Analysis of the 2005-06 Budget Bill Legislative Analyst's Office February 2005

Mandates

The Governor's budget recognizes 36 state-mandated local programs for K-12 education in 2005-06. These mandates require districts and county offices of education (COEs) to conduct a wide range of instructional, fiscal, and safety activities, and require districts to administer local processes designed to protect parent and student rights.

The State Constitution requires the state to reimburse local governments for the costs of complying with mandated local programs. The Commission on State Mandates (CSM) determines whether state laws or regulations create a mandated local program and whether the mandate requires reimbursing local governments for the costs of following the mandate. The CSM also develops claiming guidelines for the specific mandated activities that are eligible for reimbursement.

For several years, the state has not provided reimbursements to K-12 school districts for mandated programs. The 2001-02 Budget Act was the last time the state made major appropriations for K-12 mandates. The state has instead "deferred" payments, which means that funds will be provided at some unspecified future time. Even though payments have been deferred, school districts are still required to perform the mandated services.

The budget again proposes basically no funding for K-12 mandates in 2005-06. The budget would defer payment for district and COE claims to future budgets due to the fiscal condition of the state. With this new proposed deferral (estimated at roughly $315 million), we estimate the state will owe about $1.7 billion in unpaid K-12 mandate claims by the end of the budget year. Proposition 1A, which requires the state to pay for mandates or relieve local government of the service requirements, does not apply to local education agencies. As a result, the state may continue deferring K-12 mandate costs. These deferred costs would be paid from future Proposition 98 funds.

Chapter 895, Statutes of 2004 (AB 2855, Laird), eliminated six state mandates affecting K-12 education beginning in 2005-06. Two other mandates that affected both K-12 education and other local government agencies also were eliminated. Based on 2002-03 final claims from districts and COEs, we estimate savings from eliminating the eight mandates totals more than $6 million annually. In addition, Chapter 895 directs CSM to review its decisions on the Standardized Testing and Reporting (STAR) program and the School Accountability Report Card mandates "in light of federal statutes enacted and state court decisions rendered since these statutes were enacted."

From our review of K-12 mandates, we have identified four issues:

• The budget should identify new mandates that have been approved by the Legislature.
• The State Department of Education (SDE) and the State Controller's Office (SCO) need to establish a process for sharing information on "offsetting revenues."
• The mandated cost of the new Comprehensive School Safety Plan mandate could be reduced by recognizing available revenues as offsets.
• Costs associated with the mandate to provide supplemental instruction to students in grades 2 through 9 could be reduced by limiting per pupil costs to the amount provided by the state for supplemental instruction programs.

We discuss the first three issues below. The fourth issue is discussed in the "Categorical Reform" section earlier in this chapter.

Newly Identified Mandate Review

We recommend the Legislature add eight new mandates to the budget bill in order to signal its recognition of the state's mandate liabilities.

Chapter 1124, Statutes of 2002 (AB 3000, Committee on Budget), requires the Legislative Analyst's Office to review each mandate included in CSM's annual report of newly identified mandates. In compliance with this requirement, this analysis reviews eight new education mandates. Figure 1 displays the new mandates and the costs associated with each one. The CSM estimates total district costs of $77 million for the eight mandates through 2004-05. This estimate is based on actual district claims through 2002-03. In 2005-06, we estimate the new mandates will cost the state about $11.3 million.

Before the current budget crisis, the state maintained a process for including new mandates in the budget. Specifically, once CSM had completed its determination of a mandate's costs, an appropriation for the approved costs would be included in an annual "mandate claims bill." The claims bill allowed the Legislature to review and approve the cost of new mandates—or direct CSM to reassess its approved costs based on specific issues identified during the deliberations on the bill.

Because the state has ceased all education mandate payments, there has been no K-12 claims bill. This leaves the budget process as the primary vehicle for the Legislature's review of new mandates. The 2005-06 Governor's budget recognizes only one of the new K-12 mandates—the Comprehensive School Safety Plan. According to the Department of Finance, the commission's actions on the other K-12 mandates are still under review and may be included in an April budget revision letter or in the May Revision.

Our review of the CSM decisions on the new mandates did not identify any issues with the commission's determination of mandated costs. By adding the new mandates to the budget bill, the Legislature would signal its recognition of the state's mandate liabilities. For this reason, we recommend the Legislature amend the budget bill to include the eight mandates approved by CSM during 2004.

Offsetting Revenues Process Is Needed

We recommend the Legislature direct the State Department of Education and the State Controller's Office submit a joint plan to the budget subcommittees by April 1, 2005, outlining a process for sharing information needed to reduce the state cost of state-mandated local programs.

In past recommendations on state-mandated programs, we have discussed the problem that districts sometimes fail to recognize state funds that districts should have used as an offsetting revenue in their claims for reimbursement of mandated costs. For instance in our Analysis of the 2004-05 Budget Bill (please see page E-104), we noted that several district claims we reviewed for the STAR program did not recognize the annual apportionment for local program costs that is included in the budget each year. Statute directs local governments to recognize any such revenues as an offset that reduces their total claim for reimbursement.

The SCO processes school district claims for mandate reimbursement. While SCO reviews the claims for completeness and accuracy, it does not have access to data on the amount of state funds districts receive in programs that have been identified as offsetting revenues to specific mandates. Without that information, the SCO review cannot assess whether a district claim appropriately identified the availability of such revenues.

The state would benefit from ongoing exchange of information on state mandates between SCO and SDE. The SDE maintains data on the amount provided to each district in K-12 categorical program funding. If SDE supplied SCO with district allocations for specific programs, the Controller would be able to double check that districts were identifying offsetting revenues for specific mandates. Because district claims appear to be weak in this area, giving the Controller apportionment data could save the state a significant amount of funds.

The SCO also has information that would be useful to SDE. Specifically, SCO could provide feedback to SDE on current issues with specific mandates. For instance, SCO could inform the department when claims for specific mandates increase significantly. Since SCO also audits district mandate claims, it could discuss problems with specific mandates that are discovered through the audit process, such as offsetting revenues, that significantly increase state costs. With this information, SDE could advise the Legislature about statutory or budget changes to address these issues.

While sharing information seems like a simple task with significant benefits, it does not routinely occur. Therefore, we recommend the budget subcommittees direct SDE and SCO to jointly develop a plan for sharing data needed by both agencies. To give the subcommittees time to review the plan, we recommend the subcommittees require the agencies to submit the report by April 1, 2005.

Strengthen Language on Offsetting Revenues

We recommend the Legislature add budget bill and trailer bill language to ensure that districts use available funds to pay for local costs of the new Comprehensive School Safety Plan mandate.

The Comprehensive School Safety Plan mandate requires each K-12 school to develop and annually update a school safety plan. The plan must identify "strategies and programs that will provide or maintain a high level of school safety." The planning requirements are quite specific. For instance, the law requires schools to consult with local law enforcement in the writing of the school plan. The plan also requires schools to include in the plan (1) procedures for child abuse reporting; (2) the definition of "gang-related apparel;" and (3) other existing policies on sexual harassment, emergency disasters, and school discipline. We estimate the costs of the mandated planning process in 2005-06 at about $5.5 million. Since only about one-third of districts submitted a claim for this mandate, the long-term cost could be considerably higher.

The statute requiring the safety plans expresses the Legislature's intent that districts use existing funds to pay for the costs of developing the plans. The language, however, does not specifically identify any existing program that the Legislature intended districts to use for the planning process. The commission identified at least two possible funding programs that could support the mandated activities. Without an explicit requirement in law, however, CSM could not identify these programs as a required offsetting revenue. In this case, unless districts identify the funding sources as an offset, the state cannot require districts to use the funds to pay for the mandated planning process.

The two programs identified by CSM include a grant program for new school safety plans and the Carl Washington School Safety and Violence Prevention Act. In 2004-05, the budget act contains $1 million for the new school safety planning grants program. The program was merged into the School Safety Consolidated Competitive Grant program by Chapter 871, Statutes of 2004 (AB 825, Firebaugh), beginning in 2005-06. The Carl Washington program supports local activities to improve middle and high school safety programs. The budget proposes $91 million for this program in 2005-06.

Budget Proposes New Provisional Language. The proposed budget bill contains provisional language placing "first call" on funds in these two programs for any local costs of the Comprehensive School Safety Plan mandate. This language would require districts to first use funds to pay for the costs of the planning mandate. This language is appropriate because it would induce districts to use these school safety funds as offsets to any subsequent district claim for costs associated with this mandate. We think, however, a couple of other changes are necessary. First, we suggest adding a statutory first call provision to both programs, which would reinforce the priority of the programs' funds for mandated planning costs. Second, we have identified several technical issues that need to be corrected with the new language.

We also have identified an appropriate fund source for the cost of planning in elementary schools—the School Improvement Program (SIP). The SIP supports a wide range of school site activities, guided by a parent-teacher school site council. Since the Comprehensive School Safety Plan mandate directs site councils to develop the safety plan, we think the Legislature should require districts to use SIP funds to pay for the mandated school plans. Virtually all elementary schools receive significant annual funding under SIP.

As part of Chapter 871, the Legislature consolidated SIP into a new School and Library Improvement Block Grant. The budget proposes $419 million for the block grant in 2005-06—virtually all of these funds are currently part of the 2004-05 SIP appropriation. Thus, adding both budget and statutory direction for districts to use funds in the School and Library Improvement Block Grant would recognize that, in creating the Comprehensive School Safety Plan mandate, the Legislature added another duty to school site councils that should be paid from funds provided to the council.