The Honorable the Members of the Board of Regents


James A. Kadamus


Regents 2006-07 Proposal on State Aid to School Districts


July 7, 2005


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Issue for Discussion


Is the Regents conceptual proposal on State Aid going in the right direction?  How can it be improved?


Reason(s) for Consideration


Review of policy.


Proposed Handling


The attached draft Regents conceptual proposal on State Aid is for review and discussion.  It incorporates material and discussion from the June meeting of the Subcommittee on State Aid on directions for special education funding and funding early childhood education.  It will come before the Regents for approval at the September meeting and again with a detailed proposal concerning the dollars requested at the Regents October meeting.


Procedural History


The development of the Regents proposal began in May and will continue at meetings in June, July, September and October.  The Subcommittee Chair and SED staff met with the Department’s Education Finance Advisory Group and the Commissioner’s Advisory Panel on Special Education.


Background Information


This proposal represents the third year in a proposal to establish a foundation aid program that adjusts for differences in school district pupil needs and regional costs.  Its goal is to close the achievement gap in a manner that is adequate, effective and efficient.




The Regents should discuss alternatives and recommend improvements to further develop their conceptual proposal on State Aid.


Timetable for Implementation


Once the Regents approve their State Aid proposal, they will have the opportunity to advocate for its inclusion in the Executive’s budget proposal and in enactment of the Legislative budget signed into law by the Governor.  Once school funding is in place, the Department will continue to work with school districts on the most cost-effective practices to raise student achievement so that virtually all students meet State learning standards.


Regents Proposal on State Aid to School Districts

For School Year 2006-07




The Regents State Aid proposal for 2006-07 will request the resources and funding system needed to provide adequate resources through a State and local partnership so that all students have the opportunity to achieve State learning standards.  This is the third year of a multi-year proposal recommending transition to a foundation program based on the costs of successful educational programs. 


Statement of Need

          This proposal pursues two Regents goals: to close the gap between actual and desired student achievement; and to ensure that public education resources are adequate and used by school districts effectively and efficiently.

          The Regents annual report to the Legislature and Governor on the educational status of the State’s schools cites numerous examples of improvement in student achievement since 1996 when the Regents began to raise standards for all grade levels and imposed graduation requirements aligned with the new standards.  For example, the report notes[1]:

Since the implementation of higher graduation requirements in 1996, the percentage of public school graduates earning Regents diplomas increased from 42 to 56 percent.

The number of public school students participating in Advanced Placement examinations has nearly doubled since 1992.  There were almost twice as many Black, Asian, and Hispanic candidates in 2003 as in 1992.

The mean SAT composite score for the class of 2003 was 18 points higher than the mean for the class of 1993.

In 2003, 64 percent of fourth-graders in public schools met the standards in English language arts, an increase of 15 percentage points over 1999.  Seventy-nine percent of fourth-graders met the standards in mathematics in 2003, compared with 67 percent in 1999.

Despite these improvements, the report notes continuing, serious challenges.  It says:

These signs of progress are encouraging, but too many students and schools have not yet shared in these successes.  These, by and large, are schools faced with the challenge of educating large numbers of children placed at risk by poverty, the inability to speak English well, and recent immigration. Throughout this report, in fact, we document a dismaying alignment of disadvantaged students (disproportion­ately racial/ethnic minorities), schools with the poorest educational resources (fiscal and human), and substandard achievement.  Conversely, we find that those schools that serve the fewest at-risk children have the greatest financial resources, teachers with the best credentials, and the highest levels of achievement.

Figure 1 shows that the State Aid increase school districts have experienced has not affected appreciably the share of State Aid that each district category receives. Despite increases to high need school districts, the relative share of education revenues received by high need city school districts has increased by approximately one to three percentage points over the past eight years.  The relative share declined for high need rural school districts (almost one percentage point), average need school districts (approximately three and a half percentage points), and for low need school districts (about half a percentage point).


          Four principles guide this Regents proposal.  They include:

  1. Adequacy—Effective distribution across all districts will ensure adequate resources for acceptable student achievement.
  2. Equity—School funding will equalize differences in school districts’ fiscal capacity, pupil need and regional costs to maintain comparable levels of local effort in school districts across the State.
  3. Accountability—The education system will measure outcomes and use those measures to ensure that financial resources are used effectively.  As part of the Regents goal that education resources will be used or maintained in the public interest, the Regents employ a two-prong strategy.  The Department will give greater flexibility to districts with acceptable student achievement and will encourage the most efficient and effective use of resources in districts not yet meeting State standards.
  4. Balance--The State should balance stability in funding and targeting aid to close student achievement gaps.  It should drive aid based on current needs, and use hold-harmless provisions to provide stability.

The Regents recommend changes in the following focus areas for their 2006-07 proposal.


Enact a Foundation Program 


The proposed foundation aid would consolidate approximately 30 existing aid programs and adjust for regional cost differences and pupil needs.  It would identify an expected local contribution for each school district, based on ability to pay.  The foundation level is based on the cost of educating students in successful school districts. 


The proposal for a foundation program represents a dramatic simplification over the current system.  It would replace approximately 30 different aid programs, each with many different components or aid drivers, with one formula with four moving parts.


The foundation formula is based on the cost of educating students in successful school districts, adjusted for regional cost differences and differences in each district’s concentration of needy pupils.  An expected local contribution is calculated based on each district’s actual value per pupil, adjusted by income per pupil.  State Aid is calculated as the foundation cost less the expected local contribution.  The proposal would hold school districts harmless against loss for the group of aids combined into Foundation Aid and would be phased in over a multi-year period.


The Foundation Formula approach has several advantages.  It sets aid independent of any decisions by districts on how much to spend.  It also provides certainty to districts regarding how much funding they will receive.  And, most significantly, it explicitly links school funding to the cost of educating children and drives dollars where they are most needed. 



Special Education Funding


The Regents explored options for improving the funding of special education in a series of meetings around the State with educators and the public.  Participants considered how funding can best support program goals of improved student achievement and education of students with disabilities in the least restrictive environment.  Three options were discussed that provide special education funding separate from the foundation program and respond to policy concerns voiced at public forums on special education funding.


Understanding a proposal requires understanding the existing system that is to be changed.  Current laws provide school districts State Aid to help meet the excess costs of educating students with disabilities--that is, districts receive operating aid for each student including those with disabilities, and, in addition, excess cost aid for those costs that are above and beyond the costs of a non-disabled student.  In addition, the laws provide:



The proposed approach maintains a separate special education funding stream based on a count of students with disabilities.  It aligns that funding with the Regents proposal for foundation aid for general education instruction.


The proposal is this: Calculate the foundation amount for general education students (e.g., General Education Foundation Cost x Pupil Needs Index x Regional Cost Index). This would be divided into an expected local contribution and State Aid in order to provide support for general education instruction, as it was proposed in the 2004-05 and 2005-06 Regents State Aid proposals.


For Public Excess Cost Aid, that same foundation amount would be multiplied by a single weighting for all classified students with disabilities to determine an expense upon which to base excess cost aid per pupil.  Thus, each student with a disability would generate operating aid based on a portion of the general education foundation amount and, separately, excess cost aid based on a portion of the special education weighted general education foundation amount. The excess cost aid would be tied to the cost of education in successful districts by basing it on the foundation amount from our original successful schools study. High cost aid and private excess cost aid could be continued separately and the Regents proposal for a current-year aid for new high cost students with disabilities would be carried forward.


The following is an example of this proposal in a hypothetical school district. The amounts used are made up and are intended to illustrate how the formula would work and not its specific details. 


Calculate the foundation amount for general education students (e.g., $1,000 x Pupil Needs Index x Regional Cost Index or by example a district with moderate pupil needs and moderate costs, $1,000 x 1.5 x 1.2 = $1,800/pupil). Divide this into State Aid and an expected local contribution to provide State support for general education instruction.  For this hypothetical school district, assume the expected local contribution was $1,000 per pupil and State Aid was $800 per pupil.


Take the same foundation amount ($1,800/pupil) multiplied by a single weighting for all classified students with disabilities to determine excess cost expense per pupil. (For example, $1,800 x 1.1 = $1,980 of excess cost expense per special education pupil.)  A state and local share of this expense can then be calculated.  Thus, each student with a disability would generate foundation aid and excess cost aid.



Strengthen Accountability for the Use of Funds  


The Regents have examined ways to strengthen the education system to be able to answer the question: How do we know if resources are well spent?  They recommend continued support for state-of-the-art systems for processing State Aid and gathering and reporting information on students and resources.  They recommend a strengthened State Education Department capacity to provide technical assistance to school districts in fiscal or programmatic crisis and to audit school districts.  They have reviewed statutory and/or regulatory barriers to improving student achievement and have made recommendations for removing them in a separate legislative proposal on streamlining school district planning and reporting.


Specific recommendations are as follows:


Improve Data and Information Systems


A.              Financial Condition Indicator System.  The State must also improve data and information systems to support school improvement.  The State needs a school district financial indicator system (“FCIS”) that would ensure proper stewardship of dollars that pay for public education.  The FCIS would include an early warning system for school districts to prevent financial distress; fiscal benchmarks and best financial practices; a public reporting tool providing information about the management of public funds to achieve educational goals; and a long-range financial planning tool for school districts.


Currently no such system exists.  The Department’s Office of Audit Services collects data to assess the short-run financial condition of school districts, but this does not assess long-term financial condition and cannot be used as a tool for long-range planning by school districts.  Information that is currently available on school district finances does not incorporate professional judgments so the public lacks the necessary knowledge to interpret fiscal data.


B.              Student Data Information System.  A statewide student data system must be implemented to assess if reform is taking root.  SED has already begun to build such a system, which will create greater capacity to track students, measure their progress, and thus raise the achievement of all students in New York.  These efforts could be accelerated with additional funds.  The current system can only analyze information for entire groups of students, but the tracking of individual students over time will allow us to follow individual students through the system and analyze the effectiveness of State strategies and programs.  For example, we will be able to measure the benefit of using smaller class sizes with certain groups of students. Such programs often involve the allocation of billions of education dollars without reliable data on their impact on student achievement.  An individual record system will also help us to better meet many federal reporting requirements, including those of NCLB.


C.       State Aid and Grants Management Systems.  The Regents are implementing a unified State Aid management system to address the shortcomings of the current system.  This improved system would provide a single point of access to all State Aid data, and be capable of analyzing districts’ fiscal needs.  It would enable SED to more effectively collect information from school districts across the State, and would streamline the method for distributing to districts State and federal funds.  The proposed system would provide timely feedback to users in school districts and SED and would facilitate modeling of State Aid formulae for the Legislature and Executive Branch. The current system is a mix of older systems that are not efficient, flexible or as exacting as the proposed system.


An improved data system would include two final components: an update of the web-based system to improve the efficiency of the grant awards process and provide improved reporting capability, and the elimination of redundant State reporting requirements, freeing districts to engage in more comprehensive planning and reporting.  Streamlining plans, applications and reports that school districts submit to SED will reduce administrative burden and increase the focus of planning and reporting to support real gains in student achievement.


Enhanced Audit Capacity


A uniform system of State accountability must use accurate, consistent and trustworthy data on local finances, demographic information and indicators of student performance that can be validly compared across districts of the State.  Such a system contributes to equal educational opportunity for all by ensuring that policy decisions are data-driven and equitably applied.


Approximately $16 billion in State Aid is devoted to public schools in New York State, and that sum is primarily allocated on the basis of information provided by the districts themselves.  If aid is to be distributed appropriately, that information must be accurate and verifiable.  In order to ensure this, the State Education Department staff must implement a rigorous data quality assurance program.


The Regents Plan calls for enhanced State oversight of school district fiscal transactions to ensure the integrity of district finances.  SED would significantly expand its current audit capacity to: conduct more random audits of districts that have no known problems or issues; focus more resources on districts with indications of poor student performance, fiscal stress, or inadequate management controls; and conduct more frequent audits of school districts and review of school district financial statements.  Recent legislation calls for strengthening protocols for annual school district independent audits conducted by CPAs, requirements for an internal audit function in school districts and the establishment of audit committees to help the board review and assess school district internal control procedures, as well as increased training on the fiscal oversight responsibilities of school officials.



Regional Services for the Big Five City School Districts


This proposal recommends that the existing practice of excluding large city school districts from accessing BOCES services be discontinued.  It recommends that the large four city school districts (Yonkers, Rochester, Syracuse and Buffalo) be given the authority to contract with neighboring BOCES for services in critical service areas that are strong in BOCES and weak in the city district. 


A program should be established authorizing the Big Four city school districts to participate in BOCES and purchase services from BOCES.   A corresponding increase in aid should be provided to the New York City school district to allow them to fund similar programs within the city district.  Such regional services can include:



For the New York City school district, the enriched Special Services Aid would be provided to support regional services in critical need areas within the city school district.



Strengthening Preschool Education


In the spring of 2005, the Board of Regents approved going forth with the development of a strong early education policy.  Among other items, it is expected to call for full access to high quality pre-kindergarten programs for all four-year-olds.  A strong statewide pre-kindergarten program will be key to establishing a sound foundation for closing the achievement gap.  Strong pre-kindergarten programs will provide advantages for preschool students with disabilities to get services integrated with their nondisabled peers.  Establishing pre-kindergarten as a child’s first year of public education is needed to ensure that all children attain skills necessary for a successful academic experience.  In order for the Board of Regents to attain its goal of achieving a statewide pre-kindergarten program, the State Aid formula must be examined to establish the funding necessary for all districts.  The State Aid formula must seek a way to establish funding for districts in support of Regents policy.


Need For Statewide Pre-kindergarten Programs


          The need for statewide pre-k programs is evident in the following facts:



Status of Regents Policy Paper


The Regents are currently revising their early childhood policy.  Staff are on target for a July draft to the Regents.  The draft policy will be disseminated to the field (principals, pre-k directors); organizations (NYSUT, NYSSBA, NYSAEYC, SCAA, IHE); departments in SED (VESID, Higher Ed, Teacher Cert, State Aid Work Group).  The Regents will consider adoption of the policy in December 2005.


Policy Directions


          The Regents draft paper on early childhood policy is expected to present the following policy directions for consideration by the Board.


Early Childhood Education Funding Issues


In order to support the move to universal access to pre-k and quality early childhood education, the Regents support aligning funding for pre-kindergarten education programs with the Regents Foundation Aid proposal for elementary and secondary education programs.


Because the majority of pre-k programs are operated by private providers including community-based organizations[2], and because attendance in pre-kindergarten is not mandatory, a consolidation of funding for pre-k programs and funding for elementary and secondary education programs is neither practical nor desirable.


Funding Directions


A more practical direction that is compatible with the Regents goal of providing a simplified and adequate funding stream for educational programs, while emphasizing the importance of early childhood education, is to propose two parallel funding programs: one to support pre-k programs and one to support K-12 elementary and secondary education. 


For example, pre-k grants can be appropriated based on a State share of the general education foundation amount multiplied by a count of pre-k pupils.   Grants between school districts and private providers would provide a portion of these funds to nonpublic program providers.


The advantage of an early childhood education funding stream, compared with a pre-k-12 funding stream, is that it focuses public and school district attention on the importance of early childhood education.  It targets funding for those programs, helping school districts to support these programs in times of fiscal stress.  Care will be taken to balance the need for sustainability of State and local support for quality early childhood education programs with the long-term cost savings that these programs provide.  Enrollment trends and facilities needs will be considered as pre-k programs grow.



Simplified Cost Allowance for State Building Aid


The Regents recommend that the State simplify the maximum cost allowance formula for State Building Aid. The State sets a reasonable cost ceiling for all capital projects. The current system is an overly complex and inefficient process that, in some cases, forces a district to compromise the desired educational goal in order to achieve maximum reimbursement. It is proposed that the State calculate a cost allowance based on a certain allotment of space and cost per enrolled pupil, according to the following formula:


Cost Allowance = Projected Pupil Enrollment x Allowed Square Feet

Per Pupil x Allowed Cost per Square Foot x Regional Cost Factor


Allowable costs would be updated monthly by the current New York State Labor Department Cost Index. Unlike the Regents Regional Cost Index proposed for Foundation Aid, which is fundamentally a professional wage index, the New York State Labor Department cost index is based solely on the wages of three major occupational titles critical to the building industry.   A simplified formula would offer greater educational flexibility, ease of understanding and transparency.

[1] The Chapter 655 Report.  A Report to the Governor and the Legislature on the Educational Status of the State's Schools, New York State Education Department, Albany, NY, July 2004.


[2] Approximately 65 percent in 2003-04.