Full Board and Subcommittee on State Aid


James A. Kadamus


Regents 2006-07 Conceptual Proposal on State Aid to School Districts


August 9, 2005


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Issue for Approval


Does the attached conceptual proposal on State Aid capture the Regents highest priorities for funding schools?  How can it be improved?


Reason(s) for Consideration


Approval of policy.


Proposed Handling


The attached Regents conceptual proposal on State Aid is for review and approval.  It incorporates material and discussion from the June and July meetings of the Regents.  A detailed proposal will come before the Regents for approval at the October meeting.


Procedural History


The development of the Regents proposal began in May and has been discussed by the Subcommittee on State Aid in June and July.  The Subcommittee Chair and SED staff met twice with the Department’s Education Finance Advisory Group and once with the Commissioner’s Advisory Panel on Special Education to discuss the conceptual proposal.





Background Information


For the third year, this will carry forward a multi-year 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 approve their conceptual proposal on State Aid.


VOTED:  That the Board of Regents approve the attached proposal as their conceptual proposal on State Aid to school districts for school year 2006-07.


Timetable for Implementation


Once the Regents approve their detailed 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 (Chapter 655 Report) 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 that there is progress to report[1]:

·       More eighth-graders are demonstrating that they have achieved the standards in mathematics.

·       Between 1999 and 2003, the percentage of eighth-graders meeting the mathematics standard increased from 38 to 58 percent, in public schools statewide, and the percentage of Black students increased from 13 to 33 percent. The percentage of Hispanic students increased from 15 to 36 percent.

·       The percentage of Black and Hispanic fourth-graders demonstrating proficiency increased by about 20 percentage points in both mathematics and English.

·       The percentage of graduates earning Regents diplomas increased from 42 to 57 percent.

·       Even in large urban districts that serve the largest percentages of poor and minority students, more students are earning Regents diplomas.

·       Between 1996–97 and 2003–04, the number of students scoring 55 or higher on the Regents English exam increased from 113,000 to 171,000.

While there have been many positive changes in the last 17 years since the Regents have reported on the educational progress of the State’s schools, one disturbing aspect of the report has remained the same.  The report continues to document a pattern of high student need, limited resources, and poor performance in many districts. Generally, these districts can be described as having high student needs relative to their capacity to raise revenues.  These high-need districts include the Big 5, 46 smaller districts with many of the characteristics of the Big 5, and 157 rural districts. Large gaps in performance exist between these high-need districts and low-need districts, those which both serve children from more affluent families and have generous local resources to draw on.

The results of the middle-level mathematics assessment illustrate these performance gaps between high and low-need districts.  Test results for 2004 showed significant improvements in total public results and in results for each Need/Resource Capacity Category and racial/ethnic group. Nevertheless, the performance gap between low- and high-need districts, such as New York City, remains:

·       While the percentage of New York City students who are proficient in middle-level mathematics increased to 42 percent, almost twice as many students in low-need districts were proficient.

We can relate this contrast to the resources available to schools in each group:

·       Let’s look first at the percentage of middle-level mathematics teachers who are not appropriately certified.  In New York City, 18 percent of middle-level mathematics teachers are not appropriately certified, compared with 3 percent in the high-performing low-need districts.

·       Besides having less qualified teachers than students in low-need districts, students in New York City attended school fewer days during the year:  161 compared with 172 days.

But the differences between New York City and the low-need districts do not stop there:  The average expenditure per pupil in New York City was over $2,000 less than that in low-need districts.

·       $12,896 per pupil in New York City, compared with $15,076 on average in low-need districts in 2002-03.

·       The median teacher salary in New York City was $54,476 compared with $66,638 in low-need districts.

Similar relationships among performance, resources, and student need can be seen in comparisons between the performance of White students and that of Black and Hispanic students.  White students were about twice as likely as Black or Hispanic students to be proficient in middle-level mathematics.

·       71 percent of White students met the middle-level mathematics standards.

·       33 percent of Black students and 37 percent of Hispanic students met those standards.

The majority of Black and Hispanic students attend high-minority schools; the majority of White students attend low-minority schools. One reason that students in low-minority schools are more successful is that they spend more time in school. 

In addition, high-minority schools had a

·       Higher teacher turnover rate (26 vs. 15 percent), and

·       Less experienced teachers (10 years vs. 12 years). 

The significance of these gaps in performance and resources between high- and low-minority schools is heightened by the fact that, while overall public school enrollment decreased by nearly 3,000 students between Fall 1998 and Fall 2003, enrollment in high-minority schools increased by 47,000 students.


Figure 1 shows that the State Aid increase school districts have experienced has had a relatively small impact on the share of total State Aid that each district category receives. Even big changes of redistribution in an increase are unlikely to have a major short-term influence on overall shares.  Thus, 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 five years.


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 general direction of 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 might 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.


Legislative action for 2005-06 has enacted two bills related to fiscal accountability of school districts.  One requires six hours of training for all newly elected or appointed school board members in the fundamentals of school district fiscal oversight, audit committees for school boards, and all school districts to conduct a risk assessment and put in place internal controls as part of an internal audit review.  The other provides the State Comptroller with funds to audit all school districts over a five-year period.   The Regents applaud these actions to strengthen the fiscal accountability of school districts.  The following recommendations address other key aspects of the financial accountability  of school districts.


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.   State Education Department audits would complement those provided by the State Comptroller.






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 it to fund similar programs within the city district.  Such regional services can include:




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 presented a draft policy to the Regents at their July meeting.  The draft policy will be disseminated to the field (principals, pre-k directors); organizations (NYSUT, NYSSBA, NYSAEYC, SCAA, IHE); departments in SED (VESID, Higher Education, Teacher Certification, 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 facility needs will be considered as pre-k programs grow.


In addition, there will be an added cost to requiring attendance of all five-year-olds in full-day kindergarten programs.  If this requirement is enacted, these costs will first be incurred by school districts in 2006-07 and will affect State Aid in 2007-08.  As a result, no estimates are included in this 2006-07 proposal.



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 2005.


[2] Approximately 65 percent in 2003-04.