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LAO Releases Survey on District Budgets and Deferrals, Recommends More Fiscal Flexibility in Short Term

February 10, 2011

On Monday, the California Legislative Analyst’s Office (LAO) released a survey of school districts regarding their reductions in state funding, budget flexibility, and deferrals of payments by the state.

According to the report’s Executive Summary:

Since 2007–08, state support for K–12 education has dropped notably. The reduction in state funding, however, has been partly offset by one–time federal aid and state K–12 payment deferrals. After accounting for these and other related budget actions, per–pupil programmatic funding was down 3.7 percent in 2009–10 and 5 percent in 2010–11 from the 2007–08 prerecession level. To help school districts manage this reduction, the state temporarily removed the strings associated with roughly 40 categorical programs and eliminated various other requirements. To better understand how school districts have responded to these recent changes, as well as to help the Legislature in crafting its 2011–12 education budget, we sent a budget survey to all public school districts in California during the fall of 2010. Out of roughly 1,000 districts statewide, 382 completed the survey. In total, the districts that responded represent 58 percent of the state’s average daily attendance (ADA).

School Districts Using Federal Funds, Deferrals to Reduce Programmatic Cuts. The survey results confirm that school districts have relied heavily on one–time federal aid to maintain teacher jobs. The results also indicate that school districts have reserved about two–thirds of the $1.2 billion in federal Education Jobs funding in 2011–12. Regarding deferrals, the vast majority of school districts are first drawing down their reserves to access the cash needed to sustain programs until state payment is provided. Many districts also are relying on internal and external borrowing, though about one in five districts are having difficulty accessing sufficient cash and, as a result, are having to make some programmatic reductions. Survey results show that almost half of districts would have difficulty accommodating a new 2011–12 deferral and would therefore make some corresponding programmatic reductions.

School Districts Relying Very Heavily on Flexibility Provisions. Survey responses show that districts, most of which took advantage of the state’s flexibility provisions in 2009–10, are relying even more heavily on flexibility in 2010–11. Districts overwhelmingly continue to report that flexibility helps them make strategic decisions, devote funding to local priorities, and balance their budgets. Compared to 2009–10, however, a higher percentage of districts in 2010–11 are either diverting funding from flexed categorical programs or discontinuing them altogether. In addition, a large and growing percentage of school districts are taking advantage of other flexibility provisions, such as shortening the school year.

Recommend Providing School Districts More Flexibility in Short Term. Based on the responses we received from districts, we recommend taking several steps to expand flexibility in 2011–12. Specifically, we continue to recommend removing the strings associated with the K–3 Class Size Reduction (CSR), Home–to–School (HTS) transportation, and After School Education and Safety (ASES) programs. Additionally, we recommend linking flex funding to ADA to ensure the state has a rational basis for making district allocations and responding to changes in the student population. We also continue to recommend removing restrictions on contracting out for non-instructional services as well as the hiring and pay of long–term substitute teachers. Immediate changes such as these will both help districts balance their 2011–12 budgets and set the foundation for longer–term improvements to the K–12 finance system.

Recommend Making Lasting Improvements to K–12 Finance System. Even with the categorical flexibility now in place, the state’s K–12 finance system is riddled with problems—characterized by various research groups as overly complex, irrational, inequitable, inefficient, and highly centralized. Though the state’s current categorical flexibility provisions have temporarily decentralized some decision making, they have done little to make the K–12 finance system more rational, equitable, and efficient. Rather than address these fundamental problems, the Governor proposes to extend most flexibility provisions by two years. While such action would help school districts in building and balancing their budgets over the next few years, it postpones important decisions that the state ultimately must confront. Rather than postpone these decisions, we recommend the state act now to improve its K–12 system. Specifically, we recommend the state consolidate existing funding sources into revenue limits and a few block grants. Such an approach would provide districts flexibility to spend state dollars while still ensuring at–risk and high–cost students receive the services they need.

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To read the complete report, click on the link below or go to:
http://www.lao.ca.gov/analysis/2011/education/ed_survey_two_020711.aspx

Source:  California Legislative Analyst's Office