Funding for the basic K-12 educational program in California currently is distributed to districts in amounts that are similar for each student in the state, despite the fact that the costs of the educational services received by individual students vary significantly because the needs of individual students also vary significantly. Districts receive an amount for each student that reflects an average of the costs of education across many students. Moreover, the amounts allocated to districts are derived from a base level of funding allocated at a set historical point in time, rather than from any calculation of the actual costs of education, then or now.

This Master Plan envisions a fundamental change from a traditional focus of California’s K-12 financing system on equality of funding – assuring that the majority of schools receive similar dollar amounts per student – to one of adequacy, in which the essential components (personnel, materials, equipment, and facilities) necessary for an exemplary education are identified and provided. With this foundation of adequate resources for a high quality education, schools and students would be truly accountable for meeting established standards of achievement.

Funding for postsecondary education, like that for K-12 education, is distributed in amounts that are similar for each full-time-equivalent (FTE) student enrolled in each public system, although the amounts vary significantly by system. State appropriations for public colleges and universities, for the most part, do not recognize the cost differences of different disciplinary programs, the costs of responding to varied student learning support needs, or the cost differences associated with format (lecture, lab, seminar, etc.) and level (lower division, upper division, or graduate) of instructional delivery.^[33] Because enrollment in postsecondary education is a privilege afforded by statute and not a constitutional guarantee, the State does not strive to meet the full costs of operations for public colleges and universities. A portion of the costs of operations for colleges and universities is met from federal and private grant funds and another portion is met from fees charged to students. The State has a significant influence on the fees that are charged to students enrolling in public colleges and universities and, therefore, on the perceived accessibility of postsecondary enrollment by California’s least advantaged learners.

The committee continues to support the goals embodied in the 1960 Master Plan for Higher Education, which promoted broad access, affordability, and choice for Californians. When this historical perspective is coupled with our emphasis on promoting student achievement at all education levels in the state, we believe that this Master Plan should seek to establish a financing system for postsecondary education that supports the goals of (1) Access (2) Affordability; (3) Choice; (4) Quality; (5) Efficiency; (6) Cooperation; (7) Accountability; and (8) Shared Responsibility.^[34]

Funding for the programs and services needed to foster school readiness in every child comes from a myriad of state and federal sources and is not easily reduced to an allocation formula per child. In many cases little or no public resources are expended on developing the readiness of young children; in other cases, considerable funds are expended. This Master Plan envisions consolidating multiple funding streams to improve the adequacy of funding to ensure that all parents and families have access to the services that will enable them help their children become ready to learn upon enrollment in formal schooling.

K-12 Education

The Legislature should limit adjustments to the adequate base of funding to three types of categorical funding to reflect differences from the prototypes used in the Quality Education model. Categorical programs provide resources to accommodate differences in student needs, to meet selected state policy goals, and to spur reforms in the delivery of educational services. The committee supports appropriate categorical programs and the purposes they serve, with the caveat that they should not be used to circumvent the intent of adopting a quality education model for financing public schools. California is a very diverse state, and that diversity signals differences that must be addressed by targeting funds to selected districts and students. Further, the courts have affirmed the appropriateness of promulgating differences in funding based on students’ needs. To forestall further proliferation of categorical funding, base funding adjustments should be limited to those which accommodate: district characteristics that are not under the districts’ control; a limited set of student characteristics; and short-term initiatives. Therefore, we further recommend:

RECOMMENDATION 44.1 – The State should develop a K-12 school finance system that recognizes a limited set of differential costs, primarily geographic in nature, that are not under the control or influence of school districts, by establishing a District Characteristic adjustment.^[35] The additional revenue provided to school districts in recognition of these uncontrollable cost factors would result in similar overall levels of real resources.

RECOMMENDATION 44.2 – The State should include in the K-12 school financing system block grants for allocation to school districts on the basis of Student Characteristics that mark a need for additional educational resources. Further, we strongly suggest that the adjustments in this category be limited to additional funding for special education, services for English language learners, and resources provided in recognition of the correlation of family income level with student achievement. New programs in these areas should be tested and implemented through an initiative process, described as follows.

RECOMMENDATION 44.3 – The State should establish a category of grants that would be clearly identified as Initiatives. These initiatives should be limited in duration, and serve one of two purposes:

The State should provide local school districts with options for generating revenue locally to supplement their adequate funding base, and should provide local community college districts the same options for generating revenue locally. Historically, local communities provided the majority of school funding through locally generated revenue streams. Subsequent to the passage of Proposition 13, in 1978, the State has assumed the role of providing the majority of school funding. Today, nearly 30 percent of public school funding still comes from local sources, and we believe that local communities should still share in this level of revenue generation to support an adequate base of education funding.

We believe that school and community college district governing boards could be more responsive to local educational needs, and could be held more accountable by local electorates for programmatic decisions, if they were able to generate revenues locally to supplement their adequate funding base. Districts currently have very limited ability to raise revenues locally. The bulk of ‘local’ revenue in the current financing system comes from the property tax, and property tax revenues allocated to local school districts are a dollar-for-dollar offset to state aid. Finally, property tax rates are set by constitutional and statutory provisions not subject to local control. Currently, school districts can receive locally raised revenue from a few previously authorized special taxes. School districts can, with approval of the electorate, impose a parcel tax; and they can participate in a local sales tax through a local public finance authority. Schools also raise funds locally through foundations and other parent-centered fundraising. While these sources of revenue may be significant for some school districts and schools, they are limited in their application across the state.

It is critical to recognize that a meaningful local revenue option must link local revenues to those purposes that are best developed and resourced locally. In particular, we would caution that local revenues raised from an optional tax must not become a means of mitigating inadequate basic educational funding that is a statewide responsibility. Rather, revenues raised from a local option tax must be available wholly at local discretion to augment all other funds received for the educational program. With this caveat, we recommend the following options be provided to local school districts:

RECOMMENDATION 45.1 – The Legislature should approve a ballot referendum to reduce the voter approval threshold for parcel taxes to 55 percent from the current two-thirds requirement.

RECOMMENDATION 45.2 – The State should authorize school districts in counties where a majority of school districts wish to join together, to propose to the electorate a sales and use tax (SUT) increase, within the local option SUT levy limitation, to take effect with the approval of 55 percent of the voters in a countywide election. Revenue would be divided among the schools on a population (per pupil) basis, or as delineated in the tax measure. The State should provide for an equalization mechanism to enable a state-guaranteed tax yield that would ensure each county could raise the statewide average per-pupil amount that would be realized through the imposition of a given tax rate.^[36]

RECOMMENDATION 45.3 – The Legislature should approve a ballot initiative to amend the constitutional provisions governing the property tax, to authorize school districts and community college districts to propose for 55 percent approval by the electorate, a property tax override for the exclusive use of the public schools or community colleges. The State should assure a minimum, state-guaranteed yield per pupil through a statewide equalization mechanism to provide state financial assistance to communities where a self-imposed tax rate does not yield the minimum state-determined per-pupil amount for that rate.^[37]

The Legislature should direct an analysis of the feasibility of replacing the current funding model for school facilities with annual state per-pupil allocations that are restricted to assisting school districts in meeting their capital and major maintenance needs according to a long-term Facilities Master Plan adopted by each school district. State and local funding for capital outlay and major maintenance should be protected to prevent the redirection of capital resources when other cost pressures arise and to protect the citizenry’s investment in major capital projects. School facilities are an integral part of the package of resources necessary to provide a high quality education for students. The first step in ensuring their adequacy is to determine an adequate level of resources necessary to provide each student with an educational facility that supports a high quality education. While specific criteria must be developed to determine and ensure adequacy for school facilities, there is no doubt that the current model of funding for public school facilities in California is unresponsive to planning and funding needs of school districts, and, therefore, results in the inefficient use of resources for facilities. In particular, reliance solely on state general obligation bonds and the current method of allocating bond proceeds creates a system that has not been conducive to long-term planning for school facility needs at the local level, and that fails to leverage or encourage the development of local sources of funding for school capital outlay needs.

Should this analysis suggest that changing California’s approach to funding school facility needs to a per-pupil annual allocation is feasible, we are concerned that the transition not perpetuate existing inequities among schools. Students and teachers throughout the state should learn and work in facilities that will promote and support a high quality education. We would therefore recommend that any transition incorporate the following actions:

RECOMMENDATION 46.1 – The State should require that first priority for capital funding allocations be given to meeting projected needs. After all school districts have achieved state standards of adequacy^[38] for their facilities and the State transitions into its base per-pupil allocation, the issue of equity should move from one of ’leveling up’ to one of accommodating special circumstances.

RECOMMENDATION 46.2 – The State should provide financial incentives to school districts to promote joint or shared use of facilities. We also recommend that the State develop a technology infrastructure among and within educational entities that would promote improved education delivery and access to a wider range of education resources. This system of shared facility and technology infrastructure would allow districts and schools to better manage and assess financial and physical resources.

RECOMMENDATION 47

The State should create a statewide school facilities inventory system to assist state and local decision makers in determining short- and long-term school facilities needs. It is not possible to do a credible job of estimating and developing plans to meet the costs of providing adequate educational facilities for all public education institutions, without an accurate understanding of the age and condition of existing facilities. The State Allocation Board is the appropriate body to develop and maintain such an inventory on behalf of the State and to allocate facility funds to public schools, colleges, and universities. Based on testimony and recommendations received by the committee, we believe that a tiered approach to developing and maintaining needed facilities data is appropriate. Local districts have a responsibility to manage and maintain public education facilities in satisfactory condition, and should routinely gather, maintain, and update data that enables proper exercise of this responsibility. Regional education entities have a responsibility to monitor district compliance with state facility standards and should inspect facilities and request data from local districts that would enable them to certify the condition of education facilities to the State on a regular schedule. The State should specify standards for education facilities that must be met or exceeded by all public education institutions. To facilitate diligent exercise of these complementary responsibilities, the State should determine the basic data needed to make necessary management, budget, and policy decisions and incorporate information contained in existing data collection reports maintained by school districts.

Postsecondary Education

RECOMMENDATION 48

The State should adopt policies to provide more stability for finance and dampen the ’boom and bust’ swings of state appropriations for postsecondary education. In good financial times, the State funds the base budgets of public institutions according to certain agreements or annual negotiations, plus costs associated with projected enrollment growth. The State also provides large amounts of additional support beyond this funding. In bad financial times, the State cuts base budgets by some negotiated amount, may reduce funds for additional enrollments regardless of demand, and allows student fees to increase substantially. This summary accurately describes funding of public postsecondary education over the past decade. We have reviewed staff analysis, the recommendations of our working group, and expert testimony, but find no reliable alternative. We concur with the recommendation from our working group that additional allocations to public colleges and universities should emphasize one-time expenditures that can, if necessary, be more easily reduced in times of financial stress. We believe the State should examine the adequacy of its approach to funding public colleges and universities in several respects to ensure that resources are adequate to preserve high quality teaching and learning opportunities at all levels.

As with K-12 financing structures, we believe the State should maintain a long-term objective for postsecondary financing of aligning the allocation and expenditure of moneys with the actual costs of providing the educational services for which they are spent. Consistent with this objective, the committee carefully considered testimony suggesting that the State should allocate funding to support lower division instruction at roughly comparable levels in all three public sectors of postsecondary education. This recommendation is attractive in several respects: (1) it is consistent with our stance that quality educational opportunities should be available to all students enrolling in public colleges and universities and that state financing should reflect this commitment; (2) it would provide substantial additional resources to community colleges, which serve students with the greatest range of preparation and needs; and (3) it might foster greater faculty collaboration and course articulation. Simultaneously, we recognize that pursuing this option could result in a substantial additional financial obligation for the State, which could threaten community college access during poor economic times and exert pressure to increase fees charged to community college students. This approach to financing would also lead to consideration of comparable funding between the CSU and UC where they offer equivalent graduate instruction and, perhaps, differential funding for upper-division instruction. These directions may be appropriate for consideration, since they come closer to identifying the education components essential to quality education at the postsecondary level; but the financial implications of this approach require that it be studied carefully before acting to implement it. Examination of this option should also be accompanied by an analysis of its potential impact on student fee policy and financial aid requirements.

In a similar vein, staff analysis indicates that disparities exist in state financing of our public colleges and universities in several regards. First, definitions of what constitutes FTE at the graduate level do not conform for the CSU and UC systems (15 units versus 12 units, respectively), resulting in the generation of differential funding beyond that which occurs as a result of the differences in funding per FTE for each system. Second, the State engages in line-item financing of central administrative office operations of the community colleges, in contrast to its practice of overall system funding provided to CSU and UC, which results in the Board of Governors being limited from effectively governing the community colleges. Finally, the UC and CSU systems receive minimal support for applied research related to State policy priorities, such as effective teaching and learning practices.

The committee finds much of this testimony and staff analysis to be interesting and, in some cases, compelling in nature; but we are unprepared to offer specific recommendations in these areas at this time. Accordingly, we believe that the following actions should take place:

RECOMMENDATION 48.1 - The State should establish the California Community Colleges’ share of overall state revenues guaranteed by Proposition 98 to K-14 education at 10.93 percent.

RECOMMENDATION 48.2 - The State should analyze the appropriateness of maintaining a ‘marginal cost’ approach for funding all additional enrollments in public colleges and universities.

RECOMMENDATION 48.3 – The State should earmark a percentage of its annual investment in state-supported research by public postsecondary education institutions for applied research in areas of public priority as identified by the Legislature.

RECOMMENDATION 49

The Legislature and the Governor should reform the State’s approach to student charges in the public segments and maintain the Cal Grant need-based financial aid entitlement. California’s policy of retaining low fees at all costs should be re-examined in light of modern realities. The original Master Plan for California Higher Education came down squarely on the side of low student charges, prohibiting tuition (direct payment for instruction), and assumed that the posted price of admission was the most important factor in steering young adults toward or away from college. This assumption discounted the impact of other costs of attendance that students must bear, including those of transportation to the campus of enrollment and child care, and various fees for materials, books and supplies. Today, more financial resources are available than ever before to pay the costs of fees, tuition, room and board, and books, depending on students’ financial circumstances and the kind of institution attended. These resources include federal and state need-based grants (Pell and Cal Grants), middle-income tuition tax credits (federal), ‘institution-based aid’ given by each college or university, and subsidized and unsubsidized loans to students or parents – a growing proportion of the financial aid available to students and the type most often rejected by low-income students.

The committee believes that California should continue its commitment to low fees for students enrolled in public colleges and universities. We also recognize the benefit of taking actions to mitigate substantial increases in student fees, which research indicates have the greatest negative impact on students enrolling in community colleges. Accordingly, we recommend the following actions:

RECOMMENDATION 49.1 – The State should adopt a student fee policy aimed at stabilizing student fees and should resist the pressure to buy out student fee increases or reduce student fees at CCC, CSU and UC during good economic times.

RECOMMENDATION 49.2 – The State should continue to emphasize financial need in the award of state-supported student grants and should continue to fund the Cal Grant ‘entitlement’ as defined in SB 1644 (statutes of 2000).

RECOMMENDATION 49.3 –State policy should be changed to allow additional fee revenue collected by community colleges to remain with each college, without a General Fund offset, whenever fiscal conditions compel fees to be increased.

RECOMMENDATION 50

The State should review its methodology for determining and funding facilities in California postsecondary education, and, as appropriate for each segment, make changes to emphasize multiple use facilities, comprehensive space planning, sharing of space among institutions, and incentives to maximize other sources of capital outlay. The California Postsecondary Education Commission (CPEC) estimates that by 2010 enrollment demand will total more than 714,000 over the enrollment accommodated in public colleges and universities in 1998 and that an addition 78,000 will likely seek enrollment in regionally accredited independent California colleges or universities. If California seeks to accommodate that demand by the traditional approach of classroom-based delivery on permanent campus sites, the renewal and repair costs of capital facilities that would be needed in public postsecondary education are more than state government can afford, and will require incorporation of non-traditional approaches.^[39] Widely accepted estimates suggest that the annual cost to maintain the existing postsecondary education physical plant is almost $700 million per year and that an additional $821 million per year will be necessary to build additional facilities to accommodate enrollment growth in the public institutions.

An additional concern is that neither the demand nor the capacity to accommodate that demand will be evenly distributed throughout the state. A more recent CPEC analysis of future enrollment demand in 11 regions of the state examines historical participation rates of recent high school graduates and adult learners at colleges and universities located within their communities as well as elsewhere in California. Based on that analysis, only the colleges located in Los Angeles county will have the capacity to accommodate the enrollment demand expected in Fall 2004; and by 2010, no region of the state will have enough capacity within the existing campuses to accommodate the expected enrollment demand in community colleges. Within the California State University system, only those campuses located in the central coast and south coast regions of the state will have capacity to accommodate the expected enrollment demand, mostly at the two newest CSU campuses: CSU Monterey Bay and CSU Channel Islands. By 2010, these two regions will remain the only regions in the state where CSU will be able to accommodate enrollment demand, but the excess demand for the system as a whole will increase nearly four-fold between 2004 and 2010.^[40] A similar analysis for UC campuses is underway.

The use of technology is increasingly being considered as a viable means to enhance teaching and learning, squeeze efficiencies from administrative operations, and reduce inequities in access to current knowledge by students throughout the state. “Nearly half of North America uses the Internet,” according to Mark Resch, executive and vice president at CommerceNet. “We use it to communicate, to learn, to shop, and to buy. The number of households that contain at least one computer is almost as high as the number of households containing at least one television. ” Technology advances also influence children’s home education and entertainment significantly with the use of multimedia – children who ultimately will move through public schools and enroll in a college or university within the state. Their exposure suggests that technology be considered as an integral component of facility planning and strategies to share educational resources between and among educational institutions in the state.

We note, however, that while access to technology and use of the Internet has increased nationally, it has not increased for all groups. According to a recent report, the difference between White households using the Internet and non-White households increased from 13 percentage points in 1997 to 20 percentage points in 1998.^[41] The lowest level of access to computers and use of the Internet was for poor and Black students living in rural areas. While higher income narrows the racial divide in access to and use of technology, it does not entirely eliminate the digital divide for students in that socio-economic level. State facility planning must consciously factor in this fact as it seeks to assure access for all students in the state.

Early Childhood Education

RECOMMENDATION 51

The State should develop and fund a per-child allocation model for financing early care and education, sufficient to meet the new system's quality standards and organizational infrastructure requirements. Today, young children and their families are served by a variety of agencies with various funding streams. Each has specific eligibility guidelines and requirements. This arrangement provides neither the level of funding nor the efficient coordination needed to ensure the well-being and school readiness of California’s young children. California therefore needs to develop an equitable per-child allocation model for financing early care and education. This model should include creating a guaranteed preschool allocation for all three- and four-year olds (and additional funding for wraparound care and flexible support services for three- and four-year olds of low-income families); an allocation for all children, birth to kindergarten, to provide school readiness services to them and their families through local School Readiness Centers; and an initial allocation, to be phased in until it becomes a guarantee, to fund early care and education services and flexible support services for all low-income families with children from birth to age three.

The allocation model also should fund the organizational infrastructure of the new early care and education system, including professional development to improve quality and data collection for better accountability. To accomplish these recommendations, we propose the following:

RECOMMENDATION 51.1 – The State should consolidate under the California Department of Education all child development funding sources, including those from the departments of Education and Social Services, and create new sources of revenue to augment existing funds.

RECOMMENDATION 51.2 – The State should create a Financing Task Force to calculate the per-child allocation needed to fund high-quality early education services and organizational infrastructure for low-income newborns to three-year olds, for universal preschool and wraparound care, and for school readiness services for families with children, from birth to kindergarten.

RECOMMENDATION 51.3 – The State should provide funding to create a new guaranteed per-child state allocation for all three- and four-year olds to support access to core universal preschool services.

Shared Responsibility

California’s system of public education is one of the most respected in the nation and around the world, in large measure because of its commitment to access, quality, affordability, and choice. However, the expense of fully meeting all these goals, during times of strong enrollment demand and fluctuating tax revenues, is more than state government can meet alone. Realistically, the fiscal responsibility for providing broad access to high quality public education has to be shared by state government, local communities, students and their families, and the businesses that employ high school and college graduates. The committee believes that California should encourage efforts to share facilities and instructional equipment between and among education institutions – public, independent, and private – as well as other governmental entities and community based organizations. The State should also actively encourage collaboration between public educational institutions and private employers, particularly in the area of technology.

RECOMMENDATION 53

The State should take the lead in developing educational technology partnerships that include the public, private, non-profit, and for-profit sectors. To develop effective educational technology, the State should take advantage of all available resources. Clearly there are many organizations that have expertise in this arena. The State should draw on this expertise and be responsible for bringing together leaders in the field to develop cutting-edge technology that can augment instructional delivery. Many agencies have initiated a number of exciting applications of technology to enhance teaching and learning and to streamline administrative practices. Many of these initiatives have already been introduced by private sector businesses responding to compelling business needs, but they also have applicability for educational institutions. Others have been developed within the education sector and have application in a broader arena. A key consideration for the State is the extent to which education and business can collaborate to scale up their respective initiatives into a coordinated and complementary delivery system that meets both educational and business needs for creating lifelong learners. Consistent with this objective, we also recommend the following:

RECOMMENDATION 53.1 – The State should encourage local education agencies to establish partnerships with utilities, telecommunication companies, software and hardware providers, and others to facilitate functional universal access to technology in all public schools, colleges, and universities.

RECOMMENDATION 53.2 – The State and communities should establish incentives for joint development and use of school facilities with cities and counties, including libraries, classrooms, and recreational and community space.

Table of Contents
Introduction	Access	Achievement
Accountability	Affordability	Conclusion