Letters 99
EPP April 1999 Letter on the Way Pupils with Compensatory Education Needs (PCEN) Funds are Allocated

April 9, 1999

Ms. Beverly Donohue
Chief Financial Officer
New York City Board of Education
110 Livingston Street #1003
Brooklyn, NY 11201

Dear Ms. Donohue:

On March 24th, Marshall Goldman called me to discuss EPP’s concerns about the way Pupils with Compensatory Education Needs funds are allocated. He suggested that I write to you outlining our objections to current practices and our recommendations for improvement.

Problem: The distribution of PCEN funds to schools on the basis of the estimated number of pupils below the Board’s academic standards unintentionally rewards schools with low average student performance levels and punishes schools with improved or high student performance levels. In 1994, the federal Title 1 compensatory education program was restructured so that funding was allocated to schools based on student poverty rates rather than student performance on standardized tests. Because there is a correlation between the two, this did not result in a radical shift in allocations of Title 1 funding to schools. But the change in the method of allocation was a significant reform in that high-performing and turnaround schools serving high-poverty communities were assured Title I funding and a continuation of funding levels. Also in 1994, the New York State Education Department adopted a similar reform by refashioning PCEN and PSEN funding (which was allocated to school districts on the basis of the proportion of students whose test scores fell into the bottom quartile) into Extraordinary Needs Aid, based on school districts’ student poverty and Limited English Proficiency rates. Once again, this restructuring did not result in a radical shift of allocations among school districts. For reasons we do not fully understand, the New York City Board of Education did not adopt a similar allocation reform.

In EPP’s 1996 study of schools that have gotten off the SURR list and our current study of high-achieving schools in high-poverty neighborhoods, principals report that increases in their schools’ student achievement levels on standardized tests resulted in decisions by their districts to reduce their schools’ PCEN funding. Needless to say, principals, teachers and parents were angry that higher student test scores led to having to excess librarians, guidance counselors and cluster teachers. This would seem to fly in the face of the Board’s efforts to build a performance-based budgeting system.

EPP has additional concerns with the allocation of PCEN funding. Some of these issues relate back to the comments EPP made on performance-based budgeting in a letter to you dated December 11, 1998. We continue to believe, contrary to the Board of Education’s current policies, that budgetary flexibility is needed at the school site, not at the district level.

Problem: Some community school districts retain a higher than expected share of PCEN funding at the district level. EPP found in its 1993 report, Equity in the Funding of Public Elementary and Middle Schools in New York City, that community school districts varied substantially in the percentage of Title 1 and PCEN funds that they retained at the district level. Some of the lowest achieving districts allocated the smallest proportion of compensatory education funds to the school site. The response of the Board of Education budget staff to this finding was that this pattern was "misleading" because some of districts’ unallocated Title 1 and PCEN funds were for payments of fringe benefits for school-based staff. EPP’s current study of high-achieving schools in low-income communities has allowed us to revisit this issue with more reliable data contained in the Board of Education’s own School Based Expenditure Reports. My assumption is that the methodology for constructing "School Summary Report #3 - Categorical Report" now provides greater clarity on the proportion of funds expended at the school and district levels, whether for salary, fringe benefits, or programs. In our review of School Based Expenditure Reports, we were surprised that, in the 1996-97 school year, two of the community school districts where our sample of high achieving are located retained 13% to 25% of PCEN funds at the district level. In the more current Expenditure Reports, these districts are now holding back 11% to 8%, respectively, an improvement. Since many other district are reallocating 95% to 100% of PCEN and Title 1 funding to the school level, EPP questions why any district needs to appropriate more than 5% to 6% of categorical funds. In comparing "Report 3 - Categorical Report" for all community school districts, EPP again found a pattern of many low-achieving school districts allocating smaller proportions of PCEN and Title 1 funds to the school site. EPP’s many studies, most specifically our 1989 The Fourth "R": Rethinking Remediation in the Middle Schools," have found that district level remediation staff are far less effective in raising student achievement levels than school-based remediation staff or school-wide project improvement strategies. We therefore believe that there is a relationship between these community school districts’ poor funding practices and their schools’ lackluster academic performance.

Problem: Some community school district superintendents "compensate" schools with insufficient numbers of low-income students to be eligible for Title 1 funds with additional PCEN funding. It is alarming to EPP that this inequitable practice is now being reflected in some districts’ performance-based budgeting decisions. In my phone conversation with Marshall Goldman, I assured him that EPP was well aware that this practice is not a violation of Title 1’s Opportunity to Learn standards since they were gutted in 1995 or of state law. Nevertheless, this practice is reprehensible since Title 1 and ENA funding is supposed to drive funds to schools with high concentrations of low-income children that are most at risk for low student academic performance. EPP’s report, Equity in the Funding of Public Elementary and Middle Schools in New York City, found that the Board of Education’s tax levy allocations were not equitable but based on per-capita or school organization formulas. When I asked Marshall Goldman why the Board of Education did not simply lower the threshold for Title 1 school eligibility, his response was that this would not provide sufficient per-capita funding for high-poverty schools. My response was that the practice of redirecting PCEN funding from Title 1 schools to non Title 1 schools had the same result of lowering available compensatory education funding for high-poverty schools. By lowering the cutoff point for Title 1 school eligibility, some of the borough per-capital differentials caused by the "county distribution" requirement of Title 1 might be decreased. If all Title 1 schools got their fair share of PCEN funds, a lowered cutoff point for Title 1 eligibility may not result in an appreciable reduction in per-capita total compensatory education funding for most schools.

In closing, I want to put EPP’s concerns about PCEN allocations in their proper context. Your office has made significant progress in making the Board of Education’s funding practices more understandable to civic groups, elected officials, parents, and the press. You and your staff should be commended for this achievement. Community school district allocation policies and practices, however, still need to be more objective and performance-based, especially when it comes to PCEN funding. While we are unsure of your reception to our last two recommendations, we urge the Board of Education to seriously consider our first recommendation to eliminate disincentives for improved school performance.

Sincerely,
Noreen Connell, Executive Director

CC:
Deputy Chancellor Lewis H. Spence
Marjorie Blum, Executive Director, Division of Budget Operations & Review
Marshall Goldman, Dir. of Resource Allocation Unit, Div. of Budget Operations & Review