This report demonstrates how California can improve its school finance system steadily over time as economic and demographic conditions permit. The improvements we suggest here are derived from our analysis of California’s current system using the following five principles:

• Meet resource needs: Schools should have the resources necessary for their students to meet state academic standards, and the cost of those resources may vary from school to school for a variety of reasons.
• Structure incentives properly: The formulas allocating revenue to schools should not give schools incentives to deviate from actions in the best interest of students and taxpayers.
• Allocate funds transparently: The formulas for allocating revenue to schools should be clear and relatively simple.
• Treat similar districts equitably: When the state has chosen the factors that determine the revenue a school district receives, school districts with the same values for those factors should receive the same revenue.
• Balance state and local authority: Restrictions on the use of funds must properly balance the state objectives with the realities that schools differ widely across the state and that school administrators have unique knowledge about local conditions.

California’s school finance system violates these principles in many ways. Under the current system, different districts are funded at different rates, a clear violation of horizontal equity. Unlike school finance systems in other large states, California does not adjust revenue to school districts based on regional differences in the cost of hiring employees, failing to recognize a large and obvious cost difference among districts. Because of the many state categorical programs directing revenue to public schools, the allocation of revenue to districts is not transparent, and the many restrictions on the use of funds in those programs unduly constrain local school administrators. Moreover, although California does provide additional funds for school districts with many economically disadvantaged students, the additional funds are not large enough to compensate for the differences in student need correlated with poverty. Our analysis also reveals several other areas in which California’s system could be improved.

Making improvements without making some districts worse off would require additional revenue, which is now in short supply. However, as the economy improves, state tax revenue will rise, and the state can afford to invest again in its schools. At the same time, school enrollments are projected to rise relatively slowly, allowing an increase in revenue per pupil. This increase will not be dramatic, but it promises to be relatively steady, permitting the state to make slow and steady progress over time.

To illustrate the possibilities, this report simulates this process for a variety of potential improvements. One scenario equalizes funding rates for the main programs in the current system. In another scenario, funding is increased in districts with many economically disadvantaged students. A final scenario demonstrates the consequences of adjusting funding rates for regional differences in the cost of hiring personnel.

via Public Policy Institute of California | Download the Full Report | Download the Technical Appendix

Public Policy Institute of California school finance