July 10, 1997
	The Honorable Pete Wilson Governor of California
	The Honorable Bill Lockyer President Pro Tempore of the Senate     and Members of the Senate		The Honorable Rob Hurtt Senate Republican Floor Leader
	The Honorable Cruz M. Bustamante Speaker of the Assembly     and Members of the Assembly		The Honorable Curt Pringle Assembly Republican Leader

Dear Governor and Members of the Legislature: A complicated system of financing education benefits no one -- not the children whose learning needs often have little to do with spending formulas; not the educators who divert their attention from the classroom to attend to administering and tracking multiple funding streams; not the policy makers who want to address current needs but find their hands tied by historical patterns of spending; and not the taxpayers who demand answers and results but instead get confusion and excuses. Yet a complicated system to pay for schools is exactly what California has. Driven by court decisions, voter initiatives, political compromises and shifting trends, the system has grown increasingly complex without demonstrably moving the State any closer to the goal of a sound education for all children. The Little Hoover Commission has been tracking education issues for almost 35 years. Throughout that time, regardless of whether the issue has been governance, teaching methods or costs, the Commission has returned again and again to a single word: accountability. Our consistent theme has been that the State should set standards and goals and then hold local districts accountable for results -- a direction towards which the State is now moving. As the State proceeds with a process to set grade-by-grade education standards and to develop a corresponding assessment process, it is critical that the financing system be reformed and aligned with the new goals. How schools are paid for is an integral factor in how they function and how they perform. It will be futile to expect schools to revamp their methods and focus on new, high standards if funding formulas continue to drive decisions in ways that have little to do with academic results. In the following report, which is being transmitted to the Governor and the Legislature with this letter, the Commission examines the historical context of and current problems with the State's education finance system. In developing the five findings and eight recommendations, the Commission looked for ways to streamline funding without losing sight of three goals: 1. Providing children who have diverse needs the equity of opportunity to learn rather than mere equity of dollars spent. 2. Retaining local control of methods and options while requiring uniform statewide standards. 3. Investing adequate resources to ensure a well-educated, productive citizenry. With those goals in mind, the Commission is urging the Governor and the Legislature to take several steps, including: Redesigning the education funding system to simplify formulas, redirect the focus to educational needs rather than process and ensure meaningful equity of educational opportunity. Simplifying the Special Education system to ensure equity and flexibility without diminishing protections for children with special needs. Realigning fiscal accountability measures so they conform with and drive decision-making toward the statewide educational goals now being developed. Re-enforcing local control of schools by creating a local funding option. Convening a process to build consensus on what elements constitute an adequate education environment in California. Education financing today is a quagmire -- and no doubt many believe that little can be done to change a system that is well-entrenched and defended by a variety of special interests. But the State has committed itself to starting from scratch to determine what children should learn and how they should be tested. No less care should be taken with the financing system that supports and shapes education.

	Sincerely, Richard R. Terzian Chairman