Public Schools: Depth, Breadth, and Causes of a Looming Finance Crisis

1. Public Schools: Depth, Breadth, and Causes of a Looming Finance Crisis What are the causes and amounts of school district finance shortfalls? In recent years, how have districts faired financially? What do the next two years hold for district financial health? What are the next steps?

2. State, Local, and Federal Funds Total $9.3 Billion

3. Constitutional Compact • State’s Paramount Duty is to provide a general, uniform, and amply funded public school system • 30 years ago, state defined basic education as a series of staffing commitments to schools and non-salary allocations • Later added programs for struggling students • Simple series of formulas • If students show up, so does the state funding • Districts can raise local levy funds to enhance the state’s definition of basic education

4. Of $6.5 Billion in State funds, $4.6 Billion is Driven Through a Single Simple Formula I-728 District Enrollment Learning Assistance (E) Busing (G) (A) Salaries &Benefits (B) Staff Ratios SpecialEducation(D) Bilingual (F) (C) Operating Costs (NERC) = State GeneralApportionment Gifted

5. Quantifying the Structural Causes of Financial Shortfalls Salaries, health benefits Staffing ratios Non-salary costs Special education LAP/Bilingual Transportation

6. Total Compensation Ranges Between 82% and 84% of Total Expenditures

7. School Districts Spend Over $1 Billion on Health, Life and Disability Insurance

8. Differences in Teacher Salary Impacts Morale and Retention 2008-09 Teacher Salaries (average experience and education) $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Additional Salaries $68,200 Base Salary $61,154 12,878** 8,448* 55,322 52,706 * Projected from 2006-07 ** 2006-07; full-time staff only Typical Everett • Base salary most districts • Base salary of Everett • Equalizing will cost $167 million and raise most teacher salaries by 5% • Additional (supplemental) salaries on average nearly $8,500 per teacher statewide

9. Supplemental Salary Increases 6.3% average increases driven by multiple factors: National Board Certification increasing State COLA applied to TRI schedule Increase in extra duties (new curriculum adoptions) Higher or more frequent class size overload pay New incentives (seniority incentive) COLA above state COLA

10. Districts Must Subsidize Classified/Admin Salaries by $366 Million 2007-08 Building Blocks ofK-12 Staff Average Salaries $96,445 $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Addt’l $ Above Max Rate 15,638 State Allocation at Max Rate 23,742 State Avg. Allocation 57,065 $36,593 1,316 4,539 30,688 Classified Administrative • Average total salary • State average allocation • District allocations vary, first step is to equalize salary allocations ($226 million state cost to equalize) • After equalization, the state still must identify an appropriate method to address true costs districts experience ($140 million difference between equalized allocations and district costs) • Districts also pay difference in salary and COLA/benefits

11. Local Funds Pay COLA on 4 Levels 2007-08 Building Blocks ofK-12 Staff Average Salaries Local Funds COLA Effect (4.1% in 2009-10) $96,445 $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Actual Avg. Paid 15,638 State Allocation at Max Rate Supplemental Salaries 23,742 State Avg. Allocation $58,340 7,947 57,065 50,393 $36,593 1,316 4,539 30,688 Instructional Classified Administrative $79 million total COLA on average salary paid for “local staff units” ($44 million) COLA on all supplemental salaries, all staff ($20 million) COLA on unequalized portion of Classified and Administrative salaries, all staff ($10 million) COLA on difference between the state maximum allocation and the salary districts actually pay, all staff ($5 million)

12. A: Salaries and Benefits Salaries increase at 4-7% per year COLA at 2-4% per year; supplemental salaries at 6% per year Health benefits increase 14% per year Pensions, significant recent growth More progress to be made to equalize salary allocations, $400 million/year plus COLAs compound differential funding levels Levy/I-728/Federal revenue will grow 4.7% Result in compensation growth faster than levy revenue; districts must reduce staff in response

13. Structural Disconnect Continues in 2009-10 School Year

14. The ratios do not represent true class sizes. Class sizes increase when planning periods, specialist teachers, librarians, counselors, etc., are purchased from the ratio above. Certificated Instructional Staff Ratios (B) Certificated Instructional StaffK-4: 1:18.8 5-12: 1:21.7 IncludesAll Teachers,Instructional Coaches, Nurses, Counselors, Librarians, and all other Pupil Support

15. Districts Choose Between Lower Class Sizes, More Hours per Day, and Student Support (B) Students per 1 FTE Staff 6 periods + 1 hr planning Teachers Current Grades K-5 1:24.7 Grades 6-8 1:29.0 CertificatedInstruction StaffK-4: 1:18.8 5-12: 1:21.7 Grades 9-12 1:29.0 Instructional Coaches = 1:1,250 Librarians 1:786 Guidance Counselors & Pupil Support 1:462 Nurses 1:2,659

16. Districts Hire Many More Classified Staff Than Are Funded by the State (B)

17. $9,476per CIS (2006-07 SY) $468per student State NERC Funding Intended to Cover All Non-Employee Costs Related to Basic Education (C) = = 17

18. In 16 Years, State Funding for All Non-Salary Operating Costs (NERC) Increased by $30 M After Covering Utilities & Insurance Increases

19. An Increasing Number of Districts Spend Over 80% of Their NERC Allocation on Utilities and Insurance (C) 19

20. Districts Spend Over $500 Million More on NERC Than the State Funds (C) 8-yr Cycle 18-yr Cycle

21. Special Education (D) • Districts spend $167 million more on special education services than they receive in state funding • Not all of the gap is defined as a state responsibility • The funding gap is driven by the shortfalls in funding for staffing ratios, salaries and NERC • SE is funded at 93% of General Apportionment per Student • When salaries are underfunded, SE receives 93% of an inadequate amount to hire staff • For every $100 million in new General Apportionment resources, $10 is generated for SE and closes the funding gap

22. LAP Funds Have Increased Substantially (E)

23. Buying Power for Struggling Students Remains Constant (E)

24. Buying Power of State Transitional Bilingual Program is Constant (E)

25. District Costs Exceed State Revenue (F) Statewide (Expenditures minus Revenues) in Millions

26. How Have Districts Fared Financially in Recent Years? Prior 8 years, factors that mitigated the state funding shortfalls Recent experience and impact on district reserves

27. In Last 8 years, Several Factors Mitigated State Funding Shortfalls 2000-2008 2009 and Beyond • Reduction in pension rates saved $364 million • 2003-05 COLA suspension (3.1%) saved $187 million • Increases in I-728 revenue and federal funding totaled $614 million • Increase in levy authority to recognize I-732 suspension and I-728 delay • Pension rates increase • I-728 and federal dollars flatten • Local funds continue to support COLAs • Other costs continue to increase faster than inflation • Health benefits • Fuel • Levy authority increases an average of 5% • Levies approved to utilize 92% of authority Appendix slides quantify these statements.

28. 2000-2008: State Savings of $1.3 Billion in EmployerPension Contributions; $364 Million for Local Funds

29. Ending Fund Balance Dropping

30. Largest Change for Smallest School Districts

31. Some Large Districts have Less than 2% EFB

32. Summary for 2008-09 School Year • Statewide average Ending Fund Balances drop • Roughly 600 staff positions eliminated statewide (equivalent to 1 school district serving 4,000 students) • 7 districts on Binding Conditions (1 may exit) • Evaluating the need for Binding Conditions for an additional 6 districts • $2 Billion operating value for districts with 2% or less EFB • 20% of students in districts w/ very little cushion

33. What Do the Next Two Years Hold for Financial Health of School Districts? 33

34. Outlook for the 2009-10 School Year • Ending Fund Balances are low, so little cushion going into the 2009-10 year • Local funds’ compensation costs will increase about $115 million; districts will have about $130 million increase in local funds • Assumes very low increases for supplemental salaries • $15 million increase must cover all OTHER cost increases on a $2.7 billion base • Utilities/insurance projected at $17 million • 4,000 teachers paid on I-728; $46 million in reserves (specific to I-728) • $46 million will pay for 680 teachers for 1 year

35. Outlook for the 2010-11 School Year • Ending Fund Balances will be lower • About $130 million in additional revenue • About $20 million in additional compensation costs • I-732 COLA drives zero increase because economists are projecting deflation of -.5% • Clearly much better financial outlook but at cost to employees

36. Are There Ways to Mitigate the School District Finance Crisis? 36

37. Are There Cost Neutral Ways to Assist Districts? • Must be a conversation about how to make progress to meet Constitutional funding requirements • Without new funding, face unprecedented decisions: • COLA results in lay-offs unless also fund district foundation resources • No new mandates or requirements • Evaluate waivers to 180-day requirement • Evaluate suspension of I-728 spending categories • Evaluate K-12 ratio requirements • Legislation to make route to consolidation more clear • Do not negatively impact levy base

38. Implications for Next Steps in K-12 Finance

39. State Underfunding is Not Disputed • Questions to answer: • What is the appropriate definition of basic education? • Will that definition fix the shortfalls between district reality and state funding?

40. Minimum Outcomes Needed from the BEFTF • Improve funding ratios for Certificated Instructional and Classified Staff • Salary Policy and Funding • First, equalize classified and administrator allocations • Then, allocate classified/administrator based on common-sense methods that cover actual costs • Address state underfunding of teacher compensation • Compensate teachers for excellence

41. Minimum Outcomes Needed from the BEFTF • Improve funding level for NERC, inflate with common sense measures • Improve funding for LAP • Staffing formula driven by instructional programming reality and informed by research • Improve funding for ELL • Staffing formula driven by instructional reality and diverse community needs and informed by research • Implement a new formula with adequate funding for pupil transportation • Special Education • New $ driven via components 1-3

42. Last Thoughts • State is completing an analysis of what is an adequate funding level for public schools • Basic Education Finance Task Force (Legislative entity) • Recommendations due 12/1 (slightly late) • Anticipate recommendations for comprehensive overhaul • Very few opportunities to redefine Basic Education • Basic Education shortfalls are so large, fixes will take many years • Requires prioritization • Much of the early investments do not buy new programs

43. Budget Context • $5.8 Billion projected deficit for biennium (November) • Through 6/30/2011 • Eliminate all of Higher Education, still $2 B to cut • COLA is 4.1% in 2009-10; 0% in 2010-11 • $360 M cost included in deficit projection • Drives an additional $158 M in local funds needed • State cannot cut “basic education” • Non-basic items include (biennial savings): • K-4 enhancement ($388 M) • 2 LID ($75M) • Levy equalization ($456 M) • I-728 ($908 M) • Gifted education ($20 M) • Health Benefits inflation ($96 M if 7% inflation)

44. For More Information Jennifer Priddy: (360) 725-6292, or by email, jennifer.priddy@k12.wa.us Superintendent Bergeson's BEFTF Proposal: http://www.k12.wa.us/Communications/BasicEdFundingTaskForce.aspx Basic Education Finance Task Force: http://www.leg.wa.gov/Joint/Committees/BEF/

45. Appendix

46. 2003-05 and Beyond, Impact to Local FundsWas Minimized by Suspension of I-732 COLA XXXXXXXXXXX XXXXX

47. 2000-2008: Local Funds Avoided $551 Million in Compensation Costs

48. From 1999-2008, I-728 and Federal Funds Increased by $614 Million; Beginning 2008-09 Only Small Increases

49. Districts are Already Maximizing Levy Authority