ANCHORAGE SCHOOL DISTRICT ANCHORAGE, ALASKA

ASD MEMORANDUM #222 (2013-2014) May 19, 2014 TO: SCHOOL BOARD FROM: OFFICE OF THE SUPERINTENDENT SUBJECT: BUDGET REVISIONS FOR FY 2014-2015 ASD Core Value: The district will be open, transparent and accountable to the public RECOMMENDATION:

It is the Administration’s recommendation that the School Board approve a net upper limit increase of $25.258 million to the Anchorage School District’s FY 2014-2015 Revised Financial Plan and Budget as delineated below:

It is also the Administration’s recommendation that the School Board authorize the Superintendent to request the Anchorage Assembly to increase the upper limit of the Anchorage School District’s FY 2014-2015 Financial Plan and Budget to $768.707 million.

2

TABLE OF CONTENTS GENERAL FUND OPERATING BUDGETS – NEW SOURCES & USES LOCAL ..............................................................................................................2 STATE ...............................................................................................................4 SPECIAL NEEDS & CTE INCREMENTS ........................................7 CHARTER SCHOOL ALLOCATIONS ............................................8 SUMMARY OF GENERAL FUND BUDGET REVISIONS ...................................9 GENERAL FUND PRO FORMA OUTLOOK .......................................................11 FUND BALANCE OUTLOOK ................................................................................12 FEDERAL – STUDENT NUTRITION ....................................................................13 OTHER FEDERAL GRANTS ..................................................................................14 ENROLLMENT UPDATE .......................................................................................14 STATE CAPITAL GRANTS .....................................................................................14 SUMMARY ................................................................................................................15 APPENDICES ............................................................................................................16

GENERAL FUND OPERATING BUDGETS – NEW SOURCES & USES - LOCAL: The Assembly increased its local municipal tax appropriation by $5.8 million to the maximum allowable under the State Public School Foundation Formula as amended by HB 278 (2014).1 In addition, the Assembly discontinued the practice of billing the district for the Anchorage Police Department personnel who have offices in school district facilities, a.k.a. “SROs” ($2.25 million), as well as a share of tax collection costs ($0.25 million), resulting in a reduction in other expenditures of $2.5 million.2 The net result is an increase of $8.3 million in resources for the district that appear sustainable over a three year planning horizon. The administration recommends that these local resources be invested in 86 direct classroom instruction teaching positions as follows:

Elementary: o Add 44 full time equivalent teaching positions [37 home room teachers + 7

music/art & health/P.E.] to be distributed across the elementary schools based on a 4% decrease in the pupil-teacher ratio by grade level, lowering the aggregate average class size from 24.5 to 23.4.

1 April 28, 2014, Anchorage Assembly School District Budget 2 April 28, 2014; Anchorage Assembly First Quarter Budget Revisions

3

Twenty of these 44 have been held back from the layoffs and will be balanced across schools based on pupil-teacher staffing ratio by grade level enrollment.

Seventeen will be distributed across the district based on balancing to the projected enrollment divided by the 4% adjustment in the pupil-teacher ratio.

Seven will be distributed as music/art and health/P.E. to balance planning time associated with the need to balance local schedules with the add back of 37 direct classroom instruction teachers.

o The total reduction in sustainable teaching positions in elementary schools from FY1314 is 29 [Original reduction of 73 less 44 add backs (+4%) = 29].

Middle School: o Add 30 full time equivalent teaching positions to be distributed across the

middle schools based on enrollment1 o The increase in teaching staff will enable the middle schools to adjust their

teaching schedules to add back a second planning period a day for core teachers.

o All other things being equal, the increase from one to two planning periods a day would be expected to increase the aggregate average class size by 14%.2 Please note that the addition of the 30 full time equivalent teaching positions is intended to be able to back fill the second planning period and hold core subject class size relatively consistent with last year when the middle school staffing allocation was developed assuming two planning periods per day.

o Contemporaneous with the renewal of the second planning period in the middle school, the administration will engage an outside expert to assess the effectiveness of the second planning period. The outside expert will be expected to establish an evaluation protocol and monitor: The use of the second planning period to assess the extent to which

the planning periods continue to be used to provide effective support of key district initiatives including:

Data driven analysis of how students are responding to instruction and what is working and what needs improvement

1 Please note that the pupil-teacher ratio for grades 6, 7 and 8 is 27.5, so the middle school teaching FTE are distributed based on 1 teacher per 27.5 students plus an allowance for two planning periods a day (5 of 7 schedule) for core subjects. In other words, two planning periods a day in the middle school schedule requires roughly 1 teacher (five teaching periods/day) plus one addenda (total of six teaching periods) to cover the planning periods of every 3 core teachers who teach 5 of 7 periods (six planning periods). 2 Conversely, a change from 1/7th to 2/7th planning periods requires 14% more resources to fill in the schedule.

4

Monitoring of the effectiveness of social & emotional learning instruction through the Devereux Student Strength Assessment (DESSA)

A third evaluation dimension to be determined in collaboration with a working group of key stakeholders

And provide an interim annual report and a summative report within 3 months of the end of the 3 year program renewal period (June 30, 2017)

o The total reduction in sustainable middle school teaching positions is 14 [Original reduction of 44 – 30 add backs (+9%) = 14].

High Schools: o Add 12 full time equivalent teaching postions (+2.5%) to be distributed

across the high schools based on enrollment. o Please note that the total staff reduction in high schools in the preliminary

budget was 42 positions of which 9 were due to declining enrollment, for a net staffing ratio reduction of 33 (-6.5%). Sixteen FTE were added back in the proposed budget to address student populations determined to be at risk of failing to graduate.

o The total reduction in sustainable high school teaching positions is 14 [Original reduction of 42 - (16 + 12 add backs, total of 28 (+6%) = 14].

The proposed add back of 86 FTE direct classroom instruction classroom teacher positions represents 60% of the total reduction of 143 direct classroom instruction classroom teaching positions in the original FY 1415 budget.1 GENERAL FUND OPERATING BUDGETS – NEW SOURCES & USES - STATE: The Legislature passed and the Governor signed HB278 which:

Increased the base student allocation (BSA) by 2.6% in year one, 0.86% in year two and 0.85% in year three [increase of +$150, +$50, +$50 in the BSA]

Replaced the $7.5 million in incremental funding that was previously included in the Governor’s budget, aka “energy funding”, with graduated increments over three years, representing an average net increase outside of the formula of roughly $1.98 million spread over each of three years.

Mandated the allocation of gross revenue from state sources outside of the base student allocation formula, federal impact aid, and local mandatory as well as voluntary contributions to charter and correspondence schools based on adjusted average daily membership (ADM).

The net result is an increase of $31.8 million in direct district managed resources over three years, or roughly one third of the incremental pro forma revenue

1 The add back of 86 teaching FTE is 87% of the 99 teaching positions that were reduced independent of changes in enrollment.

5

required to sustain FY1314 district staffing levels over the next three years. [See Appendix 1b]

The administration recommends adding back staff resources based on the sustainable portion of the new funding and targeting the short term (3-year) incremental funding from the State to high value pilot programs and acceleration of continuous innovation in curriculum, instruction and associated new technology support . HB 278 does not provide for any incremental revenue in the fourth year. In addition the discontinuance of state funding outside of the base student allocation formula reduces both state funding and the maximum allowable local contribution under the state formula. This results in a net reduction in revenue to the district of $7 million in the fourth year. When combined with the projected inflation in year four, OMB projects a budget deficit on the order of $25-28 million in FY1718. At this juncture, the administration recommends deploying roughly 75% of the limited State resources, approximately $31.8 million over three years, on three-year pilot programs that target high value initiatives, continuing investments in innovative curriculum and instruction and associated new technology support, and reserving $3.8 million in FY1415 and $9 million over three years (FY1415, FY1516, FY1617) to help mitigate the projected need to reduce roughly 555 positions over the next three years (after FY1415) and help bring the district back into compliance with its fiscal reserve policy. Three-year pilot programs include: Over Three Years1

Early Literacy $10 million Pre-Kindergarten $ 6 million Science/Technology/Engineering Curriculum Update $ 3 million Classroom Technology Upgrade $ 3 million Teacher Training & Evaluation $ 1.5 million

Early Literacy - $10 million over three years Add 18 direct classroom instruction teachers to support smaller class size in kindergarten and first and second grade. Sustain the resulting group of 508 K, 1, 2 teachers over three years. Support those teachers starting in FY1415 by adding 12 early literacy certificated coach/interventionists to the next tier of high needs schools – extending the model that the district has successfully piloted that has contributed to third grade reading and writing success again this year.

1 See also Appendix 1b: Summary of Sources & Uses – State Resources for the projections in each of the next three years.

6

Pre-Kindergarten - $6 million over three years The district will extend its pre-kindergarten offerings into three more schools starting in FY1415 to help prepare children who are at-risk of starting behind in the early grades. In addition, the district will designate a portion of the funding to explore collaborative opportunities with partner organizations in the community. 21st Century Science/Technology/Engineering Curriculum - $3 million over three years The district will replace its aging science/technology and engineering curriculum with new materials, kits and on-line integrated references and textbooks. 21st Century Classroom Technology Upgrade - $3 million over three years The district will accelerate its deployment of mobile IT resources (chromebooks, tablets, laptops) to teachers and students. This funding will also support district wide site licenses for key software support, including Smart Notebook 2014, Response VE, Math Tools, Ink Editing and Extreme Collaboration. Teacher Training & Evaluation - $1.5 million over three years The district will expand on job-embedded professional development “Instructional Tours” which are currently being conducted at 5 elementary schools. The instructional tours will be expanded to include at least 10 additional elementary schools, 2 middle schools and 2 high schools. The funding covers teaching training and substitutes.

7

SPECIAL NEEDS BASE STUDENT ALLOCATION (BSA) INCREMENTS The increases in the Base Student Allocation, net of the loss of previous incremental funding, provide new State Public School Foundation Formula revenue for block grant programs:

Special Needs – Intensive Students (13X SPED INT X BSA Increase) Special Needs block grant (20% X BSA Increase) and Career & Technical Education block grant (1.5% X BSA Increase)

that increases from current levels and then grow slightly in each of the next three years, followed by a large decrease in year four with the loss of incremental funding outside of the BSA. In order to provide sustainable support to Special Programs, OMB has projected the net incremental block grant program revenue from the BSA in year four. Then OMB calculated the increased block grant allocations that can be supported over each of the next three years and remain within the net new State Public School Foundation Formula block grant revenue in year four. OMB projects $3.9 million of new block grant revenue in FY1718 on a base of 74,196 adjusted average daily membership. See Figure 2 below.

8

If the state block grant program allocation ramps up to the new revenue available in the 4th year over a three year period, the total block grant funding is roughly $1.3 million in each of the next three years as delineated in Figure 3 below.

The proposed budget amendment allocates the net incremental BSA revenue projected in year four to the block grants over three years to provide a relatively stable and reliable revenue stream for the block grants. The following uses are proposed for the new block grant revenues: Special Education - $1.019 million The district continues to experience an increase in the number of students with disabilities requiring behavioral supports. The administration recommends that the district systematically update its curriculum, training and coaching to reflect current best practice in behavioral support. The curriculum, training and coaching update is designed to cover Tier 2 and Tier 3 behavior interventions across all grades and include specialized requirements at Mt. Illiamna and Whaley. In addition, the number of students with autism continues to climb – having rising 80% over the past five years - from 304 to 547. The administration recommends that

9

the district recruit and hire a Board Certified specialist in Applied Behavior Analysis to develop systems for effective behavior support, provide training to colleagues and work with students across the district. English Language Learners - $0.151 million The district continues to experience a growth in the number of students and families from diverse cultural and linguistic groups. The district continues to support this diversity with Language and Cultural Liaisons that focus on specific groups, e.g., Hispanic/Latino, Hmong, Samoan, and Sudanese. The administration recommends the new funding be used to support a generalist Parent Liaison Support Teacher to provide direct support for all families as well as provide professional support to classroom teachers and school staff working with Limited English families. This increment would cover one certificated position as well as staff training. Career & Technical Education - $0.055 million The district will use the new funds to support Architecture and Construction pathways with the purchase of rugged durable field hardened laptops that are required to provide reliable support for welding, construction and heavy equipment training. Gifted Education - $0.064 million The district will use the new funds to support addenda for summer testing, assessment scoring, and support materials. Title VII - Native Education - $0.009 million The district will use the new funds to support professional development for Title VII staff in math vocabulary instruction and standards for math practice associated with Go Math/Big Ideas. CHARTER SCHOOL ALLOCATIONS HB 278 directs the allocation of new revenue sources to charter schools based on adjusted average daily membership. The district previously allocated State Foundation Formula Basic Need (State support plus minimum required local municipal support) to charter schools based on adjusted average daily membership in accordance with the State Public School Foundation Formula.1 HB 278 directs the allocation of the discretionary portion of the local municipal support, i.e., contributions above the state minimum contribution required, to charter schools. It also directs districts to allocate any state grants which are distributed to districts based on adjusted ADM to be distributed to charter schools on the same basis. It also directs districts to distribute federal impact aid to charter schools on an adjusted ADM basis. Finally, while the legislation does not explicitly require the district to allocate a portion of its interest

1 See http://www.eed.state.ak.us/news/pdf/FundingProgramOverview2014.pdf

10

earnings on fund balance to the charter schools, given the relatively large (on a $ per student basis) fund balance for charter schools and the potential for an increase in their fund balance given the large infusion of charter school funding in FY1415 (an increase from $1300 to $2150 per student, +20% facilities based to +49% correspondence, in the first year), OMB recommends that district interest earnings be allocated to charter schools based on adjusted ADM. In comparison to an arrangement where a charter school might use the district fund balance as an opportunity to create an earnings bearing investment, an allocation of interest earnings based on adjusted ADM:

treats all schools and their student beneficiaries as participants in a district pooled investment,

attempts to align financial incentives across schools, and limits the attractiveness of large fund balance accumulations by charter schools

OMB also recommends that the district eliminate facilities rent for district facilities and move to charge direct operations and maintenance costs based on a dollar per square foot consistent with the guidance in HB278.1 Finally, in recognition that charter schools employ specialized staff to serve special needs students from within their school general fund operating budgets, OMB recommends that the direct general fund charter support of special needs students be credited against the block grant program assessments to allow Charter schools to continue their practice of direct support of special needs students without a financial disincentive.2 In summary, the new revenue allocation system and block grant assessment and credits will result in net new revenue to the facilities based charter schools and correspondence schools of almost $15 million over three years. See Figure 4 below. See also Appendix 1c for a detailed compilation of State Public School Foundation Formula calculations, allocations, assessments and individual school results.

1 See AS 14.03.255(d) as amended by HB278 (2014). The estimated financial impact of these changes is delineated at pages 7, 9, 10 and 11, lines 9c & 9d, in Appendix 1c. Aquarian will no longer pay rent for use of district-owned facilities (reduction in cost allocation of $136,000) but will instead be assessed an allocation for operations and maintenance based on a cost per square foot to provide direct operations and maintenance services (roughly $50,000). 2 See pages 7, 9, 10 and 11, line 9b in Appendix 1c where all facilities based charter schools are slated to receive a credit for their direct support of specialized staff to serve special needs students from within \their general fund operating budget (total of $563,000 in credits in FY1415).

11

SUMMARY OF BUDGET REVISIONS The proposed budget revision continues to focus district resources on direct classroom instruction – directing local support to direct classroom instruction and targeting state support to pilot programs aimed at direct classroom instruction and instructional support (staff in classrooms providing support to students and teachers).

The cumulative two year percentage change in FTE by functional area highlights the districts continued focus on maintaining direct classroom instruction while inflation continues to outpace funding from state, federal and local resources – forcing significant staffing reductions to balance the budget over the past two years – even with the new funding in this budget revision.

12

The resulting proportion of staff (FTE) by functional area continues the district’s strategic realignment to focus on direct classroom instruction.

General Fund Pro Forma Outlook In order to balance the budget to the available state, federal and local resources which, with the exception of state transportation funding, have not been indexed to inflation, the district will need to reduce 160 to 180 positions in each of the two years following FY1415 and 220 to 230 positions in FY1718 with the elimination of State incremental support outside the formula and the associated drop in the maximum allowable local contribution. OMB projects that the district will need to reduce 555 positions (10%) over the three years following FY1415. Please see Appendix 3 for the Six Year Financial Outlook. Fund Balance Outlook Based on the revised budget proposal and financial outlook, the district can continue to meet its fund balance policy of sustaining unreserved/unrestricted fund balance of at least 8% of general fund expenditures - using a prior four year normalized

13

PERS/TRS on-behalf contribution rate in the total general fund expenditures projection. If the general fund expenditures include the $65 million jump in TRS contribution rates projected in FY1415, the fund balance projection falls to 7.6% in FY1718.

In either expense projection (with or without including State Pension On-Behalf Payments), the district continues to sustain over $55 million in unreserved/unrestricted fund balance in addition to a bond rating reserve that grows from $23 to $25 million as debt with higher local/lower state debt service support begins to accumulate in the portfolio after May 2015 when state reimbursement rates are slated to decline by 10 percentage points. FEDERAL SOURCES & USES – STUDENT NUTRITION The Student Nutrition Department applied for and received permission from the State of Alaska to participate in the federal Community Eligibility Provision program1 beginning in FY1415. Participation in the program will enable the Student Nutrition department to provide free breakfast and lunch to the entire student population in 10 new schools. This will bring the district total next year to 30 schools offering free meals to their students. Under the Community Eligibility Provision program, the district expects food service to generate an additional $2.7 million in federal reimbursement for meals. The administration recommends an increase in the revenue and expenditure budgets of $2.7 million in this budget amendment in order to be included in the budget amendment package slated to go before the Assembly in June to enable timely planning and execution of the new program in the fall. See Appendix 8 for the proposed Student Nutrition Department Budget Revision. 1 See http://www.fns.usda.gov/school-meals/community-eligibility-provision

14

Finally, the State of Alaska Child Nutrition Program Department, as a part of their annual Paid Lunch Equity review, has requested the district approve a $0.10 increase for all full price meals served for the 2014-2015 school year by the Anchorage School District in order to comply with USDA regulations. The new prices are as follows:

High School:

o Breakfast: $2.35 o Lunch: $4.30

Middle School: o Breakfast: $1.90 o Lunch: $3.85

Elementary: o Breakfast: $1.90 o Lunch: $3.45

The FY1415 Approved Budget included the increase in full price lunches. The administration recommends the School Board approve the increase in full price breakfasts to comply with the Federal regulations and State compliance request. OTHER FEDERAL GRANTS Federal grants were budgeted at $50 million. The district continues to periodically review individual grant awards and outstanding grant applications. Based on currently available information, the district projects an increase of $0.4 million for a revised total of $50.4 million in federal grants. This minor revision is included in the recommended change in the upper limit spending authority. ENROLLMENT UPDATE: The September 30, 2013 enrollment was down 1.45% compared to September 30, 2012. The April 30, 2014 enrollment was 0.95% lower than April 30, 2013 suggesting that the rate of enrollment erosion experienced this fall has moderated this spring. Moderation in the rate of erosion in enrollment may be offset by the risk of further loss of enrollment associated with the redeployment of JBER personnel through next fall. No adjustments in the enrollment projections are recommended at this time. STATE CAPITAL GRANTS - Senate Bill 119 The Legislature passed SB119 $12 million in capital budget appropriation grants that will benefit the Anchorage School District, consisting of $10 million in a wide variety of capital grants, $172,626 in re-appropriations, and $1.4 million for pass through grants to community groups to support student athletic activities. Please see Appendix 9 for

15

the detailed breakdown of the specified capital projects. The district anticipated roughly $12.3 million in state capital grants and has adjusted its budget downward by roughly $0.6 million to reflect the actual grant award from SB 119. SUMMARY The proposed budget amendment presents the administration’s best effort to begin to restore public education after three years of flat base student allocation in the State’s Public School Foundation Formula – recognizing that the total increase in State resources represents about a third of what would have been required to avoid position reductions for the next three years. The administration recommends that the three years of sustainable local funding be used to support an increase of 86 direct classroom teaching positions in FY1415. The administration recommends that the three years of incremental state funding be used to target high value pilot programs in early literacy, pre-kindergarten, teacher training & evaluation, and continue the district’s commitment to continuous innovation in curriculum, instruction and associated technology by investing in new science/technology and engineering curriculum, and new mobile IT resources in the classroom. Attachments EG/MAF Prepared by: Mark A. Foster, Chief Financial Officer Approved by: Ed Graff, Superintendent

16

APPENDICES

1. Summary of Sources & Uses a. Local Sources (1 page) b. State Sources (1 page) c. Charter School Allocations

[OMB Compilation, 11 pages, under separate cover] 2. Descriptions of New Initiatives (under separate cover)

a. Early Literacy b. Pre-Kindergarten c. Teacher Training & Evaluation d. 21st Century Science/Technology/Engineering Curriculum e. 21st Century Classroom Technology Upgrades

3. Long Term Financial Outlook (1 page) 4. General Fund Operating Revenue Detail (1 page) 5. Summary of Individual Fund Budgets (1 page)

a. $ per average daily membership, inflation adjusted 6. Projected Revenues & Expenditures (1 page) 7. Computation of Municipal Property Tax Limitations (1 page) 8. Student Nutrition Budget Amendment (1 page) 9. State Capital Grants (4 pages)

18

Reduction of 555

positions (10%) over three years

20

23

24

25

26

27

28