Meeting Schedule, Agendas and Minutes
October 28, 2004 Minutes
Members in attendance included Task Force Chairman William W. Wilkins, Ted Adams, Susan Bodary, John Brandt, Eric Burkland, Representative Chuck Calvert, Fred Church, Walt Davis, Paolo DeMaria, Matt Filipic, Christine Hansen, Russ Harris, Representative Bill Harnett, Representative Jim Hoops, Senator Jeff Jacobson, Tom Johnson, David Locke, Jim Mahoney, Dick Maxwell, Tom Mooney, Dan Navin, Senator C.J. Prentiss, Barbara Shaner, Richard Stoff, David Varda, Scott Williams and Denny Woods. Chairman Wilkins called the meeting to order at 10:15 a.m.
Presentations:
- Assumptions Used for Simulations with Changes (PDF*, 12 KB)
- Year 1 Simulation Results (PDF*, 12 KB)
- Year 4 Simulation Results (PDF*, 12 KB)
- Increases to Foundational Building Blocks (PDF*, 11 KB)
Mr. Wilkins thanked Task Force members for their persistence and for keeping focused on our goal. He turned to Mr. Sobul, who reviewed staff's simulations of the draft Task Force recommendations on school districts' local revenues.
Local Revenue Simulations
Mr. Sobul reviewed for Task Force members the results of his simulations of the impact of the Task Force's draft recommendations on local property tax revenues. (Materials discussed at the meeting are available above.) He cautioned members that he had to make numerous assumptions in calculating the estimates. Mr. Sobul added that the purpose in simulating the effect of the draft recommendations was to give members a general idea of their impact. The simulations compare estimated local property tax revenues under the draft recommendations compared to what these revenues might be under current law.
Mr. Sobul noted that his current law revenue estimates were based on the tax rates in effect in 2003 because he could not predict which districts might pass levies in the future. He offered that there are 65 school districts that use inside mills for purposes other than current expenses, which has been ignored for this simulation. The simulation assumes that all of these mills will be applied towards the 22 growing mills. Mr. Sobul stated that the draft recommendation to reduce school districts' income taxes by 0.25% for those districts that have income taxes but not at least 22 effective mills raised more money in most cases by taking .25% of the income tax than was actually needed to get to 22 mills. That discrepancy would affect approximately 86 school districts.
Mr. Sobul updated valuations for future years by using historic trends. Forecasts of future income tax revenues were also based on historic trends. The results of the simulations show that there would be about a $48.7 million increase in the first year of implementation from local revenues over current law. This increase would occur primarily for school districts that have fewer than 22 effective mills. School districts that have at least 22 effective mills would just trade 22 current mills, which do not grow, for 22 growing mills. In such districts, no additional revenue would be realized in the first year.
By the fourth year of implementation, school districts would realize approximately $115 million in additional revenue over what would be collected under current law. This estimate includes both school districts that would have more growth and those that would have less because of the effects of the draft recommendation. The 14 major urban school districts (Type 6 in the Department of Education's taxonomy) would benefit the most in the fourth year from the 22 growing mills. Low-poverty rural school districts (Type 2) would realize less local revenue under the provisions of the draft recommendations due to the proposed cap on growth since many of these school districts are currently at the floor receiving full valuation growth on 20 mills.
Mr. Navin asked whether the simulations assumed a four percent revenue cap in all four years. Mr. Sobul responded affirmatively. Mr. Sobul cautioned that the fact that some of the largest counties will undergo reappraisals within these four years skews the apparent impact. He did not simulate the proposed smoother reappraisal cycle because this change could not begin until 2008. The draft recommendations propose changing the reappraisal cycle so that there are not so many large counties reappraised or updated in the same year.
Mr. Navin asked whether reducing the current disparity in the size of those counties undergoing reappraisal would impact the rather rapid projected decline in the number of growing mills. Mr. Sobul responded that leveling the reappraisal cycle would reduce the rate at which the number of growing mills would decline After discussions with county auditors, the plan would be to retain the current six-year reappraisal cycle, but with two-year rather than three-year updates.
Mr. Filipic offered his analysis of how local property taxes work. One component is the floor amount that is required by state law and the other piece is the amount that is above this minimum. Under current law the marginal amount above what is required declines over time due to the tax reduction factors. The result is that total property tax revenue is relatively flat. Mr. Filipic added that Mr. Sobul's simulation of the impact of 22 growing mills does not address this decline. Mr. Sobul responded that Mr. Filipic was correct but this decline was addressed in the state formula simulation by reducing the charge-off over time to match the rollback of the 22 mill levy. Under the draft recommendations the amount of property tax revenue above 22 would still be flat, other than any revenue generated by new construction.
Senator Jacobson asked whether the annual cap on local revenue growth is applied district by district or for the state as a whole. Mr. Sobul answered that the cap is calculated on a statewide basis. Any given school district could have higher or lower growth than the statewide level. Senator Jacobson offered that, if a district grew 10%, they might realize an actual increase of 8% in revenue from the 22 growing mills (80% of 10%). Mr. Sobul affirmed Senator Jacobson's example. Senator Jacobson stated that the cap is implemented by reducing the 22-mill charge-off and the number of 22 growing mills proportionately. He asked how long it would take for the charge-off and the number of growing mills to go below the current 20-mill floor. Mr. Sobul replied that this would depend on what the cap is. Mr. Church added that, with no smoothing of the reappraisal cycle it would take six or seven years to decline to 20 mills. With smoothing it takes longer.
Mr. Filipic observed that, in looking at the rates of increases in local revenues, it looks like the local and state shares of responsibility are growing at similar rates over the four-year period which he believes is a good thing.
Mr. Mooney asked for clarification regarding which school districts are in which category under the Department of Education's typology. He also requested a simulation done by school district, not just by the eight categories. Mr. Marshall replied that staff had deliberately not shown simulated results by individual school district so that the policy discussion could be conducted at a higher level.
State Revenue Simulations
Ms. Weir reviewed the simulations of projected state revenues associated with the draft recommendations. She noted that the assumptions made in simulating the impact of the draft recommendations are listed for members. (See Task Force's website.)
The simulations discussed by Ms. Weir compared projections of what state revenue for school districts would be under current law to what they might be under the Task Force's draft recommendations. She remarked that the draft recommendations were estimated to generate $50 million more in year one than current law would. By the fourth year, the draft recommendations are estimated to produce approximately $310 million more than what current law would provide compared to the base year.
Senator Jacobson asked whether the state revenue simulation assumes a ramping up of the tangible personal property tax charge-off. Ms. Weir responded that it did. Senator Jacobson asked whether the 30-mill charge-off balances the cost of reducing the real property charge-off from 23 to 22 mills. Mr. Church answered that a tangible property charge-off of 29 mills is the break-even point.
In addition to simulating the impact of the Task Force's draft recommendations, at the request of Task Force members staff also estimated the cost (or cost savings) of assuming that average class size was 18 or 22 instead of 20. Mr. Harris asked what salary level staff assumed in preparing these estimates. Ms. Weir replied that staff used the same salary that was used in earlier analyses, which is about $53,000 including fringe benefits and approximately $40,300 in salary alone. These salary levels were based on the averages of the 26 excellent or effective gap aid school districts.
Ms. Shaner opined that it is important for the Task Force to determine if this is an appropriate salary level. The next step should be a policy discussion to see if this is the amount that the Task Force wants to recommend. Even though it is not a successful schools model, the Task Force did look at successful schools. These were school districts that were able to make things work at that level of funding. Should this be the basis of statewide funding? Why were the other gap aid school districts unable to succeed at those amounts? Ms. Shaner believes that this would be a good policy discussion that has not yet taken place.
Senator Jacobson asked whether Ms. Shaner was saying that, if we pay teachers more, they will achieve better results. Ms. Shaner answered that school districts that have a higher level of expertise would be able to retain that expertise. If you lower their funding they might not be able to keep their teachers. Senator Jacobson remarked that the Task Force is discussing the entire state. We would simply be bidding up the costs of the same labor pool. It would be different if you were talking about adding more qualified teachers to the labor pool. Senator Jacobson disagrees that changing the price would achieve a better result.
Senator Prentiss expressed opposition to using the spending of the 26 excellent or effective gap aid school districts as the basis for the staff's simulations. These are not representative school districts. Senator Jacobson responded that Senator Prentiss is not acknowledging the other factors that are added to the foundation formula. Mr. Marshall clarified that staff did not use the 26 gap aid districts' spending patterns in the simulations. That analysis was only used in response to a request of a Task Force member to show what the base cost would be if the student-teacher ratio was 18 to1 or 22 to1. The simulations were built on the current-law foundation amounts, which in future years were changed to reflect the draft recommendations of the Task Force. The analysis of gap aid districts' spending was irrelevant to the staff's simulations.
Mr. Filipic observed that that there is an artificiality about the conversation. The amount that a school district can afford for salaries, given a certain class size, sounds as if it is talking about what state funding in total will permit. Even a school district that does not have local revenue above 22 mills has more funding than that. The question addressed by the gap aid analysis is, "What is the salary that a school district can afford with no additional local revenue?"
External School Funding Study
Mr. Harris opined that the Task Force should have been discussing from day one how to determine adequacy in the state of Ohio. He referenced a study done for the state of New York that included average children and children in poverty. Mr. Harris does not believe that other school districts can achieve the same results as the 26 excellent or effective gap aid school districts. Funding levels should be related to educational needs. Every school district in Ohio should have the same standards of opportunity. The most important question is the one of adequacy.
Senator Jacobson replied that the 26 gap aid school districts do not spend only the minimum. Most of them have significant additional resources. We are defining our opportunities through such things as class sizes of 20 and various intervention programs. We are not saying that a class size of 20 is the right number: we are simply stating that this is what base funding supports. Adequacy cannot be defined by salary levels.
Mr. Harris responded that he did not say that adequacy could be defined by salary levels. His point is that children have different needs and the state should fund them. Mr. Harris added that the Task Force should fund children, not school districts. He iterated that the Task Force has not yet defined what level of funding is needed. Adequacy is defined by the educational needs of individual children.
Mr. Wilkins acknowledged Mr. Harris's frustration that the Task Force did not commission an external school funding study. He added that he has his own frustrations with other issues that the Task Force did not address. Mr. Brandt noted that he had also supported an external funding study. Mr. Locke opined that the Task Force, in the beginning, should have determined what kind of school system was desired and then calculated how much such a system would cost.
Senator Jacobson stated that the Task Force has already had this discussion. He argued that spending cannot be correlated to results.
Mr. Burkland stated that it would be nice to analyze everything through some study performed by individuals locked up in a clean room, but it became very clear early on that data related to what drives success does not exist. It would be irresponsible to hire an expert to conduct a study based on data that we already know is bad: flawed data would create a flawed study. Instead of an external study, we designed an approach and process that constantly looks for what drives success. It is not perfect and never will be, but it is an approach that will help policymakers decide where to spend their energies and resources.
Mr. Locke answered that he was not suggesting that the Task Force should have hired outside experts to conduct the study. He offered that there is enough talent on the Task Force to generate its own solution. Mr. Locke supports the building-block approach and believes that it is a major step towards having the money follow the students.
Ms. Shaner remarked that the Task Force had not yet discussed what teachers' salaries should be. There might be some higher salary than that of the 26 gap aid districts that is needed to generate a statewide model. She encouraged the Task Force to engage in a conversation relative to teachers' salary levels. Mr. Harris expressed his belief that the Task Force should recommend that Ohio commission a study of the adequacy of its school funding system.
Mr. Burkland observed that it appears that what some members are really advocating is simply raising salaries. He added that he has seen no documentation that could show that average salary means anything. However, there are certainly problems in parts of the system. We need higher-level training for teachers. Also, we are not training enough mathematics and science teachers.
Mr. Mooney replied that he did not remember any discussion of average salary. He argued that there is a huge disparity in salaries around the state. Higher salaries stem attrition of people from the teaching field and from Ohio. The Task Force has not looked at salaries as a component of adequacy. Salary discussions should be more about raising minimums than looking at averages.
Senator Prentiss interjected that she also supported an external study of the adequacy of school funding in Ohio. She urged the Task Force to adopt recommendations that are based in the reality of the levels of funding that are necessary to support the requirements of No Child Left Behind and the other challenges that school districts must address. Senator Prentiss added that the Task Force should have a back-up plan to offer in case the proposed constitutional amendment is not adopted.
Mr. Filipic stated that the Funding for Success Committee did try to look at data. Members tried to understand the relationships between spending and success. Mr. Filipic added that he could find no relationship between what school districts spent and their ability to meet state standards. He noted that this fact is not surprising given that there are numerous things that impact academic achievement besides how much is spent. Mr. Filipic opined that we do not understand how to translate inputs into success. When we ask experts what they need and they do not know, they are going to say "more."
Mr. Filipic observed that there clearly is a big difference between district types and their ability to meet state standards. Districts with high concentrations of economically disadvantaged children have a very difficult time meeting state academic standards. In an attempt to address this challenge, the Funding for Success Committee recommended a new poverty-based assistance program that allocates the most poverty-based assistance to those districts with the highest concentrations of poverty.
Mr. Mahoney agreed that the currently available education data are not good. This should improve in the future. Mr. Mahoney continued that the building blocks need to be attached to the needs of children. Funding should support students and not school districts. The state is working on securing the data that are necessary to make this happen.
Mr. Varda expressed disagreement with the notion of an external school finance study. He observed that the state has engaged in a number of them and they have not fixed anything. Mr. Varda believes that there are many positive aspects to the draft recommendations. He added that it is ultimately the General Assembly that will decide how we move forward.
State Funding Simulations
After lunch, Mr. Marshall repeated that the staff's analysis of the 26 gap aid school districts was not used in the simulations of the Task Force's draft recommendations on state funding. Staff began with current law and worked from there to determine what would be put in the simulations. The principal cause of the increase in the per-pupil foundation level, above current law, was the application of different inflation factors. Poverty-based assistance also caused a large change in the formula, but gap aid districts were not in the analysis whatsoever.
Mr. Mooney stated that he did not have a clear understanding of how the pieces of the draft spending recommendations fit together. Mr. Marshall responded that staff had shared this information with members previously and would do so again.
Ms. Weir provided to Task Force members additional details relating to the cost and impact of the components of the simulation containing the draft recommendations of the Task Force relative to spending. She added that staff will follow-up with a written summary.
Mr. DeMaria asked what happens to the hold-harmless for the base cost over time. Ms. Weir responded that, by the fourth year of implementation, 30 school districts remain on this hold-harmless. These districts are on the hold-harmless because they are projected to lose enrollments. She added that even the hold-harmless school districts would do better under the provisions of the draft Task Force recommendations than they would under current law.
Mr. Harris and Senator Prentiss asked where preschool is addressed. Ms. Weir replied that funding for preschool is not in the simulation because it is not part of the Foundation Program and there is no agreement on what to do with it.
Ms. Shaner asked how staff dealt with the special education weights in the simulations. Mr. Church replied that the simulations assume that the weights continue to be funded at 90%. Ms. Shaner stated that her recollection of the Revenue and Taxation Committee's discussions was that the special education weights would be recommended for 100% funding. Ms. Weir said she was not aware there was any recommendation regarding the funding of special education weights. Ms. Weir went on to explain that the only assumptions made with regard to categorical programs is that all school districts would receive funding for the greater of 40% of the modeled costs of categorical programs or the district's state share. She added that there is also a 3.3 mill cap on spending for categorical programs, with the balance to be taken care of by the state. This cap is only on real property, which means that the state will have a bigger share of the costs.
Ms. Shaner asked what the rationale was for phasing in the higher tangible property tax charge-off. Ms. Weir responded that increasing the tangible charge-off from 23 to 40 mills in one year really hurts some low-wealth school districts. Phasing this increase in over three years allows the increases in the new poverty-based assistance program to mitigate the impact of the higher tangible property tax charge-off.
Senator Jacobson asked what impact the proposed revenue changes have on the equity of the school funding system. Is there a way to calculate whether the draft recommendations improve or reduce the equity of the current system? Mr. Church replied that staff has not evaluated the impact of the draft recommendations by wealth quintiles. He added that the simulations demonstrate that more money is going to the big urban school districts, but they are not, by definition, low-wealth.
Mr. Mooney asked whether the estimated $310 million fourth-year increase in state funding is over the base year or over the projection of current law. Ms. Weir replied that the draft recommendations, by the fourth year of implementation, would provide $310 million more than current law relative to the base year. Mr. Mooney asked how the current-law estimates were calculated. Ms. Weir responded that staff used the current 2.2% inflationary increase for the per-pupil foundation amount and used data from the current biennium to predict the future.
Mr. Brandt noted that the projections of local revenues do not anticipate new levies. He asked whether there was a way of projecting the combined local and state resources for education. Ms. Weir answered that total estimated state and local revenue growth above current law are shown on page 3 of the handout. The new system would provide about $400 million more in combined state and local resources by the fourth year of implementation. Mr. Brandt asked whether staff could estimate how much more money school districts would actually receive. For example, would their increases be more than inflation? Ms. Weir replied that school districts should be getting reasonable increases since they would be linked to reasonable inflationary measures.
Priorities from Task Force Members
Mr. Wilkins reviewed for the members a summary of the ranking of priorities. He noted that the response rate exceeded 75%. Mr. Wilkins emphasized that the purpose for the prioritization was to get from Task Force members a sense of the relative importance of the proposed changes to the foundation formula and revenues. Mr. Wilkins also reviewed for the Task Force a list of remaining issues that need to be addressed: preschool; which inflation factors and local revenue caps to use; how to fund categorical programs; the composition and mission of the successor group to the Task Force; and whether the Task Force should recommend a back-up plan to the constitutional amendment. He asked whether members had any additions to this list.
Senator Jacobson suggested that an addition of a "Plan B" be offered as an option. Senator Prentiss agreed that this is needed.
Mr. Mooney asked to add how all-day kindergarten is treated: universally or through Disadvantaged Pupil Impact Aid. Senator Jacobson replied that universal all-day kindergarten is not a realistic possibility. Mr. Mooney opined that it is clearly such a part of a modern society to have all-day kindergarten. It would be a huge gap if the Task Force did not address it.
Mr. Locke reminded the Task Force that Dr. Zelman had told them earlier that the State Board had a committee to study preschool. Mr. DeMaria noted that a proposal to do this was being discussed, but he was not certain that it had been approved. Senator Prentiss urged that the Task Force not wait for the State Board to develop recommendations. Mr. DeMaria responded that the State Board of Education is on record for more money for preschool. The State Board and Department of Education are ready to move on preschool now.
Mr. Harris offered his hope that there would be things in the Task Force's report that the state might not be able to afford now, but ought to be done. For example, preschool should be recommended whether we can afford it or not. Mr. Wilkins assured Mr. Harris that that there will be plenty of items included in the report that the state cannot afford.
Senator Jacobson remarked that Ohio currently has no preschool requirement. He does not believe that the General Assembly will agree that this should be the state's responsibility. Mr. Mooney offered that the benefits of high-quality preschool are clear from the research he has seen. Senator Jacobson agreed that preschool does have value, but argued that it is not a short-term commitment. He added that Mr. Mooney is asking for an investment in something that is not currently a state responsibility when we are not fulfilling our mission with those things for which we do have responsibility.
Mr. Harris asked when Task Force members would see a draft of the recommendations. How does the process come to a close? Are we going to have an opportunity to go over the language of the report? Mr. Wilkins responded that it is his intention to allow Task Force members adequate time to review the draft recommendations.
Representative Calvert cautioned Task Force members that the General Assembly has a very difficult session after the election. We have to wrap this up or it is going to be worthless to the legislature. You are going to start losing members of the General Assembly due to other commitments of their time.
Drop-Out Prevention
Mr. DeMaria mentioned that he had been working on a drop-out prevention program to share with the Task Force. He stated that the crux of working with dropouts and avoiding them is to reform high schools. If you can do things there, there is some long- term payback. Mr. DeMaria suggested that the state could develop a competitive grant program for drop-out prevention for the "Big 8" urban districts. While there are other districts with high drop-out rates, the most severe cases are in the largest urban districts. Senator Prentiss agreed with Mr. DeMaria's proposal, which she would include as part of poverty-based assistance.
Senator Jacobson opined that the poverty-based assistance was already addressing the problem of drop-out prevention. He suggested that Mr. DeMaria's drop-out prevention proposal replace some component of the Task Force's poverty-based assistance proposal.
Mr. Wilkins remarked that staff will try to reconcile this issue. We will have a draft out to you soon as possible and then discuss it on November 18th. This timeline means that there will be some areas that we will not get to and will have to be dealt with by a successor group. He asked Representative Calvert if this would accommodate his concerns. Representative Calvert responded that the Governor wants to put this in his budget proposal and we want to impact that budget so it is important to wrap things up.
Mr. Wilkins adjourned the meeting at 2:00 p.m.
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