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School Finance

Strategy No. 8 in A Blueprint For Great Schools report from the Transition Advisory Team dated August 9, 2011.

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In a recent survey, California school district officials identified "improving academic achievement" and "remaining fiscally solvent" as their top strategic priorities, reflecting the tremendous financial pressures facing California schools, at the same time that expectations for student performance continue to rise.

Based on the budget proposed by the Governor in January for the 2011-12 school year, state funding for education has declined by 13 percent since 2007-08, without adjusting for inflation, the equivalent of a reduction of $1,100 for every K-12 student. Since then, the failure to approve a ballot initiative to extend taxes means that cuts may be even more severe over the coming year. In addition, significant deferrals of funding totaling $9.4 billion have reduced the resources for K-12 education even further.

Since the 1990s, California has consistently ranked near the bottom among states in per-pupil spending when that spending is adjusted to reflect cost differences across states. As a result, the state has higher student to teacher ratios and fewer support and administrative staff than nearly all other states. Due to the cost of living differential for California, a typical school district allocates 85 percent of its budget for personnel costs, which limits the budget options available when districts have already made substantial cuts in personnel.

Equally problematic, an extraordinarily large share of funding in California comes in the form of categorical grants, especially in low-income districts, which both means that pressing needs may go unaddressed and that a large share of school and district energy must go into monitoring and reporting about small pots of money, rather than focusing on instruction and the improvement of learning.

Beginning in 2008-09, school districts were given flexibility in their use of funds for more than 40 categorical programs, where expenditures had been previously restricted. Districts have found the new flexibility in the use of these funds to be extremely helpful in enabling them to balance their budgets in the midst of the state fiscal crisis.

Persistent economic challenges in California compound the difficulty of identifying new sources of revenue for education. Over the past ten years, the proportion of funding for schools provided by the state has averaged 56 percent, with local property taxes providing 20 percent of revenue, the federal government 12 percent, local miscellaneous sources providing 10 percent, and the state lottery slightly more than 1 percent. Under Proposition 98, education funding is dependent upon state general fund revenue, which has contributed to volatility for education funding.

Significant political divisions exist over the merit of raising taxes in an economy that is struggling for recovery. However, the state retains large tax bases, which are recovering at differing speeds.  Revenue enhancement will be an important priority as near-term challenges lessen.

School Finance Key Recommendations

California needs a permanent funding system that is simpler, more transparent, more rational, and more directly responsive to the needs of students. To achieve this goal, CDE should work with the Legislature to:

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