Proposed California Funding System Fixes Are a Mixed Bag for Rural Schools

Last Updated: November 26, 2010

This article appeared in the November 2010 Rural Policy Matters.

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California's system of public school finance is one fo the most complex in the nation. Its complexity makes it hard to preduct how much funding schools will receive. It is also inequitable across the state and between districts with similar characteristics; and it provides inadequate funding for most districts with high levels of student poverty and high percentages of English Language Learners, according to a report issued this month by the Public Policy Institute of California (PPIC).

The report, Pathways for School Finance in California, provides an overview of California’s finance system, offers a set of guidelines for fixing the problems, and provides a series of models for how the new solutions might be implemented over time. An accompanying issue brief, School Finance Reform, distills the report's major observations.

One important aspect of PPIC's approach is that its proposed solutions would occur within the state's current revenue and governance structures. "We take as a given California's current mixture of state finance and local governance and ask how California's school finance system might be improved, given that mixture."

The goal, according to Pathways, is to reform the system through incremental changes so that as the economy improves new revenues will flow in more transparent and effective ways to schools. Because student enrollment is projected to remain relatively flat, improvements in the economy would result in inreased per pupil funding and resolve some fo the adequacy issues without reducing spending in any district.

The report describes five basic principles that the PPIC believes should guide structural changes to the finance system. These include: providing sufficient resources for students to meet academic standards; structuring incentives so that districts are not punished for improving student performance or rewarded for deviating from actions in the best interest of students; allocating funds transparently; treating similar districts equitably; and balancing state and local authority.

The report recommends combining some 60 categorical programs in to a single revenue source that districts would receive as weighted per pupil-funding, a reform that is at least partially underway. Categorical aid, which is generally targeted to specific student and/or school characteristics, accounts for approximately 1/5 of all aid to California schools, a high percentage relative to other states. The report suggests that this change would target more aid to students' needs, provide more transparency in the system, increase equity, and balance spending authority between the state and local districts. Restrictions on how districts can use categorical aid are intended to ensure that the funding is not diverted to other purposes, but sometimes those restrictions limit the ability of schools to use the aid to best advantage for students.

The report emphasizes the need for a funding sustem that encourages schools to take actions in the best interest of both students and taxpayers. For example, it recommends targeting extra funding to poverty rather than low performance so that the funding system does not incentivize maintaining low performance levels.

The report mentions rural schools in discussio of several of its recommendations. For example, it describes ways to reimburse transportation costs that might encourage school consolidation. And, it suggests that there might be a need to incentivize "efficiency" in districts with small rural schools.

A major recommendation is to implement regional cost adjustments, specifically adjustments to account for differences in salary levels of teachers and administrators. The report includes simulations of how these might be implemented. Not so clear in the report is how those adjustments would tend over time to favor urban, high-wage regions at the expense of rural districts. (See RSFN for more in-depth analysis of these factors in the July 2010 issue here,, and in the RSIN-exclusive, Some Lessons from the Rural Experience in School Finance Reform, here:

The report also mentions that the recently filed school funding litigation is more evidence of "consensus" that the system needs fixing. (See RSFN-June,

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Read more from the November 2010 Rural Policy Matters.