The state administers K-12 funding through more than 100 individual funding streams. Reform of the funding system would have several local benefits, including greater flexibility to use funds to support high-priority district programs.
Researchers (at Stanford University) found that the restrictions created by the reliance on categorical funding “impose meaningful compliance costs and make it difficult for local actors to respond to incentives embedded in the accountability system.”
Since the early 1990s, we have recommended the Legislature consolidate and rationalize the school finance system. We (now) recommend the Legislature consolidate 43 individual K-12 funding streams totaling $42 billion (Proposition 98) into a base funding grant and three block grants.
A new base grant
The first step is to simplify and consolidate existing base funding streams, state funds and local property taxes. To this amount, we added seven categorical funding streams that are general purpose in nature or provide basic support for the operation of classrooms.
Five of the eight programs, (including) Meals for Needy Pupils – provide widely differing per-pupil amounts to districts based primarily on historical factors. Consolidating these adjustments into a new base grant would reduce district paperwork, clarify district funding levels and ensure (that) future equalization adjustments reflect the base amounts that are actually provided to districts.
We also include class size reduction (CSR) funds in our base grant to loosen the restrictions on funds for class size reductions that make the program unnecessarily expensive to administer. In addition, evaluations of smaller class sizes show small learning gains despite the significant investment associated with CSR. Greater flexibility over the use of CSR funds would provide another resource to assist districts in focusing on effective primary-grades instructional programs that help all students to achieve at state standards in mathematics and reading by the end of third grade.
A consolidated special education grant
We also propose a consolidated special education grant to provide additional flexibility in the use of funds. In addition, while most of the funding streams that would be merged into the formula are small, the multiple sources of money obscure the amounts individual Special Education Local Plan Areas receive from the state for special education.
By consolidating funding sources, therefore, the Legislature also could clarify actual funding levels and set the stage for future equalization efforts.
We would recommend that the Legislature require the California Department of Education to submit an annual performance report on the progress of special education students using data from Standardized Testing and Reporting (STAR) and California High School Exit Examination to highlight for policymakers the academic status of the special education population and identify districts with especially effective or ineffective special education programs.
An opportunity to learn grant
Our third grant is called the Opportunity to Learn (OTL) grant (to) consolidate existing programs that target disadvantaged students. The academic support grant includes the Targeted Instructional Improvement grants, Economic Impact Aid and English Learner Assistance program, which are the primary source of additional classroom services to students who need additional help to succeed.
We also included supplemental instruction funding and the High School Exit Examination supplemental instruction funds, which pay for remedial classes after school or during the summer for students who are struggling to meet state standards.
Ending the categorical nature of the supplemental instruction funds represents a significant policy shift. Our proposal makes districts responsible for determining the mix of additional classroom services and remedial services.
Our proposal also emphasizes the importance of an effective program of additional classroom services. Districts sometimes complain that the state provides too little remedial support. Need for remediation, however, reflects a district's problems in providing the regular classroom services students need to learn the required material. Thus, the state's current remedial funding approach lets districts “off the hook” for ineffective instructional programs.
We also suggest monitoring district performance on the OTL grants. (Our) research shows that very low academic progress is a major factor in the decision of students to drop out of high school (and) that student academic problems usually are evident in elementary and middle school.
District performance on the grant could be assessed by the (1) proportion of students in grades 3, 6 and 9 scoring “below basic” on the STAR program mathematics and language arts test, (2) the proportion of ninth-grade students who fail to graduate within four years, and (3) the proportion of ninth-grade students who by the end of 12th grade have not prepared for life after high school by taking all of the courses that are required for admission into the University of California and California State University or have not earned an employer-certified vocational certificate. We also would suggest the report include data on the number of student suspensions and expulsions and the number of incidents of on-campus violence.
Finally, we recommend the Legislature require (the California Department of Education) to submit an annual performance report on the progress of disadvantaged students to highlight for policymakers the academic status of the at-risk population and districts that make below-and above-average progress.
An expanded school-improvement grant
We would merge the funding currently provided by 16 programs to provide $1.2 billion for the new grant comprised of two parts, one targeted at instructional improvement and the second focused on staff development.
While the division of funds between the two types of activities mirrors the existing division of funding, we would suggest providing significant district flexibility to transfer funds between the two grants.
The significant reduction in the number of programs (that we propose) would greatly simplify the K-12 finance system, reduce district paperwork, clarify the amounts districts actually receive from the state, focus districts on program outcomes rather than state rules and regulations, and provide greater district flexibility over the uses of state funds.
