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Understanding the History of Indiana School Finance and the Current Funding Formula

Understanding the History of Indiana School Finance and the Current Funding Formula. 2011 ISBA/IPASS Annual Fall Conference Terry Spradlin, Director for Education Policy & HSSSE Hallie Robbins, Joseph Popely, Lindsi Lara September 27, 2011. About the Center for Evaluation & Education Policy.

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Understanding the History of Indiana School Finance and the Current Funding Formula

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  1. Understanding the History of Indiana School Finance and the Current Funding Formula 2011 ISBA/IPASS Annual Fall Conference Terry Spradlin, Director for Education Policy & HSSSEHallie Robbins, Joseph Popely, Lindsi Lara September 27, 2011

  2. About the Center for Evaluation & Education Policy • The Center for Evaluation & Education Policy (CEEP) is a client-focused, self-funded research center associated with the School of Education at Indiana University • CEEP provides a wide range of evaluation and nonpartisan policy research services to policymakers, governmental entities, and non-profit organizations • CEEP research continually informs, influences, and helps shape the development of P-16 education policy not only in Indiana, but across the nation

  3. CEEP Associates focus their broad spectrum of experience and capabilities to produce high impact within the following "Areas of Excellence": • Educational Evaluation • Early Childhood Education Evaluation • Literacy Evaluation • Math, Science and Technology Evaluation • Education Policy Research & Technical Assistance • Health, Human Services & Community Development Evaluation

  4. Table of Contents • Indiana’s Funding Formula History and Issues • 2011-2013 School Funding Formula Changes • Federal Funds Update • Implications of the School Funding Formula Changes

  5. Indiana’s Funding Formula History and Issues i.) Development of the Foundation Program ii.) Vertical and Horizontal Equity Issues iii.) Evolution of the Complexity Index iv.) Categorical Grants and Overlay Provisions v.) Minimum Guarantee vi.) Educational Adequacy

  6. Indiana’s Foundation Program • Implemented in 1949 • State guarantees school corporations per-pupil base tuitionknown as the ‘foundation level’ • Foundation formula: each student receives the same base funding • ADM × Foundation Level × Complexity Index = Basic Tuition Support • Foundation level is established by the Indiana General Assembly during each biennial budget session

  7. Indiana’s Foundation Program, cont’d • Prior to 2008, several changes were made over time to the foundation program and school funding formula — many of them produced a significant reduction in the proportion of dollars that were raised through property taxes and increased the proportion of dollars that were from state-level sources • These changes were designed to: • Eliminate the traditional dependence of per-pupil funding on property wealth per pupil • Reduce variability in per-pupil funding across school corps • Increase per-pupil funding • Reduce variability in property tax rates across school corps

  8. Horizontal Equity: 1993 Changes Following Lake Central v Indiana, filed in 1987 and settled out of court in 1993, state lawmakers changed the foundation formula: • Continued the bottom-up equalization of setting a minimum expenditure per-pupil target for corporations • Specified the local property tax rates should be the same for school corporations with similar levels of expenditures • Mandated that property tax rates could not exceed specified ceilings • Allowed per-pupil funding to be adjusted upward for school corporations with lower SES

  9. Indiana School Funding Model

  10. Vertical and Horizontal Equity Issues • Vertical Equity: • School districts in lower wealth communities should receive more state money to support students (“unequal treatment of unequals”) -- otherwise would need much higher tax rates to meet target revenue; also supports paradigm that school corps with more complex student populations require more funding to obtain the same level of student performance (close achievement gaps) as that of school corps with high SES and less complex student populations • Horizontal Equity: • Similarly situated school districts should receive the same amount of money from local and state sources; “equal treatment of equals”

  11. Vertical Equity: At-Risk Index • The At-Risk Grant/Index, used from 1987-2003, addressed differences in community wealth and socio-economic status • The Coleman Report in 1966 found a statistical relationship between a student’s academic achievement and the community’s socio-economic status • These results have been replicated since, including research conducted by CEEP for the Indiana General Assembly • The At-Risk Index was implemented as a state law in 1993 and sent additional dollars to districts with certain socio-economic characteristics

  12. Vertical Equity: At-Risk Index, cont’d • The first At-Risk Grant calculation included: • Percentages of families in poverty • Percentage children living in single-parent households (weighted most heavily) • Percentage community members over 19 without a high school diploma • In 2003, ARI became the Complexity Index and included five factors: • Residents 25+ without a 12th grade education (up from 20+ in years prior) • Students in the school corporation eligible for free lunch • Students classified as limited English proficient • Single-parent households • Families below the poverty level

  13. How to Select Complexity Index Components Choice of factors to include in CI have implications associated with funding and the state’s ability to narrow the achievement gap: • The first criterion is that the factors should have a theoretical connection between the SES of students and/or their need for educational services • Second criterion is that factors have to be measurable • A third criterion is that the factor should be correlated with student outcomes

  14. Complexity Index • CEEP submitted a (2006) report, “Effects of Background and Policy Variables on School Performance in Indiana,” for the K-12 Education Subcommittee of the Government Efficiency Commission • The report found that free lunch status is by far the most significant variable (R2) of 0.68, suggesting 68% of variation in academic performance can be explained by income status, best represented by free lunch status data • Per CEEP’s recommendation, the CI was simplified in the 2007 session for 2008 funding to include only the percentage of students eligible for F/R lunch • A school’s funding per pupil is now increased in proportion to its percentage of free or reduced lunch students (addresses vertical equity)

  15. Categorical Grants and Overlay Provisions • Categorical Grants (Funds student needs): • Career/technical education • Academic Honors Diploma • Special education • Prime Time grant • Overlay Provisions (Supplement funding for school corps.): • Re/Deghoster/Adjusted ADM • Small schools grant • Restoration grant • Minimum guarantee • ADA Flat Grant

  16. Minimum Guarantee • Before 2005, three calculations were made to determine the amount of funding a school corporation would receive: the Foundation Program calculation, Variable Grant calculation, and Minimum Guarantee calculation; school corporation would receive highest amount yielded by the calculations • The Minimum Guarantee (MG) calculation started with the previous year dollars received by the school corporation and added a percentage increase as specified by the General Assembly • Some district leaders argued these funds helped cover under-funded mandates like free textbooks and ESL programs and fixed costs that don’t decrease proportionately with loss of a few students per school and grade level

  17. Minimum Guarantee, cont’d • By 2004, 81% of school corporations were calculating their funding via the Minimum Guarantee calculation • Funding ‘followed’ school corporations – not students • Changes in enrollment were irrelevant • Horizontal equity was unachievable • Effects may still be felt today, even though MG was abolished in 2005 • Since the MG was based on revenue received during the previous year and was larger than the Foundation Program calculation, many school districts are now facing a downward, multi-year transition to the Foundation Level

  18. Educational Adequacy • The contemporary issue in education finance is determining how to allocate resources to increase student achievement • The guiding question then becomes, “How much spending is needed to educate students adequately?” • Joseph and LaTanya Bonner, et al v. Mitch Daniels, et al • Plaintiffs contended that state’s school funding formula was insufficient to provide an adequate education to all students • Indiana Supreme Court reviewed constitutionality of the state’s legislatively-established public school funding formula • Court ruled Indiana Constitution does not outline quality education, thus leaving education to legislative decision-making • No violation of Equal Privileges or Due Course of Law Clauses; not sufficient evidence to establish an enforceable duty on the state and grant relief requested

  19. Hamilton Southeastern Schools, et al. v. Daniels • On February 23, 2010, three suburban corporations and parents of students attending these corporations filed a lawsuit in the Hamilton Superior Court: • Hamilton Southeastern Schools • Middlebury Community Schools • Franklin Township Community School Corporation • On November 29, 2010, Hamilton County Superior Court Judge Steven Nation rendered a decision to reject the state’s motion to dismiss

  20. Basis of Lawsuit:Issues in Contention • Complexity Index • Plaintiffs argued that the Complexity Index created non-uniformity and disparate allocation of educational resources • Adjusted Average Daily Membership (ADM) • Allowed school corporations to choose between the actual ADM for the current year or the average ADM of three previous years when calculating tuition support • Corporations with increasing enrollments used their actual ADM, while corporations with declining enrollments used the adjusted (artificially higher) ADM • Plaintiffs contended that this is disproportionately shifted state revenue from corporations with rising enrollments to corporations with declining enrollments

  21. Issues in Contention, cont’d • Reduction in Per-Pupil Funding • The state of IN reduced foundation or base per-pupil funding across all corporations from $4,825 in 2009 to $4,550 in 2010 • Plaintiffs suggest that this reduction impacts students attending some corporations more so than students in other corporations • Restoration Grants • Limits the change in dollars per-pupil a school corporation receives • Corporations with reductions beyond the specified range are eligible to apply for grant funding • Plaintiffs contend that this unjustly shifts funding away from their corporations

  22. Issue in Contention: Property Tax Caps and Law • Property Tax Dilemma: As community wealth varies across school corporations, property tax unevenly distributes tuition to students • In 1974, General Assembly enacted new system of property tax controls which eliminated local governments’ autonomy over their own General Fund tax rates • But, school spending is likely to still be influenced by revenue generated before controls were imposed • In 2008, property tax rates in Indiana were capped at of 1% of value for residential, 2% of value for rental and farmland, and 3% of value for all other types

  23. Issue in Contention: Property Tax Caps and Law • State prohibition on using property tax revenues for general school expenses (PL 146 – 2008) • Plaintiffs argue that this provision prohibits their corporations from using local resources to provide students with the same funding amount other corporations are receiving under the state formula • Indiana property taxpayers saved 32% in 2011, but school districts lost $200 million • Marion County lost $66 million in 2011 due to the caps – Franklin Township lost $16 million and was forced to cut busing to and from its schools

  24. II. School Funding Formula Changes

  25. Indiana 2011-2013 Biennial Budget • In April 2011, the Indiana Legislature passed the 2011-2013 biennial budget which called for: • General Fund Expenditures of $28.3 billion • Projected Revenue of $27.99 billion • General Fund revenues decreased by $719.5 million in FY2010, but are forecasted to increase by more than $2 billion FY2011-FY2013 • If reserves exceed 10% of the General Fund Appropriations for the following state fiscal year, 50% of the revenue surplus will be transferred to the pension stabilization fund and 50% will be disbursed to taxpayers as an automatic taxpayer refund

  26. Indiana State Budget K-12 Education Highlights • In 2011, the State Budget simplified the school funding formula to ensure that dollars more closely follow the child by: • Eliminating the de-ghoster/adjusted ADM • Eliminating Restoration Grant (-160,111,951) • Eliminates Small Schools Grant (-16,417,623) • Eliminates Prime Time Guarantee • Per-student foundation funding is decreased from $4,505 to $4,280 in CY 2012 and then increased to $4,405 in CY 2013 • Total Tuition Support increased .5% ($31M) for CY 2012 and 1.0% ($61M) for CY 2013; $6,263,200,000 FY ‘12 appropriation; $6,309,100,000 FY ‘13

  27. K-12 Education Highlights, cont’d • New Target Adjustment based on ADM • Beginning in 2012, schools may receive a target adjustment based on ADM. Adds 0 if a schools’ ADM is less than 500; adds up to $150 per student for school corporations with more than 500 students; and $150,000 if ADM is greater than 1,000 • Full-Day Kindergarten • Budget increases funding from $58.5 million annually to $81.9 million annually (40% increase); with the increase of funding, the state “will make grants available to the remaining 25% who were not provided full-day kindergarten” • Excellence in Performance Awards • Budget creates a new fund ($6 m in FY ‘12 and $9 m in FY ‘13) for the DoE to make grants to school corporations and charter schools for the funding of pay-for-performance cash awards/incentives for teachers rated “highly effective” or “effective”

  28. K-12 Education Highlights, cont’d • Transition to Foundation Revenue • School corporations who are at or below the foundation level the previous year will be placed at the foundation level in CY 2012 • Transitioning ‘down’ to Foundation began in 2010 and will continue through 2019 • Spreads the effects of losing a large percentage of funding over a longer period of time • Reauthorization of Inter-Fund Transfers • Restores the authority for a school corporation to use a portion of its Capital Projects Fund (CPF) to pay for property insurance and utility costs. A school could use an amount up to 3.5% of its 2005 tuition support for both 2012 and 2013

  29. “Deghoster”/Adjusted ADM • First used in 1980-81 as an enrollment change factor • Adjusts funding for corporations with a large number of students leaving the district • Proportionate cost reductions and Reductions in Force (RIFs) may not be possible since students leaving are from multiple schools within district and typically not all from the same grade • Through 2009, the “deghoster” used an adjusted ADM based on five-year average attendance

  30. “Deghoster”, cont’d • In 2009, the “deghoster” changed to the average ADM for the last three years (for CY ‘10 and ‘11 funding) • This adjusted ADM reduced the number of “ghost” students • All these changes speed districts’ transition to the target amount, or Foundation calculation • In 2011, it was eliminated

  31. Restoration Grant • The current funding formula provides mechanisms to move schools’ funding incrementally toward a target amount based on the Foundation Level and the Complexity Index (calculated from free/reduced lunch percentages) • Until 2005, the Minimum Guarantee portion of the funding formula guaranteed a basic amount of funding • Minimum Guarantee was based on the previous year’s funding level • The Restoration Grant in the 2010-11 funding formula was a type of Minimum Guarantee to help schools transition to the Foundation Calculation and minimize change in funding to: • +/- $25/student in 2010; +/- $75/student in 2011 • Adversely impacted horizontal equity

  32. Small Schools Grant • Like the Restoration Grant, this grant supplemented small corporations through funding formula transition. • Schools with an Average Daily Membership (ADM) of 1,700 or less received additional dollars per pupil if their Complexity Index was above a set amount • Up to $192 per pupil if the Complexity Index was 1.2 or above • Up to $91 per pupil if the Complexity Index was 1.1 to 1.2 • Dollar amounts have decreased from 2009 levels • Added about $16 million to the formula

  33. III. Federal Funds Update

  34. Federal Stimulus and Indiana

  35. Federal Stimulus and Indiana, cont’d

  36. U.S. DoE Funding Update 2011-12

  37. U.S. DoE Funding Update 2011-12

  38. Education Jobs/“Edujobs” • Indiana received $207 million in one-time funds during the summer of 2010; schools could begin making draws in November of 2010 • A school may use funds to pay salaries and benefits for teachers and other employees who provide school-level services. The statute prohibits funds from being spent on administrative services • Schools are not allowed to hold or accumulate excess cash reserves of federal money • All Educational Jobs funds must be expended by September 30, 2012

  39. EduJobs, cont’d • As of September 2011, 346 school corporations and individual schools have received EduJobs funds • $202,916,960 is available, $65,386,367.52 has been received • Net Amount Remaining: $137,530,592.48 • On September 16, 2011, IN was awarded about $3 million in additional supplementary EduJobs funds • Through Q2 of 2011, 2,733 jobs have been funded • Funds have been used in various ways: • Fund teacher salaries and retain current certified teachers • To add additional, specialty staff such as literacy coaches • Fund benefits

  40. IV. Implications of the School Funding Formula Changes:“Winners” and “Losers”

  41. Lowest Target Revenue Per-Pupil

  42. Highest Target Revenue Per-Pupil

  43. Who “Lost”? • In Southern Indiana: • New Harmony suffers funding losses from the removal of overlay provisions—such as the small schools grant. • In Metropolitan Indiana: • Indianapolis Public Schools and Gary Community School Corporation consistently depended on funding that supplemented declining enrollments. Gary lost more funding than IPS, approximately 16 percent. • Despite many charter schools receiving additional funding, South East Neighborhood School for Excellence, located on Indianapolis’ Southeast side, saw a 13.4% decrease in funding. • In Northern Indiana: • Dewey Prairie and Cass Township are also hit hard by the abolishment of the small schools grant. Currently, the districts are trying to consolidate. • East Allen County Schools, citing unequal funding across districts, proposed a referendum that was voted down in May.

  44. Who “Won”? • Charter Schools: • The top 15 increases in total state funding are charter schools, which have benefitted from recent legislation increasing their funding from FY2011 to FY2012. Below are the top 5: • The Excel Center: $1,990,161 to $3,618,102 (+81.8%) • Imagine Indiana Life Sciences Academy West: $3,337,499 to $4,237,654 (+27%) • Anderson Preparatory Academy: $2,507,246 to $3,129,984 (+24.8%) • Indiana Connection : $1,290,037 to $1,604,691 (+24.4%) • Stonegate Early College High School: $1,310,846 to $1,623,862 (+23.9%)

  45. Key Legislation for Charter Schools • The most recent biennial budget provides approximately $5 million annually to assist new charter schools with start-up costs • Increased ADM means higher per-pupil funding • Ex: Northwest Indiana • While some public school districts’ enrollments decreased, Thea Bowman Leadership Academy (Gary) and Discovery Charter School (Porter) saw large increases and more funding

  46. Who Won? (continued) • In East Central Indiana: • Cowan Community School Corporation: • One of Delaware County’s smaller districts, saw an enrollment increase as the county’s bigger districts lost students. • MSD Bluffton • Reflective of district growth, Bluffton saw a 4.5% increase in funding.

  47. *But, some numbers are improving • 2009 data from the US Census Bureau’s Public Education Finances report issued May 2011 shows that Indiana spends more per pupil now than in 2008: • Increase in funding: from 38th ($9,036) to 35th ($9,369) • National average = $10,499 per pupil • Indiana ranked 20thin Elementary/Secondary revenue, which is a vast improvement from their prior ranking of 35th

  48. US Census Bureau data: Improvements in Revenue • Indiana ranked 14thfor amount of revenue from federal sources ($1,365 per pupil) • Up from a rank of 40th • They are now above the national average ($1,159 per pupil) • 24thfor amount of revenue from state sources ($5,645) • Up from 32nd ($5,194) • 19thfor amount from local sources ($5,350) • Up from 25thfor amount from local sources ($4,731) • Indiana ranked 31st (up from 36th) and 35thfor amount spent on general administration and school administration, respectively • These ranking reflect absolute value, not percentage of overall spending dedicated to these functions

  49. Resources • Carden, Dan. “School leaders from Crown Point , Merrillville seek funding reforms.” Lake County News 31 Aug 2011. Available at: http://www.nwitimes.com/news/local/lake/crown-point/article_a0c326f2-fef1-5bfa-9aab-ac73a51e4884.html • Fact Sheet: Litigation in Indiana. (April 2010). National Access Network, Teachers College, Columbia University. Available at: http://www.schoolfunding.info/states/in/lit_in.php3 • Hamilton County Courts. Hamilton Southeastern Schools, et al. v. Daniels Petition to the Hamilton Superior Court. Filed February 23, 2010. Available at: http://www.schoolfunding.info/news/litigation/IndianaComplaint.pdf • Hayden, Maureen. “Fight still looms over school funding formula.” The Herald Bulletin 11 Mar 2011. Available at: http://heraldbulletin.com/local/x814634232/Fight-still-looms-over-school-funding-formula • Hiller, Stephen, Spradlin, Terry. (2011). Update on Indiana School District Referenda: Legislative Changes and Primary Election Outcomes of 2011 . Education Policy Brief, Vol. 9, No. 1. Bloomington, IN: Center for Evaluation and Education Policy.

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