The Real Story of CA School Funding – A Cautionary Tale (Part 1: The Foundation)

15-minute read time

(Authors note: This post was intended to fully cover the topic of how the budget is created and communicated to stakeholders. As it began to come together, it was clear that too much content would not allow for the intended purpose, so it will be crafted and presented over the next couple of posts in parts)

In May Governor Gavin Newsome announced an unprecedented budget surplus in the State of California. The proposed budget will include increases in Local Control Funding Formula (LCFF) base funding as well as one-time funding to address the impacts of the pandemic on schools. This funding follows several rounds of funding from the Federal Government.

With all this support from the state and federal government, our elected officials claim that they have acted quickly, and effectively to address all the financial needs of school districts. This would be fantastic news if it was fully accurate, unfortunately, there are many aspects to school funding that the legislature and administration never talk about.

Over the next couple of posts, we will explore the history of school funding as well as ten (10) impacts on the budget that might not be fully understood by our stakeholders. In summary, we will cover the impact of:

• Restricted Funding

• Compliance

• Pension Obligations

• Mandated Programs

• Infrastructure

• Attendance and Enrollment

• Reserves and One-time Funding

• Employee Shortages and Compensation

• LCFF Supplemental and Concentration Grant Funds

• The Brain Drain – Educators Leaving the System

For this post, however, I am going back to the thinking we had at the beginning of the pandemic in the summer of 2020. The remainder of this sets the stage for where we are today. I hope this is interesting and provides some reasonable objective perspective that the challenges we are facing today have been in front of us for some time now, we just have not been able to find a permanent solution.

A Quick Primer course on the History of School Funding in California

(originally written in July 2020 at the beginning of the pandemic)

The Good Ole Days

School Districts in California are reliant upon the State for funding. In recent decades that funding was based upon the revenue limit which was a formula that was derived from the Serrano v. Priest cases (1971, 1976, and 1977). Unfortunately, those formula-locked school districts are based on the configuration of their tax base and population demographics from that period. With the passing of Proposition 13, the burden of funding schools shifted from the local communities to the State.

Since the State maintained the old formula for base revenue, large gaps were created between what each district received per pupil in comparison to other school districts. Under that formula, as demographics and the population of the district served changed, the funding did not, and, with the relative slowing of assessed property values due to Proposition 13, the percentage of revenue provided by the State continued to increase compared to that of Property Taxes - to well over 60 percent in many cases.

The Impact of Proposition 13 was immediate and the funding for schools has struggled to keep up ever since. In the end, a small group of high-wealth districts remained in what is called basic aid and fully covered (plus more) the minimum required funding for schools by the State under Proposition 98.

Prior to the passage of Proposition 98, it was a dark period for California School Funding as the State began a meteoric drop from previously being in the top 10 percent of all states down to the bottom 5. When educators talk about the restoration of the base funding and the impact of the legislative solutions as an investment in education, the numbers speak for themselves.

In 2007, Education funding in California hit a high-water mark, and then the mortgage crisis hit as part of the great recession and the bottom dropped out. If not for the multiple flexible spending direct to schools bailouts from the Federal government in 2009-10 (ARRA and State Fiscal and Stabilization Fund (SFFA)), most districts would have gone bankrupt. Even with that support, most school districts had to lay off employees, increase class size, reduce services, undertake salary rollbacks, and institute furlough days.

The Local Control Funding Formula (LCFF)

The Local Control Funding Formula began in 2013-14 and promised to return the spending authority for school districts to the 2007 level when fully implemented. It also moved to equalize funding by creating the same base grant for all students by grade span and then added funding based upon need through supplemental and concentration grant funds for the unduplicated count of socioeconomically disadvantaged students, English language learners, and foster youth.

LCFF started well with investments in Education allowing districts to start restoring programs. The challenge was that each year expenditures increased for school districts just to maintain the status quo. For many districts when the costs for step and column, increased cost of Special Education (a Federal mandate that is funded less than 20 cents per dollar required of service), health and welfare benefits, insurance, increasing costs of goods and services and retirement benefits the total for status quo can erode many of the new dollars. This is before adding any new programs or any compensation increases. We will go into more detail on LCFF in the next post.

LCFF was launched with the promise to return to 2007 spending authority never happened even when it reached full funding in 2019-20, but because the state changed the rules on retirement and more than doubled, and will soon triple, the costs that districts have to pay each year for STRS (State Teachers Retirement System) and PERS (Public Employees Retirement System). This foreshadows some of the concerns that will be addressed in the series.

LCFF was launched with the promise to return to 2007 spending authority never happened even when it reached full funding in 2019-20, but because the state changed the rules on retirement and more than doubled, and will soon triple, the costs that districts have to pay each year for STRS (State Teachers Retirement System) and PERS (Public Employees Retirement System). This foreshadows some of the concerns that will be addressed in the series.

More than ever was being spent on education…

Through this all, politicians in Sacramento sold the political line that more than ever was being spent on education even though on a spending power basis school districts fell farther and farther behind each year. This was not entirely visible because the State provided one-time grants each year which masked the structural deficits that were inherent when a district’s expenses increase each year by 4-5% to stay status quo and revenue only increases by 2-3%.

Because compensation increases are required to maintain quality staff, especially with the high cost of living in the Bay Area, the disparities between revenue and expense became greater and when LCFF funding slowed as it hit the “2007 target,” which was not adjusted as it should have been when STRS/PERS costs were added, many districts started to have to make budget cuts.

In January 2020, Governor Newsome announced a “great” budget for Education that would provide a 2.3% Cost of Living Increase. Not explained was that every district needed at least 4% just to reach the status quo. Many districts were still reeling from recent cuts that significantly impacted operations. For my district at the time, this was AFTER the district just made almost $30 million in real cuts including increasing class size, layoffs of teachers, counselors, management, and classified personnel, significant reductions to non-salary expenses, and teachers taking a furlough day and losing stipends. These were significant and painful reductions. To do another $18 million would be catastrophic.

Fast forward to June 2020, with the pandemic showing no slowing, and the picture is much worse for Education. The adopted State budget was “flat” with a 0% COLA. The Federal Government did provide one-time funds, but these are not flexible as in 2009-10 and are supposed to be used for NEW expenses.

The State, however, politically counted this Federal money as backfilling what the State did NOT provide. So, we have a situation where we have to pay our rent, but the money can only be used to rent a new car that we can use for one year. At the end of the year not only will the rent have not been paid, but the new car will be taken away too. What this means is districts have to make more cuts, spend funds on things that are not sustainable, and use all available reserves.

In addition to not providing adequate funding for education ongoing, the State reverted to another old budget trick called a deferral. Simply explained, the State will require school districts to put in their budget the revenue for the months of February, March, April, May, and June of 2021 but not receive any actual payment for those 5 months. Districts will still have to pay their employees and vendors during this time but without any actual funds and will have to borrow cash. The State saves $10 billion in doing this, while school districts end up paying interest to borrow money while the State saves.

The big problem with this deferral solution comes in 2021-2022 when the State must pay back all $10 billion PLUS pay school districts fully for that year. What this means is that by July 1, 2021, the State needs to find $20 billion more than it will spend this year on Education just for the status quo. Once again, the only hope for K-12 education in California will be if the Federal government provides a flexible relief program as it did with ARRA.

Pathways For The Future

California used to be among the top states in the nation in the funding of K-12 education. This was when that funding was directly supported by the local communities before Proposition 13. Today, the only way a school district can obtain additional funding is through ballot initiatives because the State has proven over the last 42 years that it will only do, at best, the bare minimum. The next couple of years are going to be rough sailing in California and K-12 education will likely feel the full force of this with draconian budget reductions that will significantly reduce services for our students and community, likely create even larger class sizes, more layoffs, and additional reductions to employee compensation.

When the local communities directly funded education pre-Proposition 13, California education was at the top of the nation. Too often politics have gotten in the way of great progress, and this is a time where the true power to educate our students will rest with our community.

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