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California State Auditor Logo COMMITMENT • INTEGRITY • LEADERSHIP

K–12 Local Control Funding
The State’s Approach Has Not Ensured That Significant Funding Is Benefiting Students
as Intended to Close Achievement Gaps

Report Number: 2019-101

Summary

Audit Highlights . . .

Our audit of the funding that the State provides to school districts under the LCFF revealed the following:

Results in Brief

Since fiscal year 2013–14, California has funded K–12 education in part through an approach called the Local Control Funding Formula (LCFF). The State intended for LCFF to provide more local control over the spending of state funding and to improve educational outcomes among certain student groups. Through LCFF, the State envisioned providing billions of dollars each year to local educational agencies—with most of those funds going to school districts—in part based on their student populations of English learners, youth in foster care, and those from households with low incomes (intended student groups). Specifically, in addition to a base funding amount that they can use for any local educational purpose, districts would also receive supplemental and concentration funds based on the proportions of intended students they serve. The State established these supplemental and concentration funds in recognition of the fact that districts may require different levels of funding to provide adequate services for the students they educate. However, the State’s approach to LCFF places oversight responsibilities for supplemental and concentration funds almost entirely on local entities, such as county offices of education and local stakeholders. This approach has not always ensured that these funds benefit the intended student groups.

We are particularly concerned that the State does not explicitly require districts to spend their supplemental and concentration funds on the intended student groups or to track their spending of those funds. Without a means of tracking how districts use supplemental and concentration funds, state and local policymakers and other local stakeholders lack adequate information to assess the impact of those funds on the outcomes of intended student groups. Although regulations adopted to implement LCFF require districts to use these funds to increase or improve services for intended student groups, the regulations do not create an effective means of ensuring that districts do so. Districts must identify in their annual local control and accountability plans (LCAPs) the supplemental and concentration funds they expect to receive and spend. LCAPs provide a key opportunity for stakeholders to ensure that districts direct the funds toward the intended student groups. However, districts can treat any supplemental and concentration funds that they do not fully spend in a given year as base funds in the following year, meaning that the districts can use the funds for general purposes that do not directly serve intended student groups. Despite this lack of restriction, the State has not established a process for districts to track supplemental and concentration funds that remain unspent at the end of the year and to ensure that they spend those funds appropriately.

Our review of three large districts suggests that the State’s approach for determining supplemental and concentration funds has led districts to identify hundreds of millions of dollars of LCFF funding as base funds rather than supplemental and concentration funds since it implemented LCFF in fiscal year 2013–14. For the transition from its previous funding model to LCFF, the State adopted regulations that required districts to estimate their supplemental and concentration funds based on prior‑year spending, rather than on the supplemental and concentration funding formulas described in state law, which are based on districts percentages of intended student groups. This approach essentially deferred full implementation of these formulas. It also resulted in a difference of approximately $320.6 million that the three districts identified as base funds, rather than supplemental and concentration funds for fiscal years 2013–14 through 2018–19. In other words, by directing districts to base their estimates on prior‑year spending, they identified amounts of supplemental and concentration funds that were similar to amounts they had already been providing before LCFF. If all districts statewide estimated at similar rates, we believe that the regulations have likely led districts to identify billions of dollars of LCFF funding as base rather than supplemental and concentration funds since the inception of LCFF in fiscal year 2013–14. By deferring the full implementation, the State also likely deferred improved educational outcomes for the intended student groups.

Moreover, even when districts did report supplemental and concentration funds in their LCAPs, we had difficulty determining whether or how the districts’ use of those funds increased or improved services for intended student groups—a difficulty that stakeholders likely share. One challenge is that the current requirement districts must meet for spending supplemental and concentration funds to benefit intended student groups is essentially meaningless. Specifically, a district must describe in its LCAP how it will increase or improve services for those students in proportion to the amount of supplemental and concentration funds it receives. However, it is unclear how a district would demonstrate that it increased or improved services by a proportion, and neither county offices of education nor the California Department of Education are responsible for verifying whether districts actually met the required proportional increases. Another problem is that the legal requirements for county offices of education to approve districts’ LCAPs, such as ensuring that they adhere to the State’s LCAP template, are insufficient to ensure that those LCAPs are clear and effective. When districts fail to clearly demonstrate how they use supplemental and concentration funds to benefit intended student groups, it not only reduces transparency but also puts the districts at risk of stakeholders’ submitting complaints or filing lawsuits.

Although the State intended LCFF to improve the educational outcomes of the intended student groups, measuring the effectiveness of LCFF with any precision remains difficult. The California School Dashboard (dashboard) displays on a website results for performance indicators across several student subgroups and is one of the State’s accountability tools for LCFF. However, it includes only two years of results so far, 2017 and 2018. More significantly, the State has not required districts to track and report their expenditures of supplemental and concentration funds in a way that aligns with the dashboard indicators, so determining whether a particular district’s use of those funds is effectively improving the performance of the intended student groups it serves is challenging. Further, although districts must report in their LCAPs information about the services on which they have spent their supplemental and concentration funds, they often do not effectively analyze whether those services have been successful. As a result, stakeholders may struggle to hold districts accountable for continuing to fund effective services and discontinuing ineffective services.

The State now has an opportunity to take an important step toward learning more about the effectiveness of billions of dollars that it allocates for K–12 education. We acknowledge that local control is a key principle of LCFF, and we do not advocate undermining that principle. However, implementation of a statewide tracking mechanism for supplemental and concentration funds could provide information to assess the impact of those funds on the educational outcomes of intended student groups. For instance, such a mechanism would provide assurance that districts spend all of their supplemental and concentration funds for their intended purpose. In addition, it would enable the State and other stakeholders to better evaluate the effectiveness of districts’ spending strategies and the effectiveness of LCFF generally. By collecting and reporting additional information about districts’ uses of supplemental and concentration funds, the State could begin to determine how districts’ spending of those funds affects students and whether it needs to take further action to ensure that these students receive the services they need.

Selected Recommendations

To ensure that intended student groups receive the maximum benefit from supplemental and concentration funds, the Legislature should take the following actions:

To provide additional data for the State and other stakeholders and to align spending information with the dashboard indicators or other student outcomes, the Legislature should take the following actions:

Agency Comments

The State Board agreed with three of the four recommendations we made to it.



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