Analysis of the 2006-07 Budget Bill Legislative Analyst's Office February 2006

Federal Funds

The Governor’s budget includes $7.1 billion in federal funds for education. Of this amount, $7 billion is provided for various local assistance programs and $152 million is designated for state operations. The Governor’s budget reflects a $12 million, or 0.2 percent, increase in federal funding over the current year. The Governor’s budget, however, does not reflect the enacted federal 2005-06 budget, which the state programs into its 2006-07 budget. This is because the federal budget was passed too late to be included. The administration will reflect the final federal budget in the May Revision.

Federal Funds Will Be Less than Expected. The enacted federal 2005-06 budget significantly cuts funding for five education programs whereas it maintains funding for most other programs at approximately their current-year levels. While state allocations have not officially been determined, preliminary estimates have been released. For the five programs with significant cuts, Figure 1 compares current- and budget-year funding levels.

Below, we discuss the Governor’s budget proposal to use federal carryover for certain low-performing schools. In the next section of this chapter, we discuss in more detail the state’s implementation of the federal Migrant Education Program (MEP).

Federal Carryover Proposal

The Governor’s budget proposes to use $82 million in federal carryover funding on “a one-time basis to increase the capacity of schools and districts identified as program improvement.” Under the federal No Child Left Behind Act of 2001 (NCLB), schools and school districts are designated as Program Improvement (PI) if they do not meet minimum student achievement goals for two consecutive years. These goals are known as Adequate Yearly Progress. The NCLB delineates certain annual interventions for PI schools and districts. In the current school year, 1,722 schools, or 30 percent of all Title I schools, are classified as PI schools.

The Governor’s budget-year proposal is almost exactly the same as the 2005-06 May Revision proposal. The Legislature rejected that proposal and instead continued appropriating carryover funds for their existing purposes, consistent with federal program requirements. The Governor vetoed these funds in an attempt to engage the Legislature in a more detailed discussion of his original proposal.

The Governor’s budget-year proposal relies on carryover funding from four federal programs. Figure 2 identifies these programs and their associated carryover amounts. Budget bill language makes expenditure of these carryover funds contingent on a spending plan developed by the California Department of Education (CDE) and approved by the Department of Finance (DOF).

Reject All but One Component of Governor’s Carryover Proposal

We recommend the Legislature reject all of the Governor’s carryover proposals except for the Title I, Basic Program proposal. Although we think that proposal is reasonable in that it would transfer unused funds to the most struggling schools, the transfer likely would require federal approval. We therefore recommend the Legislature direct the California Department of Education to seek federal approval for making such a transfer.

We have specific concerns with the Governor’s carryover proposals for MEP, Comprehensive School Reform (CSR) program, and Title I, Program Improvement, which we discuss below. We believe that the Governor’s general proposal to redirect carryover funding from Title I, Basic Program to PI schools and districts is reasonable, but it would likely require federal approval. We discuss this issue in the last section.

Reject MEP Carryover Proposal. Although the Governor’s budget contains language requiring MEP funds to be expended consistent with federal requirements and existing local and regional plans, it would target $19 million in carryover funds only to PI schools and districts-and it would do so for undefined one-time purposes. Currently, PI schools serve only about 30 percent of the state’s migrant students. Thus, the vast majority of migrant students would not benefit from the Governor’s proposal. We therefore recommend rejecting it.

Use MEP Carryover to Build Better System. In our February 2006 report (Improving Services for Migrant Students) and our “Migrant Education” write-up in the next section of this chapter, we recommend using carryover funds to help implement a comprehensive package of reforms that would fundamentally restructure how the state delivers services to migrant students. Specifically, we recommend using a small amount of carryover funding (up to $4 million) to build a better migrant student data system and all remaining carryover funding to ease the transition to a better student-aligned service system.

Reject CSR Carryover Proposal. As with the MEP proposal, the Governor’s budget designates CSR carryover ($16 million) for one-time interventions at PI schools and school districts. All CSR funds, however, already are targeted to PI schools to implement existing multiyear reform plans. In contrast, the Governor’s proposal contains no plan-neither identifying how the carryover funds would be allocated among PI schools nor designating how they would be used. We therefore recommend rejecting it.

Use Carryover to Cover Third-Year Grants for Existing CSR Cohorts. Instead, we recommend the Legislature use carryover funding to continue implementing the existing multiyear plans. In 2004-05, the Legislature authorized two new CSR cohorts. Cohort 4 contains 52 school districts serving 84 schools, and cohort 5 contains 12 districts serving 58 schools. The first three CSR cohorts received grants for a three-year period. Cohort 4 and cohort 5, which had their applications approved about two years ago and were funded in 2004-05 and 2005-06, have been operating on the assumption their grants also would be renewed for a third year. The CDE estimates it would cost $30 million to provide these third-year grants ($15.1 million for cohort 4 and $14.9 million for cohort 5). We recommend the Legislature use the $16 million in CSR carryover funds to provide these grants. It either could prorate the grants amounts downward to ensure all existing grantees were covered or consider an augmentation (using likely carryover from other state and/or federal intervention programs) to fund the full cost.

Reject PI Carryover Proposal. As with the MEP and CSR carryover proposals, the Governor’s budget designates the PI carryover ($22 million) for one-time interventions at PI schools and districts. Currently, PI funds already support legislatively determined intervention activities for struggling schools and districts. Specifically, these statutorily authorized interventions include a county office of education support network, funding for School Assistance and Intervention Teams (SAIT), and grants to PI districts or districts with large numbers of PI schools. As mentioned above, the Governor’s budget lacks an allocation and spending plan, so its effects on PI schools and districts are unknown. Moreover, as we discuss in more detail below, linking the PI carryover funds to carryover funds generated by other programs might result in the state needing federal approval. Were this to be the case, distribution of the PI carryover funds might be delayed. For these reasons, we recommend the Legislature reject the proposal.

Redirecting Funds From Title I, Basic Program Is Reasonable, but Likely Would Require Federal Approval. The Governor’s general proposal to target $24 million in Title I, Basic Program carryover funds to struggling PI schools and districts is reasonable, but the administration has yet to provide any details on how these funds would be used. (In addition, by the time of the 2006-07 May Revision, the amount of identified Title I carryover likely will be roughly double the current estimate.) Title I, Basic Program grants currently are distributed to school districts using a formula that is based on counts of Title I students. Historically, carryover funds are distributed using the same formula. The CDE could seek approval from the federal government to target these basic grants to PI schools and districts. The federal government likely would be receptive to such a request because it helps support the policy goals of NCLB. Moreover, California already has shown its commitment to assist struggling schools-spending approximately $250 million of General Fund (Proposition 98) annually for this purpose.

Direct CDE to Seek Federal Approval to Transfer Title I, Basic Program Carryover to Title I, Program Improvement. Accordingly, we recommend the Legislature direct the CDE to seek federal approval to transfer Title I, Basic Program carryover annually to Title I, Program Improvement. By transferring the funds to this program, the state can use the funds to build upon its current efforts-such as expanding the county office of education support network, SAIT for failing schools, and grants to PI districts or districts with large numbers of PI schools. In addition, since PI funds are appropriated in the annual budget act, the Legislature would be involved in making associated allocation decisions-instead of deferring to a CDE plan approved by DOF under which the Legislature would not have a role.