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HomeMy WebLinkAboutAgenda - 03-23-2000 - 41 ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: March 23, 2000 Action Agenda Item No. SUBJECT: School Funding Options Task Force DEPARTMENT: Commissioners /Manager PUBLIC HEARING: (Y /N) No ATTACHMENT(S): 2/15/00 Approved Meeting Summary 2/28/00 Draft Meeting Summary Draft Task Force Report (to be provided later under separate cover) INFORMATION CONTACT: Commissioners Carey & Jacobs, ext 2125 Rod Visser, ext 2300 TELEPHONE NUMBERS: Hillsborough 732 -8181 Chapel Hill 968 -4501 Durham 688 -7331 Mebane 336- 227 -2031 PURPOSE: To receive a report on February meetings of the School Funding Options Task Force. BACKGROUND: As one element of their adopted goals for FY 1999 -2000, the County Commissioners charged the Manager and staff to prepare a report outlining options for establishing parameters for funding the public schools in fiscal year 2000 -2001 and beyond. Staff presented this report in August 1999, and the options therein outlined were discussed in December 1999 in a joint meeting between the BOCC and the two school boards. School board members suggested that a work group composed of school board members and Commissioners be convened to review those options and to make recommendations to the BOCC. In January 2000, the Board appointed a short duration School Funding Options Task Force, consisting of two members each of the Board of Commissioners, the Orange County Board of Education, and the Chapel Hill - Carrboro Board of Education. The County Manager, the two Superintendents, and appropriate staff have provided support to the Task Force. The Task Force met twice in February. An approved summary from the February 15 meeting and a draft summary from the February 28 meeting are provided for the BOCC's information. Commissioners Carey and Jacobs are working with staff to produce a first draft of a report from the Task Force. That draft will be circulated to the school board members of the Task Force (with an information copy to the BOCC) for their comments prior to the formal presentation of the report to the Board of Commissioners in the near future. FINANCIAL IMPACT: There is no direct financial impact associated with discussion of the Task Force's activities to date. After receiving a formal report from the Task Force, the Board will make decisions that will likely have a significant impact on future school funding. Those decisions will particularly affect current expense appropriations, which for FY 1999 -2000 exceed $34 million in the County's General Fund. RECOMMENDATION(S): Review the Task Force's work thus far, discuss the major elements of the draft report, and provide appropriate direction to the Manager and staff. APPROVED SCHOOL FUNDING OPTIONS TASK FORCE MEETING SUMMARY February 15, 2000 Attending: Randy Bridges, Moses Carey, Elizabeth Carter, Ken Chavious, Keith Cook, Donna Dean, Nick Didow, Susan Halkiotis, Barry Jacobs, John Link, Kim McVey, Neil Pedersen, Steve Scroggs, Rod Visser ■ Charge and timetable for the task force were reviewed, as laid out in the County Commissioners' resolution appointing the task force, emphasizing the development of guidelines rather than a funding cap. ■ School representatives expressed the school systems' appreciation for past support from the BOCC. ■ All parties agree that education has been the highest priority in Orange County. ■ Discussion about the intention not to close any doors for the future, while balancing the needs of schools, affordable housing, recreation, and other competing priorities. ■ Discussion about the likely need and timeline to go back to voters for school needs, justice facilities, open space, and senior centers and County efforts to have the bond rating upgraded. ■ Discussion about the significance of a perceived threshold at $1.00 on tax rate. ■ Issue of affordability and desirability of maintaining a community where teachers can afford to live - don't want balance to tilt to where we lose a good, interesting community and become a homogenous community. ■ Discussion about revenue sources and possibility of any OCS district tax. ■ Discussion about the increased cost of providing not only for more kids, but also more programs being mandated for more students. ■ Commissioners hear from people who come to public hearings asking for tax increases to pay for schools, but also hear from folks who don't come to public hearings — there are many folks on fixed incomes, more of them than kids in school. ■ Acknowledgement that schools can ask for what they want and always have, while noting the need for some way of planning our long term budgets, both school and County. 4 APPROVED SCHOOL FUNDING OPTIONS TASK FORCE MEETING SUMMARY February 15, 2000 ■ County thinking in terms of "targets" vs. "open- ended" school funding requests that leave us increasingly unable to address other needs — County might set a target, ask schools to meet it, if they say they can't then we'll come back and talk about it - not looking at a hard cap. ■ Review of the scenarios for school funding options from County's August 1999 report. Extensive discussion about how tax base growth would affect the issue of school funding, and the notion that 48% in schools may not necessarily reflect overinvestment in schools, but underinvestment in other areas of County services. There was also discussion that funding needed for education may or may not be affected by the same economic forces that affect funding needed for other County services. ■ County representatives' view that the task force needs to provide some kind of recommendation back to full BOCC. Discussion about the impacts of mandates and concerns that some kind of cap would have on ability to meet those. Items for next meeting: • what portion of school funding increases last five years have gone to mandates? • reasonable questions for constituents to ask • schools propose a model if they like, bring to table next time • Nick Didow will try to take his proposal for a "Model 6" to some greater level of specificity 5 DRAFT SCHOOL FUNDING OPTIONS TASK FORCE MEETING SUMMARY February 28, 2000 ATTENDING: Randy Bridges, Moses Carey, Elizabeth Carter, Ken Chavious, Keith Cook, Donna Dean, Nick Didow, Susan Halkiotis, Barry Jacobs, John Link, Neil Pedersen, Sandra Tinsley, Rod Visser ■ The meeting summary for the February 15 meeting was approved, following a few changes to the draft. ■ Discussion, without consensus, about whether the strong economy creates more or less demand for school funding vis -a -vis other County services. CHCCS presented a memorandum and articulated the following major points of concern: ■ how are formulas working in other jurisdictions that have established them? ■ belief that operating budgets should be separated from capital and debt budgeting, which have discrete revenue streams associated with them; ■ about 85% of funding increases in recent years have gone to meet legal, moral, or ethical mandates; ■ formulaic approach to budgeting as a percentage of the County budget could lead to underfunding or overfunding of education in any given year; ■ how would CHCCS district tax fit into any formula ■ what reasonable forecasts might be available for long -term growth in sales tax revenue and property tax base CHCCS memorandum addresses 3 alternative models: ■ Model 6 — per pupil County appropriation would increase 11 % annually ■ Model 7 — notes that County models and Model #6 are based on historical patterns, but that it would be desirable to focus on where we need to be in the future, especially in light of Governor Hunt's call for North Carolina to become 41 in education by 2010 — this model would provide for a 20% annual increase in per pupil funding for current expense ■ Model 8 — forego any formulaic approach and "simply use sound reasoning and good judgement" - that is what we've done in the past , and this model suggests we not abandon this approach that has worked in the past ■ Discussion that under CHCCS proposals, there would be a "hold harmless" provision for addressing growth in student enrollment ■ County view that there is value in viewing school funding in toto in the separate but related context of the proposed adequate public facilities ordinance (APFO). Schools' view that it might be too early to establish that link now because of the lengthy process that would be required to develop and implement an APFO. DRAFT SCHOOL FUNDING OPTIONS TASK FORCE MEETING SUMMARY February 28, 2000 ■ County explanation that BOCC interest in school funding parameters does not stem from interest in APFO, and recognition that a considerable amount of public education will be required if an APFO is to succeed — nothing the County proposes would preclude using "sound reasoning and good judgement" • Concerns expressed as to whether CHCCS would have been able to meet mandates without increases in the district tax. Discussion about potential lawsuits, different interpretations of what is a mandate, and that there may be ways to spend less on some mandates and still meet them, leaving more money for other choices. • Comments that other jurisdictions could learn from the good relationships in Orange County between school boards and County Commissioners, which have facilitated schools achieving some striking results. • County view that we're not moving away from sound reasoning and not relying just on history, or we wouldn't have had three bond issues. Schools need to be part of the equation and everything must be on table in evaluating needs. • OCS provided a review of 5 -year history of mandates or "non- negotiables ". OCS has same concerns as CHCCS that when required expenditures for capital and debt go up, that would reduce the amount of funding for operating, perhaps when its most needed. ■ Differing perceptions between school and County representatives as to whether increased school funding in recent years reflects stagnancy and allows schools to merely maintain, rather than to grow. ■ CHCCS pointed out anticipated budget pressures for next year with 600 more students than were projected for this year (that would cost $1.5 million more without covering mandates) and expectation that the final year implementation of the Excellent Schools Act will require $1.5 mil just for salary increases. ■ Discussion about how other school systems fund mandates, and differing definitions schools and County think of in considering what a mandate is. For the County, we tend to view it as something that will cause the County to get sued by the federal or state government, or where if we don't fund a certain program, they take our money away. ■ County circulated a list of points /questions that BOCC constituents might be expected to ask or be interested in (attached). Discussion about school responses to some of those points. SCHOOL FUNDING OPTIONS TASK FORCE MEETING SUMMARY February 28, 2000 Schools feel they have been providing heads -up of major new initiatives through the semi - annual joint BOCC /school board meetings and monthly County Manager /Superintendent meetings. Schools ask their staffs to itemize budget elements in priority order, but want administrators to tell the school boards exactly what's needed — wouldn't want to squelch administrators with some percentage figure. ■ OCS expressed concerns that there should not be any expectation that the BOCC must endorse their initiatives, e.g. teacher supplement funding or class size reduction. They feel they have to match what Wake, Durham, etc are doing - Chatham doesn't do that, so their teachers will come to Orange County. ■ CHCCS indicates they decided not to aggressively pursue class size reduction this year, as they wouldn't have money to do that. Like OCS, they are not necessarily seeking BOCC endorsement and feel they should be able to make decisions (e.g. Scroggs class structure) without BOCC consultation. ■ CHCCS sees value in last bullet on County list, giving County Manager direction on the formulation of school funding in the County budget, while allowing schools to make their cases for more funding during the budget review process. ■ CHCCS acknowledges that BOCC is not talking about a cap on funding, but notes that it feels like a cap because they wouldn't be able to do some things they want to do. ■ County acknowledges that it is not in their purview to dictate what schools spend money on and understands school boards' frustrations that they don't control the money. For the last 5 years, schools have averaged about 48.12% of County's General Fund - that's right about where we are and why 50% range is a possible target. We're in an enviable position, even if we're not doing all we might like to do. ■ Discussion about what kind of rigorous, non -staff review of budgets is done, both for County and schools? Mention of CHCCS 1995 Pannesi report, 80% of which has been implemented, with the balance waiting on State to upgrade SIMS. ■ In reviewing task force appointment resolution, it appears that we have done most things BOCC asked, except for a recommendation. Don't plan to meet again, but County representatives will draft something, and circulate it to other task force members for comment before taking a formal report to the BOCC. DRAFT SCHOOL FUNDING OPTIONS TASK FORCE MEETING SUMMARY February 28, 2000 ■ County will include in the draft report the notion of benchmarks, which indicate historically what have you done. These would be evolutionary, and not represent a hard formula. CHCCS recapped their themes: • sound reasoning and good judgement will be part of any model • capital and debt should be separate from operating • percentage of budget that is fair is not answerable • benchmark figures should derive from what they think needs to be in place, such as Model 7 ORANGE COUNTY SCHOOL FUNDING OPTIONS TASK FORCE February 28, 2000 At the initial meeting of this task force on February 15, it was agreed that each parry in these discussions should consider compiling a list of questions their constituents might reasonably pose regarding school funding parameters. A few questions /points to ponder from the County's perspective follow: • What do the schools see as a proportionally fair share of the County budget to be earmarked for education? • What relative average annual increase in education funding do the schools think can realistically be sustained every year? • To what extent should the BOCC feel bound to address increases necessitated by Board of Education initiatives, especially those implemented without consultation/endorsement from the BOCC (e.g. class size reductions, teacher pay supplement enhancements, etc)? • Do the schools have some expectation that the BOCC should find the money needed to sustain average annual increases in education funding without regard to their impact on the tax rate? • Is it reasonable to spend more on current expense in a year when there will be a decrease in debt service for education? Conversely, is it reasonable to tighten up on current expense funding in years when education debt service is increasing? • What guidance (if any) is disseminated to the budget requester level from individual school administration or from the central administration at the outset of each budget cycle, particularly with regard to any constraints that may need to be observed in developing requests? • Since the 1980s, the school systems have lived with a defined amount (based primarily on anticipated half cent sales tax revenue) of annual capital outlay funding in the ten year CIP. Unfunded needs have been identified during the CIP process and the most important needs addressed ultimately through other mechanisms (e.g. bond issues). Is it feasible to have some kind of ballpark figure for total school funding, with exceptional needs to be addressed by some exceptional measure (e.g. district tax, a BOCC decision to increase funding for a specific need, etc)? • Is there any value in directing the Manager to shape the County's recommended budget based on the parameters approved by the BOCC, but leaving room for the school boards to make a case for additional funding for critical, unfunded needs? DRAFT REPORT FROM ORANGE COUNTY SCHOOL FUNDING OPTIONS TASK FORCE March 23, 2000 Introduction In considering their goals for the 1999 -2000 fiscal year, the Orange County Board of Commissioners recognized the importance of striking the appropriate balance between many worthy, competing needs for County funding in future annual operating budgets. The Commissioners' 1999 -2000 goal for "Effective and Efficient School Funding" included the task of preparation by staff of recommendations for "parameters that can be established to guide development of school current expense budgets for FY2000- 2001 and beyond ". The Budget Director researched this topic and presented a report (Attachment 1) in August 1999 which outlines a number of models the Board of Commissioners might wish to consider in providing guidance to the County Manager concerning school funding for the 2000 -2001 budget. The options developed by County staff were discussed in December 1999 in a joint meeting between the Board of Commissioners and the two school boards. School board members suggested convening a work group composed of school board members and Commissioners to review those options and to snake recommendations to the Commissioners. In January 2000, the Board appointed a short- duration School Funding Options Task Force, consisting of two members each of the Board of Commissioners, the Orange County Board of Education, and the Chapel Hill - Carrboro Board of Education. The County Manager, the Orange County Schools (OCS) Superintendent, the Chapel Hill - Carrboro City Schools (CHCCS) Superintendent, and appropriate staff provided support to the Task Force. The Task Force met twice in February 2000. Maior Points of Discussion A wide range of issues was identified during the two task force meetings. A number of points of disagreement were not resolved, and not all views were mutually held, but all were aired in an atmosphere that was attentive, constructive, and respectful of other participants. Following is a list of the most significant points of discussion: 1. School representatives expressed the school systems' appreciation for past support from the BOCC. 2. All parties agreed that education has historically been the highest priority in Orange County. 3. School representatives have concerns about the impacts of mandates and fear some kind of cap would have an adverse impact on their responsibility to meet them. Schools and the County have different definitions of what constitutes a mandate. The County tends to view a "mandate" as a program or function that is required by state or federal law; failure to provide such a program or function engages penalties or sanctions. School board representatives recognize legal mandates but also speak of mandates that. from their perspective, are required to carry out their charge to best serve the students of the school system. DRAFT 4. The County's intention is to leave open any doors for the future, while balancing the needs of schools, affordable housing, recreation, open space, and other competing priorities. 5. There will likely be a need to go back to voters soon for bond funds for school needs, justice facilities, open space, and senior centers. 6. The School Boards have concerns about not only the increased cost of providing for more students, but also more programs being mandated for more students. 7. Commissioners hear from people who come to public hearings asking for tax increases to pay for schools, but also hear from people who don't come to public hearings. There are many citizens on fixed incomes in Orange County, more than there are students in school. 8. The County is not looking at a hard cap, but thinking in terms of "targets" rather than "open- ended" school funding requests that leave us increasingly Linable to address other needs. The County might set a target and ask schools to meet it, but this is an evolving process and no limits are intractable. 9. School representatives noted that allocating 48% of County general funds to education might not necessarily refle overmvestmen in schools, but underinvestment in other areas of County services. There was also discussion that funding needed for education may or may not be affected by the same economic forces that affect funding needed for other County services. 10. CHCCS presented a memorandum (Attachment 2) articulating certain concerns, including: a) the belief that operating budgets should be separated from capital and debt budgeting, which have discrete revenue streams associated with them; b) about 85% of funding increases in recent years have gone to meet legal, moral, or ethical mandates; c) the formulaic approach to budgeting as a percentage of the County budget could lead to underfunding or overftmding of education in any given year. 11. The CHCCS memorandum addresses 3 alternative models: a) Model 6 — per pupil County appropriation would increase 11 % annually; b) Model 7 —noting Governor Hunt's call for North Carolina to become #1 in education by 2010, this model would provide a 20% annual increase in per pupil funding for current expense; c) Model 8 —forego any formulaic approach and "simply use sound reasoning and good judgment ", suggesting that this approach that has worked in the past and should not be abandoned. 12. County representatives cited the 1988, 1992 and 1997 school bond referenda as evidence that we are not moving away from sound reasoning and are not relying just on historical patterns. Nothing the County proposes would preclude using "sound reasoning and good judgment ". Funding for schools must be part of the equation and everything must be on the table in evaluating needs. 13. OCS representatives provided a review of their 5 -year history of mandates or "non- negotiables ". The two school systems share concerns that with a formula covering all major school fielding categories, DRAFT escalation of required expenditures for capital and debt would reduce the amount of funding for operating expenses, perhaps when it is most needed. 14. CHCCS representatives pointed out anticipated budget pressures for next year with 600 more students than were projected for this year (costing $1.5 million more, without covering mandates) and an expectation that the final year implementation of the Excellent Schools Act will require $1.5 million just for salary increases. 15. There was discussion of what kind of rigorous, non -staff review of operating budgets is done, both for County and schools. CHCCS mentioned the 1995 Pannesi report, 80% of which has been implemented, with the balance waiting on the State to upgrade SIMS. 16. There was a suggestion to shoot for the 5 -year historical average of just over 48% of the County's General Fund allocated to education as a target. Recommendations to the Board of Commissioners There was universal agreement that the task force process was enlightening and helpful to all parties in gaining a better appreciation of the perspectives and pressures experienced by the others. However, there was no consensus among task force members that any funding model identified either by the County or the schools should be recommended to the Board of Commissioners for implementation. There was mutual recognition that the County is not seeking to impose a hard cap on school funding, and reaffirmation that it is the responsibility of each school board to determine how best to allocate the operational funds appropriated to each system annually by the Board of Commissioners. The task force discussion focused more on targets for school funding, and in the end there was acceptance of the concept that the County Manager should consider various "benchmarks" in developing school current expense funding levels in his recommended annual operating budget. Schools would continue to base their requests on identified needs, and would submit their requests for funding over the previous year's appropriation with annotation of the school boards' priorities. There would continue to be an opportunity for each school board to present to the Board of Commissioners any concerns left unaddressed, in their view, by the Manager's school funding recommendations. In reviewing and approving the overall County budget, the Board of Commissioners would likewise consider benchmarks related to school funding. These benchmarks could include: ■ 10 year historical figures of school funding on a per pupil basis; ■ 10 year historical figures on average annual increase in total school funding; • 10 year historical figures of total school funding as a percentage of the County's General Fund; ■ 10 year historical figures of school funding by major component (current expense, long -term capital, recurring capital, and debt service); ■ 10 year historical figures on average annual increase in current expense funding; ■ relative position of Orange County in school funding per pupil compared to other North Carolina jurisdictions • total effort (actual dollars per pupil — for 1999 -2000, this is $3,755 in Orange County vs. $2,747 in the 2 "d ranked county, Mecklenburg); DRAFT ■ relative effort (considering Orange County ability to fund, given comparative wealth); 5 year historical figures on percentage of school funding that has been allocated for continuation/mandates vs. new initiatives; other relative major impacts on County budget that must be considered (e.g. federal /state human service mandates, assumption of new debt). There was "agreement to disagree" on the issue of what categories to consider in the shaping of funding parameters. County representatives continue to believe that school funding must be viewed in toto, as that is a more appropriate context for establishing the County's annual budget and is the approach used by external entities such as the North Carolina Public School Forum and the North Carolina Association of County Commissioners in comparing school funding effort among the State's 100 counties. School representatives remain concerned that lumping together all categories of funding in establishing parameters could lead to unreasonable constraints on operational expenses in years when debt service costs increase, and could lead to an inability to meet all their educational priorities in programming. Attachments 1. August 1999 County Report on School Funding 2. February 27, 2000 CHCCS Memo: "School Funding Formulas " 3. Table —Annual General Fund Appropriations for Education by Major Component 4. Table — Estimated Impacts of School Funding Models 6 and 7 as Proposed by CHCCS CHAPEL HILL - CARRBORO CITY SCHOOLS Lincoln Center, Merritt Mill Road Chapel Hill, North Carolina 27516 Telephone: (919) 967 -8211 Neil G. Pedersen Superintendent TO: John Link Orange County Manager Moses Carey, Chair Orange County Commissioners Barry Jacobs Orange County Commissioner FROM: Neil G. Pedersen Superintendent Elizabeth Carter, Chair Board of Education Nick Didow, Vice -chair Board of Education RE: School Funding Formulas DATE: February 27, 2000 �7TA� Ann Hart, Assistant Superintendent For Instructional Services Steve Scroggs, Interim Assistant Superintendent For Support Services As expressed in previous meetings, the Chapel Hill- Carrboro City School Board believes that the discussion taking place with the County Commissioners regarding the future funding of education in the County raises one of the most important issues facing these elected officials. The Board of County Commissioners and the County Manager have a long and strong history of support for public education. This support has been essential as our enrollment has increased by 50 percent during the last decade and shows no signs of letting up. At the same time, there is increased pressure to raise the level of academic performance for all students and to provide competitive salaries to our staff, particularly our teachers. Combined with the influx of Limited English Proficient (LEP) students. exceptional education students, 504 students, and charter school students, the costs for education have been escalating. We understand the Commissioners' concerns about the increasing tax rate and the number of competing needs in other service sectors. At the same time, our community has demonstrated when it has gone to the polls to vote on bond referenda and school board and county commissioner races that it wants a first -rate, well - financed school system with the facilities needed to support this burgeoning enrollment. FA We appreciate the work that the County staff has expended on the analysis of education funding in Orange County. We, however, have several, fundamental concerns about the approach used in all of the models. These may be summarized as follows: • No evidence has been provided to demonstrate that this approach to funding school districts has brought school spending under control or fostered a healthier working relationship between County Commissioners and School Boards in other counties. We would specifically suggest that you contact county commissioners, school board members, and the managers from the counties that you contacted to determine how well this approach is working, whether they would recommend it to a county and district like ours, and the extent to which they deviate from the formulas. • We strongly object to identifying a budget "target" that lumps together operating costs, capital costs, and debt service. This makes little sense. For example, next year debt service costs will increase as a result of bonds that the voters approved in 1997 being sold this spring. At the same time, the state is projecting an increase of more than 600 students in the CHCCS district alone. It makes little sense to ask the school district to absorb the cost of debt service on new facilities already approved by the voters at a time when there will be increased pressure on the operating budget to accommodate such a large increase in enrollment. There are already guidelines and restraints placed on the recurring, long- range, and reserve capital budget. It should be removed from consideration when we are developing a target for the operating budget. • School districts face many factors that are beyond their control as they develop their budgets. In particular, local school district spending is heavily influenced by decisions made in the General Assembly and by the State Board of Education. For example, teachers have received salary increases of approximately 8 percent for the past three years in accordance with new salary schedules adopted by the General Assembly. Our district, which has a large number of locally funded teachers, must pass on these same increases to these teachers. In addition, since our local supplement is a percentage of a teacher's base salary, we must increase our support for state - funded teachers as well. Other mandates from the state often relate to serving special populations such as exceptional education students, Limited English Proficient students, and non - proficient students. The other major factor beyond our control is the increasing number of students. We legally must provide an education to these students, which means building, staffing, and operating new schools and hiring additional personnel. Neither the mandates nor the enrollment increases are predictable. The budget process should be flexible enough to adapt to annual fluctuations in these factors that are beyond our control. More than 85% of our operating budget increases in the past five years can be attributed to these "mandates." Much of our discussion has focused on the percentage of the County's budget that school spending represents. The school board representatives have been asked how large this percentage should be. This is an impossible question to answer. We can, to some degree, project our needs and, consequently, our spending patterns. However, a percentage is based on the size of the County's budget, which is related to the tax rate and the growth in the County's tax base. For example, if the schools agreed that school spending should comprise 48 percent of the County budget and then the County did not increase the tax rate over the next five years and the tax base continued to grow at 3 percent, it is likely that the schools' 48 percent share would be insufficient. On the other hand, if enrollment flattened out and the County's needs in other areas escalated dramatically, it's conceivable that the 48 percent would be unduly generous or unaffordable. 3 • How would the County Commissioners treat the CHCCS district tax when developing a "target" for our school district's budget? Would this be reserved for special purposes such as opening new schools or enhancing salaries? Finally, we would like to reiterate our concern over the fundamental funding problem that the County faces. Generally speaking, the County tax base is growing by about three percent per year, with most of this growth occurring in the residential sector. As we know, the property taxes paid for private residences, typically, do not cover the costs of services .required by the occupants. As long as student enrollment continues to grow between three to five percent per year and teacher salaries increase from five to eight percent per year while the tax base increases by three percent, either tax rates are going to continue to be driven up or the quality of services will decline. We urge the Commissioners to focus as much attention on the revenue side of this equation as on the expense side. While residents can be expected to respond to tax increases, few want services to be reduced. Furthermore, given the strong relationship between housing prices and the quality of schools in a community, it is not in the best interest of homeowners without children for the quality of education to deteriorate. With this said, it is clear that we have some major concerns with the philosophical basis for any formulaic approach to budgeting. Sound reasoning and good judgement on the behalf of school board members and county commissioners is a better basis. Mandated Costs At our last meeting, you asked that we prepare an analysis of the mandated expenses in our budgets over the last five years. This has been prepared and is attached to this memorandum along with a summary of the expenses. We have identified as "mandates" expenses associated with salary increases mandated by the state, legislative mandates including requirements to serve special populations, costs associated with growth, including costs associated with new schools, and uncontrollable inflationary increases such as utility rate increases. As you can see, almost 86 percent of the increase in our budget is associated with such mandates. This supports our district's contention that most of our increases are associated with mandates. That said, we would be quick to point out that many of the expenditures for "non- mandates" are equally critical. For example, we have had to increase the number of personnel to support technology in our district. Unless we decide that it is not important for our staff and students to use technology effectively in their respective roles, we have no choice but to make such an investment. Proposals Model 6 You also asked us to develop another funding model. We have examined the county appropriation that we have received over the last five years. In 1994 -95 the per - pupil appropriation was $1451. Five years later, in 1999 -2000, it stands at $2256. This represents an average annual increase of 11.1 percent. During this period of time, as stated earlier, we have done little more than financially support mandates associated with legislation and growth. Furthermore, even to accomplish this, the Commissioners have found it necessary to increase our district tax rate. Assuming that this funding source is still available to us, particularly for funding the opening of new schools, we could support setting a target for our annual budget of an 11 percent increase in the per pupil county appropriation. We also would expect the County to include a "hold harmless" provision applicable to enrollment growth. It would be expected that the district would develop a budget using this guideline but that it could also provide a list of needs that would go unfunded if this target becomes the approved per- student appropriation. El Under this model, the per -pupil appropriation increases would be as follows: 1999 -2000 $2,256 (current year) 2000 -2001 $2,504 2001 -2002 $2,780 2002 -2003 $3,085 2003 -2004 $3,425 2004 -2005 $3,801 This "target" would provide a mechanism to project school spending once we agreed on the best set of student projections to use. The County Manager's staff also could project capital spending and, thereby, project the future expenditures for schools with the exception of the impact of the district tax. When combined with targets from the County Departments, the County would have a complete projection of county expenditures. The total budget picture could be fleshed out using assumptions about revenue projections and tax rates. Model 7 Model 7 is the same as Model 6; however, per -pupil funding increases would be at the 20 percent level. As stated earlier, the recent 11 percent per -pupil funding increases have allowed us to do little more than meet state mandates. Governor Hunt has called for North Carolina being Number 1 in education by 2010. Clearly, the Governor realizes that education is the fuel that feeds the economic engine of this state and this country. Likewise, our superintendent has challenged us to be the very best school district in the country. An increase of this magnitude would be consistent with these challenges and also would place less pressure on the CHCCS school district tax rate. The per -pupil appropriations under this model would be as follows: 1999 -2000 $2,256 (current year) 2000 -2001 $2,707 2001 -2002 $3,248 2002 -2003 $3,898 2003 -2004 $4,678 2004 -2005 $5,614 Model 8 The final model that we propose is to forego a formulaic approach to this issue and simply use sound reasoning and good judgement. This has worked well for this county and both school districts in years past. The governance system is designed for public comment and healthy debate on issues as important as the funding of our children's schools. Is it really in the best interests of our children to abandon this approach? In conclusion, we would like to reiterate what we heard both Mr. Carey and Mr. Jacobs state at our last meeting. No one is proposing a "cap" on school spending. Rather, we are discussing the development of "targets" for each school district to use in the development of its budget. Neither the school board nor the County Commissioners are relinquishing their responsibility to receive comments from our citizens and staff and to deliberate over competing priorities before appropriations and budgets are finalized. Orange County Annual General Fund Appropriations for Education by Major Component Prepared March, 2000 DRAFT Orange County School Funding Options Task Force Estimated Impacts of School Funding Models 6 and 7 as Proposed by CHCCS This table reflects projected 10 year per pupil allocations, County current expense appropriations, and estimated tax rate impacts of those levels of appropriations for each fiscal year, based on Models 6 and 7, as suggested by CHCCS representatives of the School Funding Options Task Force. Assumes annual student population growth at 3% Assumes property tax base growth (what one cent produces) at 3.5 % annually, except 15% in post- revaluation years (highlighted, in bold) 03/23/2000 f- 1999 -00 2000 -01 2001 -02 2002 -03 2003 -04 2004 -05 2005 -06 2006 -07 2007 -08 2008 -09 2009 -10 Projected Student Population 15,309 15,768 16,241 16,729 17,230 17,747 18,280 18,828 19,393 19,975 20,574 Model 6 Per Pupil Appropriation (11 %Annual Growth) $ 2,256 1 $2,504 $2,780 $3,085 $3,425 $3,801 $4,220 $4,684 $5,199 $5,7711 $6,406 Model 7 Per Pupil Appropriation (20% Annual Growth) $ 2,256 $2,707 $3,249 $3,898 $4,678 $5,614 $6,736 $8,084 $9,700 $11,640 $13,969 Model 6 Current Expense Approp (11 %Annual Growth) $34,537,104 $39,486,271 $45,144,654 $51,613,883 $59,010,152 $67,466,307 $77,134,228 $88,187,563 $100,824,841 $115,273,041 $131,791,668 Model 7 Current Expense Approp (20% Annual Growth) $34,537,104 $42,687,861 $52,762,196 $65,214,074 $80,604,595 $99,627,280 $123,139,318 $152,200,197 $188,119,443 $232,515,632 $287,389,321 Estimated Revenue Produced by One Cent on Countywide Tax Rate $681,225 $705,0681 $810,828 $839,207 $868,579 $898,980 $1,033,826 $1,070,010 $1,107,461 $1,146,222 $1,318,155 Model 6 Equivalent Tax Rate Impact (in cents) (11 % Annual Growth) 50.7 56.0 55.7 61.5 67.9 75.0 74.6 82.4 91.0 100.6 100.0 Model 7 Equivalent Tax Rate Impact (in cents) (20% Annual Growth) 50.7 60.5 65.1 77.7 92.8 110.8 119.1 142.2 169.9 202.9 218.0 Assumes annual student population growth at 3% Assumes property tax base growth (what one cent produces) at 3.5 % annually, except 15% in post- revaluation years (highlighted, in bold) 03/23/2000 f-