December 5, 2008

Hon. David Paterson

Executive Chamber

State Capitol

Albany, NY 12224

Re: Executive Budget 2009-10

Dear Governor Paterson:

We write on behalf of the quarter of a million children and 1.5 million residents in small city school districts to address our concerns regarding the 2009-10 State Education Budget. We appreciate the challenges facing you and your staff in developing budget proposals at this time. Grim fiscal realities present us all with difficult choices, choices which may have long term effects on our society and our economy.

We ask you to reject any attempt to solve the State’s fiscal and economic crisis at the expense of those districts which lack the resources to provide, and those children who are already not receiving, the sound basic education promised and required under the State Constitution. It would be unconscionable to ask these districts and children, who have in no way caused the financial crisis we are in, to provide the lion’s share of the solution when they have been shortchanged under education funding for decades.

The new administration in Washington has declared that this is no time to shirk our responsibilities for the education of our young people. A sound educational system provides the fundamental building blocks for a vibrant economy. Without consistent investment in that system, the nation’s economy will decline: businesses will be unable to find sufficient pools of trained workers and our young people will be unprepared to contribute to the economy. We could not agree more, especially as that relates to the responsibility of the State under Article XI of the State Constitution to provide the minimum quality education needed to compete in the workplace. The state has a bifurcated educational system; on the one hand, many wealthy districts provide rich

educational programming where student performance is exemplary, and on the other hand, many poor districts struggle but fail to provide all the services and resources their students need to achieve. Any short term solution to the current budget crisis that leans

on our educational system for a bailout, and especially on those in the system most dependent on State aid, is short sighted and self-defeating.

The principal cause for the performance gap between wealthy and poor districts is the State’s chronic failure to target State aid sufficiently and aggressively to the districts with the highest student need and lowest property wealth.  In 2007 the State enacted historic education aid reforms which for the first time in many decades began to retool the funding system which has been at fault for this inequity. In 2008, however, those reforms were slowed in response to political and financial pressures. Now, in the midst of deep recession with steep deficits looming, those pressures are even greater.

Your deficit reduction proposal put forth during the recent Special Session attempted to ameliorate the effect of education aid cuts on poorer districts. We appreciate that. The cuts were structured to increase as the relative wealth of districts increased and their percentage of at risk students and school tax effort decreased. However, the proposed sliding scale of 3 to 10% in cuts failed to result in an equitable outcome in at least three respects: 1) The scale did not take into account the fact that small city and other poor districts’ budgets rely far more heavily on State aid to provide essential educational services. Thus a 3% cut in State aid to a poor district results in a higher overall and per pupil dollar amount than a 10% cut to a wealthier district.  For example, a 10% cut in State aid to Westhampton Beach Central School District, which taxes at $5.80 per thousand and has $1.794 million in property wealth behind each student, costs $125 in aid for each student under the your proposal. In contrast, the proposed 3.0 and 3.21% cuts in  Newburgh and Niagara Falls City School Districts, which tax at $23.00 and $19.20 per thousand, respectively, and which have $300,000 and $159 ,000 in property wealth per student, respectively, would cost $319 and $317 per student in State aid or more than two and one half times as much. 2) Additionally, tax rates in small city districts and other poor districts would be disproportionately affected due to their low property wealth and already high tax rates. For example, the proposed cuts would have had a minimal effect on a district such as Great Neck Central School District ($11.72 to 11.78 per $1000 of full value) but would have had a significant effect on Binghamton City School District ($27.26 to 28.48 per $1000 of full value) (See attached Exhibit A containing charts showing relative fiscal capacity, student need and effects of cuts on the two districts). 3) The proposed cuts did not acknowledge that most needy districts with high percentages of at-risk students are already struggling, and in some cases failing, to provide the constitutionally required minimum sound basic education to their students. Such districts cannot absorb any cuts to education funding without a further deterioration in student performance.

Any aid proposal which relies chiefly on elementary and secondary education in the poorest districts with the highest need students to solve the budget crisis is not what should be meant by sharing the burden equally.

As we know you fully appreciate, the choices we make now will determine our moral legacy. The children of New York State need us to be their advocates. The consequences of reneging on the financial support already promised to poorer districts will hurt those children in the greatest need of our help. There are many ways to address the State deficit that have not been explored, including restoring State revenues to 1990’s levels via a rollback of Governor Pataki’s tax cuts for the wealthiest taxpayers. It should be noted that those tax cuts provided a 20% rate reduction for the wealthiest tax payers and no tax cut for the poorest taxpayers (see attached Exhibit B). Since 1995 this has resulted in an enormous give back of hundreds of millions of dollars to wealthy taxpayers and a consequent loss and destabilization of the State revenue base. The cuts effectively gutted the State’s supposedly progressive tax structure. We do not claim expertise in State budgeting. We do know that the value judgments and choices made now will have a deep and lasting effect in the lives of hundreds of thousands of children whose well being is essential to their families, their communities and the entire state.

We therefore urge that you:

1. Preserve reforms of State education aid enacted in 2007.

2. In the event education aid cuts become necessary, a) eliminate cuts for districts not attaining the Regents definition of a successful school and which have school tax rates higher than 120% of the Foundation Aid target rate, and b) for all other districts moderate cuts based on student need and district wealth as shown in Exhibit C, attached hereto.

3. In lieu of education aid cuts in districts for which the State is failing to provide the adequate funding required under Article XI of the Constitution, repeal the income tax reductions for top bracket taxpayers instituted under the Pataki administration in the 1990’s.

4. Target expense driven aids to high need/low wealth districts as shown in Exhibit D attached hereto.

5. Increase Transition Aid for districts with excessive percentages of students in Charter Schools (see Exhibit E attached).

 6. In the event that a district’s aid increase is less than 5% in 2009-10, suspend Contract for Excellence requirements for that year for that district. Furthermore, allow greater flexibility in the accountability system established under the Contract for Excellence to reflect actual annual increases in educational costs, to give districts greater discretion in the use of funds and to acknowledge the progressive and effective programs already in place and deserving of support in many C4E districts (see Exhibit F attached).

 7. Support alternatives to the school tax cap including a) intergovernmental tax base sharing of incremental increases and additions to regional assets such as power plants, taxable State owned property and major infrastructure/facility development, b) local option to supplant up to 50%, of the levy and rely on an income tax surcharge, and c) mandate relief including Wicks repeal, streamlining testing, scoring and reporting requirements and reforming special education mandates to lower litigation costs (see list of other recommendations attached hereto as Exhibit G).

 8. Improve the Foundation Aid formula as shown in Exhibit H attached hereto by

a) revisiting the 50% filter used in the Foundation Amount which arbitrarily and without rational justification eliminated the highest spending districts from the computation;

 b) improving the regional cost factor used in Foundation Aid to reflect more realistically the true differences among regional costs and eliminating tiers for the high wealth districts on the aid ratio in order to drive more aid to truly needy districts downstate; and

c) allowing optional use of private and public student census in developing income wealth in the Foundation Aid formula to reflect the true level of income in districts where large numbers attend non-public schools.

.

You have been a staunch defender of children and education. We greatly appreciate the leadership you have provided and we strongly urge you to oppose any solutions that undermine the ability of our schools and our communities to provide a quality education for all our children.

                                                                        Very truly yours,

                                                                    Robert E. Biggerstaff

Cc: William Lynch, President, NYSASCSD and Supt., Fulton CSD

William J. Cunningham, Secretary to the Governor

Laura Anglin, Director, Division of Budget

Duffy Palmer, Ass’t Secretary to the Governor

Mark Leinung, Ass’t Secretary to the Governor

EXHIBIT B

NYS Tax Law §601 (a) Resident married individuals filing joint returns and resident surviving spouses. There is hereby imposed for each taxable year on the New York taxable income of every resident married individual who makes a single return jointly with his spouse under subsection (b) of section six hundred fifty-one and on the New York taxable income of every resident surviving spouse a tax determined in accordance with the following tables:

(1) For taxable years beginning after two thousand five:

(2) For taxable years beginning in two thousand five:

(3) For taxable years beginning in two thousand four:

(4) For taxable years beginning in two thousand three:

(5) For taxable years beginning after nineteen hundred ninety-six and before two thousand three:

(6) For taxable years beginning in nineteen hundred ninety-six:

(7) For taxable years beginning in nineteen hundred ninety-five:

(8) For taxable years beginning after nineteen hundred eighty-nine and before nineteen hundred ninety-five:

EXHIBIT C

Greater targeting for education aid reductions*

The Governor proposed two alternative education aid cut formulas prior to the November 18, 2008 Special Session. 

1) The following recommendation deals only with the first branch, which impacts most of the school districts.

The first branch starts with an across-the-board aid cut of 2 1/2 percent. An added factor is calculated by multiplying $345.89 times the percent not free and reduced lunch (1-the free and reduced lunch percent).  Thus the higher the student poverty, the smaller the aid cut.  This result is then multiplied by the district’s combined wealth ratio.  Thus, as the district’s fiscal capacity (property and income wealth) rises, the cut in state aid also rises.  These are fundamentally sound principles that would tend to result in a more equal impact across all types of school districts.

However, the Governor’s formula places too much emphasis on the across-the-board cut and too little emphasis on the equalizing portion of the cut.  As a result, the poorer districts end up facing a much larger tax impact and will have to respond by cutting spending for the neediest children.  The wealthy districts will be able to replace the lost aid with a relatively minor tax increase and will tend to continue a spending pattern that is already excessive in many cases.  This can be a backward step in funding an adequate education for the children in the poorest districts. 

If the across-the-board cut is reduced to one percent while the formula cut is increased to about $560, the resulting tax impact is also equalized.

While this is neither perfect nor pleasant, it closer to fair for the neediest districts and children.  The minimum and maximum cuts need to be altered to 1.5% and 12% as well.

This problem is only apparent when the analysis shows the tax impact of the cut as well as the aid impact.  Unless the tax impact is included in the analysis, there may be excessive reductions for high-need districts in the Executive’s budget proposals for 2009-10.

2) The following deals with the second branch of the formulas.

The second branch of the formula attempts to provide relief for highly taxed districts. While this goal is laudable the formula itself is flawed. The numerator includes the levy on all residential properties whether principal residences or not while the denominator only includes the income of taxpayers who are residents of the district. In districts with substantial numbers of vacation properties this results in a gross overstatement of the level of taxation. Income and levies for non-residents should be included in both the numerator and denominator, or not at all.

Moreover, the numerator includes the levy of 1 to 3 family residences and condominiums and cooperatives while the denominator contains the income of all resident taxpayers, even those living in larger apartment complexes usually found in urban areas. This makes urban areas appear less highly taxed in comparison to suburban areas and needs correction as well.

EXHIBIT D

Targeting aids

State Aid Reforms That Target Scarce Funds*

It should not be assumed that a scarcity of new funding makes it impossible to begin to reform the distribution of state aid.  To the contrary, it is even more important to target funds on the state’s highest need schools when there is little funding available to meet inflationary demands.  To simply freeze allocations at prior levels has the greatest negative impact on the state’s neediest districts.  Instead, targeted aid reductions can free up funding to maintain the state’s historic commitment to equalizing aid formulas.  Following are some of the areas where reductions would free up funds without materially hurting the poorest districts.  These funds could then allow more funding for the equalized formulas. 

Public Excess Cost Aid

The minimum aid is 25%, regardless of wealth.  That could be reduced to 15% or 6.5%, like Transportation Aid.

Private Excess Cost Aid

The Combined Wealth Ratio is now multiplied by .15, resulting in almost 50% aid for even the wealthiest districts.  If the Public Excess Cost Aid were used for all tuition students, there would be parity among placements.  Poor districts (e.g. CWR = .600) would drop from 91% to 69.4% aid, while wealthier districts (CWR = 2.000) would drop from 71% aid to the minimum used above.  Freezing these aids at prior levels only throws the entire cost of new placements on local taxpayers, regardless of the impact. 

Building Aid

In many cases the selected aid ratio is decades old.  For districts that have grown wealthier, this historical aid ratio can be several times higher than the current wealth of the district would now justify.  This practice could be phased out either by limiting the choice to a maximum of ten or 15 years or by limiting the amount by which aid could be increased.  Some examples of these disparities in the Mid-Hudson are:

BOCES Aid

There are two factors in BOCES Aid that create higher aid than the wealth of the district would normally justify.  The first is very a high minimum at 36%.  The second is a minimum aid based on the district’s tax rate that guarantees even higher minimums when the local tax rate exceeds $13/$1,000.  By this millage factor, Scarsdale, with a combined wealth ratio of 3.804 still receives 53.5% BOCES Aid.  These factors create strong incentives for wealthy districts to purchase services through BOCES without regard to underlying need or cost-effectiveness.  The following table shows which districts select the millage basis.  Both the minimum level and the millage factor can be corrected so that high wealth districts do not generate excessive aid.  In this area, a reform is far more justified than a freeze.

Other Minimum Aids

Many Other aids have guaranteed minimums, regardless of wealth.

Several formulas generate aid with no regard to wealth at all.

Flat Grants

EXHIBIT E

Charter School Reforms

    a. State funding for stranded costs- such costs are at minimum 2/3 of the AOE paid to Charter Schools. Failure of the State to aid these costs results in significant local tax increases. The current level of funding is woefully inadequate and assumes that these costs disappear with time. This is not the case- such costs are the fixed costs of infrastructure and operations which do not vary appreciably with student census

    b. Separate tuition rates for elementary and secondary Charter Schools- there is a significant difference between the cost of elementary and secondary education. Charters are paid at AOE which is a blend of those costs. Most Charter Schools operate only at the elementary level and receive significantly more dollars than actual costs justify. This surplus has been simply drained off into private pockets by private companies and officers operating these Schools. This rip off of public education dollars is a fraud on the public. We recommend that Charter Schools be paid an AOE which is separately computed for elementary and secondary programs.

  c. NYSASCSD suggested amendments to Transition Aid  

Section 3602 of the education law is amended  by  adding  a  new

    45  subdivision 41 to read as follows:

    46    41.  Transitional  aid for charter school payments. In addition to any

    47  other apportionment under this section, for the two thousand  nine--two

    48  thousand  ten  school  year and thereafter, a school district shall be

    49  eligible for an apportionment in an amount equal to the sum of

50    (a) the product of (i) the product of eighty percent multiplied by the

    51  charter school basic tuition computed for such school district  for  the

    52  base  year  pursuant  to  section twenty-eight hundred fifty-six of this

    53  chapter, multiplied by (ii) the positive  difference,  if  any,  of  the

    54  number  of  resident  pupils  enrolled in the charter school in the base

    55  year less the number of resident pupils enrolled in a charter school  in

    56  the  third year  prior  to  the  base  year,  provided, however, that a school

     1  district shall be eligible for an apportionment pursuant to  this  para-

     2  graph  only  if  the  number  of its resident pupils enrolled in charter

     3  schools in the base year exceeds  two  percent  of  the  total  resident

     4  public  school  district  enrollment of such school district in the base

     5  year or the total general fund payments made by such district to charter

     6  schools in the base year for resident pupils enrolled in charter schools

     7  exceeds two percent of total general fund expenditures of such  district

     8  in the base year, plus

     9    (b)  the product of (i) the product of sixty percent multiplied by the 

    10  charter school basic tuition computed for such school district  for  

    11  base  year  pursuant  to  section twenty-eight hundred fifty-six of this

    12  chapter, multiplied by (ii) the positive  difference,  if  any,  of  the

    13  number  of  resident  pupils  enrolled in the charter school in the fourth year

    14  prior to the base year less the number of resident pupils enrolled in  a

    15  charter  school  in the year two years prior to the base year, provided,

    16  however, that a school district shall be eligible for  an  apportionment

    17  pursuant  to  this  paragraph  only if the number of its resident pupils

    18  enrolled in charter schools in the year prior to the base  year  exceeds

    19  two  percent  of the total resident public school district enrollment of

    20  such school district in the year prior to the base  year  or  the  total

    21  general  fund  payments  made by such district to charter schools in the

    22  year prior to the base year for  resident  pupils  enrolled  in  charter

    23  schools  exceeds  two  percent of the total general fund expenditures of

    24  such district in the year prior to the base year, plus

    25    (c) the product of (i) the product of forty percent multiplied by  the

    26  charter  school  basic tuition computed for such school district for the

    27  base year pursuant to section twenty-eight  hundred  fifty-six  of  this

    28  chapter,  multiplied  by  (ii)  the  positive difference, if any, of the

    29  number of resident pupils enrolled in the charter school in the year fifth

    30  year[s] prior to the base year less the number of resident pupils enrolled

    31  in a charter school in the year three years  prior  to  the  base  year,

    32  provided,  however,  that  a  school  district  shall be eligible for an

    33  apportionment pursuant to this paragraph only if the number of its resi-

    34  dent pupils enrolled in charter schools in the year two years  prior  to

    35  the  base  year  exceeds two percent of the total resident public school

    36  district enrollment of such school district in the year two years  prior

    37  to  the  base  year  or  the  total  general  fund payments made by such

    38  district to charter schools in the year two years prior to the base year

    39  for resident pupils enrolled in charter schools exceeds two  percent  of

    40  the  total  general  fund  expenditures of such district in the year two

    41  years prior to the base year, plus 

    50    (d) the product of forty percent multiplied by the

    51  charter school basic tuition computed for such school 
district  for  the

    52  base  year  pursuant  to  section twenty-eight hundred fifty-six 
of this

    53  chapter, multiplied by the

    54  number  of  resident  pupils  enrolled in the charter 
school in the base year.

    55  

    42    (e) For purposes of this subdivision the number of pupils enrolled  in

    43  a  charter  school shall not include pupils enrolled in a charter school

    44  for which the charter was approved by  a  charter  entity  contained  in

    45  paragraph  a of subdivision three of section twenty-eight hundred fifty-

    46  one of this chapter.

EXHIBIT F

CONTRACT FOR EXCELLENCE AMENDMENTS

  40    §  12.  The  education law is amended by adding a new section 211-d to

    41  read as follows:

    42    § 211-d. Contract for excellence.  1.  Every school district that  has

    43  at  least one school currently identified as requiring academic progress

    44  or in need of improvement  or  in  corrective  action  or  restructuring

    45  status  shall  be  required  to prepare a contract for excellence if the

    46  school district receives an increase in total foundation aid compared to

    47  the base year in an amount that equals or exceeds either fifteen million

    48  dollars or five percent in school year 2009-10 or ten percent thereafter 

of the amount received in the base year, whichev-

    49  er is less, or receives  a  supplemental  educational  improvement  plan

    50  grant is required to prepare a contract for excellence for the district.

    51  In  school  year  two  thousand  seven--two thousand eight such increase

    52  shall be the amount of  the  difference  between  total  foundation  aid

    53  received  for  the  current  year  and the total foundation aid base, as

    54  defined in paragraph  (j)  of  subdivision  one  of  section  thirty-six

    55  hundred two of this chapter. In a city school district located in a city

    56  of  one  million or more inhabitants, a contract for excellence shall be

        S. 2107--C                         13                         A. 4307--C

     1  prepared for the city school district and each community  district  that

     2  meets the above criteria.

     3    2.  a. (i) Each contract for excellence shall describe how the sum of the

     4  amounts apportioned to the school district in the current year as  total

     5  foundation  aid  and as supplemental educational improvement plan grants

     6  for the two thousand seven--two thousand eight school year and thereaft-

     7  er, in excess of one hundred three percent plus an additional 
 per cent calculated as the product of three percent multiplied 
by the positive remainder of one and 3 tenths minus the district’s
 combined wealth ratio of the district's  foundation

     8  aid  base,  as adjusted for additional amounts payable as charter school

     9  basic tuition over such amount payable in the base year, shall  be  used

    10  to support new programs and new activities or expand the use of programs

    11  and activities demonstrated to improve student achievement.

              (ii) For the purpose of this section new programs
 and new activities shall include those programs and activities
 established not earlier than four years prior to the base year
 which have been mandated by the department or which have been
 commenced expressly to improve student performance.

    12    b.  (i)  The  contract  shall specify the new or expanded programs for

    13  which additional amounts of such total foundation aid, or grant shall be

    14  used and shall affirm that such  programs  shall  first benefit 
those areas of student and school performance that resulted 
in the school or schools being identified as requiring academic
 progress or in need of improvement  or  in  corrective  action  or  
restructuring status, and only to the extent needed to restore that
 school or schools to non-identified status; and , next, 
provided that the district graduation rate after five years 
is below 65%, the contract shall affirm that such programs 
shall  predominately  benefit

    15  students  with the greatest educational needs including, but not limited

    16  to, those students with limited English proficiency, students in poverty

    17  and students with disabilities; and for all other districts, 
 the contract shall affirm that such programs shall benefit 
students as in the discretion of the district may be in 
greatest need, provided however, that for districts with tax
 rates in excess of 120% of the assumed tax rate provided under
 the foundation aid formula, the contract may provide for local
 tax relief.

    18    (ii) In a city school district in a city having a  population  of  one

    19  million  or  more inhabitants such contract shall also include a plan to

    20  reduce average class sizes, as defined by the commissioner, within  five

    21  years  for the following grade ranges: (A) pre-kindergarten-third grade;

    22  (B) fourth-eighth grade; and (C) high school. Such  plan  shall  include

    23  class size reduction for low performing and overcrowded schools and also

    24  include  the methods to be used to achieve such class sizes, such as the

    25  creation or construction of more classrooms and  school  buildings,  the

    26  placement  of  more than one teacher in a classroom or methods to other-

    27  wise reduce the  student  to  teacher  ratio;  provided,  however,  that

    28  notwithstanding  any  law,  rule or regulation to the contrary, the sole

    29  and exclusive remedy for a violation of the requirements of  this  para-

    30  graph shall be pursuant to a petition to the commissioner under subdivi-

    31  sion  seven of section three hundred ten of this title, and the decision

    32  of the commissioner on such petition shall be final and unreviewable.

    33    c. The contract for excellence shall state, for all  funding  sources,

    34  whether  federal,  state  or  local,  the instructional expenditures per

    35  pupil, the special education  expenditures  per  pupil,  and  the  total

    36  expenditures  per  pupil,  projected  for  the current year and actually

    37  incurred in the base year.

    38    3. a. The commissioner shall adopt regulations establishing  allowable

    39  programs  and  activities  intended to improve student achievement which

    40  shall include and be given priority in funding but not 
be limited to class size reduction, programs that increase student

    41  time on task, teacher and principal quality initiatives,  middle  school

    42  and  high school re-structuring, and full-day kindergarten or prekinder-

    43  garten. Provided, however, that districts may use up to fifteen  percent

    44  of  the  total additional funding above the foundation aid base 
they  receive  for  experimental  programs

    45  designed to demonstrate the efficacy  of  other  strategies  to  improve

    46  student  achievement  consistent with the intent of this section and, in

    47  school year two thousand seven--two thousand eight and thereafter,
 up to thirty million

    48  dollars or twenty-five percent of such total additional funding above 
the  foundation aid base, whichever  is

    49  less,  may  be  used  to maintain investments in programs and activities

    50  listed in this subdivision.  Any such district seeking to  implement  an

    51  experimental  program  shall  first  submit  a  plan to the commissioner

    52  setting forth the need  for  such  experimental  program  and  how  such

    53  program will improve student performance.

    54    b.    The  commissioner  shall assist school districts that include in

    55  their contract for excellence the implementation of  incentives,  devel-

    56  oped  in  collaboration with teachers in the collective bargaining proc-

        S. 2107--C                         14                         A. 4307--C

     1  ess, for highly qualified  and  experienced  teachers  to  work  in  low

     2  performing schools to ensure that such incentives are effective.

     3    4.  a.  A district's contract for excellence for the academic year two

     4  thousand eight--two thousand nine and  thereafter,  shall  be  developed

     5  through  a  public  process,  in consultation with parents or persons in

     6  parental  relation,  teachers,  administrators,  and  any  distinguished

     7  educator  appointed  pursuant  to  section  two hundred eleven-c of this

     8  chapter.

     9    b. Such process shall include at least one public hearing. In  a  city

    10  school  district  in a city of one million or more inhabitants, a public

    11  hearing shall be held within each county of such city. A  transcript  of

    12  the  testimony  presented at such public hearings shall be included when

    13  the contract for excellence is submitted to the commissioner, for review

    14  when making  a  determination  pursuant  to  subdivision  five  of  this

    15  section.

    16    c. In a city school district in a city of one million or more inhabit-

    17  ants,  each community district contract for excellence shall be consist-

    18  ent with the citywide contract for excellence and shall be submitted  by

    19  the community superintendent to the community district education council

    20  for review and comment at a public meeting.

    21    d.  For the two thousand seven--two thousand eight school year, school

    22  districts shall solicit public comment on  their  contracts  for  excel-

    23  lence.

    24    5.  Each  contract  for excellence shall be subject to approval by the

    25  commissioner and his or her certification that the expenditure of  addi-

    26  tional  aid  or  grant  amounts is in accordance with subdivision two of

    27  this section.

    28    6. The school district audit report certified to the  commissioner  by

    29  an independent certified public accountant, an independent accountant or

    30  the  comptroller  of the city of New York pursuant to section twenty-one

    31  hundred sixteen-a of this chapter shall include a certification by  such

    32  accountant  or  comptroller in a form prescribed by the commissioner and

    33  that the increases in total foundation aid and supplemental  educational

    34  improvement  plan  grants have been used to supplement, and not supplant

    35  funds allocated by the district in the base year for such purposes. 
Use of aid and grants in accordance with the contract shall 
be prima facie evidence that the requirement of this sub-
paragraph has been satisfied.

    36    7. The trustees or board of education of each school district  subject

    37  to this section, or the chancellor in the case of a city school district

    38  in  a  city of one million or more inhabitants, shall assure that proce-

    39  dures are in place by which parents or persons in parental relation  may

    40  bring  complaints  concerning  implementation of the district's contract

    41  for excellence.

    42    a. In a city school district in a city of one million or more inhabit-

    43  ants, such procedures shall provide that complaints may  be  filed  with

    44  the  building  principal with an appeal to the community superintendent,

    45  or filed directly with the community superintendent, and that any appeal

    46  of the determination of a community superintendent shall be made to  the

    47  chancellor.

    48    b.  In  all  other districts, such procedures shall either provide for

    49  the filing of complaints with the building principals with an appeal  to

    50  the  superintendent  of  schools or for filing of the complaint directly

    51  with the superintendent of schools, and shall provide for an  appeal  to

    52  the  trustees or board of education from the determination of the super-

    53  intendent of schools.

    54    c. The determination of the trustees or a board of  education  or  the

    55  chancellor may be appealed to the commissioner pursuant to section three

    56  hundred ten of this title.

        S. 2107--C                         15                         A. 4307--C

     1    8.  School  districts  subject to the provisions of this section shall

     2  publicly report the expenditure of total foundation aid in the form  and

     3  manner prescribed by the commissioner which shall ensure full disclosure

     4  of the use of such funds.

     5    9.  The  department  shall develop a methodology for reporting school-

     6  based expenditures by all school districts subject to the provisions  of

     7  this section.

     8    § 13. This act shall take effect immediately.

EXHIBIT G

STATE LAWS WHICH CONTRIBUTE TO EXCESSIVE SCHOOL TAXES (Mandate Relief)

Tax Base Isolation: With respect to the issue of State laws that adversely affect school tax rates, let us first point out that State law which prevents the sharing of tax bases is the chief culprit behind high tax rates. As we noted in our April 23, 2008 testimony, tax rates are not too high in all school districts, only in those which lack a strong tax base. Current law produces a patchwork quilt of inequity where poor districts have very high rates and wealthy districts have very low rates. When there are some school districts possessing over $2 million of property wealth for each student and others possessing only $200,000 per student, or more than 10 times less, it is no surprise that school tax rates are much higher in many poorer districts. To illustrate the effect of this inequity, in one Long Island school district a taxpayer owning a $600,000 house would pay $6,000 in school taxes, while in some small city districts three taxpayers owning three $200,000 houses would cumulatively pay $30,000, or 5 times as much. If the Legislature corrected this inequity alone, it would provide $1 billion in relief and tax rates in high tax districts would be reduced by 7%.This would dwarf help that could be obtained through any so-called mandate relief usually discussed.  The State should facilitate district or tax base consolidation to eliminate the stranding of districts with the weakest tax bases. Shifting a portion of the school levy to a county-wide tax base distributed over student enrollment would also bring relief where there are large disparities in property wealth. 

Charter Schools: Charter Schools are a classic case of an unfunded mandate. Although this issue affects only a few small city districts, Albany, Troy, Schenectady and Lackawanna, for those it affects it is a major problem. A study done by our Association showed that when a student attends a Charter School, the sending district realizes little or no immediate cost savings. Over the long term, the district saves only 1/3 of the AOE/pupil from not having the student attend classes in the district. The 2/3 of the AOE/pupil that is not saved is a ‘stranded cost’ which is supported solely by the local taxpayer. In 2007, transition aid was enacted to address this problem. This aid is, however, less than 10% of the stranded cost and phases out after several years. Albany CSD is the district most severely affected by the unfunded cost of Charter Schools. It currently expends over $15 million per year for Charter Schools while receiving only $5 million in transition aid. The net cost to Albany CSD, $10 million, results in a 10% increase in the tax levy and should be alleviated. If the State can help the big utility companies owned by multi-national holding companies recover their stranded costs, it certainly can help struggling public schools in this way too.

State Mandated Audits and Tests: State mandated testing under the No Child Left Behind Act and Regents Examinations and the new auditing requirements mandated under the Contract for Excellence are significant additional costs to our districts for which there are no offsetting State or federal revenues.  

Special Education Costs: The cost to educate a special needs student has escalated year by year. The more intensive the program, the larger the cost to the district becomes.  Out of district and BOCES costs are out of control and districts have to pay tuitions based on the State approved rate. Students must be placed in accordance with the Committee on Special Education recommendation and there are limited openings in and out of districts as well.   Preschool special education placements are growing as well and are very costly.  For example, one small city district has 145 classified preschool students and operates its own state approve evaluation site for preschool which runs approximately $100,000 in the red each year.  The district had no recourse but to discontinue its 1:12:1 segregated, 1:16:1 integrated, and SEIT preschool programs because the set rate for reimbursement was extremely low

In addition, many students transfer to this small city district from surrounding districts, other counties and other states. They enter with Individualized Education Plans in hand and have to be placed despite the lack of physical space to open new classrooms.  There are Annual Yearly Progress expectations under the NLCB Act for all of the disaggregated groups and more students are not succeeding while the need for classification and service grows each year. If students meet the criteria for classification, services must be provided under the IEP regardless of whether additional State funds are provided or not.

Transportation of Special Needs students is also extremely costly and includes transportation to and from intake meetings for students and their parents.  The independent evaluation costs whatever the private evaluator requests. Impartial hearing costs are out of control.  Substitutes for sign language interpreters for students and parents (at all meetings) are very costly.  Specialty services such as visual/mobility training, Orton Gillingham, ABA methodology, etc. are extremely costly.  Providing the mandated members at CSE meetings (general education teachers, special education teachers, and nurses) is difficult as it requires hiring substitutes and paying for travel time to and from the meetings.  State funding is not sufficient to cover costs and is borne directly by the taxpayers.

Some of the mandated services performed for Special Education students have been traditionally been covered by Medicaid.  There have been significant cutbacks in Medicaid funding in the past 2-3 years. These cutbacks result in new unfunded mandates for local school districts. Once again the local taxpayer gets left supporting the burden through increased school tax rates.

New paperwork requirements for Medicaid reimbursements are wasteful. Tracking down hundreds of parents to sign an incomprehensible form for services they will receive whether or not they sign the form exhausts staff and district resources.

If we are expected to improve student performance and are held accountable for what our Special Needs students accomplish, our teachers and districts need the proper tools and resources.  Providing these children appropriate services is a complex process because each student tends to have unique needs.  With the rise in the severity in the diagnosis of many students, different problems constantly arise and more State funding and support or relief from regulatory requirements are needed to do the job adequately.  

English Language Learners: ESL services for low incident districts are very costly. The staffing costs are high, the district is not allowed to use other literacy services in lieu of mandated ESL, the students are pulled out of normal course of instruction and the group size in a low incident district may be very small thus increasing the per/pupil service cost. Regulations must be developed to increase the cost effectiveness of these programs in these districts.

Internal Auditing: Due to a few cases on Long Island, it seems that every school district in New York State has been implicated and therefore requires excessive internal controls and duplicative audits. Every district is now required to have a full-time internal auditor, costing $80,000 - $100,000 with benefits, or hire a second CPA firm at an annual cost of $15,000 for a small district to $50,000 for larger districts.  Using a conservative estimate of $25,000 per district multiplied by 699 districts, auditing constitutes $17.5 million annually of new unfunded mandates.  State taxpayers are also burdened with the new Comptroller’s audits which had a start-up budget of approximately $25 million 2-3 years ago. The Comptroller’s annual auditing budget for school districts could now be over $30 million.  This money could be redirected to funding school districts to reduce local taxes.  Every district is now required to have an external auditor, a claims auditor, and an internal auditor.  If these groups were held accountable, the Comptroller’s audit would not be necessary. Moreover, school districts are also subject to audits by SED, E-Rate, and Medicaid.  This creates situations where one school employee performs an initial transaction and up to five highly paid professionals review and audit the transaction (after personnel in the business office have reviewed it).  Consolidation of the auditing function would save millions of dollars in unfunded mandates.

The NYS Education Department has more recently required school districts to enter into a "Contract for Excellence (C4E)" if they received an amount of Foundation Aid in excess of 10%.  Along with this requirement, comes an additional auditing charge by the external auditors since it is a separate audit engagement.  Although the expenses are included in the audited financial statements, the auditors must verify that the intent of the C4E has been met.  This mandate will cost the taxpayers approximately $10,000 annually.

Fingerprinting: While a necessary and worthwhile program, the $94 fee is beyond the reach of many of the minimum wage part time employees hired by schools. This becomes a charge to the district and causes additional financial pressure. Moreover, the process that is now required costs local taxpayers significant amounts (over $25,000 annually in one small city district).  Although the safety of our children is of the utmost importance, the full brunt of this expense should not be borne by the local taxpayers.

Civil Service: Currently, city school districts are required to belong to and pay a city civil service commission fee according to employee ratio with that municipality.  Central and Union Free Districts belong to the county civil service commission, where the services are free.  In enlarged city school districts, the districts have town tax payers within their boundaries. The town taxpayers pay county taxes which support the county civil service department. They also pay school taxes which help support the city civil service department.  In effect, town residents are paying taxes to fund two separate civil service departments, but can only get services from one of them.  This should be corrected (See Education Law §2503 (16) and BOE of Lockport CSD v. Niagara County, 91 AD2d 856 (4^th Dept. 1982)).

EXHIBIT H

Remaining Equity Issues in School Aid*

I.  Aid Foundation

The 2007 reform to school aid in New York made substantial improvements over its predecessor. Wisely, the statutes included a provision for updating the foundation amount periodically.  There are a few points that need to be addressed in this process. 

To our knowledge the basis for the foundation amount of $5,258 was never made public.  We are assuming that it was derived from studies done by the State Education Department (SED).  If so, this figure resulted from a study of the actual costs per pupil of school districts that met state standards after an “efficiency filter” removed the 50% highest spending districts from the study.  Such a method was justly criticized by the courts as somewhat arbitrary. 

It does make sense to employ a filter to remove districts from the study whose spending is significantly affected by extraneous factors.  One such factor in New York is excessive wealth, which allows a significant number of districts to spend far beyond a level that is either reasonable or necessary.  If employed, this filter should only apply to high wealth districts, not to every district that is spending over an arbitrary level.  There are other extraneous factors that also can be screened.  Very small districts will also incur a higher cost per pupil and should be screened out since the formula will compensate for this diseconomy at a later point.  Enrollment growth is another factor that poses problems.  Growing districts achieve economies from younger teachers, fully utilized facilities and a lower proportion of retiree costs.  Leaving these districts in the study understates the true cost of achieving adequacy in most districts.  Declining enrollment causes the reverse problem in that these districts will have older teachers, under utilized facilities and a higher proportion of retiree costs. Since the formula does not adequately recognize the efficiencies of growth or the inefficiencies of decline, these districts should not be filtered out or should be filtered out only on the extremes at both ends.  Merely taking out the more expensive districts tends to filter out the declining enrollment districts while leaving in the growing districts. 

The process of arriving at a base foundation amount for the aid formula should be developed with public input and be open to public scrutiny. 

II. Regional Cost Differentials

The current regional cost differentials in foundation Aid are derived from an SED study using professional wages other than teaching based upon labor department regions that aggregate some areas with demonstrably different costs.  Comparing this index with the one using construction trade prevailing wages that is used for building aid (even though labor is only one component of construction cost) reveals stark contrasts in many downstate communities. 

The NYSASCSD undertook its own study using teacher and principal wages and other major school costs and came up with very different results and somewhat different regional boundaries.  The largest variations are found downstate.  Some questions have arisen about the wisdom of revising these indexes at this time.

1.       Will using actual teacher salaries as one component of a cost index affect local bargaining behavior?  We can’t imagine that an index taken from several years prior and encompassing dozens of diverse districts will affect local bargaining.  The index we used relied on a median salary level that would not be affected by extraordinary salaries on the upper end. 

2.       In high wealth regions, aren’t many salary levels higher than they really need to be?  Ignoring the actual labor market in a region ensures that the poorest districts within that region either have to hire fewer teachers, less trained teachers, or teachers that were rejected by wealthier districts.  This is the inadequacy that is found now in many low-achieving and needy districts.  No region is uniformly wealthy.  Nassau and Westchester Counties not only surround New York City, they also surround Mount Vernon, Roosevelt and other needy districts.  The poorest districts also tend to have the neediest children and the highest concentrations of minority students.  They need to pay salaries that are competitive within their labor markets.  If policy makers truly believe salary levels are too high they should do a better job of sharing tax bases or eliminating minimum aids to ensure that these communities do not have excessive wealth to begin with.  The current system only punishes their poorer neighbors.

3.       Won’t adopting a higher index drive more money to districts that clearly do not need it?  Not at all.  Keeping a substantial local contribution in the formula ensures that very high wealth communities get no formula aid at all, since they enjoy sufficient resources to fund local schools without it.  A zero share of a higher ceiling is still zero.  However, only the poorer districts within a wealthy region will see higher aid amounts that are truly needed to stay competitive in hiring professional staff for challenging assignments.

III. Income and School Aid

The property tax is normally the main local source for funding public education.  Therefore almost all state aid formulas across the country attempt to equalize the variations in the power of the local property tax base among local school districts within each state.  Over 20 years ago, New York State introduced local income as a separate factor in determining how much of the local cost of education should be borne by the local property owners. 

Since local school districts cannot tax income directly, the intent of the aid formula in using income at all was to measure the general ability of the school community to pay a higher level of property taxes.  Every year, each New York resident enters one and only one school district as his or her district of residence even though the taxpayer may be paying property taxes in other districts on a second home or other property.  All of this income is then attributed to that school district.  For use in the aid formula, the total adjusted gross income of all residents is then divided by a weighted pupil count of the local public school district. 

Property value per pupil is an appropriate measure of fiscal ability since the district will actually tax that very property value in order to educate those very students.  However, income is not taxed directly.  The income of non-public school residents is included in the total, but the non-public school children are not.  The incomes of families with no children are also included in the total, but without any children in the denominator.  Thus, a community with a high proportion of non-public students and low senior citizen incomes will appear to be much more affluent than another community that has an identical income structure but fewer public school children.  In a property-based system all of these residents will pay property taxes.  When this distortion of income is added, however, the district with lower proportion of public school children will pay a higher rate of property taxes to derive the same public school education, because the formula makes the community seem more affluent than it really is.

A second distortion occurs when different regions across the state have materially different costs of living.  A $50,000 income in upstate New York goes a lot further than that same income on Long Island.  The Long Island resident will already pay a higher school tax by paying the same tax rate on a more valuable property than one of equal size upstate.  With income in the formula, however, the Long Island resident will also pay a higher tax rate on a higher value of property, making for a much higher tax burden than is fair, other factors being equal.

A third distortion occurs when a few very wealthy people live in a community of otherwise modest incomes.  The presence of the few wealthy residents causes all residents to pay higher school taxes, while the presence of the modest incomes causes the wealthy taxpayer to pay less in property taxes.  This makes no sense at all.

There are three reasonable ways to correct this system:

1.        Leave income out of the state aid formula entirely.

2.        Allow school districts to vote a local income surtax to replace part of the property tax.  In this way, some of the education burden would directly and progressively fall on local incomes, including renters and families without children.

3.        Use the median family income of the school district from U.S. census data, but update it annually by the percentage increase in the median adjusted gross income per tax return.  This figure will be a more accurate picture of the typical family in the community. It will be relatively unaffected by a few families that are extremely wealthy and it will remain fairly accurate in years when updated census data is not available.  This figure should also be adjusted for consumer price differentials across the state so that it is a true gauge of relative affluence for all communities.

A gross misuse of income statistics also occurs in High Tax Aid when the total adjusted gross income is divided by the residential tax levy to serve as a proxy for a high school tax burden.  The income is from all local residents including apartment dwellers, but much of the residential property tax is paid by non-residents in many communities.  Moreover, the property taxes paid by the apartment dwellers are left out of the burden.  This formula is an embarrassment.  Some of the factors mentioned above would eliminate any justification for high Tax Aid.

* Prepared for NYSASCSD by Professor Charles A. Winters