Since 1999, with the passage of the Public School Accountability Act (PSAA), California has had a system for holding schools accountable for the achievement of their students.

In August 2003, the state modified its accountability system to meet the funding conditions of the federal No Child Left Behind Act (NCLB). The purpose of NCLB, which was signed into law by President George W. Bush in January 2002, is to use federal funding as leverage to make sure that all the nation's children are able to read, to write, and to understand math well by the time they graduate from high school. Under NCLB, states develop their own ways of measuring whether schools, school districts, and the state as a whole have made "adequate yearly progress" (AYP) toward this goal, but their approach has to be approved by the federal government.

To show that their schools are making AYP, states have to:

• Create "annual measurable objectives" (AMOs) for the percent of students that must show proficiency on tests aligned with state content standards (such as the California Standards Tests and the California High School Exit Exam);
• Select an additional way to measure student progress;
• Attain specified high school graduation rates or improvement in the graduation rate; and
• Test 95% of their students.

If a school or district that receives funds from Title I of NCLB does not make AYP on the same indicator for two years in a row, it goes into "Program Improvement."

In an attempt to keep the AYP system consistent with the Academic Performance Index (API) approach, which California implemented in 1999, the state uses the API for its additional measurement of student progress. But the NCLB approach to accountability drove significant changes in California's system.

Schools and districts must test 95% of their students to make adequate yearly progress

Under NCLB, the first hurdle all schools and districts must clear in their efforts to make AYP is testing 95% of their students, including 95% of each significant student subgroup. Under the API system, California held schools accountable for significant subgroups based on ethnicity and poverty. NCLB adds students with disabilities and English learners.

This 95% testing requirement is a way for the federal government to make sure that all children are succeeding and that enough children are tested so that the statistics for the school as a whole and each subgroup are valid.

If a school does not test 95% of students in the school as a whole and each significant subgroup, then the school automatically does not meet its AYP goal. To be considered "significant," a subgroup must include either 100 students or 50 students if they represent at least 15% of the overall school population. For example, if a school has 360 students and 54 of those students are English learners, then 51 of that school's English learners and 342 of all its students must be tested for that school to be able to meet its AYP goal. (54/360 = 15%; 95% of 54 = 51; 95% of 360 = 342.)

Tests on content standards are used to determine annual measurable objectives for elementary and middle schools

California developed one set of annual measurable objectives (AMOs) for schools serving grades 2–8 and another set for high schools. For grades 2–8, AMOs are statewide targets for the percent of students scoring proficient or advanced on California Standards Tests (CSTs) in English language arts (ELA) and mathematics.

The state decided to start slowly, using a "stair step" approach. For the first two years, beginning in 2002–03, an elementary or middle school met its AMO if 13.6% of its students scored proficient or above in ELA and 16.0% scored proficient or above in math. In 2007–08, these schools will meet the AMOs if 35.2% of students score proficient in ELA and 37% score proficient in math. The targets rise steadily in subsequent years until they reach 100% in 2013–14.

Students scoring proficient on the California Alternative Performance Assessment (CAPA), a test for students with severe cognitive disabilities, may make up only 1% of a district's total number of students counted as proficient. This helps ensure that the CAPA is administered only to the appropriate students. Beginning in Spring 2008, the state will use a modified CST for an additional 2% of students with milder disabilities. The test will be administered only to students in grades 3–5 in the first year, with grades added in subsequent years.

Annual measurable objectives for high schools are based on exit exam results for 10th graders

Because California tests high school students in math based on the level of the course they are enrolled in, it is difficult to use standards test results to determine AMOs. Because of that difficulty, the state decided to use the scores from the California High School Exit Exam (CAHSEE), which all 10th graders are required to take. For this purpose, the state set a "proficient score" that is higher than the score required to pass. To be labeled "proficient," a student must answer about 77% of the ELA and 69% of the math questions correctly. (To pass, a student need correctly answer only about 60% of the ELA and 55% of the math questions.)

Beginning in 2002–03, 11.2% of a high school's students had to score proficient or above in English and 9.6% in math. In 2008-09, the percentages are, respectively, 44.5% and 43.5%. The targets grow steadily toward 100% in 2013–14.

Schools need to show adequate yearly progress on additional factors

If schools test 95% of all students and all significant subgroups of students, and reach their ELA and math AMOs for the whole school and all significant subgroups, the next hurdle is their API score. Beginning in 2002–03, all schools (elementary, middle, and high) and all districts had to grow by at least one point or have achieved a minimum of 560 for the school as a whole only (not significant subgroups). In 2008–09, the minimum acceptable API score is 650 or one point of growth. As with AMOs, the minimum API score increases over time, until it reaches 800 in 2013–14. If elementary and middle schools pass this last hurdle, they successfully achieve AYP. But high schools and districts with high schools have to show progress on one more factor, which is graduation rates.

Graduation rates must reach a certain level (at least 83.1% for 2008–09), rise by 0.1 percentage points each year, or increase by 0.2 percentage points in the average two-year rate to make AYP. The graduation rate is defined as the number of students who graduate divided by the graduates from that year plus all dropouts over the previous four years.