1. The Risks to Education Funding in FY 2010 and the 2010-12 Biennium VACO Education Steering Committee Fiscal Analytics, Ltd. August 14, 2009

2. 2 Summary The State already reduced K-12 funding by over $600 million GF in FY10 – only partially offset by federal stimulus funding. Expect additional FY10 K-12 cuts because of an est. further $1.1 bil. GF shortfall. K-12 aid is 35% of state GF. FY10 support position funding will not likely be restored. State and local revenue problems will be compounded when federal stimulus funding ends after FY11. (See Appendix 1) Localities are holding Virginia’s public education system together by spending $3 billion more per year than required by the state. -In total, localities spend 82% more than required by state. -This excess pays for 22% of all K-12 spending. Due to falling real estate and car values, and reduced sales and business taxes and fees, it will be difficult for localities to continue backfilling declining state support. Even with only minimal preliminary rebenchmarking costs ($138 mil.), major policy changes will be required to align funding levels with revenues, unless state and/or local taxes are significantly raised.

3. 3 FY 2010 K-12 Direct Aid* Changes *DOE distributions, including lottery, VPSA and other non-general funds

4. 4 Preliminary K-12 Rebenchmarking of $138 Million Reflects the Recession Major Inputs that Increased Cost Compared to 2008-2010: –Enrollment Projections –Free Lunch Eligibility –Federal Revenue Deduct Per Pupil Amount –Pupil Transportation Major Inputs that Increased Cost Compared to 2008-2010: –Enrollment Projections –Free Lunch Eligibility –Federal Revenue Deduct Per Pupil Amount –Pupil Transportation Major Inputs that Decreased Cost Compared to 2008-2010: –Funded Instructional Salaries –Funded Support Salaries –Special Education Child Counts –Statewide Average SOL Failure Rate –Inflation Factors –Health Care Premium –Textbook Expenditures Major Inputs that Decreased Cost Compared to 2008-2010: –Funded Instructional Salaries –Funded Support Salaries –Special Education Child Counts –Statewide Average SOL Failure Rate –Inflation Factors –Health Care Premium –Textbook Expenditures Source:July 22, 2009 DOE Presentation

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6. 6 The Severe Revenue Shortfall Makes It Likely the State Will Further Alter K-12 Policies There are seven key components to the SOQ funding formula: -Number of students -Staffing ratios for teachers and other funded positions -Salaries of teachers and other funded positions -Fringe benefit rates -Standard and prevailing support costs -Inflation factors -Prevailing federal revenues related to support costs Approximately 79 percent of SOQ funding is for salaries and benefits FY10 budget reduced support cost funding by $341 mil. - unlikely to restore in 2010-12 biennium.

7. 7 Examples of Previous Proposals for State K-12 Budget Reductions Adopted One-third reduction in support position funding (1:4.03 instructional positions) adopted for FY 10 appropriations ($341 mil.). Still considering policy for 2010-12. Proposed 2004 Governor proposal to deduct 100% of federal revenue from SOQ ($177 mil.). 2008 House proposal to remove cap on the federal deduct ($22 mil.) 2004 House proposal to lower state contributions for teacher retirement by capping the contribution rate. 2008 House proposal to recognize only state funded salary increases in re-benchmarking process ($227 mil.). 2009 Committee discussion to defer state textbook funding ($79 mil.) 2009 Governor’s proposal to supplant remaining additional lottery support for school construction and operating costs ($61 mil.)

8. 8 Fundamental K-12 Policy Changes Needed to Save Large Dollars Increase class sizes and reduce # of teachers Decrease salaries and/or benefits for teachers, administrators and support personnel Defined benefit to defined contribution retirement Change special education and/or ESL requirements Eliminate most or all of SOL testing requirements Eliminate or reduce busing requirements Eliminate all but required education programs, e.g. sports, specialized courses, etc.

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11. 11 Standards of Quality Already Push Localities to Pay More for Education State does not pay for all Board of Education approved standards. The state methodology (LWA) overemphasizes the generally lower values in the more numerous/smaller school divisions in calculating prevailing costs for teacher and support positions. FY08 base year for 2010-12 re-benchmarking does not reflect real-time salary costs. There were also no state teacher compensation supplements in 2008-10. Most localities go beyond state mandates, especially for at- risk student funding, including lowering class sizes to help meet SOL and SOA requirements. Expect the new state support position cap to increase local overfunding.

12. 12 Board of Education Standards Not Funded by the General Assembly - $185 mil/yr. A full-time principal for each elementary school; A full-time assistant principal for every 400 students in the school; A reduction in the caseload of speech-language pathologists; One reading specialist for every 1,000 students in the school division. One mathematics specialist for every 1,000 students in K-8; A data manager-test coordinator for every 1,000 students in K-12; Instructional positions for students who are blind or vision impaired. Also, the Standards of Quality do not adequately reflect the costs of meeting the Standards of Learning and the Standards of Accreditation- including the upcoming new requirement for an individualized academic and career plan for 7 th graders. Source: http://www.doe.virginia.gov/boe/meetings/2008/11_nov/agenda_items/item_g.pdf

13. 13 SOQ Prevailing Salaries Significantly Lower than in Most Large Urban Localities

14. 14 Appendix 1 ARRA Education Stimulus Funding

15. 15 ARRA Provides Temporary K-12 Education Assistance - ½ FY10, ½ FY 2011 SFSF Education - $984 mil. ($730 mil. K-12) Title 1 Part A - $165.3 mil. Title 1 School Improvement Grants - $47.9 mil. IDEA Part B State Grants – $281.4 mil. IDEA Part B Preschool Grants - $9.5 mil. Education Technology - $10.8 mil. Education for Homeless - $1.0 mil. Equipment Assistance for School Nutrition - $1.9 mil.

16. 16 K-12 Fiscal Stabilization Fund (SFSF) K-12 education will receive about $365 mil. in each of FY 2010 and FY 2011. SFSF funds may be used for: -Salaries to avoid layoffs -Modernization, renovation, or repair, or new construction of school buildings (no maintenance, vehicles, or athletic facilities) -Any activity authorized under the Elementary and Secondary Education Act (ESEA), the Individuals with Disabilities Education Act (IDEA), the Adult Education and Family Literacy Act, or the Carl D. Perkins Career and Technical Education Act -With US DOE approval, may be used to meet MOE for Title 1 or IDEA. US DOE guidance encourages funding progress on activities that drive lasting results without unsustainable recurring cost, including: -College and career-ready standards and reliable assessments for all students. -Pre-K to Higher Ed data systems -Teacher effectiveness and equitable distribution of effective teachers -Intensive support and effective interventions for lowest-performing schools

17. 17 Title I Part A Funding Funding to implement innovative strategies to improve education for at-risk students and to close the achievement gap for students in economically disadvantaged Title I schools. Funds used the same as regular program requirements, including: -strengthen early childhood programs -Identify and train effective teachers -develop core infrastructure in technology -develop longitudinal data systems -expand extended learning opportunities

18. 18 Individuals with Disabilities Education Act (IDEA) Funding to implement innovative strategies to improve outcomes for infants, toddlers, children, and youth with disabilities Funds used the same as regular program requirements, including: -intensive professional development for special education teachers -improve capacity for collecting and using data to improve teaching -expand placement options for preschool children with disabilities