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Education Service Center, Region 20 School Finance Presentation

Education Service Center, Region 20 School Finance Presentation. September 11, 2019. Agenda. Agenda Move to current year values Tax Compression for TY 2020 Formula transition grant Coding new allotments FIRST indicators. Relevant Staff. TEA Staff Leo Lopez

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Education Service Center, Region 20 School Finance Presentation

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  1. Education Service Center, Region 20 School Finance Presentation September 11, 2019

  2. Agenda Agenda Move to current year values Tax Compression for TY 2020 Formula transition grant Coding new allotments FIRST indicators

  3. Relevant Staff TEA Staff Leo Lopez Associate Commissioner for School Finance Al McKenzie Director of Forecasting & Fiscal Analysis David Marx Director of Financial Compliance Sara Kohn Assistant Director of Forecasting and Fiscal Analysis

  4. Current Year Values HB3 moves FSP calculations to current year values

  5. Why change to current year values? The use of current year values in conjunction with a fast growth allotment was one of the Texas Commission on Public School Finance’s major recommendations: • “Making this property value change… will eliminate what is known as the formula lag, which can cause a misalignment of state and local revenues if/when local district property value growth slows/falls in the future.” • Changing to current year values: • 1. Ensures funding is based on student need, not property wealth • 2. Allowed a higher basic allotment, which increased funding for the vast majority of districts

  6. Why change to current year values? Moving to current year values allows the state to significantly raise the basic allotment for all Texas school districts This change, coupled with the increase in the basic allotment, will more accurately fund students based on individual student need rather than a district’s property values.  A higher basic allotment makes all other student weights (including compensatory education) more valuable Funding school districts on current year values will provide districts greater budget certainty in Tier One, as their student counts and characteristics will determine overall entitlement funding. Districts will no longer face budget volatility due to rapid property value increases or decreases. In Statute: Texas Education Code 48.256. Page 91 of HB3

  7. Current Year Values in FY 2020 – FSP Formulas The agency will use the TY 2018 values increased by 5.76 percent, the estimates of property value growth used in Rider 3, TEA, Article III of the General Appropriations Act (HB 1, 86th Legislature). Preliminary TY 2019 values will be received in February 2020 and will be incorporated into the payment (LPE) estimates for FSP. District’s Payments will be adjusted to reflect the preliminary values Final TY 2019 values will be received in August 2020 and will be incorporated as part of the settle-up process. Districts wanting to estimate their final SY 2020 FSP State Aid could use their TY 2019 estimates of local taxable values from the appraisal district and convert to a ‘T2’ value by using historical ratios

  8. Estimating 2019 Comptroller Values using Local Appraisal Values for FY2020 Estimated Tax Year 2019 “T2” = ( Tax Year 2019 Local Appraised Value ➗ Tax Year 2018 Local Appraised Value ) ✖️ Tax Year 2018 Comptroller Certified “T2” Values *Be sure to adjust for any Chapter 313 value limitations which are beginning or ending in TY2018 or TY2019 More information on how 313 agreements are impacted by HB 3 will come later this year.

  9. Estimating 2019 Comptroller Values using Local Appraisal Values for FY2020 For example: A district with an appraised value of $10 million in TY 2018 and $10.5 million in TY 2019 would have a growth rate of 5% If the district’s TY 2018 T2 value was $11 million, the projected 2019 T2 value would be $11 million * 1.05 = $11.55 million

  10. Region 20 – Districts’ value growth

  11. Region 20 – Districts’ value growth

  12. Region 20 – Districts’ value growth

  13. Other statutory changes to property values1: Consistent use of values throughout FSP calculations • Prior to the passage of HB 3, there was a prohibition on using a property value which recognized the reduction in values from adopting a local optional homestead exemption (LOHE) in Chapter 42, Education Code, but not in Chapters 41 and 46, Education Code • This meant the values used in Chapters 41 (wealth equalization) and 46 (state assistance for debt service payments) recognized the value loss due to the LOHE, but Chapter 42 (Foundation School program) did not • This has been corrected under HB3 and the same property values (which do not recognize the value loss to a LOHE) are used throughout the funding formulas. In Statute: Texas Education Code 48.259 Adjustment for Optional Homestead Exemption * See slide 19

  14. TY 2020 TAX RATES HB3 requires additional tax rate compression for SY 2021

  15. TY 2020 Tax rates (2021 schoolyear) State and local compression apply for TY 2020 tax rates State compression will be based on the comptroller’s statewide value growth estimate for the 2020 tax year of 4.01% 0.93 * (1.025 / 1.0401) = .9165 This will be the maximum tier one tax rate for the 2021 schoolyear

  16. State and Local compression A district’s tier one tax rate will be the lesser of state and local compression Local compression = .93 * (1.025 * 2019 DPV) / 2020 DPV Local compression = .93 * (1.025 * $1 B) / $1.1 B Local compression = (.93 * .9318) = .8666

  17. Limit on Compression No district can have an MCR less than 90% of any other district The lower limit on MCR for 2020 will be 0.9165 * 0.9 = 0.8248 .93 * (1.025 * 1 billion) / 1.1556 billion = .8248 Districts which grow more than 15.6% will have their compression limited – no district will have a maximum tier one tax rate lower than 0.8248* * Districts will be able to adopt lower rates in exchange for reduced funding

  18. Limit on Compression 48.2552 (c) (c)  The amount of revenue available to the state as a result of the differences in the amount of state aid and reduction in local revenue between calculating a district's maximum compressed rate in accordance with Subsection (b) and calculating the district's maximum compressed rate under Section 48.2551 shall be used to lower the state compression percentage under Section 48.255. The agency shall provide estimates to the legislature of the reduction of the state compression percentage based on this subsection.

  19. For illustration purposes only: Region 20 districts’ value growth and tax rates – TY2020 These tax rates are based on past growth rates and will not be the actual TY2020 tax rates

  20. For illustration purposes only: Region 20 districts’ value growth and tax rates – TY2020 These tax rates are based on past growth rates and will not be the actual TY2020 tax rates

  21. For illustration purposes only: Region 20 districts’ value growth and tax rates – TY2020 These tax rates are based on past growth rates and will not be the actual TY2020 tax rates

  22. MCR and Property Value growth

  23. Voter Approval Elections

  24. Voter approval elections for TY 2019 (refresher) In TY 2019, districts with tax rates above or equal to $0.97 are prohibited from holding a voter approval election (HB3, Section 1.007, TEC 45.0021) Districts below $0.97 cents are able to raise their tax rate to $0.97 ($0.93 tier one tax rate + .04 golden pennies) without an election

  25. Voter approval elections for TY 2020 In TY 2020, voter approval elections are allowed again But first, lets review what districts can do without an election Districts below are able to raise their tax rate to the sum of their Maximum Compressed tax rate plus 4 golden pennies without an election. Districts can access a 5th golden penny, without an election - but with unanimous Board approval. This 5th golden penny will be available in every future year. it is only in 2020 that the unanimous Board approval is required

  26. Voter approval elections for TY 2020 In TY 2020, Districts can have a voter approval election to increase their M&O tax rates up to the sum of: • The districts maximum compressed tax rate • 0.17 of enrichment The maximum M&O tax rate for any district for TY 2020 will be $1.0865 (0.9165+0.17)

  27. Formula Transition Grant

  28. Formula Transition Grant Formula Transition has two paths, both based on comparing 2020 prior law to 2020 HB3 • Path 1 is 103% of prior law, but limited to 128% of the statewide average prior law M&O revenue per ADA ($11,387) • Path 1 expires September 2025 • Path 2 is 100% of prior law with no limit, but excludes any money a district would have received for the 1992-93 chapter 41 hold harmless • Path 2 expires September 2021

  29. ‘Lag’ money from the prior law system will drive the formula transition grant In this case, this district’s budget was larger than other districts in the state with identical student populations, because of impact of this “lag” money. Formula Entitlement STEP 1 With some caveats, districts are entitled to an amount of funding based upon the students that are enrolled. State aid is calculated using prior year values to ensure districts reach their entitlement. State Aid is applied STEP 3 State Aid is calculated But that state aid is applied even though current year values could be different. STEP 2 The system first assumes districts collect local property taxes. Local Property Tax Collections Local Share based on Prior Year values $0

  30. Formula Transition Grant Who is likely to receive Formula Transition Grant • Districts with less than a 3% gain from HB3 (high CEI, affected by the move to current year values, few economically disadvantaged students) • Districts with very high value growth

  31. Formula Transition Grant How will we estimate collections/formula transition during the schoolyear • Old law collections will be calculated as actual collections * (pre-HB3 tax rate / HB3 tax rate) • LPE collections will be 2019 PEIMS budgeted * 1.0576 • DPE collections will be updated for PEIMS budgeted 2020 in March and then again at near final • Most formula transition money will be paid out at settle-up

  32. Updates from Financial Compliance David Marx, CPA Financial Compliance Division Texas Education Agency

  33. Program Intent Codes (PIC)

  34. NEW PICs

  35. Early Education Allotment – PIC 36 Examples of uses: • Fund the second half of the pre-k program • Purchase supplies and desks for new pre-k classrooms • Academies to train teachers in reading and mathematics pre-k through 3rd grade 100% must be used on early education

  36. Dyslexia Allotment – PIC 37 Examples of uses: • Dyslexia therapists training for teachers • Identification, monitoring, and evaluation tools for dyslexia • Professional development in the science of teaching reading • Dyslexia specialist positions • Stipends for dyslexia therapists 100% must be used on providing dyslexia services to students

  37. College, Career, and Military Readiness Allotment (CCMR) – PIC 38 Examples of uses: • Professional development for counselors related to CCMR • Training and professional development for teachers on ACT/SAT, Dual credit, Advance Placement • Salaries for College and Career advisers • Technology tools/platforms that assist advising students in CCMR 55% must be spent on improving CCMR for grades 8-12

  38. Updates on other PICs • Gifted and Talented PIC 21 – required to report expenditures to TEA • High school Allotment PIC 31 – use only if did not spend 100% in the prior years • Not creating PICs for School Safety, Fast Growth, or Small and Mid-size Allotments

  39. State Compensatory Education Allotment Updates from House Bill 3

  40. State Compensatory Education The main components of the SCE program as a result of the passage of HB 3: • Increases overall allotment: • From 0.20 to a range from 0.225 –0.275 • Established a new allotment methodology: • The methodology accounts for severe economic disadvantage in a student’s neighborhood based on the census block in which the student resides and the index category of the census block. • Changes spending requirements: • Requires 55% of the allotment be spent on the SCE program • Requires the commissioner to adopt rules on spending requirements, with a focus on streamlined reporting and in a way that does not reduce eligible uses • Requires a Compensatory Education Advisory Committee

  41. Increase in SCE Allotment • Uses a tiered multiplier based on socio-economic level of student’s home address. • Below are the five categories used in determining census block groups: 1. Median household income by block group 2. The highest average educational level of the population (i.e., block group) 3. Percentage of single-parent households 4. Home ownership rate (i.e., calculated as owner occupied housing/units total housing units) 5. Other* economic criteria determined by the commissioner and advisory committee (not part of the initial census block determination) Note: the student must be determined to be educationally disadvantage

  42. TEA Tool • TEA has published two tools to assist LEAs with determining the census block group information based on the student’s residential address. The tools and instructions for using the tools can be found on the TEA website: http://www.tea.texas.gov/Texas_Schools/General_Information/Census_Block_Group_Tools • To the Administrator Addressed Letter: September 5, 2019, House Bill 3 (HB 3) Implementation: Census Block Group Reporting and Lookup Tool

  43. SCE funding with a Community Eligibility Provision (CEP) Common question: How do we handle Community Eligibility Provision students for Compensatory Education funding? Prior to HB 3, school districts and charter schools participating in a CEP were required to follow 19 TAC §61.1027 for an alternative reporting method. This will not change. Districts are required to collect information to determine if a student is educationally disadvantaged for determining funding for Compensatory Education.

  44. Changes to spending requirements • 55% must be spent on providing state compensatory education services • Can use funds to pay for childcare expenses for students who have children • Can use funds to pay for services provided through a life skills programs for students who are parents • Can use funds for students who aredetermined to be educationally disadvantaged to eliminate any disparity with students who are not educationally disadvantaged • Use for 13 criteria in TEC 29.081 plus new criteria: student or students' parents who have been incarcerated (SB 1746)

  45. Additional spending requirements TEA adopt rules regarding the use of funds that must: • Allow the funds to be spent on the campus to address the students needs, • Provide streamlined reporting on the use of the funds, and • May not restrict uses that were allowable prior to HB 3. Additionally the State Board of Education adopt rules for reporting compliance in the Annual Financial Report.

  46. Commissioner Review • The Commissioner of Education will review the reports submitted in the Annual Financial Report: • Determine compliance with the rules on allowable use of funds • Provide each district a reasonable opportunity to comply with new rules • If it is determined the district or charter is not in compliance, the Commissioner shall withhold funds until compliance is achieved • Discretion is provided to TEA to use the average of the prior three years to determine the amount to withhold • Begins with the 2021-2022 fiscal year

  47. Spending Requirement Question Question: What if my district does not meet the spending requirements for this year because of the changes that were made to state funding? Answer: The district or charter will be required to make up the difference in the following year. For example: District received $100, required to spend $55 on the program, only spent $45. The following year the district would be required to spend $10 plus 55% of the new allotted amount for the year.

  48. Finally…… An advisory committee will be formed in fall of 2019 to advise the agency in adopting rules for the SCE allotment. • Rules establishing other economic criteria to be considered for the census block groups • Rules for students in certain programs • Methods for counting homeless students • Rules to determine the appropriate weight for certain students • At least every two years review census and student data and make recommendations

  49. Updates on FIRST

  50. Three Year FIRST Results

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