Reforms > Local Control Funding Formula

Some sober words for school boards amid predictions of plenty



RB-pub-community-college-fundingFor the first time since the Great Recession, school districts are getting more money this year from the state; some – big beneficiaries of the new Local Control Funding Formula – are getting a lot. And that increase is expected to be larger next year, in one-time and ongoing money, if the Legislative Analyst’s predictions for a rebounding economy are on target.

School finance experts John Gray and Joel Montero, however, injected a cautionary note during a presentation Friday at the California School Boards Association’s annual convention in San Diego.

“We are still in a volatile situation. Be conservative. Be careful,” Montero advised several dozen school board members at his talk.

Montero is the unofficial fiscal worrywart of K-12 education. As the executive director of the state Fiscal Crisis and Management Assistance Team, or FCMAT, his job is to see that districts don’t run out of money and end up in bankruptcy. FCMAT’s oversight and dire warnings have worked; only a handful of the state’s 1,000 districts are in receivership despite devastating cuts over the past five years.

Gray is president of School Services of California, a Sacramento consulting firm that provides services to and represents school districts, including in negotiations with employees unions. It’s his role to advise districts to be chary with a dollar.

The Legislative Analyst’s Office is projecting that there may be as much as $12 billion in new Proposition 98 money for the fiscal year starting July 1. In the state budget he will release next month, Gov. Jerry Brown will likely dedicate a big portion as one-time money ­– for paying off late payments or deferrals to schools and implementing Common Core, perhaps – but the increase for districts’ operating budgets will likely be sizable nonetheless.

So why were Montero and Gray acting like Saturday Night Live’s Debbie Downer? A combination, they said, of the hangover from the recession and the new complexities of the Local Control Funding Formula prompt them to urge caution to districts when creating a spending plan for next year and negotiating staff raises this year.

Rebounding from deficit spending

About 60 percent of the state’s school districts deficit-spent last year, and many have done so for two or three years, Montero said. They got by through eating into their reserves. So a district’s first priority should be to eliminate its operating deficit. For those districts with structural deficits, “You can (receive) more money this year but have no money to spend,” he said, particularly if a district has a declining enrollment, with fewer students generating state dollars.

A paradox is that many districts have built up record reserves – far beyond the 1 to 3 percent of a district’s operating budget that state law requires. They did so because of uncertainty: not knowing whether Proposition 30, creating temporary taxes, would pass a year ago and not knowing what the Local Control Funding Formula would look like.

Healthy reserves, of course, are good. What’s dicey, Montero and Gray said, is spending them down too quickly, based on the assumption that projected state revenue three years from now will cover spending commitments they can make today.

“The pressure (from calls to increase spending) is going to intensify on you,” Gray said. “You will likely live with what you do in year one (of LCFF) for a long time.”

Furthermore, Brown’s projection that the LCFF will be fully funded in eight years assumes uninterrupted economic growth. The last recession technically ended four years ago, even if growth in California has been puny. Twelve straight years of economic growth hasn’t happened, Gray said, so it’s prudent to expect a setback. The biggest beneficiaries of LCFF should have the largest reserves, Montero said, because they’d be most vulnerable if the revenues fall short of state predictions.

This chart shows how three elementary districts, with different proportions of high-needs students, would fare under the Local Control Funding Formula. Over the next eight years, each would annually receive a percentage of the gap between what they got in 2012-13 and what they would receive at full implementation. Note that each district started at a different funding level. Source: Department of Finance (Click for a larger image)

This chart shows how three elementary districts, with different proportions of high-needs students, would fare under the Local Control Funding Formula. Over the next eight years, each would annually receive a percentage of the gap between what they got in 2012-13 and what they would receive at full implementation. Note that each district started at a different funding level. Source: Department of Finance (Click for a larger image)

Each district’s unique situation

Another point to keep in mind, they said, is that each district will get a different increase per student annually over the next eight years or so, making comparisons between districts problematic.

“Once fully implemented, LCFF will be the simplest formula around,” Gray said. “But in the transition period, the next eight years – or longer – the system will be more complicated than the one we left.” So educating stakeholders on how the formula works is critical, he added.

The range in per-student funding at full implementation will be between about $8,500 and $13,000. This year, each district will get about one-eighth of the difference between what they got in per-student funding in 2012-13, the last year of the old formula, and their target at full funding. The average increase this year is $308, but some districts will get less than $200 per student, while others will see more than $600 per student.

Whether a district gets a lot or a little will depend in part on how many low-income students, students learning English and foster youth it serves and in part on its starting point, the funding level it received in 2012-13. So, Gray noted, even two districts with the same percentage of students with high needs won’t get the same per-student funding increases in the transition.

Unlike the old system, where districts got the same increases to their “revenue limits,” or base grants, every district’s funding situation in the LCFF transition period will be distinct. So it will be difficult explaining to teachers in one district why there’s no money for the raise that teachers in an adjoining district have negotiated, Gray said.

“Stakeholders may not understand how you receive the money,” Gray told school board members. He cited one unnamed district with declining enrollment and a huge deficit problem that is seeking to roll back salaries, while another unnamed district has reached an impasse with its teachers union despite an offer of a 7.5 percent raise.

How your neighbors behave will have a significant impact on you,” Gray said. “The pressure is going to intensify.” (To what extent it is permissible for districts to grant pay and benefit increases using some of the additional dollars intended to provide extra services for high-needs students – a major fear of low-income advocacy groups – is a separate and important issue that the State Board of Education is expected to weigh in on when it adopts LCFF regulations in January.)

Pent-up demand for spending

Finally, Montero and Gray cautioned, there will be huge pressure – more than districts can accommodate ­– to restore programs, start new ones and grant pay increases.

“You’re facing a pent-up demand,” Gray said. “Most districts haven’t given raises for five years. Expectations are high. You survived with fewer people, paying them less.” Along with bargaining units’ demands, parents and community members will be letting school boards know what they want. The LCFF requires incorporating parents’ views in a three-year Local Control and Accountability Plan, which school boards must adopt by July 1.

Under the old system, with Sacramento-dictated spending rules for dozens of categorical programs, school boards had little control. Now the dynamic has changed, and the responsibility, Gray told school board members, is theirs.

“It a lot easier to say I can’t do something. It’s harder to say I won’t do something,” he said. “Stakeholders will have different ideas on how to spend money. You have to stay strong to say (maintaining) facilities or adult ed is important to our success. It’s important to hang tough and determine your priorities.”

“Your job has been terrible since 2008-09,” Montero said. “Now the economy is improving and likely to continue to improve. Board members are hungry and anxious to do something. Be smart about that.”

John Fensterwald covers state education policy. Contact him and follow him on Twitter @jfenster. Sign up here for a no-cost online subscription to EdSource Today for reports from the largest education reporting team in California.

 

Filed under: Local Control Funding Formula, Policy & Finance, School Finance, State Education Policy

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21 Responses to “Some sober words for school boards amid predictions of plenty”

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  1. Steven Nelson on December 11, 2013 at 11:43 am12/11/2013 11:43 am

    • 000

    Very interesting thread. As a school board member – in a district with a large reserve, we will weather this fine. One issue will be implementing class size reductions again, in the K-3 + high poverty classrooms where this matters. We fortunately just signed a three year teacher agreement – with yearly raises, that is consistent with ‘prudence.’ Lost Opportunity Costs: if we are too tight, we will miss some great opportunities for our students. 1:1 netbooks for our middle schools, for example.

    Replies

    • Manuel on December 12, 2013 at 10:06 am12/12/2013 10:06 am

      • 000

      Mr. Nelson, I hope that as a science-oriented person you will carefully study the blunders made by LAUSD as it attempts to implement an “iPads for all” policy.

      You are small enough to avoid the bureaucratic pitfalls made painfully evident by LAUSD’s emulation of theKeystone Kops (and it has not even gotten past deployment to 10% of the schools). I am sure that you can provide access to technology at the classroom in a much more thoughtful and deliberate manner that includes input from all stakeholders, including parents and teachers.

      Best of luck in getting to 1:1.

      • el on December 12, 2013 at 10:44 am12/12/2013 10:44 am

        • 000

        For all those people who think that iPad rollout problems are only because it’s a school or government or what have you, it’s worth knowing that a large scale tech deploy of any kind of new device is usually hard, troublesome, and fraught with peril, and that even technology companies experience that. The problem is that with kids we have a lot less tolerance for wasted time than we do in industry/corporate life. :-o

        For example: http://www.cio.com/article/739845/iPad_Pilot_Programs_Dirty_Little_Secrets


        Here’s just a sampling: A Minnesota retailer has 1,500 iPads that have been stashed in a warehouse for years, Freimark says. A carrier has 20,000 iPads waiting to be rolled out, he says, but the pilot project can’t clear them for takeoff.

        High-end retailer Tiffany’s had iPod Touches intended to be used as point-of-sale devices piled up in a closet for two years …

  2. el on December 9, 2013 at 3:23 pm12/9/2013 3:23 pm

    • 000

    The other issue that is going to affect districts, in terms of how they budget and how much they hold in reserve, is the loss of some of the hold harmless provisions for declining enrollment. That is, in the past, if you had an unexpected decline in enrollment, in the current year you would still in many cases be funded based on the previous year’s enrollment. The new formula will have declines in enrollment reflect in funding essentially in real time. Thus, your revenue numbers may remain quite uncertain – especially if the students that move out are the concentration students. You’re looking at 5 or 6 concentration students covering a teachers’ salary… not a lot in the grand scheme of things.

    Replies

    • Kim on December 10, 2013 at 7:35 am12/10/2013 7:35 am

      • 000

      El,

      The base grant calcs will still use ADA the way the old system did – which will give declining enrollment districts the choice of using current year or prior year ADA, I believe.

      Only the supplemental and concentration will use the current year percentage (moving to a 3 year average)of unduplicated students. So in a declining enrollment environment, a district’s percentage could stay the same if the proportion of unduplicated decline is in line with total decline.

      At least – that’s my current understanding!

      • Manuel on December 10, 2013 at 3:32 pm12/10/2013 3:32 pm

        • 000

        On real time? That’s interesting. How are they going to accomplish this?

        Or will the time-interval be tied to the periodic reports on enrollment through CALPADS? How about the eligibility as a member of the “unduplicated” count? Until now, AFAIK, Title I, Part A eligibility is defined on only one date (the census date) and not at any other. Are they going to fold that in too? And will these “corrections” be done as they have been done before, sort of quarterly as the apportionment gets recalculated?

        Incidentally, doesn’t this make it problematic for collection of “Free or Reduced Priced Meal” applications? And doesn’t that cause a problem with the current issue of LAUSD wanting the state to accept the old “we’ll tell you every four years how many kids we have” rule? I thought that complying with that part of LCFF wasn’t supposed to be more cumbersome than Title I eligibility and that’s not what seems to be happening now. Not that I agree that they shouldn’t have to count them but it seems that there is not much clarity out there (it is just as bad as how the funding is determined).

  3. Manuel on December 9, 2013 at 2:55 pm12/9/2013 2:55 pm

    • 000

    Oh, goody, another table that cites numbers but does not tell us how they were calculated.

    According to the LCFF law, the base for K-3 will be $7556.88 eight years from now (provided the district agrees to class size reduction). The base for a 4-6 grader will be $6947. The average amount can only be known if these two numbers are multiplied by the respective number of students in the cohort and then divided by the total number of students. In other words, the “average” value given in the graph is suspect because it implies it is an average that is equal to all schools.

    The next step is trickier: supplemental and concentration grants depend only on the base grant and the ratio of unduplicated pupils to enrollment. They do not get calculated only for the unduplicated pupils. Thus, Lafayette gets $72/student extra while King City get $1,305.34/student in supplemental funds.

    Similarly with the concentration grant: Lafayette and Sierra Sands get nothing because they are not above the 55% level while King City gets an extra $1,269.09/student.

    Adding these numbers do not give the same amounts as in the graph, implying that the cumulative COLA is responsible for that difference. Assuming that, the COLAs look different for the three district but their compounded effect is a roughly 20% increase at the end of the eight years.

    Haven’t we done this before?

    Anyway, the whole thing is a moving target so I see no sense in getting overly excited about that “happy days are here again.” Not until they show how much is in the till.

    Replies

    • John Fensterwald on December 10, 2013 at 12:18 am12/10/2013 12:18 am

      • 000

      Manuel: It’s a fair criticism that the Department of Finance’s projections do not show the yearly growth. It’s a big leap to go from 2013-14 to full implementation in 2020-21. The LAO, in its latest revenue and budget estimates, has said it expects it will take a year or two longer to reach full funding that the governor has claimed. Both the LAO and the Department of Finance assume no recessions between then and now. We’ll see if there are any revisions in the governor’s January budget proposal.

      • Manuel on December 10, 2013 at 3:24 pm12/10/2013 3:24 pm

        • 000

        John, yes, it is a fair criticism, but as Jean Follmer points out above, districts are getting less money now than last year even though there is a guarantee that this wouldn’t happen.

        But let’s take the numbers given in the projections you refer and let me focus on LAUSD. The projections give $8,102/student with an ADA of 544,228. That comes to $4,409,335,256. The CDE’s principal apportionment file (found here) says that LAUSD will get $3,274,369,324 from the state. That amount even includes the special ed funding (and now that I think of it, why didn’t Gov. Brown come up with a grant for educating those kids? They are require more services than poor kids so why not?) and the difference is rather large. So something does not add up.

        It could be that the projections include the local contribution from real estate taxes (in fact, I think they do, and that is about $1 billion). But even that shows that the gap is still nearly $200 million. It could also be that the apportionment did not include revenues from other state agencies and only from the pot earmarked for education and they will show up a year from now on EdData. Oh, so many rocks to peer under!

        Anyway, I am not a professional on these matters, but I sure would like to know exactly what School Services of California is really thinking. But I suspect those services are their bread and butter and I would have to pay for them. :-)

        • John Fensterwald on December 10, 2013 at 4:01 pm12/10/2013 4:01 pm

          • 000

          Actually, Manuel, what Jean said was that Lafayette is getting less this year than it would have gotten under the old formula. According to the Department of Finance estimates — and maybe Jean has something more current — Lafayette will get $169 more per student this year than last year. That’s a pittance — and will create problems for a district struggling to recover from the recession, but it is not less. Also, according to DOF, Lafayette will get slightly more at full funding than it would have under the old formula. About $200 per child. Perhaps Jean is using another LCFF calculator — there are others out there.

          Jean, where did you get your numbers?

          • el on December 10, 2013 at 5:19 pm12/10/2013 5:19 pm

            • 000

            I was assuming there was declining enrollment in play.

            • navigio on December 10, 2013 at 6:24 pm12/10/2013 6:24 pm

              • 000

              me too.

            • Manuel on December 10, 2013 at 9:57 pm12/10/2013 9:57 pm

              • 000

              And I took it at face value: Lafayette is getting less money under LCFF than last year under the previous formula.

              Would less enrollment be involved? We would have to look at the numbers, but there’s also the possibility that Jean is looking at what Lafayette got last year and is comparing it to this year.

              When I attended the LCFF meeting in Downey, that was the first complaint expressed: “my district is getting $8 million less than last year even though we were assured it wouldn’t happen.”

              As for enrollment, a quick look through DataQuest shows that its enrollment has increase in all categories:

              total LEP SES
              2010-11: 3,211 137 93
              2011-12: 3,329 148 99
              2012-13: 3,435 163 98

              Given that, I’d say Lafayette is getting short-changed. Or the numbers bandied about do not reflect reality.

            • navigio on December 11, 2013 at 1:40 am12/11/2013 1:40 am

              • 000

              The hold harmless guarantee is on a per ADA basis so funding in light of a drop in enrollment could satisfy that guarantee while still technically providing less total money. I don’t think this years numbers are public yet but you’re right that the trend would not indicate such a drop.

              The guarantee is also a function of the revenue limit received last year. Depending on how one treats the deficit factor, that could also make the guarantee look like it’s not getting met.

              Finally, the guarantee is only for state aid. It’s possible someone inadvertently included non state funding in the comparison. These distinctions are blurred all the time to make certain points.

            • John Fensterwald on December 11, 2013 at 8:09 am12/11/2013 8:09 am

              • 000

              navigio: I believe you are right. Districts are assured of receiving no less than they got in 2012-13 on a per ADA basis, so that if enrollment drops, the district might get less money. However, the overall guarantee under the formula is based on what a district got in 2007-08, adjusted forward with annual COLAs. If a district would receive less under LCFF per student than in 2007-08, it’ll get a payment, called the Economic Recovery Target, which is the difference between the two. More than 150 districts will receive this money, spread out over eight years; Lafayette is not one of them, according to the Department of Finance spreadsheet of districts’ LCFF funding released last June (it has not been updated). Districts receiving this payment, the ERT, have an “X” in the last column of the chart. I meant to include this information with my post.

            • Manuel on December 11, 2013 at 9:19 am12/11/2013 9:19 am

              • 000

              Well, navigio, it is even murkier than that.

              Diving into EdData, the most recent data is for 2011-12. Comparing the principal apportionment given by the CDE’s finance web page and again using LAUSD as an example, the final amount (p2) was $2,760,406,432. EdData reports it as $2,169,158,250. Peering closer, EdData puts the Special Ed funding under “Other State Revenues” so that sort of explains the difference. But EdData also states that LAUSD got “other state revenues” of nearly $1 billion to bring the total amount of state funding to $4,086,309,017.

              When the CDE scrambled to come up with an amount for 2013-14, they added many of these “other state revenues” and came up with an apportionment that nearly approximated the state revenues for 2012-13. But it was short by something like 8% or so. Comparing the list of the accounted-for funds and the one given in LAUSD’s budget showed that several did not get included, presumably because LCFF would take care of them. True, there was a drop in ADA, but I don’t recall it being near 8%.

              Yeah, you are probably on the right track when you say that the guarantee was for “state aid” not the “other state revenues.” Still, I can’t help but think that this particular “crisis” is being used to realign how the state funds schools. Whether schools will be better funded as a consequence is still not clear to me.

              Of course, looking at tables made up of “average” per capita allocations makes matters even more confused because what truly matters is the total state contribution to the district. Back in the good ol’ days it was all fuzzy, but now we are supposed to get clarity. We are five months into the 2013-14 year already and we still don’t know (at least for LAUSD) what’s in the pot in the respective three grants.

              Do any other districts know?

  4. Jean Follmer on December 9, 2013 at 11:02 am12/9/2013 11:02 am

    • 000

    For information purposes, the Lafayette School District is receiving $193,532 less this year under the LCFF model than they would have under the old funding model.

  5. navigio on December 9, 2013 at 10:27 am12/9/2013 10:27 am

    • 000

    Ok, I admit I’m stupid, but is the mention of COLA in the graphic intending to imply those figures are nominal dollars? If so, I think it would be useful to include (perhaps even instead) the ‘increase’ in real dollars. Especially given that maybe a third to a half of what is indicated there as an ‘increase’, in fact isnt one.

    It might also be helpful to clarify whether healthcare inflation rates are included in COLA calculations. In our district healthcare premiums have recently had double digit yearly inflation rates. I cant remember ever having a double digit COLA, or even anything close to that. In fact, in a recent year, the COLA was actually negative.

    Replies

    • el on December 9, 2013 at 1:08 pm12/9/2013 1:08 pm

      • 000

      The California COLA is based on the Consumer Price Index (CPI) which is based on the cost of a household basket of goods.

      Health insurance is not in the basket, though some measures of medical care are. I am not expert, but it has been my observation that the medical services they are measuring are substantially below both the official rate of increase for all health insurance and what I’ll call the anecdotal/practical rate of increase of health insurance costs.

      (College education is another substantially underrepresented but dramatically increasing budget component, and the CPI also has not captured the increased cost of housing in California, in general.)

      The other thing to know is that even when the price you’d pay would be going up or staying flat, the CPI will adjust based on the “value” you’re getting. So, if that washer/dryer costs the same but now comes with an electronic control panel instead of a dial, that will count as an increase in value for the dollar and be a negative component of CPI… even though you may not buy a washer/dryer this decade and even though you don’t care that it has an electronic control panel. Computers too – all that new processing power is very deflationary, even if it is only being used to make your menus transparent with the newest OS and not so much actually making your life better.

      The things that schools buy, of course, are not well correlated to the CPI, other than the cost of labor, which presumably should correlate. But a school can negotiate to keep its salary costs flat – not so much with fuel or books or health insurance.

      • navigio on January 10, 2014 at 10:09 am01/10/2014 10:09 am

        • 000

        A while back I seem to remember mention of and ‘education-specific’ price index. I noticed CPI is mentioned in most docs so I expect it is not an official index. Does anyone know of any attempts to define that?

    • el on December 9, 2013 at 3:07 pm12/9/2013 3:07 pm

      • 000

      There was plenty of gallows humor that the negative COLA was the only one in recent memory that the State had elected to grant school budgets.

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