Follow the money

In its first detailed examination of former Gov. Jerry Brown’s landmark school funding law, the California state auditor sharply criticized the Legislature and State Board of Education for failing to ensure that billions of dollars have been spent on low-income children and other students targeted for additional state money.

“In general, we determined that the State’s approach” to the Local Control Funding Formula “has not ensured that funding is benefiting students as intended,” State Auditor Elaine Howle wrote in a letter with the audit, released on Nov. 5.

Howle issued her findings after examining spending by three districts since the funding formula went into effect six years ago: Oakland, San Diego and Clovis. Her report’s recommendations call for tightening rules for spending money explicitly allocated for low-income children, foster youths and English learners—the students targeted under the formula—and for making it easier for the state and the public to track spending within and across districts.

Gov. Brown had opposed some of those changes and sidetracked legislation that would have imposed what Howle wants: uniform spending codes to give lawmakers information they need to see if the law is working adequately. The audit may encourage legislators including Assemblywoman Shirley Weber, D-San Diego, who pushed for Howle’s report, to reintroduce a bill for tighter controls.

Howle’s conclusion vindicates complaints and lawsuits brought by Public Advocates and the ACLU of California and affirms longtime criticisms of student advocacy organizations such as Education Trust-West and Children Now that spending for high-needs students often isn’t monitored. A recent report by the Public Policy Institute of California found that statewide, “supplemental and concentration” dollars generally were being spent on targeted groups but it took an enterprising researcher exhaustive digging to determine that.

In a statement, Bill Lucia, president of the nonprofit organization EdVoice, said Howle’s report “should be a wakeup call to all the politicians in Sacramento who say they care about closing achievement gaps. This audit uncovered serious control deficiencies lawmakers need to address immediately.”

The 2013 funding formula eliminated dozens of highly restrictive “categorical” funds and instead gave districts more flexibility and authority to decide how to spend money. The formula awards additional funding based on the proportions of “high-needs” students. Districts are to be held accountable for showing progress on multiple measures on the California School Dashboard and to lay out improvement plans in a three-year Local Control and Accountability Plan, or LCAP.

The audit found fundamental flaws in the funding law, insufficient guidance by the State Board of Education and a lack of oversight over spending by county offices of education and the California Department of Education.

The audit cited a key administrator from the education department who said that state law allows county offices and districts to identify areas that requirement improvement but does not require the department to determine whether the funding formula is working.

“Nonetheless, we believe that as part of its responsibility to improve public education programs, it would be reasonable for CDE to have a method for doing so,” the audit said.

At a press conference Nov. 5, State Superintendent of Public Instruction Tony Thurmond said that although he had not read the audit, his department would follow up “when public resources are misused,” while adding that districts are faced with difficult options. “I firmly believe they are frankly underfunded and making choices to manage their financial bottom line.”

The audit said that the three districts and three county offices interviewed agreed that base funding does not cover necessary base costs. The audit found that districts consequently were using supplemental and concentration funds to cover “what appear to be base services,” such as $5.2 million that San Diego Unified used for library services in all district schools.

Among its findings, the audit found that districts can treat any unspent supplemental and concentration funds at the end of a year as base funding to use however they want. The audit recommends amending the law to explicitly end this practice. Only San Diego rolled over unspent supplemental and concentration funding to use for high-needs students the following year, the audit said.

The audit also concluded that in the first years after the adoption of the formula, the state board gave districts latitude in transitioning to the new system. As a result, the three audited districts undercalcuated how much of their budgets they were required to spend on targeted students by $320 million—dollars that instead were used for base funding for general uses. Based on that, the audit concluded that billions of dollars statewide that should have been spent on high-needs students were not.

Districts’ LCAPs often fail to clearly explain how districts will use funding for high-needs students. Districts have to state how much targeted funding they receive annually but don’t have to list how they spend all of the dollars. Instead, they must explain how they will serve the students by expanding or improving services proportionately, an “essentially meaningless” approach, the audit said. For example, the audit noted, supplemental and concentration funding added 8.65% to Clovis’ base funding. Not only is it difficult to measure the impact on any one student group, the audit said, but neither the county offices nor the state department of education is responsible for verifying that districts have achieved those spending increases.

The funding formula permits districts to use targeted funding for districtwide purposes, whether for staff training or improving library services, if high-needs students make up more than 55% of a district’s enrollment. But districts must justify the use by ensuring that the money would be “principally directed” to those students and shows that the money will be used effectively.

The audit couldn’t find the justification in nearly three-quarters of 53 expenditures of the audited districts’ LCAPs.

“For example, Clovis Unified’s first goal is ’Maximize achievement for ALL students,’ which does not convey any information about which types of services would lead to achieving that goal,” the audit said. Only Oakland Unified set an LCAP goal specifically aimed at English learners, the audit found.

The audit also recommended that the state require districts to align targeted funding to performance on the state dashboard and show whether it makes a difference.

In response to the audit, state board Executive Director Karen Stapf Walters said that the LCAP revision, which will go before the board for approval in January, will incorporate many of the audit’s suggestions to make supplemental and concentration expenditures more transparent. And the detailed instructions to districts about the LCAP will require more explicit explanations on expenditures. A new budget summary for parents will make it clearer whether supplemental and concentration dollars will be spent on the students they’re intended to serve, she said.

But Stapf Walters cited examples of why districts should have flexibility to use unspent supplemental and concentration dollars as they choose and disagreed with the call for accounting codes to track the dollars, as Howle urges.

She also warned against an incremental return to treating funding formula dollars as categorical funding. Decades of experience has shown the ineffectiveness of accountability “driven by year-to-year accounting procedures and compliance monitoring rather than a focus on whether spending decisions lead to improved outcomes,” Stapf Walters said.

Howle, in turn, responded that “we fundamentally disagree” with the notion that the audit’s recommendations would be a return to categorical funding. Contrary to the state board’s assertion, tracking the districts’ spending of LCFF funding is not merely “an accounting exercise.” It would “hold districts accountable for using the funding they receive to provide services to improve student achievement.”

John Affeldt, managing attorney of Public Advocates, seconded the call for more oversight. “The funding formula tried to establish a third way between overly restrictive categoricals and carte-blanche spending for improved outcomes down the road. The report is indicating that the Brown administration may have gone overboard in trying to get away from the categorical mindset.”