An Opportunity to Improve Transparency in the New K-12 School Funding Formula?

July 9, 2014

Tomorrow’s State Board of Education (SBE) meeting in Sacramento will focus on California’s new funding formula for K-12 schools — the Local Control Funding Formula (LCFF). The SBE will review proposed changes to the regulations they adopted this past January that govern LCFF spending and stipulate the information school districts must report in their Local Control and Accountability Plans, or LCAPs. All California school districts were required to adopt an LCAP by July 1 using a template that was developed and approved by the SBE earlier this year. Tomorrow’s meeting will review changes that the SBE is proposing to both the spending regulations and the LCAP template in response to more than 2,000 written comments the State Board received this spring. The SBE plans to adopt permanent regulations later this year and those rules, as well as the LCAP template, will determine how school districts are required to report LCFF spending for years to come.

It is critical that the SBE adopt regulations that require school districts to clearly report two pieces of information, so that stakeholders can gauge whether districts are increasing or improving services to support disadvantaged students: 1) a baseline level of spending used to support disadvantaged students in 2013-14; and 2) for each year after 2013-14, the amount spent in the prior year to support disadvantaged students. While the regulations adopted by the SBE in January do require school districts to use prior-year spending on disadvantaged students as a starting point for estimating the level of support going forward, they do not require transparent reporting of this spending level.

On Monday’s KQED Forum program, I had the chance to join SBE President Michael Kirst and others in discussing implementation of the new funding formula. President Kirst suggested during this conversation that the State Board may be willing to require school districts to transparently report how much they spent to support disadvantaged students in a prior year. By establishing a clear, easy-to-understand baseline, such a change would be a welcome step toward improving transparency and enabling stakeholders to understand whether LCFF dollars are being used to support disadvantaged students.

After tomorrow’s SBE meeting, the public will have through July 28 to submit comments on proposed changes to the regulations and the LCAP template. All Californians concerned about making LCFF spending more transparent should use that period to engage in the process and let their voices be heard.

— Jonathan Kaplan


Op-Ed: Keeping the Promise of the New School Funding Formula

June 3, 2014

Today, the Sacramento Bee featured an op-ed from CBP Senior Policy Analyst Jonathan Kaplan, which points to the need for greater transparency in California’s new system of K-12 school funding — the “Local Control Funding Formula” (LCFF). Almost one year since the new funding formula was enacted, this year’s budget negotiations could determine whether education stakeholders have access to easy-to-understand information about how school districts use LCFF dollars. As stated in the op-ed:

In the coming days, legislators and the governor will make crucial decisions about transparency. The issue at hand is whether districts will be required to report the amount they receive through the new formula to support disadvantaged students and — more importantly — how they use those dollars to benefit them. If state policymakers do not require this basic level of accounting, it will be very difficult for local stakeholders to answer some key questions about how the new funding formula is working.

The full op-ed is available on the Sacramento Bee’s website.

— Steven Bliss


Requiring Clear Baseline and Transparency Is Key in Crafting Rules for New School Funding Formula

December 19, 2013

Update: The State Board of Education initially planned to post the agenda materials for its January 2014 meeting on December 20, but has delayed that release until January 3, 2014. This blog post has been updated to reflect that change.

Last summer, when the Governor and Legislature approved California’s new education funding formula, the Local Control Funding Formula (LCFF), they deferred to the State Board of Education (SBE) key decisions regarding accountability — specifically, how to ensure that school districts spend LCFF dollars to provide additional services for disadvantaged students. The Legislature set a January 31, 2014 deadline for the SBE to adopt regulations for how schools can spend LCFF dollars. At the core of the debate regarding these regulations is how to strike a critical balance: ensuring that LCFF dollars are spent to support the disadvantaged students for whom they are intended while providing school districts more authority over how to spend those dollars.

On Friday, January 3, the SBE will post the agenda for its next meeting, scheduled for January 15 and 16, 2014, at which the SBE will need to approve regulations in order to meet the legislative deadline. As we blogged about before, the preliminary draft spending regulations released earlier this year provided far too much discretion to school districts — so much so that these regulations likely would have undermined the LCFF’s goal of addressing the inequities in the former school finance system. Other stakeholders also shared this concern. When the SBE reviewed the draft regulations at its meeting in early November, it inspired nearly five hours of public testimony by more than 180 people. Among them was Senator Holly Mitchell, who echoed the sentiments of many others when she expressed alarm that the draft regulations did not live up to the spirit of the LCFF law.

It appears that the public outcry over the preliminary draft spending regulations made a difference. Last week, the consultant advising the SBE — WestEd — released a paper (PDF) outlining key issues they had identified based on public comments made at last month’s SBE meeting. They also released a draft of the Local Control and Accountability Plan (LCAP) template (PDF) that districts will use to demonstrate compliance with SBE spending regulations. As part of this release, WestEd indicated that the revised regulations and the LCAP “will reflect significant changes based on the provided input” from the November SBE meeting.

In light of the shortcomings of the preliminary regulations, this is encouraging. However, stakeholders who want to ensure that LCFF dollars allocated for disadvantaged students are actually used to support these students should focus on whether the regulations adopted by the SBE abide by two important principles: establishing a baseline and ensuring transparency.

  • Establishing a baseline: The first key issue reported in the WestEd paper states that school districts need to spend more money in order to demonstrate they are increasing or improving services for disadvantaged students. A related concern reported by WestEd highlights the need to define “a methodology for calculating” a proportional increase in funding for these students. However, their paper does not indicate that the SBE will establish a baseline to gauge whether school districts have increased spending to support disadvantaged students. If schools are not required to adhere to such a baseline, it will be difficult to determine whether additional LCFF dollars provided for disadvantaged students are actually used to support them. The proposed LCAP template would require school districts to list and describe the spending needed to meet goals identified in their LCAPs. But the SBE should go further and explicitly require school districts to annually show how schools spent base, supplemental, and concentration grants generated by disadvantaged students in a way that can be easily compared to the baseline amount spent to support these students.
  • Ensuring transparency: A key objective of the LCFF is to increase accountability so that local education stakeholders can ensure that student needs drive the allocation of resources. For stakeholders to have the information needed to make this assessment, school district spending and revenue data must be reported in a timely manner and in a format that is easily understood and that can be readily obtained by stakeholders in multiple languages. Moreover, to allow for comparisons among districts, the SBE should require a standard methodology for school district reporting of spending and revenue data. Fortunately, school districts already report expenditures and revenues based on an accounting manual that allows for transparency and comparability. But currently, these data are only reported to the state and in a format that is difficult for the public to access or understand. The SBE should adopt spending regulations that require school districts to post this accounting data online in a timely manner and in a format the public can easily obtain and comprehend.

The January SBE meeting, with the expected adoption of the spending regulations, is a critical moment for implementation of California’s new school funding formula. While the delayed release of the agenda materials leaves little time for public comment, education stakeholders should heed the upcoming meeting — and the period preceding it — as an opportunity to provide input on the proposed regulations. Ultimately, what’s at stake is to what degree LCFF dollars are spent to support the disadvantaged students who need them the most.

— Jonathan Kaplan


Full Implementation of the LCFF Could Bring California’s Per Pupil Spending Closer to the Rest of the US

August 5, 2013

Last week the Legislative Analyst’s Office (LAO) published an overview of the Local Control Funding Formula (LCFF), the fundamental restructuring of California’s K-12 education finance system. The report discusses the LCFF, details how it will provide additional dollars to disadvantaged students, and estimates how much it will cost to implement. In addition to establishing equity as a key principle for how the state funds schools, the LCFF sets a funding goal that could boost California’s per pupil spending closer — if not equal — to that of the rest of the US once the formula is fully implemented.

California should aspire to a better per student spending ranking than the bottom 10, where the state has ranked for the past several years. As we’ve blogged about, California spends $2,500 less per student than the rest of the nation. To reach the same level of per student spending as the rest of the US, California would have needed to spend $15.3 billion more in 2012-13 than it did. While such a boost in funding might seem out of reach, it is actually a smaller increase than what the LAO estimates is needed to fully implement the LCFF. Specifically, for the LCFF to be fully implemented by 2020-21 — the goal established by the Governor and the Legislature — the LAO estimates that school funding would need to reach a level that is equal to an $18 billion increase in 2013-14 (above 2012-13 funding), not accounting for required cost-of-living adjustments. So even though the LCFF is not expected to be fully implemented for several years, policymakers should be commended for establishing a goal that calls for substantially increased state support for schools and could bring state spending per student closer to the level of the rest of the nation.

Reaching this goal, however, depends on a serious long-term approach to increasing state revenue. For instance, such an approach would need to account for the fact that the tax increases from Proposition 30 will expire in 2018. And in a broader sense, a plan for significantly increasing revenues could be part of an ambitious, long-range vision for California. Whether the state will have sufficient revenues to fully implement the LCFF by 2020-21 is unclear. What is clear is that delaying LCFF implementation would perpetuate both California’s low ranking relative to other states and current funding inequities.

— Jonathan Kaplan


What Does the LCFF Compromise Mean for Disadvantaged Students and School Finance?

June 14, 2013

Earlier this week, Governor Brown and legislative leaders announced a compromise plan regarding the Local Control Funding Formula (LCFF), the Governor’s proposal to fundamentally restructure how California funds its K-12 public schools. The now-imminent enactment of the LCFF is an important step forward and will make the state’s education finance system more transparent, rational, and equitable than it is today. The LCFF compromise accepts a key premise of the Governor’s proposal: that it takes additional resources to educate disadvantaged students — in particular, English learners and students from low-income families. However, compared to the Governor’s original proposal, the LCFF compromise provides fewer resources specifically for these students. The compromise boosts the base level of funding for school districts, but appears to do so primarily by reducing the total dollars allocated for disadvantaged students and also by increasing the amount of time it would take to fully implement the LCFF. Moreover, key decisions regarding accountability — specifically, how to ensure that school districts spend these allocated dollars to provide additional services for disadvantaged students — were deferred to the State Board of Education.

Released as part of the Governor’s proposed 2013-14 budget in January, the original LCFF proposal established equity in school funding as a key principle. It created three funding grants weighted to reflect the costs of educating different students: a base grant per student for all school districts, adjusted to reflect students’ grade levels; a supplemental grant per student based on a district’s unduplicated number of English learners and students from low-income families; and a concentration grant per student for districts based on the share of disadvantaged students above a specific threshold (set at 50 percent in the original proposal).

The LCFF compromise announced earlier this week maintains this basic structure, but changes the formulas used to calculate the three grants. The LCFF compromise:

  • Increases the average target base grant by more than $500 per student (this refers to the statewide average of the target LCFF base grant for each school district);
  • Reduces the supplemental grant from 35 percent of the base grant to 20 percent;
  • Increases the concentration grant from 35 percent of the base grant to 50 percent; and
  • Increases the threshold at which school districts qualify for the concentration grant, with disadvantaged students having to account for at least 55 percent of district enrollment — up from the original threshold of 50 percent.

The compromise also changes the share of total LCFF dollars allocated to each grant. Under the original LCFF plan, 80 percent of LCFF dollars would have gone toward base grants, 16 percent to supplemental grants, and 4 percent to concentration grants. Under the compromise version, 84 percent of LCFF dollars will be allocated to base grants, 10 percent to supplemental grants, and 6 percent to concentration grants. Widely circulated estimates indicate that the LCFF compromise would increase the total dollars provided to fund base grants for all school districts by approximately $3 billion, a 6 percent increase compared to the original plan.

Where do these dollars come from? It’s conceivable that they come entirely from the dollars allocated for supplemental and concentration grants in the Governor’s original proposal. But because little information exists about the total amount of funding provided for these grants, it is impossible to know. Rough calculations based on the available estimates suggest that the compromise could reduce funding specifically allocated for disadvantaged students in the neighborhood of $2.4 billion (19 percent) compared to the Governor’s original proposal. In other words, the compromise may redirect one in five dollars that the Governor had proposed to provide for students with the greatest need to fund an increase in the base grant for all students statewide.

Several questions remain as to whether the LCFF will fulfill its promise of helping both to address inequities in school finance and to ensure all students have the opportunity to achieve the state’s high academic standards. The most important is whether it will require school districts to spend supplemental and concentration grants to benefit the disadvantaged students for whom these funds will be allocated. The details of how funding accountability would work in the LCFF have been the subject of intense negotiation. But no matter the outcome, local school boards will clearly have greater authority to spend school dollars than under the current system, and education stakeholders will need to hold them accountable if equity is to be achieved.

Another key issue, which has received little attention, is the length of time it will take to fully implement the LCFF. Because the compromise boosted funding for the base grant, and increased the LCFF’s price tag, estimates indicate that full implementation of the LCFF will take eight years, rather than seven as in the original proposal. However, implementing the LCFF could take longer, as the timeframe depends on the amount of funding state policymakers provide — and each year that implementation is delayed could mean perpetuating current inequities.

Fundamentally restructuring California’s education finance system is a major undertaking, and the LCFF is an important step forward. The LCFF provides school districts with more control over how resources are allocated, which will ideally increase public awareness of, and interest in, how local officials spend dollars provided by the state. Moreover, by simplifying the way the state provides dollars to school districts, allocating those dollars based more closely on student needs, and making state education funding more rational, the LCFF has the potential to increase public confidence in the state’s stewardship of our shared investment in K-12 education. That confidence will be necessary for Californians to support providing the increased resources that all schools need.

— Jonathan Kaplan


What We Were Watching for in the May Revision — and How It Looks Thus Far

May 20, 2013

Last week, in the run-up to Governor Brown’s May Revision, we blogged about the five things we were looking for in his revised 2013-14 budget and the ensuing budget debate. Here we reflect back on what were looking for — and provide a brief take on what we’ve seen. Our initial analysis of the May Revision — published the day after the Governor released his revised budget — provides a fuller discussion of the major changes and important new proposals. In the coming days and weeks, we’ll provide continued analysis and commentary here at California Budget Bites.

1. Education Finance Reform

We were watching for: potential changes to the mix of Local Control Funding Formula (LCFF) grants as well as any new accountability provisions. Under the Governor’s proposal to restructure school finance in California – a topic the CBP recently examined in its chartbook on the LCFF — each school district would receive a base grant per student and, in addition, a supplemental grant based on the unduplicated number of English learners or students from low-income families and a concentration grant for the share of these students above 50 percent of district enrollment. We were watching for preservation of the additional dollars allocated for disadvantaged students and stronger accountability provisions that would ensure that districts are using the LCFF dollars to directly benefit the students for whom they are intended.

The May Revision: preserves the LCFF formula proposed in January, including the concentration grants. The May Revision also strengthens LCFF accountability provisions by clarifying that supplemental and concentration grants are provided “primarily for the benefit” of students for whom they are intended. Further, the May Revision requires school districts, upon full implementation of the LCFF, to report how they plan to spend supplemental grant dollars in proportion to the number of disadvantaged students at each school site.

2. Medi-Cal Expansion

We were watching for: a call for a state-led expansion that leaves existing funding with counties, for now. As part of federal health care reform, the Governor has called for expanding Medi-Cal  to cover low-income adults who currently are not eligible — a topic addressed in our recent Medi-Cal chartbook. In January, the Governor presented two approaches to expansion — a county-based approach and a state-led approach — while also linking the expansion to his proposal to “realign” some human services programs to counties. Under the Governor’s plan, counties’ new costs would be funded with dollars that counties now use to provide health care to low-income, uninsured (“medically indigent”) Californians — many of whom would enroll in Medi-Cal under the expansion. We were watching for a commitment to a state-led expansion of Medi-Cal that allows counties to retain any savings they realize and put it toward providing local health services for the remaining uninsured, at least until the impact of health care reform on both the state and the counties is better understood.

The May Revision: endorses a state-led expansion of Medi-Cal where newly eligible Californians would enroll in Medi-Cal and receive the same benefits available to other Medi-Cal enrollees. However, the May Revision also maintains — and provides new details about — the Governor’s proposal to shift costs for certain human services programs to counties. The Governor now proposes that counties “assume greater financial responsibility” for CalWORKs, CalWORKs child care, and CalFresh administration. Counties would cover these costs with dollars shifted from their health care safety nets, thereby generating state savings that the Administration estimates would exceed $1 billion per year by 2015-16.

3. State Revenue Projections

We were watching for: revised economic and revenue forecasts and the implications for state spending. Through April 2013, state revenue for the current (2012-13) fiscal year was running ahead of the Governor’s January projections by $4.6 billion, prompting speculation that the May Revision would feature revenue forecasts for 2013-14 much higher than had been expected in January. We were watching for revised economic and revenue forecasts and the implications of those revisions for the Proposition 98 minimum school funding guarantee.

The May Revision: presents somewhat weakened economic and revenue forecasts. The Administration reported that higher-than-anticipated revenues for the current year (2012-13) are spread over several fiscal years and that “the influx is expected to be short-lived.” The May Revision projects additional revenue collections in the current fiscal year ($2.8 billion higher than assumed in January), derived from taxpayers shifting revenue from 2013 to 2012 in response to federal tax changes, followed by a slight decrease in revenue in 2013-14 ($1.3 billion lower than assumed in January). The assumed Proposition 98 minimum funding level follows a similar pattern, increasing in 2012-13 and decreasing slightly in 2013-14. The May Revision also adjusts the state’s short-term economic outlook downward due to federal actions, including federal tax changes and sequester cuts, and weaker global economic growth. However, the Legislative Analyst’s Office argues that the Administration’s economic and revenue forecast “seems too pessimistic” and projects that revenues will come in more than $3 billion higher – over the three-year period from 2011-12 to 2013-14 – than the Governor assumes.

4. Pay-Down of California’s Budgetary Debt

We were watching for: any changes to the Governor’s proposed pay-down of budgetary debt. The Governor’s January proposal called for paying down $4.2 billion in budgetary debt as part of a plan to reduce this debt from $35 billion in 2010-11 to less than $5 billion by 2016-17. We were watching for any increases to the proposed pay-down as a result of higher-than-anticipated revenues or possibly a more gradual repayment schedule in order to free up dollars for other spending priorities.

The May Revision: maintains the Governor’s general plan for paying down budgetary debt to less than $5 billion by 2016-17. The adjustments to the state’s revenue forecast noted earlier alter the repayment schedule, but do not change the multiyear objective. The May Revision also maintains the Administration’s planned $1 billion contribution to the state’s Special Fund for Economic Uncertainties.

5. Enterprise Zone Reform

We were watching for: any changes to proposals to restructure the Enterprise Zone (EZ) Program. The Governor’s January proposal included a set of regulatory changes to the state’s EZ Program, which provides tax credits intended to encourage businesses to locate in economically distressed areas. While the intent of the program is to promote business development and job creation in targeted areas, research shows that the program fails to achieve its goals while placing an increasing strain on the state budget — with the cost projected to rise to $1 billion by 2015-16. We were watching for proposals to more aggressively restructure the program to better target job creation and business development, boost accountability and evaluation of program effectiveness, and reduce the costs to the state.

The May Revision: significantly alters the Governor’s proposal to restructure the EZ Program. The new proposal narrows the EZ hiring tax credit to specific areas with high unemployment and poverty rates, and limits availability to hiring of three targeted groups of individuals (as opposed to 10 groups currently). The May Revision also expands the EZ sales tax credit for manufacturing and biotech equipment purchases to be a statewide — rather than a zone-specific — incentive, in an effort to discourage within-state competition for jobs. The May Revision also creates a new business recruitment and retention fund, administered by the Governor’s Office, for use in negotiating business tax credits in exchange for investments and employment expansion in California. Early reviews of these newly proposed reforms – which as a whole the Administration projects to be revenue-neutral — suggest that the tax-credit changes would largely eliminate the EZ Program in its current form.

*  *  *

Beyond the five budget issues detailed in our May Revision preview and discussed above, there were other notable components of the Governor’s revised budget proposal. The Governor essentially put on hold for two years his complete restructuring of adult education, during which time the Governor proposes to transition to a new regional partnership system. The May Revision also leaves many previous cuts to health and human services unchanged, though it does include a new funding allocation ($48 million) for CalWORKs “early engagement” strategies to better address client needs during the shortened 24-month time window imposed in 2012-13. All of these proposals are discussed in the initial May Revision analysis we issued last week.

The initial analysis we released last week also highlights some of the key choices that policymakers could face during the coming weeks as they move toward enacting a 2013-14 budget, which would take effect on July 1. California Budget Bites will provide continued analysis and commentary on the issues shaping the budget debate and what the latest policy proposals mean for low- and middle-income Californians and for the future of our state.

— Chris Hoene


What We’re Watching For in the May Revision and Beyond

May 13, 2013

Governor Brown is set to release the May Revision of his proposed 2013-14 budget tomorrow, kicking off the sprint to a final budget agreement in June. The CBP will provide a series of analyses of the revision, including a same-day statement, a brief analysis of major changes and important new proposals — and the issues they raise — and a more in-depth scan in the days that follow. You can find all the latest updates and analyses here at California Budget Bites.

The following are five issues that we’ll be watching for in the Governor’s May Revision and the budget deliberations that follow in the coming weeks:

1.   Education Finance Reform

The issue: The Governor’s proposed Local Control Funding Formula (LCFF) seeks to make the state’s system of school finance more equitable by providing additional revenue to school districts with disadvantaged students, a topic the CBP recently examined in its chartbook on the LCFF. Under the Governor’s proposal, each school district would receive a base grant per student and — in addition — a supplemental grant based on the unduplicated number of English learners or students from low-income families as well as a concentration grant for the share of these students above 50 percent of district enrollment.

We’re watching for: potential changes to the mix of LCFF grants as well as any new accountability provisions. Will the May Revision preserve the additional dollars allocated for disadvantaged students? If the LCFF concentration grants are reduced or eliminated, will the freed-up dollars be used to provide larger supplemental grants? The May Revision may also include stronger accountability provisions in terms of addressing district spending of LCFF dollars. Our view is that policymakers should preserve additional dollars the LCFF would allocate for disadvantaged students, including concentration grants, and that school districts should be required to use these dollars to directly benefit the students for whom they are intended.

2.    Medi-Cal Expansion

The issue: As part of federal health care reform, the Governor’s proposed 2013-14 budget calls for expanding Medi-Cal — the state’s Medicaid program — to cover low-income adults who currently are not eligible. Our recent Medi-Cal chartbook provides an in-depth look at the program and the issues raised by the expansion. In January, the Governor presented two approaches to expansion — a county-based approach and a state-based approach — while also linking the expansion to his proposal to “capture” some funding that counties now use to provide health care to low-income, uninsured Californians. The Governor’s proposal also assumes a 10 percent cut in payments for Medi-Cal providers that was approved by state policymakers in 2011 and is currently pending in the U.S. 9th Circuit Court of Appeals.

We’re watching for: a call for a state-led expansion that leaves existing funding with counties, for now, and that reconsiders the cuts to provider payments. Counties and health care advocates are nearly unanimous in their push for a state-led expansion. Also, any savings that counties do realize, at least in the near term, should be prioritized for local health services given that millions of Californians will remain uninsured even after health care reform is fully implemented and will turn to the counties for care. Lastly, amid concerns that payment cuts on the eve of the Medi-Cal expansion could drive providers from the program at the very time when provider participation needs to increase, we’ll be watching for a call to repeal those cuts.

3.    State Revenue Projections

The issue: Ten months through the current fiscal year, the State Controller’s Office reports that total revenue is running ahead of the Governor’s January projections by $4.6 billion. The state’s revenue collections are prompting speculation about increased revenue forecasts for the upcoming 2013-14 fiscal year.

We’re watching for: updated economic and revenue forecasts. If there is a projected increase in General Fund revenues compared to January projections, what will the revised level of the Proposition 98 minimum school funding guarantee be, and how will the May Revision propose to use additional Proposition 98 funding? Options would include using the dollars to pay back money borrowed from K-12 schools, providing additional funding to implement the Local Control Funding Formula, and/or providing resources for other one-time or ongoing education priorities. How much of this higher-than-anticipated revenue is left over beyond the Proposition 98 minimum funding level? And how is that revenue allocated? Calls for paying down budgetary debt and/or building up the state’s reserves are likely to be among the options considered. But, with many Californians still hurting in the wake of the Great Recession, a balanced approach would prioritize providing additional resources for critical programs such as child care and state preschool, CalWORKs, and adult dental coverage.

4.    Pay-Down of California’s Budgetary Debt

The issue: The Governor’s proposed 2013-14 budget calls for paying down $4.2 billion in budgetary debt as part of a plan to reduce this debt from $27.8 billion in 2012-13 to $4.3 billion by 2016-17. “Budgetary debt” includes money borrowed from K-12 schools, unpaid costs to local governments, and loans from state special funds.

We’re watching for: any changes to the Governor’s proposed pay-down. If the May Revision does project higher revenue collections, increasing the pay-down in 2013-14 could be part of proposals for allocating these additional revenues. The Governor and the Legislature may also choose to adopt a more gradual repayment schedule in order to free up funds to support other budget priorities.

5.    Enterprise Zone Reform

The issue: The Governor’s proposed 2013-14 budget includes a set of regulatory changes to the state’s Enterprise Zone (EZ) Program, which provides a variety of tax credits intended to encourage businesses to locate in economically distressed geographic areas. While the intent of the program is to promote business development and job creation in targeted areas, research shows that the program fails to achieve its goals and places an increasing strain on the state budget — $720 million in 2010, projected to rise to $1 billion by 2015-16.

We’re watching for: any changes to proposals to restructure the EZ Program. Proposals that are currently under consideration include the Governor’s proposed regulatory reforms as well as a number of legislative proposals that seek to restructure the program. Given that lawmakers are very unlikely to eliminate the program, we think that it should be restructured to better target the jobs and business development intended, boost accountability and evaluation of program effectiveness, and reduce the strain on the state budget.

— Chris Hoene


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