Governor Delays Controversial Plan to Restructure Adult Education, Yet Concerns Remain

June 6, 2013

California’s adult education system is a vital resource for millions of low- and middle-income individuals, helping them obtain the basic knowledge and skills necessary to advance in their careers and participate in civic life. This system helps Californians achieve educational goals such as learning to speak English; passing citizenship exams; earning a high school diploma; boosting their job skills; and obtaining the proficiency needed in reading, writing, and math to succeed in postsecondary education.

For the past several years, California’s adult education system has operated with a significantly decreased level of funding, due to the combination of severe budget cuts and a policy change that has made previously dedicated funding more flexible. In 2007-08, the year before the economy hit bottom and the Great Recession deepened, adult education received more than $700 million in dedicated funding. Due to declining revenues, the state implemented two consecutive years of double-digit cuts to adult education beginning in 2008-09. Also in 2008-09, legislators gave school districts the flexibility to shift funding specifically dedicated to adult education to other educational uses as they saw fit, magnifying the impact of the spending cuts. Subsequently, many districts redirected either significant portions or all of their adult education funding into other program areas. In fact, the Legislative Analyst’s Office (LAO) estimates that as little as 40 percent — roughly $250 million — of the money currently allocated to adult education is actually being spent for that purpose, a decline of well over 50 percent from the 2007-08 level.

In January, Governor Brown called for a restructuring of the state’s adult education system. This plan would have shifted significant responsibility and funding for adult education away from K-12 school districts, where adult schools have traditionally resided, to community colleges, which often have little experience providing courses similar to those offered at adult schools. The Governor’s January proposal also included $300 million in dedicated adult education funding for community colleges in 2013-14, roughly in line with the LAO’s estimate of current adult education spending but still less than half the 2007-08 level.

Faced with significant criticism from advocates and educators regarding the adult education restructuring in his January proposal, and a rejection of the plan by a key Assembly budget subcommittee in March, the Governor issued a re-worked proposal for adult education in his May Revision. The revised proposal would essentially put the restructuring plan on hold for two years, during which time the Governor proposes to allocate $30 million to help transition to a new regional partnership program composed of community colleges, school districts, and other adult education providers. Yet while the proposal promises $500 million of dedicated funding in 2015-16, the May Revision includes no dedicated program funding during the two-year transition. As an incentive for school districts to continue funding adult education programs during this transitional period, the Governor proposes that 70 percent of the $500 million promised in 2015-16 — or $350 million — would go to current providers, as long as they maintain their current spending levels for the next two fiscal years.

As the budget deliberations in the Legislature move forward, two key questions will shape the policy debate around adult education in California:

  • Would the Governor’s incentive for school districts to maintain adult education funding be enough to stem further program cuts and closures? While some districts have already acted to restore some adult education funding in response to the Governor’s May Revision, others have not, and — in the climate of cutbacks to adult education in recent years — there is no guarantee that adult education spending and programs would be maintained during the two-year transition period.
  • Who would have ultimate responsibility and accountability under the new adult education regional partnership structure envisioned by the Governor? While many of these details would likely be worked out during the two-year transition period, some in the adult education arena have raised initial concerns about community colleges being designated as the fiscal agents, with promised future adult education funding flowing through community colleges to K-12 districts and other providers.

The debate on the future of adult education comes at a time when the need for adult education remains high. Nearly one in five adults in California have yet to earn a high school diploma or pass the GED exam. Additionally, nearly 25 percent of California’s adult population is functionally illiterate, lacking basic skills necessary to accomplish ordinary tasks such as filling out job applications or understanding and accessing public services. Furthermore, federal immigration reform could result in millions more California residents seeking help from adult education programs, such as basic skills, civic education, and English-as-a-second-language (ESL) courses .

Adult education is a critical but often overlooked part of our state’s system of education and career preparation, especially for low-and middle-income Californians. A strong adult education system that meets the needs of these residents would benefit all Californians and contribute to a better-trained workforce and a stronger economy.

— Phaelen Parker

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One Step Forward, One Step Back in Addressing School Funding Inequities?

June 5, 2013

Political momentum is building toward a fundamental restructuring of California’s K-12 school finance system — yet significant details remain unresolved. The question confronting policymakers is not how much funding to provide schools, but how to allocate state dollars. Governor Brown’s proposed Local Control Funding Formula (LCFF), the subject of a recently released CBP chartbook, would increase base-level funding for the vast majority of school districts while also providing additional resources to districts that have students with greater needs. Although alternative LCFF proposals offered by the Legislature would likely increase the base-level funding for all districts, this might be done by reducing state support for higher-need school districts.

The LCFF would streamline state education funding and establish a target general purpose base grant — on a per student basis — for all school districts. The Governor’s proposal would set this target base grant at a level equal to the 2007-08 statewide average for school district general purpose funding. This means that once the LCFF is fully implemented, it would restore reductions made to general purpose funding since the Great Recession for the vast majority of schools. However, the LCFF would not restore cuts made since 2007-08 to the approximately 10 percent of school districts whose 2012-13 funding is already higher than the target base (i.e., the 2007-08 statewide average). Representatives of these districts have raised objections to the Governor’s proposal because they would not receive as much funding from LCFF grants as they might under current formulas.

Legislative proposals that would alter the LCFF – in part to address these districts’ concerns — have been taken up as part of this week’s Budget Conference Committee. Senate Bill 69, supported by Senate leadership, would eliminate the LCFF “concentration grants” — the dollars allocated to districts with high concentrations of disadvantaged students — and shift some of the freed-up dollars to increase the base grants for all school districts. In the Assembly, the Budget Committee has approved a set of LCFF principles that contain “Economic Recovery Targets” (ERTs). ERTs would restore 2007-08 funding levels, plus foregone cost-of-living adjustments, for all school districts not restored under the LCFF. To achieve this goal, however, policymakers likely would have to reduce the amount of funding allocated for disadvantaged students under the LCFF, extend the amount of time it would take to fully implement the formula, or both. Moreover, establishing ERTs would create a complex, two-tiered finance system that would undermine the LCFF’s efforts to make school finance in California both more transparent and more equitable.

Legislators have voiced reasonable concerns about establishing an LCFF target base grant that does not reflect the cost of adequately educating all students. Increasing the LCFF target base grant is a worthy goal. However, raising the base grant either by reducing the funding proposed for disadvantaged students or by lengthening the time it would take to fully implement the LCFF would water down school finance reform and — even worse — could perpetuate current funding inequities.

Critics of the LCFF argue that it unfairly creates “winners” and “losers.” However, unless the LCFF provides school districts the resources needed to help disadvantaged students reach the state’s high academic standards, California could end up continuing to shortchange those who are “losers” in the state’s current system.

— Jonathan Kaplan

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After Years of Deep Cuts, an Increase in the CalWORKs Grant Deserves Serious Consideration

June 3, 2013

Today, members of the California Legislature will meet in Budget Conference Committee to continue resolving differences between the Senate and Assembly’s versions of the 2013-14 state budget. One important item up for discussion is the size of monthly grants for families in the CalWORKs Program, which provides cash assistance to low-income families along with welfare-to-work services to help parents find jobs and overcome barriers to employment.

The Senate and the Brown Administration have proposed keeping the CalWORKs grant frozen at its current level, while the Assembly has proposed a phased-in increase that would raise the maximum grant to 50 percent of the federal poverty line over a five-year period, starting with a 12 percent increase January 1, 2014.

After years of steady decline in the purchasing power of the CalWORKs grant, followed by sharp cuts to the grant in recent years, the $638 maximum aid payment for a family of three is currently equal to about 39 percent of the poverty line, well below the “deep poverty” cutoff of 50 percent. To put things in perspective, today’s cash grant is roughly the same, in actual dollars, as the maximum grant in 1987. The critical difference is that back then, the value of that dollar amount was equal to about 80 percent of the poverty line — or double the percentage today.

The Assembly proposal to increase the CalWORKs grant acknowledges the fact that California is facing a serious poverty problem. This problem came into sharp focus last year when the Census Bureau released state rankings under the new Supplemental Poverty Measure, which compares families’ resources to the cost of housing and other necessities. California was perched at the top of the list, with 23.5 percent of residents living in poverty. Even under the official poverty measure — the basis for the federal poverty line — about one in six Californians, and nearly one in four California children, are living in poverty. (For a family of three, this means an annual income below $19,530.)

The fact that so many of the state’s children experience this daily hardship is deeply troubling in and of itself. But child poverty’s effects extend far beyond individual households. Since children who grow up in poverty are likely to have lower earnings, less education, and poorer health as adults, poverty affects all Californians who care about a strong workforce and a robust tax base for the state.

Augmenting the CalWORKs grant would help address poverty in California by lifting the household income of CalWORKs participants, who make up a large share of the state’s low-income families. Such an increase would directly benefit the more than 1 million children in CalWORKs households. Depending on how the change is implemented, the 12 percent increase in the CalWORKs grant that the Assembly proposes for 2013-14 could bring the maximum grant for a family of three from its current $638 level up to about $714 a month — still below where it was 10 years ago. This change, though modest, would be a step in the right direction after years of repeated cuts to the CalWORKs grant.

— Hope Richardson

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Expanding Medi-Cal While Protecting Counties’ Health Care Safety Net

May 24, 2013

Expanding Medicaid to parents and childless adults who are currently excluded — a change that could extend health coverage to hundreds of thousands of low-income Californians next year — is a cornerstone of federal health care reform. While there is broad agreement among policymakers that California should adopt this expansion of its Medi-Cal Program, there has been considerable debate over how the expansion should occur, as we explained in our recent Medi-Cal chartbook. Governor Brown settled one point of contention last week when he endorsed, in his May Revision, a state-led expansion of Medi-Cal, dropping his January proposal that left open the possibility of counties taking the lead.

At the same time, however, the Governor’s May Revision maintained his proposal to link the Medi-Cal expansion to a major “realignment” of fiscal and programmatic responsibilities for human services programs from the state to the counties. Under this proposal, additional county costs for three programs — CalWORKs, CalWORKs child care, and CalFresh — would be funded by redirecting to those programs most of the state dollars that counties currently use to provide health care to low-income, uninsured (“medically indigent”) residents. The Governor assumes that counties will no longer need these dollars as many medically indigent adults newly enroll in Medi-Cal under the expansion. The Governor therefore proposes to use these county “savings” — which would be determined based on a formula negotiated with lawmakers and counties — to reduce the state’s General Fund costs for human services programs dollar-for-dollar. Using the Administration’s version of the formula, the May Revision estimates that $300 million would be redirected from counties’ health care infrastructure in 2013-14, followed by shifts of $900 million in 2014-15 and $1.3 billion in 2015-16 — a total of $2.5 billion over three years.

From our vantage point, the Governor’s proposal raises three major concerns:

  • The Governor has not provided a policy rationale for pursuing a new state-to-county realignment. State policymakers periodically transfer responsibility for public services from the state to the counties, and vice versa, in an effort to improve service delivery and outcomes and align fiscal incentives with program responsibility. However, the Governor has not offered a clear policy justification for pursuing a new realignment that encompasses CalWORKs, child care, and CalFresh. The Administration has provided few details about the realignment concept, and evaluating the benefits and costs of the proposal (for both low-income families and counties) would require considerable time — time that lawmakers don’t have given that they must work out the details of the Medi-Cal expansion within the next two to three weeks. Also, the Governor’s proposal adds unnecessary complexity to the already-challenging decision of how to implement the Medi-Cal expansion, as the Legislative Analyst’s Office (LAO) has pointed out.
  • The Governor’s proposal would shift too much funding — too quickly — from county health care services. The Governor proposes to redirect $300 million from counties concurrent with the Medi-Cal expansion in 2014, with the annual amount shifted escalating to more than $1 billion within a couple of years. This rapid increase is attributable to both the structure of the formula (as proposed by the Administration) and the fact that all of the county “savings” would accrue to the state’s benefit, with no savings set aside for counties to reinvest in local health care services and infrastructure. The California State Association of Counties argues that “redirecting this money now will force counties to cut critical public health and safety net services and will reduce funding available to care for the remaining uninsured.” This is why we’ve suggested that policymakers take a “wait and see” approach regarding the appropriate level of state funding for indigent health care services. It’s unclear how the Medi-Cal expansion will affect the use and the cost of the county health care safety net in the coming years. As this picture comes into focus, lawmakers — armed with better information — can consider whether and how to shift any county savings that result from health care reform. In the meantime, policymakers could consider adopting the framework proposed by Health Access, under which the state would encourage counties to repurpose their Low Income Health Programs to serve the many Californians — an estimated 3 to 4 million — who are expected to remain uninsured even after health care reform is fully implemented.
  • The size of the proposed fund shift does not square with the Administration’s assertion that these dollars are needed to offset new state costs for Medi-Cal. The Administration’s primary justification for shifting dollars from county health care services is that the state “cannot afford” to both increase its spending on Medi-Cal and continue the current level of funding for county indigent health care. This argument has struck many advocates as curious because the federal government will fund the entire cost of the Medi-Cal expansion through 2016, at which point the state’s share of costs will increase to 5 percent in 2017 and gradually rise to a maximum of 10 percent in 2020. However, the Administration also argues that the state will have new costs for currently eligible Californians who are expected to newly enroll in Medi-Cal starting next year as a result of various eligibility simplifications now required by federal law. Yet the cost of these new enrollees is expected to be relatively small over the next few years. Using “moderate-cost assumptions,” the LAO estimates that the state’s cost for this already-eligible group will be roughly $100 million in 2013-14, rising to about $360 million in 2015-16. (The Administration has released larger estimates, but the LAO suggests those projections are “likely too high.”) In short, if the purpose of redirecting dollars from county health care services is simply to offset state Medi-Cal costs that are attributable to health care reform, then any amounts shifted would have to be significantly below the Governor’s proposed $2.5 billion over three years — and no higher than $100 million in the first year alone.

The federal government’s commitment to initially fund 100 percent of the cost of the Medi-Cal expansion gives California a historic opportunity to extend health coverage to hundreds of thousands of low-income adults while also ensuring that the county health care safety net remains strong for the millions of Californians who will continue to rely on it in the years to come. California is not faced with an either/or proposition; we can do both.

— Scott Graves

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Governor’s New Restructuring Proposal Stirs Up Debate Over Future of Enterprise Zone Program

May 22, 2013

One of the issues we’ve been tracking closely in this year’s budget debate is potential reform of the state’s Enterprise Zone (EZ) Program. Established in 1984, the EZ Program provides a variety of tax credits intended to encourage businesses to locate in economically distressed areas as well as to promote job creation. However, research shows that, as currently structured, the program fails to achieve its goals. At the same time, the EZ Program places an increasing strain on the state budget: The program cost the state $720 million in 2010 and is projected to cost $1 billion by 2015-16.

Governor Brown’s revised 2013-14 budget, released a week ago, includes a new, revenue-neutral set of proposals that would significantly restructure the EZ Program. These proposals include narrowing the EZ hiring tax credit, expanding statewide the sales and use tax credit for the purchase of manufacturing and biotech equipment, and creating a California Competes Recruitment and Retention Fund, which would provide tax credits for business investment and job creation throughout California.

The May Revision’s proposed changes to the EZ Program are controversial and have generated media attention across the state, with, for example, articles in the Los Angeles Times and the Sacramento Business Journal pointing to the mixed reactions to the Governor’s new proposal.

As we noted in our discussion of the Governor’s January budget proposal and our analysis of the May Revision, policymakers have real choices in crafting a budget, even when facing revenue constraints. As policymakers choose the future direction for EZs in California, the upcoming debate will likely focus on three issues.

First, the Governor’s proposals to narrow the hiring tax credit and expand the sales and use tax credits statewide essentially end EZs as they are currently structured. But, as noted earlier, the program doesn’t produce significant outcomes given the costs to the state in foregone revenue. In light of its serious shortcomings, elimination or restructuring of the EZ Program would not be expected to have an adverse effect on employment or job growth.

Second, local leaders argue that the loss of EZs is an egregious hit coming on top of the elimination of redevelopment agencies (RDA) just last year. They have a point. Much like in prior years’ battle over RDAs, the issue isn’t the intent of the program — most of us support efforts to redevelop and create jobs in economically distressed areas. Rather, the issue is that these programs are poorly structured to produce the desired outcomes, and they come at a high cost to state and local governments and constrain their ability to invest in other priorities. However, the debate over EZs shouldn’t be a fight to the death, as with RDAs. The Governor and local leaders should come together to craft legitimate strategies for economic development. If not RDAs, or EZs, then alternatives need to be developed that put state and local investments on the same page.

This brings us to the third issue: the Governor’s proposed California Competes Recruitment and Retention Fund, which would operate out of the Governor’s Office of Business and Economic Development (GO-Biz). The details are lacking at this point, but on early review, the proposal raises concerns that it apparently gives discretion to the Governor’s Office to provide tax credits throughout the state. Not only does research show that EZs fail to produce the intended outcomes, but considerable research also suggests that state tax credits are equally if not more ineffective than area-based credits. While the narrowing of the credits as noted above has the potential for considerable state savings, we suspect the new Fund is what results in the Governor’s proposals being revenue-neutral, rather than providing an increase in revenue. Bottom line, we think the state’s money could be better spent elsewhere.

A more critical look at state and local economic development incentives along with a more ambitious restructuring of the EZ Program could reduce the strain on the state budget and provide funds for needed investments elsewhere, such as increasing the number of subsidized child care and preschool slots, repealing the 10 percent cut to Medi-Cal provider payments, and strengthening the CalWORKs Program.

The CBP will soon release a report analyzing California’s EZ Program. Stay tuned.

— Kristin Schumacher and Chris Hoene

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