Critical Issues in School Finance: Investing in Infrastructure, Compensation, and Technology

1. Chapter 13Critical & Emerging School Finance Issues

2. Emerging Issues in School Finance Include: • Investing resources to build or renovate schools • Financing school capital outlay • Providing appropriate compensation for quality teachers • Charter schools, vouchers, privatization • Court rulings, and federal, state, and local support for public education

3. In times of tight budgets, cutting books and building repairs never results in public outcries If athletic programs, drivers’ education, or band uniforms are cut, the public becomes agitated & vocal Deferred maintenance of school facilities has grown to widespread proportions School Facilities

4. 1995 GAO Report: • GAO (General Accounting Office) in 1995 provided Congress with information about the condition of America’s public school facilities • The report indicated it would take $112 billion to repair or upgrade America’s public schools to “good overall condition”

5. Half of American schools have at least one building feature in “less than adequate” condition About 40% of American schools have at least one unsatisfactory environmental condition Most oldest buildings in greatest need of repair, have no plan for improvementAbout 10% of American school buildings have enrollments that are greater than 25% more than the designed capacity 1999 Center for Educational Statistics Report:

6. Congress failed to pass capital-outlay legislation that would have started to address these needs In 1995, budget requests for $5 billion and in 1999 a scaled down request of just under $1 billion were denied Congressional BudgetDenies Funds

7. 2000 NEA Study • Found that it would take $322 billion to repair and to modernize America’s schools and provide schools with the necessary technology

8. America’s schools are in disrepair. The average public school is 42 years old Twenty-eight percent of the public schools in America are over 50 years old America’s schools can’t support today’s technology Forty-six percent of the public schools in America lack the electrical & communication wiring to support today’s computer systems Selected 1995 School Facility Needs

9. Unmet State School Facility Needs

10. School Construction, 1993-2002 – in $ Billions

11. Estimated Public School Construction Costs, 2003-05

12. Approximate Cost of Construction Principal & Interest

13. Interest Raises School Construction Expenses • Borrowing money for school construction is an additional expense • If a locality or state can borrow funds at 5% for thirty years, every $1 million borrowed will cost an additional $932,000 – virtually doubling the cost • Borrowing the same amount at 3% for the same time costs about 50% of the loan amount

14. Approximate Cost of Principal & Interest

15. Arbitrage & Financing School Construction • Webster defines “arbitrage” as purchasing in one market for immediate sale in another at a higher rate • Arbitrage is one way of helping to reduce interest costs in financing school facilities

16. Arbitrage & Financing School Construction, cont. • Schools are municipal entities. As such, financing them is a safe investment with certain tax advantages to those willing to finance their construction • Safer investments with tax advantages usually bear a lower interest rate than riskier investments • As such, bonds or certificates can be issued by the school system or by the governing authority for up to $25 million per year

17. Arbitrage & Financing School Construction, cont. • Let’s say that the Alpha School District needed $25 million for a new school. Bonds or Certificates of Participation (COPS) for the municipal project would be drawn up for sale at a rate of 2% state, free of state taxes, for 30 years • School District A can then invest those proceeds at a higher rate of interest for a period of 18 months and keep the interest difference, or spread

18. Radon gas Lead paint & solder Indoor air quality Mold Health Issues & School Facilities

19. Radon gas: a naturally-occurring gas formed from decomposing uranium found in most soils 2nd leading cause of lung cancer in the U.S. responsible for between 15,000 and 22,000 deaths each year Detection and treatment are important in schools as younger lungs are thought to be more susceptible to damage Health Issues & School Facilities: Radon Gas

20. Lead paint & lead solder in older plumbing joints cause health risks to young children Almost 1 million children ages 1-5 have elevated lead levels Lead combines with blood’s hemoglobin, depriving the brain of oxygen & replacing it with lead This leads to neurological impairments and learning problems Health Issues & School Facilities: Lead

21. Recently constructed “energy efficient” school buildings were designed to avoid letting air conditioning & heat out of the building When a building is too energy efficient and does not let fresh air into the system, problems occur Today 6.3 million school-aged children suffer asthma & miss more than 14 million school days a year Health Issues & School Facilities: Indoor Air

22. Molds exist where water and oxygen allow spores to grow Many molds can trigger allergens causing asthma and other allergic reactions Some molds produce toxins that can be lethal Children are most susceptible to the effects of mold Health Issues & School Facilities: Mold

23. Employee compensation consumes somewhere between 70-80% of school budgets. Attracting & retaining quality staff involves policy decisions about human resources and how educators are paid through Basic salary schedules Fringe benefits Professional development Licensure/certification requirements Human Resources & School Finance

24. 1963 - The Equal Pay Act • The Equal Pay Act was designed to “eliminate pay or wage discrimination based on sex where equal work, equal skills, and equal effort are performed under the same working conditions” • Became part of Title VII of the Civil Rights Act of 1964 and outlawed discrimination based on sex, and race, color, religion, and national origin • Radically changed teacher pay

25. In the the teaching profession’s early days, men’s and women’s pay scales varied Married heads of households were paid more than single men Elementary teachers were paid less than high school teachers Frequently, teaching or administrative jobs were favors given for political affiliation and loyalty A Structured Salary Scale for Teachers

26. A typical salary scale today is based on years of experience and degrees Many scales provide for a step increase each year for 30 years Stipends are provided for graduate degrees A Structured Salary Scale for Teachers, cont.

27. In City A, it takes 28 years to reach the salary scale’s top In City B, it takes only 23 years to reach the maximum teacher salary City A has a fixed annual supplement for advanced degrees City B has a separate pay scale for each additional sets of credits & degrees Which teacher earns more over a career? Structured Salary Scales for Teachers Vary Greatly

28. Some school districts give raises in fixed dollar amounts Other districts give raises in constant percentage increases Which teacher earns more over a career? Structured Salary Scales for Teachers Vary Greatly

29. Hypothetical Salary Scale

30. Teacher Salary Scales In a business where salaries are 70-80% of expenditures, it is vital to know how to spend the funds to best effect. • Does the salary structure attract and retain the highest quality educators? • What is being rewarded by the salary schedule? • Who should be rewarded by the salary schedule?

31. Teacher Salary Trends Are Important Salary trends are important in attracting and retaining quality teachers. States that do not keep their salaries competitive will have difficulty employing quality teachers – and increasing student achievement.

32. Which Starting SalaryAttracts Quality Teachers? $34,258 – 44th highest $36,479 – 36th highest $42,212 – 18th highest $30,265 – 51st highest

33. Which Starting SalaryAttracts Quality Teachers? $53,507 - 1st highest $37,109 – 33rd highest $33,249 – 47th highest $50,515 – 5th highest

34. Salary schedules show what is valued and rewarded in the school district culture. A salary structure may have the best goals & foster the best policy to attract and retain quality people, but it will not be successful without involvement of those impacted by the schedule & their understanding & agreement, which is a political process.

35. Teacher Licensure & Certification • Licensure and certification are a state’s method for approving teachers for professional practice • Certification serves as a professional benchmark for teacher quality • All fifty states have some form of certification process

36. Teacher Quality & NCLB Current No Child Left Behind standards for “highly qualified teachers” include that teachers must: • Have a Bachelor’s degree • Full state certification or licensure • Prove they know the subjects they teach

37. Teacher Licensure & Certification • During teacher shortages, some states have decided that instead of raising teacher salaries to attract more high quality candidates into the profession, it would be less expensive to change the certification requirements • This alternative certification route usually shortens the traditional pathway into the profession in terms of coursework and internship hours

38. National Board Teacher Certification • This rigorous certification process is recognized in all 50 states with many providing additional monetary incentives to those holding NBPTS certification • Three recent studies find that NBCTS’ students outperform peers in grades 3-6 on standardized achievement tests • Policy questions involve whether to pay more for NBPTS teachers, & how to fairly involve more of them in low-achieving schools

39. National Board Teacher Certification, cont. How much should states invest in NBCT? • North Carolina has supported NBPTS efforts by reimbursing teachers for application fees upon successful certification and provided a 12% salary increase • As a result, North Carolina has the highest concentration of NBPTS certified teachers in the nation at an annual cost of $25 million • How big a stipend should NBCTs receive & what students populations should they teach?

40. Benefits – Non-Wage Compensations • 5 categories: • Paid leave - sick leave, vacations, & holidays • Supplementary pay - overtime pay • Retirement - defined benefit & defined contribution plans • Insurance - life, health, & disability • Legally required of the employer – Social Security, Workers’ Compensation, Federal & State Unemployment Taxes

41. Benefits • Benefits rank second only to salary and good working conditions in motivating employees to work to high levels • Benefits are important to employees. They are not taxed and provide services they would not or could not provide for themselves without the employer’s assistance • The benefits provided educators vary widely across the United States

42. Hourly salary for public school teachers was $33.47 Fringe benefits totaled $11.61 per hour Benefits are not included in paychecks If Hourly & Fringe Benefits were combined, the average annual teacher salary would be $53,552 Teachers’ Benefits, 2004

43. Fringe benefits total almost 35% of total wages and salaries Retirement costs account for employers’ largest benefit cost with health insurance as the second largest cost Teachers’ Benefits, 2004

44. Social Security benefits, also known as FICA, have a cost to both employee and employer The employee and employer each contribute 7.65% of salary up to $90,000 for a total of 15.3% Workers’ Compensation insures risk from employment-related injuries & has varied costs, depending upon an incidence rate over time Unemployment insurance is paid by employers Legally Required Benefits

45. Most never consider the costs of these legally-required benefits Employers’ personnel costs pay for much more than salary Legally Required Benefits

46. North Carolina provides fully paid heath insurance benefits for retired teachers after only 5 years of service Some districts allow retired employees to purchase rate plan insurance Others do not provide this service after the defined COBRA period of severance to keep insurance costs low Retirement Benefits Vary Widely

47. School Finance & Health Care Costs • Providing health care benefits is emerging as a critical and contentious factor in school finance • In 2004, for example, workers’ health care premiums in 35 states rose at least three times faster than their earnings, despite reductions in coverage

48. School Finance & Health Care Costs, cont. • Workers’ costs for employer-sponsored health insurance have risen by 36 % since 2000; earnings increased only 12.4 % • Employee contributions have increased 57% since 2001 for individual coverage, 49% for family • Employer-sponsored insurance premiums have jumped 11.2 % in 2004 • In addition, employers estimate that health care costs will rise almost 13 % on average each year if they make no changes in their health plans

49. School Finance & Health Care Costs, cont. • As a result, workers’ average monthly contribution to premiums for family coverage has more than quadrupled, rising from $52 in 1988 to $222 in 2004 • The 2004 health insurance cost for a typical family of four past $10,000, five times the rate of inflation, & three times faster than average earnings in the past four years • Today’s family insurance premium represents 21% of the national median household income

50. School Finance & Health Care Costs, cont. • The U.S. health care industry has placed substantial economic pressures on all employers • As a result, educators’ insurance programs increasingly want to reduce benefits, increase co-payments, and limit the number of “family” members eligible to receive these expensive compensations • Unless school divisions place limits on benefits, the financial burden threatens to overwhelm available resources