Analysis of the 2008-09 Budget Bill: Education

Federal Funds

In recent years, the Legislature has not received timely and transparent information from the California Department of Education (CDE) on available federal funding for K–12 education. This has hindered the Legislature’s ability to make well informed decisions. To promote transparency and improve the timeliness of information, we recommend the Legislature require CDE to report annually on federal funding. This would allow the Legislature to consider all options and priorities when making budget and program decisions.

Currently, CDE is responsible for tracking federal funds appropriations, expenditures, and carryover by year and by program. The CDE provides information about federal funds to the Department of Finance and Legislature upon request. However, communication issues have, at times, resulted in federal funds reverting because decisions about how best to spend the funds could not be made in a timely manner. We believe routine, consistent reporting of federal funding for K–12 education will improve communication, increase transparency, and foster better decision making, thereby helping to ensure the funds benefit students. Below, we provide some background on the federal funds supporting K–12 education and then discuss our recommendation in more detail.

The CDE Currently Tracks Numerous Pots of Federal Funds

The federal government appropriates funds to California for a variety of programs—each with unique requirements on how the funds can be expended and when they will revert if unspent. The CDE is responsible for tracking the funds and adhering to the federal requirements for each “pot” of funding. Figure 1 demonstrates the complexity of tracking federal funds for K–12 education. For each of the programs, CDE needs to track prior– and current–year carryovers as well as budget appropriations.

Current Approach Results in Delays, Inconsistencies, and Extra Administrative Burden. Because only CDE officially tracks the many pots of federal funds, others involved in the K–12 budget process must rely on CDE for updates on available monies. Without a regular reporting cycle for this information, all other interested parties must make ad hoc requests for information. This situation puts a burden on CDE as it often answers the same question multiple times each year. The lack of a regular reporting cycle also results in delays and inconsistency in information for various decision makers (who may ask for information at different times and then have trouble reconciling different answers).

Lack of Transparency Results in Less Effective Decision Making. Without formal dissemination of consistent information, all decision makers do not have a complete picture of information as they begin budget deliberations. For example, only CDE knows the carryover balances for each program. Occasionally, this lack of transparency about available carryover has resulted in federal funds going unspent and reverting to the federal government. For instance, in December 2007, months after the 2007–08 Budget Act was signed, CDE disclosed that $18 million in Title I, School Improvement funds were in danger of reverting to the federal government if not expended at the local level by September 2008. Many policy makers were not aware that these funds were in danger of reverting when the budget act was being finalized, so specific expenditure options were not discussed. We believe scheduled and consistent reporting of federal funding could help avoid such situations in the future.

Two Annual Reports Could Improve Budget Process

We recommend the California Department of Education provide the administration and the Legislature with two annual reports on federal funding—a three–year budget summary and a summary of carryover balances. To maximize efficient use of federal funds, we recommend both reports be produced prior to annual budget deliberations.

To address the concerns noted above, we recommend that CDE produce two new, annual reports.

Report on Actual Expenditures and Budgeted Appropriations Would Help Inform Budget Process Up Front. We recommend the Legislature require CDE to provide a three–year picture of federal funds, by program, no later than January 15 of each year. For each type of activity (state operations, state level activity, local assistance, or capital outlay), this budget summary should include: (1) actual expenditures for the prior year, (2) a revised estimate of current–year expenditures, and (3) the budget–year appropriation. Although too late to be helpful to the administration in preparing its budget proposal, the January 15 deadline would help ensure more accurate information is disseminated—as the federal budget should be enacted and information distributed to the states by that time. In addition, the January 15 deadline would ensure the Legislature has timely information before beginning its budget deliberations. This deadline also allows for timely current–year corrections.

Report on Available Carryover Would Enable Timely Response and Minimize Reversions. As noted previously, lack of transparency on federal carryover amounts has been a point of miscommunication in recent years. At times the Legislature and administration have been unaware of carryover that has not been allocated and may revert to the federal government. As a result, they were unable to develop expenditure plans for those funds in a timely manner. We recommend an annual report of carryover amounts and potential reversion dates for each pot of federal funds (by program and fiscal year) be provided by November 1 of each year. We believe this report could be provided earlier than the three–year budget summary report because it does not rely on recent passage of the federal budget. The somewhat earlier deadline for this report would benefit the administration in its budget development as well as the Legislature in its budget deliberations. The deadline would also facilitate timely actions to deal with monies in danger of reverting.