Deregulating School Aid in California: Revenues and Expenditures in the Second Year of Categorical Flexibility

Year of publication: 
June 2012
Publication: 
RAND Corporation

California's system of school finance is highly regulated and prescriptive. A large share of state funding is allocated through categorical programs; that is, programs whose funding is contingent on districts using the money in a particular way or for a particular purpose. In 2008–09, the strings were taken off 40 of those programs, collectively known as the "Tier 3" programs, as part of a budget deal that also reduced the funding for those programs. The author gathers evidence about how districts have responded to this fiscal freedom, particularly how resource allocations are made at the district level and what specific changes districts have made in their allocations. Although concerns have been raised that those districts with relatively more Tier 3 funding have been disproportionately affected by the state's budget crisis, the data show that districts with more Tier 3 funding lost a similar share of their budget as other districts (although that represents larger per-pupil dollar amounts). Furthermore, so far and on average, districts do not appear to be making large-scale changes in how they are spending their money.

Key Findings
Almost All Districts Have Lost Revenue over the Past Few Years; Districts with More Tier 3 Funding Lost a Similar Share of Their Total Budget as Other Districts

  • All districts have protected instructional personnel, special education, and pre-kindergarten.
  • Variation in how districts have responded to the budget cuts and the Tier 3 flexibility does not seem to be strongly correlated with any observable district characteristics.
  • The majority of Tier 3 funds are spent on direct instruction, with a slight shift toward personnel over other items.
  • Districts do not appear to be making large-scale changes in how they are spending their funds.

Districts with More Tier 3 Revenue per Pupil Spent Relatively More of That Revenue on Alternative Education, Adult Education, and Other Noninstructional Goals

  • They spent relatively less of their overall budgets on instructional personnel but relatively more of their total budget on pupil services and "all other" functions, possibly because they tend to have more students with higher needs (e.g., lower-performing, higher-poverty students), and they must devote more of their budgets to such pupil services such as counseling, health, and food.
  • They also seem to be somewhat more aggressive about maintaining special education.

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