Forces driving the need for a large School Aid increase

Tuesday, January 12th, 2016 at 3:01 pm by

There are two groups of forces driving the need a large School Aid increase in the next state budget. One set arises from cost pressures and the property tax cap. The other arises from the challenges in producing a satisfactory aid distribution.

Cost pressures and the tax cap
In November, the Educational Conference Board issued its annual school finance paper. The ECB is the coalition of major statewide public school leadership organizations. The core of the ECB statement each year is an effort to project the state aid increase schools would need to maintain current services, employing a set of moderate assumptions.

The ECB projects that, to support continuation of current school operations, state aid would need to increase by $1.7 billion (or 2.7 percent), based on these assumptions:

  • A 2.7 percent increase in salaries, consistent with an estimate for all workers, nationwide, in 2016 from the Society for Human Resources Management;
  • A 6.6 percent increase in health insurance costs, in line with projections for the state workforce from the Division of Budget;
  • A decrease in Teachers Retirement System (TRS) pension contributions, reflecting the most recent estimates for 2016-17 from the TRS Board of Directors;
  • An across-the-board 2.3 percent inflationary measure applied to all other costs, based on the Consumer Price Index (CPI) projected for the coming year by the Division of Budget.[i]
  • No increase in local revenue to offset the above costs, due to the fact that school districts are facing a tax cap close to zero percent for the coming school year. Through the first 11 months of the year used to calculate the base for the tax cap, the average monthly increase in the Consumer Price Index was 0.06 percent.

In the statement, in meetings with executive and legislative staff, and in a press conference, ECB said that if the tax cap were in fact 2 percent, the coalition would be assuming total school costs would be offset by about $700 million in local revenue, lowering the projected state aid need to $1 billion – close to the $937 million increase projected by the Governor’s Budget Division in the State Financial Plan.[ii]

Aid distribution
A second set of factors driving the need for a large School Aid increase is that it is hard to address widely shared priorities and produce an aid distribution likely to gain approval in both houses of the Legislature without a large overall increase.

In his speech on opening day of the 2016 session of the State Legislature, Senate Majority Leader John Flanagan said, “We will not have a budget if the GEA is not eliminated.”

The GEA (Gap Elimination Adjustment) was first enacted in 2009-10 under another name as part of an effort to close yawning state budget gaps emerging with the Great Recession. It is a bottom-line reduction in each district’s state aid applied after calculating aid forthcoming under regular aid formulas. It reached its maximum negative impact in 2011-12 at $2.5 billion and has been reduced year-by-year since.

In his opening remarks, Assembly Speaker Carl Heastie said, “We will push for the highest funding level possible to ensure that all schools have the resources and tools they need to fulfill their duty to the students they serve.”

Historically, both houses and essentially all school groups have supported funding increases generated by formulas in current law – for example, assuring school districts receive aid next year for construction, transportation, special education, and shared service costs they are incurring this year with the expectation those costs will be partially reimbursed next year.

Ending the GEA would now cost $434 million.  Funding projected aid increases under current law would cost $411 million, bringing the combined cost of ending the GEA and funding current law increases to $855 million. Again, the Governor’s Budget Division projected School Aid would rise by $937 million in its Mid-Year Update to the state financial plan.

If those two actions comprised the whole of what is done in School Aid in the next state budget, the average aid increase would be 3.7 percent. But the increase for New York City, a district with average local ability to pay for education but high pupil needs, would be only 2.1 percent. It is inconceivable that the Assembly would agree to that outcome.

Other high need districts would also receive lower percentage increases in total state aid.  The “Big Four” cities (Buffalo, Rochester, Syracuse and Yonkers) would receive increases averaging 1.9 percent, and the average increase for high need rural districts would be 1.8 percent.

In its school finance statement, the Educational Conference Board called for ending the GEA, funding expense-based aids, so that districts receive reimbursement as existing aid formulas promise, and re-starting the Foundation Aid formula. The state is now over $4 billion behind in phasing-in the Foundation Aid formula that was enacted in 2007 as part of an effort to resolve a successful court challenge to the constitutionality of the state’s school finance system.

The ECB observed, “It is essential to note that the remaining GEA is primarily owed to low- and average-need districts, while more than 75 percent of the Foundation Aid shortfall is owed to high need districts.”

Here is a series of charts illustrating the points raised in this post.

 


[i] In its First Quarter Update to the State Financial Plan, the Division of the Budget forecast that the Consumer Price Index would increase by 2.3 percent in 2016. In its Mid-Year Update, issued after ECB published its school finance report, DOB lowered its CPI forecast to 2.0 percent. Using the later CPI prediction would reduce ECB’s projected state aid need by roughly $45 million.

[ii] New York State Division of the Budget. FY 2016 Financial Plan Mid-Year Update. November 2015. See p. 70.

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