Budget and School Funding Update Fourth District PTA Sacramento Safari 2019 February 25, 2019

Trends in Funding, Enrollment, and Spending

K-12 Funding Per Student Is Rising

Funding Increases Under Local Control Funding Formula Have Varied Increase Per Student for 50 Largest Districts, 2013-14 to 2018-19

Statewide Enrollment Projected to Decline for the Foreseeable Future Annual Percent Change

Enrollment Trends Vary by Region Enrollment Change, 2008-09 to 2017-18

Variation in Enrollment Across State’s Largest Districts Change From 2013-14 to 2017-18

Most School Spending Is for Instruction District Spending by Activity

Districts Are Reducing Student-Teacher Ratios

Districts Increasing Teacher Salaries, Spending More on Health Benefits Average Per Full-Time Teacher

Pension Costs

Background on Pensions Teachers and Other School Employees Receive Pensions When They Retire Each retiree's pension is determined by final salary, years of service, and age at retirement. Pensions Are Funded by School Districts, Teachers, and the State

Addressing Pension Shortfalls Pension Systems Have “Unfunded Liabilities” Payments into the pension systems have not been large enough to cover the benefits earned to date. Unfunded liabilities are $107 billion for teachers’ pension system and $24 billion for other school employees. State Enacted Funding Plan in 2014 Increased contributions from teachers, districts, and the state over a seven-year period. Contributions for non-teaching employees also rising.

Funding Plan Adopted to Put Pension System on a Sustainable Path Assets as Percent of Accrued Liabilities

Implications for Districts District Contribution Rates Are Increasing Before the funding plan, district pension costs were equal to 8.25 percent of each teacher’s salary. Under current law, district costs are set to reach 19.1 percent of each teacher’s salary by 2020-21. Rates for non-teaching employees also are rising.

District Pension Costs Are Rising Annual District Contributions (In Billions)

The Governor’s Budget

Revenue Growth Projected for 2019-20 General Fund Revenue, Dollars in Billions 2018-19 2019-20 Change Amount Percent Personal Income Tax $97.7 $100.5 $2.8 2.9% Sales Tax 26.2 27.4 1.2 4.5% Corporation Tax 12.3 13.1 0.8 6.4% Other Revenue 4.7 5.1 0.3 6.8% Total Revenues $141.0 $146.1 $5.1 3.6%

Governor’s Proposed Allocation of $20.6 Billion Surplus

Key Features of Governor’s Budget Allocates $9.7 Billion for Debts and Liabilities A little less than half to eliminate recession-era borrowing and accounting shifts. Just under one-third to pay down pension liabilities associated with state employees. About one-quarter to pay pension liabilities associated with school districts. Adds $3 Billion to State Reserves Total state reserves would be $18.5 billion.

Relatively Large Increases Proposed for Universities, Early Education System Increases for the Universities $300 million (7.6 percent) CSU and $540 million (6.9 percent) for UC. One-Time Early Education Initiatives $750 million for facility grants to encourage districts to convert part-day kindergarten programs to full-day programs. $500 million for child care facilities and workforce education. Other Notable Increases Housing and homelessness. Disaster response and recovery. Earned Income Tax Credit.

Assessing the Governor’s Budget Prudent Mix of One-Time and Ongoing Spending Proposed budget makes progress toward addressing debts and liabilities, improving the state’s long-term position. Increase in ongoing spending generally consistent with the level we think the budget can support. Broader Issues to Consider Building additional reserves remains important because state revenue could drop sharply during a recession. State faces some other risks—for example, wildfires and other disasters are becoming more frequent and costly.

Proposals Affecting K-12 Education

Overview of Governor’s K-12 Proposals $2.2 Billion to Cover a Cost-of-Living Adjustment (COLA) Statutory COLA rate estimated at 3.46 percent. Applies to Local Control Funding Formula and several other K-12 programs. $577 Million for Special Education Grants

Governor Proposes Paying for Some District Pension Costs in 2019-20 and 2020-21 Proposes $700 Million in Pension Cost Relief Consists of $350 million/year in 2019-20 and 2020-21. Costs Would Still Increase, But More Slowly Required district contribution for teachers currently is 16.3 percent of salary. Rate would grow to 18.1 percent of salary (instead of 19.1 percent) by 2020-21.

Assessing the Governor’s Proposals Strengths Estimate of the COLA rate seems reasonable. Governor allocates most new funding to the Local Control Funding Formula and other existing programs, which provides continuity for district as they develop their budgets and academic plans. Weaknesses Budget for schools includes very little one-time funding, which exposes ongoing programs to more risk if the state enters an economic downturn.

Special Education

Background on Special Education Federal Law Sets Forth District Responsibilities Identify students with disabilities. Provide specialized support to help those students access their education. Districts Spent Roughly $13 Billion Providing Special Education Services in 2016-17 Examples of services include individual therapy, specialized academic instruction, and behavioral support.

Special Education Funded From Several Sources

Allocation of State Funding for Special Education Current Funding System Is Complex State allocates its share of funding through nearly a dozen different programs. Districts Receive Most Funding Based on Their Total Enrollment Not based on how many students have disabilities. Eliminates incentive to “over-identify” students for services. Per-pupil funding rates vary across the state, largely for historical reasons.

Share of Total K-12 Enrollment A Growing Share of California Students Receive Special Education Services Share of Total K-12 Enrollment Most students have relatively mild disabilities, but most growth is among those with severe disabilities. No consensus on reasons for increase: Better diagnostics (includes reclassification of disabilities plus more students disabilities). Ex., new DSM in 2013. Parental risk (older parent ages). Some parts not explained. Not vaccines. Increase applies across the board, applies to most districts, most states, and even international. California may be more rapid than others.

Governor Proposes New Grants for Special Education Grants Would Total $577 Million Statewide $390 million ongoing (2019-20 and subsequent years). $187 million one time (2019-20 only). Grants would be on top of existing funding. Two Criteria to Receive Funding District enrollment is more than 55 percent English learners and low-income students. District has above-average share of students with disabilities.

Potential Uses of Grant Funding Districts Encouraged to Use Funding for School Readiness and Early Intervention Services These are services for young children that are intended to reduce the need for special education services later on. Legal Requirement Is Much Less Restrictive Districts could use funds for a wide variety of purposes, including to cover their existing special education costs.

Concerns With Governor’s Proposal Adds New Complexity to a Complex System Creates another state special education program on top of nearly a dozen other funding streams. Creates Poor Incentives Districts that succeed in reducing the number of students requiring special education services would receive less funding than other districts. Leaves Existing Funding Inequities in Place Current variations in special education funding would remain.

Recommend Rejecting Governor’s Special Education Proposal State Has Better Options to Achieve Its Special Education Objectives Equalize Existing Funding Rates Equalizing existing special education funding rates (up to the 90th percentile) would cost $333 million. Fund Preschool Special Education If interested in promoting school readiness and early intervention, state could create a program specifically targeted toward preschool special education.