They still pay for schools, don’t they?

CUSD faces a multimillion-dollar gap amid the state’s complex, flawed funding system

Illustration By Steve Ferchaud

It’s still not enough.

Californians dedicate 40 percent of their state’s budget, a full $40 billion in sales and income taxes, each year to K-12 schools to educate six million children.

And yet school districts across California are slashing their budgets. It’s even worse in districts like Chico’s, where enrollment is in a downward spiral.

Trustees here are faced with cutting $4 million from a $99 million budget over the next two years, a move that could include such drastic measures as closing schools, shutting off air conditioning, getting rid of counselors, gutting electives and no longer funding athletics.

They don’t like it.

Steve O’Bryan, the second-most-senior Board of Trustees member in the Chico Unified School District with three years under his belt, said that this year, for the first time, there’s virtually nothing left to cut that doesn’t mean losing programs and laying off people. Trustees are looking to cut $1.8 million in 2004-05 alone. “The ones we’re looking at this year are much more structurally based,” he said. “Nowadays, almost every cut has someone’s name on it.”

The budget plan Gov. Arnold Schwarzenegger presented on Jan. 10 would bring a $1.1 million increase to Chico schools via a small cost-of-living adjustment (COLA). But with the proposal dependent on legislative whim and voters approving a $15 billion bond measure on the March 2 ballot, school officials aren’t feeling too optimistic.

“It’s just a proposal,” said Randy Meeker, the CUSD’s assistant superintendent for business services. “We can’t afford to back off of that $1.8 million in the hopes that all of that passes.”

“The marching orders are to look at it as a worst-case scenario because we don’t know what’s coming out of Sacramento,” O’Bryan said.

The News & Review looked to a variety of sources familiar with school finance to come up with a top-10 list of the reasons why Chico schools are in so much trouble, identifying problems in a flawed funding system that are mirrored in districts around the state. Our sidebar looks at some ideas that have been posed locally on how to find money to bridge at least part of the gap.

“Sadly, in the years I’ve been here we’ve cut nearly $6 million,” said Scott Brown, who was hired as superintendent in 1999. And, he acknowledged, there’s no getting around that the cuts have hurt the quality of education in the CUSD.

So, how did we get here?

1 Loss of local control.
Trustee Anthony Watts, a businessman, figured running a school district would have a lot to do with crunching the numbers, taking risks and making tough choices. “I believed that, as an elected official, I would be able to do the job I was elected to do—make decisions about the budget, etcetera,” Watts said. “But the Board of Trustees has essentially been rendered impotent. We’re left with a tiny percentage of the budget that we can actually modify. … Running a school district is unlike any job in existence on the planet.”

In the 1970s, schools began to see the impact of a series of court, legislative and voter decisions that resulted in power being shifted from local districts to the state.

The case of Serrano v. Priest succeeded in 1971 in making sure schools got similar dollar amounts per student. But the win for equality hamstrung local districts, which could no longer benefit from the high property tax revenue that came with well-heeled neighbors.

The next year saw Senate Bill 90, which set a per-student dollar amount based on average daily attendance (ADA), making enrollment, not property values, the deciding factor for funding.

Then came Proposition 13, the infamous voter-approved measure that slashed property tax rates. It may have protected homeowners, but it also took away the last bit of funding authority from local governments.

READ TO LEARN <br>Reading was the theme of the day at Neal Dow Elementary School, where on Jan. 22 children also celebrated Pajama Day. Reading programs are among those that receive special state and federal funding. From left are Maureen Stien’s kindergartners: Jaden Willis, Caleb Besser and Trevor Buckman.

Photo By Tom Angel

“Pre-Prop. 13, local school boards set the tax rate,” remembered Brown, who was starting his first year as a superintendent in 1978, the year the measure was passed. “It took half of the equation away from the Board of Trustees.”

2 The state is out of money.
Long-recognized flaws in the public school funding setup come to a head in times of statewide bust, and California is reeling not only from a cyclical economic downturn but also from the remnants of a volatile stock market, the energy fiasco and the terrorist attacks of Sept. 11, 2001.

Added to that, during the 2002 elections, candidates seemed to be more interested in getting re-elected than in proposing spending cuts that could have alienated special-interest contributors and voters.

Mid-year take-backs and revenue limit decreases have cost the CUSD $2.2 million over the past two years, as the budgets legislators finally managed to set proved unrealistic and unstable. The Legislature also has a penchant for spending one-time money on ongoing expenses.

Unlike the state, school districts must finish their budgets on time and balance them. “I think it’s a huge irony. It’s government at its worst,” Meeker said. “I wish the state of California was mandated by law to have a budget passed by June 30.”

Watts is one of many who predict that voters will reject Schwarzenegger’s $15 billion bond measure, and, “the whole budget plan is going to collapse like a house of cards.”

Meeker said, “If the $15 billion bond fails, all bets are off.” Even if the bond passes, “We won’t know that we’ve gotten that revenue until late summer.” By then the decisions on the cuts will already have been made, and not all of them will be easy to restore.

The state’s independent Legislative Analyst’s Office (LAO) is projecting the budget gap will continue to 2008-09. Then, Brown said hopefully, “I think it’s going to get better.”

3 The government doesn’t come through with promised funds.
Just as the federal government is notorious for mandating programs and then not paying for them, the state of California is known for putting off required payments to local districts or taking back money in the middle of the fiscal year.

For example, in 2003-04 the state refused to pass along the 1.8 percent COLA, money that usually goes toward employee raises.

And although the federal government mandates special education, a worthy cause, it has never passed along all the money needed to run those programs. “Historically, the federal government has not fully funded its mandate,” Meeker said, causing special-education costs to encroach on the CUSD’s general fund to the tune of $5.1 million this year.

Transportation is also not fully funded. It costs the district $343,000 to bus special-education students and $156,000 to transport the rest of the population.

At the same time, workers’ compensation, liability and health care costs are rising, and the only way for districts to cover those costs is out of the general fund.

The state’s habit of putting its funding promises on hold has cost the CUSD $550,000 a year in 2002-03 and 2003-04, Meeker said.

In 1988, Proposition 98 attempted to mend the boom-and-bust school funding system by setting a minimum level of funding for schools, using a formula based on the state’s overall budget. But there’s an exception allowing payment delays in times of crisis, and Schwarzenegger was thinking about using it—until he brokered a deal with the California Teachers Association to release $2 billion of the $4 billion the measure would normally require. If Prop. 98 had been suspended, the CUSD would have gotten no new money at all.

4 A third of the money is restricted.
How districts spend “their” money is largely restricted by state and federal rules.

“There is no extra money, ever,” said Diane Bird, principal of Emma Wilson Elementary, who has to ponder for a full minute at the foreign concept of what her campus would do if it did get new money, with no strings attached. “That would be wonderful.”

About one-third of California school districts’ funds—29.5 percent in the CUSD—are tied up in “categorical programs” serving more than 100 purposes, such as gifted education, dropout prevention, transportation, vocational education, counseling, books, reading programs and class-size reduction, each with its own set of earmarked funds. The rest, which comes out of what’s called the revenue limit (docked 3 percent this year by the Legislature, giving the CUSD about $63.8 million), can be spent at the districts’ discretion, but in most cases California districts have chosen to dedicate almost all of it to employees’ salaries and benefits.

NO BAKE SALES <br>Trustees Anthony Watts (left) and Scott Huber form the fund-raising committee of the school board, and on Jan. 21 they presented a report on their efforts to survey citizens and gauge interest in various methods of raising more money for schools.

Photo By Tom Angel

State and federal lawmakers are also fond of instituting mandates, often politically motivated directives that tell districts to add particular programs. These mandates range from AIDS prevention education to criminal background checks to school bus safety, and districts report to the government what they spent and supposedly get reimbursed later.

Schwarzenegger has floated a proposal similar to that of his ousted predecessor, Gray Davis: consolidate categoricals and shift much of the money to block grants, making it part of the revenue limit.

“Consolidating categoricals goes clear back to [Gov. George] Deukmejian, and it hasn’t happened yet,” said a skeptical Superintendent Brown. The real problem, he added, isn’t how many categoricals there are but rather “in the fact that [the funding]'s restricted.”

The system also sets up school sites to receive unequal amounts of money. If a school has a certain percentage of its students receiving free lunches or scoring low on tests, it could qualify for hundreds of thousands of dollars in extra funding.

That’s a boost for those “Title 1” schools, but at higher-scoring campuses there’s little in the way of funding for non-English speakers or kids deemed “at-risk” by virtue of their socioeconomic status or test scores. “If you’re a ‘performing’ school, you don’t get very much money,” said Bird, but you also don’t have the stigma and hurtful sting of being labeled below-par. Site-level funding, Bird said, “shouldn’t be competitive and antagonistic.”

5 Back-to-basics push and special interests.
Cynical school-watchers can tell who’s in office or what tragedies recently made news by tracking the increase in spending on often politically motivated causes such as testing and safety. Some lawmakers adopt pet projects (a few years ago it was science; another time, libraries), and money that otherwise could have been added to a discretionary pot is instead tied to specific uses that may or may not be at the top of every school’s wish list.

The state is inching toward a curriculum that includes only the bare minimum, said George Young, president of the Chico Unified Teachers Association. “Now, only the kids who can afford [private lessons in music, art and other non-core subjects] are going to get [such training]. Can we survive like that? Maybe. Would we want to?

“I think one of the big things that hurts us is the mandates that come down without any funding,” he said. “They could take a moratorium on the testing that they do for a couple of years and solve some of their funding problems.”

Young said seven CUSD teachers have quit since November, an exodus he attributes in part to stress, ever-increasing mandates and the teach-to-the-test legislative mentality that is “taking the fun and personality out of it.”

Teachers and parents eagerly await the smallish pot of money that is funneled to the school sites because campuses have some discretion on how to use it. In addition, schools that get monetary rewards for meeting their API growth targets have been able to use the money for such diverse, allowed purposes as technology, reading and equipment replacement.

Lottery money, presumed by some to be a huge windfall, accounts for 1.7 percent of the CUSD’s budget.

6 Most money is tied to salaries and benefits.
Until a few years ago, California school districts on average dedicated about 70 percent of their budgets to salaries and benefits. Now, that figure is closer to 82 to 85 percent. “Restricted money was not a problem until the percentage of the general fund spent on salaries and benefits got to where it is today,” Brown said.

When Brown first came to the CUSD, he planned to get that number below 80 percent. Now, with the money going toward salaries and benefits hovering at 83 percent of the total budget and 87 to 89 percent of the unrestricted money, he’s given up that goal.

Teacher-negotiated salary increases, combined with the state’s mid-year take-backs and the lack of adequate COLAs, led to the increased percentage going toward wages and benefits, Brown said. A steps-and-columns pay structure guarantees employees raises the longer they stay with the CUSD.

Last year, during a school board meeting, O’Bryan risked being slapped with a grievance from the CUTA after he suggested that the union “controls” most of the budget and thus could have a role in balancing it. “I don’t blame them for turning me down,” he said. If teachers agreed to a wage freeze or cut in pay, “We can’t guarantee that they’d ever get it back.”

Young, the CUTA president, said teachers—a population never considered handsomely paid—are not to blame for the state’s budget crisis, and they’re not the answer to the district’s monetary woes, either.

He pointed out that, not only have teachers been paying for increased costs to their own benefits by running down a trust fund balance, but also that, in this year’s contract opener, “We have asked for no money. We know there’s no money to give salary raises. We didn’t even ask for any money in benefits.”

7 No one will reform the funding system.
While nearly everyone in education and politics recognizes that today’s school finance system has come about by a complex, piecemeal series of actions, no one seems willing or able to do anything about it.

BUDGET BRAINS <br>Randy Meeker, assistant superintendent for business services, refines the budget and presents it to trustees several times during the fiscal year. In the past, the CUSD has been accused of crying wolf, warning of massive layoffs and program cuts and then finding money at the last minute.

Photo By Tom Angel

Brown, who supports lobbying efforts by various education groups of which the CUSD is a member, said, “The fear of special interests is that it would no longer be spent on whatever that particular special interest is.”

Last month, the LAO issued a report calling for the revision of the revenue limits system and the consolidation of myriad funding sources into a single grant—not a new idea by any means.

“I believe that the difficulties we face in managing our school district are a legacy of legislation with good intentions and poor execution,” said Watts, who blames state tampering in part for California’s schools going from highly revered in the 1940s and ‘50s to below the national average in per-pupil funding today.

This year, as a stopgap measure, the state told districts they could dip into their mandated 3-percent reserves—if they replenish the money by 2005-06. It’s a big gamble and one Meeker will never recommend for the CUSD. “Any school district that’s chosen to break into it is going to get into fiscal problems,” he said.

Trustee Scott Huber said that, whatever lawmakers end up deciding, it won’t come in time to save schools this year. “It’s not going to get fixed at the state. They can’t take all the money from everyone else and give it to schools.”

8 School enrollment has plummeted.
In the 1999-2000 school year, 300 fewer students than expected entered CUSD classrooms, catching the district by surprise. Despite rapid growth in the city, students were vanishing, and when the district investigated, it found that there was no single cause for the decline.

This year, the CUSD has seen a 154-student decline in ADA, 77 fewer students than predicted, bringing the total student count down to 13,427. Just a few years ago, the population was at almost 15,000.

When enrollment goes down, so does the per-pupil money from the government. Those 154 students, wherever they went, will cost Chico schools $711,788, which the state will collect on a year later, in 2004-05.

One of the proposed cuts is closing elementary schools, which could save the district $425,000 for each campus that is “consolidated.” Ironically, the CUSD was building new schools just a decade ago. “In the early 1990s, the growth projections were dramatic—and false in that they didn’t turn out,” Brown said. “All those decisions were made at a time when the general belief was the district was not only growing but would continue to grow.”

Huber thinks he knows why there’s been a decline in enrollment, and it’s not something over which the CUSD has control. “I’m convinced that the whole problem is predicated on the lack of affordable housing in Chico,” said the trustee, a real-estate agent by profession. “We’re losing families to outlying communities. It eliminates the people we need to keep the school system thriving.”

9 More social challenges.
As families fracture and communities become more diverse, schools have become de facto crisis counselors, meal managers, language teachers and more. Troubled schoolchildren can be hard to teach and heartbreaking to try to help.

“Students need as many interventions as they can create, and that usually involves money,” said Bird, the principal. “You have students where you’re not even sure where they belong anymore—who are the parents and who can be on campus and who they can go home with. It takes a lot of time.”

10 Loss of confidence in public schools.
Every few years someone comes before the CUSD Board of Trustees appealing the payment of school-related property taxes or fees, saying that they’re never going to have children, so why should they have to pay in?

This attitude perplexes O’Bryan, who sees a well-educated populace as a benefit to the community as a whole.

He suspects some in politics set public schools up to fail, perhaps to win vouchers for children who are already in private schools. Other parents, for various reasons, choose to home-school their children or sign them up for charter schools—a district-endorsed option but one that costs the CUSD per-pupil funding.

Those in the CUSD say it’s only people outside the district who are dissatisfied with public schools, and those people may be simply misinformed.

“The single, most common misconception I see is that we have this huge administrative glut,” said Watts, admitting that he, too, once thought fat could be trimmed at the District Office. “There still seems to be a reliance on old notions. I get complaints of waste and inefficiency, [but] for the most part we’re running very efficiently.”

Meeker said “indirect costs” (defined as administrative services needed to manage the district, with the exception of the superintendent, education services staff and principals) in the CUSD have actually declined, from 5.52 percent of the budget in 2001-02 to 3.64 percent in 2003-04—mainly due to tighter staffing even as the overall budget has grown.

Watts said, "We may have to go through the lowest of lows as a state, as a city, as a school district before [perceptions] change."