Cover: Deregulating School Aid in California

Deregulating School Aid in California

How Districts Responded to Flexibility in Tier 3 Categorical Funds in 2010-2011

Published Jun 25, 2012

by Brian M. Stecher, Bruce Fuller, Tom Timar, Julie A. Marsh

with Mary Briggs, Bing Han, Beth Katz, Angeline Spain, Anisah Waite


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Research Questions

  1. How well did districts understand the regulations and the purposes of the legislation?
  2. Who did districts turn to for information and advice?
  3. What was done with Tier 3 categorical funds?
  4. What priorities did district leaders emphasize?
  5. Who influenced decisions about Tier 3 programs?
  6. What were the consequences for students, staff, and other stakeholders?
  7. What do districts expect to happen in 2011-12?

California's system of school finance is highly regulated and prescriptive. A large share of state funding is allocated through categorical programs, that is, programs whose funding is contingent upon districts using the money in a particular way or for a particular purpose. In 2008–09, the strings were taken off 40 of those programs, collectively known as the "Tier 3" programs, as part of a budget deal that also reduced the funding for those programs. The authors conducted a survey of 350 California school district chief financial officers (CFOs) between April and August of 2011 to see how district leaders responded to this sudden, limited fiscal flexibility and the conditions that shaped their decisions.

Key Findings

School District Leaders Had Limited Understanding of the Legislature's Intent and Regulations Governing Tier 3 Funds

  • A year after implementation, uncertainty still persisted over the purposes of Tier 3 flexibility and the rules governing it.
  • Chief financial officers (CFOs) relied heavily on School Services of California and their county offices of education to make sense of the rules and regulations related to Tier 3 flexibility.

Decisions Were Made by District Central Office Staff

  • CFOs and superintendents had the greatest say in how Tier 3 funds were used.

The Bulk of Tier 3 Program Funds Were Reallocated, That Is, "Swept" into District General Funds to Help Meet Districts' Most Pressing Needs

  • CFOs reported three top priorities: preserving fiscal solvency, retaining staff, and protecting current instructional programs.
  • There was nearly unanimous agreement that flexibility helped districts avoid layoffs and salary reductions.
  • Some programs took heavier hits than others, such as programs linked to teacher quality.
  • CFOs expect to reduce classified and certificated staff and increase class size in 2012 but were less likely to anticipate changes that require renegotiating contract provisions.


  • The legislature and governor should articulate clearly the purposes of fiscal flexibility in order to reduce confusion at the local level.
  • If the legislature and governor hold particular priorities with regard to improving the performance of low-achieving students or advancing certain reform models, those priorities should be made explicit to local educators.
  • Educators should have much clearer information and guidance to deal with multiple, interrelated policy changes.
  • The California Department of Education should require districts to use a common system for reporting on revenues and expenditures.
  • Policymakers should require an evaluation of the impact of flexibility to determine which students, schools, and programs benefit from fiscal flexibility, and which do not.

The research described in this report was supported by the William and Flora Hewlett Foundation, the Dirk and Charlene Kabcenell Foundation, and the Stuart Foundation, and was conducted by PACE research network and RAND Education, a division of the RAND Corporation.

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