Date: 12/8/03

To: Regent James Tallon

From: Noreen Connell, Educational Priorities Panel

Re: Comments on Draft Regents FY ’05 State Aid Proposal

The Educational Priorities Panel supports two key options in the Draft:

• A Foundation formula for funding school districts, and
• Supplemental Building Aid grants for districts with severe overcrowding.

What follows are our comments on specific aspects of these options.

Foundation Formula
1. How can the new foundation formula support educational objectives? A majority of states use some form of a foundation formula, but in too many states the objective is to ensure a minimal standard of school district spending, not student performance. EPP’s support for the Regents proposed foundation formula is based on the assumption that the objective is to raise student performance in high-needs districts to state standards.

In order to succeed, the instructional program of high-needs districts should be raised to state standards:

TEACHERS
High-needs school districts, especially in the Downstate area, are not only competing with more affluent districts for the most qualified teachers, but also with other options for professional careers. Based on EPP’s review of different methods of accounting for regional costs, we strongly favor an index based on a comparison of differences in wages rates among labor markets.

STUDENT NEEDS
Reviews of the current system of funding New York State schools has found that much more funding is determined by measurements of school district wealth than measurements of student needs, even after the creation of the Extraordinary Needs Aid formula. If educational objectives are to be met (not just school district spending objectives), a pupil needs index must be created that is sufficient to help students in high-poverty and high-immigrant communities meet state learning standards. EPP strongly favors socio-economic indicators. Measurements based on academic performance tend to have the unintended consequence of providing an incentive to school districts for continued low performance.

CLASS SIZE REDUCTION IN THE EARLY GRADES
Though small class sizes have become the norm in the rest of the state, New York City education and budget officials have consistently held the belief that large class sizes are less costly, despite their contribution to high rates of student academic failure and high rates of teacher turnover. Since private schools and suburban districts present their small class sizes as an uncontested benefit to learning, it is distressing that the debate about class size reduction seems only to emerge when it is offered as a strategy to help low-income, minority school children. It would be the height of irony if the Regents foundation formula approach resulted in increasing the class sizes of 120,000 young children in New York City. In the past, class size reduction funding was treated as a set-aside in operating aid and EPP sees no barrier to continuing such a set aside within a foundation formula.

2. How should fiscal responsibility between the state and the locality be apportioned? This new funding structure should provide an opportunity to increase the state’s share of instructional expenses. This is particularly important if the objective is to help urban, high-needs districts. Cities have a mix of resources and restrictions on raising revenues that are not taken into account by formulas based solely on property value. Their ability to increase non-property revenues is subject to state control. Unlike independent school districts where residents can directly vote to increase funding for schools, city budgets are only indirectly subject to voter approval, and there are many other municipal services in competition for funding.

EPP understands that the figure used for the minimal level of local effort, $18.55 per $1,000 of property value, is just a "temporary number" used for illustrative purposes. This number requires too high a local tax effort. While EPP has no specific recommendation as to the minimal level of local effort that should be required, we suggest that it not be so low as to encourage tax relief measures at the local level, but it should be higher than the average local tax effort of the state’s most affluent school districts. In a study EPP is preparing, we found that in the 2000-01 school year the average tax effort of downstate suburban districts with a CWR of 3.0 or higher was $12.83 per $1,000 of property value and those with a CWR of 1.51 to 2.99 was $16.80 per $1,000 of property value.

3. How can the Regents prevent the subversion of a foundation formula? Over the years, EPP has seen how small changes, such as choice of pupil definition or base year, can subvert the equalizing intent of the school aid formulas. Technicians have found ways to redefine the formula components so that New York City’s aid entitlement fitted into prearranged percentages, rather than allowing the formulas to be based on objective measurements. The Regents should recommend changes in process and oversight. Ideally, a panel of independent specialists should be set up to make any needed changes in the technical aspects of the foundation formula.

4. How can the Regents create a balance between operating aid and expenditure-based aids? In the past, EPP has proposed an option of folding non-instructional funding for transportation and facilities into a foundation formula as a means of encouraging better school district contracting. State Education Department staff could quickly verify if district-wealth adjustments in state transportation aid in the early 1990’s resulted in greater efficiencies. If so, the Regents might contemplate a very gradual phase-in of increases to the foundation formula and reduction of expenditure-based aids. Special education funding, however, poses several problem, especially in high-needs districts. Cost cutting and poorly-implemented inclusion programs could be the unintended result.

Supplemental Building Aid Grants
For a variety of reasons, the state’s Building Aid formula has not appreciably assisted high-needs districts to create improved learning environments for their students. EPP had hoped for a more far-reaching restructuring of this expense-based aid. One of our findings in our 2002 report, Castles in the Sand, is that the method for computing capacity for new school construction has resulted in a far lower reimbursement rate for New York City than for school districts in the rest of the state (22 percent compared to 67 percent, based on 1995-2001 data). The 10 percent "bump up" in reimbursement did not help other high-needs districts with limited ability to borrow. Removing physical barriers to improved instruction should be a priority in helping high-needs districts. In New York City, overcrowding has forced some schools to have class sizes of 36 to 38 students and to eliminate physical education, arts programs, and advanced placement courses. Two-thirds of students affected by overcrowding in New York City are Latino or Asian. This reflects the extent to which the current state aid system has failed to assist districts with a growing enrollment due to immigration. Because there is a long lead time in facilities planning, we strongly urge the Regents to include this option in their State Aid proposal for FY 2005 and to recommend grants of sufficient size so as to end severe overcrowding in high-needs districts within the next five years.