School Finances, Reforms, and Revenue Needs

This paper discusses the recent course of elementary and secondary education in California and its needs for the next five years. Funding is a key element in the health of the system, and several trends are evident.

First, since 1978, real revenues per pupil for California's K–12 public education system have fallen significantly in three years, risen significantly in three others, and stayed about the same in two other years—a roller coaster pattern of funding which makes difficult at best for local educators to plan sound, medium-term education programs.

Second, inflation-adjusted revenues per pupil have not increased one dollar in this decade and have actually dropped slightly. Funding increases from 1983 to 1985 merely "made up" for the losses of previous years. Put differently, the state is attempting a major program of quality improvements while keeping funding at a constant level, a challenge to which the education system has responded remarkably well so far, but may be difficult to maintain in the future without gradually increasing funding.

Third, 67 percent of education funding now essentially comes from one level of government, the state, and state-dominated funding has several effects. For example:

• A large portion of hefty state revenue increases simply have offset decreases in local property taxes.

• Because district revenue limits are increased only by state-determined COLAs, property tax increases only offset state revenue increases. Thus, much of the political effort exerted for school funding has benefited property tax owners, not the education system.

• School funding fluctuates with the health of the state economy. When the state's economy sours, as it did in the early 1980s, funding for education also sours.

• When state revenues are tight, California gives K–12 education a lower priority than most other states.

• By reducing the number of governmental bodies actively involved in allocating revenues for elementary and secondary schools from over one thousand to one, California eliminated competition among districts that in the past provided increases in local education funding.

Fourth, during the past twenty-five years, California's school financing has slid from a position of national leadership to a position far below average, and Proposition 13 reinforced this slide. Recent funding infusions have helped, but they have not raised California to a position of education fiscal good health relative to states with which it competes.

The key reform objectives of SB 813 seem today to be "on track." Yet, while these education reforms seem to be taking hold, new issues continue to evolve. California faces five major elementary/secondary education issues over the next five years:

• Fully implementing the goals and objectives of SB 813

• Strengthening current education policies to reflect the realities pf changing student demographics

• Addressing the dropout problem

• Restructuring and strengthening the teaching profession

• Funding capital construction

California K–12 education needs an additional $7.2 billion in the next five years to stay even, maintaining the current level of real resources per pupil. This represents a 7.0–7.7 percent annual rise in nominal revenue growth. Moreover, there are a variety of reasonable scenarios that would result in substantial increases in education revenues in real terms over the next five years, and real revenue increases would allow the education system to address the issues outlined above.