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February 2002 Vol. XVI, No. 2 Update: Building Aid Reform Under Chapter 383 Much remains unsettled in the
continuing saga of implementation of the building aid reforms enacted by
chapter 383 of 2001. These reforms require that building aid no longer be paid
on actual project costs, but rather on an assumed amortization schedule and an
assumed interest rate. These reforms apply to both existing capital debt,
energy performance contracts and new construction or renovation debt, and will
require most districts to conform to the new amortization schedules for new
debt and to refinance old debt by July 1st of this year. Chapter 383
also allows districts to access the dormitory authority for financing and
refinancing, with the advantage that building aid will be paid at the actual
interest rate of the dormitory authority bonds and will not be subject to
interest rate adjustments that the commissioner is required to make at least
every ten years for non-dormitory authority debt. SED is currently developing
procedures and guidelines for implementation of this new law and has said these
will be finalized by early to mid March. Also of major concern is the
availability for waivers with respect to refinancing existing debt. For
10-year, non-voter approved debt, we previously reported that SED indicated
that waivers would be readily available upon application. SED’s position was
based on its determination that chapter 383 authorized refinance of such debt without
obtaining voter approval. Since that report, SED has received conflicting legal
opinions from various bond counsel, some of whom believe that a referendum
would be required. SED is now taking another look at the issue and hopes to
resolve the question in several weeks. If refinancing is permissible without a
referendum, a waiver on 10-year non-voter approved debt would not be available
without a showing of other hardship such as debt ceiling problems. Of special
note, the Association’s March 26th legislative breakfast and seminar
in Albany will include a presentation by SED, the dormitory authority and First
Albany Corporation on financing and refinancing under chapter 383. Debt Ceiling Reform The Association has been working on this nettlesome and growing problem since early in 2001. Discussions with Senator Randy Kuhl, chairman of the Senate Education committee, resulted in his introduction of two bills, one to repeal the constitutional debt ceiling and the other to raise the statutory ceiling from 5% to 10%. To be effective the first bill would have to pass this year and next and then be approved at a statewide referendum in November 2003, at the earliest. While the Association continues to urge passage of these two bills, it has also begun work on an important partial solution, which would provide significant relief under the ceiling. The Local Finance Law permits non-city districts to exclude amounts received in building aid from computation of debt. The Association has asked Commissioner Mills, Assemblyman Sanders and Senator Kuhl to support amendment of the Local Finance Law to allow small city school districts to similarly exclude building aid from the debt computation. Their responses have been consistently supportive and we have begun working with SED to analyze the technical feasibility and legality of such an amendment. This week, in discussions with the department, SED counsel expressed some concern over both the legality and feasibility of this proposal, but has reserved judgment until the State Comptroller’s office can be consulted. An alternative proposal was also considered: making debt incurred through the dormitory authority not includable in debt computations. This proposal was received more warmly by SED counsel Meetings with the Comptroller’s office should take place the week of February 18tth and efforts on this issue will continue to have high priority. Board of Directors Meets
The Association’s board of
directors met on Saturday, February 9th to discuss a host of issues facing
small city districts this year. Most of the meeting was consumed by discussion
of the Association’s legislative agenda for 2002 and of the various possible
strategies. The legislative agenda is summarized in the testimony of
Association President, Kevin Barrett, a shortened version of which is attached
to this newsletter. The full text can be found on the Association website at
scsd.neric.org. The testimony was submitted to the Joint Legislative Hearing on
the Executive Budget, 2002-03, on February 5th. The board decided that it
would schedule three lobby days in Albany to meet with key Legislators and
staff. Days scheduled are Feb.26th, Mar.8th and Mar.11th. Association board members and committee
members are particularly encouraged to participate if at all possible. In
addition, the board approved going forward on efforts to reach a broader
audience through the news media and to begin contacting newspaper editorial
boards throughout the state to obtain support for the SCSD legislative agenda. Joint NYSASCSD and NYSSBA Seminar
Charles Winters, Association consultant and long
time former Associate Superintendent from Newburgh CSD, gave a presentation and
led discussions on issues facing urban school districts at the Joint NYSASCSD/NYSSBA Seminar on February 9th in Albany. The Seminar was held in connection with
NYSSBA’s Mid-Winter Academy. More than 60 board of education members and
administration were in attendance. Charlie’s presentation covered key issues
including the disproportionate effect that state budget freezes, such as
proposed by the Governor this year, have on poor, heavily aid dependent
districts. The full text of his remarks are available on request. Dates To Remember
February
26, 2002 10:00-2:00 March
8, 2002 10:00-2:00 March
11, 2002 10:00-2:00 March 26, 2002 8:00-1:30 May
31, 2002 12:00 August
18 & 19, 2002
TESTIMONY OF NYS ASSOCIATION OF SMALL CITY SCHOOL DISTRICTS ON EXECUTIVE BUDGET 2002-2003 FEB. 5, 2002 INTRODUCTION
My name is Kevin Barrett, Board Member for Newburgh
City School District and President of the New York State Association of Small
City School Districts. On behalf of the
57 small city school districts, comprised of over 1,500,000 residents, 260,000
school children and 20,000 teachers and staff, we take this opportunity to
comment on the Executive Budget for 2002-2003 relating to the funding to
elementary and secondary education. As we all recognize, this year is
going to be an extremely difficult one for both the legislature, the education
community and the entire State. The
education community continues to grapple with the enormous task of implementing
changes in programming necessary to prepare our children to meet the new higher
standards. With the decision of State
Supreme Court Judge Leland DeGrasse in the CFE litigation, we are faced with
the additional prospect of both fundamental financing reform and the extensive
public debate necessary to agree on that reform. And with the tragic events of September 11th,
unprecedented fiscal challenges face the State, making prudent and equitable
use of state resources more critical than ever. Equity in the distribution of education aid, therefore, is the
most critical issue facing poor urban districts. Nevertheless, despite the $4
billion in increased education aid over the last several years, not only has no
progress been made toward greater equity for our districts, but aid equity has
actually regressed. During that period,
small city districts, which serve two-thirds of the urban children outside New
York City received lower percentage increases in state aid than the state
average, and lower than received by non-city districts. Compounding this troubling trend is the
absence of any growth in Hurd Aid. Hurd
Aid represents 7% of total state aid received by small city school districts
and for many individual districts represents a much larger portion. Hurd Aid is an essential party of the base
aids supporting our districts. Since
our districts are heavily state aid dependent, failure of Hurd Aid to grow at least
at the rate of inflation causes an increased burden on local tax rates which
must compensate for that lack of growth.* We believe that it has become
essential, even in these difficult fiscal times, that the legislature provide
leadership and accountability in reforming our aid formulas so that aid
distribution moves toward, not away from, greater equity and toward greater
recognition of district wealth and student need. It is only in this way that we can insure that our resources are
used wisely and that all our children receive the quality education they
deserve. __________ *In past years it was contemplated that
Hurd Aid would gradually phase out and be replaced by increasing aid under the
operating aid formula. Between 1991 and
1994, Hurd Aid declined by approximately $25 million. Since that time, a freeze
has been imposed on a year-to-year basis, but operating aid has itself been
capped for the needy districts and a guaranteed increase has been given to
wealthier districts every year. Therefore, operating aid has not compensated
for the loss of $25 million each year nor for the failure of Hurd Aid to grow
with inflation. ANALYSIS
OF EXECUTIVE BUDGET 2002-2003
While the Governor’s Flex Aid purports to provide
greater equity and greater flexibility, it freezes aid this year and hurts
poorer districts that are heavily aid dependent the most. When state aid is frozen, a district which
is heavily aid dependent typically must increase its tax levy by a percentage
which is two or more times as great as the overall percentage increase in the
budget in order to compensate for the freeze. The Executive Budget, therefore,
proposes a highly regressive education budget, which, following on the heels of
aid in 2001-2002, will cause severe retrenchment in programming at small city
schools.
Furthermore, several aids included in Flex Aid are
targeted toward expenses, which are highly volatile and over which districts
have no control. Including them in Flex
Aid creates, in effect, a block grant.
For example: §
The
Governor’s Flex Aid includes all of the aids for handicapped children, thus eliminating
aid growth from local cost increases in this area. While there may be an argument that this tends to restrict over
classification, it also penalizes districts with increases in high-cost
children over which the districts have no control. This is a particular concern in small cities. §
Flex
Aid freezes and does not eliminate Transition Aid. Small city districts represent 9% of the student population in
the state but lose over 25% of the aid withheld under Transition Aid. Flex Aid, therefore, freezes the inequity in
the current funding system. §
The
Governor, for years 2003-2004 and thereafter, recognizes poverty with the
weighting of .33 in both pupil count for wealth and for aid. However, this part of the Flex Aid formula
is so lightly funded that it has almost no bottom line effect. §
The
absence of any reform in the Executive Budget in the funding for charter
schools creates a disastrous situation for a number of small city
districts. Most of the approved and
proposed charter schools outside the Big Five are in small city school
districts. The experience with these
charter schools is that there are no substantial savings to the districts when
children leave to attend the charter schools. This results in a substantial
added financial burden, which will be borne by local taxpayers or, in the event
of an austerity budget cap, by a sharp reduction in programs and funding for
the children in public schools. Since
many of the schools are located in districts of high poverty and student need,
they will result in the crippling of these districts and their attempts to give
students an opportunity to meet the higher standards. We strongly urge fundamental reform in charter school funding. §
The
governor has recommended that for the Big Five Cities, certain debt financed
through the municipal bond bank agency shall not constitute debt for purposes
of computation of constitutional or statutory debt ceilings. Small City School Districts are subject to
5% constitutional debt ceiling and many of our districts are at or very close
to their constitutional debt limits.
The refinancing and longer amortization periods required by Chapter 383
of 2001 will make this problem even worse. At a minimum, small city districts
should receive the same debt limit relief recommended by the executive for the
Big Five. Attached to this testimony are specific proposals
which the association urges the Legislature to act upon, including proposals
regarding Hurd Aid, Charter School Finance Reform, Contingency Budget Cap and
the Constitutional Debt Ceiling. CONCLUSION We thank you for the
opportunity to submit this testimony and look forward to working with you
cooperatively on these issues. Summary of
Recommendations NYS
Association of Small City School Districts STATE AID TO EDUCATION: 1)
Equity in Education Aid Distribution
Recommendation: Transition
Aid Cap Relief--We propose that the transition adjustment be eliminated, or if
not, be computed using a "sliding scale" approach to the cap so that
the cap itself is adjusted upward or downward based upon district wealth or
student need. 2)
Special Aid to Small City School
Districts (Hurd Aid): Recommendation: i) We ask that the formula for Special
Aid to Small City School Districts be amended to eliminate the phase-out and to
permit growth in this aid so that districts and local taxpayers will not be
continually faced with the necessity of replacing lost or eroding
revenues. ii) Several small city
school districts receive only nominal amounts of this aid. A number of these districts are low wealth,
high need districts. A more realistic
floor for this aid category should be established and the Association requests
support for any effort to address this inequity. CHARTER SCHOOL FINANCE REFORM: Recommendation: i) Charter School Aid - We recommend that aid be provided to address the
unintended impact on district budgets of funding charter schools to defray
unavoidable stranded or fixed costs. ii) Charter School Reform - We recommend that Charter
Schools be required to declare their intent to operate on or before April 1st
each year to permit districts to incorporate necessary costs into their budgets
prior to the budget vote. CONTINGENCY BUDGET AND BUDGET CAPS: Recommendation: i)
To provide some relief to poorer
districts which most often suffer defeated budgets, we recommend that Education
Law § 2023 (4) be amended to prohibit contingency budgets from exceeding the
"greater of", not the "lesser of", one hundred twenty
percent of the CPI or 4%. ii)
For State aids enacted to fund
supplemental expenditures to meet higher standards, or for increases of any aid
category over the base year, the entire amount of such aid or such aid increase
should be subtracted from contingency budget cap calculations. Aids appropriate for exclusion could
include, but not be limited to, ERSS, LEP, Operating Standards Aid and Gifted
and Talented Aid. iii) Operating Standards Aid--We propose the
continuation and expansion of Operating Standards Aid and urge that this aid be
included within the Special Aid Fund.
Programs funded under this category would not depend on voter approval
and despite budget defeats would be allowed to continue notwithstanding the
budget cap. Further, even if the state
budget is not approved until after school budgets are finalized, supplemental
funds could be used more readily through a grant/application process. REAL PROPERTY TAX REFORM: Recommendation: The Association has developed specific proposals to deal directly with the burdens of declining and weakened local tax bases and asks that you consider them as a method of continuing efforts to accomplish meaningful real property tax reform. These proposals include: 1) Modification of the tax equalization aid formula to offset high levels of tax exempt property, 2) elimination of the two-year lag in payment from uncollected taxes (Real Property Tax Law § 1332 (5), and 3) shift of responsibility for uncollected taxes from the city to the county (Real Property Tax Law § 1332 (5). DEBT CEILING REFORM: Recommendation: i) We ask that the
N.Y.S.
Constitution be amended to eliminate the 5% debt ceiling and that the Local
Finance Law be amended to provide a 10% debt ceiling for small city school
districts. ii) We ask that Local
Finance Law §121.20 be amended to permit amounts to be received as building aid
to be excluded from the debt ceiling computation for small city school
districts, as is currently the case for non-city districts. iii) We ask that the Public Authorities Law be amended to provide that debt financed or refinanced by small city school districts through the N.Y.S. Dormitory Authority pursuant to Chapter 383 be excluded from the debt ceiling computation. |
Albany
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