Legislative Analyst's Office Analysis of the 2001-02 Budget Bill

K-14 Education Priorities Proposition 98

In the analysis and recommendations in this chapter we take broad issue with the priorities and approach to K-12 education taken by the budget, and also raise specific issues with the proposed budget for community colleges. We recommend reductions to various K-14 budget proposals totaling almost $800 million in Proposition 98 funds for 2001-02. We recommend that the Legislature redirect these savings to other K-14 programs that give more discretion at the local level and that we believe would result in more effective educational outcomes. The largest amount—$500 million—is for a disadvantaged schools block grant focusing on middle schools and high schools that are very low performing and/or have high concentrations of students in poverty.

In the analysis and recommendations in this chapter, we take broad issue with the priorities and approach to K-12 education taken by the budget. One of the salient aspects of the 2001-02 Governor's Budget is the relative lack of discretion given to local school districts. The budget adds to the major area of general purpose funds for K-12—"revenue limits"—only what existing law requires to cover cost-of-living adjustments (COLAs) and enrollment growth. The budget proposes spending the remainder of new funds for K-12 education on a long list of new and expanded categorical programs. As well-intentioned as these programs are, we believe most will be diminished in effectiveness because of constraints on local discretion. A notable exception is the Governor's proposal to expand standards-based training to K-12 teachers where a significant element of local discretion has been introduced.

In our view, the K-12 reforms adopted in the 1999 Special Session create both the opportunity and the need for a K-12 budget that grants greater local flexibility. In particular, the accountability framework established by Chapter 3x, Statutes of 1999 (SB 1x, Alpert), and the high school exit exam established by Chapter 1x, Statutes of 1999 (SB 2x, O'Connell), logically lead to a shift in the state's budgeting and oversight emphasis—from a focus on educational inputs to attention to educational outcomes. The accountability framework constructed by the Governor and the Legislature puts into place a means for defining and assessing desired outcomes and incentives for achieving them.

To maximize the chances for improving educational results, however, the state must give local school districts and school sites more flexibility to fit budgetary resources to local circumstances and needs. The approach we take to the state's K-12 education budget in the following pages builds on this foundation. We also make several recommendations for changes to the Governor's proposed budget for the California Community Colleges (CCC) which, like the K-12 education budget, largely involves Proposition 98 funds.

Proposition 98 Spending

With respect to total Proposition 98 appropriations for 2001-02, we regard the Governor's proposed appropriation level as the maximum level that would be prudent under the state's unsettled budgetary situation. The state could set K-14 education spending for 2001-02 at Proposition 98's "test 3" level—an amount that is about $1.9 billion below the Governor's proposal—but doing so would cause the state to fall far short of the amount required to meet COLAs, enrollment growth and adjustments needed to annualize spending for new programs and program expansions authorized in the 2000-01 Budget Act. By setting his appropriations total at Proposition 98's "test 2" amount—a combined total of $46.4 billion from the General Fund and local property tax allocations to school and community college districts—the Governor's budget not only meets COLA, enrollment growth and annualization needs, but provides resources for further K-14 initiatives.

The budget's proposed spending total also is consistent with the minimum level of annual appropriations that will be required in future years for K-14 education under the terms of Proposition 98. (For all practical purposes the "test 2" calculation determines this long-run appropriations requirement.) Given these circumstances, and given the clear priority that the Legislature has assigned in the recent past to improving K-14 education, our various recommendations in Proposition 98 involve significant redirection of monies between specific purposes (almost $800 million), but essentially no net change to the total Proposition 98 spending level proposed by the Governor's budget.

If however, the Legislature decides that it cannot afford to fund all the way to the test 2 level, it can use whatever portion of our recommended reductions it chooses as savings to the General Fund. Eventually, Proposition 98's provisions would require that the state's annual General Fund spending on K-14 education return to the test 2 level. The state, though, would realize annual savings for several years until that level was reached.

Disadvantaged Schools Block Grant

Figure 1 summarizes the various changes we recommend in this chapter in Proposition 98 appropriations for the budget year. The largest of these changes is a recommendation to establish a $500 million disadvantaged schools block grant focused on middle schools and high schools that are very low-performing and/or have high concentrations of students in poverty.

We believe targeting resources in this manner makes sense. As shown in Figure 2, there are significant differences in academic performance between economically and noneconomically disadvantaged students in grades 7^th, 8^th, 9^th, and 11^th, as measured by percent of students scoring above the national average on the Stanford-9 test. The gap ranges from a low of 23 ponts in 11^th grade math (54 percent versus 31 percent) to a high of 37 points in 7^th grade reading (63 percent versus 26 percent).

Alternative to Middle School Proposal. We make our block grant recommendation, in part, as an alternative to the Governor's proposal to extend the length of the school year for middle school grades. Although this proposal by the Governor requires $100 million in 2001-02, it could require annual spending of $1 billion or more by the 2003-04 fiscal year. As we discuss in detail later in the chapter, the Governor's proposal attempts to address weaknesses in student achievement, as measured by standardized test scores, that manifest around grade nine. As we also discuss, however, this proposal's approach is flawed in many respects, including:

• Lack of research strongly supporting the strategy of increasing school year length.
• Lack of flexibility granted to local school districts to use resources for other interventions that could be more effective.
• Absence of means to target "pockets" of educational failure—those schools where low academic performance and performance "drop off" effects are most severe.
• High opportunity cost of committing large amounts of money to (1) a single unproven strategy and (2) schools where academic achievement is not a major problem.
• Failure to fully address the fact that the achievement problems persist through high school.

Focus of Proposed Block Grant. We believe our recommended disadvantaged schools block grant better addresses the above problems. The essence of our block grant is two-fold (1) targeting resources to schools and students most in need of additional state help, and (2) local discretion to draw from a broad "menu" of specific educational interventions. These interventions could include lengthening the school year at disadvantaged schools—if school officials determine this best meets local needs—but also could include a "mix" of such measures as selective reductions of class size, focused tutoring, improved after school programs, improved quality of curriculum, enriched (or restored) music and arts education, and more and better counseling. There is no one answer to reaching young people who are struggling in school because the reasons for poor performance vary from individual to individual and from school to school. Our approach is based on that understanding.

There also is no one answer to how to structure a disadvantaged schools block grant. Our recommended grant is based on some judgments regarding available resources and the choice of indicators of need. We chose two indicators of need, either of which would qualify a school for a share of block grant funding: (1) a rank in the lowest two deciles of the academic performance index (API) and (2) having at least a threshold percentage of the student body in the free or reduced-price federal lunch program. For middle school grades we suggest a threshold of 70 percent of students being in the federal lunch program and for high school grades we suggest 50 percent. (To "capture" a similar demographic group in grades 9 through 12 requires setting a lower threshold because many high school students, notwithstanding their relative poverty, avoid participation in the federal lunch program—often out of concerns of how they appear in the eyes of their classmates.)

How Would the Proposed Block Grant Work? There is considerable overlap between the group of schools that would qualify for our block grant under the federal lunch program criteria and those that would qualify under the API criteria, but the overlap is not complete. Having two possible routes to qualify compensates somewhat for imperfections that are inherent in any measures of performance and poverty. It recognizes that schools with lesser concentrations of students in poverty still can experience serious performance problems. It also recognizes that schools with high concentrations of students in poverty that are somewhat above the two lowest API deciles still face challenges that could endanger future performance.

Approximately one fourth of California's public school students in middle school and high school grades attend schools meeting our suggested criteria. Our recommended block grant would provide qualifying schools an amount per enrolled pupil of about $610, which is somewhat less than the Governor proposes for his longer school year program ($770). These factors combine for a total block grant amount of roughly $500 million. We believe the Legislature can afford to allocate this amount, particularly if it adopts the largest of our recommended reductions to specific budget proposals (please see Figure 1). Of course, the Legislature can set a different total, a different per-pupil amount, or different qualifying criteria, based on its judgment of K-14 priorities and other policy decisions. The block grant approach lends itself to these types of refinements. For example, if the Legislature is interested in reaching a larger number of schools or grade levels with this block grant, it could gradually expand the block grant over the next several years.

Other Recommendations

As Figure 1 indicates, we make various other recommendations for increased spending, including allocating more funds for K-12 revenue limits and redirecting proposed categorical funds to the CCC's Partnership for Excellence. We discuss these recommendations in detail in appropriate parts of this chapter.