,000 per planning grant, and a maximum of $150,000 per implementation grant. Several pieces of evidence suggest that the amount of the implementation grant may not be enough. First, the California State University's Institute for Education Reform found in a recent analysis that costs to start a typical elementary charter school could reasonably exceed $250,000. In addition, preliminary findings from a DOE evaluation of charter schools suggest that lack of start-up funds is the most common barrier to implementing new charter schools. Finally SDE granted the current $150,000 maximum to about 95 percent of the implementation grants in the last grant round, suggesting that many charter schools could have used more if it were available.

According to DOE staff, the state can file an amendment to its grant application to increase the maximum amount of the implementation grants. Given (1) the significant new funding available for this grant program, and (2) the evidence that actual implementation costs often are $250,000 or more, we recommend that the Legislature adopt the following budget bill language to direct SDE to petition the federal government to increase the maximum level of charter school implementation grants to $250,000 per school (Item 6110-112-890):

The State Department of Education shall file an amendment to California's Public Charter School grant application with the federal Department of Education to change the maximum amount that a charter school can receive for an implementation grant from $150,000 to $250,000.

Charter School Finance

We recommend that the State Department of Education (SDE) report to the Legislature prior to budget hearings on the status of the new charter school direct funding mechanism. The SDE should report on any additional costs to the state that could result from the new funding mechanism and options for the Legislature to minimize these costs.

Chapter 34, Statutes of 1998, (AB 544, Lempert) requires SDE to propose to the State Board of Education a new direct "block grant" funding mechanism for charter schools. To date, charter schools have received their funding on a program by program basis directly from districts. The SDE, in consultation with a working group that includes our office, has reviewed a mechanism to allocate state funds for charter school operating costs in one comprehensive block grant. At the time this analysis was written, the board intended to consider the suggested funding mechanism at its February meeting.

The SDE estimates that the additional cost to the state of the funding approach under consideration would be $13 million. The additional cost arises because for many state programs, funding does not depend upon student counts, but instead upon other factors. The largest example is school transportation. Transportation funds are distributed directly to districts based on historic costs and equalization factors, not on the basis of the number of students in the district or the number of students served. The SDE has indicated that, under their proposal, all districts would continue to receive the same amount of transportation funds as they did in the past and charter schools would receive transportation funds as well. This would result in an increase in total state transportation costs. Thus, for transportation, SDE's model simply allocates an additional amount to charter schools equal to state average transportation spending per average daily attendance (ADA) times charter school ADA. The model makes similar adjustments for other programs not funded on an ADA-basis.

Following the February board meeting, the department should report to the budget subcommittees on the specific approach adopted, the expected fiscal effects, and options for the Legislature to minimize additional state costs (including reasonable changes to existing law or budgeting formulas).

Moorpark Unified School District Voluntary Desegregation Program

We recommend that the Legislature reduce the reimbursement for Moorpark Unified School District's 1998-99 desegregation claim by $380,000 and the budget-year amount by $750,000, to exclude costs that are not reimbursable under existing law.

Districts that undertake voluntary desegregation programs can claim reimbursement from the state for 80 percent of their initial-year costs (both one-time costs and on-going costs). Some start-up costs cannot be claimed, such as construction costs. The on-going costs establish the district's base for reimbursement in subsequent years, as adjusted by the cost-of-living adjustment and average daily attendance growth.

The budget includes $1.5 million from one-time Proposition 98 funds for Moorpark's 1998-99 claim (Item 6110-485, Proposition 98 Reversion Account). The budget also includes $1.5 million from on-going Proposition 98 monies for reimbursement of Moorpark's 1999-00 desegregation costs (Item 6110-115-0001).

The district's claim for the first-year costs (1998-99) of their voluntary desegregation program includes the costs of a traffic signal installation. This is, however, a nonreimbursable cost under current law. After deducting this expense from their claim, the remaining amount that is reimbursable is $1,120,000, or $380,000 less than budgeted. Accordingly, we recommend that the Legislature reduce Item 6110-485 by $380,000.

The district's budget-year amount also is over budgeted. The budget carries over one-time 1998-99 costs into the budget-year claim, which is not allowed. When appropriate adjustment is made to exclude these one-time costs, the amount justified for reimbursement is half the budgeted amount of $1.5 million. Accordingly, we recommend that the Legislature reduce Item 6110-115-0001 by $750,000.

 
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