Budget reactions (updated 2X)

Friday, March 29th, 2013 at 1:28 pm by

On Wednesday, I sent a note to superintendents asking, now that you have seen the School Aid run for your district, what are your reactions.

Here is one response, from the leader of a rural Western New York district.  I’d say it’s the most compelling, but the mixture of sentiments expressed is very typical:

My first reaction is one of sincere gratitude, and I called both of my legislators first thing this morning to thank them for their advocacy.

On the other hand, despite the increase, I spent my day today meeting with employees to let them know they are losing their jobs.

If future increases fail to make a more significant impact on the GEA [Gap Elimination Adjustment] more quickly, our district anticipates a growing gap in the two years following next, and we do not have many more places where we can cut.

Earlier this week, Governor Cuomo suggested that professional advocates like me are “paid to never be happy.”

In my case, that disposition may be the product of fate (i.e., my last name), not career choice.

But the reality is that almost all our statements are directed at two audiences – policymakers and the people who do pay our salaries.  This year, in particular, it’s been a challenge to avoid sounding either too negative for the former, or too positive for the latter.

The Governor has noted that education funding has increased by more than any other part of the budget.

He is right, and I  periodically advise superintendents that, whatever our disappointments, we need to remember that nearly every year legislators say “no” to many people in order to be able to say “yes” to schools as often as they do.

But throughout this state budget cycle we have emphasized that the alarms over school financial prospects typically do not arise because of the state budget for the year ahead, but from factors that have been accumulating and accelerating over many years.

The last two state budgets have been much more constructive than the three that preceded them – on the whole, if not for every district.

But under Governor Cuomo’s original School Aid proposal this year, even with its allocated increases averaging 2.8 percent, 80 percent of school districts would have received less help from the state than in 2008-09, five years in the past.

Allocating the Governor’s Fiscal Stabilization Fund and adding additional resources, the final budget  increases School Aid by 4.7 percent on average, not including grants that will be awarded after school districts adopt their budgets for the coming year.

As I said on the Capitol Pressroom, if districts had been receiving aid increases averaging over 4 percent all along, they would be in much better shape now.  (The Capitol Pressroom segment starts about 24 minutes in).


School Aid

Here are some other observations on School Aid…

I often say that School Aid is complex in New York State because we are a complicated state.  But the formulas used to distribute this year’s Gap Elimination Adjustment Restoration are phenomenally complex, even for our state.

The GEA Restoration employs more than 10 steps – and many have very precise cut-offs (e.g., a Combined Wealth Ratio greater than 1.100 and a three-year average Free and Reduced Price Lunch percent greater than 60 percent; a Combined Wealth Ratio of less than 1.700 and enrollment per square mile of less than 170 students; etc.).

It is impossible to construct formulas that perfectly address the needs and capacities of the 676 districts receiving regular School Aid.  The intricacy of this year’s formulas reflects an attempt to accommodate those variations, as well as political priorities.  We will have more to say about the actual distribution once computer files become available from the State Education Department.

But whatever the distribution, the complexity used to produce it undermines transparency and accountability.  As I said to the Albany Times Union a few weeks back, “The more people who can understand it (School Aid), the more accountable policymakers can be for their decisions.”

A big debate in the School Aid world this year has been which is preferable –  increasing Foundation Aid (the major reform enacted in 2007) or reducing the Gap Elimination Adjustment.

The Assembly has favored the former, the Senate the latter.  Unsurprisingly, the agreed-to budget does some of both, as well as averting reductions in High Tax Aid.

I’m largely an agnostic, saying it’s like getting agitated over whether a check comes in a brown envelope or a white envelope.  What matters is the size of the check, not the form it comes in.

Increasing Foundation Aid signals a commitment to sustaining a pivotal reform.  That said, it’s arguable that the accomplishment has already been irredeemably lost.

The state is many years behind schedule in phasing in the funding level promised for 2010-11.*  The adopted budget would increase Foundation Aid by $171 million.  But for all but the Big 5 cities, the Foundation Aid increase is a straight 0.3 percent over 2012-13.  In other words, the Foundation formula is not operating for 671 out of the 676 school districts.


Teacher and Principal Evaluations

We appreciate the changes to the Annual Professional Performance Review (APPR) law – teacher/principal evaluations.  They provide that negotiated and State Education Department-approved APPR plans remain in effect  until successor agreements are approved.

So districts will not face a loss of aid if they cannot reach agreements with their unions.  Going forward, the deadline will be September.  Instead, loss of aid increases and grant eligibility will be imposed if a district fails to implement its APPR plans.

What I’ve said to reporters goes like this,

The changes in the teacher/principal evaluation law in the agreed–to budget are sensible adjustments now that the system is up and running.  By clarifying that existing procedures remain in place until new ones are agreed to and approved, they ensure students will not suffer from a loss of state aid because grown-ups can’t agree on evaluation plans.

But the changes also fairly require schools to actually follow-through on whatever evaluation procedures are in place, or risk the loss of state aid.


Pension Smoothing

We found a lot of initial skepticism toward pension smoothing proposals – similar to a survey done by the School Business Officials.  But we also know that there were districts absolutely counting on help of the magnitude the Governor’s proposal would have provided.

We said to state officials and the Teachers Retirement System that “something is better than nothing” – if TRS rejected implementing the Governor’s plan (as court decisions empower it to do), then desperate school districts would have nothing and if TRS insisted on alternatives the Governor would reject, those districts would again have nothing.

To give some sense of why this is such an issue:  TRS announced the required employer contribution rate would rise from 11.84 percent to 16.25 percent – about 4.4 percentage points.  The contribution rate gets multiplied by the payroll for covered employees (anyone certified by SED – e.g., teachers, principals, and central office administrators).

So the increase requires districts to absorb a cost equivalent to giving all those employees 4.4 percent raises, even their actual salaries don’t change.  For about half the districts, just the increase in their TRS costs would have exceeded their School Aid increase shown on the Governor’s aid run plus a 2 percent local tax increase.

The enacted budget would allow districts electing the option to lock-in a 14 percent contribution rate.  The TRS board could raise the rate by up to two percentage points in the third year, and another two points in the fifth year.  So the maximum rate would be 18 percent.

Districts would begin repaying the difference between the stable rate and the “normal rate” in the sixth year, with interest based on U.S. Treasury securities.

In the eighth year all districts would go back to paying the actuarially required, normal contribution rate and fully repay their deferred contributions within 12 years.

The agreed-to plan would give districts to cut the scheduled TRS cost increase for the coming year about in half, but will require them to pay more over the long-term.

Districts could only opt-in during the coming school year (by June 30, 2014).  They could opt-out at any time by making a reconciliation contribution, making up the difference between what they have paid and would have paid under the normal rate.

Finally, the entire option would terminate and all districts would go back to paying the normal rate/  if TRS’s funded status drops below 80 percent – if its assets total less than 80 percent of its projected payment obligations.

The plan has received some criticism, as in this column from yesterday’s New York Post.  Some states have chronically underfunded public pension systems, resulting in penalties from the Securities and Exchange Commission for misrepresenting their true financial condition.

But the new New York State program would be much more limited in deferring pension payments that what occurred in those other states, would establish mechanisms to ensure payments are made, and  provide the safety valve of automatic termination if TRS’s funded status drops below 80 percent.

The plan must still be approved by the TRS board and it is not scheduled to meet until April 24.  That presents a problem.  School boards are adopting the budgets they will ask voters to approve in May now, and the absolute last date for them to do so is April 26.


UPDATE 1:  I should have added that there is no reason to anticipate that the TRS board will not adopt the plan.

The required fiscal note for the legislation was provided by the system’s actuary and notes that the “the  probability  of  System  failure,  with failure being defined as the System’s funded ratio falling to 30% or lower, is only slightly higher under this  proposal than it is under the current annually adjusting actuarial-funding  method,  with  both  probabilities  less  than  1.5%.”

Still some districts will not want to assume savings in their budgets unless and until from the plan unless and until the TRS board has given formal approval.

TRS has posted a fact sheet on the plan.

An option is also available for costs due to the State and Local Employees Retirement System (ERS).  But ERS covers only about 20 percent of school employees – non-certified staff – and a smaller share of payroll.


UPDATE 2:  TRS has moved up its board meeting to act on the stable contribution rate option to April 9.


*When enacted in 2007, the Foundation Aid formula projected total funding of $18.05 billion for 2010-11.  With an increase of $171.37 million, the state budget for 2013-14 funds Foundation Aid at $2.16 billion less than scheduled for 2010-11.  Continuing at the 2013-14 increase rate of 1.14 percent, it would take over 11 years to reach the scheduled 2010-11 funding level.

The GEA is a lump sum cut against total aid, excluding Building Aids, and Universal Prekindergarten.  However, it cannot be absorbed from reimbursement or categorical aids without causing further aid losses.  As a practical matter, the GEA is a reduction in general operating aid, the vast majority of which comes through Foundation Aid.

Counting the lump sum GEA reduction against Foundation Aid puts the 2013-14 Foundation Aid level $4.51 billion below the 2010-11 target.

In the original post, I wrote that the state is “decades behind schedule” in phasing in the Foundation Aid formula.  That is true if counting the GEA reductions against Foundation Aid.  Once the GEA is eliminated, however, the state could accelerate Foundation Aid increases.  At the current rate of reduction, it would take three or four years for the state to fully eliminate the GEA.

This entry was posted on Friday, March 29th, 2013 at 1:28 pm and is filed under Finance, Legislation, State Budget, Teachers. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.