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Moak, Casey & AssociatesTASA Midwinter Conference
Tuesday, January 31, 2012
Calm Before the Storm: Interim
Developments in School Finance
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Introduction
January 31, 2012Moak, Casey & Associates
Litigation
Budget Context
Impact of 82nd Legislature
Interim Issues
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LITIGATION
January 31, 2012Moak, Casey & Associates3
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Litigation and Public Policy
January 2012Moak, Casey & Associates
The role of the courts in Texas publicschool finance
Mechanism to cure legislativeimbalances
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Quality Counts (2012 State Rankings)
January 31, 2012Moak, Casey & Associates
Standards and Accountability A-(13th)
Transitions and Alignment A (3rd)
Achievement C- (17th)
Status D (23rd) Chance for Success C (40th)
Teaching Profession C+(15th)
School Finance D+(40th
) Spending F (35-49th)
Per Pupil Expenditure 49th of 50
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Status of Litigation
January 2012Moak, Casey & Associates
Causes of Action: Adequacy: Rising standards and funding cuts leave
insufficient revenue to provide the GDK.
Meaningful discretion: Remaining tax rate
capacity is insufficient to offset for funding cuts, andprovide meaningful discretion to enrich.
Efficiency/Equity: Target revenue disparities incombination with unequalized funds producesunconstitutional student / taxpayer inequity.
Rationality: The state has failed to provide arational system based on appropriate costadjustments and structure
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Adequacy Challenges
January 2012Moak, Casey & Associates
What are the standards?
Must the state face disaster before the courtsact?
How do the multi year evolving statestandards work into the equation?
Do the outdated cost adjustments impair the
adequacy of the system? Does the potential for rising dropout rates
indicate trouble for the Texas economy?
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Demographic Environment
January 2012
Public school enrollment demographics The new minorities-Anglo (39%) and the
Economically Advantaged (41%)
Rising challenges-At risk (46%) and limited Englishproficient (17%)
Family characteristics: Single parent families (35%)
Children in poverty (24%)
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Educational Environment
January 2012
Rising standards Curriculum reform
4x4
Criticism 50% administrative costs
Investment beyond inflation and growth
Growth and staffing resources
Efficiency Comptrollers FAST reports District concern over budgetary reductions
Limited flexibility
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Educational Results
January 2012
Cumulative pass rate, Exit-level (2011) 92%
Completion rate, 5-yr. (Class of 2009) 85%
RHSP/DAP graduates (Class of 2010) 83%
TAKS passing rate, All Tests (2011) 76% NAEP Gr. 4 reading, Basic+ (2011) 66%
College ready (Class of 2010) 52%
NAEP Gr. 4 reading, Proficient+ (2011) 32%
SAT/ACT at criterion (Class of 2010) 27%
TAKS Commended, All Tests (2011) 16%
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Equity Challenges
January 2012Moak, Casey & Associates
Is the degradation of system equity since2004 severe enough to warrant renewed
judicial intervention?
Did the state go too far in creating the targetrevenue system?
What weight does the state commitment toeliminate target revenue by 2017 have?
Should the analysis be based on total taxrates or only operational rates?
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Rationality Challenge
January 2012Moak, Casey & Associates
Does a separate but unequal funding schemeconstitute suitable and efficient provision?
Does the use of 1980s weights and
adjustments provide the state with a rationalbasis for funding public education?
Are the state long term commitments to adjuststandards and financing sufficient?
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Meaningful Discretion Challenge
January 2012Moak, Casey & Associates
Does the system provide both adequacy and theopportunity for enrichment?
Has the state so controlled the tax that it operatesin a manner indistinguishable from a state
property tax? What is the impact of the cuts?
Do districts at $1.17 have meaningful discretionto enrich?
Should the effective combination of limited voterappeal and the potential for recapture beconsidered in the analysis?
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Litigation Timing
January 2012Moak, Casey & Associates
Four groups have filed Texas Taxpayers and Student Fairness Coalition, et
al. (Equity Center)
Fort Bend ISD, et al. (Thompson)
Coalition of Revenue Contributing Schools, et al.(Texas School Coalition)
Edgewood ISD et al (MALDEF)
Discovery process underway
District court ruling sometime in fall Supreme Court could direct brief rehearing
after the 2013 legislative session
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Closing Lawsuit Observations
January 2012Moak, Casey & Associates
Potential additional parties
Legislative Committee
Constitutional challenges as an element in a
larger debate Proclivity of the court to grant state discretion
in all but clear out of bounds situations
Need for a clear constitutional priority forpublic education funding
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BUDGET CONTEXT
January 31, 2012Moak, Casey & Associates16
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Property Tax Issues
January 31, 2012Moak, Casey & Associates
125 appraisal districts subject to review in2011 51% had no fails in review
13% had more than 2 fails Majority of failures in areas of appraisal standards,
operating procedures and governance
77% exceeded standards for taxpayer assistance
TCEQ has finally ruled against Valero onpollution control amendment Issue has been extent to which other state and
federal mandates are covered beyond at-the-site
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State Budget Context
Ongoing structural deficit (continued use of one-time funding sources)
Competing demands from various areas withinstate government Public Education Health and Human Services
State Water Plan
Higher Education
Transportation Growing balance in Economic Stabilization Fund
Improved economy since last revenue estimate
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State Structural Deficit
2010-11 School Year Impact of Property TaxRelief (in billions) M&O tax revenue at 2006 rates $23.9 B
Reduced M&O property tax - $17.2 B School district M&O tax relief $ 6.7 B
Reduced by $1.1 B due to increased values/rate increases
State revenue offset - $ 2.2 B
$1.3 B from margins tax Shortfall to be financed $ 4.5 B
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One-time Revenue Sources
January 31, 2012Moak, Casey & Associates
2007 State used surplus and phased-in property tax
reductions
2009 Federal Stimulus Funds: $6.4 billion GR reductions
paid for through stimulus
2011 FSP payment delay: $2.0 billion
Tax speed-ups: $700 million Under-funded Medicaid: $4.8 billion ($3.8 billion
after certification of surplus funds by comptroller).
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Economic Stabilization Fund
January 31, 2012Moak, Casey & Associates
Rainy Day Fund estimates growing $7.3 billion currently estimated by end of 2013
$6.5 billion estimated at the end of the legislative
session Rep. Donna Howard was right during floor debate
about improvements in Rainy Day Fund revenue Sought offset against FSP cuts from future rainy day fund
revenue gains above estimate
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Improved State Economy
January 31, 2012Moak, Casey & Associates
Job growth, sales tax collections both frombusiness and consumer purchases as wellas automobile sales, signal that the Texas
economy has emerged from the recentrecession.
--Susan Combs, January 6, 2012
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Revenue Estimate
January 31, 2012Moak, Casey & Associates
Biennial Revenue Estimate January 2011 $77.3 billion anticipated revenue
May 2011
Comptroller added $1.2 billion to estimate Other changes (speed-ups, etc.) added $1.7 billion
Certification Revenue Estimate December2011 $82.7 billion anticipated revenue
Increase of $2.5 billion from May
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Moak, Casey & Associates January 31, 2012
Improved State Economy
$1,500.0
$1,550.0
$1,600.0
$1,650.0
$1,700.0
$1,750.0
$1,800.0
$1,850.0
$1,900.0
$1,950.0
$2,000.0
January March May July September November
1-Year Moving Average Sales Tax Collections
2008
2009
2010
2011
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Sales Tax Tracking
January 31, 2012Moak, Casey & Associates
($2,000)
($1,500)
($1,000)
($500)
$0
$500
$1,000
$1,500
$2,000
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
$2,200
Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13
CumulativeShortfallorSur
plusinMillions
CollectionsinMillions
Projected and Actual Sales Tax Collections
Projected Actual Cumulative Shortfal l Linear (Cumulative Shortfall)
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Other Major Revenue Sources
January 31, 2012Moak, Casey & Associates
Revenue Source Current Official
2012 Growth
Estimate
Current 4 Month
Trend
Motor Vehicle 8.5% 14.6%
Sales Tax 5.4% 12.3%
Franchise Tax ? ?
Natural GasProduction
16.7% 84.0%
Oil Production -10.0% 47.2%
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Cautions
January 31, 2012Moak, Casey & Associates
Improving revenue will not necessarily besufficient to cover current services statebudget
Underfunded Medicaid in current biennium Higher costs of federal mandates in 2014 a concern
Will need to cover the underfunding plus any growth
24 payments in the Foundation School Program
Growth in the cost of the FSP Growing demand for other state services
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Legislative Turnover
January 31, 2012Moak, Casey & Associates
Governor seeking Presidency
Lt. Governor seeking U.S. Senate seat State senate elects replacement for Lt. Gov.
Four state senators not seeking reelection,including chairs of Finance and Education
28 House members not seeking reelection
Redistricting could mean additional turnover
Significant turnover last session as well asthis one will mean less experiencedlegislature than in past sessions
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----------------------------------------- (2016?)
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THE IMPACT OF 82nd
LEGISLATURE
January 31, 2012Moak, Casey & Associates29
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SB 1 Impact Overview
Misleading/false claims of increased statesupport $1.5 billion increase in state General Revenue Fund
appropriations to the Foundation School Programcited
Fails to account for formula reductions of $4 billion
Fails to account for $1.4 billion in lost state grantfunds outside the Foundation School Program
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Role of Federal Stimulus Funds
January 31, 2012Moak, Casey & Associates
Statements about general revenue increasesfail to mention loss of SFSF ($3.3 billion)
Title I and IDEA stimulus funding decrease ($2
billion) Education Jobs money ($800 million)
available only in 2011-12
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LBB Fiscal Size-up 2012-13
All Funds appropriations to the FSP for the 201213biennium are $35.5 billion, representing a $1.9 billiondecrease from the 201011 biennium spending level.
Appropriations of General Revenue Funds account
for $29.2 billion of this total, a $1.5 billion increasefrom the prior biennium.
Despite the $1.5 billion increase in General RevenueFunds from the 2010-11 biennial base, total FSP
funding for the 2012-13 biennium is $4.0 billion lessthan what school district entitlement was projected tobe for the 2012-13 biennium prior to the actions of theEighty-Second Legislature.
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LBB Fiscal Size-up 2012-13
Outside the FSP, TEA administers several stateand federally funded educational grant andsupport programs. The 201213 biennialappropriation for these programs and agencyadministration is $1.3 billion in General RevenueFunds, a decrease of $1.3 billion (51 percent)from 201011 biennial spending levels.
Biennial comparisons of appropriated funds is notthe correct way to look at the states commitment
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MCA Survey on Staffing
Included 60 districts, 39 percent of students Respondent enrollment growth 17,593 students
Employing 9,586 fewer total staff (3,219 fewerteachers)
11,833 more staff needed to maintain prior yearstaffing ratios
Extrapolated statewide, 32,000 more staff
needed to maintain old staffing ratios (12,000teachers)
Most expect cuts to continue next year
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Impact of SB 1 in 2012-13
January 31, 2012Moak, Casey & Associates
Restoration of regular program funding to98% (RPAF)
Reduction of 7.65% for targets (ASATRimpact) More than 600 districts likely to be on formula
Nearly 500 districts expected to gain revenue perADA compared to 2011-12 school year (WADAsdefinition changes between years)
Over 500 districts expected to gain in total generalfund revenue due to growth in students
More than $1 billion reduction in ASATR in 2012-13
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January 31, 2012Moak, Casey & Associates
-$400
-$300
-$200
-$100
$0
$100
$200
YEARLY CHANGE IN REVENUE PER WADA
2011-12 Change in Rev/WADA 2012-13 Change in Rev/WADA
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Impact of SB 1 After 2012-13
January 31, 2012Moak, Casey & Associates
It is the intent of the legislature, betweenfiscal year 2014 and fiscal year 2018, tocontinue to reduce the amount of AdditionalState Aid For Tax Reduction (ASATR) to which
a school district is entitled under Section42.2516, Education Code, and to increase thebasic allotment to which a school district isentitled under Section 42.101, Education
Code. Section 42.2516 is repealed effective
September 1, 2017
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Impact of SB 1 By 2017-18
January 31, 2012Moak, Casey & Associates
Nearly 700 districts gain revenue fromelimination of RPAF (repealed effective09/01/15), elimination of ASATR, basic
allotment increase of $83 Over 300 districts expected to lose revenue
from those changes
About $660M moves from losers to gainers
Average losses $350/WADA, average gains$150/WADA
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INTERIM DEVELOPMENTS
January 31, 2012Moak, Casey & Associates39
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Interim Studies - House
House Public Education Committee UIL
STAAR Implementation
Charter Schools DAEPs and JJAEPs
Parental and Community Involvement
House Ways and Means
State Tax Structure Truth in Taxation
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Interim Studies - Senate
January 31, 2012Moak, Casey & Associates
Senate Interim Charges Open records
DAEPs and JJAEPs
Most Senate charges not yet revealed
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Special Interim Committees
January 31, 2012Moak, Casey & Associates
Select Committee on School Finance Joint Legislative Interim Committee
Membership uncertain
Recommendations by January 15, 2013 Committee dissolved September 1, 2013
Joint Select Committee on EconomicDevelopment
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Interim Studies - TEA
Dollars Appropriated for Efficiency Tools Commissioner appropriated $1.5 million for the
biennium to develop efficiency and productivitytools
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Financial Accountability / Efficiency
FAST System Methodology Number of stars determined by average of separate
finance and academic performance ratings
Academic rating based on statewide percentileranking of aggregated individual student growth
Finance rating based on cost-adjusted spending perstudent compared to fiscal peers
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FAST Spending Measure
Cost adjusted spending per student: Operating expenditures (object codes 6100 6499)
All funds
Functions 11 53, excludes transportation and food
service) Adjusts payroll (6100 6199) and contracted pay
(6211, 6212, 6213, 6219, 6249, 6299) by thecompetitive wage index. Adjustments range fromreducing spending by 10% to increasing it by 45%
Redistributes a portion of SSA funds from fiscalagents to member districts based on actual financialdata match to f-33 record
Moak, Casey & AssociatesJanuary 31, 2012
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FAST Spending Measure
January 31, 2012Moak, Casey & Associates
Exclusion of transportation and food serviceleaves out nearly $9.8 billion over the three-year period
$338 million reallocated from fiscal agents tomembers over the three-year period
$676 million remained in fiscal agents due tomismatch of data
Cost adjustment adds and subtracts $9.794billion
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January 31, 2012Moak, Casey & Associates
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
Spending
perStudent,
20
10
FAST Cost Adjustment Impact by District Type
Unadjusted per Student Adjusted per Student
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January 31, 2012Moak, Casey & Associates
($1,000)
($500)
$0
$500
$1,000
$1,500
$2,000
$2,500
Change Caused by Cost Adjustment
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Interim Studies Sunset
Sunset Commission to study TEA and THECB
Will result in must pass education legislation
House Senate
Bonnen (Brazoria) Nichols (Cherokee)
Anchia (Dallas) Patrick (Harris)
Cook (Navarro) Birdwell (Hood)
Dutton (Harris) Huffman (Harris)
Price (Potter) Whitmire (Harris)
Public member (not yet appointed) Public member (not yet appointed)
Moak, Casey & AssociatesJanuary 31, 2012
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Calendar for Sunset
January 31, 2012Moak, Casey & Associates
Activity TEA THECB
Staff Review March mid-October
September 2011 February
Staff ReportRelease
Mid-October Mid-March
Public
Testimony
November 13, 14 April 10
CommissionDecisions
December 18, 19 June 5, 6
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TEA Sunset Process
January 31, 2012Moak, Casey & Associates
Issues addressed in TEA Self Report include: Rule-making for school finance
Elimination of certain reports, requirements
Overlapping school and district improvement plans
Unfunded grant programs SBEC revisions
Charter school revisions
Flexibility in implementation of required sanctions
Reduced monitoring of certain school district functions
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Amanda Brownson, Ph. D.
Dee Carney
Chris Grammer
Bob Popinski
Larry Throm
Maria Whitsett, Ph. D.
Joe Wisnoski
Lynn M. Moak
Daniel T. CaseyPartners
Kathy Mathias
Larry Groppel, Ed. D.Thomas V. Alvis, Ph. D.
Consultants
Susan Moak
Kari Ruehman
Administrative Staff
400 West 15th Street, Suite 1410, Austin, Texas 78701-1648
Ph. (512) 485-7878 Fax (512) 485-7888
www.moakcasey.com
Moak Casey & Associates52