Budget Info
Summer 01 (v5#1)

State Education Budget Impasse:
What's New? What's Not?

Every January, a highly choreographed war dance around the state budget begins. The dancers change, but they follow the same basic steps.

For the last couple of years, the Assembly majority leader has not been willing to trade-off funding for city schools, so the negotiations over the education budget are taking longer and the stakes are higher. In the face of the Assembly majority leader’s time-honored ploy of threatening to leave unless his demands are met, the other two combatants, the governor and the Senate majority leader, have signaled that they would rather not have a budget than give into the Assembly speaker’s demands.

A few numbers set the stage. New York State’s 2000-01 planned expenditures for school aid were $13.7 billion to help school districts educate 2.8 million pupils. For high-wealth school districts, such as those in the downstate suburbs, state aid only accounts for 10 to 20 percent of their budgets. For poor, rural districts, 90 percent of their funding could come from the state.

This year, the governor began the war dance with even more dramatic school aid proposals than usual. He recommended a gradual elimination of Public Excess Cost Aid as well as an overhaul of Building Aid. Both houses quickly announced that these two proposals were "dead on arrival." The budget stalemate has continued through June and threatens to last throughout the summer, because the traditional negotiating positions of the three combatants have not budged. Here are three "old" conflicts that have impeded the start of negotiations.

OLD CONFLICTS

Different Spending Recommendations

The governor has estimated that state revenues from taxes, fees, and federal payments require that state spending be limited to $83.6 billion, which both houses consider too low. The Assembly recommends a spending level of $86.4 billion. The Senate traditionally finds a figure halfway between the two, and has come in at $84.7 billion.

A Veto-Free Budget

Before the war dance can become a trading game, another step must be taken besides agreeing to estimated revenues. Three years ago, the governor vetoed large sections of the budget agreement, especially programs favored by the Assembly. For the last two years, the Assembly has demanded assurances of good-faith bargaining by the governor and the Senate before entering serious budget negotiations. The other two parties complain that the Assembly speaker is trying to strip the governor of his veto power.

LADDER Funding

In 1997, in return for the phase-in of a $2 billion STAR tax relief program proposed by the governor that primarily benefits affluent suburban and rural homeowners, the Assembly secured the phase-in of funds that primarily benefit high-needs school districts. For the last three years, the governor and the Senate have forced the Assembly to fight to retain the phase-in amounts. The overall LADDER program is scheduled to go from a $430 million expenditure to $872 million in the 2001-02 school year. The budget proposals for the two big-ticket items are further apart than in the past.

The New York Senate wants to align the state regulations to federal class size reduction regulations, which are more flexible because they do not actually require class sizes to be reduced, but allow funds to be spent for staff development, teacher recruitment, and the hiring of "floating" teachers, additional teachers that work with regular classroom teachers. Current state law and regulations mandate that state funds can only be used to create smaller classes. The language proposed by the Senate is so broad as to allow school districts to retroactively eliminate smaller classes that have already been created. Some advocates have proposed that if the regulations are changed to allow state-funded floating teachers, they should be assigned to a maximum of two classes and used for small group instruction. The Senate language contains no such restrictions. EPP’s monitoring report found that some floating teachers have been assigned to 13-29 classes within a week.

The universal pre-kindergarten program has been unpopular with a few Albany lawmakers, because there were districts that did not spend the money they were allocated last fiscal year. The lack of funding for school bus transportation for four-year-olds has made some districts outside the city reluctant to initiate this service. New York City and other school districts had space constraints and were also faced with a demand for full-day programs (the funding stipulations only allow half-day programs).

In 2000-01, the third year of the program’s implementation, school districts statewide utilized 79 percent of the funds allocated for universal pre-k programs, (the number rises to 89 percent when "roll over" money is included), according to the New York State Education Department.

The Assembly asks for a one-year extension for the use of a reserve fund. The reserve fund allows districts to "roll over" unused money for the following year. The Senate and the governor’s proposals eliminate the reserve fund. The Assembly proposes extending the universal pre-k teacher certification deadline as well.

WHAT’S NEW?

There are other stumbling blocks to education budget negotiations this year that constitute new developments.

Streamlining or a Restructuring of State School Aid?

In the wake of the historic Campaign for Fiscal Equity lawsuit (see p. 8), there was anticipation that the Assembly or the Senate would unveil a comprehensive plan to restructure state school aid modeled on the Regents proposal or one fashioned by upstate school districts, called the Midstate Consortium Plan. The governor started the ball rolling with the concept of Flex Aid, wherein 11 former categories of formula aid are "collapsed." This "reform," however, only applies to increased funding. 98 percent of state school aid would be distributed to districts as they had been the previous year, with only 2 percent provided through Flex Aid.

The Assembly countered with a Core Operating Aid concept that collapses six former categories. Unlike the governor’s proposal, which limits increases in aid to "new money," the Assembly’s plan applies increases to all Operating Aid. This house also recommends a two-year budget that would allow school districts to plan for their next school year, rather than scramble to assemble a budget at the end of the summer.

The Senate’s Flex Aid is similar to the governor’s with two important differences. Specific aid for special education is kept as a separate formula, and increases for pre-kindergarten are folded into Flex Aid. Given the existence of 56 aid categories at present, it is likely that some of this streamlining will occur. The Flex Aid and Core Operating Aid contain other important reforms in how state school aid is computed. Two of these reforms, Regional Cost Adjustments and the elimination of transition caps, mirror the recommendations of the Regents.

Regional Cost Adjustments

This reform, which EPP has been vigorously pushing this year with our April 3 Forum in Albany and our report, Getting It Right: An Assessment of Several Methods for Calculating Regional Costs Across New York State, has found its way into all three budget proposals. They use the Regents methodology, creating nine regions with different cost indexes based on professional wages (excluding those of teachers) within each region. New York and Long Island constitute one region with a 1.515 cost factor, in effect, increasing some or all of Operating Aid for school districts in the downstate area by 50 percent. Current Operating Aid is affected by the wealth of the school district.

How does this affect New York City? In the case of the Assembly, they are taking Core Operating Aid and multiplying it by a 1.515 regional cost factor. The tricky parts are the pupil count and the borough aid. The Regents reform proposal used a higher pupil count for New York City than the Assembly, by a factor of 100,000 students. The Assembly has revised its pupil count methodology and has arrived at a figure of about 1.2 million "weighted" pupils (weighted means that some students, such as those in high school, are determined to cost more to educate). The Regents methodology created a weighted count of 1.3 million pupils, and this makes a difference of $221 million. On the other hand, the Senate and governor’s budgets eliminate computing New York City’s wealth by boroughs, which has a greater effect than the pupil count because it reduces New York City state school aid by about $500 million in 2001-02.

It is worth bearing in mind that these "details" can cost New York City lots of money in the negotiations. It is laudable that, at last, budget proposals now reflect regional cost adjustments, a reform advocated by the 1978 Rubin Commission and the 1988 Salerno Commission. But there is still an effort to tamper with the formula in order to arrive at some notion of dividing increases into regional "shares," with New York City’s not to exceed 38.8 percent. State Comptroller McCall has warned that the persistence of this type of continued tampering to arrive at pre-negotiated amounts, irrespective of the formulas, will undermine the effectiveness of any new reforms.

Transition Adjustments

EPP’s 1999 report, Checkerboard Schooling, found that high-minority school districts, which include some of the big five cities and seven

suburban neighborhoods in the three downstate counties, are hurt not so much by the formulas, but by limits on year-to-year increases in Operating Aid. In the 1998-99 school year, Hempstead lost $1,503 per student in the Transition Adjustment computation. In the same year, the Hauppauge school district, which is almost three times as wealthy, continued to get $1,164 per pupil more that it was entitled to under the Operating Aid formula, because it was funded on a "save-harmless" basis, whereby the state assures every district that they will not get less money than they received the prior year.

Although the governor and the Senate eliminate the transition caps that negatively impact high-minority school districts, the governor proposes a 1 percent increase in Operating Aid for all districts, even if they are "save-harmless" and a 1.5 percent increase for all below-average wealth districts. The Senate guarantees a 2 percent increase for all districts. The Assembly’s Core Operating Aid, because of its generous funding, provides a minimum of a 2 percent increase to the highest-wealth districts and a minimum of a 4 percent increase to the lowest-wealth districts. It places a cap of 5.5 percent on increases, except for districts with high-poverty students, which are capped at 12 percent. In the second year, all transition caps are eliminated.

In addition to the plans to restructure Operating Aid and how it is computed, the new proposals to reshape Building Aid could have a substantial impact on state school aid.

Building Aid

This reimbursement formula has nearly doubled in recent years (from $600 million in 1996-97 to $1.1 billion in 2000-01). It is now recognized that Building Aid is sending money to the least needy districts and should be slowed down and better targeted. Under the governor’s plan for "Priority-Based Project Selection," New York City would receive no less than 40 percent and no more than 60 percent of total new Building Aid allocations. This reimbursement program would still be on a sliding scale based on the wealth of the school districts, but districts would no longer have a choice as to the year their wealth would be measured (another form of tampering with the formulas). Building Aid funding for all new school facilities projects after January 15, 2001 (when all these changes would take effect) would be limited to $60 million throughout the state in fiscal year 2001 and $130 million for all projects in fiscal year 2002.

Both the Senate and the Assembly quickly objected to the governor’s proposal, which contained two provisions that were the real "bombshells." First, Building Aid would not be given to buildings lacking "proper maintenance," or to leased space, or to buildings less than 20 years old, all of which would dramatically hurt New York City. Second, Building Aid would be provided on an assumed amortization basis, consistent with the useful life of the project (i.e., 15 years for reconstruction, 20 years for major reconstruction or additions, and 30 years for new construction). While not a bombshell for the city, which is reimbursed for capital debt service based on 30-year amortization, this has caused complaints by districts in the rest of the state that have issued shorter-term bonds.

We predict that Building Aid reform will be one of the biggest sources of debate in the near future, because the costs of this "spend-to-get" formula are escalating. Unless New York City gets something in exchange for the lack of prioritization of building and repair projects, this formula will continue to be a prime example of the lack of equity in the distribution of education funds.

What Does This Mean for New York City Students?

If the Assembly prevails, New York City’s students would receive about $670 million more than the year before, moving from $4.9 billion in state aid to $5.5 billion. Using 1.1 million pupils as a proxy for enrollment, that means that the state would be sending about $5,000 per student to New York City in the first year and $5,600 in the second year. LADDER programs would be fully funded, and Operating Aid would increase as well. If the governor prevails, New York City will receive an increase of $126 million and class size reduction and universal pre-kindergarten funding will be frozen at current levels.

Stay Tuned

This should be a long but interesting session, since a lot of reform ideas are on the table this year. The three major ones described previously are the biggest, but there are certainly many others which EPP will be watching this summer ... if there is an adopted budget.