EXECUTIVE BUDGET MESSAGE

Albany

January 22, 2008

The Governor delivered his 2008-09 Budget message at the Capitol today to an audience that had already learned of many of the more controversial aspects of his budget in prior days through the press or through well orchestrated information leaks. For a week it had been well known that Mr. Spitzer would propose a major reduction in the second year installment of his historic Foundation Aid Reform. The first year installment was pegged at a 20% increase in education aid to be followed by a 22.5% increase in year two. Due to the looming State Budget deficit in 2008-09 and beyond, the Governor felt constrained to lower the second year increase to 17.8% and phase in the total increase in Foundation Aid over five years rather than four. While these changes represent a major retrenchment in promised education aid, the overall two year increase of 37.8% is still a major step forward in the effort to reform education aid to elementary and secondary school districts.

The Governor began his message emphasizing the $4.4 Billion deficit facing the State and the “bungy jumping” stock market making fiscal forecasting especially difficult. The All Funds Budget (including federal aid/funds) under the Executive Budget is to be $124 Billion, a 5% growth from 2007-08. He stated that the major areas over which the State has control are Medicaid and Education Aid and it is on those areas that we must concentrate to control spending. Nevertheless, the core priorities of last year’s budget are to be continued: education, health care and the up-state economy. He stated that guiding principles to be continued are as follows: no new taxes, though loop holes will be closed; protect priorities and essential services; and provide services more efficiently.

Closing of the Budget Deficit will require controlling spending so that over the long term it matches the historic growth in personal income which is 5.3%. He said that had we done that previously, we would have accumulated surpluses sufficient to fund the current deficit. Changes to education aid to control spending are outlined as follows:

·         For education, his mantra is ‘investment and accountability.’ He referred to the $1.6 Billion investment in 2007-08 and the establishment of the Contract for Excellence accountability system. At the end of the fourth year the overall increase in education investment will be $7.8 Billion. This year, however, the projected Foundation Aid increase will be lowered by $350 Million to reflect the fiscal realities. This decrease is off-set somewhat by a $179 Million to NYC and the $100 Million in High Tax Aid (This latter aid, of course, is not equitably distributed and was created to satisfy the ‘shares’ demands of Long Island and Republican Senators.)

·         Enhancing the Foundation Aid Formula to ensure that high needs school districts continue to receive the greatest increases in Foundation Aid;

·         Decreasing the minimum increase in total Foundation Aid that a school district can receive from 3 percent to 2 percent, and decreasing the maximum increase from 25 percent to 15 percent; and

·         Decreasing the second year phase-in of the program from 42.5 percent of the planned four year increase to 37.5 percent

Changes to the  Contract for Excellence are as follows: For 2008-09, all school districts receiving a Foundation Aid increase in excess of 10 percent, or $15 million, or receiving a Supplemental Educational Improvement Plan grant and having a school identified as having educational deficiencies will develop a Contract for Excellence. The Contract outlines how they will spend State funding on measures that have been proven to improve student performance, especially for students with the greatest educational needs. The Contract also requires districts to make progress in attaining State and Federal standards. The Executive Budget recommends that these districts, as well as the 55 districts that had Contracts in 2007-08, be required to enter into the Contract annually for a three year period unless the district no longer has any schools with performance deficiencies. Initiatives currently permitted under the Contracts for Excellence program include:

                        Reducing class sizes;
                        Increasing time on task;
                        Increasing the quality of teaching;
                        Restructuring Middle and High Schools; and
                        Participating in full-day kindergarten or pre-kindergarten.

For the 2008-09 school year, the Executive Budget recommends expanding allowable activities to include programs which are effective in improving the academic achievement of English Language Learners.

·         The following chart summarizes the impact of the Governor’s proposals on education aid in 2008-09:

Mr. Spitzer then voiced his support for the findings of the Commission on New York Higher Education which he appointed last year. The US world rank in people holding post secondary degrees has been rapidly declining, New York’s share in R&D dollars has been falling and there has been a decline in post secondary faculty in state. He used these facts to support his proposal for major new investment in higher education through a $4 Billion endowment funded by monetizing the Lottery. This would require the capping of the $2 Billion already going to elementary- secondary education from the Lottery and the use of the future growth in the Lottery proceeds to support establishment of the endowment through bond sales.

He then mentioned the enormously controversial issue of property tax caps. The Commission previously announced in the State of the State Message has yet to be appointed. Moreover, no details have been revealed and it remains to be seen exactly how the Governor intends to solve the problem that he perceives, i.e. growing property taxes are hurting individuals and businesses and inhibiting state economic growth. The Association will be following the work of the Commission closely and participating in the ongoing dialogue over this vital subject.

The above summary was developed from the Governor’s Message and the Executive Budget Briefing Books. Later this week we will be reviewing and reporting on the Appropriations Bills and the Article VII bills which provide the statutory language necessary to implement the revisions required by the Governor’s Budget. We will also be reviewing the State Aid Runs to analyze aid received by small city school districts in comparison to the state as a whole. 

 back to top

CHARLES WINTERS REPORTS
ON GOVERNOR’S BUDGET

From:         Charles A. Winters
Re:             Executive Budget Aid Highlights
Date:          January 23, 2008

Historically, the school aid packages proposed by New York Governors have been neither very large nor very thoughtful. Executives from both parties have generally let the Legislature do the heavy lifting for schools.  This time it is clearly different. 

New York’s financial woes required Governor Spitzer to scale back on last year’s ambitious four-year plan, but the original target has remained in place and much of the trimming was aimed at low need districts.  Thus, for only time I can recall, the schools of the neediest students have the prospect of an aid increase that is above the cost of living in a time of general retrenchment.   

The Foundation Formula

The minimum increase was reduced from 3% to 2% and the maximum increase was reduced from 25% to 15%.  The year-two phase-in was reduced from 42.5% to 37.5% of the target funding level.  The increase in the highest wealth tier of aid ratios that the legislature had added last year was eliminated.  This tier had only benefited districts with combined wealth ratios over 1.34 times the state average.  The target tax rate for local effort was reduced as scheduled from $16.00/$1,000 to $15.60/$1,000 as the state average full value tax rate decreased. Thus, while the magnitude of the increases was trimmed, the focus on low wealth and high poverty districts was maintained.  Most small city and poor rural school districts should maintain and slightly improve upon last year’s gains.

BOCES Aid

The millage option in BOCES Aid was dropped.  This choice of aid ratios, based upon tax rates, predominantly benefits higher wealth districts.  Dropping it was suggested by the Association several years ago as one method of funding a targeted formula from savings in less targeted formulas.

High Tax Aid 

This formula has been scaled back and limited to individual districts rather than the county-wide flat grants of last year.  Unfortunately, the formula continues to use the badly distorted residential tax levy (including vacation homes owned by non residents) divided by only the income of residents.  This misuse of the data causes aid to be paid to many districts with lower tax rates but many non-resident taxpayers.  The damage was somewhat limited by capping eligibility at an income wealth ratio of 2.5 times the state average.  The need to have such a cap demonstrated how perverse this formula really is.

Overall

Right now, the small city schools are running larger increases than the state as a whole and the majority of small city districts are seeing increases well above the cost of living.  This should allow most small city schools to enhance local programs without incurring major tax increases.  How the new accountability mechanisms might interfere with sound planning has yet to be unraveled.  Financially this is a great start. 

The main driver of increases for upstate small city districts is the Foundation Aid formula where they averaged a 9.1% increase compared to 8.3% for upstate non-city districts and a range of 2%-7.6% for the Big-5.  The seven small cities downstate (Westchester and Nassau) fared as badly as their areas counterparts with minimum increases of 2% for each.  This lends more credence to the idea that the regional costs index needs further study. 

46 of 57 small city districts are on the Foundation Aid formula; however, averaging 19.8% increases in foundation aid over two years compared to 16.0% statewide. 

 back to top

BUDGET
PROPOSES HISTORIC
SCHOOL
AID
INVESTMENT
TIED
TO ACCOUNTABILITY

STATE OF NEW YORK                      DIVISION OF THE BUDGET
ELIOT SPITZER, GOVERNOR

FOR IMMEDIATE RELEASE:      Date: January 22, 2008

CONTACT: Jeffrey Gordon  jeffrey.gordon@budget.state.ny.us   518.473.3885

Governor Eliot Spitzer today proposed a record $1.46 billion increase in funding for 2008-09, the second year of a $7 billion four-year Education Investment Plan.  The $1.46 billion increase, the largest ever proposed by a Governor, will bring total education spending to $21.01 billion, a 7.4 percent increase from 2007-08.  This is approximately the same amount that was projected to be spent on education in 2008-09 when the Budget was enacted last year.

As with the current year, the Budget allocates the vast majority of operating aid through the Foundation Aid Formula, which uses objective criteria to better target state funds to high needs districts, and is tied to the accountability measures created last year with the Contracts for Excellence. 

Two aid categories were revised to use wealth factors to allocate funding similar to the Foundation Aid Formula:  High Tax Aid, which is provided to districts where the property tax burden is greatest relative to income; and Boards of Cooperative Educational Services (BOCES) Aid. After these changes, overall BOCES funding will total $594 million, a year-to-year decrease of $31 million.  These changes will better target funds to high-needs and average-needs districts.

“Investing in education is essential to New York’s future if we are to remain competitive on a global stage,” said Governor Spitzer. “This unprecedented infusion of resources for the second year in a row, coupled with accountability measures proven to get results, will dramatically improve the quality of the education we deliver and lay the groundwork for future economic growth.” 

The cumulative increase delivered to districts over Governor Spitzer’s two years will total $3.18 billion or 17.8 percent under this proposal.

This Budget proposal builds on reforms implemented in the current year.  The Budget refines the Contracts for Excellence accountability initiative to ensure that these requirements apply to qualifying districts’ annual expenditures for at least three years.  At the same time, however, districts that demonstrate improvement in student performance by making “adequate yearly progress” in all schools identified as deficient would no longer be subject to the Contract for Excellence requirements.

Additionally, programs to help English Language Learners meet grade level requirements have been added as an approved use for Contract for Excellence funding. Other strategies that can be implemented under the Contracts include lowering class size, increasing student time on task, providing full-day prekindergarten or kindergarten, expanding teacher quality initiatives, and restructuring middle or high schools.

Coming during a national economic slump, the Executive Budget recommends adjusting the projected expansion of Foundation Aid, saving $93 million in the 2008-09 fiscal year. The overall projected increase in Foundation Aid this year will total $899 million, an increase of 6.6 percent.  This year’s adjustment affects a fraction of the Governor’s overall funding proposal and does not impact his commitment to invest $7 billion over 4 years.

At the time the 2007-08 Budget was enacted, funding for Foundation Aid was expected to increase by $1.24 billion in 2008-09. Several factors combined to change this projection.

Updated wealth and demographic information reported by school districts, which are components of the Foundation Formula, significantly altered the amount and distribution of this category of aid, which would have totaled $992 million in 2008-09 if no other actions were taken.

Furthermore, while the Executive Budget continues to calculate funding based on the cost of a successful education and student needs, several adjustments were made to balance the competing priorities of targeting support to high need districts, preserving funding stability, and addressing the state’s budgetary constraints.

These changes to the formula, which brought the total increase to $899 million, include:

• Enhancing the Foundation Aid Formula to ensure that high needs school districts continue to receive the greatest increases in Foundation Aid;
• Decreasing the minimum increase in total Foundation Aid that a school district can receive from 3 percent to 2 percent, and decreasing the maximum increase from 25 percent to 15 percent; and
• Decreasing the second year phase-in of the program from 42.5 percent of the planned four-year increase to 37.5 percent.

The Budget includes certain additional aid streams that partially offset the reduction in Foundation Aid.  Specifically, the Budget includes $179 million in Academic Achievement Grants for New York City, $100 million in High Tax Aid for districts statewide and $39 million of incremental Special Services funding — primarily for the Big 5 cities.  When the $318 million from these additional aid streams is added to the $899 in Foundation Aid in the Executive Budget, it represents an aggregate of $1.2 billion in operating support.  

Other education initiatives contained in the Executive Budget include:

• Universal Prekindergarten: The Budget provides $452 million in funding for Universal Prekindergarten. This represents a $79 million increase compared to projected spending on that program in 2007-08, and would support 120,000 students receiving these services, an increase of over 27,000.

• Healthy Schools: The Budget increases reimbursement to schools for the expansion of access to nutritious meals – particularly for low-income students – by $9 million for the 2008-09 school year in support of a Healthy Schools Act.

• Pre-school Special Education: The Budget caps the annual growth in local preschool special education costs for counties outside of New York City.  Under this initiative, counties will realize savings of $31 million in their 2009 fiscal year. Additionally, school districts will be required to assume a portion of the costs associated with administering committees on preschool special education (CPSEs) and providing student evaluations. These actions are consistent with the principles articulated by the Temporary Task Force on Preschool Special Education created in last year’s budget.

• English Language Learners: The budget includes an increase in aid of $2 million to support and encourage the expansion and replication of proven programs and model school reform strategies for the increasing number of English Language learners enrolling in New York's public schools. 

http://www.budget.state.ny.us/pubs/press/2008/press_release08_eBudget06.html

 back to top

THROUGH TARGETING
OF STATE AID,
SCSDs CREEP
CLOSER TO MORE EQUITABLE DISTRIBUTION

(See Small City School District Computerized Aid Analysis of 11-year
 Average and of Executive Budget 2008-09)

 back to top

C4E DISTRICTS FACE VARYING CHALLENGES THAT REQUIRE GREATER FLEXIBILITY- by Lauren Poehlman, Assistant Superintendent, Geneva CSD

One Size Fits All Doesn’t Fit the Heinz 55

Accountability is the focus of the Contract for Excellence (C4E).  This is certainly difficult to package and deliver in a neat little box.  Conceptually this sounds like the solution to the disadvantaged districts. Conceptually, it makes sense. The State is expecting a clear correlation between the additional funding and performance and has put into place an additional system of accountability for 55 districts.

Realistically, it is a concept that was legislated too quickly and without consideration for the variety of causes and the variety of circumstances that the districts find themselves in.  

It’s Not New $$

Let us clarify first that is not “extra” money. This is money that has essentially been withheld from districts since 2001.  Many districts have suffered the burden of increased enrollment, decreasing tax base or increased student needs in their districts without the equitable increase in state aid. The worst hit districts in were receiving a fraction of the operating aid that they would have received if the stalled formulas were allowed to run. Over the same years, the majority of districts maintained and continues to maintain their operating aid allocations despite increases in tax base and decreases in student enrollment and/or need.

Different Starting Points 

C4E districts are starting at different places in regards to funding. If a district has received more than a 20% increase in foundation aid, then they have only been receiving 67 % of what the Regents considers being adequate funding in the 2006/07 fiscal year.

If a district receives a 16% increase in 2007/08, then they have only been receiving 56 % of what the Regents considers to be adequate funding.  If a poor district is 90% dependent on State Aid and Foundation Aid comprises 72% of its budget, a deficit of 56% in Foundation Aid translates into a 30% gap in its budget.

How did these districts compensate for aid deficiencies? The districts either a) stripped services to the students b) taxed the community, or c) depleted reserves or d) some combination of all of these. If the local residents made up the entire deficit of state funding in a district with a state sharing ratio of 90%, they would be paying three times the expected local contribution in order to provide an adequate education for their students.

The state restored 20% of the Foundation Aid gap in 2007-08, but that funding level rises to no more than 73% of the minimum funding considered being adequate. It will take at least 4 years to bring the district to an adequate level of funding. Are the expected improvement targets appropriate for the first year phase-in?  That depends on the severity of the deficiencies, the extensiveness of the targeted students and the current framework of the district.  

A less wealthy district may be as severely deficient in Foundation Aid, yet the effect on the budget is less severe. For example, if district B is 50% dependent on state aid, a similar deficit would  only affect 10% of the budget and would have required a 20% increase in local tax to relieve the compensate for the deficit. This speaks volumes as to the degree to which districts have already struggled to meet the demands of the state without the adequate support from the state.

Different Strategies

Not only are these 55 districts not in the same financial position, they are in varying degrees of implementation of programs to satisfy NCLB requirements. Many districts have undertaken significant steps in restructuring and offering alternative programs while others have been struggling to open the doors every day.

The elimination of services has absolutely had a devastating effect on student performance and it is understandable that we are now looking for better results with the expending of more funds. The cut services need to be reinstated, but the services that are currently being provided need to be maintained. The additional funds over and above sustenance level should be allocated to new program. The 25% that is allowable for the sustainment of existing program is not sufficient.

Here is an example of why it isn’t enough:

The following table is a simplified outline of a real district that is subject to C4E.

We will assume for this example that the local share increases by 5%, that the Foundation Aid will increase by 10% and other reimbursable aids will increase by 5%. The status quo budgets have been increasing by approximately 7% due to the high cost increases in benefits and utilities. If the unrestricted portion of the Foundation Aid accounts for 3% of the budget, then there may be program cuts needed to add new programs. There are so many districts that have already cut program, have already depleted reserves and have already raised taxes, that this restriction is somewhat incomprehensible.

The flexibility of the first 10% that is allowable to all non-contract districts should also be available to all contract districts. That 10% would allow the contract districts to maintain the status quo with existing program and use the additional funding, over 10%, for new program.

Depth and Diversity

We give applause to the State Education Department professionals who have struggled to accommodate the new accountability standards. They have been burdened with an incredibly difficult task. The diversity and depth of the issues that isolate C4E districts is as polarized as you could imagine. A low tolerance that triggers C4E compliance at the shallow end may represent a few students in one subgroup. On the opposite end, we have major urban cities with chronic, systemic and long-term problems. The restrictions on funds should be relative to the number of students affected, the length of time that the district has been struggling with those students, the degree to which that district has already adjusted and the degree to which the local community has supported the efforts.  

Some allowance should also be made to allow the districts at the deep end to initiate district-wide initiatives and have more flexibility in the manner to which they need to address their problems. The Big 4 District Cities should also be required to maintain a minimum level of local effort. 

Prior Initiatives

Under the accountability standards that were already in place before the Foundation Aid was addressed, many if not all districts have already initiated reforms and new programs. These initiatives that started prior to 2007/08 are not being given enough consideration and are at risk because of the financial restrictions discussed above. Poorly planned, last-minute designs are substituted for comprehensive, complementary and cohesive programs that would better serve our unique student populations.

A delay in the financial restrictions until the third year of implementation would benefit the districts in two ways. It would allow us to catch up to a level of funding that is less devastating to our districts without cutting essential staff in the process. It would also allow us to properly plan for the influx of funds and how the increases could be implemented in the most efficient manner.

Again the politics of the state has overshadowed the needs of the students by putting a plain vanilla wrapper on all C4E districts. If the fear is that the districts will use the funds to lower taxes before performance has increased, then it should be mandated that the local effort be maintained in those districts. 

If the fear is that the funds would be bargained away at the negotiating tables, perhaps a closer look at those negotiations is in order. How many of the C4E districts are paying below-average salaries? One of the key elements of successful schools is the quality and longevity of the teachers in the classroom. Without adequate funding, many C4E districts have not been able to maintain competitiveness in the market and lose their teachers to less demanding and higher paying districts. The increase in teaching salaries may not have the immediate and dynamic effect that the state is looking for, but for systemically troubled districts, the problems were not created overnight and cannot be corrected overnight. Why can’t these funds be used to retain the best teachers in our neediest classrooms?  

Recommendations:  
Þ    Take into account the size of the problems and restrict new contract funds based on the size of the populations at risk.
Þ    Take into account the longevity of the problems and restrict new contract funds based on the severity of the deficiencies.
Þ    Allow greater flexibility in the highest needs districts.
Þ    Allow the first 10% of increased funding to be spent on maintaining current program.
Þ    Delay implementation of the restrictions and the accountability standards until the third year.
Þ    Allow greater flexibility in the definition of “new programs” to encompass those initiatives that have started prior to the 2007/08 school year.
Þ    Allow districts at the shallow end to have less restricted funds, relative to the number of students in the targeted areas.
Þ    Allow the most fiscally stressed districts to accelerate their funding.
Þ    Require a minimum of local effort for all low performing districts.
Þ    Most importantly, keep the promise. Continue the funding.

 back to top

UPCOMING
EVENTS

February 8, 2008
10:30AM
Center for School Improvement organizational meeting for GEAR UP grant
Fort Orange Club, Albany, NY 

March 11, 2008
8am – 12pm
Legislative Breakfast
Fort Orange Club, Albany, NY

June 1-2, 2008
Annual Conference
The Otesaga, Cooperstown, NY