Connecticut ’ s ECS Formula: Original vs. Today

1. Connecticut’s ECS Formula: Original vs. Today The Connecticut Conference of Municipalities

2. The ECS Formula: Original vs. Today • Funding Formulas: An Introduction • CT’s ECS formula • The Foundation • The Town Wealth Adjustment • Student Enrollment • Caps and Stop-loss provisions • Conclusions

3. Funding Formulas: An Introduction Why do states have education funding formulas? 1. Equity To assist disadvantaged communities and equalize educational opportunities. 2. Need Education costs generally increase faster than the municipal tax base. All municipalities require state assistance. * 3. Laws Most state constitutions make k-12 public education a state responsibility. * In some states, there is another level of government, namely counties, that play a role in financing k-12 public education.

4. Funding Formulas: An Introduction Pros and Cons of Funding Formulas • Pros • Help states meet major funding challenges: equity, need, and laws. • Base resource allocation decisions on agreed- upon rules, rather than political deal-making. • Improve State-local budget process by making state aid more predictable. • Cons • State role in k-12 spending decisions is increased, which is sometimes unpopular with local constituents. • Over time, even the most dynamic formulas fail to meet changing educational needs. • States have a tendency to modify funding formulas over time to reduce state spending requirements.

5. “How can you govern a country which has 246 varieties of cheese?” - Charles De Gaulle

6. Funding Formulas: An Introduction Creating a Good, Working Formula… Connecticut has a difficult balancing act. • 169 cities and towns, additional boroughs, and 166 school districts • Many rural towns, suburban towns, exurban towns, and urban centers • Many different students from many different backgrounds • To figure out how much state aid is needed, how much state policy makers think the State can afford, vis a vis other spending needs, and how to disburse a $1.6 billion dollar grant fairly and equitably

7. Funding Formulas: An Introduction Is Connecticut’s formula similar to other states’? • Yes. • 45 states provide equalization aid through a funding formula. • Connecticut uses the most common type of funding formula. • 5 states provide equalization aid through a system of categorical grants. Total:

8. CT’s ECS Formula What kind of formula does Connecticut use? Connecticut’s ECS formula is a foundation formula. Foundation formulas are: • Based on per-student payments to towns and cities. The per-student payments are a portion of a foundationamount, which is supposed to represent the cost to educate a student • Designed to help equalize the local financial effort towards education in each town. In Connecticut, this means reducing variation in property tax burdens among towns. What is CT’s foundation amount today? CT’s foundation = $5,891

9. "Simplicity is the ultimate sophistication.“ - Leonardo DaVinci

10. Base Aid Ratio Need Students x x Base Aid Foundation = CT’s ECS Formula Is CT’s foundation formula simple or complicated? Complicated. But it can be made a bit less so: For 144 towns, “Base Aid” is between 97% - 100% of formula aid. • Any formula aid that is not Base Aid comes from: • Supplemental Aid (most for any town is 2% of formula aid) • Regional Bonus (most for any town is 22% of formula aid) • Density Bonus (most for any town is 4% of formula aid)

11. Base Aid Ratio Need Students x x Base Aid Foundation = CT’s ECS Formula So Base Aid is usually equal to my ECS grant? No.Base Aid approximates the formula aid that each town should receive. The vast majority of towns do not receive the formula aid amount. Some towns are protected from decreases in ECS aid and receive more that the formula aid amount. Some towns are “capped” and receive less than the formula aid amount. Why focus on Base Aid? Because it represents over 97% of the grant for 144 towns. Because it is the crux of the ECS formula.

12. CT’s ECS Formula: Towns A, B, and C each receive $2 million in ECS aid in this hypothetical example. Amount by which Town B is “capped” ECS Grant Payment $2,000,000 Amount by which Town A is “held harmless” Town C receives its formula aid. It is neither “capped” nor “held harmless”. Town A Town C Town B Base Aid Non- Base Aid Formula Aid Represents between 97% and 100% of formula aid for 144 (of 169) towns and cities.

13. Base Aid Ratio Need Students x x Base Aid Foundation = CT’s ECS Formula • Foundation • A dollar amount • Equals: the amount it (supposedly) costs to educate a “need student” in Connecticut • Currently = $5,891 • 2. Base Aid Ratio • A percentage • Low-wealth towns have high percentage • High-wealth towns have low percentage • 3. Need Students • A number • Equals: Enrolled Students + “Shadow” students • “Shadow” students are added to reflect the fact that some students cost more than others to educate. (We’ll get to this later.)

14. Base Aid Ratio Need Students x x Base Aid Foundation = CT’s ECS Formula Thinking about the formula, Part I: Question #1: If the foundation is increased, what happens to Base Aid? Answer: Aid goes up. Question #2: If you add more need students, what happens to Base Aid? Answer: Aid goes up. Question #3: If your town is wealthy (the base aid ratio is low), does it receive more or less Base Aid than a poorer town? Answer:Less.

15. Base Aid Ratio Need Students x x Base Aid Foundation = CT’s ECS Formula Thinking about the formula, Part II: What is it doing? • 1. Foundation: • Establishes the amount that it costs to educate one student. • 2. Base Aid Ratio: • Determines the wealth of each town and the portion of the foundation that each town should receive per student. • 3. Need Students: • Determines the “number” of students in each town. • 4. Base Aid: • Multiplies #1, #2, and #3 together.

16. “Education is one of the few things a person is willing to pay for and not get.“ - William Lowe Bryan

17. Base Aid Ratio Need Students x x Base Aid Foundation = CT’s ECS Formula The Foundation: What is it? The foundation is supposed to be the cost to educate a need student in Connecticut ($5,891). Why is it part of the formula? The ECS formula “spits-out” a per need student payment for each town. The payment is based on the foundation. * See notes for more detail.

18. Base Aid Ratio Need Students x x Base Aid Foundation = CT’s ECS Formula The Foundation: Original Calculation Equal to the cost to educate one need student (from three years prior) in the 80th percentile town, when each town was ranked highest to lowest according to spending per need student. The foundation increased with actual costs. Today’s level under original calculation: Between $7,423 and $8,887. * Today’s calculation No calculation. Since 2000 the foundation level has beenfrozen. Today’s level: $5,891 * Conservative estimate. Actual comparison is not possible. In 1996, special education students were included in the need student count. SDE has no information with which to “net-out” the spec. ed. Students.

19. Base Aid Ratio Need Students Base Aid Ratio x x x Base Aid Foundation = Foundation CT’s ECS Formula The Foundation: So my town receives from the State $5,891 per student? No.Each town’s payment is based on the foundation amount. (The Base Aid Ratio calculates town wealth and determines the portion of the foundation each town receives for each student.) Example (assumes that the foundation reflects actual cost to educate 1 student): Greenwich: Receives $350 per need student. The foundation is $5,891 per need student. Greenwich must raise $5,541 per need student to meet its costs. Hartford: Receives $5,273 per need need student. The foundation is $5,891. Hartford must raise $618 per need student to meet its costs.

20. Base Aid Ratio x Foundation Per need student payments: Greenwich, Hartford, and Others Per-student payment is in BLUE. Remaining per-student costs is in GREEN. Hartford receives more per-student ECS aid than does Greenwich. Cost per need student ($) Foundation = $5,891 State’s payment per need student Remaining per need student costs

21. Base Aid Ratio Need Students x x Base Aid Foundation = CT’s ECS Formula The Foundation: Doesn’t it cost more than $5,891 to educate a student? Yes.The foundation is lower than the actual cost to educate a need student. Example: Greenwich: In reality, spends 14,370 per need student. Hartford: In reality, spends $10,928 per need student.

22. Base Aid Ratio x Foundation Reality of Per need student payments: Greenwich, Hartford, and Others Per need student payment is in BLUE. Remaining per need student costs is in GREEN. Hartford receives more per need student ECS aid than does Greenwich, but it still has significant per need student costs that require funding. Cost per need student ($) Foundation = $5,891 State’s payment per need student Remaining per need student costs

23. Base Aid Ratio Need Students x x Base Aid Foundation = CT’s ECS Formula The Foundation: What happens if we raise the foundation? When the foundation is raised, each town receives a larger per-need-student payment and the portion of costs supported by local property taxes shrinks. * Example: Raise foundation to $7,423 per student Greenwich: Receives $445 per need student, compared to current $350. Hartford: Receives $6,645 per need student, compared to current $5,273. * This assumes that the “no supplant” rule is revised, which would likely occur if the foundation was raised.

24. Base Aid Ratio x Foundation Raising the foundation: Greenwich, Hartford, and Others Per need student payment is in BLUE. Remaining per need student costs is in GREEN. Hartford receives more per need student ECS aid than does Greenwich, but it still has significant per need student costs that require funding. Cost per need student ($) Foundation = $7,423 State’s payment per need student Remaining per need student costs

25. Base Aid Ratio Need Students x x Base Aid Foundation = CT’s ECS Formula What does our study of the foundation tell us? • When the foundation level reflects the amount it costs to educate a need student, the financial effort that wealthy and poor towns commit to education out of local property taxes is similar (more equalized). • When the foundation level is lower than the amount it costs to educate a need student, the formula’s equalizing effect is diminished. • The current $5,891 foundation is lower than the median spending per need student, which was $7,629 in 2005. * * State Department of Education data, unaudited.

26. Base Aid Ratio Need Students x x Base Aid Foundation = CT’s ECS Formula Base Aid Ratio: What is it? It is a percentage that determines the portion of the foundation that each town will receive per need student. Why is it part of the formula? • The Base Aid Ratio helps the ECS formula meet the equity and need objectives of the State. • Equity: Poorer towns have a higher percentage and end-up receiving more aid than wealthier towns. • Need: There is a minimum percentage of 6%, so all towns receive some aid.

27. Base Aid Ratio Need Students x x Base Aid Foundation = Per Capita Income 3-yr avg. of Mkt. Value of Property 3-yr avg. of Mkt. Value of Property Median Income + + x Student Enrollment Town Population Highest Town Per Capita Income Highest Town Median Income - 1 2 2 x 2.00 The State median for the above numerator CT’s ECS Formula Base Aid Ratio: Original Calculation The Ratio was 6% or the result of the following calculation, whichever is greater:

28. Base Aid Ratio Need Students x x Base Aid Foundation = (Town Wealth Level) Base Aid Ratio (ORIGINAL) 1 - = x (2.00) (Median Town Wealth Level) CT’s ECS Formula Base Aid Ratio: To simplify, call everything in the numerator the “town wealth level”: What does the calculation tell us? • Property and income wealth are included in the calculation. • The formula accounts for town size by standardizing wealth per capita and wealth per student. • That each town’s wealth is compared to twice the median town’s wealth.

29. Base Aid Ratio Need Students x x Base Aid Foundation = (Town Wealth Level) Base Aid Ratio (TODAY) 1 - = x (1.55) (Median Town Wealth Level) CT’s ECS Formula Base Aid Ratio: Today’s Calculation What’s the difference? The factor in the denominator is lower. It has decreased from 2.00 to 1.55.

30. Base Aid Ratio Need Students x x Base Aid Foundation = (Town Wealth Level) (Town Wealth Level) Base Aid Ratio (ORIGINAL) Base Aid Ratio (TODAY) 1 1 - - = = x x (2.00) (1.55) (Median Town Wealth Level) (Median Town Wealth Level) CT’s ECS Formula Base Aid Ratio: What does the difference mean? More towns now receive the minimum Base Aid Ratio percentage of 6%. Poorer towns now receive a smaller portion of the foundation from the state.

31. Base Aid Ratio Need Students x x Base Aid Foundation = Farmington (ORIGINAL) = - - 1 = 1 = = 0.87 0.13 13% $232,801 $232,801 $266,831 Farmington (TODAY) = - - 1 = 1 = = 1.13 -0.13 -13% 6% $206,794 CT’s ECS Formula Example: Farmington’s 2006 Wealth Level = $232,801 Median 2006 Wealth Level = $133,415 Median 2006 x 1.55 = $206,794 Median 2006 x 2.00 = 266,831

32. Raising the factor in the Base Aid Ratio: Farmington and Others Base Aid Ratio x Foundation Per need student payment is in BLUE. Remaining per need student costs in GREEN. Raising the factor increases the portion of the foundation that towns receive per need student. Any town whose wealth is in excess of twice the median wealth level receives no increase. Cost per need student ($) Foundation = $5,891 State’s payment per need student Farmington (ORIGINAL)= $5,891 x 13% = $766 Farmington (TODAY)= $5,891 x 6% = $353 Remaining per need student costs

33. Base Aid Ratio Need Students x x Base Aid Foundation = CT’s ECS Formula What does our study of the Base Aid Ratio tell us? • The Base Aid Ratio affects the proportion of foundation costs that the State pays each town. When the 1.55 factor is increased to 2.0, most towns benefit. • Changing the Base Aid Ratio’s factor can help equalize the financial effort between wealthy, less wealthy, and poorer towns. • The Town Wealth Adjustment can be used to change the share of the foundation that each town receives from the State, but it doesn’t change the size of the foundation.

34. “It has been said that we have not had the three R’s in America, we had the six R’s: remedial readin’, remedial ‘ritin’ and remedial ‘rithmetic.” - Robert M. Hutchins

35. Base Aid Ratio Need Students x x Base Aid Foundation = CT’s ECS Formula Need Students: What is it? Need Students = Enrolled Students + “Shadow Students” “Shadow students” are added to reflect the fact that some students cost more than others to educate. Note: In some funding formulas, the foundation cost is adjusted up or down depending on the mix of students within a town. In the ECS formula, the foundation is not adjusted. Instead, the State accounts for increased costs by adding “shadow students” to the actual student enrollment.

36. Base Aid Ratio Need Students x x Base Aid Foundation = CT’s ECS Formula Need Students: Why is it part of the formula? The student enrollment figure has two purposes, aimed at the equity and need objectives of the State. • Equity: Towns with many high-cost students require more aid than others. • A student whose first language is not English may require additional instruction. • Students who perform poorly on the State’s mastery tests may need extra help during summer school. • 2. Need: Towns with more students should receive a larger grant.

37. Base Aid Ratio Need Students x x Base Aid Foundation = Limited English Proficient Students Remedial Performing Students Need Students Enrollment (resident students) Poverty Students = x + + + x x (0.25) (0.10) (0.25) CT’s ECS Formula Student Enrollment: Original Calculation Today’s Calculation No change.

38. Base Aid Ratio Need Students x x Base Aid Foundation = Limited English Proficient Students Student Enrollment(need students) Remedial Performing Students Enrollment (resident students) Poverty Students = x + + + x x (0.25) (0.10) (0.25) CT’s ECS Formula Need Students: What happens if the weights below are changed, say from 0.25 to 0.5? • Student enrollment increases. • Changing the weights applied to remedial performing and poverty students has a dramatic effect on the ECS formula. • Those towns with concentrations of any of these types of students are hardest hit when these weights are decreased and benefit most when these weights are increased.

39. Base Aid Ratio x Foundation Per need student payment is in BLUE. Remaining per need student costs in GREEN. There is no change in the per need student payment for either town. The foundation and base aid ratio stay the same. But Hartford gains 4,916“shadow” students and Greenwich gains 146 shadow students. Cost per need student ($) $5,273 x 4,916 additional need students $353 x 146 additional need students State’s payment per need student Remaining per need student costs

40. Base Aid Ratio Need Students x x Base Aid Foundation = CT’s ECS Formula What does our study of Student Enrollment tell us? • Changing weights in the need students equation can significantly impact a town’s ECS grant. • Other weights for different student characteristics could be added to the student enrollment figure to reflect other student characteristics. • Changing the student enrollment weights has NO EFFECT on the proportion of the foundation amount that the State pays to each town. • Needy communities have higher concentrations of remedial performing, poverty, and/or limited English proficient students. Increasing student enrollment weights has an equalizing effect.

41. Caps and Hold Harmless Provisions * Caps:Caps are limits on the year-to-year increase a town can receive in ECS aid. Hold Harmless provision: A provision that prevents a town from losing aid from one year to the next – even if the formula calculates that the town should receive less aid. In a healthy education funding formula, there is no need for caps or hold harmless provisions. * Hold harmless provisions are also called “Stoploss” provisions.

42. Caps and Stop-loss Provisions Caps: How significant are caps? • Between 1995 and 2004: No town could receive a year-to-year increase in ECS aid that exceeded 6%. • In 2005: No cap, but there was a limit on increases in ECS aid of 23% of the increase determined by the formula. • In 2006: No cap, but the policy effectively capped aid for 86 towns, costing them $59 million. • Between 2002 and 2006, cities and towns lost $353 million because of limits on the ECS grant. • Aside from the foundation level, caps have changed the ECS formula more dramatically than any other change since its inception.

43. Caps and Hold Harmless Provisions Caps: How are they calculated? Let’s assume that there is a simple cap in place: no town can receive an increase in ECS aid exceeding 3%. Town A: Formula-determined aid last year: $100,000 Formula-determined aid this year: $105,000 Increase/Decrease: $105,000 - $100,000: $5,000 Max. increase allowed: $3,000 (3%) Town A receives: $103,000 as opposed to $105,000. The cap reduces Town A’s ECS aid by $2,000 this year. The formula determined that Town A should receive $105,000, but instead it will receive $103,000.

44. Caps and Hold Harmless Provisions Hold-harmless provisions: How significant are these provisions? • Common in many states’ education funding formulas. • Designed to protect cities and towns from experiencing a reduction in aid from year-to-year. • Exist (mainly) because other formula factors are too low. For example, Hartford is a stop-loss community. Without stop-loss protection, Hartford would receive a reduction in ECS aid next year. However if the foundation was raised to reflect actual costs, Hartford would not require stop-loss “assistance”.

45. Caps and Hold Harmless Provisions Hold-harmless provisions: How are they calculated? Let’s assume that Town A will receive a reduction in aid. Town A: Formula-determined aid last year: $100,000 Formula-determined aid last year: $95,000 Increase/Decrease: $95,000 - $100,000: - $5,000 Town A receives: $100,000 as opposed to $95,000. The hold harmless provision prevents Town A from receiving less in ECS aid, even though the formula-determined amount is lower this year.

46. Conclusions • Formulas are created to meet the equity, need, and legal objectives of states. • The vast majority of ECS aid comes through Base Aid. • Connecticut’s ECS formula is different from its original conception in three major ways: • The foundation does not reflect actual per need student costs. Actual per need student costs are between $7,423 and $8,887. • The base aid ratio factor has been lowered from 2.00 to 1.55, which prevents many towns from receiving the portion of the foundation to which they were originally entitled. • Caps significantly limit ECS aid year after year. • No formula is perfect.