School Finance System (09/13/2005)

Final
STAFF SUMMARY OF MEETING

SCHOOL FINANCE SYSTEM

Date:	09/13/2005	ATTENDANCE

Time:	09:10 AM to 04:00 PM	Anderson	*
		Bacon	*
Place:	SCR 356	Benefield	X
		King	X
This Meeting was called to order by		Penry	X
	Senator Windels	Pommer	X
		Spence	X
This Report was prepared by		Tupa	*
	Jennifer Thomsen	Merrifield	X
		Windels	X
		X = Present, E = Excused, A = Absent, * = Present after roll call

Bills Addressed:		Action Taken:
Call to Order Charter Schools Discussion of Referendums C and D Overview of State Education Fund Cost-of-Living Study Report from the School Finance Task Force		- - - - - -

09:10 AM -- Call to Order

The meeting was called to order by the chairman, Senator Windels. Members present were: Senator Spence and Representatives Benefield, King, Merrifield, Penry, and Pommer. Senators Anderson, Bacon, and Tupa were present after roll call.
09:13 AM -- Charter Schools

Nina Lopez, Public Affairs Director at the League of Charter Schools and Dick Murphy, Ph.D., came to the table to address the committee on charter schools. Ms. Lopez provided the committee with two handouts (Attachments A and B). Ms. Lopez introduced herself and provided information on the League of Charter Schools. She addressed issues surrounding charter school funding, including capital funding issues.

09:16 AM

Dr. Murphy introduced himself to the committee and described his background. He provided a handout (Attachment C). Dr. Murphy spoke to charter school funding. He noted that charter schools are operating with approximately 2/3 of the available General Fund dollars. He addressed the issue of overrides.

09:22 AM

Dr. Murphy continued, noting the differences in the way charter schools operate versus school districts due to funding disparities. He mentioned the performance of administrative and operational tasks by parents and school board members, lower pay for teachers and administrators in charter schools, and charter school facilities.

09:28 AM

Dr. Murphy said that, as a state, Colorado has created a separate class of students: students whose parents choose to place them in charter schools. He noted that the way charter schools are funded in Colorado may open the state up to the possibility of lawsuits. Dr. Murphy and Ms. Lopez responded to questions from Representative King. Ms. Lopez provided background on the state's moral obligation with regard to charter school bonding to the committee in response to one of Representative King's questions.

09:34 AM

Representative King asked follow-up questions on bonds to which Dr. Murphy responded. Ms. Lopez continued her responses to Representative King's questions, addressing state education fund dollars going to charter schools for facilities expenses and the Giardino lawsuit and how it relates to charter schools.

09:40 AM

Representative King asked a follow-up question regarding charter schools facilities needs assessments. Ms. Lopez responded. Senator Windels remarked on Representative King's question. Ms. Lopez responded to a question from Representative Merrifield regarding capital funding per pupil in school districts versus charter schools. Representative Pommer remarked on the Giardino lawsuit. Ms. Lopez responded, addressing Senator Windels' and Representative Pommer's remarks.

09:48 AM

Senator Windels commented on recent legislation regarding bonding and asked about earlier comments regarding charter schools operating on 2/3 of available funding. Ms. Lopez responded, clarifying the earlier remarks. Representative King asked additional follow-up questions addressing Referendum D. Senator Windels spoke to Representative King's question.

09:54 AM

Dr. Murphy provided closing remarks to the committee.
09:56 AM -- Discussion of Referendums C and D

Jason Gelender, Senior Staff Attorney, Office of Legislative Legal Services; Mike Mauer, Chief Economist, Legislative Council Staff; and John Ziegler, Director, Joint Budget Committee Staff, came to the table to discuss Referendums C and D.

09:57 AM

Mr. Gelender provided an overview of the referendums for the committee, beginning with Referendum C. He noted that Referendum C will take effect if approved by the voters, even if Referendum D fails. Mr. Gelender responded to a question from Senator Bacon. Mr. Mauer responded to a question from Representative King.

10:04 AM

Mr. Gelender continued his presentation, providing an overview of Referendum D for the committee. He noted that Referendum D will only take effect if Referendum C is approved by the voters. Mr. Gelender responded to questions from Senator Tupa and Senator Windels. Mr. Mauer responded to questions from Senator Windels and Representative Penry.

10:10 AM

Mr. Mauer provided information to the committee on where moneys from Referendums C and D will go, referring to his handout (Attachment D). Mr. Mauer responded to a question from Representative Merrifield regarding moneys available for new programs under Referendums C and D. In addition, he responded to a question from Representative King.

10:19 AM

Mr. Mauer continued his presentation. He responded to a question from Senator Anderson regarding the TABOR reserve. Mr. Mauer noted, in continuing his presentation, that the numbers to which he's referring will change when the September economic forecast comes out. Mr. Mauer responded to a question from Representative King regarding the Senior Homestead Tax Exemption. Mr. Mauer also responded to questions from Representative Penry regarding the structural deficit.

10:24 AM

Mr. Mauer responded to additional questions from the committee regarding the Senior Homestead Tax Exemption.

10:28 AM

Mr. Mauer continued his presentation. He responded to questions from Senator Windels regarding transfers to highways and capital, as well as paybacks to cash funds. Mr. Ziegler provided additional clarification to Senator Windels' questions. Representative Penry asked additional questions regarding transfers to highways and capital, to which Mr. Mauer responded. Mr. Ziegler provided additional clarification.

10:32 AM

Mr. Mauer responded to questions from Senator Tupa regarding new moneys available under Referendums C and D.

10:34 AM

Mr. Ziegler addressed the committee, referring to a handout (Attachment E). He noted that the numbers would change as new revenue forecasts come out. Mr. Mauer noted that the TABOR Surplus Liability number is now $44.7 million. Mr. Ziegler responded to a question from Senator Tupa. Mr. Ziegler continued his presentation, continuing to highlight lines on his handout.

10:43 AM

Mr. Ziegler responded to questions from Representative Pommer and Senator Tupa. Senator Anderson commented on K - 12 capital funding. Mr. Ziegler responded.

10:47 AM

Mr. Ziegler continued, providing an additional handout to the committee (Attachment F). Mr. Ziegler referred to a list of paybacks to cash funds (Attachment G). Mr. Ziegler responded to a question from Representative Penry.

10:53 AM

Representative King asked questions regarding note payments and the 6 percent operating budget to which Mr. Ziegler responded. Mr. Mauer provided additional clarification in response to Representative King's questions. Mr. Ziegler continued his presentation, addressing structural spending, one-time spending, and the 6 percent limit.

11:00 AM

Mr. Ziegler provided additional information in response to a question from Representative Pommer. Senator Anderson commented on K - 12 funding and the impact of the Gallagher Amendment. Mr. Mauer and Mr. Ziegler responded. Mr. Ziegler responded to additional questions from Senator Anderson and Representative King. He also addressed Senator Bacon's earlier questions. Senator Anderson remarked on the role of legislative staff and legislators.

11:08 AM

Senator Tupa commented on his perception of Referendums C and D. Mr. Ziegler responded to questions from Senator Bacon and Representative Penry. He remarked on structural deficit and needs deficit. Representative Penry made further comments concerning Referendums C and D. Senator Anderson responded to Representative Penry's comments. Mr. Ziegler responded to a question from Representative Pommer.

11:14 AM

Representative Pommer asked follow-up questions to which Mr. Mauer and Mr. Ziegler responded. Senator Tupa commented on Representative Pommer and Representative Penry's comments and questions. Mr. Ziegler responded to questions from Representative King regarding Senate Bill 97-1 transfers. Mr. Ziegler commented on Senator Tupa's remarks. Mr. Mauer commented on the need for cuts in the current fiscal year.

11:20 AM

Senator Anderson remarked on the reserve, and asked about TABOR limitations in relation to the reserve. Mr. Gelender and Mr. Ziegler responded to Senator Anderson's question and her follow-up questions.

11:23 AM

Senator Windels thanked the panelists.
11:24 AM -- Overview of State Education Fund

Deb Godshall, Assistant Director, Legislative Council Staff, came to the table to provide an overview of the State Education Fund for the committee. She provided a handout (Attachment H). Ms. Godshall explained that the State Education Fund was created by Amendment 23 and receives revenue from one-third of one percent of taxable income and also keeps any interest that the fund earns. Money in the fund, she said, can be spent on meeting the school finance funding requirement in Amendment 23, meeting the minimum funding requirement for categoricals, and for other purposes enumerated in Amendment 23. She noted that moneys began flowing into the fund on December 28, 2000, and were first appropriated from the fund in fiscal year 2001-02. She remarked on forecasting revenues to the fund and expenditures from the fund. Referring to the handout, Ms. Godshall discussed the estimated fund balance. She remarked on the relationship between the General Fund and the State Education Fund. She noted that all of the numbers on the handout through 2004-05 are actual. The estimated fund balance at the close of the current fiscal year, she said, is $181.8 million. Ms. Godshall provided further clarification regarding the handout to the committee.

11:31 AM

Ms. Godshall responded to questions from the committee, including questions regarding the estimated fund expenditures in fiscal year 2010-11, which appear to be a substantial increase compared to other years.

11:37 AM

Ms. Godshall continued responding to committee questions regarding her handout. She commented on the need for the General Fund to make up education funding when the balance of the State Education Fund is not large enough to fill the funding need. She commented on the estimate of total school spending, noting it is a combination of projections of per pupil counts and inflation. Estimates of total state aid, she said, would take into account projections for assessed value. Ms. Godshall talked about interest earned by the fund if there is more money in the fund over a longer period of time. She described the relationship between the fund and the General Fund, noting that if there is insufficient money is the fund, funding obligations must be met using General Fund dollars.

11:45 AM

Ms. Godshall continued her responses to committee questions, commenting on the estimated spike in spending in fiscal year 2010-11. She noted that the difficulty with looking at the State Education Fund, and where we should be, is that it is not being measured toward a target.
11:47 AM -- Cost-of-Living Study

Chris Ward, Legislative Council Staff, came to the table to provide an overview of the Cost-of-Living Study to the committee. Mr. Ward noted that cost-of-living factors are not contained in law. What the law requires, he said, is that the Legislative Council Staff certify factors, every other year, to the Department of Education based on a cost-of-living study. He commented that the purpose of the study is to measure the cost of the same items in every school district to determine the relative difference in costs among school districts. Mr. Ward discussed three key terms of art used in relation to the study: benchmark household, market basket, and labor pool areas.

11:50 AM

Mr. Ward answered questions from the committee, providing clarification of the benchmark used in the study. He noted the benchmark household in the study is a family of three with a total family income of $43,000. Federal Bureau of Labor statistics were used, he said, to help define what that household would purchase during the year. Mr. Ward commented that it may not be reflective of the standard of living in some school districts. The purpose of the study, he said, is to determine relative differences. Mr. Ward answered follow-up questions regarding the benchmark. He commented further on the purpose of the study. In response to a question from Senator Windels, Mr. Ward noted that the market basket does not include school items such as textbooks. Senator Windels commented on the economy of scale in purchasing enjoyed by larger districts and asked if there was acknowledgment in the cost-of-living factor for a smaller district that does not have the benefit of economy of scale.

11:56 AM

Ms. Godshall returned to the table to respond, with Mr. Ward, to questions from the committee. She noted that in 1994 when the General Assembly enacted the School Finance Act, it was looking at cost differentials for personnel, for how teachers are compensated. The size factor, she said, would adjust for the fact that small districts do not have the same economies of scale in purchasing textbooks. In response to questions from Representative King, Ms. Godshall noted that the study does not measure the change in prices over time, it measures changes in purchasing power among districts. Ms. Godshall explained that a district's cost-of-living factor never decreases, even if the district's cost of living does decrease.

12:04 PM

Ms. Godshall responded to follow-up comments by Representative King regarding changes to the cost-of-living factor for school districts. The factor has changed in very small increments over time, she said. Representative King commented on the situation in El Paso county, where there are 17 school districts. Ms. Godshall noted that there are a number of different communities in El Paso county and that housing is the largest component of the cost-of-living factor. Mr. Ward responded to a question from Senator Windels regarding school district feedback on the cost-of-living study.

12:07 PM

The committee recessed until 1:30.
01:34 PM -- Report from the School Finance Task Force

Senator Windels called the committee back to order.

01:35 PM

Scott Murphy, chairman, School Finance Task Force came to the table with his colleagues, Jane Urschel, Tracie Rainey, Nina Lopez, Glenn Gustafson, and Karen Middleton, to discuss the Final Report of the School Finance Task Force (Attachment I). Mr. Murphy provided background regarding the task force and its members.

01:39 PM

Ms. Urschel introduced the concepts of the report. Remarking that consensus on the issue of school finance is difficult, she referred the committee to the introduction of the report, noting that the task force agreed on certain principles. She commented that the current school finance system is not adequate and spoke to the work of the task force.

01:43 PM

Ms. Rainey began presentation of the recommendations of the task force, starting with recommendation number one, recommending that the General Assembly revise the 1994 School Finance Act. She provided historical perspective on Colorado's school finance system, noting that Colorado has lost ground on school finance in the last decade. She noted that the task force had looked at a number of factors, including the concept of adequacy.

01:49 PM

Ms. Rainey responded to questions from Representative Pommer regarding base funding. Ms. Rainey continued her presentation commenting that the task force discussed a base funding amount per pupil that would ensure adequacy. She spoke to the work of the School Finance Project. Adjustments to total program funding are recommended, she said. She began by discussing district size and the definition of at-risk. Senator Anderson remarked on the needs of different districts and asked for clarification of the task force's recommendation for expansion of the definition of at-risk. Ms. Rainey responded to a question from Senator Windels seeking further clarification.

01:59 PM

Senator Anderson further commented on defining at-risk. Ms. Rainey responded to further questions and comments from Representative King and Senator Spence. Ms. Urschel provided background about indicators of at-risk and the task force's discussion of at-risk. Representative Merrifield commented on low academic achievement as an indicator of risk. Senator Anderson commented that free lunch was used because it is an audited program. She suggested that increasing the percentage may be a better solution than tying at-risk to programs.

02:05 PM

Representative Pommer asked further questions about the base and how that number would be determined. Ms. Rainey responded giving examples of adjustments to the base. She responded to follow-up questions from Representative Pommer. She noted that the task force was recommending that the General Assembly look at these issues for revision, but was not suggesting a new system. Mr. Murphy provided further clarification, noting that the task force was recommending that factors such as special education and transportation be worked into the base, instead of being separate. Mr. Murphy provided further clarification in response to an inquiry from Senator Windels.

02:13 PM

Mr. Murphy responded to follow-up questions from Representative Pommer. Representative King asked further questions regarding categorical funding and the task force recommendation that certain factors be moved from categoricals to be part of the base. Ms. Rainey responded to Representative King's inquiry, noting that the task force does not have all of the answers regarding constitutional questions. Senator Windels asked about categoricals in relation to Amendment 23. Ms. Rainey responded that a list of categoricals is included in the text of Amendment 23. Representative King read the list of categoricals from Amendment 23. Senator Windels and Representative King discussed categoricals, total program, and Amendment 23.

02:18 PM

Representative Pommer and Representative King remarked further on the categoricals.

02:20 PM

Ms. Rainey continued her presentation to the committee speaking to the recommendation that special education funding be part of total program, noting that students with the most severe needs might need dollars outside the formula. She went on to discuss gifted and talented funding and the cost-of-living factor. Senator Anderson asked if the task force had discussed what would happen if a district's cost of living decreased and whether the district's cost-of-living factor should decrease. Ms. Rainey responded that the task force had not discussed that issue, but had discussed the current methodology. Senator Anderson remarked that she feels the task force must address that issue. Mr. Murphy noted that there was difference of opinion, and that time constraints limited the discussion. Representative King made further inquiries about the task force's special education recommendation to which Ms. Rainey responded.

02:27 PM

Ms. Urschel remarked further on special education funding models. Mr. Murphy responded to follow-up questions from Representative King. Ms. Rainey continued her presentation speaking to transportation, small attendance centers, and kindergarten. Ms. Rainey responded to questions from Representative Penry regarding mandatory full-day kindergarten. She continued, discussing preschool and public school choice.

02:34 PM

Ms. Rainey went on to discuss other considerations, including the student count, the inflation factor, and the current limitation on school districts seeking additional local revenues. She responded to a question from Representative King regarding local revenues. She continued, discussing a recommendation of analysis of the adequacy of the funding formula every three years. Senator Tupa asked about the idea of changing the school finance act every three years. Ms. Rainey responded, noting that the task force recommended an analysis, not necessarily a change. Ms. Rainey responded to questions from Representative King regarding priority of the task force recommendations. Senator Tupa remarked on the lack of available money and asked if the task force would meet before legislation might be considered to prioritize items that could be accomplished without a cost.

02:44 PM

Representative Merrifield asked for clarification which Senator Windels provided. Mr. Murphy remarked on the charge of the task force. Representative King asked if the task force addressed closing the achievement gap. Ms. Rainey responded.

02:46 PM

Ms. Lopez noted that the task force had a huge undertaking and a very small amount of time and that some stakeholders may not have been well represented at the table. She went on to discuss capital funding. She noted that the task force recommended that capital funding be included in school finance funding, but not be part of total program. The task force identified three capital priorities: an assessment of the actual capital needs of public schools; addressing the backlog of current health and safety capital needs; and providing future revenue for ongoing capital needs. Ms. Lopez identified several other considerations, including: the need for a consistent definition of capital; a standard method to identify and assess minimum adequacy standards; funding based upon educational needs of students at each site; funding and laws should recognize emerging and unique learning environments; maximizing efficiencies in funding for capital projects; and distributing grants for capital projects through a competitive process accompanied by adequate technical assistance.

02:56 PM

Ms. Lopez responded to questions from Senator Anderson, as did Mr. Murphy. Ms. Lopez responded to a question from Senator Windels. Mr. Murphy commented on school inspections by fire departments and boiler inspectors. Representative King asked about the bonding limit on school districts. Mr. Murphy responded that the task force had not addressed that issue.

03:01 PM

Ms. Middleton spoke to the committee on the concept of P-16. The task force recommended the formation of a P-16+ Council and identified some issues such a council might address. Ms. Middleton responded to questions from Senator Bacon.

03:04 PM

Mr. Murphy remarked that the task force had given some thought to potential funding sources. Mr. Gustafson presented the task force's ideas, noting that the task force knows many of these ideas cannot be implemented immediately. The recommendations were in two categories: issues requiring action from the General Assembly and issues requiring a vote of the people. He described the ideas. Mr. Gustafson responded to questions from Representative King regarding Medicaid reimbursement for special education costs. Senator Anderson provided further information on Medicaid reimbursement of special education costs. Mr. Murphy and Senator Windels commented as well. Representative King asked if any BOCES are seeking Medicaid reimbursement. Mr. Murphy replied that they are and Senator Windels provided further clarification.

03:13 PM

Representative King asked follow-up questions in regard to Medicaid reimbursement, to which Mr. Gustafson and Mr. Murphy replied. Mr. Gustafson continued his presentation, describing issues that would have to be submitted to the voters.

03:19 PM

Mr. Gustafson and Ms. Urschel responded to a question from Representative Merrifield regarding the severance tax. Mr. Gustafson answered a question from Representative Pommer concerning income tax. Senator Anderson commented on Representative Pommer's question. Representative King asked about a moral obligation program, Mr. Gustafson responded that the task force had not discussed that issue. Mr. Murphy responded to a question from Senator Windels regarding insurance and capital set asides. Mr. Gustafson provided additional clarification.

03:24 PM

Senator Spence asked about transportation costs given high fuel costs that were not anticipated six months ago. Mr. Gustafson responded, noting a 10 percent increase in costs in his district, District 11. Senator Spence asked a follow-up question to which Mr. Gustafson responded. Mr. Murphy commented on the issue as well. Senator Windels asked Representative Benefield to describe her bill regarding transportation costs.

03:31 PM

Senator Tupa asked for additional clarification of Representative Benefield's bill. Representative Benefield made further remarks about authorization for school districts to impose a transportation fee. Representative Pommer asked Mr. Gustafson about pooling and self-insurance. Mr. Murphy noted, in response to a question from Senator Windels, that the task force had held its final meeting. He spoke to the recommendations and work of the task force.

03:37 PM

Senator Windels thanked the task force for its work and recommendations. She said that legislative recommendations in concept should be turned in to staff prior to the September 27 meeting of the committee. Senator Windels mentioned that federal funding would be discussed at the September 27 meeting, prior to discussion of legislation.

03:42 PM -- Committee Discussion

Committee discussion of possible legislation ensued. Senator Tupa remarked that he's interested in the P-16 task force. Representative Merrifield mentioned preschool and full-day kindergarten.

03:47 PM

Committee discussion of legislation continued. Senator Anderson said the committee should look at the uniform mill levy. Representative King expressed interest in insurance pool for special education and the issue of a moral obligation program for charter schools and small districts. In addition, he mentioned the chart of accounts and data.

03:54 PM

Senator Tupa mentioned online learning and public school choice. Senator Windels listed several topics for legislation discussion, including: recommendations for increased flexibility for investments from the school trust lands; online education issues including allowing enrollment in online and brick and mortar schools and shared per pupil revenue, as well as defining "substantially completed" coursework; the issue of special education costs and charter schools, specifically provisions for excess cost payment; establishing a high risk insurance pool; restoring support for BOCES for organizational activities and grant writing; and freezing mill levies. Representative King mentioned the issue of children not previously enrolled in schools not being allowed to enroll in online programs and at-risk students not achieving full-year growth each school year.

03:59 PM

Senator Windels asked members of the committee to email additional legislation ideas to staff.

04:00 PM

The committee adjourned.