Office of Superintendent of Public Instruction

K-12 Finance: Depth, Breadth, and Causes of a Looming Finance Crisis

1. What is the Basic Education Finance Task Force?

2. What is the financial outlook for school districts?

3. What are the funding shortfalls?4. What solutions are proposed?5. What are some implications for school finance

re-design?

Office of Superintendent of Public Instruction 2

Office of Superintendent of Public Instruction

Basics of the Basic Education Finance Task Force

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• SB 5627: This act is intended to make provisions for some significant steps towards a new basic education funding system by establishing a joint task force to address the details and next steps beyond the 2007-2009 biennium necessary to implement a new comprehensive K-12 finance formula or formulas. The formula(s) will provide Washington schools with stable and adequate funding as the expectations for the K-12 system continue to evolve.

Office of Superintendent of Public Instruction

BEFTF Has Several Proposals to Sift Through for Final Recommendations

12/1/08

Proposals in June Proposals Expected in October

• Superintendent of Public Instruction

• Full Funding Coalition (WASA, WSSDA, PSE, AWSP, WEA)

• League of Education Voters

• Task Force Legislators• Task Force Chair

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Office of Superintendent of Public Instruction 5

Office of Superintendent of Public Instruction

K-12 Financial Outlook

Why do school districts’ budget problems seem deeper and more widespread than in past

years?

1. In the recent past, how were districts balancing budgets?

2. What is the magnitude of the problem for 2008-09 school year and beyond?

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Office of Superintendent of Public Instruction

• Local Funds are typically levy and local effort assistance (LEA) dollars▫ Includes Federal and I-728 funds in this analysis▫ Common elements: discretionary, not state basic

education, do not inflate with staffing-based costs• Local Funds are commonly thought to employ

“enhancement” staff and programs• In reality, Local Funds cover major state-funding

shortfalls• Local Funds increases barely cover compensation

increases for levy, federal, and I-728 employees• State and local funds increase too slowly to cover

compensation plus all of the other emergencies and pressures to improve student achievement

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State Underfunding Pushes Costs Onto Maxed-Out Local Funds

Office of Superintendent of Public Instruction

How Have Districts Balanced Their Budgets in the Last Few Years?

2000-2008 2009 and Beyond

• Reduction in pension rates saved $364 million

• 2003-05 COLA suspension (3.1%) saved $187 million

• Increases in I-728 revenue and federal funding totaled $614 million

• Increase in levy authority to recognize I-732 suspension and I-728 delay

• Pension rates increase• I-728 and federal dollars

flatten • Local funds continue to

support COLAs• Other costs continue to

increase faster than inflation▫ Health benefits▫ Fuel

• Levy authority increases an average of 5%

• Levies approved to utilize 92% of authority

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Appendix slides quantify these statements.

Office of Superintendent of Public Instruction

2000-2008: State Savings of $1.3 Billion in Employer

Pension Contributions; $364 Million for Local Funds

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Office of Superintendent of Public Instruction

Quantifying School District Outlooks for 2008-09 to 2010-

11• Revenue increases: I-728, federal, levy,

enhanced state funding• Cost increases: Salary, benefit, and

retirement increases not covered by state, and fuel increases

•In 2008-09, districts will have a remaining $38 million in new revenue to cover all remaining cost increases on a $2.8 billion base

•2009-10 and beyond -- same magnitude of problem 10

Office of Superintendent of Public Instruction

With $38 Million Net Growth in Local Funds, Little Room Left for Other

Needs• Education programs to provide more

assistance and/or instructional expertise for students to meet achievement expectations or reduce drop-out rates

• Utilities, Insurance• Maintenance Emergencies• Curriculum Adoption• Increased Salaries Beyond Estimated COLA • Health Care Costs Above State Allocation Rate• New Mandates from State/Federal

Policymakers 11

Office of Superintendent of Public Instruction

Spending Ending Fund Balance Only Delays Cuts; Many Districts Have No Balance to Spend

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Office of Superintendent of Public Instruction 13

Largest Change for Smallest School Districts

Office of Superintendent of Public Instruction

Operating Fund Value of Districts with Less than 2% EFB Steady but Large

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Office of Superintendent of Public Instruction

Summary for 2008-09 School Year

• Statewide average Ending Fund Balances (EFB) held steady for 2008-09, but too many districts are on the financial edge

• Roughly 600 staff positions eliminated statewide (equivalent to 1 school district serving 4,000 students)

• 7 districts on Binding Conditions (BC) (1 may exit)

• At least 5 districts carefully watching for possible BC

• $2 Billion operating value for districts with 2% or less EFB

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Office of Superintendent of Public Instruction

Look Forward for 2009-10 SY• Little EFB cushion for 2009-10; without new

state resources schools face deep and devastating budget reductions

• State COLA is projected at 5%; pension rates increase; health benefits inflation consistent trend up

• Fuel stabilized but high and subject to spikes• Utilities consistent trend up• More students in public schools• More needy students• $3.2 Billion projected state deficit for 2009-

11 Biennium16

Office of Superintendent of Public Instruction 17

Office of Superintendent of Public Instruction

State Underfunding is Not Disputed

•Questions to answer: ▫What is the appropriate definition of basic

education?▫Will that definition fix the shortfalls

between district reality and state funding?

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Office of Superintendent of Public Instruction

6 Key Funding Shortfalls Must be Addressed

Learning Assistance

(4) B. Staff Ratios (1)(Certificated Instructional, Administrative & Classified)

C. Salaries (2) & Benefits

D. Operating Costs (NERC) (3)

=

State GeneralApportionment

Busing (6)

SpecialEducationBilingual

(5)

A. District Enrollment

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I-728

Gifted

Office of Superintendent of Public Instruction

Resource Level vs. Funding Formula

• Formula(s) must:▫Drive the right resource▫Account for district differences▫Provide stable and ample funding for decades

• More critical that BEFTF recommendations specifically identify the resource that must be driven by a formula▫Re-defining the basic education resource that

represents ample funding of a stable, general and uniform public school system is the fundamental change required

▫Without a specific set of resource recommendations, future Legislatures can implement the TF formula design but at an inadequate funding level

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Office of Superintendent of Public Instruction

A. Certificated Instructional StaffB. Classified Staff

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Office of Superintendent of Public Instruction

Certificated Instructional Staff Ratios (1A)

The ratios do not represent true class sizes.

Class sizes increase when planning periods, specialist teachers, librarians, counselors, etc., are purchased from the ratio above.

Certificated Instructional Staff

K-4: 1:18.85-12: 1:21.7

IncludesAll Teachers,Instructional

Coaches, Nurses, Counselors, Librarians,

and all other Pupil Support

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Office of Superintendent of Public Instruction

Current Definition Re-Stated to Reflect Staffing Array:Districts Choose Between Lower Class Sizes, More Hours per

Day, and Student Support

CertificatedInstruction Staff

K-4: 1:18.85-12: 1:21.7

Students per 1 FTE Staff 6 periods + 1 hr planning

Teachers

Grades K-5Grades 6-8

Grades 9-12

Instructional Coaches

LibrariansGuidance Counselors

& Pupil Support

Nurses

=

1:24.71:29.01:29.0

1:1,250

1:2,659

1:786

1:462

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Office of Superintendent of Public Instruction

SPI Recommendations to BEFTF: Define Instructional Staff Ratios as Follows

CurrentProposed

Elementary Proposed

MiddleProposed

High

Class Size Prior slide 21.2 25.5 25.5

Assumed 6 period day for all students

Students per Staff Current

Proposed Elementary

Proposed Middle

Proposed High

Instructional Coaches 1,250 1,000 1,000 1,000

Librarians 786 500 500 500

Nurses 2,659 500 750 1,000

Guidance & Counseling & Pupil Support

462 500 350 350

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Office of Superintendent of Public Instruction

Districts Hire Many More Classified Staff Than Are Funded by the State

(1B)

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Office of Superintendent of Public Instruction

SPI Recommendations to BEFTF: Define Basic Education at 25.1 Staff per 1,000

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Office of Superintendent of Public Instruction

A. Certificated Instructional (Primarily Teachers)B. Classified (Non-Certificated) and Administrative

(Certificated but Supervise)

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Office of Superintendent of Public Instruction

Districts Subsidize State Salaries, Issues Differ by Group

Teachers and Other Certificated Classified and Administrative

1. State sets salaries based on a salary schedule and pays some teachers on a greater schedule than others

2. State has not evaluated salary levels or purposes for decades; districts pay for some supplemental salaries that are likely a basic education responsibility

3. State salary schedule has not been updated to reflect research on compensation incentives or latest research on appropriate base compensation

(State does not set salaries for classified and administrators; instead the state allocates a salary average for each group)

4. State allocates different salary averages among districts based on 30-year-old snapshot

5. State has no method to allocate staff salaries to reasonable cost of attracting and retaining

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Office of Superintendent of Public Instruction

55,322

12,878**

Differences in Teacher Salary Impacts Morale and Retention

1. Base salary most districts

2. Base salary of Everett

Equalizing will cost $167 million and raise most teacher salaries by 5%

3. Additional (supplemental) salaries on average nearly $8,500 per teacher statewide

$61,154

2008-09 Teacher Salaries (average experience and education)

$100,000

$90,000

$80,000

$70,000

$60,000

$50,000

$40,000

$30,000

$20,000

$10,000

$0

Base Salary

Additional Salaries

Typical Everett

52,706

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8,448*

$68,200

* Projected from 2006-07** 2006-07; full-time staff only

Office of Superintendent of Public Instruction

Additional Salaries Increase Faster than Levy Revenue

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Office of Superintendent of Public Instruction

Districts Must Subsidize Classified/Admin Salaries by $366 Million

1. Average total salary

2. State average allocation

3. District allocations vary, first step is to equalize salary allocations ($226 million state cost to equalize)

4. After equalization, the state still must identify an appropriate method to address true costs districts experience ($140 million difference between equalized allocations and district costs)

Districts also pay difference in salary and COLA/benefits

$36,593

$96,445$100,000

$90,000

$80,000

$70,000

$60,000

$50,000

$40,000

$30,000

$20,000

$10,000

$0

State Avg. Allocation

Addt’l $ Above Max Rate

State Allocation at Max Rate

Classified Administrative

30,688

4,5391,316

57,065

23,742

15,638

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Office of Superintendent of Public Instruction

SPI Salary Recommendations to BEFTF

Teachers and Other Certificated Classified and Administrative

1. Equalize base salaries to Everett level

2. Complete BEFTF research on supplemental salaries and comparisons of teacher salaries to other occupations /states; identify appropriate salary and appropriate state contribution

3. Adopt a new salary schedule with higher lifetime earnings and increases for certification-based demonstrations of excellence

4. Equalize salary allocations across districts

5. Identify an appropriate method to allocate salaries at a level consistent with what districts must pay

▫ Classified salaries based on state salary schedules

▫ Administrative salaries—TBD but must reflect near current actual salaries

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Office of Superintendent of Public Instruction 33

$9,476per CIS

(2006-07 SY)

$468per student

=

State NERC Funding Intended to Cover All Non-Employee Costs Related to Basic Education

=

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Office of Superintendent of Public Instruction

Districts Spend Over $500 Million More on NERC Than the State Funds

18-yr Cycle

8-yr Cycle

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Office of Superintendent of Public Instruction

An Increasing Number of Districts Spend Over 80% of Their NERC Allocation on Utilities and

Insurance

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Office of Superintendent of Public Instruction

SPI Recommendation to BEFTF: NERC

•Define basic education at $1,101 per student instead of $468 (2006-07 dollars)• Fully funds operating costs that relate to basic

education • Includes $126 per student for curriculum, a 6-

year adoption cycle• Inflate with measures specific to cost

•Add $282 per student for instructional technology• Phase-in over 7 years

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Office of Superintendent of Public Instruction 38

Office of Superintendent of Public Instruction 39

Poverty is Now the Funding Driver; Lap Funds, in Total, LAP Funds Have Increased Substantially.

Office of Superintendent of Public Instruction 40

Despite Large Increases in Funding, Buying Power Remains Constant

Office of Superintendent of Public Instruction

Current LAP Funding Must be Redefined

•LAP/Title 1/I-728/PAS buying-power (teacher hours) is roughly the same as in 1992-93

•Learning Assistance Program (LAP) allocates 3.46 staff units per 1,000 poverty students (1 staff per 289 poverty students)

•This equates to a teacher spending 30 minutes per day with groups of 28 struggling students▫No resource for materials, program support

or professional development41

Office of Superintendent of Public Instruction

SPI Recommendation to BEFTF: LAP

Redefine the LAP formula with 6 formula components based on successful programs:1. Reduce class sizes for severe poverty districts

Immediate class size reduction for poorest students; general staffing ratios may be implemented slowly

2. Hire teachers for small group tutoring (10% of students + more as poverty increases) Groups of 15 students for 1 teacher, 30 to 50 minutes per

day

3. Hire teachers for intensive tutoring (1% of students + poverty) Groups of 3 students for 1 teacher, 30 to 50 minutes per day

4. Add program administrative support5. Provide professional development for the teacher

staffing units driven by parts 1, 2, 3, and 46. Buy instructional materials

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Office of Superintendent of Public Instruction

LAP Recommendations Continued• LAP must remain a “basic education” program• Must be a staffing model or risk losing teacher

buying power• Must be based on a model of service proven

successful• Categorical allocation from state to school district

▫ Districts can implement a different model, hire different mix of staff

▫ Districts decide how to allocate among schools▫ Must serve struggling students

• $325 M increase over current funding ▫ I-728 currently pays for a portion of this now

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Office of Superintendent of Public Instruction 44

Office of Superintendent of Public Instruction

Buying Power of State Transitional Bilingual Program is Constant

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Office of Superintendent of Public Instruction

Funding for English Language Learners

•Current allocation is $904 per student▫Funding generates 1 teacher per 75

ELL students▫At this staffing ratio, no resources are

available for interpreters, program administration, professional development, instructional materials, translations, family outreach

•Some districts significantly subsidize the ELL program and positively impact student learning

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Office of Superintendent of Public Instruction

• Redefine the ELL formula with 6 formula components based on successful programs:1. Reduce class sizes for ELL2. Provide “floor” funding for districts with few

ELL3. Enhance funding for high ELL/multiple

language districts4. Middle/High school enhancement5. Provide professional development6. Buy instructional materials and assessments

•$96 M increase over current funding•Categorical allocation from state to districts

0

SPI Recommendation to BEFTF: ELL

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Office of Superintendent of Public Instruction 48

Office of Superintendent of Public Instruction

Transportation Funding Gap is Widening

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JLARC est. for basic education responsibilities underfunding in 2004-05: $92.6 - $114 Million

Office of Superintendent of Public Instruction

Diesel $ per Gallon up 48% Over Sept 2007 Price

West Coast Monthly Average Retail Price per Gallon of Diesel

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Office of Superintendent of Public Instruction

Districts Budgeted 28% More for Fuel in 2008-09

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Office of Superintendent of Public Instruction

Proposed Transportation Solutions and Timeline

•Oct 1: 2-3 formula options fully developed and presented to Advisory Committee

•Nov 15: Final report to OFM/Legislature•Early December: Actual funding gap is

known for basic education (to/from) transportation, 2007-08 school year

•Jan 15: OSPI completes modeling of district-by-district impact of 2-3 formula options

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Office of Superintendent of Public Instruction 53

Office of Superintendent of Public Instruction

Last Thoughts• Very few opportunities to redefine Basic Education• Basic Education shortfalls are so large, fixes will

take many years▫ Requires prioritization▫ Much of the early investments do not buy new

programs• Recommendations must address the resource level

needed, but formula structure will drive district practice for decades▫ General apportionment allocation vs. Categorical allocation

• BEFTF needs specific recommendations▫ What needs to be purchased and why?▫ What is the formula that would drive this resource or where

does it fit into a formula?▫ What is the phase-in priority? 54

Office of Superintendent of Public Instruction

Minimum Outcomes Needed from the BEFTF

1. Improve funding ratios for Certificated Instructional and Classified Staff

2. Salary Policy and Fundinga) First, equalize classified and administrator

allocationsb) Then, allocate classified/administrator

based on common-sense methods that cover actual costs

c) Address state underfunding of teacher compensation

d) Compensate teachers for excellence

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Office of Superintendent of Public Instruction

Minimum Outcomes Needed from the BEFTF

3. Improve funding level for NERC, inflate with common sense measures

4. Improve funding for LAP Staffing formula driven by instructional

programming reality and informed by research

5. Improve funding for ELL Staffing formula driven by instructional reality and

diverse community needs and informed by research

6. Implement a new formula with adequate funding for pupil transportation

7. Special Education New $ driven via components 1-3

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Office of Superintendent of Public Instruction

Budget Context• $3.2 Billion projected

deficit for biennium▫ K-12 “share” ~$1.34

B• COLA is 5% in 2009-

10; 3.1% in 2010-11▫ $590 M cost included

in deficit projection▫ Drives an additional

$257 M in local funds needed

• State cannot cut “basic education”

• Non-basic items include (biennial savings):▫ K-4 enhancement ($388

M)▫ 2 LID ($75 M)▫ Levy equalization ($456

M)▫ I-728 ($908 M)▫ Gifted education ($20 M)▫ Health Benefits inflation

($96 M if 7% inflation)57

Office of Superintendent of Public Instruction

What should K-12 do? Start Now

•Communicate that all districts are facing deficits•Project 2-year deficits now, after Governor’s

budget released (mid-December), after each chamber (March)

• Identify I-728-supported programs•Publically identify reduction options and impacts•Publically recognize the difficult job that

policymakers face•Speak with one-voice on way-forward

▫ “Must-do” list from Task Force recommendations▫ Communicate re: need for foundational resources to afford

compensation increases

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Office of Superintendent of Public Instruction

For More Information

•Jennifer Priddy: (360) 725-6292, or by email, jennifer.priddy@k12.wa.us

•Superintendent Bergeson's BEFTF Proposal: http://www.k12.wa.us/Communications/BasicEdFundingTaskForce.aspx

•Basic Education Finance Task Force: http://www.leg.wa.gov/Joint/Committees/BEF/

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Office of Superintendent of Public Instruction 60

Office of Superintendent of Public Instruction

2003-05 and Beyond, Impact to Local FundsWas Minimized by Suspension of I-732 COLA

Annual Average Compensation Increases, COLA and OtherInstructional Classified Administrative

1999-00 6.4%* 3.0% 3.0%2000-01 3.0% 3.0% 3.0%2001-02 3.7% 3.7% 3.7%2002-03 3.6% 3.6% 3.6%2003-04 .4%** 0% 0%2004-05 .4%** 1.0% 0%2005-06 1.2% 1.2% 1.2%2006-07 4.5% 4.5% 4.5%2007-08 3.7% + .6 3.7% 3.7%2008-09 3.9% + .7% + .5% 3.9% + .5% 3.9% + .5%2009-10*** 3.4% 3.4% 3.4%2010-11*** 2.4% 2.4% 2.4%2011-12*** 2.5% 2.5% 2.5%*Increases ranged between 4.7% and 12%; 3 LID added**Increases ranged 3% to .05% for staff in 1st 7 years of career only***I-732 COLA based on projected Seattle CPI

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Office of Superintendent of Public Instruction

2000-2008: Local Funds Avoided $551 Million in Compensation Costs

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Office of Superintendent of Public Instruction

From 1999-2008, I-728 and Federal Funds Increased by $614 Million; Beginning 2008-09 Only Small Increases

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Office of Superintendent of Public Instruction

Health Benefit Costs Increase Rapidly

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Office of Superintendent of Public Instruction

Districts are Already Maximizing Levy Authority

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