Impact of New Senate Republican School Finance Proposals

Two approaches to addressing the Gannon school finance decision were presented at the Republican Senate Caucus Wednesday.  Both would finance the nearly $130 million estimated cost of fully funding the Local Option Budget and Capital Outlay state aid in part by making significant cuts in other school funding areas.  Both would also increase the maximum LOB authority for districts.  The net impact on individual school districts would vary significantly.

The first proposal was offered by Senate Republican leaders.  The second was a variation offered by Senate Ways and Means Chair Ty Masterson, R-Andover.  Spreadsheets showing the impact of both plans were presented yesterday to Republican Senators, as well as a spreadsheet of the Democratic proposal to simply add $130 million without offsetting cuts.  KASB has PDF copies of the spreadsheets, but does not have actual spreadsheet files for calculations.  The Kansas State Department of Education does not plan to post spreadsheets until proposals are in bill form.

It should be stressed that all of these proposals are simply concepts and likely to change.  However, it is important to understand each of these concepts individually and how they work together. Here are some key points to remember.

• First, the $105 million identified by the courts to address inequities in the local option budget would primarily go to “equalize” property taxes.  It would not provide ANY new spending authority.  For districts that are effectively capped at the maximum LOB, increased state would simply reduce their mill levies.  Because lower wealth districts get the most state aid, they would have the biggest decrease in mill levies.  On the other hand, the wealthiest districts would receive no additional aid.

• Second, the $25 million capital outlay state aid would provide more spending power to districts that receive it, but can only be used for long term capital costs, not regular operating budgets.  Again, a number of higher wealth districts would not receive any of these funds.

• Third, to reduce the cost to the state, both Senate Republicans plans (and to a lesser extent, the House Republican plan in HB 2774) cut other parts of the school district funding formula.  These means districts would lose actual operating funds.  Statewide, the Republican Leadership plan would cut operating budgets by about $36 million.

• Fourth, these targeted cuts have very different impacts.  For example, reducing the transportation weighting (in all three plans) affects every district, but some districts transport a higher percentage of their students and would likely have a higher reduction.  Other weightings apply only to certain districts.

• Fifth, the Senate plans - unlike the House proposal - would allow districts to increase their Local Option Budget from the current maximum of 31 to 33 percent, with an election required for percentages over 30 or 31 percent.  (An explanation memo says 31 percent, but staff sources understood the proposal to be the current threshold of 30 percent.) The Senate documents say that proposal would allow districts increase LOB authority statewide by almost $85 million.

• Sixth, most local boards are concerned about raising their LOB because it has required a mill levy increase, which would be unpopular with voters.  However, in many districts, the amount of LOB state aid required by the Gannon decision appears to be more than the cost of increasing the LOB to 33 percent.  In other words, they could raise their LOB to cover losses in the general operating funds WITHOUT increasing the mill levy, but their taxpayers would have a smaller mill levy reduction.  On the other hand, districts that receive little or no state aid might have to raise their LOB percentage AND mill levy to make up for the loss in weightings.

The result is that both Republican plans would potentially provide additional operating funds on a statewide basis, unlike the current House plan or Democratic proposals to simply fund LOB and Capital Outlay state aid.   However, the actual impact on each individual district varies dramatically.  It’s critical for school leaders to work with their Legislators to determine the impact of each component, as well as the total net impact.  Finally, depending on any election threshold, it would be up to local board and/or voters to actually use the increased operating authority.

Now, let’s look at the specific components of each plan.  It should be stressed these are not actual bills, and are highly subject to change.

Senate Leadership proposal:

Fully fund Local Option Budget state aid.  Requires an estimated $103.9 million next year, up from $94.5 million in the current year.  The approximately 19% of districts with the highest assessed valuation per pupil do not receive LOB aid.  The remaining 81% quality for aid. As a district’s valuation per pupil declines, it received a higher percentage of aid for its LOB, which reduces the required mill levy for its LOB.  Because state aid has not been fully funding, these districts have had to either raise their mill levy or reduce the LOB.

Fully fund Capital Outlay state aid. Requires an estimated $25.2 million.  There is a similar formula for capital outlay aid, which is used match or supplement a local capital outlay levy.  Capital outlay aid has not been funded since 2010.  Only about half of districts would receive aid, either because they are high in valuation per pupil, or because they do not have a capital outlay levy.  Capital outlay cannot be used for regular operating expenditures. However, under a law passed last year, if the aid formula is fully funded, districts can use these funds for some additional purposes, such as performance uniforms and software.  Districts would have to adopt a new capital outlay resolution, subject to protest petition, to spend on these additional purposes.

Count an increase of $14 in base state aid per pupil.  Raising the base from $3,838 to $3,852 is already included in the Governor’s budget.  This will provide districts an estimated $9.6 million.

Reduce virtual school funding by over 50 percent.  This would save the state - and cost school districts - $14.4 million.  The proposal would fund students in virtual schools at 50 percent of the base budget per pupil, with no additional weightings.  Currently, students in virtual programs are funded at 105 percent of the base state aid per pupil.  This would reduce funding in over 80 districts.

Eliminate at-risk non-proficient weighting.  This would save the state - and reduce total district funding - by $4.9 million.  Non-proficient weighting is based on students who score below proficient on state reading or math tests and are NOT eligible for free meals.  (The number of students receiving free meals determines the district’s “regular” at-risk weighting.)  The weighting was designed to allow districts with very low free lunch rates to receive funding for programs assisting students who are at-risk of academic failure.  Every districts receive some funding under this weighting - and would lose by its elimination.

Reduce transportation weighting by $16.5 million.  This proposal (the same as in HB 2774) which would adopt a different formula developed by the Legislative Post Audit Division in the 2006 school district cost study.  It would reduce transportation funding for every district, and cut total transportation aid by about 16 percent.  It would reduce transportation aid for every district.

Reduce high density at-risk weighting by $7.2 million.  Approximately half of school districts would have funding reduced by this cut.  It appears the reduction would be based on a change in the “linear transition” so districts with the least density of low income students would receive the highest percentage cut.  Total high density at-risk funding is $52 million, so this would be a 14 percent reduction statewide.

Reduce eligibility for at-risk weighting by $3.5 million.  The proposal would disallow the counting of any students over 19 years old for at-risk weighting, which is contained in HB 2774, and would also disallow counting part-time students (other than kindergarten) for at-risk weighting.  KASB does not have information on who many districts this would affect.

Phase-out new facilities weighting.  The proposal would allow facilities in their second year of operation to receive this weighting, but no new facilities would be eligible next year, reducing the expected cost in 2014-15 by $10 million.  Approximately 35 districts received $13.7 million in new facilities weighting this year.

Increase the maximum Local Option Budget from 31 percent to 33 percent, with anything above 31 percent requiring an election.  Under current law, districts are required to hold an election to adopt an LOB over 30 percent of the general fund, and the maximum percentage is 31 percent.  Presumably, this proposal would allow districts at 30 percent or below to increase to 31 percent without an election, and those districts at 31 percent or below to increase up to 33 percent, if approved at an election.  However, Legislature staff indicate that the intention may have been to keep the election for LOB amounts over 30 percent.

In order to hold an election in time to authorize a higher LOB for next school year, the election would probably have to be held no later than the August primary election.  The Secretary of State’s office indicates school boards would need to notify their county election officials by the first of June.  This issue will become difficult of a bill does not pass in time to take effect prior to that date.

The plan appears to assume the amount of LOB state aid required to fully fund equalization for the additional LOB authority next year is $5 million.

The net result is that the $129 million cost of LOB and Capital Outlay next year would be reduced by $14.4 million in virtual weighting, $4.9 million in non-proficient weighting, $16.5 million in transportation weighting, $7.2 million in high density at-risk weighting, $3.5 million in at-risk weighting by not counting students 19 and older and part-time students, $10 million for new facilities weighting; and adding $5 million for increased LOB equalization due to raising the LOB maximum from 31 percent to 33 percent.  This leaves a “net” cost to the state of $77.6 million, rather than nearly $130 million.

However, the LOB spending “authority” would also increase, by about $85 million statewide.  The more districts actually used this additional LOB authority, the greater the cost of LOB equalization.  Remember, the actual impact on individual districts varies.

Senator Masterson proposal (same leadership plan with the following exceptions):

Increase base state aid per pupil $65, rather than $14, and further increase the base $450 to include funding for KPERS.  This would provide a total increase of $515 dollars to the base, at a statewide cost of $352.3 million.  Most of this would be from dividing total current state KPERS contributions for school employees by weighted enrollment and adding that amount to the base.

Require districts to pay the actual cost of the employers KPERS contribution on behalf of their employees.  This would cost districts a total of $307.5 million next year.  This means every district would receive the same amount for each weighted student in the base, but would have different costs depending on what they pay their employees.  Because the KPERS cost is based on a percentage of payroll, districts with higher employee costs would have to spend more than they received in base aid, while districts with lower costs would spend less on KPERS than they received in base aid.  In addition, because the base is increased goes to weighted enrollment, districts with more weighted students receive more.

It should be noted the KPERS contribution rate is expected to increase significantly over the next several years.  Under current law, the state is responsible for paying that increase.  Under the new proposal, if the base did not increase at least as fast as the KPERS rate, districts would have to reduce other expenditures to pay for KPERS.

Reduce regular at-risk weighting by 10 percent.  This would save the state - and reduce district funding by - $34.5 million.  It would impact every district.

Reduce high density at-risk weighting by $36.7 million, rather than $7.2 million.  This would reduce high-density at-risk funds by over 70 percent.

Provide $14 million statewide for transition funding.  This is described as a one-year “hold harmless” provision that would keep any district from a net loss in state aid.

Impact on your district:

To calculate the impact of these changes for  your district, you need to review the proposed spreadsheets (or other proposals).

First, determine any proposed additions to your general fund through the base budget.

Second, subtract the reductions in weightings and other costs, such as KPERS payments in the Masterson plan.  The result is the net change in your general fund budget.

Third, estimate the impact of fully funded LOB state aid on your LOB mill levy (if any).

Fourth, determine how much of an increase in your LOB would be needed to offset reductions in your general fund, and any additional increase up to 33%.

Fifth, determine what mill levy would be necessary to provide that amount.

Sixth, compare the net increase or decrease in LOB mill levy.

Seventh, determine if any capital outlay state aid received could be used to reduce the capital outlay levy, or reduce transfers that would free up additional dollars in your general fund.

This is obviously a constantly changing situation.  We will continue to update school finance proposals as we learn more, and as new plans are presented.