1. New Directors WorkshopNew Directors Workshop Nashville, TennesseeNashville, Tennessee August 13-14, 2014August 13-14, 2014

2. Understanding the BEPUnderstanding the BEP

3. History of the BEP  1977 – Enactment of the Tennessee Foundation Program, a funding formula that increased state contribution and used local property values to determine a county’s ability to pay  Late 1980’s – study of Tennessee Foundation Program  State Board of Education began working with various groups to reform education funding  TFP appropriations were approximately $900 million  Weaknesses in the TFP Inadequate No adjustment for inflation Targeted “formula” – inflexible funding Insignificant amount of funding resulting from consideration of local ability to pay 3

4. History of the BEP  1977 – Enactment of the Tennessee Foundation Program, a funding formula that increased state contribution and used local property values to determine a county’s ability to pay  Late 1980’s – study of Tennessee Foundation Program  State Board of Education began working with various groups to reform education funding  TFP appropriations were approximately $900 million  Weaknesses in the TFP Inadequate No adjustment for inflation Targeted “formula” – inflexible funding Insignificant amount of funding resulting from consideration of local ability to pay 4

5. History of the BEP  1988 – 77 small school systems sued the state, claiming TN’s funding formula was inequitable. TN Supreme Court agreed and ordered the state to develop a plan to correct the school funding program.  1992 – passage of the Education Improvement Act (EIA), which implemented a new funding formula, called the Basic Education Program Funding mechanism with components necessary for funding a “basic” education No “targeted” funding Funding is flexible; BEP is a funding formula, not a spending plan Formula considers local ability to pay at a more significant level 5

6. History of the BEP  2007 – BEP 2.0  Significant changes to the formula Teacher salary component $40,000 Instructional component funded at 75% by state Medical insurance funded at 50% CDF eliminated Fiscal capacity model from CBER/Fox 100% funding of at risk students ELL teachers funded at 1:20 ELL translators funded at 1:200  Partially funded (approximately 50%)  No additional funding since 2007 6

7. How Does the BEP Work?  Two Separate Parts: Funding – Department of Education determines need. – Based on 45 components and associated unit costs Equalization – based on Local Ability to Pay or Fiscal Capacity – Determines state and local shares – Fiscal Capacity Indices provided by: » Tennessee Advisory Commission on Intergovernmental Relations (TACIR) » UT Center for Business and Economic Research (CBER) 7

8. Determining Total Funding 8

9. BEP Inputs BEP ADMs Salaries, Benefits CDF Unit Costs 9

10. BEP Components (45)  Instructional Regular Education Vocational Education Special Education Elementary & Secondary Guidance Elementary Art, Music and Physical Education Elementary & Secondary Librarians ELL Instructors and Translators Principals Elementary and Secondary Assistant Principals System-wide Supervisors (Regular, Special & Vocational Education) Special Education Assessment Personnel Social Workers & Psychologists Staff Benefits & Insurance 10

11. BEP Components  Classroom K-12 At-risk Class Size Reduction Duty-free Lunch Textbooks Classroom Materials & Supplies Instructional Equipment Classroom Related Travel Vocational Center Transportation Technology Nurses Assistants (Instructional, Special Education & Library) Staff Benefits & Insurance Substitute Teachers Alternative Schools Exit Exams 11

12. BEP Components  Non-classroom Superintendent System Secretarial Support Technology Coordinators School Secretaries Maintenance & Operations Custodians Non-instructional Equipment Pupil Transportation Staff Benefits & Insurance Capital Outlay 12

13. Determining Need - ADMs  ADMs (average daily membership) drive the Formula – funded on prior year’s ADMs.  Funding months and weighting Month 2 – 12.5%Month 6 – 35% Month 3 – 17.5%Month 7 – 35%  5 th month used for school-based positions 13

14. Determining Need - ADMs  ADMs determine: Positions – Teachers, supervisors, assistants etc. generated by ratios of positions to students – Positions multiplied by unit costs to generate funding dollars Other Components – ADMs are multiplied by a Unit Cost for supplies, equipment, textbooks, travel, capital outlay, etc. 14

15. Sample How To Sheet - Positions 15

16. Sample How To Sheet - Positions 16

17. Sample How To Sheet - Positions 17

18. Unit Costs – source and calculation  Equipment, supplies, travel, substitute teachers 3 year average Average is inflated up two years  Textbooks 3 year average Average is inflated up one year  Alternative Schools, Duty Free Lunch, Maintenance & Operations Prior year value is inflated up one year  Capital Outlay Square footage cost obtained from RS Means publication Formula – each ADM generates square footage, multiplied by a cost, then amortized to arrive at a yearly cost Includes architect fees and equipment 18

19. Sample How To Sheet – Unit Costs 19

20. Cost Differential Factor (CDF)  Used to adjust BEP funding in systems where the cost of living in the county is greater than the statewide average  Compares county wages in non-government industries to statewide wages  Counties with above-average wages according to this index receive an increase  Increase is applied to salaries, retirement contributions and FICA contributions  Eliminated in BEP 2.0  Counties receiving an adjustment currently receive 50% of the calculated CDF 20

21. Sample How To Sheet - CDF 21

22. Equalization 22

23. Fiscal Capacity  CBER Model (model in BEP 2.0) Determines a county’s capacity to raise local revenues for education from its property and sales tax base. Each county’s fiscal capacity is the sum of: – The County’s equalized assessed property plus IDBs multiplied by a statewide average property tax rate for education (1.1937) plus – The County’s sales tax base multiplied by a statewide sales tax rate for education (1.5883%) Each county’s fiscal capacity index is the ratio of its fiscal capacity to the total statewide fiscal capacity 23

24. Fiscal Capacity  TACIR Model (complex multiple-regression model) Per pupil own-source revenue Per pupil equalized property assessment Per pupil taxable sales Per capita income Tax Burden Service Burden Additional variables 24

25. CBER Calculation Example  Volunteer County  Equalized Assessed Property plus IDBs (3 year average) $905,473,467  Sales Tax Base (3 year average) $274,689,881  Fiscal Capacity = ($905,473,467 x 1.1937% + ($274,689,881 x 1.5883%)  = $95,019,021 + $4,362,899  = $99,381,920  = $99.381.920 / $2,904,953,952 (state total)  Fiscal Capacity Index (CBER) = 3.42% 25

26. Fiscal Capacity Used in FY 15 BEP  50% of TACIR Model & 50% of CBER Model  Volunteer County Index (TACIR Capacity Index x 50%) + (CBER Capacity Index x 50%) » (1.83% x 50%) + (1.71% x 50%) » 0.915% +.855% » = 1.77% 26

27. Equalization Volunteer County – calculation of state instructional share Total instructional amount generated by formula X LEA Fiscal Capacity X 70% _________________________________________________________ LEA instructional amount generated by formula = State Share of Instructional Funding 27

28. Equalization  Volunteer County – calculation of state/local instructional shares  3,388,244,000 X 1.7% X.70 __________________________________ = 60.43%  45,411,000  45,411,000 X 60.43% = 27,444,000 (state share)  45,411,000 X 39.57% = 17,967,000 (local share) 28

29. Equalization  Same formulas for classroom and non-classroom components Total classroom amount generated by formula X LEA Fiscal Capacity X 75% ________________________________________________ LEA classroom amount generated by formula Total non-classroom amount generated by formula X LEA Fiscal Capacity X 50% ________________________________________________ LEA non-classroom amount generated by formula 29

30. Sample Allocation Sheet - Equalization 30

31. Maintenance of Effort  Supplanting test used to insure maintenance of local effort  Governed by TCA 49-2-203 and TCA 49-3-314  Budgeted local revenue must be equal to or greater than the previous year’s budgeted amount, unless ADMs have decreased 31

32. Sample - Maintenance of Effort Test 32

33. Sample - Maintenance of Effort Test 33

34. 3% Fund Balance Test  If budgeted expenditures exceed revenues, LEA must have 3% of operating expenditures in fund balance before budget will be approved by the State. 34

35. Uses of Fund Balance  Governed by TCA 49-3-352(c)  Provisions applicable after operating budget is adopted... Shall be available to offset shortfalls of budgeted revenues...... Shall be available to meet unforeseen increases in operating expenses 35

36. Uses of Fund Balance  The accumulated fund balance in excess of three percent (3%) of the budgeted annual operating expenses for the current fiscal year may be budgeted and expended for any education purposes but must be recommended by the board of education prior to appropriation by the local legislative body. 36

37. Uses of Fund Balance  In other words, there is no requirement to have 3% of operating expenditures in fund balance – BUT LEAs cannot use fund balance unless the fund balance exceeds 3% of operating expenditures.  If fund balance is in excess of 3% of operating expenditures, then the excess can be used for any education purpose, as long as the use is first approved by the board of education. 37

38. Sample – 3% Fund Balance Test 38

39. Stability Provision  An LEA is on stability if the total state BEP funds it generates in the current year are less than the total state BEP funds generated the previous year.  Occurs most often due to declining ADMs.  Provides a one-year grace period before funding is reduced. 39

40. Sample Allocation Sheet FY15 - Stability Provision 40

41. Sample Allocation Sheet FY14 - Stability Provision 41

42. Mandatory Increase  Allows systems on stability to receive additional funds for state-mandated increases in salary, TCRS contributions or insurance.  Receives mandatory increase amount for each BEP generated position.  Received in addition to stability amount 42

43. Sample Allocation Sheet - Mandatory Increase 43

44. For further information...  Tennessee Basic Education Program: An Analysis http://www.comptroller1.state.tn.us/orea/ See legislative brief  State Board of Education http://www.tn.gov/sbe/bep.html BEP Blue Book – up to date data on BEP components Recommendations of BEP Review Committee 44

45. 45 QUESTIONS?

46. 46 FRAUD, WASTE or ABUSE Citizens and agencies are encouraged to report fraud, waste or abuse in State and Local government. NOTICE: This agency is a recipient of taxpayer funding. If you observe an agency director or employee engaging in any activity which you consider to be illegal, improper or wasteful, please call the state Comptroller’s toll-free Hotline: 1-800-232-5454 Notifications can also be submitted electronically at: http://www.comptroller.tn.gov/hotline