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

1. K-12 Finance: Depth, Breadth, and Causes of a Looming Finance Crisis What is the financial outlook for school districts? What are the funding shortfalls? What solutions are proposed? What are some implications for school finance re-design?

2. Financial Outlook for Districts

3. K-12 Financial Outlook Why do school districts’ budget problems seem deeper and more widespread than in past years? In the recent past, how were districts balancing budgets? What is the magnitude of the problem for 2008-09 school year and beyond?

4. State Underfunding Pushes Costs Onto Maxed-Out Local Funds • 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

5. 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 Appendix slides quantify these statements.

6. 2000-2008: State Savings of $1.3 Billion in EmployerPension Contributions; $364 Million for Local Funds

7. 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

8. 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

9. Spending Ending Fund Balance Only Delays Cuts; Many Districts Have Little Balance to Spend

10. Largest Change for Smallest School Districts

11. Operating Fund Value of Districts with Less than 2% EFB Held Steady/Remains Large

12. Summary for 2008-09 School Year Statewide average Ending Fund Balances 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

13. Look Forward for 2009-10 SY Little 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 Biennium

14. What Are the State Funding Shortfalls That Drive District Budget Reductions? What Solutions are Proposed? 14

15. 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?

16. 6 Key Funding Shortfalls Must be Addressed I-728 A. District Enrollment Learning Assistance (4) B. Staff Ratios (1)(Certificated Instructional, Administrative & Classified) Busing (6) SpecialEducation C. Salaries (2) & Benefits Bilingual (5) D. Operating Costs (NERC) (3) = State GeneralApportionment Gifted

17. 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

18. Foundation Staffing Ratios (1) Certificated Instructional Staff Classified Staff

19. 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 Ratios (1A) Certificated Instructional StaffK-4: 1:18.8 5-12: 1:21.7 IncludesAll Teachers,Instructional Coaches, Nurses, Counselors, Librarians, and all other Pupil Support

20. Districts Choose Between Lower Class Sizes, More Hours per Day, and Student Support Students per 1 FTE Staff Students per 1 FTE Staff 6 periods + 1 hr planning 6 periods + 1 hr planning Teachers Current Proposed Grades K-5 1:24.7 1:21.2 Grades 6-8 1:25.5 1:29.0 CertificatedInstruction StaffK-5: 15.89 6-12: 18.43 CertificatedInstruction StaffK-4: 1:18.8 5-12: 1:21.7 Grades 9-12 1:25.5 1:29.0 Instructional Coaches = 1:1,000 = 1:1,250 Librarians 1:500 1:786 Guidance Counselors & Pupil Support 1:403 1:462 1:750 Nurses 1:2,659

21. Districts Hire Many More Classified Staff Than Are Funded by the State (1B)

22. SPI Recommendations to BEFTF: Define Basic Education at 25.1 Staff per 1,000 • Current ratio: 17 per 1,000 students • Proposed: 25 per 1,000 students

23. Salaries Funded by the State (2) Certificated Instructional (Primarily Teachers) Classified (Non-Certificated) and Administrative (Certificated but Supervise)

24. Districts Subsidize State Salaries, Issues Differ by Group Teachers and Other Certificated Classified and Administrative • State sets salaries based on a salary schedule and pays some teachers on a greater schedule than others • State has not evaluated salary levels or purposes for decades; districts pay for some supplemental salaries that are likely a basic education responsibility • 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) • State allocates different salary averages among districts based on 30-year-old snapshot • State has no method to allocate staff salaries to reasonable cost of attracting and retaining

25. Differences in Teacher Salary Impacts Morale and Retention 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 Additional Salaries $68,200 Base Salary $61,154 12,878** 8,448* 55,322 52,706 * Projected from 2006-07 ** 2006-07; full-time staff only Typical Everett • Base salary most districts • Base salary of Everett • Equalizing will cost $167 million and raise most teacher salaries by 5% • Additional (supplemental) salaries on average nearly $8,500 per teacher statewide

26. Additional Salaries Increase Faster than Levy Revenue

27. Districts Must Subsidize Classified/Admin Salaries by $366 Million $96,445 $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Addt’l $ Above Max Rate 15,638 State Allocation at Max Rate 23,742 State Avg. Allocation 57,065 $36,593 1,316 4,539 30,688 Classified Administrative • Average total salary • State average allocation • District allocations vary, first step is to equalize salary allocations ($226 million state cost to equalize) • 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

28. SPI Salary Recommendations to BEFTF Teachers and Other Certificated Classified and Administrative • Equalize base salaries to Everett level • Complete BEFTF research on supplemental salaries and comparisons of teacher salaries to other occupations /states; identify appropriate salary and appropriate state contribution • Adopt a new salary schedule with higher lifetime earnings and increases for certification-based demonstrations of excellence • Equalize salary allocations across districts • 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

29. Non-Employee Related Costs (NERC) (3)

30. $9,476per CIS (2006-07 SY) $468per student State NERC Funding Intended to Cover All Non-Employee Costs Related to Basic Education = = 30

31. Districts Spend Over $500 Million More on NERC Than the State Funds (3) 8-yr Cycle 18-yr Cycle

32. An Increasing Number of Districts Spend Over 80% of Their NERC Allocation on Utilities and Insurance 32

33. 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

34. Learning Assistance Program (4)

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

36. Despite Large Increases in Funding, Buying Power Remains Constant

37. 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 development

38. SPI Recommendation to BEFTF: LAP Redefine the LAP formula with 6 formula components based on successful programs: • Reduce class sizes for severe poverty districts • Immediate class size reduction for poorest students; general staffing ratios may be implemented slowly • 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 • Hire teachers for intensive tutoring (1% of students + poverty) • Groups of 3 students for 1 teacher, 30 to 50 minutes per day • Add program administrative support • Provide professional development for the teacher staffing units driven by parts 1, 2, 3, and 4 • Buy instructional materials

39. 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

40. Support for English Language Learners (5)

41. Buying Power of State Transitional Bilingual Program is Constant

42. Funding for English Language Learners (5) • 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

43. SPI Recommendation to BEFTF: ELL 0 • Redefine the ELL formula with 6 formula components based on successful programs: • Reduce class sizes for ELL • Provide “floor” funding for districts with few ELL • Enhance funding for high ELL/multiple language districts • Middle/High school enhancement • Provide professional development • Buy instructional materials and assessments • $96 M increase over current funding • Categorical allocation from state to districts

44. Pupil Transportation (6)

45. Transportation Funding Gap is Widening JLARC est. for basic education responsibilities underfunding in 2004-05: $92.6 - $114 Million

46. Diesel $ per Gallon up 48% Over Sept 2007 Price West Coast Monthly Average Retail Price per Gallon of Diesel

47. Districts Budgeted 28% More for Fuel in 2008-09

48. 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

49. Implications for Next Steps in K-12 Finance

50. 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?