Assembly Budget Subcommittee No. 3 on Education Finance

Good morning, everybody. Welcome to Subcommittee Number 3 on Education Finance, the Budget, the State Assembly. I am Chair David Alvarez. And welcome all of you this morning and thank you for being here.

As we've done in previous, last year actually, when I was charing this committee, I'd like to give an open opportunity here at the open, at the onset for any members of the public who wish to make a comment germane to today's topics.

It'll be a shorter version of, rather than the minute at the end, 30 seconds now. I know some of you are prepared to make comments like that probably and would like to go on with other business. So it also helps me, it helps the committee inform of where people are thinking about as it relates to topics that are before us today. Help us, inform us, create some questions.

So I know we didn't do this the last hearing, so you may be caught off guard. But if there's anyone who'd like to make that public comment now, you'd be given the opportunity to do so now as opposed to at the end of the meeting. And we'd ask you to come forward at this moment.

And we'll give you again 30 seconds to make a comment, again, germane to today's topics. And we'd appreciate you providing us that information. So please, as we do always, state your name and make your comments. Welcome. Thank you for taking up the opportunity.

Yes. Michelle Underwood on behalf of the Coalition for Adequate Funding for Special Education supporting equalization in special education. And want you to consider doing more. There are more students identified with disabilities, so we need an additional investment. You'll hear today about how we've increased in the identification rates, so please consider another $300 per ADA to match those identification rates. Thank you.

Thank you. Well done there.

Good morning. Sara Bachez with Children Now. Related to issue one and four, about LCFF. We believe in the long term investments of our funding formula as well as the stability and the funding system for schools overall, similar to those envisioned in your bill, AB 1204.

Just providing that ongoing stable and equitable focus. And because of that, we will continue to insist that any discretionary funds are also be providing an equity based distribution method to ensure that it's targeted to our most neediest students. Thank you.

Thank you.

Good morning, Mr. Chair and Members. Barrett Snider on behalf of the Small School Districts Association. Want to provide some comments quickly on the necessary small schools item on your agenda today in support of the proposal. Sort of acknowledge there are potential conversations to explore alternatives to that, which we were fully in support of.

That model of necessary small schools, which is not a district funding model but a schools funding model, has fallen significantly behind LCFF because we haven't caught up with inflationary, you know, fixed costs that schools have. So this proposal, while imperfect in terms of sort of arbitrarily picking 20%...

Thank you. Those 30 seconds go by quickly, so. But got your message there. Thank you.

Hello. Raquel Morales with EdTrust-West. Plus one to my colleague from Children Now. In regards to the discretionary block grant, we would also like for the Legislature to consider adding the 2023 California Mathematics Framework as one of the allowable uses.

And then also making sure that the formula is distributed with equity in mind and making sure that it is in alignment with LCFF's unduplicated people count. Thank you.

Thank you.

Good morning, Chair and Members. My name is Deborah Bautista Zavala on behalf of the California Suburban School Districts Association. We respectfully urge to protect full funding for LCAP formula, including the statutory cost of living adjustment. We also support maintaining the discretionary block grant on an average daily attendance basis.

Finally, we support the Governor's special ed proposal to improve funding stability credibility for districts serving students with disabilities. And we urge align, our urgencies align with the Central Valley Education Coalition, and we respectfully ask for your support.

Thank you. All right. Thank you for those who took the opportunity, especially those who provided specific guidance. I know I've gotten some questions now as a result of your testimony. So that was the goal of the exercise, and appreciate that. Very helpful. So with that, let's get started with our hearing.

Today's hearing will cover some of the largest proposals in the January budget. 2.7 billion of ongoing adjustments to existing programs, 3.55 billion in one time augmentations, and 1.5 billion in the bond funds for facilities.

So the theme that you'll certainly hear from me and my questions throughout the four panels to be, you should expect to hear, is how are we measuring overall funding sufficiency, and for the outcomes that we expect for our students, are these, is this being sufficient?

Are we funding to the levels of the outcomes that we have in terms of expectations in each of these core programs? And then how are we trying, how are we tying accountability of the use of one time funds?

This is becoming a recurring theme now, and want to make sure that there's accountability to that towards the state's ongoing goals on student performance, student outcomes always.

And lastly, how are these proposals addressing the reality of declining enrollment? A conversation you will hear time and again, certainly in this this year's discussions of this committee, but it's something I think we all need to really engage on.

And how are we addressing, how are these proposals addressing the reality of that declining enrollment for our school communities, supporting the hard long term planning conversations that we all need to be engaged in?

So those three questions, if you're on a panel, expect to hear variation of those questions as it relates to each of those proposals. All right, so with that, let's bring up our issue one panel, please. We will hear from the Department of Finance, and then we will hear from the Legislative Analyst Office.

And the panel will provide an overview on the Local Control Funding Formula, the Governor's budget proposal for cost of living adjustment for the LCFF and for categorical programs, and a related trailer bill proposal to increase necessary small schools and adjustment. With that, let's kick it off with the Department of Finance. Welcome.

Good morning, Chair and Members. My name is Katie Lagomarsino.

We're going to need you guys to get really close to these microphones. For some reason in this room, they don't capture. Thank you.

Okay. Good morning, Chair and Members. My name is Katie Lagomarsino with the California Department of Finance, and and I'll be covering the Local Control Funding Formula and our necessary small schools proposal.

As noted in the agenda, the bulk of unrestricted funding for local educational agencies is provided through the Local Control Funding Formula, or LCFF, and it's distributed based on the number of students served and includes additional funding based on the enrollment of low income, English learners, and foster youth. The state fully funded the LCFF in 2018-19 and has annually adjusted the grant amounts by a cost of living adjustment, a COLA.

LCFF base grant amounts are calculated on a per student basis measured by average daily attendance of students according to grade span with adjustments that increase the base grants for grades K through 3, 10.4% of base rate, and grades 9 through 12, which is 2.6% of the base rate.

For school districts, funded ADA is equal to the greater of current, prior, or the average of three of the three most recent prior years ADA.

As a result, LEAs experiencing short term or single year declines in ADA are largely protected from sharp funding impacts through the formula because they would be funded on the basis of whichever year is greater through the calculation. So moving on to for districts and charters in the budget year.

The Governor's budget includes an increase of roughly 2.2 billion in LCFF funding for school districts and charters in 26-27, and this is compared to the revised current year funding levels. And this also reflects the 2.41% cost of living adjustment and ADA percent change adjustments.

This brings the total LCFF amount for districts and charters to 85.3 billion. Moving to the County Offices of Education. The budget includes a decrease of 25.8 million for 26-27 when compared to revised current year funding levels to reflect ADA changes, the cost of living adjustment, as well as other expenditures, including differentiated assistance figures and home to school transportation.

This brings the total County Office of Education LCFF entitlement, including minimum state aid, to $1.4 billion. Lastly, I'll cover our necessary small schools augmentation.

The budget includes an ongoing increase of 30.7 million Prop 98 General Fund to support a 20% increase in LCFF funding for necessary small schools. This is the funding formula for schools that serve a small population of students and are geographically isolated. These schools are heavily impacted by enrollment declines and attendance fluctuations.

This additional funding will help them maintain instructional programming when the student population fluctuates. Eligible schools have the option of selecting necessary small school funding in lieu of their LCFF base grant funding. Trailer bill updates. Oh, so we're updating trailer bill. Updating the necessary small school funding tiers to implement the proposed 20% increase.

And then we continue adding COLA as has been done in the past. As noted in the agenda, small school districts tend to have higher per student costs and less flexibility to distribute any fixed costs across a larger student body.

Small schools and districts are also less able to absorb declines in enrollment as the loss of even one single student can have a greater impact on their overall funding than larger schools. This is somewhat mitigated for those opting into necessary small school funding as long as they remain in the same enrollment band.

But enrollment declines can impact other categorical funding sources. And that concludes my presentation. I also have Patrick Rochelle with me from the Department of Finance, and we're happy to answer any questions at the appropriate time.

Okay, thank you. I'll turn it over to the Legislative Analyst Office.

Thank you, Mr. Chair. Good morning, Mr. Chair, Members of the Committee. Michael Alferes for the Legislative Analyst Office. I'll be sharing our comments specific to the COLA and the necessary small schools proposal.

So regarding COLA, we are recommending prioritizing the COLA over other ongoing spending and funding the final statutory rate, unless revenue estimates decline significantly by May. Funding the COLA would help districts address the various cost pressures that they face, would help them balance their budgets, and then sustain local programs.

We'd like to note that based on recently updated federal data, that The COLA appears to be tracking slightly higher than the 2.41% estimate that's included in the Governor's budget. Though the final data used to calculate the COLA will be released in April. For necessary small schools, we find that the Governor's proposal has some merit.

We looked at spending data that showed smaller school districts tend to have higher fixed costs relative to larger districts, which can make declines in enrollment challenging to absorb, particularly for small rural districts, as my colleague Ms. Lagomarsino mentioned earlier.

Increasing funding for necessary small schools with target funding to very small districts in the, that serve students in very small schools in geographically isolated program parts of the state. Though we would like to highlight that the 20% proposed increase isn't tied to any particular assessment of costs.

So if interested in adopting the proposal, Legislature could consider providing a different level of funding based on its priorities. Additionally, the Legislature may want to weigh this part, this proposal among its other priorities, such as building proposals that build fiscal resiliency or providing increases that kind of benefit more school districts statewide.

For example, we note that only 1/5 of the state school districts with less than 2500 ADA have a necessary small school and would receive additional funding under this proposal. If the Legislature was interested in providing a funding in a way that would benefit more... Sorry. Small school districts more broadly, it can consider various options to do so.

For example, it could explore modifying LCFF or establishing an LCFF add on that could take into account the density of the school district's population where the schools are.

However, we would note that this would be complex to design and would require analysis to ensure that any increase would be commensurate with the cost structure of small school, small school districts. In addition, any funding increase that would be more kind of beneficial to small school districts statewide would result in higher costs than the Governor's proposal.

Lastly, if adopting an increase to necessary small schools beyond the statutory COLA, we recommend addressing what we call a fiscal cliff issue in our recently published report that you have in front of you.

If I can direct your attention to figure 12 on page 20. And for those listening in, the report is titled the 2026-27 Budget K-12 Proposals and can be accessed on our website at lao.ca.gov. So this figure here, as you can see, it compares the base LCFF rate for high schools in this blue bar.

It's kind of horizontal bar, it's flat. It doesn't change whether districts have one ADA or 200 ADA or more. This compares the base LCFF rate with the per student funding rates under the current law in the red bar and then the Governor's proposal in the green bar.

As you can see, as schools' ADA increases, they gradually receive less funding for student at the higher funding bands, eventually phasing out close to the LCFF base rates.

As shown by the green bar, the 20% increase results in necessary small high schools that have 286 ADA receiving 2,637 more per student compared to a similar high school that has 287%... Or sorry, 287 ADA.

So just that one ADA difference can mean a reduction in 2,637 per student. So our recommendation is just to modify the proposal to kind of avoid this large difference in funding above and below the ADA thresholds. We lay out two potential options in the report.

The first is either by adding a new funding band with a higher ADA threshold or extending the ADA threshold for the final funding ban to allow districts with, or schools rather, with more ADA to receive funding from necessary small schools.

And then the rate would be gradually decreased over time as they kind of approach the eligibility thresholds and then would kind of receive the base LCFF rate per student. By increasing the ADA threshold, though this push likely would have higher costs compared with the Governor's proposal.

Alternatively, the Legislature could modify the proposal in a way or the increase in a way that minimizes this fiscal cliff and has similar costs to the Governor's proposal. But this would likely require kind of disproportionate increases, higher increases for the lower funding band.

So more increases for the schools that have the smallest number of students and then lower increases for the higher funding bands and even minimal for the ones that are closest to threshold. So with that, that concludes our comments. Happy to answer any questions at the appropriate time.

Thank you. And I note that we have Department of Ed here for any questions that Members may have. Also we have FCMAT here as well. Yeah, right. So I think I'll definitely have questions for FCMAT on this item.

So COLA obviously is important and needs to be consistent for districts to do their planning and to make sure that they are operating in a way that allows them to serve their respective communities.

And I know that there's been some years in the last several years there were some years where COLA increases were above the statutory requirements, but for the most part consistently remains under 4% this year, as noted. 2 point plus and potentially more depending on what the final figures show in April. And obviously we will do as required statutorily.

I guess my question is really around the sufficiency of COLA, and this is probably where certainly FCMAT can help us. But maybe turning first to the LAO. We've had a little bit of conversation of this over the last couple years, but where does a COLA and what amount makes sense given changes that we're seeing?

You noted declining enrollment is a reality that is almost universally faced, although there are some exceptions to that. But costs continue to grow. There are some costs that aren't related to perhaps bigger schools, but schools still remain with needs and the expenditures of those sites.

Can you share in your analysis just of COLA, just generally, because I know you've done a lot of work over the years of what your, just what your thoughts are on adequacy of that?

Yeah, we don't have, we haven't done a specific kind of analysis that kind of looks at inflationary cost pressures felt by districts and compares that with the COLA. I do recall that we kind of noted that since 2021-22 the state has increased LCFF by over 30%.

Whether that tracks with inflation is something that we haven't necessarily looked at. Though, if you know, we would note that this Legislature could consider providing increases beyond COLA, as it has done in the past, I believe, in the 21-22 budget and the 23-24 budget, if I recall. I don't know. My colleague might have additional comments.

Yeah. Edgar Cabral with the LAO. I think I would just add, I think some of the, I would distinguish a little bit between inflationary cost pressures and then some of the cost pressures that you're talking about.

I'm not aware of, for example, some kind of inflationary adjustment that adjusts for declining enrollment. Because that's not actually a, that's not actually a declining costs. Right. That's your costs are in some ways the same, but your revenue is lower because you have fewer students.

And so I think to what my colleague's pointing out, I don't know that we can find an alternative COLA calculation that's going to address that problem for you on an automatic basis. I think from our perspective, you want to have a COLA that's addressing those price increases.

And then if things like changes in declining enrollment or maybe other policy changes or other expectations in terms of what cost pressures districts are facing, that can be addressed through the Legislature providing an increase above what's the statutory call. The statutory call is sort of the minimum to keep up with base costs.

Let me ask Mike, FCMAT. You can maybe take the seat at the end up there that way. Oh, okay. Thank you. Appreciate that. So 30% increase in the LCFF over the last, I think it's six years, maybe five, since 2020. Right. And you can correct any of those figures. So there's been an increase per ADA.

But I'm curious, if you've, given all the analysis you do statewide, what does that mean for a school or a district with a declining enrollment? So there's growth. Like how much declining enrollment does it take for that 30% essentially to be eclipsed? That's probably not the right way to phrase that question, but I think you understand what I'm trying to get at.

Yeah. Thank you, sir. Mike Fine, CEO at the Fiscal Crisis and Management Assistance Team. For many districts, and I think this is important. COLA is added to the per student rate. Right. But when we lose students, we can easily wipe out that year over year increase in revenue.

And so while we give an appropriate COLA based on the constitutional and our statutes and can say we fully funded that, the reality is with declining enrollment, a district could actually have less revenue in the subsequent year than they do in the current year, despite the fact that they had COLA. And to...

Can you give us a picture of, since you look at statewide, like how many districts may be facing that dynamic?

Well, so we have declining enrollment in every region of the state. When it first really started during the pandemic, we had islands of regions that were not experiencing declines. They actually were experiencing increases. But I would say it's fair to say that almost every county at this point and every region has declines.

We have individual districts that are flat or even growing, but overwhelming there's declines. Declines for our tiny and smalls. And so I appreciate the administration's proposal on necessary small schools, although it's very, very, as Michael said, okay, very, very focused. Right. We're worried. And you'll see that in our outline today in our presentation.

We're very concerned about our tinies and smalls. So it's fair to say the majority of districts are in declining enrollment, and thus COLA does not have the same dollar impact. It's certainly, as already mentioned, it's not even covering inflationary increases in the current trend. And I would say, for districts, I'll use this analogy.

You go to bed on June 30th and you wake up on July 1st. New fiscal year, nothing's changed, but your costs have gone up on average 5 to 6%. When COLA is below 5 to 6%, then you're actually moving backwards. Right. Not moving forward. Then you add declining enrollment dynamic to that.

And the LAO has already mentioned, I think this is really important. When we lose a given student, there are few cuts to make for a student. And students don't come in nice neat packages of 24 to 1 in K, TK through 3. Right.

And so we get a couple first graders, a couple second graders, a couple fifth graders. Let's just say it's a K-8, so I can have one more data point. And a couple eighth graders leave us. Because it's spread across the grades, there are really no cuts to be made.

We can't eliminate a single teacher or an instructional assistant type of thing based on that spread. If we lost 24 second graders, that'd be a different story. We could reduce our second grade teaching staff by one and have some offset savings.

But even then, it's important to note that those direct service of a teacher and a paraprofessional only account for about 40 cents of the dollar loss. So if we lose a dollar due to ADA dropping or enrollment dropping, only about 40% of it's recovered in that direct service.

Then there are other things like textbooks and so on that you would add to that. And that's why districts are struggling a bit. But it is the majority of districts across the state that are in this dynamic that you're expressing I think some concern and questions about.

Appreciate that. I have some questions on the justification of the 20%. But we have that panel, so maybe I'll wait to ask those questions then, and I'll turn over questions now to my colleagues. Dr. Patel.

Thank you for being here as always. These conversations are always very interesting to me. I do have questions on the 20%. You had mentioned from LAO's office that that was a percentage picked in the range. What would be the actual cost if we were to cover the cost? Do we have a good sense or a calculation of what that might be? It might even be more than 20%.

No, we haven't done any analysis. We just were noting that the 20% wasn't tied to a specific assessment of cost.

Okay, thank you. That's very helpful. And then when we're talking about ADA, do we know ADA loss? Do we have a good sense of how much of that is lost due to after effects from the pandemic, people just leaving the public school system, versus trends over the years in declining enrollment?

So what I'm trying to imagine is, is some of that ADA loss recoverable? If we were to perhaps go back to those families and say, hey, why don't you come back to public school. It's just like it used to be. Better than it used to be, so to speak. Or is this really just the future of California and we really need to tackle it head on?

The number one factor in enrollment decline. So I want to separate enrollment from ADA for a second. The number one factor in enrollment decline is lower birth rates. So our population is at the young, at the lower age bands that K-12 and K-14 serve, it is in lower birth rates.

So our population has gone up and down the last couple years as a state. We're currently growing again. But it's in the upper bands. I like to say it's in the band I'm in now as opposed to the band, as educators, we want it in, right? The 0 to 5 and the 5 to 17.

That's the number one factor. The second factor I think would be the issue of migration and immigration. Migration to other states, immigration in and out of California into California. We don't have the immigration that we once had that offset historical ins and outs.

We do have, since the pandemic, higher rates of migration out than traditionally we have seen. But the number one by far factor in declining enrollment is lower birth rates in the population. The population, that age group dropping. Now let's move to ADA. So as enrollment declines, ADA is going to naturally decline because they go together.

But we have the other factors really that are lingering from the pandemic, and that is, as a parent, with a sniffle, I sent them to school. Right. Today, parents think twice about that. We all think twice about that because we no longer trust the sniffle as just being a sniffle. Right.

We also have other factors going on, including immigration enforcement and other external factors that are influencing actual attendance. And those vary widely by district. But overall, again, back to the Chair's question. Declining enrollment is across the state, thus declining ADA. And I've forgotten, the factor we're using in Prop 98. Is it one point?

Around 1.4 is the ADA decline assumed in the budget proposals, the Jan.10 budget proposals, I think, somewhere. Finance can correct me.

And thank you for distinguishing between enrollment and ADA. I was merging those, mashing them up in my head. And I appreciate you teasing those apart because that's important to think about, different strategies to address both sides of an issue.

We often argue that you can't control enrollment. I tell school folks, don't think you can control birth rate. That's not our job, right? But once we have a student enrolled, we do have influence on attendance. It depends on how we want to exercise that and so on.

But there's both carrots and there's sticks, right, with regard to getting a student there. The other factor that I think we haven't fully come to terms with is since the pandemic, we've added a grade level TK, Transitional kindergarten. Transitional kindergarten, though, and kindergarten have the highest absentee rates. I mean, double digit-- way above any other grade.

I mean, four or five times, I think, above any other grade level, right? In some cases in the 30 and 40% of absentee rates of our youngest kids that we're serving. So we're not getting the full revenue bang, if you will, in a district as a result of adding that grade level.

Yeah. Especially with kindergarten being optional, right? Families do see it as optional.

Yes, but that, in my mind, and I think in some of the data plays out here, that's a decision about enrollment. But once enrolled, they are also our most absent. Our youngest children are our most absent.

And I would say even when they're enrolled, families feel like kindergarten is optional. And, of course, getting back to what you touched upon with absences, a lot of families misunderstand an excused absence for health reasons as being covered by ADA.

And so, of course, post Covid, families are being more cautious and they'll keep their children home when they're sick. They'll call in and say, I'm excusing this absence, not quite understanding that that will impact ADA.

And those are policy decisions that are worth talking about. Instead of a full shift to enrollment-based or membership-based, could we look at policies that look at average absences and adjust for that? We did that, oh my goodness, 25 years ago when we eliminated excused absences, we adjusted everybody's base-- Edgar, you're gonna have to help me.

--the base ADA for the, at that time, the statewide average rate when we eliminated excused absences from the funding model.

Yeah. And that is an area that I'm interested in looking at going forward. Just to revisit is it an opportunity to revisit that, considering our current approach to healthcare and well-being for our young? One more question that's slightly an uncomfortable one. Has there been a statewide analysis around districts that are small districts merging or coming together?

And the reason why I'm asking this, it's not to necessarily consolidate schools because in a lot of our school districts, our small rural school districts, you've got 400 square miles of attendance boundary and I'm not going to ask a family to try to trek that over mountains and through snow to get to school every day.

But the administrative costs. So when we're talking about the base-- you know, when we're funding at the LCFF base for some of these school districts, some of that is administrative cost.

So if a school district were to merge its administration, because that's the only cost we would really save we wouldn't be saving the electricity on each individual school site or the maintenance on each individual school site, is that impactful enough on the budget side to make it worth obviously the heartache that would come to our families?

I think it's fair to say we think in most cases it would be impactful and worthy of consideration. Again, I'm going to turn to the LAO to double-check my history, but I think it's been since the mid-60s that the state's offered a financial--

The last time the state offered a financial incentive for districts to unify or merge, not merge but unify--I'm pretty sure I have the right timeframe here-- was in the mid-60s.

That's for elementary and secondary to come together?

There are some rigorous formulas that you have to consider both on the revenue side and on the salary side when two disparate, if you will, districts merge together or unify.

That can provide both incentives on the cost side, but it can also provide disincentives on the cost side because of the salary adjustment that has to be made to blend those from a low to a high if the two are not similar.

But yes, you would be eliminating-- Dr. Patel, you'd be eliminating a superintendent and the extra board. And you, as a former school board member know this well. The hurdle there is probably less financial and it is a board giving up their seats, right? It's a political consideration more than anything.

Yeah, and I remember reading a report, maybe you could trigger my memory a little bit more, somewhere from a county north of San Francisco, the county Office of Education did an assessment around how unification would impact LCFF funding to those individual school communities. And it turned out that they would see a decrease because they would lose concentration.

And so they ended up making a fiscal decision to not do that because there was no hold harmless policy in place for that.

Yeah, I'm not remembering that study specifically, but I do think Sonoma County, which has something like 47 districts in its county, including one district, I think has six kids at it, and we're seeing some of that play out even in the financial difficulties that the two Santa Rosa districts are experiencing.

Let me give you another alternative. Speaking of Santa Rosa and Petaluma, both Petaluma City and Santa Rosa City, both in Sonoma County, they are two different districts, an elementary district and a high school district with a common administration and a common governing board.

Oh, interesting.

So they have achieved that efficiency without the merger of the two districts. We have that scenario someplace else that I'm drawing a blank on as well. But right there in Sonoma are two examples of that where they have-- that administrative layer has been in essence eliminated.

Thank you for that. I imagine that if we look at policies that encourage consolidation, merger, shared governance, we would want to make sure that we wouldn't lose funding for those pupils because those pupils are still experiencing hardship. Thank you.

Thank you, Dr. Patel. Oh, did someone-- LAO want to provide further comments?

Just want to add one comment. I think my understanding, I think, to what Mr. Fine said these incentives have been a while since we've done them, but I think one difference from now to then is now we have LCFF, which has everybody gets the same rate per ADA per grade.

In the old system, we had these revenue limit rates that were historical. And so part of what we did is we would modify that revenue limit rate to create that financial incentive. If you do that under this system, then that means they get more than everybody else.

And so I think that's just something that's important to keep in mind. There is the blending. And so if it's an elementary school district, their purse ADA rate is different than a high school district if you're merging.

But so that's just one additional wrinkle is that that would require sort of having these districts, if you create this incentive for them to receive some funding that's of a different rate than others. And so that's just that's another complicating factor in part of this.

Yeah. It just reminds me-- I mean we have complicated, even in the last few years, where ELOP is not-- high school districts are not eligible for those funds. But if you are a unified district you can and therefore you can use it in your high school years or middle school years. So further complications there. Mr. Fong.

Thank you so much, Mr. Chair. And wanted to follow up on one of the Chair's comments regarding COLA. So this is to the LAO. We know that the uncertainty in some of the data from the Federal Government Administration has created a little bit of uncertainty around the COLA. And you touched upon this here as well.

But in terms of the projections for COLA, do we have a sense as to would it be up, down?

So there was data released just last week and it shows the COLA, part of it is also our revenue estimates for the final quarter that is used to calculate the COLA, which is 2026 Quarter One. But COLA is tracking slightly higher at 2.86% I believe is our estimate currently compared to the 2.41 that's included in the budget.

Okay, thank you for that context. And we know that any 0.5 increase is equivalent about $450 million in the budget impact. So really appreciate all the comments here today and the insights. Thank you, Mr. Chair.

Thank you. Ms. Hadwick.

Hi. Thank you. I wanted to just say thank you for the 20% for necessary small schools. It's a huge, huge factor for me as I represent 11 counties of very rural areas. I have 41 of those schools in my district that are struggling to keep their doors open because, as their enrollment might decline, they still have a base set of bills that are still there and everything's increasing.

And unfortunately I get to talk to FCMAT far too much, although I enjoy it, far too much about these issues. So I just wanted to say thank you, that that is really huge for rural California.

Our enrollment declines are typically-- I have nine of my 11 states border another state and they're leaving the state for better opportunity, and then fires. So most of my schools that are in fiscal distress have been plagued by fires and I think I've talked about that before.

Or due to those fires now the mills are closed, so that kills our rural communities. So I'm very, very eager to see how this works and how this helps. So, thank you.

Thank you. Let's go back just briefly. I was assuming we were going to do necessary small schools later, but this is the item to the Department of Finance. How did we come up with the 20% figure? What is the justification there?

So, Katie Lagomarcino, Department of Finance we had looked at the costs small schools are facing and found that updating what was in statute by 20% would really help these schools. And we also kept in mind the level of available resources in the overall 98P98 package.

And yeah, again, the cost pressures for these schools are inflation, higher per student costs, less flexibility to distribute declines in Enrollment, and they can't close sites in response to declining Enrollment. So that is where we landed with the 20%.

So it sounds like it was exercise of working your way backwards. This is how much we have and this is how much we can legally do. But was there an analysis of whether that 20% was going to mean something to any student size of those small schools?

Is it going to hit one school that's, you know, couple hundred students in a way differently than it would a school with 50 or less students? It just seems like there's like economies of scale. And I'm not sure what analysis was done to identify what that economies of scale would be.

Amber Alexander with the Department of Finance so there were, to my colleague's point, several questions that we grappled with. We did recognize that this is an ongoing adjustments, so wanted to make sure that the amount that we were providing was a sustainable amount in light of, you know, additional revenue changes that may impact the guarantee going forward.

In terms of individual school sites, we did not look down at the impact on the individual school sites, but we did recognize that the last time the necessary small schools funding augmentation was specifically adjusted was 2223.

And take into account COLA, COLA and cost increases since that time felt that 20% was a figure that we would be able to justify going forward.

Certainly there have been, since the proposal was put forward, some comments and feedback received around whether or not the Administration is open to adjusting things like the ADA tiers, which would get at, I think some of the points and questions that are making in terms of impacts for those that are on the cusp and impacts that potentially declining enrollment or ADA has had since the program's inception.

And those are conversations that we look forward to in the spring. But those were not conversations that informed the projection that we put forward at governor's budget.

Thank you, appreciate that. I think that comment really is what I was talking about at the beginning of the conversation, which is with budget, we try to solve for a number. We do math. You've got revenue, you've got expenditures, what can we do?

And what we'd like to start looking more at, certainly at this Committee, is looking at the outcomes and what happens with those dollars when they go to specific programs. And so I'm grateful. Prudency here is certainly the right approach. We've only got X number of dollars. Let's figure out what we can do.

We haven't done an increase in a while, so we should. Those however, should not be the only justifications for doing augmentations to programs. It's what are the outcomes of those resources that are going to those programs. And so I welcome that conversation that you just mentioned about revisiting.

But I don't just want to solve for a number in terms of dollars that are available to spend for this program as opposed to what does that policy do for a school that surely is obviously is in need of resources to be able to continue its work. And so I just want to make that point.

As I said at the beginning, I'll make that point probably with every panel. But it just solving for the mathematical number, for the dollar number is one thing.

Solving for the issue of serving students best given those particular dynamics needs is a different type of analysis that I think we don't do a good enough job of doing as a state and I think we'd like to do more of.

I don't know if the LAO has comments towards that or Fake man has any comments so he can wrap this panel up. No. Okay. Yep.

I think chair, you've already mentioned this. The necessary small school, which is something that we had the opportunity to talk to finance about in the fall because of our concerns about tiny districts, is a school based formula, not a district based. So it addresses schools within a district.

It could be a very large district with a very outline small school up in the mountains where the district is serving the valley or something like that. So it is a start though to address some of those concerns. Is it 140141 or 144? Are the number of schools impacted here it is meaningful to them.

Does it address all of their needs or bring them up to par? I think is in part your question, but it is a meaningful adjustment.

And to your point, I assume a small school in a small district is probably different than a small school in a large district in terms of impact. Absolutely. And so 20% across the board is not looking at those dynamics.

And so to, to, to the point earlier, glad to see that this is being revisited, but I hope to see more justification as to what that is not just because we have. We think they need more money, which they do. And we have this much money to spend. So let's spend it. So thank you. Appreciate that.

Thank you to all of you on this issue. We will hold this open and look forward to staff working with the LAO on alternative calculations to these items. We will take on issue number two, please. We can have the panel come forward. This is on special education equalization, another augmentation in this year's budget.

This is certainly a challenge. I've heard from a couple of my colleagues. I appreciate colleagues both on this panel and not on this panel or Siri on this Committee who care about this deeply. So I appreciate that this is being addressed.

But I think we want to get into it a little bit more and perhaps there is some room to make a little bit more improvement on something that certainly has come up as a common theme across the state, certainly across districts.

So with that, we will turn it over to Department of Finance, which will be followed by the LAO and then cde, I believe, has a presentation or available for questions. Finance. Welcome.

Thank you. Good morning. Chair and Members Elena Powell with the Department of Finance. I'll be providing an overview of the special education investments in the 2026 governor's budget. So in recognition that there are often additional costs to serve students with disabilities, the budget annually appropriates special education funding outside of the local control funding formula.

The special education funding stream receives growth and cost of living adjustments. The Governor's budget currently proposes an increase of 144.9 million ongoing Proposition 98 General Fund to reflect a cost of living adjustment of 2.41%. The budget proposes a decrease of 35.1 million ongoing Proposition 98 General Fund to reflecting a growth adjustment of negative 0.592%.

Additionally, the governor's budget proposes an augmentation of 509 million ongoing Proposition 98 General Fund to increase the special education base rate. This infusion of funding along with the proposed cost of living adjustment equates to a new statewide special education base rate of 999 per average daily attendance or ADA.

At this level, special education rates across the state will be fully equalized, meaning every special education local plan area or SELPA will receive the same base rate per pupil for state special education funding going forward. And that concludes my remarks and I'm happy to take questions at the appropriate time.

Thank you. Please.

Good morning. Sarah Cortez with the Legislative Analyst Office. We do recommend the Legislature adopt the proposal proposal to provide 509 million to increase special education base rate to 999 per student as this would help address district cost pressures.

Based on our review of historical spending data, districts have to had have had to increasingly rely on local funds, which is largely lcff, to cover special education costs. The Legislature could adopt the governor's proposal, though with less money. This estimate will shift with updated cost of living and updated attendance data.

But we currently estimate the cost to to bring the base rate to 999 would cost 325 million. So not the 509 million currently provided in the governor's budget. And I'm available for questions. Thank you.

Thank you and CDE you have a presentation.

Good morning Chair Members of the Committee, thank you for the opportunity to speak today. My name is Dr. Rachel Heenan. I'm the Director of the Special Education Division for the California Department of Education. Equalization for special ed funding is not simply a technical adjustment. It's a matter of equity and integrity in our system.

Today In California, approximately 15% of our students are identified with a disability. 15 a student with a similar disability and possibly similar needs generates different level of base funding depending solely on where that student lives. That disparity is not based on cost, outcome or student need.

It is a result of a historical formula that no longer reflects today's realities. As a state Director of special education, a former SELPA Director and a district Director of special Education, I can tell you inequitable based funding directly affects staffing, stability, service capacity and program access. It affects student outcomes.

Lower funded SELPAs rely heavily on local General funds to meet federal obligations. That creates structural strain and limits on our ability to invest proactively in inclusive practices and early intervention. Equalization is about connecting a long standing structural inequity. It's about correcting that inequity. It establishes a fair equitable baseline so geography does not determine opportunity.

If we believe students with disabilities in California deserves equitable access, then equalization is not optional. It is necessary. Representing over 870,000 students with disabilities in California, I respectfully urge your support. And that concludes my comments.

Thank you all. Appreciate that. We will begin questions on this panel with Dr. Patel.

Yes. First I want to share my thoughts with the Department of Finance. I want to express deep appreciation for equalizing out the SELPA rates between school districts. That has been a long standing concern. I think all of our kids deserve more and deserve to have access to the resources and supports they need.

In fact, that is in our constitution. So want to make sure that we are able to Address the need for least restrictive environment and full inclusion as much as possible. When our students with disabilities succeed, all students succeed. It reflects back on our whole student population and our whole public education system.

So thank you for taking that effort and putting in that work to make sure we can get there on the budget differential estimates. Understanding now that we might be looking at a COLA of 2.81%. Possibly. Does that change Department of Lao, does that change what we might see as the budgeted Delta?

Yeah, so the COLA is the first adjustment. So that gets you to a certain place. And then to raise it to the 999, that's a different cost. So the COLA would bring it up just slightly. So you need a little less money to get to the 999 rate.

But I haven't done an actual estimate of what, but that will be forthcoming. As we get finalized COLA estimates, we can kind of keep these estimates appraised.

Wonderful. And so what that seems to me is there might be 184 million difference, maybe less than that, depending on the COLA. And I would like to make some suggestions to consider for spending that money within special education.

One of them is an interest area of mine because I've seen the impact of it and that is the Support Inclusive Practices Program. There was budget for that in previous years. It is coming to a close.

As a school district who was part of a school district that was able to improve its practices, findings based out of a FCMAT report. And we were able to be part of the Chapman Support Inclusive Practices Program.

And we saw a dramatic, significant improvement in our ability to have our educators prepared for the classrooms with least restrictive environment. That coaching was instrumental in our success. And I would like to see a little bit of money be directed towards that.

Additionally, I would love to see some investments to a policy that was passed a couple years ago, the alternative pathways to diplomas. Some school districts are struggling with those implementing those alternative pathways. And there might need to be additional coaching best practices models, supports for those districts trying to move in that direction.

Again, we wanna make sure our students have the greatest opportunity for success as they leave our public school system and enter the big wide world in front of them. And having a pathway towards diploma, a high school diploma would be a great boost for them.

And since that is policy in place, let's make sure we're able to implement that policy in the most effective way possible. And the third is perhaps supplementing the extraordinary cost pool as costs for delivering the specific supports and services for our students with disabilities shift and increase Some of our school districts are struggling and increasing.

Putting some of that extra money into that extraordinary cost pool would be really, really helpful to alleviating some of the cost pressures that our districts are facing on the ground. And so those are kind of my three suggestions. The support inclusive practices. One is, I think that helps with educator training specifically and would be a robust investment.

Is there any feedback to that from Department of Finance?

Well, we can't make any guarantees, of course, as there's many factors that are going to be going into our estimates in May. We're happy to take these suggestions back as we head towards May revision.

Thank you, Department of cd. Any thoughts on those specific programs and ensuring resources support those programs?

Absolutely. I think as we see the data in the state regarding inclusive practices, there's a correlation between improving inclusive practices and student outcomes. CDE is definitely in support of continuing funding for supportive inclusive practices, but we also feel that it is critical to have a central point of contact for accountability in these programs.

And CTE is really looking forward to continuing and ensuring that inclusive practices remain centralized in our state.

Okay.

Also, briefly, just wanted to note that we are extending the SIP funding by one year, just as a brief side.

Does that answer the question on SIP or.

It does, but one year is one year and there are many districts that haven't had an opportunity to get the training from institutions supporting those training programs. So there's a long way to go. Still, we haven't even reached a significant percentage of districts being able to be trained.

So it's a program that's proven successful and I would like to see it extended.

Yeah. Again, additional resources, more of an eye on the accountability, make sure that the success exists. And so certainly we'd be looking at that favorably. I know that the LAO noted in the analysis that the number from the January budget to the potential available funding is roughly.

Brings the rate up almost 100, $100 more per student, I believe. Can you remind me what your number is, lao?

Just a clarification. The number to get. The number to get to the 999 base rate. Is that what you're asking?

What is the number for that? Yeah.

Yes. The 325 million it would cost under the governor's budget assumptions to get to 999 for a base rate for all

students and for a higher rate. You mentioned adding 509 million on top of the COLA. Yeah.

So to do the opposite, to add. So we have the COLA, then if you put 509 million towards the special education base rate, that would bring bring up the base rate to 1030, almost $33 per student.

Okay. And you believe that's available in the budget?

Under the governor's budget assumptions, things will shift slightly because of COLA and attendance. But under the governor's budget, that's how much to get to the 1,033 it would cost the 509 million and that's budgeted currently.

Okay. Is there any feedback at the moment on the availability of those funds for this purpose?

Just wanting to note that all of the amounts are going to be revised as of May revision because we'll need the updated average daily attendance estimates in COLA.

Okay. But perhaps some potentially resources available for some of the priorities as were mentioned. So we'd be interested in your feedback at revice on that reflective of the comments of the Committee. So the issue, declining enrollment still, you're not gonna. You're gonna get tired of hearing that. Certainly for me. But also. So that's.

The enrollment is declining, but yet the identification of students is growing. So there's some dynamic there. I wonder because I've heard from some of the local superintendents that there is a large number of TK students that is being classified or identified as special education.

Do we have any trends to cd have any trends on what is happening by age group or any data that can help us identify what the. What you point to in your presentation of the growth of almost 15% now I think of students in special ed.

Yeah, we definitely have data and I'd be happy to share share that with you. But specifically our trends are about additional 25,000 students identified with disabilities per year. We can attribute that to early intervention, number one.

And also if you look historically at our students who were born with significant low birth weight, those students are surviving now where years before we didn't have the technology and the medicine to meet the needs of those infants. Now we're seeing advances in technology. Our students, our babies who we are serving in early intervention are living.

They are living, however with the medicine and low birth weight. They are having additional disabilities. So we're seeing an increase in that. But we also. Our obligation is also child find. So we are working with hospitals, our agencies, our regional centers to make sure that we are serving our students from birth.

And so we are catching students earlier as infants and toddlers. And so we're seeing that rise across the board.

I think I'd be interested in seeing where some of those increases. You've maybe identified some data points of where it's happening again.

It's maybe anecdotal but it's from trusted educational leaders that there is in some instances because of this new grade and some folks who hadn't worked with kids of this age, identification as special ed maybe while we want to get that intervention done early, in some cases want to make sure it's also accurate.

And so to the extent that we are providing more resources, which we should, to special education and equalizing and others above and beyond, I want to make sure that there's also appropriate identification and of the right students. So your data will be helpful for that.

Great.

Thank you. Absolutely. Okay.

Ms. Hadwick, as always, David asks my questions before me. He always knows what I'm gonna ask. I did wanna say thank you. I feel like I repeat myself a lot. But the zip code of the child should never, never be why they're receiving that education or those opportunities or not receiving that.

It's also one of the hardest positions to fill is our special education teachers in my district. And they often have high caseloads and there are positions that aren't filled. So they're covering for other people. So I think this is a huge supporter for that. So I am excited to see it move through the process. But thank you.

David asked all my questions.

Okay, just a clarification for finance. So the budget proposes 509 million. Right. So just we're on the same page. The LAO identifies that if that is the figure, then the rate should be higher. So this is more of a. We can do the math. This one we can figure out. Is your.

Is, is the proposal 509 million or is it the rate of $990?

Yeah. Okay. Hi, Liz Meyer with the Department of Finance. So the. The proposal is the rate of $999 because that is what we put into statute in our proposed trailer Bill Language.

Okay.

Yeah.

So we could potentially correct the trailer Bill Language to be reflective of 509 million, which would then increase the rate.

Like, similar to what my colleague has said, we can't make any promises as we head into May as we get updated revenues and Ada, but it's something that we can take back.

But this is a difference of. Remind me again, how many million dollars if it was 999 as opposed to 1030.

Yeah.

You would have it be 509 million.

Yes, you would have. So under to keep it at 999. You have currently in governor's budget $184 million excess.

184 available.

Yes. Access. And then if you were to keep it, peg it at 509 instead of 999, you could raise the per pupil rate to 132.62.

Right. Okay.

I think that's, sorry, 1,3262.

So the governor's proposal, just so that you're all clear here, is the rates of 999, not the actual 509 million, which is what's stated in the budget. So we now identified what that figure is of that difference. So we can take an approach one way or the other. We can discuss that further.

And we will leave the issue open to further discuss and make a decision on this. Thank you. We will now go on to issue number three. This is on the Learning Recovery Block Grants. So I'd asked Department of Finance to please come forward. And the lao, those are the two we've got on this panel.

And this is the proposal to restore 757 million to the learning Recovery Block Grant. So we will start with the Department of Finance.

George Harris with the Department of Finance. The Governor's budget proposes 757.3 million onetime proposition 98 General Fund to support the Learning Recovery Emergency Block Grant which provides funds to local educational agencies to establish learning recovery initiatives through the 2027-'28 school year.

This investment is expected to be the final payment to this program which has received multiyear investments totaling 7—over 7 billion— in past budgets to support schools and learning recovery efforts related to the COVID 19 pandemic, noting that while there was trailer bill language amended to remove the intent language from statute, there are no programmatic changes made to the existing program.

All right, thank you.

Thank you and good morning, Chair and Members. Ken Kapphahn with the Analyst's Office. We recommend approving this proposal for four reasons. First, the underlying problem, learning loss and academic recovery does remain a significant issue. State test scores have improved over the past couple years, but they are still not back to the pre-pandemic levels.

Second, to the accounting data that we have, this is summarized on page 15 of your Staff Agenda, does show districts have allocated the bulk of these funds for academic instruction. That's consistent with the purpose of this grant.

When we talk to districts about this grant, they give examples of using funds for things like tutoring, supplemental instruction, early literacy for younger students. The state isn't collecting data that would allow a really outcome-oriented analysis of those funds, but on their face, those activities do seem helpful.

Third, as the Department of Finance mentioned, this proposal is accelerating the repayment or the restoration of the grant. That gives districts more certainty over their final funding levels and it reduces the cost of making another payment next year. And that's prudent budgeting because we have a lot of one time funding available in this year's budget.

We may or may not have that funding available next year. And then finally, as your Staff Agenda points out, the state has kept the original spending deadline for this grant of June 30th, 2028. There was some discussion last year about potentially extending that deadline.

We had a recommendation along those lines that ultimately wasn't part of last year's budget agreement. But if you are going to keep the original expenditure deadline, then accelerating the grant becomes even more important so that districts have enough time to make thoughtful spending decisions. That concludes our comments.

Thank you. On this topic, you know, certainly the data is is pretty clear on what is happening with our students and so there is more work to be done and I'm not quite sure that, you know, there's a magic deadline when everybody's going to recover their learning loss and, and we'll just be good to go.

So, I think we need to think about this as we have a conversation about coherence with all of our programs through this Committee. Where does this fit into that? And I would say that we had the hearing on the learning recovery practices and there were some outcomes that proved to be more successful than others.

And so, I'd like to, again, focus on accountability of where we're spending our resources, not just spending to say we spend money on learning recovery, but what are the outcomes of those investments?

And so, I'm just curious, for Department of Finance, and I don't know if CDE would be also appropriate here, but one-time funds, what is the expectation of the outcome with these funds based on the different practices that we've seen, different results and outcomes from the different LEAs? Is there going to be some differentiating happening there?

Is it going to be some more focus on some of the practices that have been more successful? What should we anticipate the use of these funds? How will they be deployed?

George Harris of the Department of Finance. I think the Administration thinks that the main focus of these funds is definitely related to statutes. So, there's statutory focuses on instructional time, providing additional resources to evidence-based learning supports, after school programs.

I think it really is dependent on the individual needs assessments that each specific school district goes through and identifies what their students need in their specific districts need and then, from there, putting those funds—placing those funds in the appropriate buckets per the statutory requirements of the block grant investment.

Okay, appreciate that. You know, utilizing those requirements, we've seen different outcomes with these funds. So, I think one of the themes you'll hear consistently through this through this Committee is how are we maximizing the use of those funds? So, someone has just joined us and may have some more comments on this. Please introduce yourself.

Pardon me, Joshua Strong, California Department of Education. Specifically, in terms of the LREBG, first of all, just a reminder that there is the requirement in between the 2026-'27 and 2027-'28 to reevaluate the needs assessment.

So, LEAs will be going back, they'll be looking at that needs assessment again, determining whether or not it's still relevant and whether or not they need to make adjustments moving forward. And then, those adjustments would then be captured within their 2027-'28 LCAP and expending those funds.

Also, just a high-level look at the use of LREBG funds within the local control and accountability plans, which is where they're currently captured, shows that LEAs are using those LREBG funds in line with the statutory requirements. There's a lot of academic resources that are being provided.

There's also a lot of school based mental health and attendance that's being addressed as part of that ongoing work. And in a lot of instances, what we've seen is we've seen LEAs that are continuing initiatives that were initially funded with federal ESSA funding and, and have been continued with this LREBG funds.

I think, in terms of the, you know, earlier comment that the LAO made in terms of the expenditure cycle, at this point in time, the current expenditure cycle is, is set to, and after the first year of the next three year LCAP cycle, if the expenditure deadline was pushed out to 2029-'30, that would cover the entire three year LCAP cycle and provide a little bit more flexibility for LEAs to use those funds.

But as it, as it looks at this point in time, a lot of LEAs are ramping up the use of their funds, and we'll probably have the majority of those expended by the '27-'28 deadline.

Yeah. And it sounds like—thank you. That's very good context. It sounds like people may be, I won't say rushing, but given that there's a deadline, people need to spend resources that are made available to them. That is our expectation.

And perhaps since we are requesting or expecting this reassessment that you mentioned, it may sound maybe more prudent to align that with the ability for them to have enough of a runway to, one, with reassessment to then deploy those—their initiatives—in a way that are reflective of those needs.

And so, I think it's certainly something for us to consider and on an ongoing basis, given the success that's been demonstrated by the programs, as compared to the federal programs as you just mentioned. So, that's it for me on this item. Ms. Hadwick?

I just have one. Do you have any information how much actually went to like tutoring programs or not...?

Can you also get closer to your mic?

Sorry. The indirect instruction. Do you know how like do you have a percentage or data from that from any of the reporting is how much actually went to actual tutors? Not, not just adding an aide or another teacher?

We looked at the data and unfortunately, it's not desegregated down to that level, so, I wish I had a better answer for you. But in the regular accounting data that we're looking at, it isn't at that level, unfortunately.

Okay. And then some of the districts, or some of the LEAs, had much more progress, I would say, and they're, their practices are working. Is—are we continuing, are we looking at ways to continue funding for some of those programs or how, how this funding is used for, for recovery strategies or learning recovery strategies?

So, the statewide system of support does rely on a best practices measures throughout it. Geographic lead agencies have created a needs assessment template that they provide—have created—that kind of highlight some of these best practices that are going on across the entire state that other, that all LEAs, when they're doing their needs assessments and acting accordingly on where they want to place funds, on how to spend and utilize those dollars.

But it's definitely something that the statewide system, just in general, focuses on, is continuing to lean on those best practicing agencies, local education agencies, and then trying to make sure everyone can do what's best for their specific needs.

And I'll add on to that. One of the things that you know, typically will go on an annual basis is that the county offices of education will work with the LEAs as part of their LCAP needs assessment. That goes into the alignment of what's being done.

And so, what we found is that with some districts, they've been able to align the work that's being done related to the differentiated assistance support that they're receiving, as well as the federal comprehensive school support and improvement that's required under ESSA, in order to maximize the resources and maximize the outcomes that are going on with the use of LREBG funds, because they can all be used in, in tandem to support those ongoing initiatives.

Okay. I just, I, I fear that, that LEAs are using this not for the true intention or what they're being sold because of the title, if that makes sense. So, that's just one of my worries, that they're filling other holes because they're also underfunded.

So to help answer that question, because I think it's important who the reporting mechanism, who is it to and is there auditing associated with this? Who can help us understand that reporting of the use of the funds and.

So currently based on the Kayla J. Settlement and and education code Section 5264.4, the Learning Recovery Emergency Block Grant is captured within the LCAP.

Given that the school districts you know would be the county offices of education would be looking at school district lcaps and the Department looks at the county office of education, LCAPs and LCAPs for single district counties such as San Francisco Unified. However, there's no specific like auditing requirements related to lrebg.

There's also no specific requirements to evaluate the ongoing performance specific to LREBG funds.

There is the incorporation of the California School Dashboard and the analysis based on the the annual performance that's reported on the dashboard through the LCAP cycle and looking at how the LEA needs to support identified student groups and schools within the LEA based on that dashboard information. But none of that ties in specifically with LREBG funding.

Well, that's a very important point. No one is making any assumptions that the funds aren't being used for that. But are they being used exclusively for that? Seems to be a question. So we're going to have to work on that. And if you have any ideas, Ms. Hadwick, welcome them. Dr. Patel.

So my question, maybe it's more of a statement, more philosophical around funding. We're now close to six years out from COVID and it seems like there are compounding societal, cultural, federal policy reasons why children may be continuing to struggle in school. And it might not really be this may be the new normal that we're dealing with.

And when we look at school funding and cohesion across our systems, whether we incorporate it into the base that all students need this funding, or in combination with what we're doing with community schools and ELOP.

Maybe we need to have a better look at what is the actual cost of funding public education at the level that our students need that help. While that may be a conversation for another type of budget year, I do support the money being used this way when it's more of a one time in nature.

And I appreciate extending and supporting this program with the caveat of having some accountability that the money is being spent how it is intended to be spent.

When it's rolled in and it and it's rolled up into dashboard, it's really difficult to tell whether or not it's those dollars that are making the improvements or whether the dollars aren't sufficient. And that's why we're not seeing improvements or whether it's the lack of a robust program or an effective program that's contributing to that.

So I think some accountability might be helpful to make sure that the dollars are being used appropriately. So I want to echo the sentiments of my colleagues here at the dais.

Thank you very much. Thank you all. We will hold the issue open and you heard the feedback and I'm sure we'll be in touch to work on some of these items related to this issue. We will now ask the panel from issue number four to please come forward. This is a student support discretionary block grant.

This issue will cover the governor's budget proposal to use this year $2.8 billion in proposition 98 funding for student support and professional development discretionary block grant. I do want to start off this one by just being pretty clear about my position on this. Last year we had $1.7 billion in discretionary block grant.

This does seem to now become is becoming more common than not. But however, the Legislature was looking at something differently last year. I think our intent was certainly different.

Now we're seeing a larger discretionary block grant, which is really surprising to me because there is no evidence to the points just made that these block grants are moving the needle on student outcomes. We don't know what the use, the uses of these block grants are for. Is it for student achievement? Is it for learning?

Is it for after school programming? Is it for well being? What is it for? Whereas there's evidence that LCFF and other approaches like what we just talked about actually do yield better outcomes as we've measured in different instances.

So with that said, the discussion on this will be on this fund, the use of it and what the expectations are from the Department of Finance and any suggestions from the LAO. We'll start with Department of Finance.

Thank you Mr. Chair. Members. Alex Shoap, Department of Finance. So the Governor's budget provides 2.8 billion in new one time proposition 98 General Fund for the student support and professional development discretionary block grant. 2.1 billion of that is in 26-27. The funding is fully discretionary, allocated on a per ADA basis, same as last year.

And as you mentioned, with the 1.7 billion from last year, that would bring the total funding for the block grant between the two years to about 4.5 billion. And that concludes my remarks. I'm happy to take any questions.

Thank you very much. LAO, please.

Thank you again, Chair and Members, Ken Kapan with the Analyst's Office. The strongest argument for including some kind of discretionary block grant in your budget plan is that districts do face different cost pressures and local priorities.

And a discretionary grant allows them to tailor some of their budgets and their funding to those individual circumstances. You might have one district that wants to pay for new curriculum, another district that's replacing laptops, a third district continuing a program they started during the pandemic, a 4th district facing some kind of insurance surcharge.

And a block grant allows all of those things to be addressed without requiring the state to establish a new program for every individual spending priority. The overhead costs of a grant like this are low. Funds can be allocated fairly quickly and efficiently. It gives districts a little bit of control over their budgets.

But with that said, you have many ways to refine this grant to reflect your priorities. Your staff agenda outlines some of them. You can change the amount. You can modify the allocation formula, you can adjust the suggested expenditures, still giving districts some flexibility over how the funds are used.

If you do proceed with this grant, one change we suggest is to specifically call out fiscal liabilities, infrastructure, and one time costs as priorities for the grant, since those are the types of costs that a one time grant is well-suited to address.

On the dollar amount, there's no magic number here, but if you think about the Governor's overall plan, the budget would put about 2/3 of the available funding towards flexible purposes and about one third towards targeted programs with specific spending requirements.

The grant is a large component of the flexible portion and some ratio roughly along those lines we think would allow districts to address their local cost pressures and priorities. Some states state priorities that you likely have.

But without becoming overwhelmed with too many new spending requirements, the 2.8 billion can and probably should change in response to revised estimates of the Proposition 98 guarantee and the other actions you take in the Governor's spending proposals and the other priorities you want to see included in this budget.

But we think it's a reasonable place to at least begin the conversation. That concludes our remarks. Thank you.

Let's start by asking about what happened this year with the funds to Department of Finance. What were the use of the discretionary block ramp funds this year from reporting from districts, what were the uses of the funds?

That is not something that we have information on at this time. I would defer to the Department if they had any additional information. It is, you know, I would note it's a little bit early. I know that at least 25% of the funding is either about to go out or has just gone out.

And so then given that sounds like we don't know. And I'll ask others to provide their input on what the use was. What is the justification of going from 1.7 to 2.8 this year? Was there feedback that that was not enough or was this a mathematical issue? We got to get to a certain number?

Yeah, I think that, you know, I think as a colleague from LAO noted, you know, there's not, you know, a magic, you know, it's not a magic number. It's not like a specific formula behind the amount.

I think that, you know, the Administration, right, acknowledges the challenges that are being faced by locals, you know, the issues of rising costs and all the, you know, the many, many, you know, countless forms that can take.

And also I think with the, you know, understanding is maybe going back a little to our, you know, the Prop 98 hearing a couple weeks ago, you know, is that we want to be able to provide these discretionary funds while we can. Understanding, you know, there is some, you know, uncertainty with revenues. Right.

Being able to, you know, provide, you know, an additional one time amount to the locals. Right. But still not necessarily obligating, you know, the state to, you know, have to provide, you know, an ongoing amount.

Do you feel confident enough that the grant, the this grant in particular is being used not to incur ongoing costs or to pay for ongoing costs? Or do you expect that there are some ongoing costs that are being paid for by these funds that are not one time in nature?

I mean, without knowing the sort of specific breakdown of how the funds are being used. Just say again, you know, since they are fully discretionary, you know, it is ultimately a local decision on how the funds get used.

You know, I don't think we messages, you know, as sort of an ongoing solution to issues districts might be having.

I think that, you know, if ultimately, if it is, you know, their decision to potentially use this as maybe, you know, as part of a broader strategy for addressing longer term solutions, I think that that is up, you know, to LEAs and be able to do that.

But I think, you know, any of those decisions would need to be made with the understanding that this is, you know, one time funding with a limited term expenditure window.

But that understanding would be limited to their own interpretation and decision not tied to this funding.

Yeah, I think so. You know, again, I think we're not, we're not trying to.

And I'm just, I'm asking these questions because I think overall, you know, there's a lot of prudent suggestions by Finance overall and this is one where I'm concerned about the discretionary. The discretion being used is an ongoing, with an ongoing expectation that may or may not materialize.

And so I kind of want to ask the same questions to the LAO next. Do you have any sense of where the current year's discretionary block grant was used?

Thank you, Mr. Chair. We should, we think within the next few weeks have some preliminary accounting data from districts, what they submitted for their first interim reports and we'll be able to look in broad categories what they used on instruction, for example, staff, other sorts of things.

We hope to be able to have some sense of that before we get to the May revision. The other question you were asking is about the use of these funds for ongoing purposes.

And candidly this is a little bit of a double edged sword because if they these one time funds do help districts manage and implement a plan to adapt to lower enrollment, that's a positive development. If it just becomes a rationale to ignore long standing structural problems, then that's poor fiscal practice.

At a minimum, we think you can, you can tweak some of the intent language to promote that first outcome. But it's also the reality that it's hard to write language up at the state level that prevents districts from making bad decisions and addressing some of the risks that you're talking about.

I think probably is going to come down more to maintaining the state system of fiscal oversight, which does include a strong focus on deficit spending and balanced budgets. And that means sending clear signals that districts need to do their multi year projections, take those results seriously, make adjustments as needed.

The state's whole relationship with school districts is based on the idea that they have some response. They get to make local budgeting decisions in exchange for some responsibility for developing balanced budgets and remaining solvent. And I think you'll hear more about some of the deficit trends and the solvency trends from figma.

But probably we would advise that maintaining the fiscal oversight system is probably even more important than the specific language that accompanies this grant or some of the other budget proposals.

Even with your feedback there of waiting to see what the number show in a couple of weeks. So you did in your comments anyway mention perhaps the 1/3 versus 2/3 discretion versus targeted. You still feel confident in that suggestion to us?

The 2/3, 1/3. There's also nothing really magical about that and you could certainly consider slightly higher or lower ratios that would be reasonable when we talk about that being reasonable. Some of that's based on our past experience with what the state's done. The past few budgets.

For example, in 21-22 and 22-23 there was a much more of an emphasis on more targeted funding. And what we heard from districts is that ended up meaning they were trying to create so many new initiatives. They had a tough time hiring people, tough time launching those things.

They were going through the motions in some cases instead of really implementing the program the way the Legislature intended. On the other hand, you also have your priorities each year, and some spending requirements are one way to make sure districts address those. So you could certainly consider a little bit more or less than the 1/3, 2/3 ratio.

But if you were to go a lot lower, there's the risk that districts, on the one hand are struggling with some of their cost pressures, will also not being able to implement all of the things that you'd like them to do.

And just to send a clear signal and nobody gets freaked out. You know, from my perspective, we're not talking about new, new initiatives, but there are plenty of initiatives with needs that we've identified, whether it's earlier today, previous agendas and future agendas that we've seen some results in that are, you know, good indicators.

And so perhaps funding those may be something this Committee and the Legislature would like to.

If I may as well, you also have. This isn't necessarily a binary decision. You have options to do some kind of grants that give districts a fair amount of flexibility while still targeting it in certain ways. The Learning Recovery Block Grant is a good example of that.

That's a pretty flexible grant, but it is very targeted towards low income students and English learners. And it does have a very strict set of community engagement requirements. So you're not locked into all discretionary or all very narrow categorical programs. You've got a spectrum you can look at.

Thank you. That's very helpful. Did you want to say something from Citi or you're just here for questions?

Just here for questions. It's Tami Pearson from the California Department of Education.

Thank you, Tami. Appreciate it. Okay, we'll turn now to our Committee and we will go with. Oh, I guess there are no questions. Got them all answered. Dr. Patel.

Having just come out of a school board land, I want to express support for the Learning Recovery or for the discretionary block grant. I was President of the San Diego County School Boards Association.

It's a large county with many different school districts with varying needs, and having some discretion helped address a lot of the different types of cost pressures that districts across San Diego were facing. I imagine that kind of range of need is what we see across the whole state of California. So just expressing support for this.

I understand my chair's position for wanting to see some accountability and targeted supports for that. And I'm open to discussions about how we will approach this distribution.

Yeah, we will hold the issue open for that. But also I do want to note, because people made comments and they were helpful, the needs based approach to this. This is something I know the Assembly is interested in.

The proposal currently is just ada, as opposed to the needs of schools that are identified through, through the LCFF formula, through concentration. And those needs that are, you know, if we believe those are needs and that's why we have a formula, then perhaps funding that we send out to school districts should reflect those values that we have.

And so that is something that we. We will hold open the issue to discuss one more thing, Dr. Patel.

And just to put a fine point on it, I know several school districts because COLA is not keeping up with their increasing costs. They're making decisions right now between keeping their librarians, whether it's LMT or teacher librarian or letting go of counselors.

And when we look at literacy rates and we look at youth mental health issues and challenges that we're facing, these kinds of decisions are truly heartbreaking and challenging in communities and local districts.

And having a little bit of discretionary money, even though it would be one time and not necessarily ongoing, it could help, you know, sustain those essential services for our students.

All right, thank you everybody. Thank you. We'll hold the issue open, discuss those finer points that we just made and appreciate the work with Department of Finance, LAO and our staff on this matter. We will now take up issue 5. This is on school facilities.

This panel will hear the Governor's budget proposal for facilities from Proposition 2, which the voters gave us the opportunity to now fund school facilities as a result of Prop 2 and AB 247 from 2024. So we will have Department of Finance first, then the LAO, and we will have the Office of Public School Construction as well.

Give us a presentation. Finance. Welcome.

Good morning Chair Members. Ethan Schroeder with the Department of Finance. I'll be providing a high level overview of the school facility proposals within the Governor's budget. The Governor's budget continues to allocate 1.5 billion in proposition to bond funds for the school facility programs in 26-27.

Proposition 2 with a bond measure passed by the voters in 2024 to pay to renovate and build a new TK 12 public school and community college facilities. The proposition authorizes a total of 10 billion in state General obligation bonds. Of this amount.

Proposition 2 provides 8.5 billion specifically for TK12 school facilities to be allocated through the School Facilities Program, which is administered by the Office of Public School Construction.

All right, thank you. Legislative Analyst Office.

Good morning. Sara Cortez, LAO. We don't have any prepared remarks today, but I'm available for questions.

Thank you. And the Office of Public School Construction. Welcome.

Good morning. Thank you. Mr. Chair and Members. Rebecca Kirk. I'm the Executive officer for the Office of Public School Construction, and I'm here accompanied by Michael Watanabe, our deputy Executive officer. We're pleased to address any questions from the Subcommitee.

Thank you. I guess the first question is just the most basic question is when will the total of the Prop 2 funds be awarded based on the current projection that you're seeing with the applications that you're funding? I know the need always exceeds the resources, but what is your projection to Office of Public School Construction?

Yes. Thank you, Mr. Chair. As my colleague with the Department of Finance indicated, the governor's budget proposal plan plans on maintaining $1.5 billion in the upcoming fiscal year as our processing rate of applications under the School Facility program. That's been the rate in recent years.

So assuming that rate continues at about 1.5 billion annually, we would anticipate specifically for all of the proposition two funds around 2029-2030, would be exhausted around that fiscal year.

Great. And obviously the need exceeds that. I've personally been a Member of the board and have seen the list of requests. But the interesting thing that's happening in this question is to OPSC, again, is as declining enrollment is occurring, are we seeing any withdrawal?

Like, is there any behavior that you're noticing from your end as it relates to needs at schools, changes in applications, withdrawals, perhaps in applications? Anything that you can share with us in terms of dynamics that you're seeing as it relates to declining enrollment?

Yes, we're certainly seeing more of a shift in recent years toward demand on the modernization side of our program in particular.

So when the school facility program was initially established in 1998, kind of in those very latter 90s and early 2000s, a lot of the demand was on the new construction side as we saw growth and a need for additional capacity in school districts.

Now, with a trend more toward declining enrollment in many areas of the state, as you'd heard earlier, we have a lot more demand on our modernization program than on new construction, although there certainly are still some districts within the state that are, are growing as well and applying for new construction.

And curious also on your thoughts. I represent an area where I have a school district that is actually closing made the very, very, very difficult decision to close schools that I know a lot of folks are fearful of making those decisions and they're not, they're not easy. They're not great for anybody.

Communities now have an asset sitting in the middle of neighborhoods which will no longer have any activity. And so just curious if you've given any thought on the almost like the 180 of what you do, which is not building new schools or modernizing new schools, but the utilization of an asset like a school facility.

And I'm sure you're, you're in your network of conversations or of publications, maybe you're seeing what other states may be doing. I'm just curious if you have any thoughts on, on that and what is happening with maybe other areas that are seeing school closures.

Yes. Thank you, Mr. Chair. We don't collect data on a statewide basis about school closures or reutilization of excess school property. However, we do, on behalf of the State Allocation Board, administer an unused sites program.

And through that program, school districts self certify on an annual basis whether they have any property that falls under those statutory parameters of an unused site and if so, whether they are subject to paying fees on those unused sites under the provisions in statute.

The statute also provides certain different reasons or cases in which a school district is exempt from paying those unused site fees. And those can include, among other reasons.

They can include factors such as if the property is occupied for child care purposes, if the, if the property is occupied for community use, or also if the property has been leased to an entity that pays property taxes essentially on that site.

Those are all factors more on the reuse potential side of surplus property for which a school district can be exempt from paying what they may otherwise be assessed in an unused site fee.

So if a site is listed on your on this list of unused used sites, but then gets repurposed, it just falls off the list and you just keep an accounting of unused sites.

We have an annual item that we prepare for the State Allocation Board to indicate the annual kind of self reporting by school districts regarding unused sites.

School districts do also report, you know, any unused sites that fall under those parameters, whether they're exempt from the fees, whether they have new property to add to that list of unused sites, or if they have property to have us remove. For instance, if they've sold a parcel since the last reporting.

And then we present that to the board annually because there are those assessments of fees charged on an annual basis in some cases.

Okay, thank you. We have Mr. Fong with questions.

Thank you so much, Mr. Chair. And thank you everyone for the updates on the facilities. Just a quick question on the. So there's 8.5 billion for the K12 and then 1.5 Billion for community colleges. Do we have a sense as to the uptake on the community college space and how are we doing on that?

I think so. To answer your question, the Chancellor's Office administers the 1.5 billion in proposition to bond funds for them. So I think we probably might hear that later on. So I appreciate the question. Yeah, thank you.

Okay, thank you so much. Thank you, Ms. Hadwick.

I have a lot. This is an ongoing problem in my district, most of them for Rebecca, first. Can you share more about how the applications for the funding are scored and distributed under the new construction funding program, Career Technical Education program funding, and the small district?

Small school district program and what the timeline for rollout of the small school district program looks like.

Yes, I'll start with the small school district program, if I may, as a Member. And then I'll probably turn you over to my colleague for the career technical education piece of your question for the small school district program. So you've alluded to a new program that was established with voter approval of Proposition 2 in November 2024.

We're actually tomorrow, yes, tomorrow, holding a state allocation board meeting in which the board will consider our proposed regulations for that particular program established by Proposition 2. So I can speak to your questions a little bit in that context of them being proposed regulations at this point that will be considered by the board tomorrow.

We have proposed in those regulations that we would start accepting applications for modernization specifically under the small school program on November 1, 2026 and that we would start accepting applications for new construction for the small school district program specifically on January 15, 2027. And part of the rationale for those dates still being a little bit into the future.

Firstly, of course, we did have to actually develop the regulations and bring those through the board and then subsequently, pending board approval through the Office of Administrative Law Administrative Procedure act process to have them in effect and have, have the forms and such for school districts to apply to the new program.

We did hold four stakeholder meetings leading up to this point in helping to inform the proposed regulations that will be before our board tomorrow.

The other reason that we've proposed starting to accept applications a little bit into the future is that we really want to have a concerted outreach effort for small school districts statewide, so, so that they're familiar with this new program and the opportunity to apply for what has been set aside as small school district funding from Proposition 2.

Before we start accepting those applications, we want to make sure, in particular, some small school districts that maybe have never participated in the school facility program are aware of this opportunity in time to work with our office on establishing eligibility and having an application in time as well. So the.

We kind of level that playing field among all of the eligible small school districts.

So we actually just yesterday announced a series of workshops coming up throughout March and April in conjunction with the Department of Education, reaching out and going to different areas of the state, in particular some of the more rural areas where we have a lot of small school districts concentrated, so that we can try to do more of that concerted outreach leading up to accepting those applications.

And your question about prioritization for the Career Technical Education Facilities program?

Yes. So we don't actually do the scoring. CTE is a two-step process. The first step is they go to the Department of Education, where they submit an application to scored for the CTE program to receive funding. There is 147 points possible on the application through the CTE. You need at least 105 to be funded.

Under our program, we funded in a kind of a round robin system where we try to hit different parts of the state. The 147 points by CD, they can, they'll have to speak more to that, but the basics are you get some points, 30 points for your career tech plan, what you've written out.

They have to write a comprehensive plan for this program they're applying funding for. You give information on your projected student enrollment in the CTE program. You identify your feeder schools and partners, how you hold your program accountable, your Ed specs, your classroom environment, how you're using those facilities. Budget justification is a large part.

42 points is tied to that. And then you get three points just for. There's another category under CTE. So they take care of the scoring for the current round that was already done for the current round for 300 million out of Prop 2 late in 2025. CTE is currently scoring those applications.

Now we expect those scores to come out in around March of this year. And then once those scores come out, anyone with 105 points or more can apply to our office for funding. And they'll have until I believe June 30th to do that in our office.

And then we take over for all the other funding components for what they're actually building from a facility standpoint.

And one of my questions was how I could share information with my small schools. So we would love to help with that. With 11 rural counties, we have people in every county that would greatly are greatly in need. I did want to tell one story of one school, the Walt Tyler elementary school.

So the 2021 Caldor Fire burned 221,835 acres spanning three of my counties, El Dorado, Amador and Alpine. At its peak, 5,000 personnel were fighting the fire and over 50,000 people were evacuated. It almost spread into South Lake Tahoe before it was stopped. In that fire, 21 people were injured and 1,003 structures were destroyed.

The economic impact of the fire was estimated at $260 million. Tragically, the small community of Grizzly Flats was completely decimated. Most of the community burned along with Walt Tyler Elementary School. It's been almost five years since this fire reduced this small two room schoolhouse to ashes.

Children in Grizzly Flats are bus are bussed to Pioneer School in Somerset, a commute that can take up to two hours each way. Since then, the first barrier to rebuilding was insurance, creating discrepancies in cost estimates. After three years they received 45% of the funds needed to rebuild from insurance.

Immediately following the insurance settlement, the Office of Public School of construction contributed 1.6 million in new construction funding which they are very thankful for. However, Pioneer Union School district's request for Prop 2 funds for disaster response were denied because there was no longer an active disaster declaration.

The situation is urgent for Walt Tyler Elementary School and the community has been waiting for their school to be rebuilt. Their FEMA funds are expected to expire with the and the funding from the Office of Public School Construction could be revoked if the district doesn't show substantial progress in rebuilding.

So to Rebecca, my understanding is that two school districts submitted an application for natural disaster assistance to rebuild their schools under under their interim policy. Pioneer Union was Pioneer Union's elementary school district in Butte County after the North Complex fire and Los Angeles Unified School District. Those two application applications were approved on August 19, 2025.

You received a third application for a natural disaster from my school in El Dorado County on September 18, 2025. But my understanding that was denied. Can you explain why? And then what change is necessary in law or regulation to make sure that my school district can be eligible after burning to the ground?

Yes, absolutely. Thank you for the question. And we are absolutely familiar with that unfortunate circumstance that and the destruction of Walt Tyler Elementary School as a result of the Caldor fire in 2021. Our office, as you mentioned, has worked with the school district for a number of years on the impacts coming out of the Caldor fire.

As you alluded to, they did receive new construction funding from the School Facility program back in 2025, about 1.6 and change million. They did submit, as you mentioned, an application, a request for natural disaster assistance funding.

Taking perhaps a step back in my narrative to or in my response proposition to establish new natural disaster assistance provisions within the school facility program that allow our board to consider providing natural disaster assistance funding either for interim housing, which is really interim school sites, or for any other purpose, essentially for school districts impacted by a natural disaster for which the Governor declared a state of emergency.

So Proposition 2 of course was approved by voters in November 2024. And then we expeditiously were working among other provisions in Proposition 2, to develop regulations to implement those new provisions.

We also found ourselves in the unique circumstance, you know, of course, knowing that we had a number of school districts, including Pioneer Union in El Dorado county, also Pioneer Union in Butte County, as you mentioned, that had been impacted and were still struggling as the result of losing facilities and fire.

And then in January 2025, of course, also saw the destructive Palisades and Eaton fires in LA County just a couple of months after passage of Proposition 2. So we did hold a series of stakeholder meetings to inform regulatory development around those new parameters.

I think we held four or on that particular topic in August, as you mentioned of last year, we presented the proposed regulations around the natural disaster assistance provisions to the State Allocation Board. And concurrently we presented the first, I guess technically three requests that we had received under those new provisions.

Two of those were for interim housing assistance coming from Los Angeles Unified School District as a result of the Palisades impact at two of their three schools that had been impacted there. And then the third was a request from Pioneer Union in Butte County related to their school as well.

Prior to passage of those or approval of those regulations, our board actually in the intervening period in December 2025, had taken an action to approve staff recommendations for adoption of interim policies to implement certain pieces of Prop 2 right away.

And one of those was establishing sort of an interim practice where school districts could request natural disaster assistance under that statute using our existing appeal request, while we concurrently worked on developing the actual regulations and forms necessary. So those requests from Los Angeles Unified and Pioneer in Butte County came in using that process in the intervening period.

Ultimately, in August, we were able to present the proposed regulations for natural disaster assistance and then also those first requests from the other two school districts for natural disaster assistance funding. In that discussion, we also mentioned to the board that those requests from LA Unified, and I'll just say Berry Creek elementary, since they have the same district

name, and those particular requests did meet all of the parameters within the proposed regulations that were also up for consideration by the board on that day. So ultimately the board in its actions on in August 2025, they did approve the proposed regulations that we developed to implement the statutory provisions.

They also approved the three technically requests in front of them, two from LA and then one from 4, Berry Creek Elementary School about a month later, as you mentioned, we did receive a request for natural disaster assistance from Walt Tyler elementary from their school district.

As you know, and I'd mentioned we'd been working with them for some time. They had received funding in 20 earlier in 2025 under the new construction program. At first, quite frankly, when they applied for natural disaster assistance, we were expecting it would sort of proceed under some of the same review that we had.

Some started to establish under those. Those regulations that had just been approved by our board, as well as the kind of precedent with those other three applications that had just been approved. When we were working with the district in the course of review, it was determined actually initially when the district submitted, they.

They noted that there was outstanding question on this. There is a provision which you kind of alluded to in the regulations that requires the state of emergency that caused that natural disaster to be open at the time the application was submitted.

And what that refers to is essentially the governor's office of emergency Services maintains a list of open states of emergency on their website. We understood that the representative for the district reached out to the governor's office of emergency Services, not seeing the Caldor fire on their list and inquired.

Ultimately, they did end up providing documentation that was obtained through CAL OES indicating that actually on July 1st of 2024, the Governor had signed a proclamation that ended a number of states of emergencies. And the state of emergency declaration associated with the Caldor fire was one of those.

So that had actually been closed and considered closed as a state of Emergency as of July 2024, predating voter approval of proposition to and predating the district's submittal of the application based on that particular issue with not meeting that requirement in the regulations for natural disaster assistance funding.

Our office did have several additional meetings with the district to see what options might be available. Ultimately, the district ended up withdrawing their request in December of last year. So technically we did not fully process it or bring it before the board. So it was not technically denied.

But they did end up withdrawing that request based on discussions with our office in which we did indicate, unfortunately, they did not meet that requirement in the proposed regulations due to the state of emergency having closed.

And was Berry Creek still declared or it was still an active emergency that was approved. What fire was that? Yes. Do you know what fire that was from? It's not my district. So.

Do you recall the name? Oh, North. North Complex Zone Fire. It was the North Complex on fire.

So honestly, that rule is never going to work because most you have to. I have a weird background, so I was a teacher and I was an OES emergency manager.

So you have to declare every 60 days and redo that with the board of the County Board of Supervisors to ratify it every 60 days and after the fire is out, it stops. You never keep that going through recovery because recovery takes obviously four to five years.

So you would be in an active state of emergency for five years. And that, that doesn't do anyone any good. So that policy or protocol should absolutely be changed because it's going to, it's going to really affect all these schools that were burned in LA and we're going to continue to burn in the north state.

I obviously am frustrated because we have a funding stream and now I'm doing a budget request for Walt Tyler because we failed them for the last four years and that it's an equity thing in my opinion. So we're giving all this money to Southern California when Northern California has been burning down our communities for a decade.

It's very frustrating because this small town, I mean these kids are spending four hours on a bus every day. Like that is not okay. And their zip code should not determine their educational opportunities. We've already said that three times in this, this hearing alone.

Is there a law or regulation that we can present that will fix this so that Walt Tyler does qualify because we've failed them as a state? Like that's why this proposition passed.

So to your question of whether there's a law or a change, that particular requirement around the state of emergency being open at the time of application submittal and is in the regulations. So you know, that doesn't wouldn't necessarily require a statutory change because it is in the regulations implementing that statute.

Okay.

I would just speak to. As I mentioned, we had a series of four stakeholder meetings to gather input in the regulatory development for those particular provisions in Prop 2 for natural disaster assistance.

And, and at those stakeholder meetings we did talk about that proposed provision including indicating sort of the rationale behind that, which was essentially putting some sort of parameter around a timeline for districts that have been impacted by a natural disaster to come forward with a funding request and essentially trying to consider that through an equity lens as well of trying to balance the needs of those districts that have been through terrible, horrible circumstances in losing entire schools in this case and in other cases and those needs, and then also balancing the needs of and priorities of all other school facilities funding statewide as well.

Because the natural disaster assistance funding, there's not a specific amount or carve out authorized. It's all the same.

I don't mean to cut the conversation off, but I also, having served on the board, the board can make a decision based on an application that is submitted. And there's a staff recommendation and the board would have to override that if they chose to fund that particular school. Is that correct? That's an option available to the board?

It is, yes. And the board authorizes or approves regulatory changes as well.

Yeah.

So what in this it's $2.6 million and they're going to lose all of their funding because they have this gap which in the grand scheme of things in California budget is very small, but in their little county is life changing. So I would love to see that fixed.

We are moving forward with a budget ask that we're going to be bringing forward. But it just, it's frustrating to see and that rule doesn't work with the way disasters work. So it definitely will affect future schools as well.

Thank you. Thank you for pointing that out and thank you all for being here on this item. We will hold it open and we will have staff work on this. Thank you very much. We are going to move on to issue six, which is an informational item.

So I'd ask Mr. Fine and Reilly from FCMAT to please come forward. This is the Fiscal Crisis Management Assistant team's informational item. Thank you for being here. I think there'll be some questions here following up on the previous conversation, but welcome and please begin.

Thank you. Chair and Members of the Committee. For the last 11 years I've had the absolute privilege of representing FCMAT in this annual hearing. This though will be my last one between now and the next time we have a proposed budget by the Governor, I am going to retire.

We as a family were blessed last week with our first grandchildren and that is one of my main reasons for moving on other than my wife retired two years ago after teaching for 40 years and so she's been sitting at home waiting for this time as well.

We're very grateful to the Administration and the Legislature for last year funding on a one time basis an additional position for us so that we could make a transition in leadership. As an agency, the continuity of our leadership and the opportunity for extended transitions is very important. We've done this in the past.

I enjoyed that opportunity when I joined FCMAT 11 years ago. And so since July, my colleague Megan Reilly has joined us. Megan comes with a long history of school financial management leadership in LA Unified, both as longtime CFO, as deputy superintendent, as interim superintendent and also with the Santa Clara County Office of Education.

It has been for about 35 years an absolute, the honor of a lifetime to serve schools here in California. So with that, Megan's going to kick us off and refer to our charts that we've provided to you and I've got given you a lot of information the outline just to help you.

We don't intend to cover it all but then I will speak to some of the trends we're seeing and how they relate to some of your earlier questions. So thank you again, Megan.

Great. Thank you Mike. And good morning everyone. It's an honor to be here and to give this update on where we stand and what the context of the seeing out in the environment of our schools.

The very first slide I'd like to actually just focus on it gives the historical, qualified and negative certifications and we really like to give the historical because as you see the most recent first interim certifications from our schools over 1000 LEAs was really an uptick that we see 45 that are self certifying qualified or have been deemed as qualified.

It is trending upwards. But we also show that period of time not necessarily as bad as the Great Recession back in the early 2000 but certainly in the most recent past. We haven't seen these numbers since pre pandemic that we've gone up to the 45 level. 45 as qualified and then 8 as negative.

So it is a concern when we see the decrease of one time funds, the declining enrollment that you all have had a very lively discussion about. That pressure that it puts on school districts is reflected in their interim reporting. The qualified interim reporting. Just to kind of talk about that.

FCMAT is automatically triggered during certain instances and when there are a school district goes and has three qualified certifications in a row, we are automatically triggered for for kind of going in and doing a financial health risk analysis.

If a county office of education changes certification from a positive to a qualified or to a negative, FCMAT will automatically go in and take a look at it. And when there are other situations then basically either the county office steps in or FCMAT steps in as well.

We have provided the list to some of you about the qualified certifications that are out there, Those that have 4 or above, 3 or above.

We've again gone in and basically done a fiscal health risk analysis, are in the process of doing a fiscal health risk analysis or are in scheduling for the fiscal health risk analysis for eight districts currently.

Also would Highlight on slide 5 the negative interim certifications. Why Megan talked generically about qualified and negative together. I want to highlight the negative. Negative obviously is a much greater concern to us. You see districts on here, six of the eight, this is their first negative or at least non consecutive negative.

But for two of them this is their third consecutive. Historically we don't see districts set in the negative certification status for very long. They get a lot of intervention, a lot of assistance from their county superintendents and from us and from others and they generally turn the corner fairly quickly.

That is not the case for two of these districts, both of which I think this, this Committee is very familiar with. The first is Plumas Unified in Assemblymember Hadwick's district and I'll speak to them more specifically in just a moment. The second is Weed Union Elementary School District. Their issue currently is not a General Fund issue.

It is a building issue where they bid off more than they could handle, frankly. And they have a half built school that is setting exposed to the weather and no ability to complete it. And we are all involved in that conversation on a regular basis.

I know the state board, State Allocation Board has been involved in it as well. When they ultimately are faced with the consequences of that half built school then that will impact their General Fund and that's what we are anticipating in this negative certification.

I want to also point out to you the very last slide which gives you a quick snapshot of average reserves. You can see they are in that mid 20 range but are starting to drop. So the data through 24-25 is actual data. The data for 25-26 is what districts based on their adopted budgets.

And so you start to see that decline in reserves, which is really a cumulative effect of some of the trends we've been talking about the last couple years. And with that I'd like to move back to page 2 of the outline I've given you and speak to immediate concerns and solvency trends.

I won't hit each of these bullet points but hit the key ones first as I expressed earlier. And Mr. Chair, thank you for and Committee Members, thank you for your questions earlier, but you heard me say that we have a concern about small and tinies. We actually have a concern across the board. Things are difficult out there.

Let me just summarize all this, why districts are districts are feeling the impact of cumulative multiple years of enrollment decline, several years of While absolutely appropriate COLAs, they are nonetheless COLAs less than the inflationary cost pressures and compensation demands, both of which are simply real. But small and tinies have more difficult mitigating declining enrollment.

You lose three families in a small community, let's just say that six kids. There is no place to cut. You already only have one teacher teaching TK through three and a teacher principal teaching four through six. There just is not the margin, if you will, in a small district to absorb that revenue loss and so on.

And we've talked about some of that earlier today. As Megan indicated, the number of qualified certifications have more than doubled between last spring and this December. More than doubling is unusual, but the fact that they're higher at first interim, which is December's data versus the previous spring's data, is not unusual. That is a typical trend.

We will see them probably lower as we approach second interim report, which is due March 15, just in a couple weeks. And that's because many of our school boards and team district leadership teams are taking the action they need to take at this point.

If you pick up any summary of headlines, go to our webpage each morning and look at the headlines on education across the state. You see boards taking the very difficult, difficult action of initiating the layoff process. And that will all be reflected in their second interim report.

So you'll see a bit more stability at second interim solvency trends. We've talked about the first one, declining enrollment across all regions. We explored that quite a bit. It's been partially offset over the last several years by the full implementation of transitional kindergarten and by recovery from the pandemic of ADA rates continuing to climb.

But both of those factors are coming to a point where they won't see an increase, but they'll plateau where they're at transitional kindergarten this year is fully implemented. ADA growth, ADA yield, if I can use that term compared to enrollment, is also starting to return to pre pandemic levels.

It will, in my judgment, not fully return to pre pandemic levels because of an item we talked about earlier that's transitional kindergarten has been added since and it has a very high absence rate. Right. And so that will skew the numbers ever so slightly. Special education costs, we've had a panel on it already.

The only thing I would add is to be very clear, costs in special Ed are escalating much, much higher rate of escalation than our General ed costs. And there are a number of factors there.

The other factor which I think this Committee fully understands is that as enrollment declines and ADA declines, that impacts local revenues on special Ed because special Ed isn't fundEd basEd on the number of students with disability. It's basEd on ADA district wide ADA right of General Ed and special Ed together. And so as that drops, revenue drops.

But costs are escalating significantly. And two main factors in the cost escalation. The first is we have growth in as a percentage of enrollment growth in our number of students with disabilities.

But we also have what you read about regularly that is being the subject of collective bargaining negotiations and that is a lot of contracting out for special ed services by districts. And that's because they can't find qualified educators and paraprofessionals. Contracting out runs costs higher than if there are employees. Districts don't want to contract out.

I can tell you that they want to hire the people and put them in place if they could find them. There's one other element in here that I think we have to recognize and I'm not sure what the driver is.

CDE Special ED spoke earlier and can add some color to this, but we see a lot of money being spent in the area of behavioral interventions and new staff titles dealing with just behavioral matters in special ed than what we've seen traditionally. So that is an element of cost increase being experienced.

I want to tie so that of course ties to the administration's proposal on the equity or the equalization of the special ed rates which you have explored ongoing expenditures related to pandemic and the expiration of the federal funds.

This ties to the other panel that you had a discussion about and that is the continued funding for the Learning Recovery Emergency Block Grant. The requirements for expenditures there are a little bit more restrictor are a little bit more restrictive than what the federal dollars were.

But it is an important element to continue some of those added services that were introduced during the pandemic using the federal ESSER funds. We talked earlier today about kind of normal COLAs in that 2 to 3% range. If we look at history, that's a pretty normal COLA.

But our schools are experiencing 5 to 6% inflationary pressure irrespective of compensation demands. And you don't hear this from a school business person very often, but the compensation demands are absolutely legitimate in my judgment. In most cases we are not going to be able to continue to do the good work in our classrooms without qualified good educators.

It's really that simple. And the support staff that goes with them. And so to have a teacher not be able to live in the community they're teaching in is, I think, a struggle for all of us to kind of cope with.

There's really no other industry in our economy or that we're exposed to other than schools that have that need an employment literally in every neighborhood. Right. You don't get the opportunity to choose to commute somewhere else. And so that becomes important. And those cost pressures are real to our districts and they're feeling those.

We've talked before here, but this is where the discretionary block grant becomes very important. We still have Districts with AB218 childhood sexual assault claims and dramatic retroactive increases in insurance premiums. And I want to emphasize that retroactivity nature. Insurance premiums are going up going forward. They have gone up by almost 700% liability coverage in the last decade.

But they also have retroactive increases going up as a factor that they were a member of a public entity risk pool. And that risk pool has to be protected. Thus it can go back in time and make assessments on its members.

You're all very familiar with federal HR1, House Resolution 1 back on July 4, and the impacts it has on the Medicaid side and the snap side. That of course has an impact on our number of kids that are eligible both in the counts of unduplicated counts in the free and reduce price meal categories and so on.

And so I highlight those to you. And then one additional item on page three that I want to highlight since it is relatively new. Actually, two items that I want to highlight. One is Plumas Unified School District, which on June 27, with the adoption of the current year's budget trailer Bill, went into state receivership at their request.

The forecast was that they would have insufficient cash to meet payroll in August. And that was the case. The Legislature and the Administration agreed on a $20 million emergency appropriation, or apportionment rather to be paid back over 30 years. In August they drew down 8.5 million and they have stabilized.

We believe that that will be all they'll need to draw of the 20 million. Now, there's a lot of loose ends still there, but they're making great progress. They are going through a very difficult stage right now where now is where they have to balance their budget. So they are issuing layoff notices.

They're proposing a whole variety of cuts, including the elimination of transportation and other types of budgetary mitigation measures, but they have stabilized and the team that we have in Plumas is doing very well. The other district among the receivership districts that I want to highlight actually too, one is Vallejo City and the other is Oakland.

In both cases, they exited receivership last June 30th. And so that is noteworthy. Both districts though are not currently financially stable. So financial stability is not one of the criteria in statute to exit receivership. The two criteria are you pass an internal control audit and you pay off the advanced apportionment.

But financial stability is not one of the criteria. Oakland is struggling as they have historically. Vallejo City is under new leadership and some of you I think have even met with Vallejo City even recently has really taken the challenge on that post receivership.

Things that should have been done during receivership to right size and to upright the ship may not have been done. And so the new leadership in Vallejo City since exiting receivership is doing an outstanding job. But I think it highlights for us that that work should have been done in the latter years of receivership.

So the district was stable as we move forward. And Mr. Chair, those are my, thank you very much.

Those are my comments because I know I have questions and I'm sure others do as well. And I want to get your thoughts on some of these.

So I, you know, I, I can't help but think about what you just, just mentioned, that some districts do things that then right size or whatever it is to sort of be on the right track. They don't need the 20 million. They figured it out with eight. That all sounds good.

But that to me says that there's probably more need of that kind of analysis and support to make some of those decisions more frequently than not, especially with your trends that you're showing us with the numbers going up. But there are no incentives to do that.

I mean, I guess my question is what can we do to incentivize folks to try to make some of those difficult decisions sooner and also what are those difficult decisions? Because clearly you've been able to when you step in to the role, identify things.

Now in the case of I do want to ask about Oakland, but because they were in, then they were out, but then fiscally they've got issues there which doesn't make sense to me.

But I guess overall, first let's start with that overall what incentives exist for folks to make decisions that they should make before it gets to this point.

So before I address incentives, let me start with responsibility. An elected school board, Dr. Patel is a former elected school board Member in her community. They have a fiduciary responsibility. It's very clearly laid out to protect the district. And in so doing, they're protecting both employees and our students.

And one of the elements of protection is fiscal stability. You can't. You have to live within your means. There are opportunities in our system to kick the can down the road every once in a while, but it ultimately catches up to you.

And so we have a very robust system in California of monitoring, early warning system that was established under AB 1200 back in 1991 that both CDE and FCMAT are kind of the guardian of and watch very carefully and monitor. And that's where this data that I've presented to you comes from.

CDE hasn't released their version of this data yet, but we go out and collect it kind of ahead of time. And that oversight task then is delegated for the most part to our county superintendents, to our 58 county superintendents. There are exceptions to that. For county offices, it's cde.

For the seven single district counties of which Plumas is one of those, San Francisco is one of those, CDE is the oversight body. So first there's a responsibility and in our view, there's authority. You've, you, the Legislature have given them the authority to take the action, a local school board.

And if they fail, then through the monitoring and interprogressive intervention process for the county superintendent to become engaged. We could call that incentive a little bit, but it's not the same. I think that you're probably asking about.

It ultimately comes down to are we going to be stable, we're going to be able to get close to a balanced budget or not, and what are our responsibilities? I want to distinguish very importantly here between budget and cash flow. We don't talk about cash flow. It's a. It's a mechanical thing that happens behind the scenes.

But cash is key. Cash is king. Cash shows no mercy. We say this all the time, and that is if you run out of cash, as Plumas did, then that is where the district is faced with asking the state for assistance. And so we. Budget deficits influence draws on cash.

They influence ultimately a cash deficit, but there's timing differences. You can have multiple years of budget deficits, which is where this kick the can down the road process happens. I share the Lao's view that when we talk about block grants and one time, And I think, Mr.

Chair, you were getting to some of this, that that sometimes presents opportunities for districts to kick the can down the road even further. And that has to be measured. And we look to the local leaders, both at the staff level and at the elected governing board level to do that.