HomeMy WebLinkAboutAgenda - 04-04-2000-0bORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
Meeting Date: April 4, 2000
Action Agenda
Item No. l 0- b
SUBJECT: School Funding Options Task Force Report
DEPARTMENT: Commissioners/Manager PUBLIC HEARING: (Y/N) No
ATTACHMENT(S):
3/23/00 Draft Task Force Report
Task Force Member Comments
INFORMATION CONTACT:
Commissioners Carey & Jacobs, ext 2125
Jahn Link or Rod Visser, ext 2300
(to be provided later under separate cover) TELEPHONE NUMBERS:
Hillsborough 732-8181
Chapel Hill 96$-4501
Durham 688-7331
Mebane 336-227-2031
PURPOSE: To discuss the draft report from 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. The schools
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 ashort-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, which met twice
in February.
Commissioners Carey and Jacobs will lead discussion of the first draft of a report from the task
force. Preliminary discussion of the task force's work and recommendations took place at the
March 27 joint work session between the BOCC and the two school boards. School members
of the task force were requested to provide their written comments about the draft report, if any,
by Friday, March 31 so the BOCC can consider those during the April 4 discussion of the task
force report. Both school boards indicated a desire to discuss the report as a group at their
respective next meetings prior to the BOCC taking action later in April to set parameters for
County funding of the 2000-2001 (and future) school budget.
FINANCIAL IMPACT: There is no direct financial impact associated with discussion of the
task force report. After receiving the final 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 1999-2p00 exceed $34 million in
the County's General Fund.
RECOMMENDATION(S): The Manager recommends that the Board discuss the draft report,
provide appropriate direction to the Manager and staff, and set a date to make decisions about
school funding parameters.
DRAFT
REPORT FROM ORANGE COiJNTY
SCHOOL FUNDING OPTIONS TASK FORCE
March 23, 2000
Introduction
In considering their goals for the 1999-2000 fiscal yeaz, 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 boazd members suggested convening a work
group composed of school board members and Commissioners to review those options and to make
recommendations to the Commissioners.
In January 2000, the Baazd appointed ashort-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 Boazd 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.
Ma'or 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
fiinction that is required by state or federal law; failure to provide such a progranl or function engages
penalties or sanctions. School boazd representatives recognize legal mandates but also speak of
mandates that. from their perspective, are required to carry out their charge to best serve the sttiidents
of the school system.
4
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.
S. There will likely be a need to go back to voters soon for bond fiends 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 mare 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.
S. 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 unable to address other needs. The County might
set a target and ask schools to meet it, but this is an evolving process and na limits are intractable.
9. School representatives noted that allocating 48% of County general funds to education might nvt
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.
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 8S% 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 overfunding of education in any given year.
11. The CHCCS memorandum addresses 3 alternative models:
a) Mode16 -per pupil County appropriation would increase 11 % annually;
b) Mode17 -noting Governor Hunt's call for North Carolina to became # 1 in education by 2010, this
model woult~ provide a 20% annual increase in per pupil funding for current expense;
c) Mode18 -forego any formulaic approach and "`simply use sound reasoning and good judgment",
suggesting tlla 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 j-.tst 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 S-year history of mandates or "non-negotiables"'. The
two school systems share concerns that with a formula covering all major school funding categories,
DRAFT
escalation of required expenditures for capital and debt would reduce the amount of fiinding 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.
1 S. 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-yeaz 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 farce members that any funding model identified either by the County or
the schools should be recommended to the Boazd of Commissioners for implementation. There was
mutual recognition that the County is not seeking to impose a hazd 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 tazgets for school funding, and in the end there was acceptance
of the concept that the County Manager should consider various "benchmazks" 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 yeaz historical figures of total school funding as a percentage of the County's General Fund;
^ 10 yeaz 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 grange County in school funding per pupil compared to other North Carolina
jurisdictions
• total effort (actual dollazs 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);
^ S yeaz historical figures on percentage of school funding that has been allocated far
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
pazameters 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 31, 1999 County Report: "Education Funding in Orange County"
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
Attachment 1
Education Funding in
Orange County
August 31, 1999
Education Funding in Orange County
In North Cazolina, each county is responsible for supplementing state appropriations to public education.
Laval current expense appropriations are allocated to each school system based on an equal amount per
pupil. In addition, counties provide funds to each system for recurring and long-range capital projects.
School systems in North Cazolina do not have separate taxing authority and are not allowed to issue debt
for school construction and renovation projects. Therefore, issuance and repayment of long-term debt,
such as general obligation bonds and private placement loans, are the responsibilities of county
government. Many city school units in the state also have special district taxes. These voter-approved
taxes, levied within the unit's boundaries, further supplement county funding.
Historically, the Orange County Board of County Commissioners has given top priority to funding public
schools. The County's number one ranking in total education funding in the state evidences this. The
chart to the right compares Orange
County's total 1998-99 General ;
Fund appropriations far education
to several other counties in the
State. As the graph indicates,
Orange County's total spending
per pupil is almost twice the State
average. sa,ooe
sz. ao
Recently, the Board of Courny sz,oee
Commissioners asked the County si~oo
Manager to look at various s i,oeo
alternatives far funding public ssoo
education in Orange County and to so
a~up on~.s [1.quw w,r aw Alm~w hw Cw•N ANw~~
develop parameters for future A•~
funding. Thts Ieport COritalnS ^OrsngeCountyrSutroundingConnties~SrateAverage
possible funding models that the
Board may choose far the Manager
to use as he develops the annual
recommended budget far schools. While this approach guides staff in developing the annual budget, each
year the Board can consider departures from the recommendations based upon particular one-time
circumstances such as start up costs far new facilities.
Staff contacted several counties throughout the state to determine what, if any, funding formulas are
currently in use. The counties responding to the survey included:
• Alamance • Brunswick • Chazlotte-
Mecklenburg
• Chatham • Durham • Forsyth
• Guilford • Lincoln • Moore
• New Hanover • Pitt • Scotland
• Sung • Wake
Eight of the responding counties use formulas rn other guidelines to determine school funding (as shown
in Figure 2 on the following page). Staff found few similarities in county funding for school systems.
Some counties use a formula for current expense funding only while other counties use a formula to
Education Funding in Orange County
calculate all funding for education (current expense, recurring capital, debt service and long range
capital). The following chart provides information gathered:
Figure 2: Results of School Funding Survev
County Formula
Brunswick County • Contract between County and School system in place
• Thirty-seven percent of the tax rate is allocated to current
expense
• Debt service is funded from the school's portion of the one-
half cent sales taxes
Chatham County • Formula in place
• Current fiscal year per pupil allocation is multiplied by the
State Department of Public Instruction projected enrollment.
That amount is then increased using the Consumer Price
Index (CPI)
• If CPI is less than three percent, schools are guaranteed an
increase of three cent
Forsyth County • No f~mula in place
• County Manager provides guidelines for school requests
• Average increase for the past few years has been threes-to-
four cent
Lincoln County • No formula in place
• Current expense funding is significantly lower than the state
average
+ Board of Commissioners adopted a four year plan to bring
the schools up to the state average
• Far fiscal year 1999-00 fatal school funding is $11.9 million
26% of the Count 's General Fund bud ~
Moore County • No formula in place
• Annual increase for schools is based on the increase in
valuation increase
Pitt County • Formula in place
• Current fiscal year per pupil appropriation is base
• Annual percentage increase as d~ermined by Consumer
Price Index (CPn and Cost-of-Living Adjustment for County
employees
• Holds school systems "harmless" for new students
• School and County staff disagree on what source to use as
avers a dail membershi ADM
Scotland Coutrty • No famula in place
• This is the only county in the state that is mandated to fund
the school system at the statewide local average (current
expense only)
• Annual average of $100,000 goes to recurring capital
• Debt service paid from schools' portion of one-half cent sales
taxes
Wake County • Dexlicated tax rate of thirty seven cents
• This is for current expense and recurring capital
• Debt service paid from schools' portion of one-half cent sales
taxes
Paee 2 of 9
Education Funding in Orange County
Funding Public Education in Orange County
In developing various funding parameters far public education, staff considered the total General Fund
appropriation for schools. Far fiscal year 1999-00, the County's allocation to education totaled
$48,371,435 or 48.27 of the total General Fund budget of $100,251,148. The following chart provides
a breakdown of the categories:
Figure 3: Elements of Education Funding
~o of 1999-
00 General
1999-00 General Fund
Current lx erase Based on u it $34 537 104 34.4696
3 cents on property tax; allocated to each school
Recurrirt Ca ital s stem based on number of students enrolled $ 043 675 2.04%
Debt Service Funded from sales tax & rtion of tax $8 968 305 8.95%
One-half cent sales taxes and portion of prnperty
Ca ital Pro'ects & Reserve tax $2 822 351 2.8296
371 35 48.27%
The North Carolina Department of Public Instruction (DPn projected a total student enrollment of 15,309
for the two school districts located in Orange County fcr the 1999-00 fiscal year. Taking into
consideration the total General Fund appropriation, the 1999-00 per pupil allocation is $3,160. (In
calculating the amount per pupil, the total General Fund appropriation far education [$48,371,435] is
divided by the total number of projected students [15,309]). This pea pupil allocation represents an
increase of 5.43 percent over the 1998=99 fiscal year.
For fiscal year 1999-00, it is projected that the Chapel Hill-Carrbaro City Schools will receive an
additional $9,743,228 from the district's special district tax. This erluates to an additional $1,094 per
pupil for that district ($9,743,228 divided by 8,903 students).
Historical PerspectivelTrends
As shown in the next chart, total funding far public schools in Orange County has comprised an average
of 48.12 percent of the General Fund budget over the past five years.
10
Page 3 of 9
Fducation Funding in Orange County
Figure 4. Annual General Fund Appropriations for Education
11
Fiscal
Year
Ending Current
Expense
Appropriation Recurring
Capital Debt
Serrice Long
Range
Capital Capital
Reserve Total Total
General
Fund
B et Education
% of Total
GF Budget
1990 $11,403,973 $1,500,000 $1,792,275 $3,450,300 $0 $18,146,548 $42,494,467 42.700
1991 $13,OS7,549 $1,500,000 $2,636,842 $2,044,661 $0 $19,239,052 $46,351,500 41.51%
1992 $14,861,157 $1,500,000 $2,963,400 $1,827,627 $0 $21,152,184 $50,935,148 41.53
1993 $15,713,450 $1,500,000 $2,$79,475 $2,603,953 $0 $22,696,878 $53,887,298 42.12%
1994 $17,258,306 $1,500,000 $4,$79,002 $2,60b,048 $0 $26,243,356 $60,852,952 43.13%
1995 $19,09$,062 $1,500,000 $5,717,540 $1,408,5$1 $0 $27,724,183 $66,581,662 41.6446
1996
1997 $21,175,309
$24,604,074 $1,500,000
$1,624,500 $8,524,408
$8,31$,118 $3,049,749
$4,058,571 $476,048
$494,442 $34,725,514
$39,099,705 $73,099,271
$79,259,530 47.50%
. 49.3346
199$
1999 $27,197,822
$30,422,520 $1,SS6,S28
$1,949,652 $8,767,660
$9,318,0$7 $1,999,147
$2,353,225 $618,843
$649,$84 $40,440,000
$44,693,368 $85,4$3,019
$92,685,103 47.31'Nv
4$.2246
2000 $34,537,104 $2,043,675 $$,968,305 $2,597,547 $224,804 $48,371,435 $100,251,148 4$.25°b
In fiscal year 1999-00, total funding for education increased by more than $3.6 million (8.23 percent).
This is lower than the average of the past five (just over 12 percent) and ten (11.5 percent) years. Major
factors influencing increases in the past years are:
• Repayment of debt associated with three voter approved band referenda and private
placement funding for school facilities.
• Increases in annual current expense funding each year.
• Increases in recurring capital appropriations. (From $750,000 per school system in fiscal
years 1990 through 1996 to a dedicated three cents an the property tax rate currently).
• Creation of a capital reserve
fund far School/Park
projects. '
The chart to the right projects funding
levels for the school systems if the Board
of Corrunissianers elected to fund the
schools at the historical rates. Should the
historical percentage increases continue,
appropriations far public schools would
mare than double aver the next ten years.
Malwp H D~•In
s16e
s14e
s>IZo
sloe
sso
sbo
sae
sze
se
.-`-
...
2001 7000 2007 2001 200! 2a>S 70W 200{ 7009 209
+ 1999.00 Average - - 5 Year Average -• 10 Year Average +
Pn av ~! of Q
Education Funding in Orange County
Current Expense Funding Alternatives
In order to maintain consistency between the funding formulas, staff made the following assumptions:
• Total education funding consists of the following components: debt service, current expense,
recurring capital, long range capital, and capital reserves.
• All models hold the school districts "harmless" for new students. In other wards, special
consideration is given to ensuring that there will be na decrease in per pupil funding from year-to-
year.
+ Staff used the past year growth in student enrollment as the base far the next ten years. Student
enrollment projections from the North Carolina Department of Public Instruction will not be available
until the week of August 30, 1999.
• The 1999-2009 Capital Investment Plan did not include major projects that would require additional
debt obligations. Therefore, none of the following models includes additional debt service
requirements.
Listed below are funding options that staff has explored Appendix A provides a comparison of all models
outlined below.
Model l
This model, similar to the formula used by Chatham and Pitt counties, increases the per pupil
appropriation by the annual increase in the Consumer Price Index (CPn. (In Chatham County, if the CPI
is less than three percer-t., schools are guaranteed a three percent increase.) This amount is applied to the
projected student enrollment.
Figure 6. FY 2000-01 Funding Example if Modell Used
Orange County Example
1999-00 Total General Fund Per Pupil Appropriation $3,160
Guaranteed CPI 3.00%
200D-DI Per Pupil Appropriation $3,254
Enrollment Projections 15,705
The following questions related to the Consumer Price Index (CPn would need to be addressed before
this model is implemented:
• What CPI source would be used?
• What period of time would be used (7anuary to December, July to Tune, October to September)?
The following chart graphically illustrates the future trend of school funding in Orange County if the
Board selected Model 1 (assumes the guaranteed three percent increase).
12
Page S of 9
Education Funding in Orange County
Figure 7,
Model 1: Per Pupil Appropriation Increased by Annual CPI
$100,000,000 -
$80,000,000 ~=_ _ _ _ - - -_
$60,000,000 W=~:_•~ - - - - - - - - - - ~
$40,000,000 - _ - - -
$20,000,000 - -
$0 -
99- DO- O1- 02- 03- 04- OS- 06- 07- 08- 09-
00 O1 02 03 04 OS Ob 07 08 09 10
Mode12
While similar to Model 1, this model uses the teal education funding as the base instead of the total per
pupil appropriation. The base is increased by the rate of inflation as determined by the CPI. Again,
schools are guaranteed an annual increase of at least three- percent. The same issues cited in Model 1 are
applicable to this funding model.
Figure 8. FY 2000-01 Funding Example if Mode12 Used
Orange County Example
1999-00 Total General Fund Education Appropriation $48,371,435
Guaranteed CPI 3.00%
Total 2000-01 Education Appropriation $49,822,575
Enrollment Projection 15,705
The chart below provides funding projections far the next ten years if the Commissioners selected Model
2.
Figure 9.
Mode12: Total Education Funding Increased by Annual CPI
$80,000,000 -
$40,000,000 - ~ ~~° •~.. -, - _ _ _ _ -
$20,000,000 _ ~ - -= _ - _ , _ _ ,.;
-_ -- -- -- -- ~~ -_ . _ .-- -;a
b b b ~ °, 06, ~ °cp ~ ~o
13
Pase 6 of 9
Education Funding in Orange County
Model 3
This formula increases the current year pet pupil appropriation by the increase in the County's total
property valuation, While the projected increase in fiscal year 1999-00 is 3.37 percent, the average
annual increase in valuation for the past five years is about 3.6 percent.
Figure 10. FY 2000-O1 Funding Example if Model 3 Used
Qrange County Example
1999-00 Total General Fund Education Appropriation $48,371,435
Five Year Average Increase in Valuations 3.60%
Total 2000-DI Education Appropriation $50,112,807
Enrollment Projection 15,705
Figure 11 illustrates future trends in school funding if Model 3 were implemented by the Board (the five
year 'increase of 3.6 percent is used as the annual multiplier).
Figure 11.
Made14
Y
14
Model four gum that the school systems receive a designated percentage of the total General Fund
budget. For the purposes of this report, staff assumed that the Board of County Commissioners would
want to maintain the current fairly-eight percettt of General Fund funding threshold for education.
Page 7 of 9
~ Education Funding in Orange County
Figure 12, FY 2000-01 Funding Example if Mode14 Used
Orange County F.,xample
1999-00 Percent of General Fund Appropriated to
Education 48.27°!
Projected 2000-01 General Fund Budget (total) $108,435,000
Total 2000-01 Education Approprdation $52,341,575
Enrollment Projection 15,705
The graph in Figure 13 provides information regarding future funding if Mode14 were selected
Figure 13.
Mode15
'This model proposes that the percentage increase in education funding is equal to the annual increase in
county departments and outside agencies. The five-year average ir~rease far county departments and
outside agencies is just aver b percent (6.04%). (During this same period, the average increase in total
education funding is about 12 percent.)
rygure 14. r'Y ZlMM)1 ~Ladang ~;xample if Model S Used
Orange County Example
1999_pp Tatal General Fund Education Appropriation $48,371,435
Five Yeaz Average Increase in Appropriations 6.04%
Total 2000-O1 Education Appropriation $S 1,293,070
Enrollment Projection 15,705
1~
Pace 8 of 9
Education Funding in Orange Counry
Figure 16.
M ode16: Education Funding Increases at County
D ep artment H istorical Trend
$ 1 00,000,000
$80,000,000
$60,000,000
$40,000,000
$20,000,000
$0
Chapel Hill Carrboro City Schools Special District Tax
Staff recommends that the Board of County Commissioners continue to address increases or decreases in
the special district tax each year. Over the past few years, Chapel Hill. Carrboro City Schools have used
the district tax mainly to address start up costs for new facilities ar new programs. When submitting their
annual budget request, the Board of Education should make a separate proposal for use of the district tax
proceeds.
While this is a suitable use of the special district tax, the Orange County Schools does not have a district
tax upon which they can rely. One alternative would be as follows:
• For the start-up year, the Board of County Commissioners
could chase to increase its General Fund commitment to
schools and reduce Chapel Hill-Carrboro's special district
tax. While Orange County could use the increase to pay for
one-time start-up casts, Chapel Hill-Carrboro could supplant
lost district tax revenue with the increased General Fund
appropriation
Conclusion
As the Board considers future education funding concepts, it is reasonable to look at models that closely
align themselves with historical trends. Of the models presented in this report; model four appears to be
the formula that keeps public education funding at the high level with which Orange County prides itself.
The Board may be aware of other formulas that could be considered
Ib
Page 9 of 9
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Attachment 2
18
CHAPEL HILL-CARRBORO CITY SCHOOLS
Lincoln Center, Merritt Mill Road
Chapel Hill, North Carolina 27516
Telephone: (919) 967-$211
Neil G. Pedersen
Superintendent
Ann Hart, Assistant Superintendent
For Instructional Services
Steve Scroggs, Interim Assistant Superintendent
For Support Services
TO: rohn 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
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 stmng 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 sniff, 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-
tinanced school system with the facilities needed to support this burgeoning enrollment.
z ~9
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 haw 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 xhe 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 aze developing a target for the operating budget.
• School districts face many factors that are beyond their control as they develop their
budgets. In particulaz, 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 $ 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 859'0 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 crow 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.
zo
• How would the County Commissioners treat the CHCCS district tax when developing
a "target" far 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 goad 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 aver 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 $225b. 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.
2i
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 capi[al 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
Mode17 is the same as Mode16; 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 bath 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?
Tn 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.
Attachmeat 3
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