A new method of awarding state funding for school construction projects under Proposition 1A appears to be favoring urban districts at the expense of suburban and rural districts. The change has satisfied, for now, a number of ethnic and anti-poverty groups that had sued over an earlier state funding method. However, the change has angered many school districts, about 110 of which have sued the State Allocation Board. Meanwhile, the Legislative Analysts Office has released a report that recommends an entirely new approach. The LAO recommends the state provide capital facilities funding on an annual, per pupil basis after a "transition program" that would bring districts across the state to comparable starting points. The LAO report has received a mixed reception. The policy debates and lawsuits rage at a time when demand for school construction dollars outstrips available funding. California has 6 million grade school and high school students, about one-third of whom are taught in crowded or substandard classrooms. A new school bond is likely to appear on the statewide ballot in November 2002, but nothing is certain. In 1998, state voters approved Proposition 1A, a $9.2 billion bond that contained $6.7 billion for K-12 school construction and modernization, and $2.5 billion for community college facilities. Legislation to implement Proposition 1A (SB 50) called for awarding the K-12 money largely on a first-come, first-served basis, with local funding matches required in most cases. It was the type of system the State Allocation Board has used for years. By September 2000, the State Allocation Board had spent nearly $5.4 billion for K-12 projects, including all modernization funding. However, some fast-growing urban districts, often in poor areas of Southern California, had received little or no money. "That just did not make sense given that the statute was intended to address school overcrowding," said Hector Villagra, staff attorney for the Mexican American Legal Defense and Educational Fund (MALDEF). So that organization and others sued the state last year to force a change in State Allocation Board practices. Under the contested system, a district needed to have land for a school, arrange various environmental clearances, get state approval for construction plans, and line up local matching funds before the district could apply for Proposition 1A money. Those steps took urban districts longer because there is often little land available for new schools, Villagra said. Urban districts often must consider a brownfield site that needs extensive study and possibly cleanup, or must acquire property through eminent domain. Thus, it appeared all $6.7 billion would be spent before these districts got in line for funding, Villagra said. Los Angeles County Superior Court Judge David Yaffe agreed and ordered the state to craft a fairer system. When the State Allocation Board drew up a "priority points" system that favored the most overcrowded schools, the group of mostly small and medium-sized districts and the Coalition for Adequate School Housing (CASH) filed their lawsuit claiming the Board did not have authority to change the system. The State Allocation Board went ahead and adopted the priority points system last December, causing MALDEF to put its lawsuit on hold but infuriating districts that were in line for money under the previous rules. "The system is awry," said Thomas Duffy, of CASH. "They are hurting the districts that were pushing forward with the things they needed to do." Under the new system, the State Allocation Board awards $125 million per quarter in seven cycles through June of 2002, explained Philip Shearer, chief of operations for the Office of Public School Construction. In August of 2002, the board will have $450 million of Proposition 1A funds remaining. That money will go to urban districts most in need of new classrooms. Under the new system, there is already a backlog of $600 million worth of school construction, and the backlog will grow because the priority points system is withholding money, Shearer said. Representatives of CASH propose going back to the old SB 50 system, with additional money awarded to "underperforming" districts. A similar method worked well for 25 years, Duffy argued. But the Legislative Analyst's Office report, released in May, concluded that the system has not functioned effectively. "The state's first-come, first-served approach did not … necessarily allocate construction aid to districts where the need was greatest," the report states. "In the case of the SB 50 program, for example, some districts (such as Irvine Unified) submitted applications and received state aid to build facilities for all eligible students. Other districts with large construction needs (such as Los Angeles Unified and Santa Ana Unified), in contrast, have been slower in submitting applications and have received funding for just 2% of their eligible population." The LAO recommended the state fund capital projects annually, just as it pays for school operations. Under the recommended program, the state would provide districts with about $550 per student, with adjustments for poor districts. School districts would have broad discretion to spend the money. Assuming districts match the state funding, there would be about $3.2 billion available every year for capital projects — enough to cover a moderate backlog and fund future needs. The longstanding practice of a large slug of bond money becoming available at unpredictable intervals makes school planning difficult, said Marianne O'Malley, principal fiscal and policy analyst for the LAO and an author of the report. "The notion that we pass a great big bond and some districts get shiny new schools — and some districts don't — does not make sense," O'Malley said. "It's not a good way to run a capital outlay program." The longstanding system also confuses the public, as local school officials blame the state for being stingy, while state officials blame the locals for poor planning, according to O'Malley. Thus comes the recommendation to make districts responsible. O'Malley described reaction to the report as ranging from "cautiously very interested to nervous." Duffy, from CASH, outright rejected the recommendations. He said districts with large capital needs would not receive enough money, while districts in good shape would receive more money than necessary. But MALDEF's Villagra said the LAO report "is pushing us in the right direction." A steady stream of funding makes sense, especially because bonds appear irregularly and are always oversubscribed, he said. A school bond appears likely for the November 2002 ballot, although nothing is final. Some people have noted that selling a bond to the Legislature and public could be difficult because of the State Allocation Board's plan to have $450 million available as late as August 2002. "There will be a lot of skeptics," warned Shearer, "who say, ‘How can you have another bond when there is still money in the account?'" Contacts: Philip Shearer, Office of Public School Construction, (916) 445-2704. Thomas Duffy, Coalition for Adequate School Housing, (916) 441-3300. Hector Villagra, Mexican American Legal Defense and Education Fund, (213) 629-2512. Marianne O'Malley, Legislative Analyst's Office, (916) 445-6442. LAO report, "A New Blueprint for California School Facility Finance," www.lao.ca.gov