Legislative Analyst's Office

Analysis of the 2002-03 Budget Bill

Reforming Categorical Program Funding


In order to increase local flexibility and efficiency in the implementation of the state's categorical programs, we recommend that the Legislature (1) consolidate many of these programs into five categorical block grants and (2) create additional block grant features for small school districts and state mandates.

Categorical education programs are programs funded to address specified needs. Just as new categorical programs should meet a rigorous test for approval, existing programs should be reviewed periodically to ensure the need for state intervention still exists and that the programs are designed to allow school districts to make the most effective use of the funds as possible. Increased accountability underscores the relevance of categorical program reform. In this section, we review the system of K-12 categorical programs and suggest reforms to make these programs more flexible for districts and increase local accountability for results.

The Current Categorical Program Structure

The 2001-02 Budget Act allocated approximately 31 percent of K-12 Proposition 98 funds, or about $12 billion, for over 70 categorical programs. (The remaining 69 percent of funding is available for local education agencies to spend for general educational purposes. Most of this funding is provided in the form of "revenue limits" apportionments.) Programs range from the very large ($2.7 billion in special education funding during 2001-02) to the small ($250,000 for civic education). The main rationale for categorical programs is to address program areas where local school boards may have incentives to under-invest. An example is special education, where high per-pupil costs could lead districts to provide less service than needed. Some categorical programs lack a compelling rationale, however, and simply reflect the preferences of the state as to how monies should be spent.

Most categorical programs are funded entirely by state General Fund monies appropriated in the annual budget act. Some programs, such as the Miller-Unruh Reading Program, require school districts to use revenue limits or other local funds to match state funding. Some programs, including special education and child nutrition, are partially federally funded. For most programs, funding is provided in a budget act item, usually in the State Department of Education (SDE) portion of the budget. A number of programs are reimbursed as state-mandated programs.

As we have discussed in previous publications, including A Special Session Guide to K-12 Reform (January 1999) and A K-12 Master Plan: Starting the Process (May 1999), the existing system of categorical programs causes many problems for the state and local school districts. Figure 1 summarizes these problems.

Figure 1

Problems With California’s System
Of Categorical Education Programs


ü  No Conclusive Evidence on the Success of Categorical Programs. Most programs are never evaluated. Evaluations that have been conducted have offered largely inconclusive evidence of programs’ success or failure.

ü  State Rules Restrict Needed Local Flexibility. Complex and detailed program requirements in some programs reduce the flexibility needed by schools to maximize the impact of funds on improving student achievement.

ü  A Fragmentation of Local Programs. Without a local strategy for integrating categorical programs with the basic educational program, process requirements of the categorical programs shape local responses rather than the needs of students.

ü  Funding Formulas Create Negative Incentives. Some categorical programs create financial incentives that encourage schools to act in ways that are not in the best interests of students.

ü  Blurred Accountability for Meeting Student Needs. Creating separate programs for specific student needs creates confusion about who is responsible for improving student achievement.


Recent Efforts to Increase Flexibility

The Legislature has incorporated principles of local flexibility in several funding and program decisions in recent years. For example:

These and other examples show that the Legislature has been trying in recent years to structure categorical programs in ways that align with the varying needs and circumstances of local districts. We think these efforts should be taken further, as we discuss in detail below.

Consolidating and Simplifying Categorical Programs

Reforming categorical programs by consolidating them into block grants with a single program structure and funding stream would provide many benefits to school districts. Figure 2 briefly describes some major benefits. In short, consolidating categorical programs maximizes local control for districts in order to best meet their particular needs and, if structured well, shifts the focus from process to educational results.

Figure 2

The Benefits of Categorical Reform


ü  Increased Local Control. Increasing local flexibility over funding allocations and program details allows school districts to use funds in ways that meet students’ needs more efficiently and effectively. It recognizes that these needs vary greatly from place to place, and that the education professionals closest to the schools are in the best position to make detailed program decisions.

ü  Economizing Effect. By allowing savings to be redirected to high-priority needs, block grants create incentives for school districts to make available funds go as far as possible to meet the state-required needs of students and the categorical objectives of the state.

ü  Clearer Program Directives. Consolidating programs that address similar purposes simplifies the funding system and provides flexibility to use the program model that best suits local needs. A single set of goals and objectives put forth by a single agency helps schools focus on policy and practice rather than funding formulas.

ü  Clearer Lines of Accountability. A single point of responsibility clarifies the confusion created from having so many programs working in isolation to meet their narrow objectives. Consolidation of categorical programs with similar goals allows school districts to take a broader problem-solving approach to improve overall student achievement.


To increase local flexibility, eliminate negative incentives, and provide a more cohesive system for categorical programs, we recommend that the Legislature consolidate 51 programs into five categorical block grants. In addition, we propose more flexibility for small schools and modify the SDE's role to increase accountability. Part of our recommended approach involves using block grant funds to meet certain mandate reimbursement needs. For a detailed discussion of the benefits of this change, please see our discussion of Proposition 98 mandates in the "Crosscutting Issues" part of this chapter. Figure 3 briefly describes these block grants, which are discussed in more detail below.

Figure 3

LAO Recommended
K-12 Categorical Block Grants


ü  Academic Improvement Block Grant ($1.5 Billion). This block grant would consolidate funding for eight programs. Funding would be provided to school districts to meet a range of school improvement needs focused on student academic achievement.

ü  Compensatory Education Block Grant ($1.6 Billion). Eight programs for pupils who need additional services to be successful in school would be consolidated in this block grant. Included in the block grant is funding currently provided through the Economic Impact Aid program and remedial supplemental instruction programs.

ü  Alternative Education Block Grant ($267 Million). Eight programs currently supporting alternative education settings for students who are at risk of dropping out or entering the juvenile justice system would be consolidated in this block grant.

ü  School Safety Block Grant ($140 Million). This block grant would consolidate three categorical programs and several state-mandated programs intended to ensure safe and orderly school campuses.

ü  Teacher Support and Development Block Grant ($722 Million). This formula-based block grant would consolidate 18 teacher preparation, induction, and staff development programs.


We believe our block grants are structured in a way that strikes a balance between the benefits of increased local flexibility and the state's continuing interest in assuring that specific areas of educational need are met. Moreover, we would note that our recommendations leave a number of major categorical areas as is, such as special education, K-3 class size reduction, and child nutrition programs.

Academic Improvement Block Grant

We recommend that the Legislature create an Academic Improvement Block Grant by consolidating eight categorical programs focused on general academic improvement for all pupils, in order to increase local flexibility and effectiveness in serving pupils.

The 2002-03 Governor's Budget proposes a total of $1.1 billion from the General Fund (Proposition 98) and $375 million in prior-year Proposition 98 monies for eight categorical programs and numerous state-mandated programs generally focused on improving the academic achievement of all students. These programs include the Governor's proposed instructional materials funding package, which would consolidate five existing programs into an Instructional Materials Block Grant, and would create three new one-time programs—a textbook grant, a school/classroom library grant, and a science lab equipment grant.

We support the concept behind the Governor's proposed instructional materials/library materials consolidation. However, we believe the Legislature should provide greater flexibility by grouping the Instructional Materials Block Grant with additional related programs. We also have concerns about the Governor's one-time materials proposals because they suffer from the same overly restrictive approach that the Governor is trying to eliminate in the ongoing materials programs. (See the "Instructional Materials" section of this chapter for more detail on this issue.)

Figure 4 lists the programs that we recommend including in the Academic Improvement Block Grant and the funding levels proposed in the Governor's budget for those programs in 2002-03.

Figure 4

Programs in LAO
Academic Improvement Block Grant

(In Millions)


Governor’s Budget

Ongoing Programs

School Improvement Programs


Core Supplemental Instruction


9th Grade Class Size Reduction


Digital High School


Instructional Materials Block Grant


Mandates in school choice, health,
and graduation requirements




One-Time Programs

Instructional Materials Funds


School Library Funds


Science Lab Materials






a   Funded from the Proposition 98 Reversion Account on
a one-time basis.


All of the programs listed in Figure 4 have the same general goal of providing materials or services to improve the academic achievement of all students. Specifically, the programs currently allow school districts to provide a mixture of services (reduced class size, supplemental instruction, parental involvement/education, computer technical support), and materials purchases (instructional materials, library books, computer software and hardware, and environmental enhancement). Figure 5 describes each of the ongoing programs. However, with the exception of the School Improvement Program, each of the programs targets one purpose, and requires schools to provide services in specific ways or purchase specific materials.

Figure 5

Description of Academic Improvement Programs

School Improvement Program

School Site Councils develop and monitor School Improvement Plans. The funding is used to improve instruction, services, school environment, and organization at school sites.

Core Supplemental Instruction

Schools provide summer school, intersession, Saturday, or before or after school programs to students in core curriculum subjects.

9th Grade Class Size Reduction

Provides incentive funding to reduce class sizes in up to two of the following core academic subjects—English, mathematics, science, and social science.

Digital High School

All high schools have received $200 per-pupil implementation grants to purchase computers, and wire schools. In 2002-03, high schools would receive up to $45 per pupil for computer replacement, technical support, and staff training.

Instructional Materials Block Grant

First school districts must use these funds to purchase standards-aligned instructional materials in core curriculum areas. If funds are still available, school districts may use their excess funds to purchase other instructional and library materials.

Textbook Block Grant

Provides school districts with funding for instructional materials if they certify that by fall 2002 all pupils will be provided with a standards-aligned reading/language arts textbook.

School/Classroom Library Grant

Provides per-pupil funding to school districts for the purchase of school and classroom library resources including books, periodicals, and multimedia materials.

Science Lab Equipment

Provides school districts with funding to purchase lab equipment and materials to provide standards-based science instruction in grades 7 through 12.


School Improvement Program (SIP). The SIP requires school districts to establish school site councils at each school comprised of the principal and selected teachers, parents, members of the community, and students. Each council must develop (and periodically review) a plan focused on meeting the educational needs of all pupils. The school improvement plans have many requirements, and school site councils may use SIP funding in the following ways:

There is a significant overlap between the potential uses of SIP funding, and the other programs proposed for this block grant. We propose building upon SIP, and creating a flexible block grant that will allow school districts to better serve all their students.

Problems With Existing System

School districts' priorities and needs often do not match the state's funding distribution or specific program requirements. Below, we pro vide three examples of how current categorical programs focused on academic improvement may not work for all school districts.

State Funding Allocation Ignores Variation in Local Needs. For example, a school district may have an excellent technology program because in addition to Digital High School funding, the school district was able to pass a local school facility bond to wire their buildings and receive a federal Technology Literacy Grant to train their teachers to integrate technology into the classroom. That same school district, however, may have outdated instructional materials. Under the current state programs, the school district must continue to invest a large amount of funds annually in its technology program because Digital High School funds may only be used for technology-related expenses. In this example, students would benefit more if the school district were able to use those Digital High School funds to purchase new instructional materials.

Participation in Ninth Grade Class Size Reduction (CSR) Often Difficult. The ninth grade CSR program provides a good example of a program that works well for some school districts but not for others. The program offers school districts a $177 per-pupil incentive to provide instruction in up to two courses in ninth grade English, mathematics, science, or social science in a class with a 20 to 1 student/teacher ratio. Some school districts fully participate in the program, and would like to expand their CSR program. At the same time, some school districts do not participate at all. The Governor's November Revision proposed a reduction in the current-year appropriation for ninth grade CSR because participation continues to be below expectations. Some of the reasons school districts do not fully participate include:

These barriers may result in perverse program outcomes that the Legislature had not intended. For instance, the ninth grade CSR program often provides funding to school districts with no shortage of quality facilities or highly qualified teachers, but may provide no funding to school districts with underqualified staff and facility shortages. School districts fully implementing ninth grade CSR have significantly lower percentages of students eligible for free or reduced-price school lunches than districts that have not fully participated in the program. By providing the ninth grade CSR funding in a flexible block grant, all school districts would be able to equally take advantage of these funds.

Core Supplemental Instruction Funding Mechanism Restrictive. The Governor's budget proposes funding core supplemental instruction at $3.45 per pupil per hour. The Education Code caps the number of hours that school districts can claim for reimbursement at 7 percent of a district's pupils times 120 hours. The current funding rate is adequate to cover the costs of one teacher teaching 20 to 30 students. Unfortunately, students participating in supplemental instruction may be there because they are not succeeding in the traditional learning environment of one teacher for 20 to 30 students. The current hourly funding mechanism does not provide school districts enough flexibility to offer anything substantially different. For example, students might be more successful if districts could offer fewer supplemental instructional hours, but could work in small groups of three to five students, and could support that instruction with computer-aided exercises. Current categorical programs do not allow school districts to offer such alternative educational approaches to learning. Our recommended Academic Improvement Block Grant would permit such approaches.

Create an Academic Improvement Block Grant

In view of the above, we recommend that the Legislature combine the eight existing programs (and numerous mandates) listed in Figure 4 into a $1.5 billion Academic Improvement Block Grant. Under this approach, school districts would have broad latitude in determining the use of funds, thereby permitting districts to use the service delivery model that best meets the instructional needs of their students.

Funding would be distributed on a per-average daily attendance (ADA) basis—equating to almost $260 per pupil. Many of the programs proposed to be included in this block grant focus on specific grade levels. However, our recommended approach provides approximately the same amount of funding per pupil across grades as the current and newly proposed programs, in aggregate, provide. In addition, there would be only minor changes in the funding distribution across school districts, and these differences are caused generally by differences in program participation. Schools could use this funding to support any program or material/equipment purchase that was focused on improving academic achievement, including, but not limited to, instructional and library materials, computer equipment and technical support, class size reduction, parental involvement, and supplemental instruction.

Require Instructional Materials Be Aligned to State Content Standards. Since the state has invested heavily in developing academic content standards, it is important that students have the benefit of textbooks reflecting them. Accordingly, we recommend that the Legislature make the funding provided in this block grant contingent upon a school district ensuring that all students have textbooks aligned with content standards within 21 months of the State Board of Education adopting textbooks in a specific content area. This feature would ensure that the state's interest in having standards-aligned textbooks in all classrooms is addressed, but on a more realistic schedule than the nine-month restriction imposed as part of the Governor's instructional materials initiative.

Clarify Continuing Role for School Site Councils. We believe thatschool site councils can play a key role by involving parents, teachers, students, and members of the community in the education process. In some school districts, school site councils may play a vital role in determining funding decisions, and setting district priorities, while in other districts, requiring school site council approval may be just another bureaucratic hurdle. Recognizing this variance as well as the positive potential, we recommend that the Legislature require as a condition of receiving a grant that school district governing boards adopt a policy defining the role of the school site council in setting the priorities for the use of funds provided by the Academic Improvement Block Grant.

Compensatory Education Block Grant

We recommend that the Legislature create a Compensatory Education Block Grant by consolidating eight existing categorical programs for pupils who need additional services to be successful in school, in order to increase local flexibility and effectiveness in serving these pupils.

The 2002-03 Governor's Budget proposes a total of $1.6 billion from the General Fund (Proposition 98) for eight existing categorical programs for students who need additional services to be successful in school. Such students include low-performing students, English language learner (ELL) pupils, and economically disadvantaged students. Figure 6 summarizes the different programs targeted at these pupils.

Figure 6

Programs in LAO
Compensatory Education Block Grant

(In Millions)


Governor's Budget

Targeted Instructional
Improvement Grant


Economic Impact Aid


Remedial Supplemental Instruction


English Language Acquisition


Healthy Start


Elementary School Intensive Reading


Miller-Unruh Reading


Intensive Algebra Academies




a   The 2002-03 Governor's Budget proposes to eliminate funding for the Healthy Start program, for a savings of $39 million.


As indicated in the figure, the largest of these eight "compensatory education" programs is the Targeted Instructional Improvement Grant (TIIG) program ($736.5 million). Chapter 891, Statutes of 2001 (SB 735, Committee on Budget and Fiscal Review), established this program to provide grants to school districts to (1) fund the costs of any court-ordered desegregation program that has a court order currently in force and (2) improve instruction for the lowest-achieving students. The 2001-02 Budget Act combined amounts that previously had been budgeted for court-ordered desegregation and voluntary desegregation programs in order to fund the TIIG. The Economic Impact Aid program is the second largest state program for compensatory activities at $499.4 million. This program provides formula grants to districts with high concentrations of children who are poor or have limited English proficiency. As the figure shows, the budget eliminates funding for the existing Healthy Start program. According to staff at the Department of Finance, the proposed budget does not fund this program due to other competing education priorities. Funding would have provided Healthy Start grants to a new cohort of schools.

All of the programs listed in Figure 6 share the same general goal—improving the achievement of pupils with particular instructional needs. However, the existing system of programs creates several problems, including (1) overlapping program missions, (2) lack of outcome measures that indicate student progress, and (3) state funding/programmatic rules that emphasize process at the expense of education results. For instance, the need for specific compensatory activities, whether it be English tutoring or remedial summer school instruction in math, varies widely among districts. However, the rigid funding structure of the different programs does not give districts needed flexibility to direct resources to local needs.

The Legislature's action last year to consolidate voluntary and court-ordered desegregation funds into the TIIG program was a step in the right direction in providing local flexibility. However, we believe that the Legislature should go further with this approach, and combine other existing compensatory education programs into a block grant that would provide extra help to pupils with particular instructional needs. The consolidation of these programs into a block grant would give districts greater flexibility to use the money as part of an overall strategy to improve the educational outcomes of disadvantaged students. Such flexibility would allow districts to use the funds more efficiently to meet student needs and to better coordinate state programs with the federal Title 1 program. Accordingly, we recommend that the Legislature combine funding for the eight existing programs listed in Figure 6 into a Compensatory Education Block Grant totaling $1.6 billion.

As stated above, the Governor's budget proposes to eliminate Healthy Start funding for new cohorts of schools. This program, established by Chapter 759, Statutes of 1991 (SB 620, Presley), provides three-year competitive grants to schools with large percentages of low-income and ELL pupils for health and other support services. Under our recommendation for program consolidation, districts would have the flexibility to offer these particular services to new cohorts of schools based on their local needs and priorities.

How the Compensatory Education Block Grant Would Work

Under our recommendation, overall funding for the Compensatory Education Block Grant would equal the combined amounts proposed by the budget for the eight programs. Initially, individual districts would receive per-pupil funding based on their current allocations for the existing programs, divided by their number of ELL and economically disadvantaged pupils. Future cost-of-living adjustments (COLAs) would be allocated on a sliding scale in order to equalize per-pupil funding levels among districts over time. Districts receiving a grant would first fund the costs of any court-ordered desegregation program, if such an order is in force. In addition, funds provided to districts under this block grant would be designated as available to offset any possible future mandated costs related to the state's requirement to provide remedial instruction to (1) pupils in grades 7 through 12 at risk of not passing the high school exit exam and (2) pupils retained or recommended for retention in grades 2 through 9. (Please see our discussion of Proposition 98 mandates in the "Crosscutting Issues" part of this chapter for more detail on the benefits of accommodating mandate costs in our proposed block grants.)

Alternative Education Block Grant

We recommend that the Legislature create an Alternative Education Block Grant by consolidating eight existing programs for disruptive and other at-risk students, in order to increase local flexibility and effectiveness in serving these pupils.

The 2002-03 Governor's Budget includes $267 million from the General Fund (Proposition 98) for eight programs that serve as alternatives to regular district-run schools. Figure 7 summarizes these programs. These alternative education programs differ from the programs recommended for the Compensatory Education Block Grant in that they target pupils for whom additional risk factors—such as a history of poor attendance or behavioral problems—indicate a need for an alternative educational setting.

Figure 7

Programs in LAO
Alternative Education Block Grant

(In Millions)



Governor’s Budget

County Community Schools

Alternative schools operated by county offices of education for students who are expelled, on probation, homeless, or referred for other reasons by school districts.


Community Day Schools

Alternative schools operated by districts or county offices of education for pupils who (1) would benefit from an alternative educational setting and (2) were expelled from school or were referred by the county probation department.


Continuation High Schools

District-operated alternative high schools for students 16 through 18 years of age who (1) have not graduated from high school, (2) are not exempt from compulsory school attendance, and (3) are deemed at risk for not completing school.


Partnership Academies

Academic and occupational training for students at risk of dropping out of high school. Often set up as “schools within schools.”


Dropout Prevention

Alternative programs for students who (1) have dropped out or been expelled or (2) are at risk of dropping out or being expelled.


High-Risk Youth
Education and
Public Safety

Alternative programs operated by school districts or county offices of education for pupils who have entered, or are at risk of entering, the juvenile justice system.


Opportunity Classes and Programs

Alternative programs or classes for students who are not benefiting from a district's regular educational program because of truancy or discipline problems.


High-Risk Youth

Early intervention program operated by the Los Angeles Unified School District for at-risk students in grades 6 through 8.





a   Continuous appropriation from county office of education apportionments.

b   Includes a continuous appropriation of $32.9 million.

c   Includes $7 million from county office of education apportionments.


Problems With Existing Alternative Education Programs

As Figure 7 shows, the different alternative education programs overlap in terms of their content and target populations. For example, four of the seven programs target students who are at risk of either not completing or dropping out of school. The existence of multiple programs creates a number of significant problems for schools. First, most of the programs mandate a specific model of service delivery, which restricts the ability of schools to provide services in a way that best meets student needs. Schools end up designing programs based more on program rules than on specific student needs and a clear, strategic plan to effectively meet the needs. This is because program rules, designed to ensure that services reach eligible students, cause local schools to focus on making sure program funds are spent in accordance with state rules, not on student outcomes.

Second, school districts have no direct control over the County Community Schools program. This separation creates a barrier to the kind of coordination that is needed to ensure that a student (1) continues to attend school and (2) has an appropriate educational program. Due to this situation, districts treat services provided to students through the county program as "free goods." This creates a financial incentive for districts to use the county programs rather than create district programs that may better meet student needs.

Accountability. We note that increased flexibility and increased accountability go hand in hand. The state is currently in the process of developing a separate accountability system for alternative schools. As the state develops this alternative accountability system, there will be even less need for the state to concern itself with process and more need to focus on outcomes. Indeed, existing program and funding restrictions on alternative education programs, unless fundamentally changed, will make it difficult for districts and schools to deliver the educational results for which the new accountability measures will hold them accountable.

Create an Alternative Education Block Grant

In view of the above, we recommend that the Legislature combine the eight programs for disruptive and other at-risk students listed in Figure 7 into an Alternative Education Block Grant totaling $267 million. Under this approach, school districts would have broad latitude over the use of funds, thereby permitting districts to use the service delivery model that best meets the needs of high-risk students. For example, a block grant would give districts the authority to experiment with different ways to prevent dropouts, including targeting high-risk students in early grade levels. (Some educators believe that pupils at risk of dropping out can be identified and helped in middle or junior high school years or even during elementary school.)

The funding distribution of our recommended Alternative Education Block Grant would have the following four features:

School Safety Block Grant

We recommend that the Legislature create a School Safety Block Grant of approximately $140 million by consolidating three categorical programs and ten state-mandated programs directed at ensuring safe and orderly campus environments, in order to increase local flexibility and effectiveness.

The 2002-03 Governor's Budget proposes a total of $139.6 million in Proposition 98 funding for three existing categorical programs and ten existing state-mandated local programs that address school safety.

The categorical programs fund school districts and county offices of education (COEs) for a variety of services and programs intended to ensure the safety of the general campus population. The state-mandated programs reimburse school districts for the cost of meeting certain state mandates, including such activities as implementing school suspension and expulsion policies and procedures, providing for emergency procedures, and reporting crimes/incidents at schools. Figure 8 summarizes the current programs that address school safety and that we recommend be incorporated into a flexible block grant of about $140 million. 

Figure 8

Programs in LAO
School Safety Block Grant

(In Millions)


Governor's Budget

Categorical Programs

School Safety and Violence
Prevention Grants


School Law Enforcement Partnership


Gang Risk Intervention Program


State-Mandated Programs

Emergency procedures


School crimes reporting II


Criminal background checks


Notification to teachers of
pupil expulsion


Pupil expulsions from school


Pupil classroom suspension


School crimes reporting I


Law enforcement agency


Pupil suspensions: parent classroom


School bus safety I


Juvenile court records





Current School Safety Program

The School Safety and Violence Prevention Program is an entitlement program for school districts and COEs that have grade 8 through 12 students. Funds may be used for most purposes that improve safety—such as hiring personnel, counselors, social workers, nurses, partnerships with law enforcement, training, and on-campus safety devices.

The School/Law Enforcement Partnership consists of the following four grant programs: (1) Safety Plans for New Schools program, (2) Safe School Plan Implementation Grant program, (3) Conflict Resolution and Youth Mediation Grants program, and (4) School Community Policing Partnership Grants program. Grants are awarded via a competitive process—except for the Safety Plans for New Schools Program, which goes out on a formula basis.

The Gang Risk Intervention Program (GRIP) provides awards to COEs on a competitive basis as well. The GRIP awardees implement programs at various school sites to offer activities that include counseling, sports, cultural activities, and job training. Between the three programs in the School/Law Enforcement Partnership and the GRIP, approximately $17.6 million is awarded annually to school districts and COEs on a competitive basis.

Why a School Safety Block Grant?

As stated in the introductory discussion of the benefits of categorical program reform, consolidating categorical programs maximizes local control for districts in order to best meet their particular needs and, if structured well, shifts the focus from process to educational results. The largest existing school safety program—the School Safety and Violence Prevention Grants program—places relatively few restrictions on how funds can be spent, recognizing that needs vary from place to place and solutions vary from place to place. We believe the Legislature should go further with this approach and combine the three categorical programs and the state-mandated programs listed in Figure 8 into an even larger block grant that would give school districts more flexibility to meet school safety and pupil discipline needs.

How the School Safety Block Grant Would Work. The School Safety Block Grant would be equal to the aggregate amount proposed in the budget for the existing programs. School districts and county offices of education would receive a per-pupil amount weighted towards grades 8 through 12 to achieve a distribution similar to the current programs.

From the block grant, school districts would first fund costs for complying with the specified state mandates. The block grant amount received by every district should be adequate for this purpose. An incentive for districts to meet mandated requirements more efficiently is created because any savings realized may be redirected to fund any purpose that meets the safety needs of the district. School districts could use funds for a variety of purposes, including hiring personnel, counselors, providing training, and purchasing safety devices.

Teacher Support and Development Block Grant

In the "Crosscutting Issues" section of this chapter, we recommend the Legislature create a new teacher support and development block grant. This block grant would consolidate 18 existing teacher preparation, induction, and professional development programs and $722 million in funds. Block grant funding would be based on a formula, with differential per-teacher funding rates that varied according to teachers' levels of preparation and experience. The consolidation would seek to (1) streamline programs with similar (if not identical) purposes; (2) simplify the relatively complex administrative process districts must currently maneuver to obtain teacher support and staff development monies; (3) offer districts more flexibility in developing and coordinating their teacher preparation, induction, and ongoing professional development programs; and (4) gain funding efficiencies by leveraging existing resources more effectively. The consolidation would be based upon a set of teacher support and professional development standards and would hold districts accountable through a revised program-review process.

Block Grant Features for Small School Districts

Small school districts face unique challenges in providing education services. Consequently, we recommend that the Legislature adopt budget bill language allowing these districts to move funds among block grants. We further recommend that the Legislature incorporate this language into statute so that districts may adequately plan for future fiscal years.


In California, there are about 450 school districts—close to half of all districts statewide—with ADA of 1,500 or less. These small districts represent about 200,000 ADA, or close to 4 percent of the statewide total. We consider 1,500 ADA as a reasonable measure of a small district because districts with ADA greater than 1,500 usually have more district staff and have greater internal capacity to apply for various grants. In addition, this measure corresponds to the Education Code definition of small unified school districts for purposes of revenue limit payments.

Small school districts face unique obstacles that hinder their ability to provide certain education services. Figure 9 summarizes some of these difficulties. For example, small districts often qualify for formula-based categorical funding allocations that are not large enough to be used effectively. In the case of funding allocated on a competitive basis, small districts often lack the administrative staff to successfully apply for grants. 

Figure 9

Difficulties Small School Districts Face


ü  Higher Fixed Costs. Due to negative economies of scale, small districts tend to have a higher portion of their budgets tied up by fixed costs, over which they have little control.

ü  Costly Administrative Burden. Administrative responsibilities and paperwork are harder for small districts to absorb. For example, many small districts have only one individual serving as both superintendent and school principal.

ü  Often Lack “Critical Mass” of Funding. Since districts receive most categorical funding based on ADAa, small districts often receive allocations that are too small to be used effectively for their intended purpose. For example, one district we contacted received only $8,000 to run a Gifted and Talented Education program for 43 students for the school year.

ü  More Sensitive to Declining ADA. Districts receive funding per ADA on an average-cost basis, rather than a marginal-cost basis. Since small districts tend to face higher per-pupil fixed costs, they are less able to adjust costs and absorb revenue declines. Almost 40 percent of all districts in the state experienced declining ADA in 2000-01. Close to two-thirds of these districts have 1,500 ADA or less.

ü  Lack Resources to Compete. Small school districts often lack the resources and staff needed to compete for competitively awarded categorical grants. Thus, these districts often cannot participate in these programs.

ü  Difficult to Implement Certain Reforms. Many smaller districts have had difficulty implementing certain education reforms such as the K-3 Class Size Reduction program due to small, highly variable, numbers of pupils in each grade level.

a   Average daily attendance.


Benefits of Additional Flexibility

Even with the flexibility provided in our proposed block grants, there are certain cases in which additional flexibility is warranted. For example, additional flexibility to move funds among our proposed block grants would help small districts address the needs of their students by allowing districts to determine how best to use this funding. This flexibility would:

Recent Federal Program Provides Flexible Example

The federal Rural Education Achievement Program (REAP) was enacted as an amendment to Title X of the Elementary and Secondary Education Act for fiscal year 2001. The REAP permits smaller, rural local education agencies (LEAs) to use funds available through several federal formula grant programs for activities related to one or more of the specified programs. According to SDE, about 300 LEAs are eligible to participate in REAP and about 160 already have applied and are participating in this new program. This indicates that many smaller districts show interest in additional funding flexibility.


To address the difficulties that small school districts face, we recommend that the Legislature provide districts that have 1,500 or fewer ADA additional funding flexibility. Specifically, we recommend that the Legislature adopt budget bill language allowing these districts to freely transfer funds among block grants. However, we also recommend that the Legislature limit the percentage of funds a district may move out of the Compensatory Education Block Grant to a specified percentage (for example, 50 percent). This one exception would help ensure that the Legislature's priorities with respect to serving low-performing students remains intact. We further recommend that the Legislature incorporate the budget bill language into statute so that districts may adequately plan for future fiscal years.

A Revised Role for SDE Under Categorical Reform

We recommend that the Legislature redefine the mission of the State Department of Education to focus on assisting schools and school districts by: (1) improving the accountability system, (2) providing technical assistance and program oversight, and (3) improving research and evaluation.

If the Legislature chooses to adopt the simplified categorical program structure recommended in this chapter, it will want appropriate accountability and oversight mechanisms in place to ensure that state funds are being used effectively. We believe that with a simplified categorical structure, the Legislature should also reform the role of SDE to improve the quality of state oversight. Because categorical reform would give districts more flexibility in using funds, SDE would have fewer program requirements to monitor under our recommended model. This would reduce SDE's paperwork and administrative burden, freeing up resources for oversight activities that focus more on educational results.

In redefining the mission of SDE, we recommend that SDE assist schools and school districts in three main ways:

Below, we provide details on how the role of SDE could change in accountability, program oversight, and evaluation as part of reforming categorical program funding. Some of the recommendations below would result in potential workload increases, but the cost of the new workload would be more than offset by administrative savings possible from categorical reform.


The Public Schools Accountability Act (PSAA)—Chapter 3x , Statutes of 1999, (SB 1x, Alpert)—created a statewide school-level accountability system that (1) rewards schools for academic improvement, (2) provides external assistance for lower-performing schools, and (3) potentially sanctions schools that continue to fail after receiving external assistance. The API is the cornerstone of the PSAA. Its purpose is to measure a school's academic performance and the changes in performance over time. (See discussion of the PSAA in the "Accountability and Low Performing Schools" section of this chapter.)

Generally most of the components of the accountability system are in place or under development to provide the Legislature with adequate outcome measures for holding school districts accountable for the funding provided in the five block grants that we have recommended in this chapter. Below, we discuss some of the measures that could be used for each block grant.

Technical Assistance and Program Oversight

There are several types of LEA reviews conducted by various organizations. For example, SDE conducts Coordinated Compliance Reviews (CCRs), the State Controller's Office conducts fiscal audits, and until recently, districts have been required to conduct program quality reviews. These reviews vary in their usefulness. To maximize the value of the CCR process, we think that SDE should modify most existing CCRs to emphasize outcomes and performance.

What Is the CCR Process? The purpose of the CCR process is to: (1) ensure compliance with state and federal requirements, (2) reduce the number of compliance monitoring visits SDE makes to LEAs, and (3) provide technical assistance to prevent and resolve noncompliance. Federal and state law, as well as certain lawsuits, govern the content of the review. Currently, this is a fairly mechanical review process—similar to an audit rather than a program evaluation.

The CCR process includes a review of nearly all of the federal and state categorical programs. Once every four years, SDE conducts a CCR in each district. Before SDE performs this review, the district must conduct a self-review, which then informs the department's CCR. After a CCR, SDE provides each district with findings as to how it is in or out of compliance.

Recent Legislation. The Legislature has made efforts to reform SDE's CCR process. Chapter 724, Statutes of 2001 (SB 374, O'Connell), contains several provisions that streamline how LEAs plan and apply for categorical programs and that emphasize state standards and accountability. Based on our discussions with SDE, we understand that the major short-run effect of Chapter 724 on the CCR process will be that SDE uses API scores and other test results to select districts for review. However, SDE has not yet moved to include outcome measures as part of the program review itself. We regard SDE's delay in implementing such changes as a signifi cant missed opportunity. The CCR process should be revised to better serve both state and local needs.

Recommendation. In view of the above, we recommend that the Legislature enact legislation to modify the CCR process to emphasize outcomes and performance as part of categorical reform. Specifically, we recommend the following changes to the CCR process:

Building upon the Legislature's recent reform efforts, these modifications would better align the CCR process with categorical reform and other education reforms. In addition, it would provide LEAs and the state with valuable information regarding program quality.

Create Ongoing Research and Evaluation Program

A key function of SDE should be to conduct research, evaluate programs, and disseminate findings to help school districts improve their education programs. Currently, the state requires and funds education evaluations on an ad-hoc basis either through the annual budget process or through specific bills. Evaluation reports have rarely matched the expectations placed on them, however, because of limitations on data sources, funding levels, and study periods.

As the Legislature begins to rethink the role of SDE, we recommend that the Legislature establish an ongoing research and evaluation program in SDE. This type of program would ensure that (1) the highest priority programs are evaluated, (2) the evaluations are adequately funded, (3) the evaluations are of the highest quality available for the level of funding committed, and (4) dissemination of best practices to districts takes place.

Return to Education Table of Contents, 2002-03 Budget Analysis