Moak Casey Study

Calm Before the Storm: Interim Developments in School Finance
Moak, Casey & Associates TASA Midwinter Conference Tuesday, January 31, 2012
Introduction
Litigation Budget Context Impact of 82nd Legislature Interim Issues
Moak, Casey & Associates
January 31, 2012
LITIGATION
January 31, 2012
Litigation and Public Policy

The role of the courts in Texas public
school finance Mechanism to cure legislative imbalances
January 20124
Quality Counts (2012 State Rankings)

Standards and Accountability Transitions and Alignment Achievement Status Chance for Success Teaching Profession School Finance Spending
Per Pupil Expenditure
A-(13th) A (3rd) C- (17th)

D (23rd)
C (40th) C+(15th) D+(40th)

F (35-49th)
49th of 50
January 31, 2012
Status of Litigation
Causes of Action: Adequacy: Rising standards and funding cuts leave insufficient revenue to provide the GDK. Meaningful discretion: Remaining tax rate capacity is insufficient to offset for funding cuts, and provide meaningful discretion to enrich. Efficiency/Equity: Target revenue disparities in combination with unequalized funds produces unconstitutional student / taxpayer inequity. Rationality: The state has failed to provide a rational system based on appropriate cost adjustments and structure
6 Moak, Casey & Associates January 2012
Adequacy Challenges
What are the standards? Must the state face disaster before the courts
act? How do the multi year evolving state standards work into the equation? Do the outdated cost adjustments impair the adequacy of the system? Does the potential for rising dropout rates indicate trouble for the Texas economy?
Demographic Environment
Public school enrollment demographics The new minorities-Anglo (39%) and the Economically Advantaged (41%) Rising challenges-At risk (46%) and limited English proficient (17%) Family characteristics:
Single parent families (35%) Children in poverty (24%)
January 2012
Educational Environment
Rising standards Curriculum reform 4x4 Criticism 50% administrative costs Investment beyond inflation and growth Growth and staffing resources Efficiency Comptrollers FAST reports District concern over budgetary reductions Limited flexibility
9
January 2012
Educational Results
Cumulative pass rate, Exit-level (2011) Completion rate, 5-yr. (Class of 2009) RHSP/DAP graduates (Class of 2010) TAKS passing rate, All Tests (2011) NAEP Gr. 4 reading, Basic+ (2011) College ready (Class of 2010) NAEP Gr. 4 reading, Proficient+ (2011) SAT/ACT at criterion (Class of 2010) TAKS Commended, All Tests (2011)
10
92% 85% 83% 76% 66% 52% 32% 27% 16%

January 2012
Equity Challenges
Is the degradation of system equity since
2004 severe enough to warrant renewed judicial intervention? Did the state go too far in creating the target revenue system? What weight does the state commitment to eliminate target revenue by 2017 have? Should the analysis be based on total tax rates or only operational rates?
Rationality Challenge
Does a separate but unequal funding scheme
constitute suitable and efficient provision? Does the use of 1980s weights and adjustments provide the state with a rational basis for funding public education? Are the state long term commitments to adjust standards and financing sufficient?
12
January 2012
Meaningful Discretion Challenge

Does the system provide both adequacy and the
opportunity for enrichment? Has the state so controlled the tax that it operates in a manner indistinguishable from a state property tax? What is the impact of the cuts? Do districts at $1.17 have meaningful discretion to enrich? Should the effective combination of limited voter appeal and the potential for recapture be considered in the analysis?
January 2012
13
Litigation Timing
Four groups have filed Texas Taxpayers and Student Fairness Coalition, et al. (Equity Center) Fort Bend ISD, et al. (Thompson) Coalition of Revenue Contributing Schools, et al. (Texas School Coalition) Edgewood ISD et al (MALDEF) Discovery process underway District court ruling sometime in fall Supreme Court could direct brief rehearing
after the 2013 legislative session

Closing Lawsuit Observations

Potential additional parties Legislative Committee Constitutional challenges as an element in a
larger debate Proclivity of the court to grant state discretion in all but clear out of bounds situations Need for a clear constitutional priority for public education funding
15
January 2012
BUDGET CONTEXT
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January 31, 2012
Property Tax Issues

125 appraisal districts subject to review in
2011
51% had no fails in review 13% had more than 2 fails Majority of failures in areas of appraisal standards, operating procedures and governance 77% exceeded standards for taxpayer assistance
TCEQ has finally ruled against Valero on
pollution control amendment

Issue has been extent to which other state and
federal mandates are covered beyond at-the-site

17 Moak, Casey & Associates January 31, 2012
State Budget Context

Ongoing structural deficit (continued use of one-
time funding sources) Competing demands from various areas within state government

Public Education Health and Human Services State Water Plan Higher Education Transportation
Growing balance in Economic Stabilization Fund Improved economy since last revenue estimate
State Structural Deficit

2010-11 School Year Impact of Property Tax
Relief (in billions)

M&O tax revenue at 2006 rates Reduced M&O property tax
School district M&O tax relief Reduced by $1.1 B due to increased values/rate increases State revenue offset $1.3 B from margins tax Shortfall to be financed
$23.9 B - $17.2 B $ 6.7 B - $ 2.2 B $ 4.5 B
19
January 31, 2012
One-time Revenue Sources

2007 State used surplus and phased-in property tax reductions 2009 Federal Stimulus Funds: $6.4 billion GR reductions paid for through stimulus 2011 FSP payment delay: $2.0 billion Tax speed-ups: $700 million Under-funded Medicaid: $4.8 billion ($3.8 billion after certification of surplus funds by comptroller).
Economic Stabilization Fund

Rainy Day Fund estimates growing $7.3 billion currently estimated by end of 2013 $6.5 billion estimated at the end of the legislative session Rep. Donna Howard was right during floor debate about improvements in Rainy Day Fund revenue
Sought offset against FSP cuts from future rainy day fund
revenue gains above estimate
21
January 31, 2012
Improved State Economy

Job growth, sales tax collections both from business and consumer purchases as well as automobile sales, signal that the Texas economy has emerged from the recent recession. --Susan Combs, January 6, 2012
22
January 31, 2012
Revenue Estimate
Biennial Revenue Estimate January 2011 $77.3 billion anticipated revenue May 2011 Comptroller added $1.2 billion to estimate Other changes (speed-ups, etc.) added $1.7 billion Certification Revenue Estimate December
2011
$82.7 billion anticipated revenue Increase of $2.5 billion from May
23
January 31, 2012
Improved State Economy

1-Year Moving Average Sales Tax Collections
$2,000.0 $1,950.0 $1,900.0 $1,850.0 $1,800.0 $1,750.0 $1,700.0 $1,650.0 $1,600.0 $1,550.0 $1,500.0 January March May July September November 2008 2009 2010 2011
24
January 31, 2012
Sales Tax Tracking

$2,200
Projected and Actual Sales Tax Collections
$2,000 $1,500 $1,000 Cumulative Shortfall or Surplus in Millions
$2,000
Collections in Millions
$1,800
$500 $0 ($500) ($1,000)
$1,600
$1,400
$1,200
($1,500) ($2,000) Sep-11 Dec-11 Mar-12 Jun-12

Actual
$1,000 Sep-12 Dec-12 Mar-13 Jun-13

Projected Cumulative Shortfall Linear (Cumulative Shortfall)
25
January 31, 2012
Other Major Revenue Sources

Revenue Source Current Official 2012 Growth Estimate 8.5% 5.4% ? 16.7% -10.0% Current 4 Month Trend 14.6% 12.3% ? 84.0% 47.2%
January 31, 2012
Motor Vehicle Sales Tax Franchise Tax Natural Gas Production Oil Production
26 Moak, Casey & Associates
Cautions
Improving revenue will not necessarily be
sufficient to cover current services state budget

Underfunded Medicaid in current biennium Higher costs of federal mandates in 2014 a concern Will need to cover the underfunding plus any growth 24 payments in the Foundation School Program Growth in the cost of the FSP Growing demand for other state services
27
January 31, 2012
Legislative Turnover
Governor ----------------------------------------seeking Presidency
(2016?)
Lt. Governor seeking U.S. Senate seat State senate elects replacement for Lt. Gov. Four state senators not seeking reelection,
including chairs of Finance and Education 28 House members not seeking reelection Redistricting could mean additional turnover Significant turnover last session as well as this one will mean less experienced legislature than in past sessions
THE IMPACT OF 82nd LEGISLATURE

SB 1 Impact Overview
Misleading/false claims of increased state
support
$1.5 billion increase in state General Revenue Fund
appropriations to the Foundation School Program cited Fails to account for formula reductions of $4 billion Fails to account for $1.4 billion in lost state grant funds outside the Foundation School Program
30
January 31, 2012
Role of Federal Stimulus Funds

Statements about general revenue increases
fail to mention loss of SFSF ($3.3 billion) Title I and IDEA stimulus funding decrease ($2 billion) Education Jobs money ($800 million) available only in 2011-12
31
January 31, 2012
LBB Fiscal Size-up 2012-13

All Funds appropriations to the FSP for the 201213
biennium are $35.5 billion, representing a $1.9 billion decrease from the 201011 biennium spending level.
Appropriations of General Revenue Funds account
for $29.2 billion of this total, a $1.5 billion increase from the prior biennium.
Despite the $1.5 billion increase in General Revenue
Funds from the 2010-11 biennial base, total FSP funding for the 2012-13 biennium is $4.0 billion less than what school district entitlement was projected to be for the 2012-13 biennium prior to the actions of the Eighty-Second Legislature.
LBB Fiscal Size-up 2012-13

Outside the FSP, TEA administers several state
and federally funded educational grant and support programs. The 201213 biennial appropriation for these programs and agency administration is $1.3 billion in General Revenue Funds, a decrease of $1.3 billion (51 percent) from 201011 biennial spending levels.
Biennial comparisons of appropriated funds is not
the correct way to look at the states commitment

MCA Survey on Staffing

Included 60 districts, 39 percent of students Respondent enrollment growth 17,593 students Employing 9,586 fewer total staff (3,219 fewer
teachers) 11,833 more staff needed to maintain prior year staffing ratios Extrapolated statewide, 32,000 more staff needed to maintain old staffing ratios (12,000 teachers) Most expect cuts to continue next year
Impact of SB 1 in 2012-13
Restoration of regular program funding to
98% (RPAF) Reduction of 7.65% for targets (ASATR impact)

More than 600 districts likely to be on formula Nearly 500 districts expected to gain revenue per
ADA compared to 2011-12 school year (WADAs definition changes between years) Over 500 districts expected to gain in total general fund revenue due to growth in students More than $1 billion reduction in ASATR in 2012-13
YEARLY CHANGE IN REVENUE PER WADA

$200 $100
$0
-$100
-$200
-$300
-$400
2011-12 Change in Rev/WADA
2012-13 Change in Rev/WADA
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January 31, 2012
Impact of SB 1 After 2012-13

It is the intent of the legislature, between
fiscal year 2014 and fiscal year 2018, to continue to reduce the amount of Additional State Aid For Tax Reduction (ASATR) to which a school district is entitled under Section 42.2516, Education Code, and to increase the basic allotment to which a school district is entitled under Section 42.101, Education Code. Section 42.2516 is repealed effective September 1, 2017
Impact of SB 1 By 2017-18
Nearly 700 districts gain revenue from
elimination of RPAF (repealed effective 09/01/15), elimination of ASATR, basic allotment increase of $83 Over 300 districts expected to lose revenue from those changes About $660M moves from losers to gainers Average losses $350/WADA, average gains $150/WADA
INTERIM DEVELOPMENTS
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January 31, 2012
Interim Studies - House

House Public Education Committee UIL STAAR Implementation Charter Schools DAEPs and JJAEPs Parental and Community Involvement House Ways and Means State Tax Structure Truth in Taxation
40
January 31, 2012
Interim Studies - Senate

Senate Interim Charges Open records DAEPs and JJAEPs Most Senate charges not yet revealed
41
January 31, 2012
Special Interim Committees

Select Committee on School Finance Joint Legislative Interim Committee Membership uncertain Recommendations by January 15, 2013 Committee dissolved September 1, 2013 Joint Select Committee on Economic
Development
42
January 31, 2012
Interim Studies - TEA

Dollars Appropriated for Efficiency Tools Commissioner appropriated $1.5 million for the biennium to develop efficiency and productivity tools
43
January 31, 2012
Financial Accountability / Efficiency

FAST System Methodology Number of stars determined by average of separate finance and academic performance ratings Academic rating based on statewide percentile ranking of aggregated individual student growth Finance rating based on cost-adjusted spending per student compared to fiscal peers
44
January 31, 2012
FAST Spending Measure

Cost adjusted spending per student: Operating expenditures (object codes 6100 6499) All funds Functions 11 53, excludes transportation and food service) Adjusts payroll (6100 6199) and contracted pay (6211, 6212, 6213, 6219, 6249, 6299) by the competitive wage index. Adjustments range from reducing spending by 10% to increasing it by 45% Redistributes a portion of SSA funds from fiscal agents to member districts based on actual financial data match to f-33 record
FAST Spending Measure

Exclusion of transportation and food service
leaves out nearly $9.8 billion over the threeyear period $338 million reallocated from fiscal agents to members over the three-year period $676 million remained in fiscal agents due to mismatch of data Cost adjustment adds and subtracts $9.794 billion
FAST Cost Adjustment Impact by District Type

13,000
12,000
Spending per Student, 2010
11,000
10,000
9,000
8,000
7,000
6,000
Unadjusted per Student

47 Moak, Casey & Associates
Adjusted per Student

January 31, 2012
Change Caused by Cost Adjustment

$2,500
$2,000
$1,500
$1,000
$500
$0
($500)
($1,000)
48
January 31, 2012
Interim Studies Sunset

Sunset Commission to study TEA and THECB Will result in must pass education legislation
House Bonnen (Brazoria) Anchia (Dallas) Cook (Navarro) Dutton (Harris) Price (Potter) Public member (not yet appointed) Senate Nichols (Cherokee) Patrick (Harris) Birdwell (Hood) Huffman (Harris) Whitmire (Harris) Public member (not yet appointed)
49
January 31, 2012
Calendar for Sunset

Activity Staff Review Staff Report Release Public Testimony Commission Decisions
50
TEA March mid-October Mid-October November 13, 14 December 18, 19
THECB September 2011 February Mid-March April 10 June 5, 6

January 31, 2012
TEA Sunset Process

Issues addressed in TEA Self Report include: Rule-making for school finance Elimination of certain reports, requirements Overlapping school and district improvement plans Unfunded grant programs SBEC revisions Charter school revisions Flexibility in implementation of required sanctions Reduced monitoring of certain school district functions
51
January 31, 2012
Lynn M. Moak Daniel T. Casey

Amanda Brownson, Ph. D. Dee Carney Chris Grammer Bob Popinski Larry Throm Maria Whitsett, Ph. D. Joe Wisnoski
Partners
Administrative Staff
Susan Moak Kari Ruehman
Kathy Mathias Larry Groppel, Ed. D. Thomas V. Alvis, Ph. D.

Consultants
400 West 15th Street, Suite 1410, Austin, Texas 78701-1648 Ph. (512) 485-7878 Fax (512) 485-7888 www.moakcasey.com

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Calm Before the Storm: Interim Developments in School Finance

Moak, Casey & Associates

January 31, 2012

Moak, Casey & Associates

January 31, 2012

Litigation and Public Policy

school finance Mechanism to cure legislative imbalances

Moak, Casey & Associates

Quality Counts (2012 State Rankings)

A-(13th) A (3rd) C- (17th)

C (40th) C+(15th) D+(40th)

Moak, Casey & Associates

January 31, 2012

Moak, Casey & Associates

92% 85% 83% 76% 66% 52% 32% 27% 16%

Moak, Casey & Associates

Moak, Casey & Associates

Meaningful Discretion Challenge

Moak, Casey & Associates

after the 2013 legislative session

Closing Lawsuit Observations

Moak, Casey & Associates

Moak, Casey & Associates

January 31, 2012

Property Tax Issues

TCEQ has finally ruled against Valero on

pollution control amendment

federal mandates are covered beyond at-the-site

State Budget Context

State Structural Deficit

Relief (in billions)

$23.9 B - $17.2 B $ 6.7 B - $ 2.2 B $ 4.5 B

Moak, Casey & Associates

January 31, 2012

One-time Revenue Sources

Economic Stabilization Fund

revenue gains above estimate

Moak, Casey & Associates

January 31, 2012

Improved State Economy

Moak, Casey & Associates

January 31, 2012

Moak, Casey & Associates

January 31, 2012

Improved State Economy

Moak, Casey & Associates

January 31, 2012

Sales Tax Tracking

Projected and Actual Sales Tax Collections

$2,000 $1,500 $1,000 Cumulative Shortfall or Surplus in Millions

$500 $0 ($500) ($1,000)

($1,500) ($2,000) Sep-11 Dec-11 Mar-12 Jun-12

$1,000 Sep-12 Dec-12 Mar-13 Jun-13

Moak, Casey & Associates

January 31, 2012

Other Major Revenue Sources

sufficient to cover current services state budget

Moak, Casey & Associates

January 31, 2012