BILL NUMBER: AB 8INTRODUCED BILL TEXT INTRODUCED BY Assembly Member Brownley DECEMBER 1, 2008 An act to add Section 41054 to the Education Code, relating to education finance. LEGISLATIVE COUNSEL'S DIGEST AB 8, as introduced, Brownley. Education finance: working group. Existing law establishes the public school system in this state, and, among other things, provides for the establishment of school districts throughout the state and for their provision of instruction at the public elementary and secondary schools they operate and maintain. Existing law establishes a public school funding system that includes, among other elements, the provision of funding to local educational agencies through state apportionments, the proceeds of property taxes collected at the local level, and other sources. This bill would express findings and declarations of the Legislature with respect to the school funding system in the state. This bill would require the Director of Finance and the Legislative Analyst to convene a working group to make findings and recommendations to the Legislature and the Governor on or before December 1, 2010, regarding restructuring California's school finance system. The bill would require those findings and recommendations to include, among other things, alternative structures for funding public schools, the policy and fiscal implications of the alternative funding structure or structures, and an evaluation mechanism to facilitate continuous improvement, maximum transparency, and accountability of the funding structures. Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no. AB 8, as introduced, Brownley. Education finance: working group. Existing law establishes the public school system in this state, and, among other things, provides for the establishment of school districts throughout the state and for their provision of instruction at the public elementary and secondary schools they operate and maintain. Existing law establishes a public school funding system that includes, among other elements, the provision of funding to local educational agencies through state apportionments, the proceeds of property taxes collected at the local level, and other sources. This bill would express findings and declarations of the Legislature with respect to the school funding system in the state. This bill would require the Director of Finance and the Legislative Analyst to convene a working group to make findings and recommendations to the Legislature and the Governor on or before December 1, 2010, regarding restructuring California's school finance system. The bill would require those findings and recommendations to include, among other things, alternative structures for funding public schools, the policy and fiscal implications of the alternative funding structure or structures, and an evaluation mechanism to facilitate continuous improvement, maximum transparency, and accountability of the funding structures. Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. The Legislature finds and declares all of the following: (a) The 22 studies of the Getting Down to Facts Project and the Governor's Committee on Education Excellence were consistent in their conclusions that California's current education finance system is overly complex, irrational, and burdensome, and is in need of a long-term plan for comprehensive reform. (b) The complexity of the current system poses a major obstacle to transparency and effectiveness. It is almost impossible to determine how much revenue each school district receives or how those revenues are spent, let alone to report this information to local communities, stakeholders, and the state. (c) The current system is not logical, with district revenues that are largely a historical artifact of spending in the 1970s combined with a confusing and burdensome system of categorical programs. Disparities in school and district revenues are substantial and are not aligned to pupil or educator needs. (d) The system places substantial restrictions on the use of resources by schools and districts, creating high compliance costs and making it difficult for local educators to respond to the needs of their pupils. Fewer paperwork requirements and more flexibility in allocating resources are cited by school principals as two of the most important factors in improving pupil outcomes. (e) Many schools and districts lack the proper tools or capacity to ensure that money is spent on the most effective programs and practices. Research consistently finds that successful schools use data to inform teaching practices and innovation. However, California schools and districts vary widely in their use of data and in their capacity to use data to improve pupil performance. (f) Ensuring that money is spent efficiently and effectively requires a full understanding of how money is allocated by school districts and spent within schools. However, California does not collect financial data that is useful for determining the effectiveness of resources at the state, district, or school levels. (g) Therefore, it is the intent of the Legislature to do all of the following: (1) Build on previous research and recommendations to produce a comprehensive plan for finance reform to support pupil achievement, with specific consideration given to the interactions of incentives in school finance formulas. (2) Establish simpler formulas for allocating funding to each local educational agency. (3) Make the allocation of funding more rational so that the revenues received by each local educational agency reflect the cost of educating pupils with varying needs in varying environments. (4) Support accountability by increasing the transparency of state funding mechanisms and of expenditure decisions at the local level. (5) Improve the reporting of financial data so that programmatic investments can be linked to programs that increase pupil achievement. (6) Support continuous improvement by requiring periodic review of the school finance system and of local resource decisions. (7) Hold local educational agencies harmless, and transition to the new system gradually, as new moneys become available. SEC. 2. Section 41054 is added to the Education Code, to read: 41054. (a) The Director of Finance and the Legislative Analyst shall convene a working group to make findings and recommendations to the Legislature and the Governor regarding restructuring California' s school finance system as set forth in subdivision (b). (1) In addition to the Department of Finance and the Legislative Analyst, the working group shall be composed of representatives of the Governor, representatives of the Superintendent of Public Instruction, and majority and minority staff of the appropriate policy and fiscal committees of the Assembly and Senate. (2) The working group shall consult with, or invite the participation of, organizations or experts it deems appropriate to accomplish its tasks. (3) In its deliberations, the working group shall consider and give appropriate weight to the findings and recommendations of the Governor's Committee on Education Excellence and to the research results embodied in the Getting Down to Facts Project. (b) The working group shall make findings and recommendations regarding all of the following: (1) Alternative structures for funding public schools that shall include, but not necessarily be limited to, all of the following characteristics: (A) Simple formulas for allocating funding to each local educational agency. (B) Rational allocation of funding so that the revenues received by each local educational agency reflect the cost of educating pupils with varying needs in varying environments. (C) A funding structure that supports accountability by providing transparency of state revenue allocation rules as well as expenditure decisions at the local level. (D) A funding structure that facilitates reporting of financial data so that programmatic investments can be linked to pupil achievement. (E) A funding structure that allocates consistent additional resources to school districts and county offices of education on the basis of exogenous characteristics of the local educational agency and its students that research has shown clearly affect the costs of educating pupils. (F) A funding structure that recognizes the financial consequences of growth or decline in the number of students served. (G) A funding structure that reinforces the academic goals of the public schools. (2) Pathways to transition from the current school funding structure to the more desirable and comprehensive alternative structure or structures identified pursuant to paragraph (1), and a specific mechanism to initiate the transition as increased funding becomes available in future years. In particular, the findings and recommendations shall address: (A) The conditions that should be in place before a transition begins. (B) The length of time that is necessary or appropriate to transition to a new funding structure. (C) The manner in which local educational agencies should be held harmless during a transition period from revenue changes associated with a new funding structure. (D) An equalization component for the transition to the new funding structure, based on the characteristics identified in subparagraphs (B) and (E) of paragraph (1). (E) How and when to eliminate unnecessary statutory and budgetary elements of the current school funding structure. (3) The policy and fiscal implications of the alternative funding structure or structures identified pursuant to paragraph (1). In particular, the findings and recommendations shall address all of the following: (A) Costs associated with implementing new school funding structures. (B) Trade offs inherent among the characteristics set forth in paragraph (1). (C) Equity considerations. (D) Incentives and disincentives that new school funding structures may create or eliminate. (E) Governance considerations. (4) Modifications to the standardized account code structure to provide school-level reports on revenue and expenditures to facilitate easy comparisons across schools and districts, including comparisons of school, district, and statewide demographics and academic performance, and data on program-level expenditures. (5) An evaluation mechanism to facilitate continuous improvement, maximum transparency, and accountability of the primary funding structures, as well as a consistent process to evaluate the effectiveness of any specific programs that are funded separately. (c) The working group shall present its findings and recommendations to the Legislature and the Governor on or before December 1, 2010. SECTION 1. The Legislature finds and declares all of the following: (a) The 22 studies of the Getting Down to Facts Project and the Governor's Committee on Education Excellence were consistent in their conclusions that California's current education finance system is overly complex, irrational, and burdensome, and is in need of a long-term plan for comprehensive reform. (b) The complexity of the current system poses a major obstacle to transparency and effectiveness. It is almost impossible to determine how much revenue each school district receives or how those revenues are spent, let alone to report this information to local communities, stakeholders, and the state. (c) The current system is not logical, with district revenues that are largely a historical artifact of spending in the 1970s combined with a confusing and burdensome system of categorical programs. Disparities in school and district revenues are substantial and are not aligned to pupil or educator needs. (d) The system places substantial restrictions on the use of resources by schools and districts, creating high compliance costs and making it difficult for local educators to respond to the needs of their pupils. Fewer paperwork requirements and more flexibility in allocating resources are cited by school principals as two of the most important factors in improving pupil outcomes. (e) Many schools and districts lack the proper tools or capacity to ensure that money is spent on the most effective programs and practices. Research consistently finds that successful schools use data to inform teaching practices and innovation. However, California schools and districts vary widely in their use of data and in their capacity to use data to improve pupil performance. (f) Ensuring that money is spent efficiently and effectively requires a full understanding of how money is allocated by school districts and spent within schools. However, California does not collect financial data that is useful for determining the effectiveness of resources at the state, district, or school levels. (g) Therefore, it is the intent of the Legislature to do all of the following: (1) Build on previous research and recommendations to produce a comprehensive plan for finance reform to support pupil achievement, with specific consideration given to the interactions of incentives in school finance formulas. (2) Establish simpler formulas for allocating funding to each local educational agency. (3) Make the allocation of funding more rational so that the revenues received by each local educational agency reflect the cost of educating pupils with varying needs in varying environments. (4) Support accountability by increasing the transparency of state funding mechanisms and of expenditure decisions at the local level. (5) Improve the reporting of financial data so that programmatic investments can be linked to programs that increase pupil achievement. (6) Support continuous improvement by requiring periodic review of the school finance system and of local resource decisions. (7) Hold local educational agencies harmless, and transition to the new system gradually, as new moneys become available. SEC. 2. Section 41054 is added to the Education Code, to read: 41054. (a) The Director of Finance and the Legislative Analyst shall convene a working group to make findings and recommendations to the Legislature and the Governor regarding restructuring California' s school finance system as set forth in subdivision (b). (1) In addition to the Department of Finance and the Legislative Analyst, the working group shall be composed of representatives of the Governor, representatives of the Superintendent of Public Instruction, and majority and minority staff of the appropriate policy and fiscal committees of the Assembly and Senate. (2) The working group shall consult with, or invite the participation of, organizations or experts it deems appropriate to accomplish its tasks. (3) In its deliberations, the working group shall consider and give appropriate weight to the findings and recommendations of the Governor's Committee on Education Excellence and to the research results embodied in the Getting Down to Facts Project. (b) The working group shall make findings and recommendations regarding all of the following: (1) Alternative structures for funding public schools that shall include, but not necessarily be limited to, all of the following characteristics: (A) Simple formulas for allocating funding to each local educational agency. (B) Rational allocation of funding so that the revenues received by each local educational agency reflect the cost of educating pupils with varying needs in varying environments. (C) A funding structure that supports accountability by providing transparency of state revenue allocation rules as well as expenditure decisions at the local level. (D) A funding structure that facilitates reporting of financial data so that programmatic investments can be linked to pupil achievement. (E) A funding structure that allocates consistent additional resources to school districts and county offices of education on the basis of exogenous characteristics of the local educational agency and its students that research has shown clearly affect the costs of educating pupils. (F) A funding structure that recognizes the financial consequences of growth or decline in the number of students served. (G) A funding structure that reinforces the academic goals of the public schools. (2) Pathways to transition from the current school funding structure to the more desirable and comprehensive alternative structure or structures identified pursuant to paragraph (1), and a specific mechanism to initiate the transition as increased funding becomes available in future years. In particular, the findings and recommendations shall address: (A) The conditions that should be in place before a transition begins. (B) The length of time that is necessary or appropriate to transition to a new funding structure. (C) The manner in which local educational agencies should be held harmless during a transition period from revenue changes associated with a new funding structure. (D) An equalization component for the transition to the new funding structure, based on the characteristics identified in subparagraphs (B) and (E) of paragraph (1). (E) How and when to eliminate unnecessary statutory and budgetary elements of the current school funding structure. (3) The policy and fiscal implications of the alternative funding structure or structures identified pursuant to paragraph (1). In particular, the findings and recommendations shall address all of the following: (A) Costs associated with implementing new school funding structures. (B) Trade offs inherent among the characteristics set forth in paragraph (1). (C) Equity considerations. (D) Incentives and disincentives that new school funding structures may create or eliminate. (E) Governance considerations. (4) Modifications to the standardized account code structure to provide school-level reports on revenue and expenditures to facilitate easy comparisons across schools and districts, including comparisons of school, district, and statewide demographics and academic performance, and data on program-level expenditures. (5) An evaluation mechanism to facilitate continuous improvement, maximum transparency, and accountability of the primary funding structures, as well as a consistent process to evaluate the effectiveness of any specific programs that are funded separately. (c) The working group shall present its findings and recommendations to the Legislature and the Governor on or before December 1, 2010.