Assembly Budget Subcommittee No. 3 on Education Finance

We have our annual Proposition 98 overview and we're very excited and appreciative that our Superintendent of Public Instruction, Tony Thurmond will be here to give an address on annual address that he shares with us. And we appreciate his presence.

We will also hear from a few January budget items and that are related obviously to Prop 98 and the guarantee and the K12 budget and an update from our fiscal crisis team that'd be our final item of today. Today we don't have any votes for pose but public comment is always welcome.

One of the things that we'll do after Superintendent gives his address that I like to give the opportunity for those of you who want to give a Shorter comment on items that are coming before us that helps us inform our questions and the discussion that we have.

If you are so inclined to come up early, rather at the end of the agenda, I will allow you to do that. But I would ask you to keep your comments much briefer to 30 seconds. And that way we can hear from you, integrate that into our thoughts.

And if you speak at the beginning, then that is your opportunity to speak. And so think about that as we get started here. And again we hear from our Superintendent.

Obviously we have all heard about the position that we're in, which is quite unique with our our General Fund certainly having some issues yet our K12 and a Prop 98 Fund in particular is seeing projected growth.

And so that gives us an opportunity in this Committee to really focus in on the issues that we want to focus on and identify what we want to prioritize. Unfortunately, higher education, as we have heard already in our Committee, is not in the same position.

And either General Fund programs are being squeezed or cut on the state funding side and also the ongoing unfortunate threat and uncertainty at the federal level. So As I said, Prop 98, on the other hand, is protecting pre K through 12 through 12th grade as intended. And it stabilized in recent years.

And we have had some transformative investments which we have discussed at this Committee, but we still have stubborn achievement and opportunity gaps that we have to continue to focus on and discuss. The priority of the Committee will be on the pre K today's Committee, in particular Pre K through 12 side of our funding.

We will focus on getting these investments right, focus on our children, focus on our students to make sure that we track outcomes of these transformative investments that we've made, the increased funding and education, but more importantly that we find a way to monitor those investments and ensure that the student outcomes are at the center of all that we do so.

Also interested and certainly invite our colleagues on the Legislature's opportunity to leverage billions of dollars in new one time money that is in the budget proposal and stabilizing large one time priorities from prior budgets as we go forward to treat them like ongoing investments that I think we all hope to give stability to our schools. So I look forward again to these discussions.

I welcome comments from our Committee Members at this moment and if there are none, then I would like to turn it over to State Superintendent Tony Thurmond about how California can continue to lead the way as we have for our students despite the threats from a federal Administration that is definitely ever present and in our minds. Welcome Superintendent Thurmond. Thank you very much for being here.

Thank you Mr. Chair and Members of the Committee and I'm joined by Deputy Superintendent Cheryl Cotton who be available if you have questions for us about anything in education. As always, thank you to your staff for the great presentation and report and for the opportunity to share some highlights on the State of education.

We align with your remarks, Mr. Chair, that in spite of all of the various challenges that our schools face, our kids deserve the ability to still get a great education and we have to continue to move forward.

With that clarity, I also want to be in gratitude to all of our educators, our teachers, our classified staff, our administrators, our students and their families who find a way to be resilient in spite of all these challenges and continue to move forward. We continue to think about the school communities that are impacted by fire.

We spent a great deal of time with many of them, you know, raising funds for basic supplies for food, temporary housing, emergency housing and resources, and of course, to help in the recovery effort. Our staff has worked with the Office of Emergency Services and FEMA and others to help to land some of these special needs and resources.

Just today we're happy to announce the latest fundraising efforts with one of Our nonprofit partners, supplybank.org they've helped us raise another $100,000 for the those who've been impacted by fires, including students who are now going to be homeless and are going to be considered Mckinney Vento students. And so we have some more resources to help them and we will be administering those dollars through LACO to help many of the students who are homeless.

In spite of all the challenges, I'm still hopeful because California is unlike any other state that we have preschool guarantee for 3 and 4 year olds, that we have universal meals, that we have $1.0 billion in arts funding for arts and music, that we've passed a personal finance graduation requirement.

Thank you all for passing that last year and looking forward to implementing that. We've seen improvement in student proficiency in areas like math and literacy. We know that there's much more that we need to do. But many of our districts are reaching now the levels that were pre pandemic levels.

And we know that's a place for us to continue to work with them and to grow. We're seeing a reduction in chronic absenteeism. We know that there's still more work that has to be done. As you laid out, Mr. Chair, our school communities have a great deal of fear about many things.

All the threats to pool funding, the threats to abolish the Department of Education, the dear colleague letters. We continue to provide the same message to our school districts that these acts and these threats cannot be carried out unless there's an act of Congress to back it up, including a policy in the Department of Education.

I don't know who says that, because education is the backbone of our society and saves lives. And we're working on strategies to help protect the Department of Education because the loss of it would mean the loss of $9 billion to the State of California, among many programs, including special education.

And so it's a fearful time, but we continue to tell our districts, focus on making sure our kids get a great education, a great deal of fear around deportation consequences.

And we know that for us in this state, in addition to the disruption that our families might experience, there's also the potential for loss of revenue because we are one of six states that still has an average daily attendance system and not an average daily enrollment system.

By some estimates, we could lose $100 million in just revenue related, which is why we crafted SB 48 to have a Bill that says ICE should not be on school campuses unless they have a judicial warrant. And that we want to preserve school attendance and school funding for our school districts.

And so we will continue to work with this body and those in Congress to try to find ways to support our schools. A few things that I would note in this budget that we think are of interest is the, the $1.8 billion block grant that is proposed that can be used for professional development.

We know that there's some recommendations that you'll hear from different offices that it should just be considered a discretionary block grant. And we'd say if the Legislature moves in that way. We'd like to see that there be a discretionary block grant to help schools, but that there still be some dollars made available for professional development.

We know that that kind of training is so important for our educators, and we note that there's additional funding proposed here for reading coaches and math coaches. We think that is very important. These are things that are proven to help build the proficiency of our students.

And we'd like to work on how that proposal gets shaped and how to implement it so that we can make sure that our districts get the benefit of that. There's something that's not mentioned in this budget that I'd like to lift up for your consideration, and that is supporting more dual language immersion programs.

One, just because of the benefit that it provides for students, the cognitive abilities, making them competitive, you know, leaders and global thinkers. But there's another benefit that we think might go unnoticed, and that is as a great offset to the declining enrollment that many of our school districts are facing and as a result, less revenue.

And I know many of you have asked me about the declining enrollment. As we look at school districts that have dual language immersion programs and add them, we see a consistent demand from school families and parents who want to be in those schools.

And so we're working on proposals to expand dual language immersion programs and to provide resources to schools to help them add more dual language programs because we see the benefit of it and we see the benefit to the school district's finances.

And we'd love to work with the Members of this Committee and the Legislature on how to bring these proposals forward. And finally, I would just mention our focus on educator housing. And I would note that one of the bills that we are sponsoring is SB 502.

This is a Bill that would give pre development dollars to school districts to help them build housing on what is 75,000 acres of land that is ready for development. And if every school district, by the way, every county, in every county there is land that is ready for. For building on as we speak.

And if every district that used a parcel built, you know, 10 to 15 units, it would get to 2 million units by the year 2030. And so we think there's a tremendous opportunity to build housing for our workforce, for teachers, for classified staff, for sure, and potentially expanding to others.

But the nexus between teachers, teachers and educators who can't afford to live where they work, who travel 2 and 3 hours each way to get to work, is a threat to our academic success. And if we can find ways to Offload that pressure.

We think this is a tremendous benefit from an academic standpoint and, of course, from a housing standpoint. I would note that we have one other Bill that focuses on providing more resources to our colleges in the State of California.

And we think that we need to expand them and that we have a proposal we call Pay It Forward that would create the ability for students to go to college for free and then pay it back after they graduate and get a job.

And that that would create a pool of money to help support our universities that need maintenance, that need to support their faculty, that we need to expand our locations. And so. And we think about dual enrollment all of the time for our students. One of the most proven programs is dual enrollment.

And so while this Committee focuses largely on Pre K through 12, we would acknowledge the nexus between Pre K through 12 and higher education and how they work together.

I'll stop there and see if the Members of the Committee have any questions or any other topics that you'd like for us to delve into as we think about how we support California students in this year. Thank you.

Thank you. Superintendent Thurmond. Appreciate you being here. I want to just acknowledge four topics that you raised. You raised a few others, but appreciate your work on SB48 and making sure that students do feel that schools remain and families continue to feel that schools are a safe place for them.

This is a very real sentiment out in the community. I certainly hear it often and so appreciate your work and in trying to ensure that our schools continue to be places of safety for our students. On the professional development side, I want to acknowledge our colleague, Mr. Muratsuchi, and implementation of ethnic studies.

That is one place where professional development dollars could go to so that we could implement ethnic studies. And I know there are other professional development investments that are worthwhile. Thank you for raising that issue. As a parent of two kids in dual language immersion programs, I couldn't agree with you more.

It is a tremendous asset in our public schools. It is a proven skill that raises the level of success for students. There's more than enough evidence that a brain with two languages is much more successful and can thrive.

And so I think, I hope that all of our districts are looking to that as a way to not just attract students back into our public schools, but really to provide an even better opportunity for our students. So thank you for your commitment to that and certainly interested in your educator housing ideas.

I think that's something that we must address. As we've talked in this Committee before, the cost of Living throughout California varies, although most of California is, is now quite challenging from a cost of living standard. We need to find ways that we can support our educators and that is one that I think has a lot of promise.

We know that there's schools own quite a bit of land where this housing can happen and so however we can help to make that easier. Certainly looking forward to that. So thank you again. Those are my comments. I'll turn it over to my colleagues. If anybody has comments or questions, we'll start with Mr. Muratsuchi.

Thank you very much. Thank you, Mr. Superintendent, for coming before the Committee. It sounds very much like we're on the same page. We're all fighting for public education when it is under attack from the Trump Administration.

And I especially want to highlight how we are on the same page in trying to keep Ayes out of our schools to make sure that our, our students feel safe. I, I have my Assembly Bill 49.

We know we've been working together and so I appreciate your efforts to make sure that all of our students feel, feel safe. And I also have a educator workforce Bill to provide pre development costs because I think we should be taking advantage of any surplus lands that our leas have to be able to build educator workforce housing.

We know that that's a critical issue for our educators and be able to live anywhere near where they work. And so I just want to thank you for your leadership.

Thank you. And happy to work with you on your legislation. Thank you.

Thank you so much, Mr. Chair, and thank you, Mr. Superintendent for your leadership and efforts and really providing the context and how we're in the fight for public education here in California and to really support our immigrant communities, our undocumented students as well. And I really appreciate your leadership and efforts around the wildfire efforts as well. You mentioned the efforts at the beginning of your remarks and so thank you for uplifting that.

And during these very challenging times and especially around dual language immersion programs, Northrop Schools in our Hamburg Unified School District in my district, and they've been doing tremendous work around this space and it's the work and efforts of these types of programs to continue to uplift our students and dual enrollment programs you uplifted as well.

Anything we can do to continue to expand those opportunities for our students is so, so critical. And lastly around educator housing, workforce housing and also student housing, this is critical issues for California and I know that I'm carrying a Bill in this space as well around student housing, but anything we can do to create more housing opportunities for our educators is commendable.

So really appreciate your leadership and efforts on this and thank you for everything you're doing.

Thank you, Senator Fong. Thank you. Ms. Hadwick.

Hi. I just wanted to comment on the Housing is a huge issue. I have a very rural district. It's almost a bigger issue being so rural. I love the idea of teacher housing. I actually would love to talk to you because we have some districts that have programs for the high schoolers to actually build the houses and get it's kind of a CTE program but needs money. So so but I think that is crucial.

We have teachers that we offer positions and they can't find a house and we end up losing them. So because there's not a neighboring town, you know, it could be 100 miles in our where we live. So huge issue. I had a question about the Mckinney Vento. You mentioned the LA fire victims.

Is that something that's offered to other fire victims? Because I don't remember that ever being offered. We have a lot of fires in the north so I just want to make sure because I'm sure I'm going to get questions about that when we leave the dias.

Thank you Assembly Member. We have for since 2019 we've been raising money privately to help school communities that are impacted by any disaster. Sadly, this has become the new normal and for us to talk about schools, we're also talking about flooding and fires and what to do when schools have to be closed during those times.

And so we have started raising money to provide sometimes gift cards to school communities who need everything from hotel voucher, gas voucher, school supplies, food, water, clothes and typically we work through the county offices of education and they will help identify at what district the resources are needed. And so we have a great partner, a non profit partner that allows us to raise the dollars.

It's called supplybank.org and when the dollars come in we use them and we have often used them in rural communities where there have been fires and floods and so happy to talk with you about any of the communities in your district. If they have a need, we'd be happy to work with them.

And do those students qualify for the there's like a one pager that goes in their file for financial aid later on for higher education. Do they qualify for that as being homeless or unhoused or.

They do certainly through FAFSA and over the years I think many administrations and legislators and advocacy groups have tried to figure out ways to help homeless Youth and foster youth get more information about fafsa, and we support that. And there are liaisons who, as you know, through your work, they're liaisons who often center that work.

You know, I didn't mention it, but we're also working on a Bill that would provide support to the 10,000 homeless youth in our state who are completely unaccompanied. I can't imagine being an unaccompanied minor.

And I took one in, so it's a hard life.

So then, you know, from experience, it's estimated that there are near 10,000 in the state. And from my perspective, if they're not helped, they will become homeless adults, or at least they're at risk for that. And so there are all these complications for how they're not served.

But the state has great programs for foster youth who sometimes can get subsidized housing and wraparound supports. We want to mirror that and provide those kind of resources to our students.

And we have a Bill to that end that would call for funding to provide housing support with the wraparound supports around schools and jobs so that we help homeless students in our state get some additional support.

Thank you.

Thank you, Ms. Patel.

Thank you. And thank you, Superintendent, for being here with us today and providing your review of the year. Thank you for all your support for our children in our public education community and making sure that they can navigate through post pandemic and also providing a vision for what education is going to look like going forward.

I have a very specific question around the block grant for. For the literacy coaches and the math coaches. I'm thinking long term more what is our plan or what do you see as a good solution for addressing this challenge long term?

Because we're not going to fix it in two years or three years or the duration of a block grant. So what is the vision for how we can continue to provide our school communities with ongoing support, specifically around literacy and math? These are essential core functions of public education.

If you're interested, Deputy Superintendent Cotton has some numbers about. We have two cohorts of districts that have received reading coaches and specialist grants, and she can provide some data about how many coaches they've been able to secure in this early phase.

I think the reality that we know is that everywhere in the country it is hard to find coaches. And I'm aware from talking to other state superintendents who, you know, they fully funded having math coaches for probably every. Almost every school in their state, and they can't find the coaches.

And so I believe that our strategy needs to be that we make it possible for many of our current educators to themselves become certified coaches. And so that means that we have to provide the funding for them to pay to become, to get the additional education and training.

And we may have to provide funding for substitute teachers for if they have to be out of class for some portion of time to do that. I think we need a comprehensive proposal and not just saying, okay, here's the money for coaches, go have at it and try to find the coaches.

And that's why I indicated that we'd like to work on really we hope that these proposals make it through to the end of the budget cycle. We like to work on helping to shape them and define them and then ultimately help school districts implement them with some success.

Yeah, for sure. I'm always interested in public education and even looking at a strategy for, you know, how to, how to address it in the acute phase right now versus building in systems for long term success. Like maybe having it within our credentialing programs themselves, adding those skill sets, what that would look like.

And of course like any education portfolio, when you add something, how does that affect the program itself? Because now we're adding more requirements and that becomes a challenge when people choose their course load for what they're going to do through their credentialing programs. But I would love to see that comprehensive long range view.

Workforce development is always hard. We can never develop it as fast as our ideas and our needs. So would love to work with you on what that long range plan would look like.

I think Deputy Superintendent Cotton wanted to add some emphasis on and we would like to circle back with your office on how we might work on the outreach efforts to deal with workforce.

So we can definitely bring more information back to you. But just being aware of the need for sustainability is what you're asking. A block grant gets us started, but how do we continue that work?

I think combining with some of our current resources that are available, our math professional learning as well as our math, computer science and science grants that are out there that are building capacity within schools right now. Being able to pull those folks and those supports together to provide those resources for ongoing work is ideal. But we can definitely get more information to you.

Yeah, and we'll have to find a way to Fund it. Of course.

In the meantime, there are some programs that are funded that people don't always know about. The Golden State teacher Grant, which was $20,000 per participant, if you committed two years to a teacher or counselor, is still available. I have to say thank you to the legislators you all approved.

Two years ago, we had legislation to expand the Residency grants from $25,000 to $40,000 per participant that is now available for our teacher candidate who wants to be in a residency program.

And you also approved the legislation that we sponsored and it became part of the budget to allow retired teachers to have more time in the classroom without experiencing a penalty in their pension. And that is now the law. And maybe that's not known enough to help us get more folks in the classroom. But we'd be happy to work with you all on any of these recruitment and retention strategies.

Thank you. And I just wanted to say thank you for uplifting dual enrollment or dual language programs. We saw in our own school district, Poway Unified School District, where we had a school that was in significant declining enrollment, almost to the point where we were considering do we close? Do we not close it?

And we added a Mandarin dual immersion program. And it is now a rapidly growing program. And we have kids that are coming out of that whole six year elementary school cohort.

Wow.

And having a good understanding of reading, writing and speaking Mandarin.

Well, you're making our case, Assemblymember. And we'd like to invite you and the folks from that school district to be a part of the webinar series that we have put together. We will be launching webinars in April and in May highlighting to districts why they would want to consider a declining. I'm sorry.

Why they would want to consider dual language immersion programs for multiple reasons, including offsetting declining enrollment. The challenge we think that many of them are going to have is that they support the value of the program, but they need some resources to make the conversion, to make additions. And so I'll just say it.

We are looking for some legislators to work with who'd like to champion this issue and to help us to. Because it's not mentioned in the budget proposal, at least not in a direct way.

And we believe that there is an opportunity here to do something that's so special that will support student achievement, that will support California's proficiency and will offset declining enrollment. And so thank you for lifting up that example. We'll be following up with your office on how to work with that district.

Of course. Thank you.

Thank you again, Superintendent. Always welcome back into your. Your house in the Assembly. And we thank you for the work that you're doing. I think there's definitely across the board issues that you have a ton of interest from those of us here. We look forward to working with you.

Likewise. Thank you all. Have a wonderful day.

Thank you so much. Always, Superintendent, always thank you. Thank you very much to our Superintendent, Mr. Tony Thurman. And with that we will get into the agenda. But as I promised earlier, if you would like to make a briefer comment of 30 seconds, I would ask you to come forward. Now.

I'm looking around, not seeing anybody jump up. oh, I do maybe see some folks. Those are all folks who are part of the presentation. Well then we will have public hearing at the end and hope to complete conclude Today's hearing by 4:30. So if you're waiting, that's likely when that might happen.

Okay, so let's go on to issue one on our agenda today. And I asked the panelists to please make their way forward as we introduce the Proposition 98 guarantee and proposals item for this Committee's consideration. This issue will cover the Proposition 98 guarantee as projected in the Governor's Budget.

It will also cover the Governor's Budget proposals impacting the guarantee calculation, including the universal transitional kindergarten enrollment and maintenance factor payments and balance. And just as a note to the Committee, the TK proposals will be covered at another hearing in the future.

This hearing today is to acknowledge the TK rebenching as part of the proposal 98 guarantee as estimated. And we can discuss that. But specific TK proposals, we will have another opportunity to further discuss those in the future.

So with that we will have Department of Finance kick us off with their presentation and we'll have the Legislative Analyst Office welcome and may proceed.

Thank you Mr. Chair. Members Alex Shoap with the Department of Finance. The Governor's Budget for forecast that the Proposition 98 guarantee amount for 25-26 will be 118.9 billion. So 3.6 billion more than forecast at the 2024 Budget Act. 2324 remains in Test 2 while both 24-25 and 25-26 are in Test 1.

In the three year budget window, the Governor's Budget shows an increase of about 7.5 billion compared to the Budget Act. 2324 of course, remains at the statutorily suspended level of about 98.5 billion. The projected maintenance factor obligation at the 24 Budget act of approximately 8.3 billion, which was created by suspending the guarantee in 2324.

That is revised to about 7.9 billion at Governor's Budget. Then the projected maintenance factor payment in 2425 that increased to about 5.6 billion. So up from 4.1 billion at the 2024 Budget Act.

So while the guarantee increased by about 3.9 billion in 2425 to 1:19.2 billion, the Governor's Budget proposes creating about 1.6 billion in settle up for one time purposes and funding the current year at 117.6 billion.

So this 1.6 billion is an estimate that reflects uncertainty in revenue estimates and could be revised at the May revision depending on updated Prop 98 factors. This proposal is intended as a proactive measure to manage the budget and help to avoid the over appropriation of Prop 98 which of course is what occurred in fiscal year 2223.

So then depending on the final calculation for 2425 at certification in the 2026 Budget act and pursuant to existing law, any under appropriation of Prop 98 would be repaid in full at certification or according to a statutorily authorized repayment plan.

Then finally the guarantee was re benched to reflect the continued implementation of Universal Transitional Kindergarten Moving to Ada Average Daily Attendance the percentage change in average Daily attendance from 2425 to 2526 is expected to be 0.7%, so indicating a slight increase.

This is driven by a combination of expanded transitional kindergarten enrollment and improved attendance in the years following the pandemic.

And then finally the Governor's Budget proposes several budgetary actions just to just to kind of highlight a few on the K12 side, an ongoing increase of 2.5 billion for the Local Control Funding Formula LCFF to reflect a 2.43% cost of living adjustment and population growth adjustments an ongoing increase of 1.8 billion for the LCFF to support transitional kindergarten expansion and adult to student ratio reduction and a one time increase of 1.8 billion for the Student Support and Professional Development Block Grant to provide LEAs with additional fiscal support to address rising costs and Fund statewide priorities.

And then just a few on the community colleges side, an ongoing increase of 230.4 million to Fund to 2.43% COLA for the student centered funding formula, a one time increase of 168 million to support the completion of the statewide technology transformation project and a one time increase of 162.5 million 29 million of which is ongoing to scale a common cloud data platform across the community college system.

And that concludes my remarks and happy to take questions at the appropriate time.

Thank you. LAO please.

Thank you Chair and Members. Ken Kapphahn with the Analyst's Office. We have a handout that will cover our key points. Turning to page one, I think the Department of Finance gave you a good overview of the major moving pieces in the Proposition 98 calculations. So I want to draw out just three issues here.

First, the increase in the Proposition 98 funding requirement. The most important number here is that 7.5 billion over 24-25 and 25-26 combined. That's the increase relative to this year's enacted budget level. 3.9 billion of that is attributable to 24-25. That's reflecting higher general fund estimates.

And the other 3.6 billion attributable to 25-26, reflecting higher general fund revenue estimates, growth in local property tax revenue and an adjustment for transitional kindergarten. Second, and turning to page two of your handout. We think those general fund revenue estimates are reasonable. The state has had strong tax collections since June.

Personal income tax withholding, for example, is growing at an annual rate of around 10%. Corporate tax receipts have been strong, too. And the governor's revenue estimates seem consistent with those trends.

The big caveat here is a lot of those gains seem to be driven by the huge run up in the stock market over the past 16 months. And stock prices have become very high right now relative to what companies are earning. And so that creates the potential risk that the revenue picture could reverse very quickly if we were to see a large drop in the stock market.

The other source of forecasting uncertainty is the tax payment extensions in Los Angeles County. That delay affects more than 20% of the state's personal income tax base.

And so both our office and the Administration will be doing our next revenue updates without the benefit of complete information. And then third, to the extent that revenue does change, that has significant implications for the Proposition 98 funding requirement.

And in 24-25, in particular, the Proposition 98 guarantee would change about 95 cents for each dollar of higher or lower revenue. That's an anomalously high level of sensitivity that's only happened twice before. It has to do with the fact that Test 1 is operative and the state is paying maintenance factor.

This obligation it created when it suspended the Proposition 98 requirement. That also means that to the extent there are revenue changes in 24-25, that falls almost entirely on schools and community colleges with relatively little impact on the non-education part of the state budget.

In 25-26, the Proposition 98 requirement would change about 40 cents for each dollar of higher or lower revenue. That's a much more typical level of volatility. Obviously, we could see big revenue swings in 25-26 as well. But the Proposition 98 funding requirement isn't quite as sensitive that year.

So, shifting gears, I want to talk about the governor's spending proposals. These are on page three of your handout. So after we account for the higher Proposition 98 guarantee and some other baseline changes, the Governor's Budget has 7.8 billion for new school spending next year. And the budget allocates that to nearly two dozen different proposals.

The chart on that page lists all of those proposals. They're ranging from less than a million dollars to nearly 2 billion. They'll cover all of those in subsequent hearings. But the budget is really about four main parts of education.

So the proposals are focusing on expanding transitional kindergarten, literacy and math initiatives, teacher training and recruitment, and after school programs. And in contrast to some previous budgets, nearly all of these proposals are extensions or additional funding for programs that already exist. There's relatively new in this package that's completely new.

So turning to page four, we think overall the architecture of this plan is a solid starting point for you. The Governor puts about 4.4 billion of the new spending toward ongoing programs that could help districts address some of their longer term cost challenges, sustain existing programs.

The other 3.4 billion is for one time activities that could be helpful for some of the temporary costs and shorter term priorities that districts have. We think that's a reasonable mix or a balance between one time and ongoing spending.

Related to that, an important feature of the budget is that if you look across all of the school and community college spending in this budget, the Governor is proposing to dedicate about 2 billion in ongoing Proposition 98 funds to one time activities. And that's important because it gives the state a buffer.

If funding declines in the future, the state can accommodate that simply by allowing those one time expenditures to expire. It doesn't need to immediately make changes to ongoing programs or resort to deferrals. The budget also has a mix of flexible and targeted spending.

So of the new spending, 4.3 billion would come to districts in fairly flexible grants that they could do they could use to address a broad range of priorities. The other 3.5 billion has some kind of string attached, either a specific spending requirement or some new service that the district needs to provide.

We think that's a reasonable approach that could ensure that districts are addressing some of the state's core priorities without becoming too overwhelmed with new state spending requirements. So obviously in the coming months, you could make different decisions about some of the individual proposals that have been put forward. But those structural features we think are worth maintaining.

And then lastly, turning to page five, the other big decision before you this year, of course, is the plan to delay the 1.6 billion settle up payment. Mechanically what's happening here, Proposition 98 guarantee is 3.9 billion higher. In 24-25, the budget would provide 2.3 billion of that as part of this year's budget delay, the other 1.6 billion until next year.

Could be much more than 1.6 billion, could be less. As you heard, there's a major consideration there as addressing volatility. The Governor is concerned, and we think reasonably so, about the state committing to a spending level that might not be sustainable if revenues are a lot lower than we think.

The other feature of this proposal is that does provide a form of temporary cost relief for the state budget overall. So by delaying that 1.6 billion into the future, that lets the state spend a little bit more on non-education programs this year, but increases costs for the year ahead in 26-27.

So to put this in some historical context, it's not unprecedented for the state to avoid paying this obligation immediately. The state has occasionally made some delays like this in the past, and some of them have been for longer than what the Governor is proposing now. But it is still a break from the usual practice.

Particularly since the end of the Great Recession, the state has tended to make these payments as soon as it recognizes the higher estimate. We think this proposal is building on a reasonable concern about volatility. Now, our office is rarely at a loss for words when it comes to talking about volatility.

But in 24-25, there are some unique features that make that more of a concern. Our reliance on the stock market, the tax extension deadlines, the high sensitivity of Proposition 98 to revenue changes, those all make 24-25 an unusually challenging year.

You do have three alternatives, three other ways of managing volatility, and I think those help illustrate some of the trade-offs here. And so I wanted to go through just briefly what each of those alternatives would look like.

So one option would be to make, instead of the governor's proposal, make a 1.6 billion deposit into the Proposition 98 reserve, the statewide account for school and community college funding. If revenues meet projections, great, that funding can stay on the account and help districts help the state prepare for the next economic downturn.

If revenue falls short, the state could simply rescind that deposit. That would reduce state costs without requiring any changes to funding the districts have already received up to that point.

A second alternative would be to make an appropriation for schools and community colleges in this year's budget, but delay actually dispersing the cash until June of 2026 when the state has its final revenue estimate. Under that approach, the appropriation could be rescinded or reversed if revenues fall short of expectations.

That's actually similar conceptually to the first alternative, the reserve deposit. The difference between the two is that you would be deciding now how to use the 1.6 billion instead of saving that for some point when the state is facing a downturn in the future. A third option could be to suspend the Proposition 98 guarantee.

That does require a 2/3 vote public. But if you go down that route, the state Legislature could set funding for schools at any level in 24-25 and not create a settle up obligation.

What would happen instead is that the state would create this obligation called maintenance factor, essentially requiring faster increases for schools at some point in the future when state revenues are strong. So turning to page six here, all of these alternatives, as well as the governor's proposal are assuming the state eventually funds the Proposition 98 requirements.

So from a state budget perspective, there's no free lunch. But where they differ is in terms of their timing. When exactly is the state going to recognize those higher costs and decide how it's going to allocate that funding to schools and community colleges?

I think our main recommendation here is to address the volatility proactively and all of the options on the table before you would do that. We think that the reserve deposit, we would think that's the most compelling option that would avoid the payment delay.

It would also avoid increasing costs in 26-27 when the state budget's likely to be tighter than it is this year. Also minimizes complications for districts that are trying to plan their local budgets.

Of course, there is a trade-off with that option, which is that the state would have higher costs this year and that might require reductions or other actions affecting the non-education part of the state budget.

I think your decision here ultimately will come down to your overall plan for reaching a balanced budget this year as well as in the years that are-- years ahead. I'll pause there and we'll save the rest of our comments for the next panel.

Thank you very much. Okay, so we'll bring it to Committee Members for questions. Anybody's ready, you can jump right in. Mr. Muratsuchi.

Thank you very much. First of all, I want to thank the Governor for continuing to make K-12 education funding a priority and protecting many of the major initiatives that we have launched in recent years, including universal transitional kindergarten, community schools, universal school meals and many more.

I do have some questions, however, about some of the proposals this year, the first being the what has been described as a preemptive settle up of the Proposition 98 guarantee. Mr. Kapphahn, you said that there has been precedent for this, but what is the legal authority for being able to do this?

I could add some comments to that, but I might actually defer to the Administration and give the answer first, since it is their proposal.

Okay. Alex Shoap, Department of Finance. So I think without getting too far, you know, into any legal argument, I think what we're following that's kind of laid out for the settlement proposal that would be within the the Proposition 98 certification statute, which I think is from 2019. I don't have the exact education code section off the top of my head, but--

If I-- Thank you Assemblymember. So we would obviously leave it to legislative counsel to give you a formal legal opinion. But maybe two considerations here. One is that this might be a surprise, but the state constitution is silent on the timing of payments.

And that might sound surprising given that that we've had to deal with such swings the past couple years. But when Proposition 98 was written, the state didn't have to deal with the kinds of volatility it deals with today.

So the constitution has all these formulas about how we determine what the amount is, but it doesn't really speak to how those are, how we true up when there are changes to the estimates. As the Department of Finance said, we do have the statutory process for ensuring the state meets the guarantee through certification.

In 1920, the state amended that to try to be more transparent and orderly. And it has a built in set of mechanisms for resolving disputes and making payments if it turns out that funding is below the Proposition 98 guarantee. And the governor's proposal leaves all of those mechanisms in place.

So all of those things would start to happen in May of 2026 for the 24-25 fiscal year. We obviously can't predict if there would be a potential challenge or what issues would be raised. And the way a challenge would be framed might affect how a court would view it.

But it would be surprising to us if a court decided to get involved in a Proposition 98 dispute before the certification process had a chance to play out.

Okay. All right, thank you. Well, I guess we'll leave the lawyers to decide that. But it's my understanding that there are concerns about the legality of that proposal.

But turning to the bigger issue, the situation that we're facing now with the Trump Administration, at one point freezing federal funds and then unfreezing it and then issuing numerous executive orders that threaten to withhold funds if we don't comply with certain conditions.

To the LAO, it's my understanding that the total percentage or the approximate percentage of federal funds that are part of our K-12 annual expenditures is in the neighborhood of 8 to 9%, is that correct?

It's about 8 billion and really divided. About 90% of that is really in three areas: reimbursements for school meals, funding for students with disabilities, and Title 1. So essentially funding for student schools with high concentrations of poverty.

There are some other grants, actually dozens of other smaller federal grants, but really most of the money is in those three areas. About 8 billion total across all of the direct federal allocations.

Okay. So if for whatever reason that the Trump Administration decides, if they were to freeze federal funds coming for our K-12 schools, the biggest impacts would be to our special education students and our low income students.

Yeah, those two programs are two of the largest.

Okay. And, and presumably that, you know, goes for children living in Republican districts as well as Democratic districts.

Yeah, I don't have any breakdown of the distribution by district, but yeah, it would be the, the Title 1 is primarily for schools where there's relatively high concentrations of poverty.

The school meals funding, the federal government provides a much higher reimbursement rate for students who are obviously eligible for free reduced price meals and a much smaller share for students above that threshold. So, yeah, those formulas are weighted in that way.

Okay. But we know that there are poor kids, there are low income kids in Republican areas of the state as well as special education kids that live in the red areas of the state. Is that fair to say?

Yes, that's our understanding.

Okay, thank you. And so to the Department of Finance, are there any preliminary, you know, contingencies, you know, as to what the State of California's response would be if the Trump Administration decides to freeze or put unreasonable conditions on these federal funds that are designed for our low income and our special education students?

I don't think there's any specific proposals within the Governor's Budget. You know, of course, I think all the developments at the federal level is something that we'll be closely monitoring kind of moving forward and sort of going into spring. So any sort of, any updates in that regard, I think would come as part of the May revision.

Okay. Turning next to the Student Support and Professional Development Discretionary Block Grant. First to the LAO, does the LAO have any concerns in terms of this large one time block grant rather than devoting the dollars to ongoing LCFF funding?

Mr. Muratsuchi, let me just intervene. We're going to have a hearing on this specific issue, so we can definitely get more into it. If that's okay with you.

I can save that then. Alright, thank you.

Let's see. Okay. You know, another big trend that I'm hearing-- As Chair of the Education Committee, I'm meeting with superintendents from throughout the state.

You know, we're hearing the common theme across the state of this perfect storm of declining enrollment, the expiration of the pandemic dollars, and the escalating, you know, inflation costs that we're all struggling with, including but not limited to higher insurance rates for our school districts.

Given, you know, that we're, we. We seem to be getting, you know, almost daily reports of, of another school district that's issuing layoff notices. With this perfect storm.

Does the LAO have any thoughts in terms of whether the overall architecture of the Governor's Budget proposal, whether it adequately or, you know, are there pros and cons to the governor's overall budget proposal as it relates to, you know, that big trend that we're seeing taking place throughout the state?

Yeah, I think we're tracking a couple of fiscal challenges districts are facing. You covered. I think all of the most important ones.

All of those are factors, I think are reasons you might want to consider maintaining the approach of providing a majority of the funding for in relatively flexible ways that would help districts maintain cohesive programs, address some of those local cost pressures.

The state has provided has taken a number of steps to try to cushion districts on the effect of that. LCFF funding has grown significantly over the past couple years. We have new, new hold harmless provisions for declining attendance. The discretionary block grant, I think, is designed around that idea.

But it is a reason, I think, to, for the state to stay vigilant. We have a fiscal oversight system. It has a fairly good track record. I think you'll hear in the final panel that there are some districts that are maybe struggling right now to make the decisions and are in some more dire fiscal situation.

But there are. The local oversight and intervention measures are operating in those areas. In some case, the state's fiscal crisis and management assistance team is providing assistance as well. And so it's something we're, we're monitoring very closely.

The majority of districts seem like they are navigating those challenges and, and using the increases in funding to address some of those issues. And in cases where, where that's not happening, that's why it's important that the state maintain those fiscal standards that it has to ensure that those districts can get back on track.

All right, thank you. Last question for the Department of Finance. It was not unnoticed that there was not any budget line item for ethics studies. And we know that the Legislature passed AB101 with the plan and the intention of starting, you know, all school districts to start ethics studies beginning in the fall of 2025.

And with the graduation requirement to be triggered by 2030. What, why, why does the governor's January budget proposal not provide for an appropriation for ethnic studies implementation?

I'm not able to personally speak on that specific program, so I defer to a colleague for a little more information on that.

Hello, Hugo Solis Galeana with the Department of Finance. Ltd. Ongoing resources do not allow us to provide funding for AB101, the Ethnic Studies graduation mandate.

As you know, AB101 authored this mandate as subject to appropriation, given current revenue projections where legislation was not funded in prior budgets and remains contingent upon future appropriation, as is the case with AB101 and other bills, the Administration is not proposing funding.

So is it the administration's position that the ethics studies requirement, as passed and signed into law and AB 101 is not to proceed?

We did not provide funding for it? No.

And so is it the administration's position that school districts are not under any obligation to begin implementing and offering ethnic studies courses beginning in the fall of 2025?

Schools can provide ethnic studies funding if they so choose to, but the Administration is not providing funding for it.

So our school districts required to provide it by the fall of 2025. They are not? No.

Thank you. Thank you very much, Mr. Murizucci. I'll jump in with just a few questions and then give you all a chance to jump in. But I think the maybe the highlight, and I want to make sure I get it right, because I think it's.

It could be very, very important for us as we go forward with the volatility that exists. Elio explained to us today that for every dollar of revenue either above our expected revenue or below our expected revenue, 95 cents of every that dollar would have a Prop 98 implication.

That's correct to the extent that it's happening in 2425 and obviously holding all of the other Proposition 98 inputs constant.

So the budget, the proposed budget's expectation of the $3.9 billion expected revenue, which roughly is probably $4 billion above expected, above budgeted, 3.9 billion of that would go to education. That only is the case if we actually see that revenue exactly right.

Revenues could. We won't have our final revenue estimate for 2425 until May of 2026. And so revenues could vary billions of dollars from that estimate and also cause the Proposition 98 requirement to vary by almost as much.

Right. Okay. I think that's just a very sobering and kind of important point for this Committee as we discuss options as, as I introduce today's topic, and as we've sort of been having conversations around education funding, we've kind of been having this conversation that our Prop 98 budget is much healthier, in a better position.

And in fact, you know, it certainly isn't the General Fund, but Certainly any volatility could create a disruption to that. Which takes me to the issue of the new proposed expenditures that are in the proposed budget, of which 4.4 billion are ongoing, but 3.4 billion are one time in nature.

And I would just say to our colleague Mr. Marisuchi's point of. In the response that finance gave that there is no identified or available resources. There's $3.4 billion in resources being used on other programs. So this is a choice for the Legislature. And.

And certainly on this issue, which was a commitment made several years ago by many who were here before us. And so the implementation, if I recall correctly, and finance can certainly correct me here, is about 200. I remember the number 240 or 250 million to implement ethnic studies. Is that a number? That's correct.

I don't have the number right off the top of my. Okay, okay. Our staff is confirming that that is the correct number. So less than 10% of all the other priorities that are in this year's budget would fully Fund the implementation of Ethnic Studies. Mr. Mirsucci. So that's just for. For those purposes.

I have a question on the re benching. Please help me, both of you understand. So with TK Rebenching, we are re benching TK In a way that what we're utilizing to re bench. We are still doing the split with community college. Meaning we are giving the roughly 11% to community college prior to re benching.

Am I following that order correctly? And which means from just my perspective, and this is of course a decision to be made that. That would then then appear like we're short changing TK by 11% roughly. Can you. I'll go to the LAO first. And Finance wants to provide comment.

Yeah. So just on the mechanics of how this is working, the way the state is calculating this adjustment, it has an estimate of the attendance generated by the newly eligible TK students, and we just multiply that by the LCFF funding generated by those students.

So in 2526, the final year, there is a cumulative 2.4 billion increase in the Proposition 98 guarantee. That's how much higher Proposition 98 is in 2526 relative to the world that would have existed if we had never expanded in TK so 2.4 billion. And then the budget splits that.

So 89% is going to support K12 programs, 11% for community colleges. That's just based on the historical distribution of Proposition 98 funding. But it is true that there's a. Even though the. All of the increase in Proposition 98 is coming from related to K12 and the TK expansion. Some of that is benefiting the community colleges as well.

So because we now have an additional, the additional TK numbers of students in this case, that causes 98 to grow by that $2.4 billion, that is solely the impetus or reason for the growth. Yet we are treating that growth as a growth as if it was a normal growth of 98. Which then you would do the split.

Yes, that's right.

Probably important to clarify here the split that's not based on a statute or a budget language or like any sort of legal law we can point to. That's just state tradition, how we've allocated things.

Yeah. Okay. Appreciate that. I may have further questions, but I'll turn over now to my colleagues. Ms. Hadwick, hi.

I have a few questions. Can you describe how the maintenance factor works and how it crowds out programs?

Yeah. So some way, the best way to maybe think about maintenance factor is it's like a catch up payment. So Proposition 98 is designed to ensure that school funding is growing over time, at least as quickly as the state economy.

In tight fiscal times, the formulas let the state provide less than that amount or even reduce school funding in severe downturns. But then the state creates this maintenance factor obligation, which is essentially a requirement to accelerate funding more quickly in the future. We sometimes like to use the analogy of maintenance factor being like a deferred salary increase.

So if you're an employee who typically receives say a 2% raise year after year and your Boss comes to you and says, well, we can't afford to give you 2% this year, but in two years we'll give you a 4% increase. That additional increase in two years, that's like the maintenance factor being paid.

Okay, and is there a quicker way to get it off the books to protect Those non Prop 98 programs?

The state can always pay more than what the formulas require. But it doesn't really benefit the rest of the state budget because once those payments are made, they become part of the base for calculating Proposition 98 in the future.

And so paying it down more quickly doesn't free up more funding for the rest of the state budget because it's now we have to Fund that higher level of Proposition 98 on an ongoing basis.

Okay, and do you have any documentation that the federal funding for special ed kids or Low income kids in our state is going to be cut? Like have you had an official document for that?

No, it's something we're watching but we don't have any, you know, I think our approach on the federal policies is we obviously listen to what, what's happening in Washington D.C. but we don't really try to incorporate that until we really see very specifically and it's, and it's become legally, legally binding.

So at this point we don't have any sort of estimates or cuts or anything because it hasn't, it hasn't congealed yet into a specific proposal.

Okay. And last time when he was in office, did you receive threats of funding?

We heard some about that, but there wasn't a significant, I mean it's hard to know what, like what the alternative would have been, but there wasn't like a year over year, really any kind of significant year over year drop in those three programs during the, the previous Trump Administration. Okay.

And then I have one more also frustrated that the ethnic studies isn't funded, but more on the, the level from the districts and the coe. Because when Legislature is passed, this is way before my time when this was passed, that puts things into motion at those school districts and the County Office of Education.

And it's a lot of work and hours put in from people that are already wearing too many hats and seems very unfair to have a mandate that saying that we have to do this and then it doesn't come through with appropriations.

Yeah, I mean, I think we share that Assessment districts are in a tough position right now because there's no funding in this budget. So it's not, it's not a requirement. But if it were to become a requirement, they would have very little time to adjust their schedules and hire staff and do training.

It makes it an impossible hurdle for them. So it's.

Yeah, it's an. Yeah.

Okay.

Thank you.

Thank you. Ms. Patel.

Just circling back to the UTK issue. Just want to, I think my chair captured it quite well. My concerns, I echo his concerns as well.

Question or a Proposition I would like to put out there just for people to think about is on the ground with parents, talking to parents on why they're choosing to enroll in UTK or not. So looking at the actual enrollment uptake, a lot of it is because it's a half day program.

And so that means a child will experience the rules of their home, the rules of their TK program and the rules of their after school program. And it's a lot for a four year old to have to encounter.

So is there the potential to have a solution that's broader in this space looking at full day UTK programs and full day kindergarten, frankly, so that there could be that continuity of learning and just the ability for families to manage their schedules and really capture those workers that want to be in the workforce for a full day.

Ms. Patel would say on this one also we are going to get into the weeds when we talk about TK And I definitely it's a good setup for all of you to be prepared to answer that question when we have that hearing. Thank you. Anything else, Mr. Fonf?

Thank you so much, Mr. Chair. And thank you to my colleagues for their comments. And I know ethnic studies been uplifted, but I also want to add my voice to that as well.

And so when we look at the implementation of AB101 and possible appropriations there, I just, I think it's critical that when we have this, it's creating a lot of some tension with some of our school boards up and down the state school districts.

And so when we look at the implementation, I think it's critical for appropriations to be looked at. So I just want to uplift my voice on that. And then secondly, this question is for the Department of Finance. I know we've had some conversation and questions about the 1.6 billion, the settle up payment.

And so what is the Administration contemplating regarding the 1.6 billion being proposed to be held back in the budget?

I think probably the main impetus for this is just the uncertainty we're seeing, of course echoing what my colleague from the Leo is saying. 2425 is unique in that there's that very strong almost dollar for dollar correlation in revenues and Prop 98 funding.

I think that additionally this is a proposal in 2425, the current year, 2425 next year will be the past year. Once, once we, once the year becomes the past year there are statutory restrictions on lowering the guarantee.

So I think, you know, of course that that was an issue, you know, that we were dealing with last year as well. So I think that sort of maybe the benefit of more time and understanding the uncertainty that we are seeing, I think this, this proposal is like a proactive measure.

I would say that, you know, trying to address the uncertainty, the volatility and you know, ensure we don't kind of find ourselves in a similar situation next year.

Thank you for that context regarding uncertainty and the choppiness and just everything that's happening. So appreciate that context. Thank you Mr. Chair.

Thank you. I'll just end with a question on given the interest here on the this payment situation and asking the LAO and historically appreciate in your report giving the alternative or options for us.

But previously when this has been an issue, have we not had other trigger points or decision points when we settled up sooner rather than waiting for the next year's budget, waiting to certification, haven't we, have we not done that before? Is that not an option that we could pursue?

Yes. So that the sort of usual process really since the end of the Great Recession has been the state has a higher estimate of the Proposition 98 guarantee and then it makes the payment to meet that higher estimate as part of the subsequent budget. So that's the sort of typical process the state has employed.;lllllllllllll ;'

So historically we do wait, but have we had, I don't know and you know, only now been here a few years, but I don't recall when there was 1.0 million $1.0 billion plus amount that we were essentially again, given the volatility, we can't say for sure, but are expecting given trends, and we just decide not to appropriate that and just wait.

It's been more of maybe surprise increases that we really weren't expecting, whereas this is not really completely unexpected.

I think the difference has been the in the two years previous to this, the state was dealing with the opposite situation where the Proposition 98 estimates were dropping relative to the previous estimate. And so we were dealing with not making additional payments.

But this question of how do we, how do we cover these costs that we committed to, but the revenue isn't there and the Proposition 98 requirement is lower.

So this is a little bit different now that we have gotten through the two down years, the revenue downturn, and now we're back in a more positive environment where instead of the estimates being below where they were when we enacted the budget, they're now higher.

And so we're dealing with a different set of dynamics than we had to deal with in the previous two years.

Okay, I'd certainly ask you for your to revisit or help us revisit the alternatives you propose in terms of identifying when a more appropriate trigger could occur rather than waiting to certification.

And I would just say that with a potential of $1.6 billion, hearing my colleague's comments here is then maybe identifying, and this is I think across the entire spectrum here on the ethnic studies front, then triggering that as a potential first funding, the thing that first gets funded with any additional resources and how do we ensure that if that's the will of the Legislature, that the budget reflects that.

Does that make sense?

Yes, that's certainly something the Legislature has done triggers like that before where if revenues meet certain expectations, some new spending is triggered and if it falls short, something is rescinded.

The only caution I think we would add is that you'd want to give districts enough lead time to deal with that so that they're not we're not getting to the end of the year and they just have a few months to start implementing ethnic studies if they weren't previously prepared for that.

That's a good point. And I appreciate Ms. Hadwick and Ms. Patel who have experience with this raising that. So that's a good point to keep in mind. Okay. Thank you very much. Appreciate all of you. We will move on to our next panel. Please come forward if there are new panelists at this time.

Panel number two is Public School System Stabilization Account Overview and Proposals. This is our what we know as our Proposition 98 rainy day Fund. So I think we have the same folks presenting. We'll start with the Department of Finance.

Alex Chope, Department of Finance so the 2024 Budget act projected the rainy day Fund to be fully depleted by by a mandatory withdrawal in 2324, then followed by a discretionary deposit of about 1.1 billion in 2425.

So the mandatory withdrawal that remains unchanged in the Governor's Budget proposal, while increases in capital gains revenues result in a mandatory deposit of about 1.2 billion in 2425.

And just to clarify around that, per the provisional language in the discretionary deposit budget Item from the 2024 Budget act, the discretionary deposit amount from the 24 Budget act is used to fulfill that trued up calculation. So that would mean the total additional need in 2425 is about 103 million.

There is also an additional discretionary deposit of 376 million in 2526, resulting in a balance of about 1.5 billion at the end of that fiscal year. Just a note for that right. This was originally included in the Governor's Budget as a mandatory deposit.

After further review of the the Reserve language, no mandatory deposit would actually be required in 2526. However, I think maintaining this amount as a discretionary deposit that continues the 2024 Budget act commitment to rebuilding the Reserve. Finally then, with those amounts updated, School District Reserve caps are not triggered in any year within the three year window.

And that concludes my remarks. Happy to take any questions. Thank you.

Thank you again. Ken Capan with the Analyst's Office. Our comments on this are on page eight of our handout. We don't have any concerns with any of the comments or calculations by the Department of Finance. Just noting that the Reserve has become an increasingly important part of the state's toolkit for managing Proposition 98 volatility.

That 8.4 billion withdrawal in 2324 was a major factor preventing reductions in school programs during the downturn that started two years ago. And building up that balance, whether we're talking about required deposits or discretionary deposits, is an important step for getting the state ready to address the next downtrend whenever that might happen. One caveat here.

The Reserve is designed to set aside the portion of school funding that's attributable to volatile capital gains revenue. So almost by design, deposits are very hard to forecast. So we may see some significant changes could be up or down in the required Reserve deposit in 2425. So we're talking about $1.2 billion deposit right now.

That could be much different by the time we get to May. And I think that's all our comments.

Thank you. Appreciate you both. Do we have any questions? If not, Ms. Hadwick.

This one's for the LAO. If we were to make a discretionary $1.6 billion deposit, where would that money come from? Is that coming from Prop 98 programs or non Prop . 98.

Yeah, yeah, thank you. That's a great question. So it's what? All of the deposits are within the Proposition 98 guarantee. So we set aside some funding that would otherwise go directly to schools in a particular year and instead save it in Reserve.

And then a couple years later, when we take it out, it supplements the Proposition 98 guarantee when we do the withdrawal.

Thank you. And I have one more for finance. Do you have a plan for reducing other General Fund programs if revenue projections continue to decrease or hold?

I think, you know, obviously we're monitoring, you know, revenues, all other Prop 98 factors, incorporating that as we move forward into the spring, but I think it's too early to speculate on that at this point. Thank you.

Thank you, Mr. Muritucci.

Thank you. I just want to thank Governor Newsom for continue to prioritize the Proposition 98 rainy day Fund. You know, we. We saw, I mean, as a survivor of the Great Recession, where we had the big boom and bust in school funding with the lack of these rainy day funds.

You know, I always give a shout out to Governor Jerry Brown for spearheading Proposition 2 in 2014 to stabilize our school funding so that we can try to level out those peaks and valleys.

And so for the Governor to propose to restore the balance in the Proposition 98 rainy day Fund, I think, as the LAO says, is going to only help us. And we saw that happen last year.

You know, were we able to avoid devastating cuts, you know, to our schools in the face of the massive budget deficit that we saw last year thanks to the rainy day Fund. So I think, you know, I've lived that cycle from the Great Recession to last year to today.

And so I just want to emphasize the importance of continuing to level out, stabilize school funding through our rainy day funds. And I want to thank the Governor for proposing that.

Thank you. Well, thank you. Acknowledge certainly the work that was done before and sometimes we do some things well, you know, voluntarily. Last year we decided to commit more funding into this stabilization account. I think it was very the appropriate thing to do, certainly prudent and, and appreciate the question from Ms.

Hadwick that potentially going forward, this may be something we want to continue to voluntarily, even if not mandated, do in order to ensure that stability long term. So appreciate you all. Thank you for that. We will hold the issue open and move on to item number three. Issue three is the education funding deferrals.

This issue will cover prior state budget deferrals to local education agencies, Proposition 98 funding, and the repayment of the deferrals as proposed in the Governor's Budget for the 2425 budget and the 2526 budget.

While deferrals may not be a popular tool, here is a great example of how deferrals have been used in the past in the 22:23 funding shortfall without actually hurting classroom funding and the impacts staying away from the classroom. So to present this, I think we have the same panel. We'll start with the Department of Finance once again.

Alex Shop, Department of Finance the 2024 Budget act created funding deferrals in all three years in the budget window as follows. So 2223 was about 2.6 billion. So 2.3 billion for K12 and about 242 million for community colleges. And these were for various categorical programs for which funding was unallocated, unexpended or not liquidated.

Then 2324, there was about 4 billion total in deferrals, 3.6 billion for the Local Control Funding Formula and 446.4 million for the Student Centered Funding Formula. And then 2425, about 489 million total, including 245.6 for the LCFF and 243.7 million for the SCFF.

Then we just add that the 2526 Governor's Budget increases the 2324 LCFF deferral amount by about 35.1 million and then the Governor's Budget pays all deferrals created at the 24 Budget act as well as in the Governor's Budget. That concludes my remarks.

Thank you. Aleo. Again, Ken Capan with the Analyst's Office. So eliminating the deferral would make the budget more resilient by aligning the ongoing cost of school programs with the ongoing funding needed to pay for them. It also improves local cash flow, simplifies state and local accounting.

So our main recommendation here is to approve the proposal as just a matter of good fiscal hygiene. Two additional notes here. One is that the governor's proposal would eliminate the deferral beginning in 2526. It would be possible if you wanted to pay off the deferral a year earlier, meaning you would also eliminate the June 2025 deferral.

That would reduce some of the state and local workload associated with planning for and anticipating the deferral. There's no additional cost if you choose to pay it off earlier, but it would require the Legislature to adopt early action, likely by early April if you wanted to avoid that additional cost.

The other note I wanted to make is that sometimes we use the term deferral in different ways up here at the state level. When school districts hear the word deferral, they're thinking of something that delays one of the ordinary 12 month payments to them that they receive for the Local Control Funding Formula.

There aren't any increases or payment deferrals proposed under the Governor's Budget. When the Administration is talking about the increase in the deferral, what they're really talking about is an accounting shift, not something that has any effect on cash flow for schools. When we're talking about the 2324 and 2425 deferral.

So just clarifying that beginning in 2526 there would be no payment delays to schools. Everything would be paid on time and the June 2025 deferral would be the last deferral under the Governor's Budget. That concludes my comments.

Good afternoon, Chairman. If I may just real briefly, I. Did want to state for the record, Aaron Atalia, on behalf of the State Superintendent Public Instruction, we certainly are in support of the elimination of the. Of the deferrals being discussed and just.

Wanted to state here on behalf of Department of Education, should there be any tyranny, technical questions.

Thank you. Aaron. I'm sorry I didn't get a chance to get you introduced earlier. Appreciate you. We're going to start with Ms. Patel.

First I wanted to say thank you for clarifying the deferrals coming from a school board. When we hear deferrals, we think, zero, we have to take out a loan and pay interest on that. And we don't like hearing that. So thank you for that clarification.

As I'm new to this role with the deferrals, I just wanted to agree that it's very prudent to eliminate those as soon as possible. And I would love to enter into a discussion on how and whether it's feasible for us to take it up by April and move up the timeline. That's all.

Thank you. Appreciate that, Ms. Hadwick.

So it, it looks like we're creating a one time categorical program again that kind of mirrors lcff. Lcff. And I appreciate that. zero, I'm on the wrong issue. zero, I'm on the wrong issue apparently. I'm sorry.

Thank you. I, I hear, you know, the, I guess my comments are more in line with sometimes we do deferrals and sometimes we get hit as a Legislature for doing that.

And I think some when then when we actually resolve or at the end of that, either side of that, we don't recognize that we did what we said we would do. And sometimes you have to make really difficult.

Choices in order to overall balance the many needs of the state. And so I think it's important to acknowledge that. With that said, I think I would be interested in potentially acting early. But if things become more volatile, then we may not want to act early. We may not even want to act for June.

And so I think that's something. And I'd like to ask the LAO, is that something that we should at least have in the back of our heads as we are thinking going forward? The volatility? Is that an option that would be potentially available if the numbers take a turn south?

It's always a possibility. The state has adopted deferrals in a fairly last minute way in the past. Generally, the longer the deferral, the more of a challenge it is for districts. So if we're talking about just a week, that's. That's usually fairly manageable.

If we're talking about multiple payment deferrals last spanning 3456 months, that's more difficult for districts to deal with. The other consideration is that when we've had deferrals in the past, we've had an exemption process. So districts that would struggle to make payroll with a delayed payment can be exempt and receive their payment on time.

But that's a process for the Department of Education to administer those exemptions. And so if you. If the state passes a deferral as sort of a last minute and there's not time for that, it's harder to have those kinds of exemptions. So generally, the sooner the Legislature acts, the more kind of.

The more advanced notice there is, the more opportunity there is to use that as a budget tool.

Yeah, certainty is always much better for locals. I hear that loud and clear. Okay, thank you. Appreciate that.

We'll hold this issue open as well and move on to issue number four, which is our student support discretionary block grant, which is a proposal in this year's budget to support student profession and professional development discretionary funding through this block grant.

So we're here to discuss this issue and understand better what will be accomplished with this and certainly would ask that our colleagues provide their input on their thoughts of this proposal. We will kick it off with the Department of Finance and then the Legislative Analyst Office will go after.

Thank you, Mr. Chair. Alex Shoap, Department of Finance. So the Governor's Budget proposes approximately 1.8 billion for a discretionary block grant to provide local educational agencies with additional fiscal support, to address rising costs and to Fund statewide priorities.

These include professional development for teachers on the ela, ELD framework and literacy roadmap, professional development on the mathematics framework, teacher recruitment and retention strategies and career pathways and dual enrollment expansion efforts consistent with the Master Plan for Career Education.

And then I think we just note that funding for this proposal is on a per Ada basis, acknowledging that rising costs are something that I think are affecting LEA statewide. And that concludes my remarks. Thank you Legislative Analyst Office.

Again, Ken Capone with the Analyst Office. Our comments on this are on page nine of our handout. We think overall this is a reasonable proposal. Districts might use this block grant productively in two main ways. One would be to continue some of the temporary programs that they funded with previous one time funds.

The Federal Government Provided More than 20 billion in flexible one time funds for districts and we've heard districts using those funds for everything from counseling and coaching to early literacy instruction. So this grant might allow districts to continue some of the more promising activities for another few years.

Could also help districts address some of the costs that they face. Districts did use a lot of the one time funding they received previously to address costs, but there are some issues on the horizon that they'll need to address in the coming years.

Updating and replacing technology, potentially updating facilities for things like better ventilation and serving more TK students. They also have increases for property and General liability insurance. This grant could help address some of those.

As far as the dollar amount, we think you could consider a higher or lower amount than the 1.8 billion proposed by the Governor, just depending on what other proposals you decide to Fund and what happens with the estimates of the Proposition 98 guarantee.

But regardless of the final amount, we'd recommend three with we would think of as relatively modest refinements to the proposal. One would be to include language explicitly giving local district boards discretion over the use of the funds. We think that aligns with the intent of the proposal and would offer some clarity to districts.

The second would be in the intent language to specifically call out fiscal one time fiscal costs and liabilities, including technology, facilities, other kinds of budgetary liabilities. Districts tell us that even if the language isn't legally binding, that does sometimes help orient the local conversation.

And then third, we'd recommend specifying that any funds a district receive count toward any outstanding mandate claims that it has. I'm happy to get into more details on mandates, but in a nutshell, there are some districts that still have claims for unreimbursed mandates generally predating 2012-13.

So this would just be specifying that any discretionary funds they receive count and satisfaction of those claims. We've had language like this in previous block grants. That concludes my comments. Thank you.

Thank you note. The Department of Education is here for questions, I assume. Yes, thank you. Appreciate. So we'll bring it back to the Committee. One quick question for finance. Is there a requirement for reporting on the utilization of the funds?

There's no explicit reporting requirement in the language, but I think this is something that as a new program, the Department would be able to track the funding within sacs is our understanding. So.

And what level of specificity would that give us?

I don't know that answer off the top of my head. We have to circle back ED or lao.

Yeah. So that would cover the broad category of expenditure. So whether it's salaries, benefits, supplies, services would also cover the broad area like whether for it's. It's for instruction or student support or nutrition or counseling or something like that. Those would be the two main categories where we'd see the. The expenditures reported.

So anything you want to add and just to. Yes, we would be able to capture that information and share with Legislature. Okay.

I think at minimum the proposal, if it gets adopted, should have the. Some sort of reporting mechanism so that we understand exactly what it's being used. And obviously we also at this moment and through this process, should prepare or should provide feedback on whether we want it to be focused on certain things.

And so I'd open it up now for you all to provide feedback. We'll start with Ms. Patel.

I have a few questions. First of all, just a little preamble. When the Arts and music block grant was created, because of the contrast in the name versus allowable uses, it created a significant communication challenge in our communities. You know, the title of the grant was Arts and Music, and yet the use was completely discretionary.

And that created a lot of challenges with our labor partners, with our communities, with our advocates. And I think if our intent, if our intent is to actually have this be a discretionary block grant, we should call it a discretionary block grant.

I think our communities are capable enough of understanding those kinds of words and that kind of budgeting allocation. I think we need to be very transparent in our communication. It'll make it easier at the bargaining table. It'll make it easier with our community advocates.

We just, I mean, if we're going to call it discretionary and have it be really discretionary, we need to just come clean with that. So that's kind of preamble and opinion. I am concerned with the increasing amounts of block grants to cover or to make good use of our volatile surpluses.

And I understand that that's a good way to use this volatile surplus because we don't know. And we can always pull block grants out. But the actual challenge on the ground is that districts will start planning out programs, they'll start budgeting, they'll start hiring staff.

They'll make these large sweeping movements, investing staff and time and professional growth in anticipation of these grants ongoing. For example, I want to name one specifically. There was a grant called the IEEEP Inclusive Early Education Expansion Program. And school districts anticipated getting a certain amount of money for their youngest learners with special education services.

And they ended up seeing some districts over 40% cuts to that funding. Now they've started programs and they're not able to keep up with those programs, even though we know that early intervention with our students with disabilities makes a huge impact long term. So I just have concerns around continuing to budget with block grants.

It doesn't have a unified vision of what public education looks like. It seems very ad hoc to me. And I would like to implore our Committee here to look at these dollars more holistically and make sure it aligns with our vision of what we want for public education.

So more of a stump speech than a question, but open to take feedback and input.

I will say that I know that the Superintendent is very interested in.

Can I ask you to get a little closer to the microphone, please?

Yes, I do want to share that the Superintendent is very focused on ensuring that all some of those funds go towards professional learning. I understand the challenges around hiring with one time funds with limited funds, but allowing folks to extend the work that they've been doing, particularly with our educator effectiveness funds.

That block grant is sunsetting soon, as well as our arts music instructional materials block grant. That could be a little misleading. Although we've provided a lot of technical assistance around the allowable uses of those funds and we continue to do that for all of our grants that we distribute.

But again, Superintendent is very focused around ensuring that some of those funds, if not all of those funds, but at least a portion, go towards the extension of professional development for our schools.

Thank you, Ms. Hadwick.

So I was reading ahead, so now I'm ready. So to me it looks like the governor's creating another just one time categorical program that mirrors lcff. I appreciate the going after those state priorities. Also a need.

But I think right now, like in the fiscal crisis that we're going to talk about next and how unstable we are with our funding right now for schools or could be that we need to have maximum flexibility for this because as these, you know, these four things that you talked about are great.

The school opening it up so the schools can pay for things that they need at their site. One time funding is hard. We don't need more stuff. You know, we need programs that are going to be sustainable and help our kids. It's very hard to do that with one time funding.

That's the one complaint I get from every Superintendent. You know, it's something that I feel like we got away from that siloed funding because we saw that it wasn't working and now we're just buried in grants.

And grants are great for those programs that have the capacity or those districts that have the capacity to write them and report on them. Not all districts have that. My, my. I'm very. From a very rural district. I represent 11 different counties. They don't have the Administration to write grants. That's.

You're putting one more hat on somebody that already has five or six jobs. So I would just plea with you to please make it really simple for them and open to where they can fill those holes that they need to fill in their district, because they're all a little bit different. Thank you.looooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777yyyyyyyyyyyyyy666666666666/s/

Thank you. Mr. Marucci. Following on Ms. Hadwick's questions, it's my understanding that the. This discretionary block grant would not require grant applications, but that it will be distributed on an Ada basis.

Right? Correct. It would just be distributed on. Per people.

Okay. Yeah. I just want to clarify that. And does the Department of Finance have. Any concerns with the LAO's recommendation that. We explicitly allow districts to spend the grants on local costs and priorities?

No, we would, you know, I think we'd say, I know there's. We've received some feedback that maybe some of the initial language was a little confusing, but this, this is a fully discretionary block grant, so it would be any allowable purposes within Prop 98.

Okay, thank you, Mr. Fong, you're next.

Thank you so much, Mr. Chair, and thank you to colleagues and regards to the dual enrollment programs that are uplifted here. I think this is when we looked at the Career Education master plan by the Governor and with input with the Legislature.

This is something that with Vision 2030 that the Chancellor Christian has proposed as well, and the working efforts to expand dual enrollment programs. We know that this is an area of growth within our community colleges.

And so I think the discretionary block grant proposal is one of the items where we can uplift those programs, including all the other Programs of Professional Development as well, I think would be critical. So I think this proposal is reasonable and I think also just uplift the chair's comments around the reporting mechanism.

I think want to make sure that we're getting that data and feedback through reporting. Thank you so much, Mr. Chair.

So going back and actually following along the reporting and the transparency, trying to think this through. So please be patient and chime in, please, especially Department of Ed and all of you. So if we were to Fund this discretionarily through Ada, every district, it's strictly based on your on attendance.

There is no discrepancy between things like supplemental funding and concentration funding, which typically when we do education funding, we try to really ensure that that equity lens is placed on the funding. This would not do that. Is that correct? Correct. It would just be a straight per pupil for Ada allocation formula.

I'd ask if the Department of Education wants to provide some feedback on an alternative approach and what that would look like where we do take into account concentration and supplemental needs.

And what that could mean in my mind in our conversation is that that does get us some of the transparency because now you're talking about incorporating that into your lcap and at least there's the, you know, public ability to access that and to see how intentional those dollars are being used for programs like literacy or whatever the locals decide to use them for.

Do you have any initial thoughts?

I would like to get back to you on that? I do. In terms of questions around reporting, I know that we have managed the Department has managed the reporting requirements for all of our grants that are out there.

But specifically looking at our discretionary block grants, we're seeing how folks are using those funds and what is making a difference. Assemblymember Patel brought up the challenges around the arts music instructional materials block grant. I will say that the majority of districts are using those for operating costs, for retirees or retirement costs and benefit costs.

So we are able to kind of pull that information apart. We are able to see how much LEAs are using their educator effectiveness funds for professional learning, for books, for staffing as well. And so we are able to pull that out and have been providing regular reporting to the Legislature about that.

We can definitely get back to you about recommendations.

Yeah, I think that would be interesting because in the past, maybe going to lao, have we done this type of funding block grant that is fully discretional funded through not a block grant process or a block grant mechanism, but instead through just funding it through LCFF funding. Have we ever done that prior to.

I would say through 2018. 19 when the state was giving block grants, those were done almost entirely on a straight per student basis. During the pandemic we kind of we had a shift in thinking where we started to do a lot more weighting for the federal funds were weighted towards how much Title 1 funding a district received.

For example, the Learning Recovery Emergency block Grant was weighted very heavily towards how many Low income students and English learners. So prior to this in the years preceding this year we did have much more weighted grants. This is a little bit more of a return to the state's practice, more like 10 years ago.

Okay. I'd ask you to remind us of that in your analysis of the proposal as we go forward and I appreciate you keeping us up to speed on that and definitely would be interested in feedback from the Department of Education. So I think that that's it on this, on this issue.

Appreciate all of you being here and we will move on to our hold this open and move on to issue number five which is our State of School fiscal health annual updates. This is an informational item and we have the fiscal crisis management team also known as FCMAT which is California's public resource to monitor and guide LEAs.

Our local education agencies fiscal health hearing will provide FCMET's annual address to update the Assembly on the State of school fiscal health. I'd ask Mr. Fine welcome him first. Welcome back. Good to have you here.

We do have the presentation which we appreciate I think you know not spending as much time on the particulars of your PowerPoint but I think certainly more interested in the bigger picture of what we should be worried about concerned about paying attention to. I think I'd ask you to focus your comments in that way.

Thank you and welcome.

Would be happy to do so. Good afternoon chair and Members of the Committee as the chair just indicated. I'm Mike Fine. I'm the Chief Executive Officer of the State's Fiscal Crisis Management Assistance Team and I have given you my outline and I will just pick a few things out of there.

Actually several of you already commented on these. Mr. Mirucci already read ahead and when he was speaking earlier about trends he he worked right off of the outline. So. But you do have our most recent charts through first interim report.

Just to remind the Committee there are two districts adopt their budget in June by or by July 1st and then there are two annual updates. We call those interim reports the first one in December and that's what these charts reflect and the second one in in March.

And so the charts that that are Attached give you some indication of where we're at as a state. I will highlight just a couple of of those. The first is that there are a couple districts on the qualified list and and also just for background and I think all of you that are.

That are still here know this well. As former school board Members Committee chair. There are three certifications available to a local school board.

Positive that they can meet all their obligations in the current and subsequent two years and then qualified is that they may not meet those obligations in the current and subsequent two years and then negative is they will not meet their obligations in the current or subsequent one year.

And on the qualified list we do have one district that is that continues to delay their actions here in the last couple weeks and are moving very quickly to the negative list and within a year could be out of cash and thus us talking about state receivership. That would be Franklin Mckinley School District in Santa Clara.

They were not previously on our radar screen at all. This is a fairly quick deterioration in that their first interim report probably wasn't prepared consistent with the standards in that they included all sorts of budget reductions ahead of the board's actual action to adopt those. And the board has subsequently chosen not to adopt those.

Beyond that I'm happy to answer any questions there but would turn very quickly to the negative list. There are seven. This is a bit of a high water mark for us.

We, we don't like to see the negatives more than just a couple and often they are districts that we see only once and then we turn the corner very quickly with a variety of interventions. But there are a couple on here that I think are noteworthy. First is Hayward in Alameda County.

They have taken the action they need to take to turn the corner. And our and this is another district that experienced rapid deterioration in the fall. Acknowledged that themselves with a self certification of negative in December and they have acted very rapidly with great leadership to correct that situation. So I expect them to be off the list.

Oakland leading into this first interim we had 14 consecutive qualified certifications and at first interim they self certified negative. I do know that there's some debate internally as whether that was appropriate or not, but it was absolutely appropriate based on their numbers. They have taken some action but limited action as we move towards second interim.

San Francisco continues on the list again in just the last week have taken an initial significant step, certainly significant for them stepping towards stabilization and they've got others other steps to go for Member Hadwick, Plymouth Unified which is a single single so single county, single district Common board and historically common Superintendent. But right now, two superintendents.

I'm sorry to inform you, but this will be our next emergency appropriation within the coming months. They are deteriorating very, very rapidly, literally by the hour, in my opinion. We are present in the district. We are trying to sort through what is good data and bad data.

Kind of re trying to validate really where they're at, but that will be the fine tuning really validating where they're at. The point is that they have already borrowed over 10 million that they are unable to pay back according to statute and they're going to need more. And so we're working through this.

This is a bit of an awkward situation in that statute doesn't contemplate a single single in the receivership statutes on what we do. We statute doesn't typically apply to this receivership statutes don't typically apply to a county office as a single single or as a district. We would transfer authority to the county.

But that is the same leadership and the same board. We don't want to do that obviously. So we, we've got to work through some, some technical things here before working with the leadership to look at an emergency appropriation and, and we need more data as. As we progress here.

Weed Union and Siskiyou is a facility rated several of you set on the state allocation board and I think are up to speed. This is a General Fund that is stable except for a overextended, if I can say this facility project that is now going to burden the General Fund. And Eureka Union in Siskiyou also is.

They're making progress, but it is slow concerns on the horizon. And I've said this actually as we've been experiencing dramatic decreases in Enrollment for the last couple years. Generally our small and tiny districts have less flexibility to deal with a decline in Enrollment when they lose three families and six kids.

As a result of that, many tiny districts already only have one teacher teaching TK through three and the teacher slash principal teaching four through six. Right. They don't have a lot of flexibility mid size and larger districts obviously have quite a bit more flexibility.

We are seeing an increase at first interim here in the number of qualifieds as I think you well aware, the negatives I just covered for you. And so moving to solvency trends As I indicated, Mr. Mirasuchi has outlined these fairly well already in some comments.

But while not for every district, it is true for every region of the state. We have declining enrollment. It's not new. We've been experiencing declines in enrollment for the better part of 1415 years. During the pandemic those declines accelerated. However, they have gone back to what we have long forecasted to be more the norm.

They've had some short term offsets. The decline as we've implemented universal TK in Ada and then post pandemic as Ada has begun to recover, the Ada yield has been growing, began to recover from Low attendance to more normal attendance patterns.\.;;;;;

Districts are offsetting some of that decline from purely a revenue standpoint, but the decline is still the decline. And I think you all know this. It's predominantly driven by Low birth rates. Historically Low birth rates. Other factors. There are other factors, but the birth rates are the number one. The state demographer would estimate this.

We're going to experience this decline certainly as it moves through the grade levels into the 2000 and 40s before it really gets through the high school grades Low to more normal COLAs.

And this is really my easiest way to describe this is you go to bed on June 30, you wake up on July 1, a new fiscal year, you've done nothing different, but your fixed costs have gone up about four and a half to 5%.

So when the COLA, the statutory COLA in the status clearly committed to funding the statutory COLA, but. But when the statutory COLA is below that level, while at the state we absolutely accurately say we are fully funding our commitment at the local level, it feels different, right? Because fixed costs have gone up higher than the revenue.

When you layer declining enrollment on top of that year over year could actually have a decline in revenue. Not even an increase in revenue. Inflationary pressures already mentioned while inflationary has been tapped down, that the prices are still high. Right?

And we all know that because we all go to the grocery store and buy gas and do a variety of other things. Significant increases in liability insurance premiums and special assessments related to liability coverage. And we've already seen as homeowners difficulty with fire insurance.

You can only imagine what it's going to look like now post the LA County fires. And this will impact school districts as well. With regard to premiums. Utility increases are up over 200% over the last decade. Schools are, it is outside of staff, it is often the next highest single cost.

Our utilities, all the lights, all the air, all the heat, water, wastewater, communications, Internet, that whole umbrella of utilities is a significant cost factor. And so when rates and generally school districts don't get favorable rates because it's done on a meter by meter basis, right?

When we have a UC campus in a community, they have 1 meter bringing in 12kV into one power station on the UC campus and 1 meter school districts.

The meters are distributed across so they look like a small business, not like a large employer, a large plant if you will, a large University like other elements of the community may may have by way of various different rates on the meter. You've already talked about changes, potential changes in federal policy and funding.

Chair, you said this very well. We are not a we're not a community that does education is not a community that does well with uncertainty. We like certainty especially when we're talking about next year. Master schedules are being put together right now. That's why ethnic studies is a delay.

Potential impacts that staffing is being determined right now all for next year. We like certainty right when we have uncertainty about potential any day, any moment, any hour of changes in what is clearly a significant funding source for many individual schools, not just school districts but individual schools.

It creates uncertainty and we just don't do well with it. So we have to monitor this very carefully. As Mr. Kapon indicated on the good on the positive news, especially compared to the Great Recession, Fund balances are high, reserves are high or higher.

I should say they're in the 23 to 25% range where during the Great Recession they were in the 8% range. So districts have some flexibility on how much they bite off of their deficit at this point or other uses of reserves at the same time. Cash reserves which are a component of total reserves.

We like to see total reserves backed by cash because otherwise just being on paper doesn't do a whole lot of good if there's truly an emergency like a fire. But cash reserves are also strong but they are deteriorating fairly rapidly. That would be the case in Plumas. That would be the case in Franklin Mckinley.

That would be the case in Oakland. That would be the case in San Francisco. The the more frequently they deficit spend that draws down those cash reserves. Unless you have questions I don't need to cover this. The four districts in in receivership. I've given you an update on each of those but I'm Mr. Chair and Committee.

I'm happy to answer any questions you have.

Thank you. Mr. Fine. Appreciate you being here again and giving us this overview of from a statewide perspective.

One question that comes to mind right away as you and you know your agency is really the best at providing us feedback because you're on the ground with all of the districts throughout the state in terms of the an appropriate COLA what going going forward where where is a range that really would be appropriate and where you're identifying that as a for districts, just a challenging component.

So I think the best way to answer that is to remind us of the COLA that we have and kind of how it works. Right. We talked about this with both you and Mr. Mirsucci in the October joint oversight hearing on LCFF. Right.

And I think I was, I testified that we should be maybe time to look at an alternative COLA. Our current COLA is a national number. It's influenced by Tennessee, by Texas, by Kansas, by California.

It is also meant to represent the entire basket market, basket of goods and services that local government and local state government or state and local government purchase. When we create this or when we calculate the statutory COLA, we are simply comparing that index, indices from prior 12 years to the current.

Geez, 12 years, prior 12 months to the current most recent 12 months. And we're looking at what the change is up or down on a quarter by quarter basis.

So in some respects, if we chose a different metric, one that was more California centric, one that was more influenced by labor, because let's be honest, 85 cents of every dollar school spend is on labor. So it's a, that more so than energy. The national number is, is greatly influenced by energy. Right.

But schools are not necessarily a large procure of, of energy. Right. So we have to keep in mind while I think many of us think there's probably a better metric out there than the one we're currently using, it's ultimately the change over from one year to the next that we're measuring.

And no matter what, the indices that we're looking at would still be a year over year change. For some years it would probably be more advantageous to LEAs to have a different COLA than what the current metric is. In other years it may be less advantageous. To be very honest.

We've also discussed the idea of regional COLAs, which the reason they're not in the LCFF today is it's extremely difficult. And I think Dr. Kersten, our earlier hearing, you know, spoke about we should have regional COLAs, but we don't know how to do it. Right.

And I, I mean we know the mechanics of it, but from a uniform salary schedule, from a uniform application period, that is very, very difficult.

So difficult to answer that question other than to say, I will repeat my earlier comment and that is any COLA that is less than 4 and a half to 5% at the local level then feels like a, like a kind of, it's, there's a pinch at the local level. Right.

In the last number of years up to this year, we've had some, some well above normal COLAs. Right. Including however we want to label it, Super COLA. Right. A couple years ago. And so districts got used to those fixed costs increases being covered this year with a 1.07 COLA, next year with a 2.43 and likely falling COLA.

It's just going to feel different.

Thank you for that perspective. I'll turn it over to Ms. Hadwick first.

You knew I was going to want to talk. Right? I have to say this is the most depressing presentation I have been presented with at this job.

We have to remember in perspective, there's 1,100 districts we're reporting on. There's only a handful here. Yes.

And I have four of the seven on the negative interim report and eight on the qualified interim report, one of which I went to elementary school in. All the ones on the negative one I played throughout high school against. I have to say, just I don't really have questions.

I've talked to many of these people that are trying to get through this. The Plumas County one is because of the repro-, the response of the fire, the Dixie Fire. They were plagued with Dixie Fire. All of those count. All of those districts have had major, major fires. They're also in mill towns.

And when we stopped logging and those mills closed, they plummeted in enrollment. So I think that is. Sorry, I wasn't talking close enough. That's a ripple effect of fire. Right. All of these have been plagued with fire. They're evacuated throughout all summer. But Plumas especially, they've had several schools, one school close already in Greenville. You know, they're.

They're trying to recover just at the county level as well. So this, this is just one of those things that we need to think about, those policies for fire management and why, why we need to do those mitigation projects because this is a ripple effect of those fires. And I, I'm sure I'll be seeing you a lot.

So thank you for the report. I, I'm. This is a very scary time in the north state for rural communities because that logging and mills and natural resources is what we have in our district.

I feel like I say that all the time, but if, when we're not allowed to utilize that to create businesses and create, you know, families that have that financial ability to stay there, this is what happens to our schools. So. Thank you.

Thank you. Ms. Patel.

I just have a very small technical question. How many single singles are there?

Seven, Dr. Patel. Seven across the state. They, they do. Most of them are small. However, San Francisco would be an example of a large one.

Okay.

San Francisco county office, San Francisco Unified.

And that's one of the ones on the list.

It is.

Okay.

They've been struggling for a number of years. I would, though, note, as I did just in my report, they took their first significant action in the last week. They've got a long ways yet to go, but they at least took some action. Just got started here.

Thank you, by the way. You've been a great service to my home school district. We thank you. We appreciate the work that you put in.

Thank you. We're there right now, actually. About to release a report.

I'm not on the school board and I still hear about it, so. Thank you.

You're welcome.

This question is. I think I pondered it last year and I don't think I asked it. And it just still there.

And it's this idea of how small is too small to really continue, for us to continue to support that and to maybe even pretend like it's not really an issue and that it's okay if they go into situations like this, receiverships or others, and then we'll just work through it and fix it and then potentially down the line, be back at it again.

I don't know the answer to that at all. I don't have any strong sentiments, except that it just feels like at some point consolidation may be more appropriate. And I know that there's a lot of feelings about that because of the local control issue. But as you mentioned, there's economies of scale. Right.

When you have the ability to spread this a little more, that could mean the difference between maintaining schools open in some communities and not. And isn't that a better outcome than school closures as a result of lack of consolidation? So just curious on your thoughts on that.

Well, I share your concern. I share your questioning. I don't know that we have the perfect answer. In statute, it's basically six students. Right. After that, we really do have statute that we. That would lead us down what we call the lapsation statutes.

But we have a district right now and they're on the list here with three students. They are rule they are. Their closest school is a valley over and actually in a different county. So that makes it really awkward. Right. And complicated.

I think some of the districts, Member Hadwick, you know, pointed out, without naming them, are in similar situations. They're a long ways away from the next school. And that makes it really challenging because that then involves transportation.

Set the political issue aside, which is what you're talking about, that local control, a school board doesn't like giving up their, their district. Right. If you merge two districts, there'll be one board left, right? Not two boards. They could go from five members to seven members and have some blend. Right. But it won't be.

It won't be two individual school boards. There is a lot of efficiency that can happen from that. One Superintendent, one business office, one, lots of things as opposed to two. Right. But it is a difficult, difficult topic. Talking about difficult topic being closing local neighborhood schools.

It is equally difficult to talk about merging two school districts for many of the same reasons.

What I was saying though is, is. And this is now getting into maybe hypotheticals and further discussion, another point. But it's not about closing schools, actually about maintaining schools open if you achieve some of these economies of scale.

But what I would offer is if lapsation is justified, it probably only works financially if we're talking about closing one of the schools. Most neighboring districts would be willing to take on the larger geographical service area, but they want to do consolidation to control their costs in so doing.

So in their mind, transportation is less expensive than maintaining that remote school site with teachers and a principal and the support structure that's needed. And when we do lapsation, all assets and all liabilities end up at the new. We do some other things with respect to averaging salaries, and there's several steps involved in that.

So they, While there's efficiencies, there's some nuanced items, and they just simply see if there was a reason to lapse, then there's probably a reason to close that neighborhood school, unfortunately. And that's just painful. It's painful for everybody.

Yes. Ms. Hadwick.

So I feel like being rural. This is a constant conversation with districts. I know stats of my county, my home county. We have less than 9,000 people in my county, but 4,200 square miles. So many of our schools are an hour and a half away from each other. Transportation does become.

But it's also a weather issue because we live in the mountains. It snows, These kids would not be getting to school most days. And also once you close that school, that town is dead. It will not recover. And even for three or five kids. Also, my district is unique that it borders Nevada and Oregon.

So a lot of times it's easier for those communities to go to another state, which also makes it hard. But it happens. They find an address. It happens. I wish it didn't, but we don't play well in that way with the other states. But it, it is a, the, the distance, the sheer distance is really hard.

And then those communities, those families end up moving to those other communities. So it is. It's a. It's essentially a death sentence for a small town to consolidate schools. And we all know it has to happen sometimes, but it's. It. It's very, very hard. I've watched our school.

We have a couple in my district or in my county that have 40 kids in their school. You know, they graduate, four or five kids in a high school class. But they are so proud of their schools and they are.

They are getting the education that we all want for our kids because they're, you know, their teacher student ratio is good. They're small enough to have those moments and have that personalized learning experience. So they are getting a quality education. It just looks different than what we're used to. But it is. It is hard.

I totally get. I would fight the 'How small is too small?' That community is worth it to fight for. But that's why I'm here.

So thank you. Appreciate your perspective. Mr. Muratsuchi, you want to make some comments?

Actually, if I may, I had some questions. So. Where is my. First of all, Mr. Fine, I want to thank you for all of your work and monitoring, enforcing fiscal discipline to try to keep our schools and school districts solvent.

It seems clear, I mean, would you agree that the foreseeable future is decline, like you said, declining enrollment, with more and more conversations about whether, you know, schools need to be closed?

So certainly I'll break those two down into maybe two questions to two comments. The first is, yes, that is the forecast. And then as the decline, if I can use the term bubble. We don't usually say bubble when it's a negative. Right. But you get the idea.

As the bubble moves through the grade levels, there's even a larger dollar impact on school districts because of the LCFF. Rates vary by grade span. Right. And they go up. So that has an impact. The real.

The issue of closing neighborhood schools is somewhat complicated in that we have an accumulated decline over the last 14 years and have frankly closed very few schools. Now we have continued decline.

And so it's going to look, in my opinion, we're going to see more frequent local schools closing going forward because of the impact of the accumulation plus the new declines on top of it. Right. We encourage districts to look at reconfiguration, reuse some blending. You know, one of the hurdles to. To full day TK is facilities often.

But in a declining environment, one of the things that gets freed up Is classroom space. Unfortunately, it's usually not the same space we want to use for kindergarten at the same corner of the campus with internal restrooms and all that. But nonetheless it is helpful.

So can you build, can you improve enrollment at a local school through programming? The Superintendent talked about DLI, dual language immersion. Yes. At a local campus. DLI doesn't necessarily stabilize enrollment across the district. It moves kids from school A to school B and school C to school B. Right.

More than it brings kids in simply because of the inconvenience of transportation for families. So I do see the conversation local school closures heating up. I think key to that is the process the local board directs to go through that. I feel strongly that has to be a year in advance notice to the community.

I think that's just the right thing to do a school year in advance. I think some of the criteria that, that the Legislature put in place with Mrs. Bonta's Bill, I should know this. 1912 or 1913, now I can't remember. But with respect to criteria is, is today only applied to districts in receivership.

I think that criteria is frankly useful for everybody to follow. And we do see that best practice being followed in many cases. Consultants out there that are guiding districts are following that criteria whether they have to or not, and a variety of other considerations. Oftentimes in a community the focus is on what's the smallest school.

And I think that's a mistake. I think if you're going to tackle the subject of needing to consolidate your facility footprint, you need to look at everything, set criteria and run every school through that criteria. Not just immediately go to the smallest school. That may not be the best answer.

It may actually be a mid sized school, but because of its location, it makes more sense to actually be the closer. Right, sure.

So there's some challenges out there and as you know, from being a former school board that has, and I've closed schools when I was in districts, that is just simply the most difficult decision of a school board member to have to.

Yeah, well, I mean unfortunately, you know, for us those decisions are decisions that local school board members have to make. But I, you know, I don't want to, you know, have any conversations that we should be having in subsequent hearings.

But I, I, you know, there, there's a proposal for extending zero interest loans for, for districts that, that are in receivership or, and yeah, any, any general comments about whether that is going to help this foreseeable future that, that your data is showing?

I would say no, sir. I think as proposed in current form that proposals is unfair. It addresses two of the four districts and three school districts and one community college. So it leaves one community college and one school district in state receivership still paying interest while it provides assistance to two others. That that's just simply not fair.

Districts when they go into receivership don't choose the type of loan that the state ultimately gives them. A General Fund loan versus a loan through the I bank.

I think there's other considerations on that particular proposal, including that this, the Legislature and Administration have provided both of those districts with substantial investments that they gave those two districts that they did not offer any other district in the state to help them and they didn't take full advantage of those those offers. And this is.

And in one of the districts, they're a year and a half from paying off their loan. So we're talking about very small amount of interest at this point. The other district is, you know, obviously the loan goes out for an extended period of time.

Okay. I intend to follow up.

So thank you very much. Thank you again. Thank you. Mr. Fine. Appreciate you being here. That concludes our issue items and so now we'll turn it over to public comment. If you're here to make public comment, I ask you to please come forward to the mic. We'll give you a minute.

I will notify you when the minute has passed. So and it goes by very quickly. So please be prepared and state your name and begin your comment.

Sara with Children Now, as we navigate. These challenging times for our families and children, we commend the Governor's commitment to fully implementing transitional kindergarten to ensure that classes are small enough and age appropriate for our littles. And as well as investing the $500

Million for literacy and math efforts, we do recommend that on the discretionary grant funds that it aligns with an equity. Driven formula tied to the LCFF unduplicated student count. Thank you.

Thank you.

Good afternoon, Mr. Chair and Members. Pamela Gibbs representing the Los Angeles County Office of Education. Thank you for all of your support for the Los Angeles County schools impacted by the wildfires. We do appreciate the work that everyone has put forth. Appreciate Assemblymember Hadwick's comments related to the impact of the wildfires in her district as well.

We are continuing to seek support in other areas and we'll follow up with another updated document to you soon. And lastly on item 1 regarding universal pre kindergarten, Los Angeles County Office of Education has a coalition letter from our school districts who are implementing the program and county offices of education provide technical assistance.

We would like support for extending the $35 million statewide to county offices of education providing such support to those districts. Thank you so much.

Thank you. Welcome.

Good afternoon, Chair and Members. Dominique Donette.

On behalf of EdVoice and our partners, families and schools and Decoding Dyslexia, in addition to what you've already done to protect students, we urge you to preserve and expand the early literacy and educator workforce investments in the Governor's January budget by further targeting the professional development discretionary block grant dollars towards PD for literacy educators grounded in evidence based instructional practices for teaching reading.

We believe all elementary educators providing direct reading instruction should receive training on the evidence based instructional practices outlined in the ELA, ELD framework.

We recommend setting aside a minimum of $250 million in block grant funds specifically to fund training on effective means of teaching literacy and evidence based means of teaching foundational reading skills aligned to the ELA, ELD framework. We ask that you continue to strengthen and protect policies that impact children from low income communities. They need you most now.

Thank you.

Thank you.

Toni Triguero, California Teachers Association. CTA is opposed to the governor's proposal to underfund the Proposition 98 guarantee by $1.6 billion. We believe this proposal is unconstitutional and urge the Committee Fully Fund the guarantee without delay. CTA does support the governor's proposed $1.8 billion for the student support block grant.

We ask that this one time funding be allocated on a per student basis and remain discretionary to allow for schools to address their unique needs. Thank you.

Thank you.

Good afternoon, Mr. Chair and Members as on board the California School Employees Association, we appreciate the Legislature protecting Prop 98 and education funding in past years. And so we also ask that you continue to prioritize public education and protect Prop 98 and reject the governor's proposal to underfund Prop 98 by $1.6 billion. Thank you.

Thank you.

Tiffany Mok with CFT, a union of educators and classified professionals. We want to echo the comments of CTA and CSEA and just wanted to emphasize that for the block grants we don't disagree that tutoring and coaches are great. We just simply want full discretion.

Because with the staffing crisis, it really meets the needs of every school to allow them that discretion. Often we've seen that the time that it takes for folks to get the professional development isn't available and so the money goes unspent is underutilized, particularly if there's not enough educators in those schools. So thanks so much.

Thank you. Welcome.

Hi. Daniel Thigpen representing San Juan Unified's 39,000 children, 6,000 employees in our families here in Sacramento County. Longtime listener, first time caller. We fully appreciate the roles that you're in and the uncertainty you're navigating, the volatility you're navigating, particularly as it looms large over us in federal uncertainty.

It's about $90 million in services and meals for our highest need kids in San Juan Unified alone. Appreciate the difficult decisions you have ahead. Three items that I hope we can have further discussion on in the weeks and months ahead. 1. Our district fully supports the governor's proposed investments in fully implementing transitional kindergarten.

That's going to allow us to hire up to 50 new para educators to get down to those new ratios and offer TK at all 65 of our school sites this year. Equity multiplier. We would respectfully request some considerations around policy or calculation for current or prior year stability rates.

We have five schools serving our highest needs students that will fall eligibility under the current proposal next year. We'll have some employees on the receiving layoff notices and resources that are just starting to show promise expiring in those schools. And then we appreciate ELOP and the opportunity to extend the school day.

And we will continue to respectfully request some additional flexibilities for the use of carryover before those deadlines. Thank you.

Thank you.

Hello everybody. My name is Meron Gebre and I'm a Clean Air intern speaking on behalf of Environment California and Calberg, CALPIRG and I'm also a fourth year student at UC Davis. I'm here to speak out against the proposed cuts in the Governor's Budget from funds to zero emission buses for clean air.

In our fight to reduce air pollution. Having clean school buses is extremely beneficial as it addresses a vulnerable population in our community, children. Having zero emission buses ensures that children have decreased interactions with harmful pollutants generated from school buses which leads to negative health outcomes such as asthma.

This program should also be prioritized because it leads to positive benefits for the wider community as it will improve air quality, thus lowering negative health outcomes for all.

In order to protect the health of all Members of our community, including those most vulnerable, I urge that we do not have any funding cuts towards zero emission school bus programs. Thank you.

Thank you.

Good afternoon Chair and Members. My name is Dan Merwin on behalf of the California School Boards Association. I would just like to align our comments with those that you heard from several of our colleagues before us around Prop 98.

We find the proposed $1.6 billion withhold maneuver to be inconsistent with the spirit of Prop 98 at the very least. In addition, on the discretionary block grant, we would ask that that more closely resembles the arts, music and instructional materials discretionary block grant on which we understand it was modeled.

So the language is clear around the discretion for operating costs as well as rising costs. As you've heard, school districts have a number needs here and we want to make sure that they can account for all of those when they're making their planning for the funding. Thank you.

Thank you. Seeing no other public comment, that concludes our hearing for today. Thank you all for being here. We're adjourned.