Legislative Analyst's Office Analysis of the 2003-04 Budget Bill

Accountability

In this section, we discuss the state's school accountability system and how it can be integrated with the federal school accountability system required by the No Child Left Behind (NCLB) Act of 2001. Under current law, there are multiple state and federal intervention and sanction programs for public schools that are struggling academically. Figure 1 provides highlights of each of these programs. There are two programs under state law—the Immediate Intervention/Underperforming 

Schools Program (II/USP) and the High Priority Schools Grant Program (HPSGP). The state programs have different planning requirements, funding levels, interventions, and sanctions. The state has also partially integrated the federal Comprehensive School Reform Demonstration (CSRD) program into II/USP and HPSGP. In addition, California must comply with the new federal accountability system mandated by NCLB, which requires certain interventions and sanctions for Title I schools that fail to meet annual student achievement targets.

Schools can participate in one or more of these state and federal programs, creating administrative complexities that subtract from the focus on school improvement. In this analysis, we recommend a framework for an integrated approach to interventions and sanctions at low-performing schools. 

Background on State and Federal Sanction and Intervention Systems

II/USP and HPSGP

The state accountability system is based on the Public Schools Accountability Act (PSAA)—Chapter 3x, Statutes of 1999 (SB 1x, Alpert). The original sanction and intervention program under the PSAA was II/USP, which is currently serving 1,288 schools. In 2001, the Legislature added HPSGP to the PSAA. The HPSGP now serves 683 schools, of which 307 are also in II/USP. The II/USP targets schools scoring in the lowest five deciles of the state's accountability measure, the Academic Performance Index (API). The program provides a $50,000 planning grant and two to three years of implementation funding at $200 per pupil. In contrast, HPSGP focuses on schools in the first decile of the API. Schools have the option to receive a $50,000 planning grant and receive three to four years of implementation funding at $400 per pupil.

For both programs, schools that make "significant growth" in their API scores receive an additional year of funding, while schools that do not make significant growth are subject to sanctions. The State Board of Education (SBE) can decide to either have the state take over the school or assign a School Assistance and Intervention Team (SAIT). Schools in sanctions receive $150 per pupil for three years and can exit sanctions if they make significant growth for two consecutive years during the three-year sanction period.

NCLB Act of 2001

All schools must be part of the federal accountability system, which aims to have schools make "adequate yearly progress" (AYP) towards the goal of all students achieving academic proficiency by the 2013-14 school year. All schools must take the same assessments and have their AYP measured. About 57 percent of schools in the state receive Title I funding. Title I schools that do not make AYP for two consecutive years are subject to federal interventions and sanctions under Program Improvement as shown in Figure 2 (see next page). In contrast, schools that do not receive Title I funding do not face any other requirements. As of January 2003, the state had 955 schools in Program Improvement: 420 in level one, 507 in level two, and 28 in level three. The 955 Program Improvement schools represent 19 percent of Title I schools. Program Improvement also applies to school districts. Figure 3 (see page 117) shows the interventions and sanctions required for school districts. 

Funding for School Accountability Programs

Current Year Changes Adopted by Legislature Create Future Obligations

As part of the 2002-03 mid-year revision, the Governor recommended: (1) across-the-board cuts of 10.8 percent to II/USP and HPSGP; and (2) eliminating funding for a new cohort of HPSGP. As of this writing, the Legislature had rejected these proposals. Instead, the Legislature reduced funding for HPSGP and II/USP by $76 million on a one-time basis to align the timing of funding with actual expenditures as part of AB 8x (Oropeza). Under current practice, the state provides the final 20 percent of II/USP and HPSGP funding in September. The Legislature's change will fund the September 2003 payment with 2003-04 Proposition 98 funds instead of 2002-03 funds. In addition, by opting to fund a new cohort of HPSGP, the Legislature creates additional funding obligations in 2003-04.

2003-04 Proposed Budget Reduces Funding for State Interventions

Figure 4 shows funding proposed by the Governor for state and federal sanctions and interventions for low-performing schools. The 2003-04 proposed budget includes $357 million for these programs from Proposition 98 and federal funds, which represents a decrease of $119 million from the 2002-03 Budget Act, and a $54.2 million decrease from the Governor's proposed 2002-03 mid-year revisions. The Governor's budget includes the following major changes to accountability program funding: 

High Priority Schools Grant Program. Funding for HPSGP increases by $5.8 million compared to the Governor's mid-year revision, but decreases by $38.6 million compared to the 2002-03 Budget Act. These changes reflect: (1) continued savings from the across-the-board cut recommended in 2002-03; and (2) continued savings from not funding a new cohort of HPSGP in 2002-03. 

According to the administration, the Governor will propose trailer bill language to clarify that schools jointly funded by II/USP and HPSGP can only receive a total of three years of funding. The third year of the program would be funded solely by HPSGP. The Governor's language would also clarify that jointly funded schools are not eligible for an additional year of funding under HPSGP if they make significant growth (currently defined as one point positive API growth). By not providing significant growth funding to jointly funded schools, the trailer bill language would generate savings in future years.

II/USP. Funding for II/USP decreases by $60 million compared to the Governor's mid-year revision, and decreases by $80 million compared to the 2002-03 Budget Act. These changes reflect: (1) $20 million in continued savings from the across-the-board cut recommended by the Governor in 2002-03; and (2) $60 million in savings that occur as schools exit the program.

Funding Proposed for 2003-04 Is Insufficient

Based on the Legislature's actions in the 2003-04 First Extraordinary Session, we estimate that the Governor's 2003-04 proposed budget underfunds II/USP and HPSGP by an estimated $69 million due to: (1) the recommended across-the-board cuts, (2) the Legislature's decision to start a second cohort of HPSGP, and (3) the Legislature's decision to realign the timing of expenditures.

We estimate that $132 million is necessary to fully fund II/USP in 2003-04. The budget proposes $105 million, leaving a shortfall of $27 million. Current law allows the State Department of Education (SDE) to reduce the per pupil rate to be commensurate with the funding available. We estimate that SDE would have to reduce the per pupil rate from $200 to approximately $158 to accommodate this funding reduction.

For HPSGP, we project that $220 million would be necessary to fund cohorts one and two in 2003-04. Compared to the proposed funding level of $178 million, the program is underfunded by $42 million. To compensate for a funding shortfall, we estimate that SDE would need to reduce the per pupil amount from $400 to about $323. Under current law, SDE does not have the authority to reduce the per pupil funding rate for HPSGP. Therefore, the Legislature would either need to provide an additional $42 million for HPSGP, or insert trailer bill language allowing SDE to reduce the per pupil rate in 2003-04.

Fundamental Differences Between State and Federal Accountability Systems

The NCLB fundamentally changes the school accountability landscape for California by requiring the state to have one integrated state and federal accountability system. The state accountability system is based on the PSAA, which (1) rewards schools for academic improvement, (2) provides external intervention for low-performing schools, and (3) sanctions schools that continue to fail after receiving external assistance. The new federal accountability system has some similarities to the state system, but has several fundamental differences, including: (1) growth targets which measure different goals than the state, (2) different entities responsible for intervention, and (3) sanctions and interventions which differ significantly.

Growth Targets Measure Different Goals

The two accountability systems require different ways of measuring student performance. The federal accountability system focuses on the percentage of students meeting proficiency targets while the state's accountability system focuses on growth in overall school achievement from year to year.

The NCLB requires all students to achieve academic proficiency in mathematics and English language arts by the 2013-14 school year. States must define the meaning of proficient and set annual objectives towards this goal, referred to as AYP. In order to meet AYP, schools must meet targets for all students and for the following subgroups: major racial and ethnic groups, economically disadvantaged, students with disabilities, and English language learners.

Federal law requires states to set a starting point of the percentage of students who are proficient based on prior-year assessment results. According to the accountability plan submitted by SDE to the federal government, the starting point for AYP will be 13.6 percent proficient for English language arts and 16 percent proficient for mathematics. These percentages will be the AYP targets for 2002-03 and 2003-04. Figure 5 shows the percent of students who tested proficient or above on the California Standards Test. As the figure shows, schools with significant numbers of students in subgroups may have difficulty meeting the initial starting points.

In 2004-05, the targets will increase by 10.8 percent for English language arts and 10.5 percent for mathematics. The next increase in growth targets of 10.8 percent and 10.5 percent will occur in 2007-08. After that point, the growth targets will increase annually by 10.8 percent for English language arts and 10.5 percent for mathematics. As the state raises the bar per federal requirements, more and more schools will be unable to achieve these targets. Once a school has missed its target, it will be difficult for it to ever catch up because the target continues to rise. The level of growth required to meet these targets is unrealistically high in our view, and virtually every Title I school will likely be in Program Improvement within a few years. 

In contrast, the state's accountability system is based on the API. Instead of measuring a particular level of achievement, it measures growth in schoolwide achievement from year to year. The API ranges from a low of 200 to a high of 1000. The statewide API performance target for all schools is 800. A school's API growth target is generally 5 percent of the difference between the school's API and the performance target of 800. There is also a target for significant ethnic and socioeconomically disadvantaged subgroups, which is 80 percent of the schoolwide target.

Entity Responsible for Interventions Different

State and school district roles are different under NCLB and the PSAA. The NCLB makes school districts primarily responsible for implementing interventions and sanctions. The state has two primary responsibilities under NCLB: (1) intervene in school districts that are not meeting AYP and (2) provide technical assistance to schools subject to sanctions and interventions through a "statewide system of school support." The state can also take over schools during the fourth level of Program Improvement at the request of the school district.

In contrast, the state role under PSAA is to support direct intervention and sanctions at schools, leaving school districts with a limited role in the school improvement process. During the intervention phase, many districts leave the school reform responsibilities to the school and external evaluator. During the sanction phase, the state can take over legal responsibilities for schools, leaving districts largely out of the solution. Some school districts do play a role in II/USP and HPSGP, functioning in place of the external evaluator, but this assistance is not mandatory. More importantly, districts do not face the possibility of sanctions if they do not help struggling schools to improve.

Different Sanction and Intervention Requirements

The state and federal accountability systems also have different sanction and intervention requirements. Four key differences are discussed below: eligibility, funding, timelines, and types of sanctions imposed.

• Eligibility Requirements. The eligibility requirements for sanction and intervention programs differ. Both II/USP and Program Improvement are for schools that are not meeting their academic improvement targets. In contrast, schools are eligible for HPSGP if they are in the lowest decile of the API, regardless of whether they are meeting their growth targets.
• Funding. The state's intervention programs are grounded in the assumption that additional financial resources are necessary for school improvement, while NCLB assumes that existing state and federal resources will be used more efficiently to support reform efforts.
• Timing. Schools enter Program Improvement after failing to meet AYP for two consecutive years. In contrast, schools can enter II/USP after only one year of not meeting API growth targets. In addition, the timeline for II/USP sanctions is more finite than for Program Improvement. Schools in II/USP begin sanctions after two or three years of implementation and the sanction process lasts for three years. For Program Improvement, a school could be subject to sanctions and interventions for many years because it is very difficult to meet the exit criteria of making AYP two years in a row.
• Types of Interventions and Sanctions. The types of interventions and sanctions required by state and federal systems differ. The NCLB has some interventions in the first two years of Program Improvement—school choice and supplemental services—that are not required under state law. At the sanction phase under NCLB, there are two levels—corrective action and restructuring. State take-over of schools does not happen until the restructuring phase. In contrast, state sanctions can include state take-over of schools in the first year of sanctions.

Differences in Accountability Programs Create Unwieldy System

Figure 6 provides a comparison of state and federal accountability programs. There are 1,288 schools participating in II/USP, 683 in HPSGP, 195 in CSRD, and 955 in Program Improvement. There is substantial overlap among programs, with 711 schools participating in more than one program. The total number of schools involved in these programs is 2,050. Because many key elements of these accountability programs differ, schools in multiple programs must comply with two sets of rules. These multiple planning requirements, interventions, and exit requirements create a patchwork of conflicting messages for schools.

Use of Both API and AYP Creates Confusion  

To comply with the NCLB requirement of one integrated state accountability system, SBE opted for a dual system that keeps the current API system while also reporting AYP to the federal government. Schools will receive a report that measures performance using both API and AYP scores. Currently, about half of the schools statewide make their API targets annually, but SDE projects that increasingly larger percentages of schools will not make AYP over time. Therefore, many schools will simultaneously meet their API targets and be identified for Program Improvement. This sends conflicting messages to schools.

To help schools wade through this confusion, SBE created a matrix to classify schools based on a combination of API and AYP. The matrix places schools in six categories: exemplary, commendable, on the move, some improvement, and academic watch. For example, a school with API growth equal to or less than zero that did not meet AYP would be on academic watch and would be the highest priority for intervention. A school that met schoolwide API and AYP targets but did not meet subgroup targets would be characterized as "on the move." Exemplary schools would be those that met all API and AYP targets. The matrix is intricate and may add yet another layer of complexity to the accountability system. It is also unclear how SBE anticipates using the matrix and what specific interventions will go with each category. In addition, the matrix does not change the underlying interventions required by NCLB as displayed in Figure 2.

Multiple Intervention Programs Create Mixed Messages

As noted earlier, about one-third of schools are participating in more than one program. This means that many schools must understand and coordinate multiple programs that can have conflicting messages. For example, a school could be required to implement the findings from a Program Improvement audit while implementing an HPSGP plan with different interventions. Schools can also graduate from II/USP, only to find themselves entering Program Improvement. In addition, state requirements for each program have changed from year to year, making it difficult for school districts to keep track of what is required.

Cost of Continuing Duplicative Programs High

The cost of continuing to administer duplicative programs will greatly increase in the next few years as many schools enter Program Improvement. If the state continues to add additional cohorts to II/USP and HPSGP while implementing the requirements of NCLB, the state will be funding multiple interventions at the same schools. In addition, the cost of sanctions for II/USP and HPSGP will rapidly increase as more cohorts reach the sanction phase. In 2002-03, 24 schools are subject to state sanctions. In 2003-04, the original 24 schools will continue sanctions and an estimated 76 additional schools will face sanctions, for a total of 100 schools. We estimate that the total number of schools being sanctioned will increase to 230 in 2004-05 and 330 in 2005-06.

NCLB Creates Unrealistic Standards

The new federal accountability system requires all students to be proficient by 2013-14. Schools that do not meet their annual AYP targets are identified for Program Improvement. As discussed below, the federal standards will identify a large number of schools for Program Improvement and the state's definition of proficiency will exacerbate this situation. This results in a system with unrealistic standards. The problems with the federal measure are described below.

Large Number of Schools Will Be Identified as Low-Performing. Preliminary analysis by SDE shows that a large number of schools will be identified for Program Improvement. The SDE has tried to mitigate this effect by providing schools with several years to meet targets in the early years of NCLB, but the number of schools entering Program Improvement will increase rapidly starting in 2007-08, when targets begin to increase annually by 10.8 percent for English language arts and 10.5 per cent for mathematics. In the latter years of the 12-year timeline, virtually every Title I school will be in Program Improvement.

State Definition of Proficiency Too Stringent. As part of the definition of AYP, SBE opted to maintain the current definition of academic proficiency. For grades two through eight, students must score at the proficient or advanced levels on the California Standards Tests for English language arts and mathematics. For grades 10 through 12, a score will be selected on the California High School Exit Exam (CAHSEE) that corresponds to proficiency levels on the California Standards Tests.

The SBE designed the proficient and advanced achievement levels to roughly represent students achieving above grade level who are on track to attend the California State University (CSU) or the University of California (UC). Approximately one-third of students currently reach proficiency on the California Standards Tests, meaning that two-thirds of California's students will need to improve their performance to reach proficiency within twelve years as required by NCLB. Using this definition, it will be very difficult for all students to reach this standard and many schools will be identified for Program Improvement.

Framework for an Integrated Accountability System

When the Legislature created the PSAA in 1999, federal law allowed states to craft their own sanction and intervention programs. The NCLB Act changed this landscape by requiring highly specific interventions and sanctions. As a result, the Legislature needs to integrate the state and federal accountability systems to create clearer expectations and focus resources on the neediest schools. Integrating these programs will be a complicated and detailed undertaking. To assist the Legislature toward that end, we offer the following guiding principles and recommendations in shaping a uniform system.

Focus State Interventions at the School District Level

We recommend that a restructured accountability system focus on providing technical assistance at the school district level to build capacity for districts to intervene at schools.

The NCLB makes school districts primarily responsible for interventions at schools under Program Improvement, while the state is primarily responsible for intervening in districts. This division of responsibilities is logical because the state interacts primarily with districts rather than schools. In addition, the state does not have the financial resources or the capacity to intervene at the school level in a large number of schools. 

Under PSAA, the state focuses state interventions directly at the school level. This strategy overlooks the important role school districts should play in improving student achievement at the school level. School districts make key funding and management decisions for schools and should be the main entities the state holds accountable. At the sanction phase, PSAA gives the state the option to take over schools. This creates incentives for school districts to abdicate responsibility for improving schools since the district will not be held accountable if a school is sanctioned.

To make the largest impact with limited resources, we believe that interventions at the school district level should be the cornerstone of an integrated accountability system. The state could use the statewide system of school support required by NCLB to help districts build capacity to intervene at schools and to intervene in districts in Program Improvement and corrective action. Accordingly, we suggest that over time, the Legislature direct more resources to school district level interventions, and less funding to directly intervene in schools.

Target State Interventions at the Neediest Schools

In light of resource and capacity constraints, we recommend that the Legislature target state interventions at the neediest schools—those in decile one of the Academic Performance Index.

Analysis by SDE shows that many schools will fall under Program Improvement in the next few years because schools will find it difficult to make AYP for all subgroups as required by NCLB. The state does not have sufficient fiscal capacity to intervene at all of these schools and there are a limited number of individuals statewide with the expertise to help turn around these low-performing schools. In light of these constraints, we believe the state should focus its resources on the neediest schools as defined by the API. We recommend that the state intervene at all schools in API decile one because these schools will have the most difficulty reaching the NCLB goal of 100 percent proficiency by 2014. The NCLB only requires interventions and sanctions for Title I schools, but we recommend that the state also intervene at non-Title I schools. Using 2001 API data, there are 763 decile one schools, of which 682 receive Title I funding and 81 do not. It is important to intervene in all decile one schools because almost 11 percent of decile one schools are not in Title I and the accountability system should not create incentives for schools to forgo Title I funds in an effort to escape accountability. As discussed in more detail below, we recommend that the state restructure HPSGP to serve as the state's primary program for state and federal accountability purposes. 

Provide Less Intensive Interventions at Higher Performing Schools

We recommend that the Legislature design the accountability system to provide less intensive state interventions and sanctions for higher performing schools.

While we recommend that state intervention focus on API decile one, many other Title I schools will be identified for Program Improvement. These schools should receive less intensive interventions and less severe sanctions than decile one schools. Local education agencies are primarily responsible for selecting and implementing corrective action and restructuring options. However, the state is responsible for providing technical assistance through the statewide system of school support, which is a regional system administered by county offices of education. We recommend that the state not provide any interventions beyond the required statewide system of school support for Title I schools in deciles two through ten.

Redesign HPSGP to Serve State and Federal Purposes

We recommend that the Legislature restructure the High Priority Schools Grant Program to serve as the primary accountability program for state and federal purposes.

In order to integrate the state and federal accountability systems, the Legislature needs to simplify state interventions and focus on the neediest schools. We believe the Legislature should phase out II/USP by not adding any new cohorts because only one-fifth of schools participating in II/USP are in decile one of the API. Instead, the Legislature should align HPSGP with NCLB. We recommend that the restructured HPSGP have the following key components:

• Provide funding for schools classified as decile one that are not currently in HPSGP (172 schools, using 2001 decile data). In designing this program, the Legislature should be careful to include non-Title I schools without creating a new state mandate.
• Make planning requirements uniform so that schools need only submit one plan for state and federal interventions.
• Provide all HPSGP schools with funding for a specified number of years and not use significant growth as a trigger for additional funding for the reasons discussed below.
• Modify sanctions to coincide with those required by NCLB for corrective action and restructuring.
• Assign HPSGP schools entering Program Improvement Level 3 a school support team through the statewide system of school support. These teams are similar to SAITs required under PSAA. School support teams would not be provided for any other schools in Program Improvement Level 3 or above.

Transition Schools in State Intervention Programs To New System Expeditiously

We recommend that the Legislature enact legislation that expeditiously transitions schools currently in the Immediate Intervention/Underperforming Schools Program and High Priority Schools Grant Program to the newly integrated accountability system while following through on existing sanction commitments. We further recommend that the Legislature end use of significant growth as a criterion for further funding.

The first cohort of II/USP has already reached the sanction phase. Other schools in II/USP and HPSGP will be reaching sanctions over the next few years. There is a large degree of overlap between schools in Program Improvement and the state intervention programs. Sixty percent of Program Improvement schools are currently participating in II/USP or HPSGP and many other II/USP and HPSGP schools will likely be identified for Program Improvement in the next few years. To simplify sanctions for these schools, we recommend that the Legislature align the timing and types of sanctions with the federal model as soon as possible.

In transitioning to a new accountability system, the state should be careful to follow through with original sanction commitments to maintain credibility. The SBE has been slow to implement the rigorous sanctions required by PSAA. The first year that II/USP schools could face sanctions was 2002-03. A total of 24 schools in cohort one had no growth or negative growth for two consecutive years and are subject to sanctions in 2002-03, but SBE has not yet formally sanctioned these schools. Chapter 1035 (SB 1310, Alpert), became effective on January 1, 2003, which requires SBE to determine whether a school made significant growth within 30 days of public release of a school's growth in API results. Growth API results were released publicly in October 2002. In November 2002, the SBE announced its intent to delay decisions on sanctions until March 2003. The SBE's reluctance to sanction schools stems primarily from concern that the schools being sanctioned are not the lowest performing schools. Only one of the schools is in decile one, 12 are in decile three (50 percent), and six are in decile five (25 percent). While the schools being sanctioned may not be the lowest performing schools, it is important for the state to follow through with the commitment to sanction schools that have not been able to make any improvement in order to maintain credibility.

The Legislature should also end use of significant growth as a criterion for continued funding. Schools that make significant growth after implementation receive another year of funding and avoid sanctions for one year. The SBE defined significant growth as one point positive growth in either implementation year. This was done to limit the number of schools facing sanctions because of capacity constraints. The result of this policy for II/USP cohort one schools was: 73 percent made significant growth, 7 percent faced sanctions, and 20 percent exited the program. An examination of the schools classified as significant growth reveals that almost 19 percent actually had a net decline in API over two years. In addition, only 35 percent of significant growth schools had positive API growth in both years.

The current significant growth definition is problematic because it is difficult to justify sanctioning some schools that had a net decline in API and not others. In addition, tying significant growth to receipt of an additional year of funding creates challenges because schools cannot plan for an additional year of funding. Funding for these schools is not available until around January because schools must wait until October or December for their final API growth results. Therefore, schools must decide whether to continue implementing their action plan several months before they know whether state funding will be available. For these reasons, we recommend against using significant growth for funding decisions and instead, providing funding for a fixed number of years. Under our recommendation, school districts could still use significant growth to determine the intensity of interventions and sanctions.

Change Definition of Proficiency

We recommend that the Legislature amend the Public Schools Accountability Act to define "proficiency" for purposes of the federal No Child Left Behind Act as passage of the high school exit exam for grades 10 through 12, and being on-track to pass the high school exit exam for grades two through eight. 

As part of the definition of AYP, SBE opted to maintain the current definition of academic proficiency. For grades two through eight, students must score at the proficient or advanced levels on the California Standards Tests for English language arts and mathematics. For grades 10 through 12, SDE will select a score on the CAHSEE that corresponds to proficiency levels on the California Standards Tests. This score will be higher than the score required to pass the CAHSEE. Approximately one-third of students currently reach proficiency on the California Standards Tests, meaning that two-thirds of California's students will need to improve their performance to reach proficiency within twelve years as required by NCLB. It will be very difficult for all students to reach this standard and many schools will be identified for Program Improvement. In light of these consequences, we believe the Legislature should reconsider the definition of proficiency.

The SBE designed the proficient and advanced achievement levels to represent students achieving above grade level who are on track to attend CSU or UC. While the state expects all students to aspire to these proficiency levels, SBE did not establish these performance levels as a requirement for all students. The only performance requirement for all students is passage of CAHSEE. The SBE set the minimum passing score for CAHSEE at a level that reflected a performance expectation for all students, which is lower than what would be considered proficient on the California Standards Tests.

We recommend that the Legislature change the definition of proficiency to make passage of CAHSEE the ultimate goal for all students. The definition of proficiency for grades two through eight could be defined at a level commensurate with being on track to pass the CAHSEE. While this recommendation will create a lower standard than what SBE approved for the definition of AYP, it will provide a more consistent message for what the state expects of schools and students. It will also slow the rate that schools enter Program Improvement.

Set Aside Funding for Restructured Accountability System

We recommend that the Legislature set aside $50 million for the restructured accountability system. (Increase Item 6110-123-0001 by $50 million.)

The 2003-04 proposed budget contains $357 million for state and federal sanction and intervention programs. We estimate that the Governor's proposed budget underfunds II/USP and HPSGP by an estimated $69 million due to the across-the-board cuts, the Legislature's decision in the 2003-04 First Extraordinary Session to start a second cohort of HPSGP, and the Legislature's decision to realign the timing of expenditures. In addition, the restructured system will also create cost pressures. Because a more detailed proposal is necessary to estimate the cost of the restructured system, an exact cost estimate is unavailable at this time. We recommend that the Legislature set aside $50 million to address the funding shortfalls and fund a redesigned accountability system. We will provide more details at budget hearings on the cost options.

A restructured accountability system could be funded with a combination of state Proposition 98 and federal resources. In 2003-04, the state must spend 2 percent of its Title I allocation on Program Improvement activities ($29.1 million) which has been budgeted by the Governor. There will also be approximately $15.4 million in federal carryover funds available in 2002-03. Carryover funds have not been programmed in the budget. In 2004-05 and beyond, the set-aside climbs to 4 percent ($60 million). The state could use these federal funds for the statewide system of school support, school support teams for HPSGP Title I schools in corrective action, and per pupil funding for HPSGP Title I schools. The CSRD program could also bear some of the per pupil costs for HPSGP schools that apply for CSRD funding. The state would bear the remaining costs, and in the "Proposition 98 Budget-Year Priorities" section, we identify savings to pay these costs.