1. SENATE HOUSE FOUNDATION SCHOOL PROGRAM TARGET REVENUE PRORATION PROPERTY VALUE COMPRESSION RECAPTURE 22:1 EOC TRE AUSTERITY Piecing Together a New Plan 2011-2012 Board Budget Study Session #1 May 16, 2011

2. Agenda Legislative Update Budget Bills Fund Formula Bills Annual Benchmarking Update Preliminary General Fund Budget Expenditure Increases and Reductions Education Jobs Funding 3 2 1 2

3. State Budget Bill Update 3

4. Statewide Estimates 2010-2011HouseSenate House/ Senate Difference Foundation Program$36.0B$33.2B$37.0B($3.8B) Facility Funding1.2B1.6B -0- SSI & At-Risk Programs4.4B3.3B3.6B($0.3B) Tech & Instruct Materials1.2B0.3B0.7B($0.4B) Other7.3B7.0B7.1B($0.1B) TOTALS$50.1B$45.4B$50.0B($4.6B) Proposed Budgets vs. 2010-2011($4.7B)($0.1B) Overall, the Senate’s version of the 2012-2013 biennial budget provides $4.6B more in education funding than the House’s budget. Although it does not provide funds for enrollment growth or additional hold-harmless for declining property value, it provides nearly as much total funding as is estimated for the 2010-2011 biennium. House & Senate Budgets 4

5. Statewide Estimates TEA Versus House Versus Senate 2010-2011 Budget$50.1B New Enrollment1.8B Hold-Harmless for Property Value Decline1.0B MINIMUM FOR 2012-2013$52.9B($7.5B)($2.9B) (14.2%)(5.5%) Difference from Minimum Need The Texas Education Agency requested nearly $55B for the biennium. If the only changes made to the 2010-2011 budget were minimal increases for new enrollment and hold-harmless for property value decline, the minimum need for the 2012-2013 biennium would be $52.9B. The House and Senate versions of the budget fall $7.5B and $2.9B short of that mark, respectively. 5

6. Formula Funding Bills House Version 6

7. Under current law, increases to Weighted Average Daily Attendance would increase State Funding by $7.7M. Decreases in property tax revenue would trigger an increase to State funding (via hold-harmless) of approximately $5M. 2010-2011 Revenue vs. 2011-2012 NEISD General Fund 2010-2011 2011-2012 Current LawDifference Property Tax Revenue$282.8M$277.5M($5.3M) Other Local Revenue4.4M3.9M(0.5M) State Revenue188.9M201.5M12.6M TRS Revenue23.5M 0.0M Federal Revenue & Other6.2M5.6M(0.6M) Total Revenue$505.8M$512.0M$6.2M Difference from Current Law Revenue Estimate 7

8. Under House Bill 2485’s funding formula, NEISD will see a decline in revenue of $43.4M in 2012 compared to 2011. Revenue would drop another $3M in 2013 and $2M in 2014. 2010-2011 Revenue vs. 2011-2012 NEISD General Fund 2010-2011 2011-2012 HB 2485Difference Property Tax Revenue$282.8M$277.5M($5.3M) Other Local Revenue4.4M3.9M(0.5M) State Revenue188.9M151.9M(37.0M) TRS Revenue23.5M 0.0M Federal Revenue & Other6.2M5.6M(0.6M) Total Revenue$505.8M$462.4M($43.4M) Based on House Bill 2485 8

9. Compared to the current funding formula law, NEISD will lose nearly $50M in 2012, all in State revenue. The State’s share of total General Fund revenue would fall from 39% to 33%. 2011-2012 Effective Revenue Loss NEISD General Fund 2011-2012 Current Law 2011-2012 HB 2485Difference Property Tax Revenue$277.5M $0.0M Other Local Revenue3.9M 0.0M State Revenue201.5M151.9M (49.6M) TRS Revenue23.5M 0.0M Federal Revenue & Other5.6M 0.0M Total Revenue$512.0M$462.4M($49.6M) House Bill 2485 -- Difference from Current Law 9

10. Formula Funding Bills Senate Version 10

11. 2010-2011 Revenue vs. 2011-2012 NEISD General Fund 2010-2011 2011-2012 SB22Difference Property Tax Revenue$282.8M$277.5M($5.3M) Other Local Revenue4.4M3.9M(0.5M) State Revenue188.9M164.8M(24.1M) TRS Revenue23.5M 0.0M Federal Revenue & Other6.2M5.6M(0.6M) Total Revenue$505.8M$475.3M($30.5M) Based on Senate Bill 22 Under Senate Bill 22’s funding formula, NEISD will see a decline in revenue of $30.5M in 2012 compared to 2011. Revenue would remain relatively flat thereafter. 11

12. 2011-2012 Effective Revenue Loss NEISD General Fund 2011-2012 Current Law 2011-2012 SB22Difference Property Tax Revenue$277.5M $0.0M Other Local Revenue3.9M 0.0M State Revenue201.5M164.8M (36.7M) TRS Revenue23.5M 0.0M Federal Revenue & Other5.6M 0.0M Total Revenue$512.0M$475.3M($36.7M) SB 22 -- Difference from Current Law Compared to the current funding formula law, NEISD will lose nearly $37M in 2012, all in State revenue. The State’s share of total General Fund revenue would fall from 39% to 35%. 12

13. Formula Funding Bills What if None Passes? 13

14. If the Legislature passes an appropriations bill but does not change the Foundation School Program’s funding formulas to distribute only the amount appropriated, the Commissioner of Education could: Fully fund 2011-2012, and prorate 2012-2013 Needs approval by the Governor Legislative Budget Board would propose to the next Legislature (January 2013) to take shortage from Rainy-Day to finish out 2012-2013 Budget Bill but No Funding Bill? 14 Sources: Legislative Budget Board; Moak, Casey & Associates

15. If the 83 rd Legislature denies the January 2013 Rainy-Day request, Commissioner stops payments to districts in May 2013 From an total allocation perspective, this hurts property-rich districts since proration is based on available property tax base From a cash perspective, however, this disproportionally hurts property- poor districts that have their State aid payments spread evenly throughout the year Property-wealthy districts receive more State funds in September & October, and live off property tax revenue beginning in January Proration is a delay, not a reduction Statute mandate any cut in 2013 would have to be added to the 2014- 2015 biennium budget Budget Bill but No Funding Bill? 15 Sources: Legislative Budget Board; Moak, Casey & Associates

16. From Texas Education Code §42.2516 “The commissioner shall determine the state compression percentage for each school year based on the percentage by which a district is able to reduce the district's maintenance and operations tax rate for that year, as compared to the district's adopted maintenance and operations tax rate for the 2005 tax year, as a result of state funds appropriated for distribution under this section for that year from the property tax relief fund established under Section 403.109, Government Code, or from another funding source available for school district property tax relief.” Budget Bill but No Funding Bill? 16 The Commissioner of Education has the authority to change the “compressed tax rate.” Quote from Robert Scott: “Please don’t put me in that spot.” Source: TASA Capital Watch Alert

17. Tax Rate Compression 17 When the 79 th Legislature lowered property taxes, they did not lower local property tax rates to $1.00. The Legislature lowered each district’s rate to 66.67% of it’s 2005 rate. Almost every district in the state taxed @ $1.50 at the time, so 66.67% compression = $1.00. If the State fails to provide adequate funding to districts, such that the total available revenue (local & state) per Weighted Average Daily Attendance is not comparable to pre-2006 amounts, then the commissioner must adjust the compression rate. Sources: Legislative Budget Board; Moak, Casey & Associates

18. Tax Rate Compression 18 HYPOTHETICAL SITUATION Commissioner changes NEISD’s compression from 66.67% to 68% 68% X $1.50 = new $1.02 compression rate NEISD’s current tax rate is $1.04 ($1.00 compression + $0.04 enrichment pennies) If NEISD does raise it’s taxes by $0.02, the State will penalize NEISD by taking away approximately $4 million of Tier II State funding. Only 2¢ of our tax rate would be “golden pennies” instead of the 4¢ we now have (local tax rate only 2¢ above compressed rate).

19. General Fund Forecast 19

20. Reflects house version of budget and formula funding bills These reflect current “near-worst-case” scenario Situation more grim if either (a) law to use Rainy-Day fund to cover 10-11 biennial deficit or (b) law to delay August FSP payment do not pass. Does not yet reflect Education Jobs Fund This will be addressed later in the presentation Significant Assumptions Approximately 1,050 new students Start-up costs for two new schools opening in August 2012 General Fund absorbs significant costs from State-killed programs, such as Technology Allotment, Student Success Initiative, Adult Ed and shared service arrangement for Regional Day School for the Deaf General Fund Forecast 20

21. (in millions) 2010-2011 Forecast 1 st Year Change 2011–2012 Forecast 2 nd Year Change 2012–2013 Forecast 3 rd Year Change 2013–2014 Forecast Revenue$505.8($43.4)$462.4($3.1)$459.3($2.0)$457.3 Expenditures485.8(16.8)469.010.3479.35.5484.9 Increase (Decrease) to Fund Balance$20.0($6.6)($20.0)($27.5) Beginning Fund Balance71.991.985.365.3 Ending Fund Balance$91.9$85.3$65.3$37.8 Months of Operating Fund Balance2.42.31.71.0 Revenue/Student$7,606($760)$6,846($155)$6,691($134)$6,557 Expenditures/Student$7,305($361)$6,944$39$6,983($31)$6,952 General Fund Forecast Based on HB 2485 The revenue reductions based on HB2485 continue past the next biennium (into at least 2013-2014). Almost $27M in fund balance will be eroded over 2 years, and dramatically more in 2014 if the 2013 Legislature doesn’t increase funding. 21

22. Expenditure Increases for 2011-2012 Costs to Absorb Educational Programs Losing Grant Funding$3,000,000 Set-aside for Repayment of QSCBs1,700,000 Increased District Share of Health Insurance1,795,000 Other Increases for New Schools, Inflation, Infrastructure2,813,000 Contingency Allowance2,500,000 Total Expenditure Increases$11,808,000 22

23. Expenditure Reductions for 2011-2012 Central Office Positions Frozen/Eliminated (~52 FTEs, 6.2%)($2,550,000) Eliminate Retention Supplement(6,140,000) Utility Savings(450,000) Reduce Contract Days for Teachers > 187 days(250,000) Central Office Department Budget Reductions(350,000) Reduce Contract Days by 2 for Admin & Paras >190 days(577,000) Total Before Campus Reductions($10,337,000) Campus Reduction Goals Elementary School Teachers(130 FTEs, 6.4%)($7,865,000) Middle School Teachers(37 FTEs,3.8%)(2,173,000) High School Teachers(59 FTEs, 4.6%)(3,551,000) General Assistants & Clerical Admin – All levels(90 FTEs, 5.4%)(2,716,000) Campus Admin & Other Professionals – All Levels (25 FTEs, 3.7%)(1,879,000) Total Potential Campus Reductions($18,184,000) Grand Total Reductions($28,521,000) 23

24. Reductions to Teacher Staffing Levels Current Allocation Reduction Goal Resignees/ Retirees To-DateDifference Elementary School Teachers2,030.7130100(30) Middle School Teachers953.637381 High School Teachers1,284.559631 Total4,268.8226201(28) % of Current Allocation5.3%4.7% Teacher Turnover Rate : 2005-2006 10.1% 2006-200711.7% 2007-200811.2% 2008-200910.4% 2009-20108.2% If 2010-2011’s turnover rate is 8%, total teacher turnover would be 341. If 2010-2011’s turnover rate is 6%, total teacher turnover would be 255. 24

25. Cost Avoidances for 2011-2012 Eliminate Pay Raise$9,280,000 Not Adding Teaching Staff to Accommodate Enrollment Growth4,060,000 Reduce Contingency Allowance & AARs2,000,000 Total Cost Avoidance$15,340,000 Total Reductions from 2010-2011 Actual$28,521,000 Total Cost Avoidances for 2011-201215,340,000 Net Change Compared to Planned 2011-2012 Cost Structure$43,861,000 An earlier example showed that HB2485 revenue compared to current law revenue for 2012 was nearly $50M lower. Similarly, in addition to expenditure reductions of $28.5M resulting from this legislation, NEISD is planning $15.3M in cost avoidances. This represents planned expenditure growth that will no longer occur. The total change to NEISD’s anticipated cost structure due to the under-funding of education is $43.9M. 25

26. Education Jobs Bill 26

27. North East ISD was allocated $10,594,000 Funds must be used for compensation and benefits of school- level employees for the following allowable purposes: To retain, recall, or rehire employees To restore reductions in salaries, including furlough days Funds were intended to be distributed for use in 2010-2011 All Federal guidance refers to 2010-2011 Currently reviewing TEA guidance for proper use in 2011-2012 Update will be provided to Board of Trustees on May 23, 2011 Education Jobs Bill 27

28. Benchmarking Update 28

29. NEISD vs. 100 Largest Texas ISDs General Fund Expenditures per Student North East ISD ranked 75 th out of the 100 largest Texas ISDs for per Student spending for 2009-2010. (25 districts spent more per student) NEISD spent $250 per student more than the weighted average of the group, a difference of 3.5%. 29

30. State Peer Group 2009-2010 Selected Demographics DistrictEnrollment Wealth/ WADA EDS % Target Revenue Arlington63,385$267,49459.8%$5,003 Conroe49,323$337,68935.6%$5,463 Fort Bend69,066$288,13435.2%$5,228 Garland57,654$193,45657.2%$4,999 Katy58,444$284,55129.1%$5,602 Klein44,695$241,17336.2%$5,160 Lewisville50,664$391,24625.6%$5,842 Northside91,464$292,11350.3%$5,382 Round Rock42,777$424,60328.7%$5,981 Peer Group Average58,608$297,22441.2%$5,380 North East65,217$357,70042.8%$5,704 30

31. NEISD vs. State Peer Group General Fund Expenditures per Student $414$202 North East ISD spent $414 more than the average of our peer group, mainly in the areas Instruction, Staff Development, School Leadership and Maintenance. 31

32. NEISD vs. State Peer Group General Fund Expenditures per Student Although North East ISD spent $202 more for instruction than our peer group average, that represents only a 5% difference. Alternatively, NEISD spent 209% more than our peer average on Social Work Services, but that represents only $27 per student. 209% 32

33. NEISD vs. State Peer Group Function 11 - Instruction General Fund OnlyNEISDState PeersDifference % Difference Function 11 per Student$4,665.7$4,463.5$202.24.5% Payroll as a % of Total96.3%96.9% Payroll makes up almost all Function 11 costs! Student / Professional FTE15.4315.36(0.07)(0.4%) Student / Para FTE103.88103.60(0.28)(0.3%) Salary / FTE – Professional$55,422$52,951$2,471 4.7% Salary / FTE – Para$18,239$18,509($270)(1.5%) 33 Compared to our peers, NEISD has similar student-to-staff ratios, and similar costs for instructional assistants. NEISD pays 4.7% higher salaries for professional instructional staff.

34. NEISD vs. State Peer Group Function 13 – Curriculum & Staff Development General Fund OnlyNEISDState PeersDifference % Difference Function 13 per Student$137.4$89.2$48.254.0% Payroll as a % of Total82.1%80.2%1.9% Student / Professional FTE835.02,128.91,293.960.8% Student / Para FTE5,176.010,468.95,292.950.5% Salary/ FTE – Professional$67,912$80,921($13,009)(16.1%) Salary / FTE – Para$32,632$31,161$1,4714.72% Compared to our peers, NEISD has significantly lower ratios for staff devoted to curriculum and staff development. TEA data reporting standards do not allow for a comparison of what positions each district codes to this function. For NEISD, it comprises mostly deans. 34

35. NEISD vs. State Peer Group Function 23 – School Leadership General Fund OnlyNEISDState PeersDifference % Difference Function 23 per Student$481.3$435.7$45.610.5% Payroll as a % of Total96.2%98.0% Payroll makes up almost all Function 23 costs! Student / Professional FTE315.4309.5(5.9)(1.9%) Student / Para FTE214.2212.0(2.2)(1.0%) Salary / FTE – Professional$83,736$77,054$6,6828.7% Salary / FTE – Para$25,410$23,675$1,7357.3% 35 Compared to our peers, NEISD has similar student-to-staff ratios in school administrative positions. NEISD pays 8.7% higher salaries for professional administrative staff and 7.3% more in paraprofessional staff.

36. NEISD vs. State Peer Group Function 33 – Health Services General Fund OnlyNEISDState PeersDifference % Difference Function 33 per Student$104.1$78.8$25.332.1% Payroll as a % of Total95.5%97.7% Payroll makes up almost all Function 33 costs! Student / Professional FTE875.4902.427.03.0% Student / Para FTE1,015.83,885.52,869.7 73.9% Salary / FTE – Professional$55,380$51,534$3,8467.5% Salary / FTE – Para$18,816$21,244($2,428)(11.4%) 36 Compared to our peers, NEISD has a similar student-to-staff ratio for professional health staff (i.e., nurses). NEISD has a significantly lower ratio for paraprofessional health staff. TEA reporting standards do not allow for detail of the types of paraprofessional positions at our peers; for NEISD this is mainly clinic assistants.

37. NEISD vs. State Peer Group Function 51 – Facilities Maintenance & Operations General Fund OnlyNEISDState PeersDifference % Difference Function 51 per Student$763.7$704.4$59.38.4% Payroll as % of Budget57.8%48.4%9.4% Utilities as a % of Budget25.6%33.8%(7.2%) Payroll Cost per Student$433.7$324.3 $109.3 33.7% Student / Auxiliary FTE93.5138.745.232.6% Salary / FTE – Auxiliary$29,450$27,792$1,6586.0% Utilities Cost per Student$195.3$237.8 ($42.4) (17.8%) 37 Compared to our peers, NEISD has a lower student-to-staff ratio in custodial and maintenance positions. NEISD pays 6.0% higher salaries for auxiliary staff. NEISD has a significant savings in utilities compared to our peers.

38. State Peer Group Spending vs. Target Revenue District Target Revenue/ WADA Operating Costs/ WADA Ratio of Costs to Target M&O Tax Rate Arlington$5,003$5,661113.1%$1.0400 Conroe$5,463$5,524101.1%$1.0400 Fort Bend$5,228$6,012115.0%$1.0400 Garland$4,999$5,444108.9%$1.0400 Katy$5,602$6,185110.4%$1.1266 Klein$5,160$5,556107.7%$1.0400 Lewisville$5,842$6,458110.5%$1.0400 Northside$5,382$5,957110.7%$1.0400 Round Rock$5,981$6,256104.6%$1.0400 Peer Group Average$5,380$5,896109.6%$1.0496 North East$5,704$6,227109.2%$1.0400 38

39. June 13 – Call for Public Hearing Upcoming Meetings May 23 June 27 – Public Hearing 1 2 3 39

40. Questions?