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Staff Analysis of the Finance and Facilities Working Group Final Report

The following analysis sets forth the specific recommendations contained in the final reports of the Finance and Facilities Working Group, organized by the categories contained in the two reports. The staff comments and questions that follow each section are intended to illuminate those recommendations, the deliberations that led to those recommendations, and/or important information that should be considered in evaluating those recommendations.

Goals of the Working Group

The Finance and Facilities Working Group organized itself into two task groups to separately consider the financing and facility needs of California's K-12 public schools and its public colleges and universities. The K-12 Sub-Group paid particular attention to the unique financing obligations of the state that derive from the constitutional guarantee to free public schooling and compulsory attendance laws of the state, and the resources needed to ensure high quality teaching and learning conditions that serve to reduce achievement gaps and promote achievement of all children across the state. It was guided by the goals of achieving greater simplicity in the financing of public schools and achieving a rational financing system aligned with instructional, governance, and accountability structures for public schools. The Postsecondary Sub-Group paid particular attention to financing of California's colleges and universities that would enable them to accommodate anticipated enrollment demands over the next two decades while continuing efforts to enhance quality. The Sub-Group was guided by the goals of achieving access, affordability, choice, quality, efficiency, cooperation, accountability, and shared responsibility.

The K-12 Sub-Group proposes 23 major recommendations for California's K-12 educational system. The first concerns establishing a process for determining what funding is adequate to ensure high quality educational opportunities for all schools. Recommendations two through seven focus on the equitable distribution of resources. Recommendations eight through ten offer local revenue generation options for local school districts. Recommendations 11 through 13 focus on the allocation of sufficient resources to ensure effective delivery of services. And recommendations 14 through 23 focus on new approaches to meeting the facility needs of public schools.

The Postsecondary Sub-Group proposes five major recommendations for California's colleges and universities. The five recommendations address finance, accountability, technology, fees, and facility needs in California colleges and universities. Sub-recommendations have been included where it helps clarify the main recommendation or offers steps to achieve the recommendation.

Public K-12 Schools

Assuring Adequate Funding

Recommendation 1.1:

Develop a California Quality Education Model, and use that model to determine an adequate level of funding necessary to support a high quality education for every student. In furtherance of this recommendation, we urge the Legislature to establish a 13 member Quality Education Commission, representative of business, parent and education community leaders from throughout the state.

Staff Comments/Questions

  • The report provides that initial determination of the components of a Quality Education Model would incorporate the judgment of expert practitioners and researchers as to what school features and "inputs" are most associated with high student achievement. (Later in the report, the Group describes this process as dynamic, being refined continually.) In recommending such a Model, the Group still advocates for local control of expenditure authority. Pending Question: What is the rationale for this advocacy?

  • The Working Group recommends that a Quality Education Commission be established to devise a funding strategy based on identified cost components of a high quality education and that this strategy replace historical funding approaches. Pending Question: If this effort results in a call for substantial new General Fund investment in public schools requiring a phase-in approach, should the state give priority to the lowest performing schools or incrementally increase funding for all schools?

  • The Group's description of phase 1 of the Quality Education Commission refers to standards for students, teachers, and schools. Pending Issue: It is unclear whether these standards refer to academic, facilities, professional qualifications, or all of the above plus others. The Joint Committee may wish to seek clarification of this point.

  • Phase 2 of the Quality Education Commission's work calls for assessment of district expenditure profiles in relation to desired outcomes as compared with the prototype resource profile used to allocate funds to school districts. Pending Question: If successful models are identified through this assessment should the state require uniform implementation by all schools serving similar student populations?

  • The Group recommends a strong, independent status for the Quality Education Commission. Pending Issue: Staff notes that, unless a majority of the appointments to the Commission were made by the Governor, and the Commission had reporting responsibility to the Governor, this recommendation would be inconsistent with the recommendation from the Governance Working Group that assigns accountability to the Governor's office for the inputs and outcomes of public schools.

Distributing Resources Equitably

Recommendation 2.1:

Authorize a limited set of differential cost adjustments, primarily geographic in nature, that are not under the control or influence of the school district, by establishing a District Characteristic adjustment. The additional revenue provided to school districts in recognition of these uncontrollable cost factors would result in similar levels of real resources available to all school districts in the state.

Recommendation 2.2:

Establish block grants for allocation to school districts on the basis of student characteristics that mark the need for additional educational resources. Further, we strongly suggest that the adjustments in this category be limited to additional funding for (1) special education, (2) services for English language learners, and (3) resources provided in recognition of the correlation of family income level with student achievement.

Recommendation 2.3:

Establish a category of K-12 grants that will be clearly identified as initiatives. These initiatives will be limited in duration and will serve one of two purposes:

  • Pilot and evaluate proposed new programs before they are implemented statewide.

  • Meet immediate, but temporary, needs for additional funding targeted to specific districts to mitigate the effects of transitory, but possibly unforeseen, shocks to the instructional program.

Recommendation 2.4:

Adopt specific guidelines and criteria for the Legislature to use in evaluating proposed initiative programs.

Recommendation 2.5:

Provide funding for state agencies, or other appropriate entities, to develop material describing best practices for the administration and delivery of categorical programs. This includes the development of standardized cost models that local agencies can use to assess program implementation.

Recommendation 2.6:

Every new initiative program be required to have a comment period on all administrative and supervisory controls proposed by the administering agency. Alternatively, an advisory committee representative of those agencies that must administer the program may be used to develop administrative guidelines.

Staff Comments/Questions

  • Pending Issue: Staff particularly notes the Group's focus on goals or delivery rather than process as a criteria for receiving special initiative funding.

  • The first four recommendations offered by the Group in this section urge that the state dramatically reduce the number of categorical grants provided to public schools by consolidating them into one of three block grant adjustments, made on the basis of district characteristics, student characteristics, and special initiatives. Pending Questions: On what basis did the group select these three categorical designations? Since the recommendations assume a reduction in administrative overhead and reporting requirements, should the state require that student outcome data be disaggregated to specifically reflect the outcomes for special need students for which supplemental funding was received?

  • The report states that some existing categorical funding sources reflect geographic differences among school districts, citing as one example "scale adjustments for small schools and districts," and recommends that categorical funding adjustments be continued as a response to geographically determined costs that are "not under the control or influence of the school district." Many small schools and districts do not correlate with rural location or other geographic factors, however; and the report makes no mention of unification or consolidation as alternatives to categorical "scale adjustments." Also, larger school districts are likely to have more normative distributions of students, so unification/consolidation with a uniform minimum size could also reduce the need for adjustments based on student characteristics. Pending Question: Should unification be promoted as an alternative to these adjustments?

  • The recommendation for a categorical block grant for special initiatives is accompanied by a sunset requirement after which funding for the approved initiative must be eliminated or folded into the adequacy base of funding core operations. Pending Questions: If pilot programs approved on the basis of special need (e.g.; program to substantially reduce the percentage of emergency waiver teachers employed by the district) extend beyond the sunset period, should the state consider extension of the pilot effort? If so, should extension be authorized for the same strategy or in combination with other districts with more promising or effective implementation strategies?

  • Pending Question: Is the Group's recommendation to make approval, oversight, and supervision of approved special initiative programs (Recommendation 2.4) a regional rather than a state responsibility consistent with aligning fiscal authority and program responsibility?

  • Recommendation 2.5 calls for funding to be provided to state agencies, or other appropriate entities, to develop materials describing best practices for administration of categorical programs. Pending Questions: Should the state consider this a responsibility of the State Department of Education or County Offices of Education and assumed to be incorporated in the budget for the selected entity? Should the recommended Quality Education Commission also be charged with determining what is adequate financing for the state or county offices of education, given the responsibilities assigned to each?

  • The Group observes that consolidating current categorical programs provides greater local flexibility in the use of funds but requires high accountability to assure funds are used effectively. Pending Issue: The details of the strong accountability system required are not included in the report.

Exploring Local Revenue Options

Recommendation 3.1:

Approve a ballot initiative to reduce the voter approval threshold for parcel taxes from two-thirds to 55 percent.

Recommendation 3.2:

Authorize school districts in counties where a majority of school districts wish to join together, to propose to the electorate a sales tax 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. Establish a mechanism to equalize tax yield to assure each county can raise the statewide average per-pupil amount corresponding to the imposition of similar tax rates.

Recommendation 3.3:

Approve a ballot initiative to amend the Constitutional provisions governing the property tax to authorize school districts and other local public educational agencies to propose for approval by the electorate, with 55 percent of the voters concurring, a property tax override for the exclusive use of the public schools in the community. Assure a minimum, state-guaranteed yield per pupil through state financial assistance to communities where a self-imposed tax rate does not yield the minimum state-determined per-pupil amount for that rate.

Staff Comments/Questions

  • The Group recommends eight criteria be used for evaluation of local revenue generation options: tax yield; stability and dependability; tax yield neutrality; administrative feasibility; economic efficiency; association; tax deductibility; and tax and expenditure incidence. Staff Note: These are highly consistent with those recommended by the Legislative Analyst in its 2001 primer on California's tax system.

  • The Group recommends that local school districts be authorized to generate revenue locally through the levy of local sales and/or parcel taxes approved by 55 percent or more of the voters in that district or county. This is consistent with recent voter actions to change the requirement for school bond approvals to a 55 percent majority. The Group highly recommends the parcel tax option, which meets virtually all of its evaluation criteria. Pending Question: Is the revenue likely to be obtained from either/both of these two sources sufficient to meet the needs envisioned by the Group?

  • With respect to the Sales and Use Tax, the Group cites the fact that the sales tax does not have a high association with schools as a characteristic supporting the sales tax option. Pending Question: What is the plus factor associated with that characteristic?

  • Given the differences in voter preferences and behaviors, substantial resource differences beyond the adequate base guaranteed by the state could result from various local revenue generation options. Pending Questions: Is power-equalization the best approach for the State to consider to ensure that wealth-based inequalities in opportunity do not re-emerge as a result of districts exercising the option to raise revenue locally? What impact could the requirement for the state to equalize tax yield have on local district voter disposition to pass a local revenue option?

  • The report notes, without further elaboration, that "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." Pending Question: What safeguards could be put in place to prevent that undesirable outcome?


Allocating Revenues to Support the Effective Delivery of Services

Recommendation 4.1:

Continue to emphasize the development of performance standards, and that those standards be based both on key inputs to the educational system, as well as outcome measures, and that the input standards are aligned with the California Quality Education Model.

Recommendation 4.2:

Establish a consistent and straightforward way for local schools to describe their expenditure and programmatic decisions, to compare them with the state's guidelines, minimum standards, and outcome goals, and to clarify the trade-offs implicit in budget decisions.

Recommendation 4.3:

To support local accountability, confirm a procedure for complaint appeal and resolution, where citizen groups may establish their case for a school failing to meet state standards, with the county office authorized to investigate the complaint. This provides a mechanism for public scrutiny and pressure to correct actions of schools and districts in the event they are unable to resolve problems on their own.

Staff Comments/Questions

  • The Group's recommendations in this section are directly aligned with those of the Student Learning and Governance working groups, which all call for education providers becoming more accountable for the decisions they make and their impact on student learning. The Group specifically calls for input standards of two types: guidelines and minimum requirements. Guidelines provide districts with flexibility to depart in their expenditures from the Quality Education Model upon which core funding is based; but minimum requirements must be met. Pending Question: If the state fails to provide adequate resources for minimum requirements to be met, in what ways should expectations of districts be modified to reflect that fact, particularly with respect to outcome standards?

  • The Group's summary of its deliberations suggests that the Quality Education Model input standards may be adjusted based on assessment of district behavior. Pending Question: Does the Group intend to suggest that the input standards will be adjusted based on district behavior rather than requiring districts to conform behavior to be more consistent with the Quality Education Model?

  • Recommendation 4.3 provides a process for local complaints about school districts perceived to be failing to meet state standards, with the county office of education serving an appellate role. Pending Question: Should the county serve as the final level of appeal or should the State designate a state entity to be the final arbiter of resource utilization, particularly when adequacy of state resources may be a source of the initial complaint?

  • Subsequent to the recommendations of Section 4, the Group describes a second phase of the Quality Education Commission that would provide for the refinement of the Model on an on-going basis. An illustration given for that refinement is that if districts were to routinely depart from the original parameters of the Model, for example by maintaining class sizes that were higher or lower than the Model's guidelines, then the expenditure allocations in the Model should be revised to conform to this routine practice. This recommendation is subject to interpretation that routine practices could be substituted for the expert judgment on which the Model was originally based. Pending Issue: The Joint Committee may wish to clarify the Group's intent for the balance of practice and theory that serves as the basis for updating the Model.

Developing and Maintaining Adequate and Appropriate Educational Facilities

Recommendation 5.1:

Replace the current school facilities financing system with stable and reliable annual state per-pupil allocations that are restricted to assisting school districts in meeting their capital and major maintenance needs.

Recommendation 5.2:

Adopt a ten-year transition plan during which the reliance on state General Obligation bond proceeds allocated on a project basis to fund facilities will be phased out and funding through annual per-pupil allocations from the state General Fund will be phased in.

Recommendation 5.3:

Consider authorizing a limited number of adjustments to supplement the state base facilities per-pupil allocation. As with our recommendations for adjustments to school operating fund allocations (see the Part 2: Categorical Program Adjustments), we believe special circumstances related to geographic, land use and unique school district factors may warrant consideration for additional funding beyond the annual per-pupil grant.

Recommendation 5.4:

Establish clear, concise and workable state facility standards that are characteristic of facilities providing a high quality/high performance teaching and learning environment.

Recommendation 5.5:

Require each school district to prepare and, with appropriate public review, adopt a five-year Facilities Master Plan to meet or exceed state facilities standards.

Recommendation 5.6:

Adopt necessary policy and statutory changes so that the annual budget for each school district will include a capital spending component that is reviewed and assessed as part of the AB 1200 financial and management accountability process. Technical assistance, which may be warranted based on such a review, shall be made available to school districts through regional and state agencies.

Recommendation 5.7:

Create a statewide school facilities inventory system that will assist decision makers to determine state and local short and long term school facilities needs; collect only the most critical, basic information needed to make necessary management decisions; utilize information contained in existing data collection reports before requiring school districts to report additional information needed for the school facilities inventory system.

Recommendation 5.8:

Give local districts autonomy to expend state and local funds as appropriate insofar as such expenditures of funds enable the district to meet or exceed statewide standards for adequate facilities. Local districts would conduct required self-assessments against their Facilities Master Plans, and be required to publicly share the results of those assessments with members of their communities - students, parents, and community leaders - annually.

Recommendation 5.9:

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, between and within educational entities that would promote improved education delivery and access to a wider range of education resources.

Recommendation 5.10:

Ensure timely adoption and implementation of OEHHA's guidance document by DTSC and other state and local agencies for assessing exposures and health risks at existing and proposed school sites.

Staff Comments/Questions

  • The first three recommendations in this section call for a transition from a project-based funding allocation to an annual per pupil allocation for capital facility needs of public schools, with an allowance for special need adjustment based on unique land uses and conditions. Pending Issues: Implementation of these recommendations would require legislative commitment (which is not binding on future legislatures) to resist redirection of resources required for school facilities during times of financial exigency to base operation funding of schools and other state expenditure needs. Alternatively, constitutional protection of school facility funding could be sought but would result in a loss of budgetary discretion for legislators to meet legitimate short-term expenditure needs of the state, which would be offset once debt service for current GO bonds has been satisfied.

  • In recommendations 5.4 through 5.8, the Group offers specific suggestions on responsibilities that should be assigned to the state, regional, and local entities to ensure that all schools meet minimal facility standards for high quality education and safety. Pending Questions: Will any of these facility standards be part of the quality components defined and considered by the Quality Education Commission recommended in 1.1 above? Should there be any student-based special circumstances considered in the allocation of capital outlay funding?

  • The state has unsuccessfully sought to create a statewide inventory of school facilities in the past. Pending Question: If a comprehensive facility inventory were completed, should the state consider a need-based approach to funding, similar to the "leveling up" strategy proposed by the Group (Report, page 43), but as a long-term rather than short-term strategy?

  • The Legislature is currently considering an educational facilities bond that would appropriate approximately $6 billion annually over the next four years. Pending Question: Given the likely significant increase in annual expenditures on operations by implementation of the Quality Education Model, how feasible is it to concurrently seek a General Fund increase of similar magnitude for physical plant?



Postsecondary Education

Recommendation 1:

Adopt policies to provide more stability for finance and dampen the "Boom and Bust" swings of state appropriations for higher education, by (1) committing to annually fund "core" needs and enrollment growth, (2) adopting a consistent and rational student fee policy, and (3) restoring community colleges historic share of the Proposition 98 guarantee.

Staff Comments/Questions

  • The Group's recommendation argues for greater stability in funding for public colleges and universities. However, in recommending continuation of the CSU and UC Partnership Agreements and guaranteeing a fixed percentage of Proposition 98 funds for CCC, the Group offers no analysis of what the "core" needs of public postsecondary education are and which of those needs the state should assume responsibility for funding beyond enrollment growth. Pending Question: Should the State consider empanelling a group similar to that recommended for the public schools to determine the components of a high quality education for colleges and universities and recommend a level of state funding to ensure quality teaching and learning conditions exist at all public colleges and universities?

Recommendation 2:

Improve the state's accountability framework by modifying and expanding the "partnership" budget approach, currently applied to UC and CSU, to (1) include all higher education, (2) clarify the link between performance and funding, and (3) adopt realistic alternatives for times of revenue downturns.

Staff Comments/Questions

  • The Joint Committee may wish to address the weaknesses noted in all existing partnership agreements with public colleges and universities - that they focus on resource inputs, including the critical goal of increasing enrollment, and are unclear about what happens if one side or the other fails to live up to its responsibility. Pending Questions: Should the Joint Committee consider alternatives that make some portion of state resources available only after evaluation of performance on designated outcome measures? What would be appropriate measures? How should these measures be determined?

  • Note: While consistent with the recommendations for accountability advanced by its K-12 counterpart, as well as several other working groups, the Postsecondary Sub-Group explicitly seeks to incorporate the independent/private sectors of postsecondary education in this recommendation. The Group's explicit inclusion of non-public colleges and universities in its call for expansion of a partnership budget approach is appropriate but the state has limited leverage to require participation of non-public institutions. Pending Question: Should the Joint Committee consider the appropriateness of requiring participation in reporting outcome performance measures as a condition of continued participation in the state's Cal Grant program - a condition already required for participation in the federal Title IV financial aid programs?


Recommendation 3:

Change the way state government funds electronic technology to provide more access and choice for students.

Staff Comments/Questions

  • The deliberations of the Group in this area stopped far short of developing unanimity about what the state's priority should be in supporting technology in postsecondary education. Research findings and practices in other states suggests that technology, if sensitively deployed, can be helpful in improving the quality of teaching and learning and mitigating the facilities impact of enrollment demand exceeding current capacity. It can also be costly and improperly deployed, thereby detracting from quality teaching and learning. Pending Questions: If the Joint Committee wishes to tolerate or even encourage smart use of technology, what is the most appropriate mechanism for funding? Should it be part of the core operations of colleges and universities or a supplemental augmentation to the state's core budget or physical plant allocation?

Recommendation 4:

Reform the state's approach to student charges in the public segments and maintain the Cal Grant need-based financial aid entitlement. (Sub-recommendations include: allow statewide student charges to rise in a gradual, moderate, and predictable fashion for CSU and UC; allow CSU and UC to charge differential fees; allow the Board of Governors to set statewide fees and district boards of trustees to supplement fees locally; and leave student fee revenue with the institutions)

Staff Comments/Questions

  • This recommendation is consistent with previous state policy adopted in the 1980s, which called for fee increases to be gradual, moderate, and predictable. That policy was abrogated during the recessionary period of the early 1990s. Pending Question: What mechanisms can prevent a recurrence of that outcome during the next period of financial exigency?

  • Research indicates that if institutions are allowed to raise fees gradually and retain the fee revenue, institutional expenditures rise to match the available revenue. Pending Question: What incentives or mechanisms could be deployed to encourage institutions to set aside resources for the next financial crises?

  • The recommendation to grant CSU, UC, and local community college boards the authority to set differential fees for certain programs already exists with respect to UC graduate programs. Pending Questions: Would the extension of this authority to undergraduate programs for all three public system have the unintentional impact of discouraging certain students from pursuing studies in high-cost programs? What kinds of adjustments to financial aid eligibility should the state consider if were to implement this recommendation? Would such authority provide an incentive to colleges and universities to pursue enrollment increases in high-cost programs as a revenue source in lieu of collaboration in efficient responses to legitimate state needs for increased productivity in certain fields?

  • Pending Question: Is it reasonable to assume that the Legislature will allocate funds for future educational use rather than appropriate them for other current state needs?

Recommendation 5:

Review the state's methodology for determining and funding facilities in California higher education, and, as appropriate for each segment, make changes to emphasize, comprehensive space planning, multiple use facilities, sharing of space among institutions, and incentives to maximize other sources of capital outlay. (Sub-recommendations include: full state support for summer sessions at CSU and UC; increased use of off-campus centers; creation of a sinking fund managed by each system to promote capital renewal and extend useful life of buildings; and having segments collaborate to determine split from General Obligation capital outlay bonds.)

Staff Comments/Questions

  • The group's recommendations in this area are partially consistent with their K-12 counterpart in the encouragement of more shared use of facilities, use of local bonding authority, with 55 percent voter concurrence, and use of technology. Pending Issues: The Joint Committee may wish to consider the full range of options offered by the Group as ways to both maximize usability of current facilities and accommodate expected future enrollment demand. If the state chooses to pursue the recommendation to establish a sinking fund for capital renewal, it may wish to consider the recommendation to have the three public systems collaborate in determining the split between them of any approved GO bonds in tandem.

General Staff Comment

  • The Postsecondary Sub-Group did not include in its report any discussion of whether the State should consider the option of appropriating comparable levels of funding for comparable educational delivery at all three public postsecondary education systems (for example, identical funding for lower-division undergraduate instruction). This option would follow the logic that if comparable quality of teaching and learning opportunities are expected to be provided in all three public systems, state appropriations should reflect that expectation. Pending Question: Should the Joint Committee give consideration to this option?