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APPENDIX A: PRICE DIFFERENCES

Price differences are differences in the costs of purchasing the same market basket of goods and services in different regions of the state. Adjustments for price differences theoretically equalize purchasing power among educational agencies, and in the context of adequacy help assure that, once a budgetary level of per-pupil funding is set by the Legislature, educational agencies throughout the state are able to purchase resources of comparable value.

In practice, any system of price adjustments is only approximate and can be limited by the unavailability of high quality data, the need to maintain a manageable set of regions, and the need for such adjustments to be understandable and perceived as fair by the communities that are affected.

There are basically two approaches to price adjustments, meaning adjustments for those costs that are not under the direct influence of school district policy: Regional cost-of-living adjustments, and cost-of-education adjustments.

Cost-of-living adjustments use either the costs of some set of consumer goods and services for a region, or the costs of salaries in a region for comparable professionals, as proxies for the real local cost of key education resources. This approach is straightforward, and clearly measures costs that are beyond the control of local education administrators. Disadvantages include the potential expense of collecting high quality, comparable data across all regions, and the potential to overcompensate school districts in areas with high living costs that also have local amenities making those districts more desirable places to work.

Rueben and Herr^[32] compared teacher compensation across eleven California education regions with that of other professionals. The comparison shows significant regional differences in average teacher salaries, and finds that generally higher cost regions had the greatest disparity between teacher salaries and the salaries for other professionals. This finding points to the value of considering regional price adjustments as part of a new school financing system for California.

The cost-of-education approach, used most comprehensively in Texas, directly examines actual differences in district expenditures. Then analytical and statistical techniques are used to separate the effects of cost factors under the control of school district administrators from factors beyond their control. Advantages of this approach are that it is based directly on education spending patterns, and therefore accounts for a wider range of factors and influences on education spending than cost-of-living approaches. A cost-of-education index relies on school district financial data that, for most states, may be more readily available than regional market basket data.

Disadvantages include concern over the ability to actually separate expenditure factors that are not directly under the control of school districts, and expenditure effects that are related to pre-existing differences in district revenues. This could result in regions with higher revenue school districts receiving adjustments that perpetuate those differences even if they are not legitimately related to price or need.

As noted above, price adjustments – whether based on cost of living or the cost of education – may merit consideration in California. They have a face validity that is appealing, and other states have long experience with their use. However, a note of caution is in order based on the experience of other states. Texas’ recently completed a review of its Cost-of-Education Index, originally adopted in 1990 as the next step in cost-based adjustments, which have been in use in Texas since the early 1980’s. The report, prepared by the Charles A. Dana Center of the University of Texas at Austin, took note of the issues that led to that review:

“The Cost-of-Education Index adopted in 1990 did not resolve all of the difficulties associated with earlier education finance adjustments. The very definition of the index used in Texas raised some questions since only certain costs beyond the control of the school district were included in the construction of the index. Differences in opinions existed as to which costs were beyond the control of districts and debate continues on this question.... In addition, the school district data used to compute the Cost-of-Education Index was from 1989-90, and Texas has used the index since that time without updating the underlying data. Issues related to the appropriateness of this data have raised concerns among many Texas legislators regarding the CEI and prompted the 76^th Legislature to call both for an examination of the current index and for recommendations of new indices.”^[33]

The Finance & Facilities Working Group does not recommend that the Legislature adopt factor adjustments based on calculated price differences at this time. Such adjustments are complex in their derivation, with theoretical equity subject to the practical limitations of data available at the appropriate regional scale. In addition, they have not avoided many of the apparent shortcomings of traditional categorical programs, including the appearance of a certain amount of subjectivity in their application. However, we do recommend that further consideration of price adjustments in the context of developing an adequacy-based funding system be included in the charge given to the California Quality Education Commission (see Recommendation 1.1).

APPENDIX B: THE PERSONAL INCOME TAX

The personal income tax (PIT) raises approximately $35 billion annually, accounting for half of all General Fund revenues. The PIT is a state revenue source, with allocations in support of local government and education services being made through the state Budget Act. The personal income tax is progressive, with 10 percent of taxpayers accounting for 70 percent of PIT revenues. As a share personal income and in comparison to marginal tax rates, California’s PIT is significantly above average when compared with other states that utilize a personal income tax.

While a local income tax is used to provide a portion of the funding for public schools in a few states, we do not see this as a viable local revenue option for schools in California. When assessed against our evaluation criteria, the personal income tax does not measure up to other options, and, therefore, we cannot recommend it.

A state income tax surcharge is likely to provide at best a moderate amount of additional funding per pupil.
Income tax yields are very sensitive to economic cycles.
A local option income tax can only be applied to personal income.
The income tax is highly progressive. Therefore, a significant share of funding for a local income tax option must be provided through additional state aid to assure neutrality.
A local option income tax would require careful analysis of issues around verification of domicile. The tax may be subject to avoidance if domicile issues cannot be addressed.
Association is weaker than property-based taxes because personal income is not directly affected by the quality of public schools.

APPENDIX C: RESPONSIBILITY OF STATE AGENCIES IN EDUCATION FACILITY DELIVERY

There are numerous state agencies that participate in the public education system and each agency bears a unique responsibility in providing high quality education to pupils. The various state agencies and their respective roles in providing high quality education are listed below:

Division of the State Architect

The Division of the State Architect through architectural plan review and approval for school facilities in California is responsible for ensuring that school facility designs minimally meet the regulations of the Uniform Building Code, the American with Disabilities Act and the Field Act of 1933. The Division of the State Architect works increasingly with the California Department of Education and the Office of Public School Construction to assist school districts throughout the state in providing safe and adequate educational facilities.

California Department of Education

The California Department of Education (CDE) operates under the auspices of the State Superintendent of Public Instruction and the State Board of Education, and provides a variety of services to public schools and school districts throughout California. CDE assists districts and county offices of education with site approval and plan approval.

Department of Toxic Substances Control

The Department of Toxic Substances Control is responsible for ensuring that school properties acquired with state funds are free of hazardous material that may affect students and faculty that will be housed on the site.

State Allocation Board/Office of Public School Construction

The State Allocation Board is responsible for allocating state funding for new construction and modernization projects for California’s public schools. As the administrative arm of the State Allocation Board, the Office of Public School Construction accepts and processes applications for funding submitted by school districts throughout the state. Upon review of applications, the Office of Public School Construction will make explicit recommendations for funding apportionments to be approved or disapproved by the State Allocation Board at one of its scheduled meetings.

APPENDIX D: FUNDING CONTRIBUTION MODELS CONSIDERED BY THE FACILITIES WORK TEAM

The Facilities Group has explored three proposed Funding Contribution models in which the contribution requirements of the state and local agencies differ.

In one model, the state is required to provide a base per-pupil allocation and the local agency is required to provide a percentage match of that base per-pupil amount.

The second model the group explored is similar to the first in that the state is required and responsible for providing a base per-pupil amount, which presumably would be sufficient for districts to use to maintain adequate facilities that meet state facility standards. Where the second model deviates from the first is in the local contribution requirement; the second model makes local contribution flexible and determined by the local agency. If the local agency facilities plan demonstrates that it can meet state facility standards with its allocated per-pupil amount from the state, it is not required to contribute local funds; however, the district may opt to contribute local funds if it wishes to exceed facilities standards.

The final funding contribution model the group explored is one in which the state and local agencies contribute a percentage of funding and based upon the district’s ability to raise local revenue, the state would adjust its base per-pupil grant amount accordingly.

The working group has recommended model #2, above.

Table of Contents
Summary	1. Finance	2. Equity	3. Community
4. Accountability	5. Facilities	Appendices	Members