Committees

Funding for Success Committee

June 7, 2004 Minutes

In attendance were Vice Chair Dick Maxwell, Eric Burkland, Paolo DeMaria, Russ Harris, Representative Jim Hoops, Senator Jeff Jacobson, and Senator C.J. Prentiss. Other Task Force members in attendance were Task Force Vice-Chair Jim Hyre, John Brandt, and Barbara Shaner. Mr. Maxwell called the meeting to order at approximately 10:10 a.m.

Presentation:

• Developing a School Funding Model (PDF*, 125 KB)

Mr. Maxwell briefly reviewed the day's agenda, which consisted primarily of staff presenting the results of their work over the past weeks and months.

Paul Marshall introduced Kelly Weir, who described the staff's analysis of the spending of Gap Aid districts.

Developing a School Funding Model

Ms. Weir spoke about Gap Aid districts and how staff developed the framework for a school funding model. There are two parts to the formula, the base cost and additional costs. The formula is for "regular" students, not students with special needs such as special education or economically disadvantaged students.

There are four approaches that can be used to develop a school funding model: outputs, inputs, school reform programs or statistical cost functions. Each method has its advantages and disadvantages. Some school districts use school reform models (such as Robert Slavin's Success for All) to drive their curricula, but no state uses school reform initiatives to fund all of its school districts. Texas is examining the possibility of using statistical cost functions in its school funding system, but no state currently uses this highly complex approach.

The approach described by Ms. Weir uses outputs to select the school districts used in the analysis ("Excellent" or "Effective" Gap Aid school districts) and then examines how they are spending their resources (inputs). The question being asked is, "What does the current level of funding buy, and is this an adequate level of funding for 'regular' students?"

Staff looked at Gap Aid school districts that are successful to establish a spending "floor." Gap Aid districts, by definition, are functioning without significant additional resources. They operate with the minimum level of funding that the state allows for schools.

Mr. Harris opined that, since more than three-fourths of Gap Aid districts are neither Excellent nor Effective, the committee should not use these school districts that as a basis for funding. Ms. Weir responded that staff is simply looking to see how these districts spent their resources so that we can see what was be purchased with this funding level. This is NOT the new Augenblick adequacy number. Mr. Harris stated that there is a problem in that we do not have a goal or objective with this amount of funding. It is just a random number.

Senator Jacobson interjected that this is just the first half of the conversation, the part that gives committee members information that they can then discuss. This sets up the conversation about how much should teachers get paid, how many teachers we need, and related information.

Ms. Weir provided a brief overview of the demographics of the 26 Gap Aid school districts used in the staff's analysis. Their percentage of economically disadvantaged students is somewhat lower than the state average. Their special education percentage is close to the state average. These districts have a much lower percentage of minorities than the state average and are mostly rural.

In conducting the analysis of spending, staff used data available through various sources, including the Ohio Department of Education's Expenditure Flow Model (EFM). This model allocates school districts' spending for operations (excluding capital funds) into five categories: Instruction, Pupil Support, Staff Support, Administration and Building Maintenance and Operations.

Staff used EFM data in an attempt to separate base costs from additional costs. For example, staff backed out from Instruction weighted funding for special and career-technical education, since these costs are funded separately. They also split Instruction into three categories: Core Instruction; Physical Education, Arts and Music; and Supplies and Materials. Minor adjustments were made to the Pupil Support category. Pupil transportation and food service were deducted from the Building Operation and Maintenance category, since these activities are funded through dedicated revenue streams. What is left after adjustments are base costs.

After adjustments, the 26 Gap Aid districts spend 50.8% of their resources on Core Instruction and 49.2% on Non-Core Instruction. Non-Core Instruction includes: physical, arts and music education; supplies and materials; administration; adjusted pupil support; staff support; and adjusted building maintenance and operations. Total compensation for regular teachers in these districts averaged $53,181 in fiscal year 2003.

Assuming an average class size of 20, the cost of regular instruction per pupil equals $2,659. Assuming that this amount covers the cost of "core instruction" (which is 50.8% of total instruction), the total amount of funding needed is $5,234 ($2,659 divided by 50.8%). This amount includes Parity Aid, which is a separate funding stream. On average, these 26 districts received $197 per pupil in Parity Aid, of which $100 could be attributed to Core Instruction (50.8% of $197). This $100 per pupil was backed out, yielding a per-pupil cost of $5,037.

Senator Prentiss expressed some discomfort with this approach. She did not rule out her support, but did express reservations.

Senator Jacobson opined that the committee's choices are to give money to school districts for all children or to target aid for children who have the greatest needs. If the committee uses school districts that look like the rest of the state, that does not let you target money to the children with the greatest need.

Senator Prentiss stated that she wants to give more money to those school districts that have higher concentrations of problems, but she is worried that this approach is going to lead to all sorts of add-ons.

Senator Jacobson observed that, if the committee examines racial statistics, there are not many school districts that look like the average. In general, school districts tend to have either no minorities or large concentrations of them. Most school districts have less than the average percentage of minority students. The percentage of economically disadvantaged students tends to mirror racial statistics.

Mr. Maxwell noted that the committee's discussion is really about what these districts buy at minimal funding levels. The committee is attempting to move away from the inferential, outcome-based Augenblick model. Senator Jacobson added the Augenblick model did not address issues related to Disadvantaged Pupil Impact Aid, and that is the focus of this model. We are attempting to determine what we are getting for additional money added to the formula. Mr. Maxwell stated that once the base elements are identified the committee can decide whether those are sufficient and, if not, what else should be done.

Ms. Weir noted that there is a difference between the fiscal year 2003 per-pupil foundation level ($4,949) and the $5,037 generated using Gap Aid districts. She stated that this difference was probably due to the fact that the cost-of-doing-business factor is included in the $5,037, but not in the $4,949. Ms. Weir added that these numbers are very close.

The key inputs that drive costs are the salaries of the teachers and the class size. What these amounts should be are topics of discussion that the committee can address at a later meeting.

Senator Jacobson opined that using this approach should help school districts in future levy campaigns. District personnel will be able to say that the state is funding this salary and this many teachers, which could then create a discussion on whether those amounts are appropriate. When you can discuss what you can buy with the money, the conversation should become much more productive.

Mr. DeMaria observed that there is a trade-off between salary and class size as well. With a higher salary, teachers might be willing to teach more children. Conversely, teachers might be willing to accept a lower salary to teach fewer students.

Representative Hoops noted that, since the class size data includes special education students, the committee needs to take care in drawing conclusions. Special education teachers have smaller classes, which could skew the class sizes. Ms. Weir replied that the smaller class sizes for special education are really funded through the special education weights, which is a separate analysis.

Senator Prentiss asked if staff backed out intervention costs, or is that a part of core instruction? Ms. Weir responded that intervention is not a separate category within the Expenditure Flow Model. Staff assumes that school districts are using some of their base cost for intervention, but cannot tell how much.

Senator Jacobson added that using the Gap Aid analysis does not tell us what schools are doing right now with intervention. Therefore, we will target intervention above the base cost for those who need it the most.

Mr. Harris asked how millage from emergency levies fits into the comprehensive discussion on teachers' salaries and class sizes. Senator Jacobson responded that the reasons for picking one levy over another are tax reduction issues, which the Task Force needs to address with its recommendations. Assume that we address these tax reduction problems. When a school district asks its voters to approve a levy, it would be able to say what the state was burying and what the district was asking the local voters to approve.

Mr. Harris stated that school districts can do this now. He opined that the fundamental question is always whether taxpayers want to pay more taxes or not. The question does not relate to class size or salary. Nothing the committee is reviewing addresses the problem of the very large disparity that exists in school districts' capacities to raise funds locally.

Mr. Burkland responded that the committee is trying to see what our expectations are, and what we can do to achieve them. We are just getting to a starting point, and the Gap Aid districts offer the cleanest data that we have.

Senator Jacobson added that the committee is avoiding the real questions that this analysis should be raising. Is 20 the right class size? Most of these school districts have higher than that and are still successful.

Senator Prentiss asked whether these questions apply to all school districts. Are we talking about paying all teachers equally, or do we intend to add to these amounts for districts that have additional challenges? How do the teacher salaries in these districts compare to the state average?

Senator Jacobson replied that state average salaries are higher because the cost-of-doing-business factor raises salaries indiscriminately in urban areas. Also, there is a lot of extra local money that is being put into salaries. If we get rid of local enhancement dollars, then the state would have all salary responsibilities. We do not want that to happen. If a school district wants to fund higher salaries, they can, but it is going to affect the statewide average and we have to keep that in mind.

Mr. Harris asked where local educational program choices and such come into play. If we only look at salary and class sizes, we miss out on art, nurses, transportation and all kinds of things. Are we looking to fund just a minimal program? In fiscal year 2003 about half of all districts are excellent or effective. We should be looking at this larger group to build our model.

Senator Jacobson responded that the committee can do other things with this model. If we think everyone should have an extra foreign language teacher, graft it onto the model. This approach is flexible. You can add anything you want to do this. We can make those changes whenever we want. I do not think that idea would pass the General Assembly at this moment, but it might in the future without having to change the model.

Mr. DeMaria observed that this approach recognizes that local school districts want to do different things with their money. With this model, you can have diversity within school districts. For example, they could choose to fund an advanced placement (AP) course.

Mr. Harris stated that there are many school districts that do not have AP courses because they do not have the money for it. We should be making sure that every child has access to a high-quality education. Where you go to school, in many ways, determines how good your education is.

Mr. Burkland agrees with Mr. Harris. Will this model allow us to target additional assistance to high-poverty districts? What happens if you use the 300 excellent and effective school districts?

Senator Jacobson noted that using the 300 excellent and effective school districts is a return to the inferential Augenblick outcome-based model. It spreads state money out rather than allowing us to target it at the districts that need it the most, for those things that matter, such as high-quality professional development. Right now we just give schools money and hope that they will do the right thing. This new model will lead schools to spend money on effective things, as based upon our experiences and our knowledge of data.

Senator Prentiss stated that it is a serious problem that most districts are going to be in a deficit in the near future. Part of this problem is because people are saying that they do not want to pass any more levies.

Mr. DeMaria cautioned that the state does not want to be too specific in telling school districts what to provide. This would take away the choices that school districts now have. If the state were too prescriptive, a school district might not be able to, for example, improve its arts program at the expense of another program that the district does not value as much.

Senator Prentiss observed that there are school districts in this state that cannot provide these extra choices because they just do not have the money. This formula does not address some of the choices that the committee has been discussing. She likes the fact that the committee wants to target special needs in those districts that require the most state assistance. She is concerned that there are many other problems that are still not addressed.

Representative Hoops asked how staff accounted for retirement and health care costs. If health care costs increases by 16% next year, how does that affect this formula? If a district's revenues increase by five percent and some costs increase by 20%, is that being addressed?

Mr. Marshall responded that staff is just trying to describe what is true today. This is what is being bought. We have not addressed what will be happening in the future. We are not there yet. Staff hopes that these descriptions will enable the committee to make decisions for the future.

Mr. Hyre opined that the committee needs to keep in mind that we can not just redo the same system over and over again. The educational delivery system needs to be looked at because you just cannot have a French Montessori school in every school district in Ohio. We are trying to build a basic box at this point.

Legislative Office of Education Oversight (LOEO) Presentation on Poverty Indicators

At the request of the committee, Dr. Nancy Zajano, Director and Cynthia DeJacimo, Senior Program Evaluator gave a presentation on work that the office has done in developing proxies for poverty. The office was directed to develop a more stable poverty indicator to use in the allocation of Disadvantaged Pupil Impact Aid, since welfare reform reduced the usefulness of Temporary Assistance for Needy Families as an indicator.

Dr. Zajano explained why LOEO rejected using four possible poverty indicators:

• Census data
• Free and Reduced Priced Lunch data
• Income tax data, and
• Federal Earned Income Tax Credit data.

The office rejected the use of census data because these data are collected decennially and due to concerns about under-reporting of those living in poverty. The Free and reduced priced lunch program is not designed to be used as a source of data for funding and eligibility for reduced-priced lunches extends to 185% of the federal poverty level. Also, income verification is not as strong as it is for other public assistance programs. This indicator was not recommended because of concerns that many who are legally eligible for this program do not apply, especially older children. The office determined that income tax and federal earned income tax credit data were not appropriate indicators because many individuals are so poor that they do not even file income tax returns.

The poverty indicators selected by LOEO for the Disadvantaged Pupil Impact Aid program are based on four public assistance program areas operated by the Ohio Department of Job and Family Services:

• Cash assistance (Ohio Works First)
• Food assistance (Food Stamps)
• Disability assistance, and
• Medical assistance, including
• Medicaid
• Healthy Start. and
• Children's Health Insurance Program (CHIP).

In determining which children are eligible for DPIA, LOEO used an unduplicated count of these programs. Students whose families are eligible for more than one of these public assistance programs are only counted once. Also, LOEO only included children from families whose incomes are at or below the 100% federal poverty threshold, which is $18,850 in annual income for a family of four in 2004.

LOEO cited six strengths of using the areas listed above to develop the new DPIA poverty indicator:

1. The incomes of program participants are verified;
2. It reflects families' movement in and out of poverty;
3. It is an unduplicated count of school-age children whose families have incomes participate in at least one of these programs;
4. It only counts school-age children whose families have incomes at or below 100% of the federal poverty level;
5. It is relatively stable over time because it includes programs without time limits;
6. It is administratively feasible to use for annual funding of school districts.

Senator Jacobson expressed some concern regarding the lag time that happens with these data. Dr. Zajano gave the example that some of the data take two years from when it is reported to when its available for the administration to use.

Senator Prentiss and Senator Jacobson asked if poverty data were available on a building basis instead of by district. They expressed interest in targeting funding to those buildings that have the highest concentrations of poverty. A district could have a few high-poverty buildings whose need might get masked by the relative wealth of the rest of the district.

Inflation Factor Alternatives

Mr. Church, Deputy Tax Commissioner of the Ohio Department of Taxation, provided the committee an overview of several different inflation indicators: the Consumer Price Index (CPI), the Producer Price Index (PPI), the Employment Cost Index (ECI), the Employer Cost for Employee Compensation (ECEC) Series, and the Gross Domestic Product (GDP) Deflator. The inflation assumption used in a funding formula is extremely important because it drives large dollar amounts. Also, the inflation driver needs to be appropriate for its use, which is to determine how much state aid should increase to account for school districts' increased costs.

Consumer Price Index

There are many different consumer price indices, which are calculated by, among others, regions, types of consumers, and types of products. These CPIs all track the changes in prices of thousands of goods and services. Some experts believe that the CPIs tend to overstate inflation for four reasons:

1. Substitution bias - The CPI does not account for purchasers changing their behavior in response to price increases. For example, if the price of oranges increases due to a freeze in Florida, consumers may substitute Texas grapefruits for Florida oranges.
2. Quality bias - The CPI does not account for improvements in product quality, such as the improvement in the life-span of automobile tires.
3. New product bias - It takes quite a while for new products to be included in the CPI, so when the price of new technology drops these price reductions are not reflected in the index.
4. Outlet bias - The shift in consumer buying habits toward low-cost retailers is not well-represented in the CPI.

Producer Price Index

The primary purpose of the Producer Price Index is different from that of the Consumer Price Index. The PPI is used principally to measure growth in real output. This index excludes several components that are included in the CPI: services, imports, sales taxes, distribution costs and capital equipment. Given that the principal purpose of the PPI is not to measure price increases, it is probably not a good indicator for measuring inflation.

Employment Cost Index

The Employment Cost Index (ECI) measures changes in labor costs. It has separate indicators for the public and private sectors. The ECI is based on samples and so is subject to sampling errors.

Employer Cost for Employee Compensation Series

The Employer Cost for Employee Compensation Series is an annual survey that provides the average hourly costs for total employee compensation. It includes separate cost data for private-sector civilian workers into white-collar, blue-collar and service sectors. It also includes estimates for white-collar and service state and local government workers.

Gross Domestic Product Deflator

The Gross Domestic Product deflator is the most broad-based on the indicators described by Mr. Church. The GDP deflator compares the nominal GDP (current production at current prices) to the real GDP (current production at constant prices). Mr. Church believes that the GDP deflator is the most appropriate indicator to use in a school funding model because it is broad-based and unbiased. It does not have the level of detail so that there is a deflator for all the different parts that you could look at in school funding.

Senator Jacobson asked if a funding formula could use one indicator for health care, one for salaries and one for other types of expenditures. Is this preferable to a one rate fits all? Mr. Church responded that this approach seemed reasonable. It is difficult to say if it is the best approach, but it seems perfectly reasonable.

Mr. Maxwell asked how the inflation index would be used: by the index itself, a rolling average, a three-year average, or last year's number? Mr. Church replied that these indicators are used prospectively. When it comes to the general indices, you can find people who forecast them. The more you drill down and look at trying to figure out the smaller indices, the greater the margin for error, so you may want to use rolling averages to help with the data.

Mr. Harris noted that there is already a two-year lag in the data so a rolling average would only increase that lag.

Senator Prentiss asked how we could measure inflation regionally, or better yet, for the State of Ohio. How can we put in a state share that is fair around the state? Mr. Church replied that you could just move forward from where you are right now, which will perpetuate any disparities that exist at this moment.

Senator Jacobson opined that the way school districts have arrived where they are now was not a part of the state system. Outside of the cost-of-doing-business factor, all districts received the same amount of state support. It was their choice to pay their teachers more using local dollars. We are not taking their local money away so they may continue.

Senator Prentiss asked how we can attract teachers to high-need school districts. The salary is too low in rural areas. Many people do not want to work in a "heavily challenged area" like an urban school district.

Mr. Church replied that this area cannot be addressed by these indices. He noted that you could try to construct something called a disamenity factor. You could provide incentives to attract people to where they do not want to go. Senator Prentiss requested that staff look at this disamenity factor in urban and rural areas.

Review of Six High-Performing, High-Poverty School Districts

Mr. Marshall provided the committee an overview of work that staff has done with the expenditure patterns on key inputs (student intervention, professional development, parental involvement, early childhood education, data-based decision making and class-size reduction) for the six high-poverty school districts that are also high-performing (or improving significantly). He noted that one of the challenges that staff and the school districts faced in preparing this analysis is the fact that school districts do not track their expenditures specifically for these purposes.

Mr. Marshall described the models that staff prepared based on the expenditure patterns of the six school districts. He cautioned that committee members should use the data presented as rough approximations. The purpose is to give the members estimates of cost ranges for the various inputs - these are not precise numbers.

Senator Prentiss asked what can be done so that school districts start tracking this sort of information in the future. Right now, if a student is in trouble, it is the state's responsibility to see that they get the help they need. If we are looking for accountability, we should require that they tell us what they do with the money, in the way that we want to look at it.

Senator Prentiss expressed concern regarding the impact of poverty and its relationship to low test scores. We have been looking at poverty as "the" indicator. We have school districts that have graduation rates of 38%. We know that they need more money. Whatever we are doing right now is only getting a 38% graduation rate in Cleveland. We need to do more.

Mr. Marshall observed that information presented to the committee shows the costs of intervention per 1,000 students. If the committee decides that 60 hours is not enough or that you want to serve more students, you can do that by changing the spreadsheet.

Senator Prentiss opined that the committee must look at failure rates in addition to poverty rates. Dawson-Bryant Local School District has very high graduation rates. That is a different situation than a place where people do not graduate. There are additional challenges besides poverty.

Senator Jacobson suggested that Senator Prentiss would find that there is a lot of disagreement because what you end up doing is rewarding failure. Some people say that failing school districts should get less money. Or, that when you achieve success you take money away since they do not have those challenges anymore. Everyone who has challenges should get the money in any case. Senator Jacobson is willing to say that people who do poorly without challenges might get more state intervention, but not more money. He opined that all places that have high failure rates are also going to show up somewhere on the high poverty scale. If not, then there is some other systemic thing that needs to happen.

Mr. DeMaria asked whether the questions are how much we want to provide per pupil, which pupils we want to give money to, and how much of it is the state's responsibility. Are these all of the questions? Mr. Marshall replied that the number of hours of student intervention provided and the cost per hour are very big driving factors here.

Senator Prentiss asked whether the committee was looking at a combination of state and local money to fund student intervention, or just the state. Mr. Maxwell responded that the committee has not come up with the answer to this question. We have never said if the money is going to be state, local, or some combination. What we have said is that these things seem important and this is how much they cost in some locations. For the rest of it we have not made a decision.

Senator Jacobson interjected that we are trying to determine a level of services that we can fund. We might come up with 15 things that we think are great, but we will fund only five of them. The other 10 might be great, but we cannot fund them at this time. We are going to be prioritizing them by what we want to do, to whom do we do it, and how much gets done.

Senator Jacobson added that the committee could set up a program that reduces class size with the state paying some portion of the cost, recognizing that school districts have other (in this case federal Title IIA) funds to do this as well. We cannot force school districts to use their federal funding in a certain way, but we might be able to write our program in a way that encourages a certain usage of federal funds.

Senator Prentiss added that, if we are serious about class-size reduction, we need to make sure that our colleges and universities know that we are going to make this a priority. California ended up hiring everyone who could breathe to teach because they did not have enough staff to supply all the needed positions they had just created.

Senator Prentiss stated that the committee should recommend preschool for schools with the greatest challenges with English as a Second Language (ESL). We should put this as a line item even though it probably only affects a few school districts. This should be one of our "input strategies."

Mr. Maxwell replied he does not know how we are going to fund ESL. Should it be funded as we do with special education or with an index as we do with poverty?

Senator Prentiss observed that literature dealing with class-size reduction says that this does nothing if it is not coupled with professional development. What is the process for coming up with the numbers for all of these inputs? How do we get to the end product from where we are right now?

Mr. Maxwell responded that, today we were trying to bring forward to the committee the staff work that has been done over the past few weeks. He does not think that the committee is ready to make recommendations. We have to determine if the base cost supports what we want and, if not, what it should be for average students. Then we have to decide what adjustments we need to make in the formula for children with special needs. This goes in line with developing a poverty index that determines what special services the students with special needs require, at various levels of poverty.

Mr. Maxwell adjourned the meeting at approximately 4:00 p.m.

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• Building a Better School Funding System
  (PDF*, 1 MB)