California Public School Funding Overview
California public school districts receive funding from a variety of local, state, and federal sources. Some of the funds are earmarked for specific groups of students, including students from low-income families, English language learners, and students with disabilities. The rest of the funds are for general purposes.
The amount of general purpose funding a school district receives per student (using average daily attendance, also known as ADA) is called its Local Control Funding Formula (LCFF). A district's total LCFF is funded through a combination of local property taxes and state taxes. Each of the nearly 1,000 school districts in California has its own LCFF calculation and different funding rates are applied to grades TK-3, grades 4-6, grades 7-8, grades 9-12.
State and local funds are combined to make up a district's LCFF funding. A simple analogy can help illustrate this. Imagine a bucket. Each district has a different-sized bucket, representing its individualized LCFF. Revenues raised through local property taxes are dumped into the district's bucket, and if the bucket is not filled all the way, the state tops it off with state tax revenues.
If the bucket is completely filled by local property tax revenues, the state has no need to top off the bucket. If the bucket overflows with local property taxes, the district gets to keep the overage. Districts whose buckets are filled by local property taxes are called Basic Aid or "excess revenue" districts.
Saratoga Union School District is considered a Basic Aid district.
Basic Aid District Funding
The California Constitution guarantees that each school district will receive a minimum amount of state aid, called “basic aid” equal to $120 per ADA or $2,400 per district, whichever is greater. Per a change in state law effective 2003-2004, state categorical aid is counted first toward meeting the minimum allocation of basic aid (ref. Education Code Section 41975). These are the only state funds a Basic Aid District receives under LCFF.
Basic Aid districts used to receive some money for state categorical programs such as instructional materials, economic impact aid, and library materials, but those funds disappeared with the state budget cuts and implementation of LCFF in the 2013-2014 fiscal year. During the last economic recession, Basic Aid districts were required to give up their “fair share”, which resulted in a reduction of state funds for SUSD of 8.92% or $1,281,416 each year.
Approximately 80 of the 1,000 school districts in the state of California have local property tax revenues which, given their enrollment levels, result in dollars per Average Daily Attendance (ADA) that exceed their LCFF calculation. These districts under current state law are allowed to keep all of their property tax revenue. This results in an extremely high degree of dependence on local property taxes. The $120 ADA guarantee is the only general fund dollars that Basic Aid districts receive from the state.
Several school districts in the local area are considered Basic Aid, including Saratoga USD, Los Gatos USD, Palo Alto USD, and Santa Clara USD. However, because local property tax revenues and enrollments fluctuate from year to year, some districts may be basic aid one year but not the next.
Challenges of Basic Aid Districts
As a higher revenue Basic Aid district, Saratoga Union School District has been able to provide the community with high level educational programs, instructional materials, and competitive salaries to attract and retain staff. However, in order to maintain fiscal solvency there are challenges to consider.
Upside of Basic Aid
Higher level of funding
Basic Aid districts receive higher revenues than revenue-limit districts.
Declining enrollment doesn't hurt
Because funding is based on property taxes, a decrease in student enrollment (i.e. loss in ADA) doesn't result in a reduction of local property taxes.
Property tax growth helps the district
When property values and sales increase, the growth in property taxes yield increases in school revenue.
Risks of Basic Aid
Uncertainty and "rainy day" reserve funding
Year to year, property tax revenue can be flat, uncertain, or subject to dramatic changes. This is due to the cyclic nature of property values, economic swings, and limitations on the county forecasting systems. Therefore, while the additional revenue that a basic aid district receives is extremely helpful, the district’s financial picture must be watched very carefully for signs of change. The district needs to carry significant fund reserves so that changes in property tax revenue can be accommodated without major impact on student programs and staffing.
Delayed revenue information
LCFF districts know their Cost of Living Adjustment (COLA) by May and their enrollments in September. SUSD receives preliminary property tax projections in August. The first county Tax Assessor’s projection is in August, and the final information is received in July of the following year (after the fiscal year is over). The information delay can cause uncertainty so the district must plan for different scenarios.
Enrollment growth not funded
As opposed to state “LCFF” funding which pays an amount per attending student and therefore adjusts to enrollment growth, a Basic Aid district must pay for any growth from its fixed pool of property tax funds. Therefore, enrollment growth can adversely affect its finances. In other words, the school district receives no additional funding when enrollment grows or is higher than estimated.
Loss of program funding
Once a district becomes a Basic Aid district, certain state and local funding will be lost such as Education Revenue Augmentation Fund (ERAF), Supplemental Tax, and Free/Reduced meal funding for low income students.
The district must pay for increases in state retirement rates (PER and STRS) and unemployment insurance costs.
Basic Aid districts must always worry about potential changes in state law which can freeze or redistribute school property taxes within a county, thereby taking away the excess property taxes that Basic Aid districts have.