HOW TO FINANCE PUBLIC SCHOOLS WITHOUT MONEY

1. HOW TO FINANCE PUBLIC SCHOOLS WITHOUT MONEY Richard G. Salmon Professor Virginia Tech

2. HOW TO FINANCE PUBLIC SCHOOLS WITHOUT MONEY Richard G. Salmon Professor Virginia Tech

3. I know that you are keenly interested in how this might be accomplished, but I thought I could maintain your interest, if I save this technique for last.

4. REVIEW OF THE VIRGINIA SYSTEM OF SCHOOL FINANCE IT IS TRIPARTITE FISCAL ARRANGEMENT, THAT VARIES FROM 49.9% FROM THE LOCALITIES, TO 34.9% FROM THE STATE, 8.7% FROM THE STATE SALES TAX, TO 6.5% FROM THE FEDERAL GOVERNMENT (FY 2008 AND PRIOR TO THE FEDERAL STIMULUS APPROPRIATIONS).

5. GOVERNMENTAL FUNDING RELATIONSHIP • Federal Nationally, the federal government provides 8.8 percent of total revenue, FY 2009 However, the percent of revenue varies from 16.1 percent for Mississippi to 3.0 percent for Rhode Island. • State Nationally, the state governments provide 48.1 percent of revenue, FY 2009. However, the percent of revenue varies from 88.8 percent for Hawaii to 26.4 percent for Illinois. • Local & Others Nationally, the local governments provide 43.1 percent of revenue, FY 2009. However, the percent of revenue varies from 64.8 percent for Illinois to 15.9 percent for Minnesota.

6. INTEGROVERNMENTAL FUNDING RELATIONSHIP (Continued) • Flat Grant A grant that provides a fixed amount of revenue on a per unit basis, e.g., $1,000 per pupil in ADM. • Matching Grant A grant that requires a corresponding match in revenue, usually on a per unit basis, e.g., $1,000 state aid matched by $1,000 local revenue match. • Equalization • Grant A grant that provides a greater amount of revenue on a per unit basis to school divisions deemed to possess less fiscal capacity to provide educational services.

7. MEASURES OF FISCAL CAPACITY • Wealth A true wealth measure, Valuation of Real Property, calculated on a per unit basis, e.g., Property Valuation per pupil in ADM, is the most often used, nationally, to determine the fiscal capacity of school divisions. • Index of • Fiscal Ability Multiple measures of taxpaying ability, wealth, • economic activity, etc., are mathematically • combined. Virginia uses such an index, • entitled, the Local Composite Index.

8. Traditional (TYPICAL) Fiscal Equalization Formula A - B = C A = Cost of Program B = Local Required Effort C = State Aid This program is often referred to As a Strayer-Haig formula or as a Minimum Foundation Program.

9. THE LOCAL COMPOSITE INDEX ADM Component Local School Division True Valuation Average Daily Membership Local School Division Adjusted Income Average Daily Membership Local Taxable Retail Sales Average Daily Membership 4x 1x 5 x State True Valuation Average Daily Membership State Adjusted Income Average Daily Membership State Taxable Retail Sales Average Daily Membership Population Component Local School Division True Valuation Population Local School Division Adjusted Income Population Local Taxable Retail Sales Population 5x 4x State True Valuation Population 1x State Adjusted Income Population State Taxable Retail Sales Population .6667 x ADM Component + .3333 x Population Component X .45

10. Virginia Basic State Aid Formula • Step • ________ Average Daily Membership • ________ SOQ Per ADM • ________ Total Cost Basic Aid (1 x 2) • ________ 1.125¢ Sales Tax Receipts • ________ Total Cost Minus Sales Tax (3 – 4) • ________ Local Composite Index • ________ Local Required Expenditures (5 x 6) • ________ Basic State Aid (5 – 7)

11. WHAT HAS CAUSED THE FISCAL CRISIS THAT NOW CONFRONTS PUBLIC K-12 SCHOOL IN THE COMMONWEALTH OF VIRGINIA? I AM NOT HERE TO CASTE BLAME ON ANYONE, BUT I CANNOT HELP NOTICE THAT A SUBSTANTIAL PART OF THE CURRENT STATE BUDGET PROBLEM IS DUE TO THE FISCAL DECISIONS MADE BY PREVIOUS ADMINISTATIONS AND GENERAL ASSEMBILIES. SETTING LONGTERM TAX POLICIES THAT ARE BASED ON HIGHLY ENERGIZED NATIONAL AND STATE ECONOMIES INEVITABLY WILL FORCE REEXAMINATION OF THESE POLICIES DURING THE MOST DIFFICULT TIMES. THE MOST OBVIOUS EXAMPLE IS THE SO-CALLED “CAR TAX” THAT BIENNIALLY FORCES THE TRANSFER OF $2 BILLION STATE REVENUE TO THE LOCALITIES. THE TRANSFER OF THESE “REPLACEMENT REVENUES” NEEDS TO BE PHASED-OUT, PERHAPS OVER TWO OR THREE BIENNIA. OBVIOUSLY, THIS WILL BE A PAINFUL PROCESS, BOTH FOR THE COMMONWEALTH AND FOR THE LOCALITIES. I MIGHT ADD, THAT THIS PROGRAM WAS NOT THE BRAINCHILD OF THE LOCAL GOVERNMENTS.

12. MAGNITUDE OF THE IMPENDING FISCAL DISASTER FACING PUBLIC K-12 SCHOOLS IN MY NEARLY FIFTY YEARS IN PUBLIC SCHOOLS, BOTH K-12 AND HIGHER EDUCATION, I DO NOT REMEMBER A FISCAL CRISIS SUCH AS THE ONE WE ARE CURRENTLY FACING. I THINK THE PUBLIC IS JUST BECOMING AWARE OF HOW SEVERE THE CRISIS IS BECOMING. FROM ALL STATISTICAL REPORTS, THE GREAT DEPRESSION WAS MUCH WORSE, BUT THIS ONE IS BAD ENOUGH FOR ME. THE GENERAL ASSEMBLY AND GOVERNOR, BOTH PAST AND PRESENT, HAVE ALREADY MADE DACONIAN REDUCTIONS AND IF REVENUE ENHANCEMENTS (TAXES) ARE NOT IMPLEMENTED, GOVERNMENTAL SERVICES WILL BECOME MUCH WORSE. INCLUDED IN GOVERNMENTAL SERVICES IS, OF COURSE, PUBLIC SCHOOLS. I THINK PART OF THE PROBLEM IS THE MAGNITUDE OF THE PROBLEM ITSELF. OUR SOCIETY HAS BECOME DESENSITIZED TO FISCAL TERM- INOLOGY. WE REGULARLY USE TERMS SUCH AS MILLIONS, BILLIONS, AND TRILLIONS SO THAT THEY LOSE MEANING.

13. A REAL EXAMPLE LET US LOOK AS THE FISCAL EFFECT ON A CHILD ATTENDING A PUBLIC SCHOOL AND THE CLASSROOM THAT HE OR SHE ATTENDS. IF THE RECOMMENDED REDUCTIONS ( FYS 2009-2011)ARE MADE, ON A STATEWIDE BASIS, EACH CHILD WILL SEE $607 IN STATE AID DISAPPEAR. (THIS DOES NOT ADDRESS LOSS OF LOCAL AID OR THE POTENTIAL LOSS IN FEDERAL FUNDS). IF YOU ASSUME VIRGINIA FUNDS ON THE BASIS OF 20:1 (PUPIL-TEACHER RATIO), THE LOSS FOR EACH CLASSROOM IS $12,140. THAT IS $12,140 FOR EACH CLASSROOM IN EACH SCHOOL BUILDING THOUGHOUT THE COMMONWEALTH. IF YOU ASSUME THAT A CHILD WILL ATTEND PUBLIC SCHOOL FOR 13 YEARS, I.E., K-12, EACH CHILD WILL LOSE NEARLY $158,000 DURING THEIR PUBLIC SCHOOLING.

14. HOW TO FUND PUBLIC SCHOOLS • WITHOUT MONEY • The most obvious solution is to eliminate personnel. Most school divisions will attempt to reduce personnel other than teachers, but inevitably, classroom teachers will join the ranks of the unemployed. • The loss of teachers not only affects pupil-teacher ratio (a debate of its effectiveness that has continued for many generations), but the loss of teachers directly affects the breath of the curriculum. The classes that traditionally have drawn small pupil teacher ratios. • School divisions have reduced numbers of administrators, teacher aides, support personnel of all types, all which provide the high quality education that Virginia has relied.

15. Replacement stock, computers, rolling stock, i.e., automobiles, trucks, • vans, and school buses are being placed on deferred status. • Energy audits are being conducted by a number of school divisions • and usually on the short term, show promise. • Cooperative services should be investigated, and in some instances, • they are cost efficient. However, the personnel differences that exist • between schools and other public agencies generally marginalize cost • savings. • Privatization of services are effective occasionally, but complaints and • issues concerning personnel turnover, quality of services, often • distract from perceived success.

16. There is no way!!