OPINION: Kirst outlines how to fix CA school finance mess

November 23, 2003
San Jose Mercury News
PERSPECTIVE section

How to Fix California's Schools

Today's method outdated, confusing and inadequate

By Michael W. Kirst

Gov. Arnold Schwarzenegger has made it one of his Top 10 priorities to ``send more money to the classroom.''

That wouldn't do enough to improve California's schools. California's K-12 education finance system is broken in every way. It has no underlying rationale, is incredibly complex, fails to deliver an equal or adequate education to all children and is a nonsensical historical accretion. It is more centralized than almost any state system in the nation. Funneling more money to classrooms, through the same labyrinth, would not translate into a high-quality education for children.

What would?

Throwing out the current financing system and starting over.

Though there are many ways the system could be rebuilt, one approach would use the state's current, challenging academic standards as a framework. Each school would receive state funding sufficient for all its students to meet the academic standards.

Today's system, it is clear, is not working. California ranks 48th in the average number of students per teacher. And it is 50th in these areas: Guidance counselors for students (one for every 1,011 students), librarians for students (one for every 4,454 students), and students per computer (7.2 students for each computer).

A tortured history brought California to this sorry state, beginning in the 1970s, when local taxpayers lost their ability to override state decisions on how much to spend.

Until then, schools got their money primarily from local property taxes, which yielded enough money to put California schools' expenditures per pupil in the top 10 states. Expenditures among the more than 1,200 districts varied widely because tax rates and property values were so different.

If there was anything that Ronald Reagan stood for as governor in the early 1970s, it was property-tax relief. School districts around the state had been regularly raising the amount they took in from local property owners. So Reagan came up with a plan: Freeze the amount that each school district could take in per pupil for general spending. That became known as a district's ``revenue limit.''

Reagan also had another reason for capping a district's revenue. He knew, based on lower birth rates, that enrollments would decline. So if districts kept collecting the same amount from taxpayers, they would have more and more to spend per student, as was happening in such states as New York and Pennsylvania.

On the other hand, Reagan's revenue limits, based on revenues permitted per pupil, forced state and local spending to decline each time a student was lost. And the predictable result was that California's national spending rank per pupil dropped sharply during the 1970-1980 enrollment decline. Today, despite spending $40 billion a year to educate students from kindergarten through high school, California ranks about 40th in the nation in per-pupil spending when adjusted for the cost of living.

Before long, revenue limits became a tool used to further twist the financing system. In 1971, the state Supreme Court had ruled in a landmark case, Serrano vs. Priest, that the state had to make general-purpose spending in all districts roughly equal, regardless of local property-tax receipts. General-purpose spending covers such things as teacher salaries, supplies and administrative costs.

By 1976, the state determined that the way to force that to happen would be to adjust districts' revenue limits. The state would increase the revenue limits for low-spending districts faster than for high-spending districts, so the gap between them would close over time.

However, before the state could equalize spending, Proposition 13 passed in 1978, drastically cutting local property taxes.

The state bailed out the local school districts from its large surplus and, in what marked a major turning point, assumed primary responsibility for funding schools.

Today, for most districts, the slice of a property owner's property tax that is earmarked for education and paid to the county tax collector goes to Sacramento for distribution back to the state's 986 school districts. Then, the state steps in and makes up the balance up to the district's revenue limit. (About 3 percent of the state's pupils are in districts that keep all their property taxes, however, because of a 1952 provision. These so-called basic-aid districts are heavily concentrated in northern Santa Clara and southern San Mateo counties, and they are able to spend above the state per-pupil average.)

The result of Proposition 13 was even more state control of all school policy.

By 1983, the state court ruled that the equalization job was done: The state had ``equalized'' spending among enough of the state's school districts. After appeals of that ruling were turned down, the Serrano vs. Priest mandate to equalize spending became history.

The funding goal may have been met, but students were paying the price. State policy had pushed toward spending equality at a low level, and there had been no strong link to what students learned. Moreover, state assumption of most school funding meant that local schools became hostage to the state's volatile sales- and income-tax revenue streams. Even the 1995-2000 boom did not markedly raise the state's per-student spending rank compared to other states. Some districts have resorted to non-profit fundraising foundations and parcel taxes, but these can't raise large amounts in more than a handful of localities.

Voters recognized the schools' plight, and in 1988 passed Proposition 98, which earmarks a specific proportion (about 40 percent) of the state's general-fund revenues for K-12 schools and community colleges. But when state revenues decline, the school-aid guarantee declines as well. (For example, revenue limits fell in the 2002-2003 school year.)

Piled on top of the per-pupil revenue limits are more than 100 state special programs, called categorical-aid programs. A district that receives money under a certain ``category'' must spend it for that purpose, which might range from class-size reduction to advanced-placement classes. Categorical aid represents about a third of the money Sacramento spends on schools.

Each categorical program created a constituency of beneficiaries that lobbies to preserve it. A disease of ``hardening of the categories'' ensued that does not allow localities to shift state funds for local needs, but rather encourages hiring local administrators to apply for and oversee the earmarked state funds. Local school officials lack money to clean bathrooms, but have some categorical funds for adult education they cannot spend easily within the school year.

State categorical spending ballooned in the mid-1960s, and each decade politicians added another sedimentary layer to the mountain of categories. A series of articles earlier this year in the Sacramento Bee described categorical-aid programs gone awry, such as a $700 million annual desegregation program from the 1970s that is distributed according to a politically driven formula for only 68 school districts, in amounts that range from $1,778 to 51 cents per student.

Another example: Three hundred schools get state funds to help prevent dropouts, but it is not known if there is a measurable effect on dropout rates. And most high schools receive money for a 10th-grade counseling program, but the state does not know if any added counseling occurs.

Governors and legislators have squashed all attempts to overhaul this huge categorical system.

Put all this together, and today, only a handful of experts understand the intricacies of the current finance system.

One way to overhaul it would be to build financing around the state's academic standards. First, the state should guarantee an ``adequate'' level of funding to each school for all pupils without special needs to meet the state's academic standards. (The state would decide what the ``adequate'' amount of money is.) More funds would be provided for all special-needs students in the school to meet agreed-upon standards, and the final amount of money each school receives would be adjusted for the widely different costs of living across California.

That puts the emphasis where it belongs -- on what students learn -- and clarifies that the state's responsibility is to essentially guarantee an adequate education. Schools that do not meet state academic standards would face state intervention.

Indeed, most states that are considering revamping their school finance systems are using ``adequacy'' as the main framework. Those that have computed the price of achieving that goal have found it will cost more than they currently are spending -- and many of these states spend more than California does now.

Second, the state should reduce its categorical programs. Schools should be released from many of the restrictions in the massive education code as long as outcome standards are met.

Last, if voters in a community decide they want a school program that exceeds the state's academic standards, they should be able to approve increases to local income, sales and property taxes.

This system would lead to significant differences in spending per pupil among school districts, but every child in California would still be guaranteed a high-quality education.

MICHAEL W. KIRST (mwk@stanford.edu) is professor of education at Stanford University and co-director of Policy Analysis for California Education, a privately funded think tank at Stanford and two other universities. He wrote this article for Perspective.