Joint Committee to Develop a Master Plan for Education

Affordability of A High-Quality Education System

California Today

California's public schools currently enroll nearly six million students, who have a variety of cultural and socio-economic backgrounds, learning styles, languages, and needs. Attendance is a no-cost option for all children who will reach age 5 by December 2nd of each year; and students are required to remain in attendance until the age of 18, or until they are at least 16 and have graduated from high school.

Approximately one-third of California's roughly 1,000 school districts are unified, encompassing kindergarten through high school; a little more than half of them are K-6 or K-8 districts, serving as feeders to high school districts. (Many unified and high school districts also offer adult education.) Many of these school districts are small in size: nearly a third serve fewer than 500 students; and, overall, close to half of the districts serve 1,000 or fewer students. In contrast, the Los Angeles Unified School District serves more than 700,000 students and is nearly five times as large as the second largest district, located in San Diego. The smallest districts have only one school, or even one classroom, while Los Angeles has more than 700 schools.

All of these school districts, their elected governing boards, teachers, administrators, and other professional personnel are affected by a financing system controlled by the Legislature and Governor. California's public education system is supported primarily by state income and sales tax revenue, and revenue from local property taxes. This funding is supplemented by federal monies, revenue from the California State Lottery, and miscellaneous funds such as developer fees and contributions from a variety of sources. In 2001-02, an estimated $40.4 billion was invested in California K-12 education, with $28.8 billion coming from the state General Fund and the balance from local revenue.[62] The Legislature and Governor determine the state funding amounts annually, beginning with development of the Governor's budget that is introduced in January of each year. From initial introduction to adoption of a final budget at the end of the fiscal year (June 30 or later), a number of adjustments and political tradeoffs are made. These adjustments are influenced by requirements of Proposition 98, a constitutional amendment approved by voters in 1988 that prescribes a minimum portion of the total General Fund that must be committed to public schools each year and a complex formula for how additional allocations get counted in the minimum guarantee to public schools in future years.

Each school district has a historically derived revenue limit per unit of ADA, which determines the general purpose funds it receives from the State. Revenue limit funding provides the majority of income a district receives annually to fund its operations. The Legislature adjusts this amount in most years to provide a cost of living adjustment (COLA) to each district's revenue limit. Revenue limits, in their current form, were developed in response to the 1968 Serrano v. Priest court decision, which required California to reduce funding disparities resulting from unequal real estate wealth, permitting only a narrow band of variation. To determine the education budget, the Legislature adds state funds to local revenue, in amounts determined by multiplying each district's ADA times its revenue limit and subtracting from that amount the district's estimated local property tax receipts; the difference represents the amount of state funds needed to reach the district's revenue limit entitlement. A small number of districts generate property tax receipts that equal or exceed their revenue limits. These districts are called 'basic aid' districts, and they are allowed to retain all of their local revenue, even when it exceeds their revenue limit entitlements. In addition, they are entitled to receive $120 per student from the State that is guaranteed by the California Constitution.[63] In addition to their revenue limit allocations, all districts receive categorical aid of some type, from both stateand federal sources. In most cases categorical aid is accompanied by regulations and reporting requirements to ensure that the money is spent on the students or on purposes for which it was granted. Some types of categorical aid, such as textbook money, are granted to all schools, while others require districts to apply for them. Some categorical funds are based on student characteristics, such as English language learners, while others are based on district circumstances, such as the need for transportation funds. Other types of categorical aid, such as for special education, require districts to provide some amount of base or 'matching' funds from their own general purpose revenues.

The balance of revenue to school districts comes from lottery funds and such supplemental sources as fees, cafeteria food sales, money for debt repayment, interest on reserves, and successful grant applications. Since 1990-91, lottery funds have been generating between $110 and $120 per student per year for districts.

The actions of California voters in the last 25 years have radically altered the financing of public schools and the roles of the State and local school boards. The 1978 passage of Proposition 13 removed the authority of local district governing boards to generate their own revenue through the levy of local ad valorum property taxes as well as dramatically reducing the amount of revenue realized from local property taxes overall. As a consequence, it significantly increased the role of the State in the financing of public schools and largely severed the fiscal link between local voters and their schools. Concerned about the schools' ability to attract adequate funding in competition with every other state General Fund-supported public program and service, voters approved Proposition 98 in 1988, which amended the state constitution to guarantee a minimum funding level for public K-14 education.

Propositions 98 and 13 also had a tremendous impact on the California Community Colleges. Like the K-12 public schools, community college districts previously derived the majority of their funding from local property tax revenues and had local authority to levy property taxes within certain limits to offer programs and services responsive to community needs. Proposition 13 removed this authority and shifted the proportion of district revenue from approximately 60 percent local and 40 percent state funding to the reverse. The California Community College system was the only one of California's three public postsecondary education systems to be incorporated in the constitutional guarantee of minimal funding resulting from passage of Proposition 98.

The California Community Colleges system declined to join its California State University and University of California counterparts in opposing Proposition 98, in hopes that they would be able to stabilize and improve their funding. There were then 104 (now 108) community colleges in 1988, organized into 71 districts (now 72), and serving more than a million students from diverse backgrounds, with different languages, learning styles, levels of preparation, and needs. Despite this huge diversity in students served, the community colleges were, as a matter of public policy, funded at a level substantially below that of their California State University and University of California counterparts. This fact reflected state decisions to manage the costs of broad access to postsecondary education through the differentiation of function, differential funding, and coordination that were embodied in the 1960 Master Plan for Higher Education. In 1988-89, state funding per full-time equivalent (FTE) student forthe three public postsecondary education systems is shown in Table 7, following:

Table 7
State Funding per FTE in Public Postsecondary Education, 1988-89

  California Community Colleges California State University University of California
1988-1989 $2,708 $5,623 $13,106
Source: California Postsecondary Education Commission, Fiscal Profiles 2001, Displays 13-15

Community college hopes for stable and adequate funding as a result of inclusion in the Proposition 98 guarantee of minimum funding did not materialize. Community colleges' share of Proposition 98 funding was expected to be roughly 11 percent of the guarantee, but they received this amount in only the first three years following adoption of the proposition (see Table 8, following). Instead, they have found themselves subject to a 'floating' funding commitment, with the needs of K-12 schools addressed first and the resulting balance allocated to the community colleges.

Table 8
Distribution of Proposition 98 Funding

Source: California Postsecondary Education Commission, Fiscal Profiles 2001, Display 11 Note: California Youth Authority and Special State Schools received balance of Proposition 98 funds

California's approach to the financing of public postsecondary education remains primarily one of negotiating increases over the base budgets negotiated in previous years. The primary operations of the three systems are adjusted around several previously defined areas:

In addition to these adjustments to the base budgets of the postsecondary education systems, the Legislature and Governor can also make adjustments based on state policy priorities, including expansion of certain academic programs; student outreach programs; professional development programs and services for teachers, administrators, and faculty; technology applications; and so on.

In recent years, all three systems have entered into partnership agreements with the Governor and Legislature to stabilize the portion of General Funds they receive annually. The California Community Colleges have established a Partnership for Excellence (PFE) program, in which they agree to exchange more data, on specific student outcomes tied to their mission and functions, for increased funding from the State. Originally billed as a 'pay for performance' program, the PFE has evolved into a mechanism to attract increased funding to the system. Both the California State University and University of California systems have entered into partnerships with the Governor over the past four years to essentially provide evidence of responsiveness to state policy priorities in exchange for stable funding, funding of enrollment growth, and a predictable inflationary adjustment to their base budgets. These partnership approaches have injected more civility into the annual budget process for postsecondary educationand have reduced, but not eliminated, perceptions of a political spoils system of funding in which the University of California negotiates its needs privately with the Governor, followed by the California State University, with any remaining resources allotted to the community colleges.

Total financing for postsecondary education derives from state and local tax dollars, student fees, lottery funds, and other university funds. In 2001-02 an estimated $9.9 billion in General Fund monies and an additional $1.8 billion in local revenue were invested in postsecondary education to support public colleges and universities. The former figure represents 12.6 percent of the 2001-02 General Fund appropriations, a 0.9 percentage point increase over its counterpart in the 2000-01 fiscal year, in the third consecutive year in which the percentage of General Fund appropriations devoted to higher education has increased. It falls short of its counterpart in the 1972-73 peak, when the State invested 17.7 percent of all General Fund appropriations in higher education, but still represents a 157 percent increase in 2001-02 inflation-adjusted dollars from 1972-73 appropriations.[64]

Student resident fees and non-resident tuition charges are another major source of revenue for public postsecondary education. Resident student fees are established by the University of California Regents and the California State University Trustees, for their respective systems, with the concurrence of the Legislature, and directly by the Legislature in the case of the California Community Colleges. Further, the University of California Regents are authorized to charge differential fees to resident students enrolled in certain graduate and professional programs. Each system's governing board is authorized to charge non-resident students tuition, defined as the full cost of instruction plus non-instructionally related costs charged to resident students. Total fee and tuition revenue generated by the three systems for the 2001-02 fiscal year is estimated at $3.01 billion. During the early recession years of the 1990s, increases in student fees were used as a mechanism to offset state and local funding's falling below stated needs, generating serious concerns about the impact of fees on college access for talented students from low-income families.

Lottery funds accounted for only $202 million of the funding available to support the basic operations of the three public postsecondary education systems in 2001-02. In addition, the community colleges generated funding from other sources totaling $88.7 million in 2001-02; the California State University generated funding from other sources totaling $1.6 billion, including federal funds, continuing education fees, and other revenues; and the University of California generated funding from other sources, excluding its organized research activities, totaling $6.8 billion, including self-supporting operations, interest income, and other revenues. In addition, the University of California manages a substantial organized research operation funded by state, federal, and private sources.

Overall, state and local funding, including systemwide student fees, accounted for approximately 25.7 percent of the University of California's total cost of operations, 65.9 percent of the California State University's total operations, and 95.6 percent of the community colleges' total operations, during 2001-02. These percentages change somewhat for the California State University and substantially for the University of California if the calculation is restricted to instructionally related activities.This fact reflects the differences in the missions and functions assigned to the three systems, as well as the fee structure permitted by state policymakers. Low fees have been deemed to be an essential component of broad access and hence community college fees have been kept low - currently $330 per year, the lowest of any public community or junior college system in the nation. Systemwide fees at the California State University have been set at $1,428 per year for the past three years, and systemwide resident student fees for the University of California have also remained the same for the past three years, at $3,429, ranking them below the average for comparable public universities nationally. To ensure that enrollment remains a viable choice for talented low-income students, the State has significantly increased its investment in state-supported financial aid programs over the past decade, increasing appropriations from $149 million in 1992-93 to more than $503 million in 2001-02. Senate Bill 1644 (Statutes of 2000), which instituted a guarantee of financial aid to all eligible high school graduates in 2000-01, accounted for a 34 percent increase in financial aid funding that year.

For nearly two decades, California's public school districts have paid for about 60 percent of the cost of constructing new school facilities and modernizing existing ones through property tax overrides and developer fees. The State has picked up the remaining 40 percent of school facility costs through the issuance of General Obligation bonds. These proportional shares represent the split for total school facility costs in the state (shares for individual districts could have ranged from zero to 100 percent for either partner). Over the years the State has developed a number of programs for the allocation of capital funds to districts, using a variety of criteria that include measures of school facility capacity, enrollment, and age of existing facilities.

A practice that has been most detrimental to some school districts is the allocation of capital funds on a first-come, first-served basis. Because of variations in district capacity to prepare complete applications for facility funding, and differences in availability of land for new construction, some districts have annually failed to secure funding badly needed for new construction and have accordingly experienced overcrowded schools and schools in a poor state of maintenance. This limited capacity has been worsened by the unpredictability of when the State would be able to make facility money available to districts, how much money would be available, and what rules would govern eligibility, impairing district ability to plan, build schools, and raise supplemental local capital funds.[65] The first-come, first-served approach to allocation of what limited capital funds are available has also meant that districts with the greatest needs have not necessarily received facility funding. This fact has prompted reliance on year-round education in some districts, some configurations of which have the disadvantage of fewer calendar days of instruction and of extending the length of instructional days to ensure that state-mandated instructional minutes minimums are met. It has also resulted in lawsuits seeking to reserve facility funding for high-need districts and to divert facility funding to districts that are unable to provide high-quality teaching and learning conditionsdue to inadequate facilities. It also underscores the importance of having a state entity, such as the State Allocation Board, develop and maintain a facility inventory for public schools to enable better monitoring of the age of school facilities, with the resulting data to be factored into state-level facility planning.

Meeting the facility needs of public colleges and universities also relies on a combination of state and local funding. Within public postsecondary education, only the community college districts have the option of raising local facility revenue through parcel taxes with the two-thirds approval of local voters. The California State University and University of California systems both rely on state appropriation of General Fund monies and issuance of General Obligation bonds to meet capital construction and modernization needs. Long range planning is hampered, as with the public schools, because the two university systems never know when or how much state facility money will be available. However, each systemwide office prepares and regularly updates long-range facility plans based on campus master plan capacity and estimates of enrollment demand.

The 1960 Master Plan for Higher Education established a process to guide the construction of new college and university campuses. The process requires each system that believes it needs to construct new campuses, to develop and present a supporting rationale for that conclusion to the California Postsecondary Education Commission (CPEC) for review and approval prior to allocation of General Fund dollars for that purpose. CPEC has prepared a set of review criteria that it uses to evaluate each application, and forwards each of its recommendations both to the Legislature and to the proposing system. Conceptually, the Legislature does not appropriate money for new campus construction without a positive, independently determined recommendation from CPEC; but recent free or near-free gifts of federal and private property, coupled with strong enrollment growth, have served to substantially influence CPEC's recommendations.

As a result of the weaknesses in the ways that California finances educational facilities, a number of agencies are offering alternative approaches to both financing facility construction and modernization, in the case of the public schools, and reviewing and allocating State facility funds for the public colleges and universities. These alternatives aim to provide greater flexibility, predictability, and timeliness in meeting facility needs of public education.

Overall, California is currently far from the approach to financing public education that the Joint Committee envisions. California continues to attract large numbers of people who choose to call this state home, and collectively they will place huge demands on our education system. We have an obligation to think creatively about ways to finance an education system that will be of consistent high-quality and that will provide the uniform conditions for teaching and learning necessary to enable all education providers to meet our expectations for student learning and to meet the needs of our diverse state economy. This section offers guidance in this area.