The 2013-14 State Budget Act marked the most sweeping school finance reform in the last 40 years with implementation of the Local Control Funding Formula (LCFF). The LCFF is intended to correct historical inequities, increase flexibility and transparency, and simplify education funding. It replaces the old funding model of revenue limits and most categorical programs with a base grant differentiated by grade and additional supplemental and concentration grants based on the number of low-income and English learner students. It also introduced the annual Local Control Accountability Plan (LCAP) which emphasizes community engagement and student achievement goals.
Implementation of LCFF will be phased in over the next several years. As the state works to restore education funding to pre-recession levels, new dollars are applied to the LCFF model. Until LCFF is fully implemented, most of the new state funding for schools is a redistribution based on student demographics, and some state-funded districts will receive more than others. Community-funded districts are insulated from this effect directly. However, during this transition period comparability between districts is a challenge and communities will be experiencing funding for their local school district very differently.
School districts are funded by a combination of local property taxes and state aid up to the LCFF calculation. For the majority of districts, local property taxes are less than the funding obligation and the state makes up the difference (state aid). ”State-funded” districts have little concern about local property tax levels because the state back-fills their funding up to the LCFF amount. On the other hand, there are a minority of school districts across the state where local property taxes exceed the LCFF calculation. Under current law, these “community-funded” districts are allowed to retain all the property tax revenue and state aid is very minimal. Community-funded districts are commonly called “basic aid,” which refers to the basic aid entitlement for all students of $120 per Average Daily Attendance (ADA) as set forth in the California Constitution.
With implementation of LCFF in 2013-14, all districts are guaranteed minimum state funding of at least the amount they received in 2012-13 for categorical funding (grants). Categorical funds prior to LCFF included Class Size Reduction Grades K-3, Economic Impact Aid, Instructional Materials Fund Realignment Program, Professional Development Block Grant, School and Library Improvement Block Grant, and many others. These grants were available to all school districts, basic aid districts included. During the Great Recession of 2008, K-12 education funding was cut by approximately 20% over a five year period. Basic aid district categorical funds were reduced in proportion to the cuts made to state-funded district revenue limits, referred to as “fair share” reductions. The state’s intention was to restore the fair share cuts made to basic aid categorical program funding as state-funded district revenue limits were restored. However, the LCFF eliminated revenue limits and most categorical programs. The minimum state funding at 2012-13 levels makes permanent the fair share cuts to basic aid districts.
In November 2012, voters approved Proposition 30, Temporary Taxes to Fund Education. Drafted as a means of guaranteed benefit to all schools, Proposition 30’s Education Protection Act (EPA) provides that no school district shall receive less than $200 per Average Daily Attendance (ADA). This is a direct benefit for community-funded districts, but EPA dollars are not ongoing. The temporary state taxes that fund EPA are set to expire December 2018. Governor Brown has been clear that this was a temporary tax measure and does not support any extension. The fate of this source of funding is yet to be determined.
Community-funded, or basic aid, districts face unique challenges. While most districts are funded on Average Daily Attendance (ADA) and student demographics, community-funded districts are dependent on local property tax values. Funding is unrelated to student enrollment and property taxes are difficult to predict. Districts do not know what their estimated property tax revenue will be until well into the fiscal year, and future year projections are subject to volatility. This is the main reason why community-funded districts usually maintain a reserve level higher than the state required minimum of 3% of expenditures (generally equivalent to less than 2 weeks of payroll).