Deregulating School Aid in California

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 on 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 author gathers evidence about how districts have responded to this fiscal freedom, particularly how resource allocations are made at the district level and what specific changes districts have made in their allocations. Although concerns have been raised that those districts with relatively more Tier 3 funding have been disproportionately affected by the state's budget crisis, the data show that districts with more Tier 3 funding lost a similar share of their budget as other districts (although that represents larger per-pupil dollar amounts). Furthermore, so far and on average, districts do not appear to be making large-scale changes in how they are spending their money.