Legislative Analyst's Office
Analysis of the 2001-02 Budget Bill
We withhold recommendation on $290 million proposed to reimburse costs of a mandate for school bus safety improvements pending further review of cost claims. We suggest that the Legislature refer the matter to the Joint Legislative Audit Committee (JLAC) for review and recommendation on possible revisions to the mandate's parameters and guidelines. We further recommend that the Legislature use information gained from the JLAC review to consider whether the mandate should be modified or continued. (Withhold recommendation on $223.7 million in Item 6110-485 and $66.7 million in pending legislation.)
The Governor's budget sets aside a total of $290 million to pay costs of a mandate for school bus safety improvements. Of this amount, $223.7 million is proposed as a one-time allocation from the Proposition 98 reversion account (Item 6110-485) to reimburse prior-year and current-year costs. Another $66.7 million is proposed from the General Fund (Proposition 98) for the budget-year costs of this mandate. The $66.7 million would be included in the annual "claims bill." The Commission on State Mandates (COSM) estimates that the state will be responsible for similar annual costs in the future.
Chapter 624, Statutes of 1992 (AB 3144, Horcher), imposed several requirements on school districts related to school bus safety. Funding for this mandate of about $900,000 annually is contained in the State Department of Education's (SDE) mandate item (Item 6110-295-0001). This mandate is now referred to as School Bus Safety I.
In a series of legislation enacted between 1994 and 1997, the Legislature imposed several additional requirements intended to increase the safety of students being transported in school buses. These provisions require schools to: provide expanded instruction to pupils in school bus safety; prepare, follow, and revise transportation plans; provide written information on school bus safety to parents; and employ flashing signal lights under a broader set of circumstances.
In December 1997, Clovis Unified School District filed a test claim concerning these added provisions with COSM that came to be called School Bus Safety II. In July 1999, COSM found that these new requirements constitute a reimbursable state mandate.
In November 1999, COSM issued "parameters and guidelines" (P&Gs) describing the specific costs that would be reimbursed and the documentation required. Based on cost claims received so far, COSM estimates prior-year and current-year costs of $223.7 million (fiscal years 1996-97 through 2000-01) and budget-year costs of $66.7 million. The COSM estimates ongoing costs of about the budget-year level.
Based on a preliminary review of approximately 50 cost claims provided to us by COSM, we found several irregularities that, in our view, indicate a need for further scrutiny. The major issues include:
Considerable Variation Across Districts. Cost claims filed by districts of similar size and transportation use varied remarkably in amounts and cited expenditure items. Based on this observation, we question whether the P&Gs need to be redrafted to provide greater specificity.
Claims for Displaced Staff Time. Many of the cost claims seek reimbursement for staff compensation for time spent on mandated activities such as instructing pupils in school bus safety. However, it is disputable whether such claims are valid unless schools actually incurred added costs (such as overtime costs) as a result of the new requirements.
Claims for "Fundamental" Activities. It appears that districts may have claimed costs for activities so basic that they may not qualify for reimbursement. For instance, several claims include significant costs for bus driver compensation for an activity described as "monitoring pupils boarding and exiting a bus." Such an activity may be so fundamental to the job of school bus driver as to be outside the scope of the new requirements. In our view, there is a need to investigate such claims and determine whether the activity is truly claimable.
Given the substantial costs claimed for this mandate, we recommend that the Legislature further investigate the details of the cost claims. Referring the matter to the Joint Legislative Audit Committee (JLAC), or a similar review body, would ensure that appropriate resources would be directed to the investigation. Based on the findings of such a review, the Legislature should entertain the following options.
Consider Modifying P&Gs. The Legislature has the authority to amend P&Gs through legislation. If the review process reveals that districts are filing cost claims for inappropriate costs, the Legislature could modify P&Gs to better define reimbursable activities and reduce appropriations accordingly.
Consider Modifying or Eliminating Mandate. It is clear that the Legislature enacted the school bus safety legislation involved in this mandate to protect children. From our review of the legislative history, however, it appears that the Legislature had no reason to believe that the costs of these new requirements would reach such high levels. The highest cost estimate contained in bill analyses of the adopted provisions was $600,000 for "initial costs." Given COSM's estimate of $66.7 million in annual costs, we recommend that the Legislature now weigh the cost-effectiveness of these provisions. It may be possible, using information gained from the JLAC review, to modify the requirements to maintain the most effective requirements while eliminating those that are unnecessary or not cost- effective. Another option would be to make the provisions voluntary.
In our view, the high overall costs and irregularities in cost claims for the school bus safety mandate warrant further review. For this reason, we withhold recommendation on $290 million proposed by the Governor's budget for this purpose. To assure that appropriate resources are given to such a review, we suggest that the Legislature refer the matter to JLAC for review and recommendation on possible revisions to the mandate's P&Gs. Furthermore, we recommend that the Legislature use information gained from the JLAC review to consider whether the mandate itself should be modified or continued.
We withhold recommendation on $28.4 million requested for the charter school block grant pending review of proposed trailer bill changes that the administration had not defined fully at the time of this analysis. (Withhold recommendation on Item 6110-211-0001.)
The budget provides $28.4 million from the General Fund (Proposition 98) for the charter school categorical block grant, an increase of $5.7 million, or 25 percent, from the current year. The Department of Finance (DOF) proposed the 25 percent increase as a "placeholder" for growth and cost-of-living adjustments (COLAs) until the May Revision due to uncertainties in projecting charter school enrollment growth. Chapter 34, Statutes of 1998 (AB 544, Lempert), required the SDE to develop a new "direct block grant" funding model for charter schools. Prior to adoption of the direct funding model, charter schools received funding on a program-by-program basis through negotiation with their sponsoring school district or county office of education. Chapter 78, Statutes of 1999 (AB 1115, Strom-Martin), adopted the charter school direct funding model, which provides funding to charter schools through three funding streams:
Annually each of these three funding streams will increase in reaction to other budget actions. The charter school categorical block grant COLA reflects COLAs provided not only to the original 34 programs specified in Chapter 78, but also any new programs for which direct charter schools are not required to apply separately.
Proposed Categoricals May Affect Charter School Block Grant. The Governor's budget proposes various new programs, such as longer school year for middle school grades, an intensive professional development program, algebra incentive initiative, and Standardized Testing and Reporting data analysis. Each of the new programs requires enabling legislation, but at the time of this analysis the administration had not provided the Legislature with any draft language. The Legislature will need to determine which of these new programs it wants charter schools to apply for separately and which to include in the charter school block grant. Until such determinations are made, we are unable to advise the Legislature on the adequacy of the proposed funding level of the charter school block grant. Accordingly, we withhold recommendation pending review of the bills needed to create the Governor's new programs. Since the intent of the block grant is to provide charter schools flexibility in how they use their educational resources, we would suggest to the Legislature as a guiding principle to fold as many programs as possible into the charter school block grant.
Funding Requirements Will Increase Significantly in 2002-03 Budget. Chapter 78 provided a "grandfather" clause that gave existing charter schools the option of not participating in the categorical block grant during the grant's first three years of existence. Many charter schools took advantage of the option to continue their current funding relationship with their sponsoring districts. Beginning in the 2002-03 fiscal year, these charter schools will have to participate in the direct funding model. We estimate that about half of charter school enrollment currently is outside the model. When these schools are required to participate in the direct funding model, the cost of the categorical block grant will increase proportionately. We estimate that the additional cost to the state for the block grant will be around $30 million. The additional cost could be roughly offset by potential reductions in the costs of the categorical programs on which the categorical block grant is modeled. However, when the Legislature first created the block grant, it chose not to reduce the appropriations for the original 34 programs, and instead used new General Fund monies to fund the categorical block grant. The Legislature has three basic options to address the expiration of the grandfather clause.
The Legislature may want to decide which of these three options they would prefer to implement during this year's budget process in order to allow school districts, charter schools, and the DOF adequate planning time. If the Legislature decides that the first option is preferable, no action is necessary. The Legislature would have to make legislative changes to implement the second or third option.