School Finance System (08/30/2005)

Final
STAFF SUMMARY OF MEETING

SCHOOL FINANCE SYSTEM

Date:	08/30/2005	ATTENDANCE

Time:	09:09 AM to 04:37 PM	Anderson	E*
		Bacon	X
Place:	SCR 356	Benefield	X
		King	E*
This Meeting was called to order by		Penry	X
	Senator Windels	Pommer	E
		Spence	X
This Report was prepared by		Tupa	E*
	Cathy Eslinger	Merrifield	X
		Windels	X
		X = Present, E = Excused, A = Absent, * = Present after roll call

Bills Addressed:		Action Taken:
Task Force Update Capital Construction Funding Update on Court Filings Categorical Funding Overview Task Force Feedback and Perspectives		- - - - -

09:10 AM

The meeting was called to order by the chairman, Senator Windels. Members present were: Senators Bacon, Spence, and Tupa; and Representatives Benefield, King, Merrifield, and Penry. Senator Anderson was present after roll call.

09:10 AM

Senator Windels invited Scott Murphy, school finance task force chairman, to the table to discuss updates from the task force. He indicated that he was not yet bringing recommendations from the task force. He distributed the agendas for the meetings that the task force has held so far (Attachment A). The task force has met a total of four times. He said that the task force initially discussed its charge from the committee, but more recently has discussed what should drive the school finance system and how key components can be incorporated into total program funding. He indicated that the task force has also spent time discuss capital construction needs and funding.

09:14 AM

Mr. Murphy indicated that the task force has a writing committee that is working on a report to the committee. The goal is to submit it to the committee in mid-September. Senator Windels indicated that several task force members will be providing perspectives and feedback later in the afternoon. Mr. Murphy concluded by thanking the committee for the opportunity to serve and dialogue on school finance issues. Senator Windels also expressed her appreciation to the task force.

09:17 AM -- K-12 Capital Construction Funding through the Colorado Department of Education

Vody Herrmann and Ted Hughes, Colorado Department of Education (CDE), came to the table to discuss K-12 Capital Construction funding provided through the Colorado Department of Education. They provided two hand-outs (Attachments B and C). Mr. Hughes presented a Powerpoint presentation on the state Capital Construction Grant Program. He specifically discussed the statutory criteria for evaluating and awarding grants through this program. He discussed the criteria identified as immediate health and safety concerns. Representative King asked Mr. Hughes about supplemental funding for projects that are ongoing or for which there have been cost overruns. There was additional discussion about addressing cost overruns that result from such issues such as asbestos abatement. Representative King commented on awarding funding to school districts when initial costs have been miscalculated. Mr. Hughes indicated that these types of supplemental requests are not always awarded, but are looked at on an individual basis.

09:32 AM

Senator Windels discussed her experience as a member of the capital construction advisory committee. Mr. Hughes continued his presentation by discussing the types of projects that do not qualify for funding. He said that criteria for looking at school districts include looking at the per pupil assessed valuation of the district and the school districts that have reached more than 90 percent or more of their limit on bonded indebtedness. Mr. Hughes commented further on the ranking system used by the committee, and Representative King asked for further clarification about the process. Mr. Hughes discussed specific examples of needs in several rural school districts, such as Woodlin School District, and how their needs might not be reflected in their individual school district ranking. Senator Spence asked whether construction costs in rural school districts can be higher than costs in urban areas. Mr. Hughes subsequently commented on how limited staff and resources may impact maintenance and subsequent costs in smaller school districts.

09:45 AM

Representative King asked about the awarding of funding under the current cycle, and Mr. Hughes described specific projects receiving funding for FY 2005-06. Representative King inquired as to how the committee weighs different needs such as asbestos abatement, heating and ventilation needs, and roof replacement. Mr. Hughes discussed the fact that additional projects may be awarded this year through the lottery "spillover" funds. Senator Windels discussed how difficult the choices can be in awarding projects. Mr. Hughes continued his presentation by discussing charter school funding and the matching funds required of school districts. He indicated that the committee comes up with a unique matching formula for each school district in the state.

09:54 AM

Mr. Hughes provided an overview of the process by which school districts apply for grants. The CDE staff works with the capital construction advisory committee to review projects and to make recommendations to the State Board of Education. The State Board of Education approves projects for funding in August. Senator Tupa asked questions about various sources of funding, including the State Education Fund. Mr. Hughes and Ms. Herrmann responded to further questions about the sources of funding for school districts and charter schools in FY 2005-06.

10:02 AM

Representative Penry asked questions about school districts' debt capacity. Ms. Herrmann discussed the impacts on many of the state's poorer school districts, which may a limited capacity to incur debt. Senator Windels asked whether all school districts in the state with capital construction needs apply for grants. Mr. Hughes indicated that CDE has told school districts to apply for funds only for critical needs, and that some school districts have lowered their expectations for capital construction because of limited funding. Senator Spence about the application of Colorado's historical and current capital construction funding toward the Giardino settlement. Ms. Herrmann discussed the types of funding that have been provided and referred to her hand-out showing the history of funding. Representative Penry asked questions about the policy decisions around funding. There was discussion about the lottery "spillover" funds and why these funds have not generally been considered as applicable toward funding requirements under the Giardino settlement agreement.

10:12 AM

Senator Spence commented on the state's responsibility for meeting the requirements in the Giardino settlement. Senator Bacon asked about the process by which the Capital Development Committee (CDC) reviews projects recommended for awards from the School Construction and Renovation Fund, as well as how the Joint Budget Committee reviews projects. There was additional committee discussion on the process for CDC review. Senator Tupa asked further questions about fulfilling requirements in the Giardino settlement agreement. Committee discussion ensued on funding that goes for administrative costs. The funding summary provided by CDE indicated that $522,747, or 0 percent, has been dedicated to administration of the grant program.

10:21 AM

The committee recessed.

10:35 AM

The committee came back to order.

10:35 AM -- K-12 Capital Construction Needs

Mary Wickersham, Donnell-Kay Foundation, provided a Powerpoint presentation on "Colorado's Crumbling Classrooms," and distributed a hand-out "Recommendations for a State School Capital Funding Program in Colorado,"(Attachment D). Ms. Wickersham said that the foundation's work has addressed three primary questions: how does Colorado fund K-12 capital construction? what are the current needs in the state? what are the resulting recommendations? She said that Colorado's system is a system that is primarily property tax-based and indicated that the historical passage rate for school district bond issues has been 65 - 70 percent. She said that in the past 10-15 years, a wave of states have implemented programs to equalize capital construction funding. She discussed the examples of New Mexico, Wyoming, and Arizona, as neighboring states.

10:47 AM

Ms. Wickersham continued her presentation by showing the disparity in per pupil assessed value across school districts. Ms. Wickersham said that the current system is both inequitable and inadequate. She noted that 70 school districts educating over 20,000 Colorado students have a total bonding capacity of under $6 million. Ms. Wickersham referred to a state map and photos of school buildings as part of her presentation.

10:54 AM

Ms. Wickersham discussed bond limits in surrounding states and said that 21 Colorado school districts, with almost 200,000 students are near or at their bond limits. Ms. Wickersham discussed specific issues faced in school districts that are near or at their bond limit. Ms. Wickersham said that political considerations and high priority projects are usually the focus of bond issues brought to voters, rather than the school district's actual capital needs.

10:59 AM

Senator Windels asked Mr. Hughes to return to the table to respond to questions about specific projects as Ms. Wickersham continued her presentation. Ms. Wickersham indicated that the Donnell-Kay Foundation conducted a school district survey and utilized a consulting firm to conduct a needs assessment. She said that the Foundation's estimate of the total cost of capital needs in the state was $5.7 billion. Ms. Wickersham discussed the recommendations contained in the Donnell-Kay report. The recommendations include: a professional statewide needs assessment; minimum prescriptive statewide health and safety standards; oversight and administration in a distinct board created for that purpose; appropriate staffing for an oversight board; a plan to address the backlog of capital needs immediately and establish a sustainable funding source for capital needs; a plan that addresses capital construction needs in priority order according to a statewide needs assessment; and a funding formula based on school districts' capital capacity and current tax effort.

11:14 AM

Ms. Wickersham said that in some cases she feels that a measure of a district's average personal income could be a better measure of a school district's relative wealth than per pupil assessed valuation. She recommended different state programs for addressing repairs and renovations, new school construction, technology, and emergency circumstances. Ms. Wickersham indicated that the Donnell-Kay Foundation recommended funding capital needs through a combination of state and local revenue. She also recommended a waiver procedure for a local match. Representative Merrifield commented on the statutory requirement for a school district's capital and insurance reserve. Ms. Wickersham responded to Representative Merrifield's questions and discussed revenue options for capital construction, such as an increase in the state sales tax, a real estate transfer tax, which is currently prohibited by the Taxpayer's Bill of Rights (TABOR), and oil and gas severance tax revenue. Ms. Wickersham responded to questions from Representative Penry and advocated an approach that takes a statewide needs assessment into account from the beginning of a funding plan.

11:27 AM

Senator Tupa asked questions about school district bonding capacity and asked about the impacts of the Gallagher and the TABOR amendments. Ms. Wickersham commented on the history of funding K-12 capital construction in Colorado and in other states. She said that some lawsuits in other states have been based on facilities, and many have been successful. Senator Windels asked additional questions about recent lawsuits in other states. She also asked about assessments done by the Donnell-Kay Foundation in 16 Colorado school districts. Ms. Wickersham described the assessment in greater detail.

11:35 AM -- School Trust Lands and the Permanent School Fund

Karen Gerwitz, Director of State Board Relations, Colorado Department of Education, provided a history of trust land holdings and distributed three hand-outs (Attachments E, F, and G). She discussed her involvement in the Colorado School Land Trust Steering Committee. Ms. Gerwitz discussed the nature of the permanent school trust and the duties of the State Treasurer and the State Land Board. Ms. Gerwitz discussed the earmarking that some states use when allocating a certain portion of the revenue from their trust. She also discussed the new provisions in Senate Bill 05-196 for capping the amount of revenue from the timber sales, rental payments, and mineral leases on public school lands that goes to the Public School Income Fund at $12 million. Ms. Gerwitz described the obstacles to growing the Permanent Fund, including existing statutory and constitutional requirements.

11:53 AM

Ms. Gerwitz discussed the fact that revenue from the school land trust is the first payment to the school finance act. Ms. Gerwitz provided comparisons of growth in the Permanent Funds in neighboring states. Her presentation continued with a discussion of the current revenue from mineral royalties in Colorado. Concerns include the fact that the Permanent Fund is not growing significantly and that the Treasurer is forced under current law to invest in low-risk, lower-yielding investments. The State Land Board has certain constrictions as well, according to Ms. Gerwitz. Ms. Gerwitz concluded by discussing a 2006 Advocacy Agenda for the Colorado School Land Trust Steering Committee.

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12:03 PM

Ben Stein, Office of State Treasurer, provided a hand-out concerning the Permanent School Fund and the investments made by the Treasurer (Attachment H). Mr. Stein discussed the current statutory constraints on investments from the Permanent School Fund. Representative King asked about TABOR implications for the Permanent School Fund and lease income.

12:13 PM

Britt Weygandt, Director of the State Land Board, highlighted several points and data contained in a hand-out (Attachment I). She discussed the revenue increases in trust lands, largely due to mineral leases. Income from surface rights have increased as well. She discussed increases that can be made above the $12 million cap for school finance. Ms. Weygandt and Mr. Stein responded to additional questions about the potential for income from mineral royalties.

12:19 PM

The committee recessed.

01:36 PM

The committee came back to order.
01:36 PM -- Update on Filings in Lobato v. State of Colorado

Renny Fagan, Office of the Attorney General, was joined at the table by John Sleeman and Tony Dyl, also representing the Office of Attorney General. Mr. Fagan said he would cover three topics pertaining to Lobato v. State of Colorado: what the plaintiffs are requesting, the motion to dismiss filed by the state on August 24, and the potential next steps in the case. He described the plaintiffs' claims and requests in the case, and said that the lawsuit asks the court to provide an injunction against continuing to implement the current funding system. He indicated that the claim is asking the court to decide what adequacy is under state constitutional provisions.

01:40 PM

Mr. Fagan indicated that the state filed a motion to dismiss with the court on August 24. Mr. Fagan described the motion and said that it raised two arguments in requesting that the case be dismissed. The first argument contends that by adopting Amendment 23, Colorado established a standard for an adequate level of K-12 funding. The second argument asserts that determinations about funding should be left to the legislative branch, not to the judiciary. Mr. Fagan elaborated on the state's argument that Colorado voters, in adopting Amendment 23, established a specific definition of adequate funding for constitutional purposes.

01:45 PM

Mr. Fagan responded to questions about the filing of the case in Denver district court. Mr. Fagan described the potential outcomes if the motion to dismiss is granted in district court and indicated that appeals by the plaintiff could be taken to the state court of appeals. Senator Tupa asked whether most of the lawsuits in other states have also been filed in state courts. Mr. Fagan indicated that most cases address provisions in state constitutions and are therefore filed in the state court system.
Mr. Fagan further stated that the Amendment 23 argument was utilized in the Haley case, which was dismissed in district court. Senator Windels raised issues concerning interpretations of adequacy based on provisions in Amendment 23.

01:49 PM

Mr. Fagan continued to discuss the second portion of the motion to dismiss concerning the argument that the judiciary should not determine a level of adequacy for school funding. Additionally he said that the state's motion in Lobatorelies on the Lujan decision that education is not a fundamental right, as well as its affirmation of the separation of powers and the prerogative of the General Assembly. He described the Lujan findings that the General Assembly should make qualitative decisions about education funding. Mr. Fagan said that several other states have used similar arguments in responding to lawsuits. Senator Anderson asked about the language in other state constitutions, and Mr. Fagan indicated that the state has done some research on the correlation of state constitutional language and court decisions.

01:56 PM

Representative King asked about the standards used in other states to establish "adequacy" when lawsuits have been successful. Mr. Fagan and Mr. Sleeman both addressed Representative King's questions. Representative Penry asked further questions about the relationship between the Lujan decisions and the plaintiffs' filings in Lobato. Mr. Fagan responded to additional questions about the standards for adequacy. He indicated that if the motion to dismiss is not granted, the lawsuit would go forward and said that the Office of Attorney General is limited in commenting on further steps that would be taken in defending the state. He further noted that if the lawsuit goes forward, the requisite defense of the case would be a costly undertaking for the state.

02:04 PM -- Categorical Funding Overview

Deb Godshall, Assistant Director, Legislative Council Staff, provided a memorandum and walked through data on six categorical programs (Attachment ). She was joined at the table by Ms. Herrmann. She indicated that she would cover six categorical programs: transportation, the English Language Proficiency Act, small attendance center funding; the Exceptional Children's Educational Act for children with disabilities, the Exceptional Children's Educational Act for gifted and talented children, and vocational education.

02:07 PM

Ms. Godshall discussed what are allowable transportation reimbursements under state law and what are not. Current operating expenditures, defined in law, are allowable, but the purchase or lease of vehicles and most capital outlay expenditures are not reimbursable. Ms. Godshall reviewed the school district data provided in Table 1 in her memorandum. Representative King commented on the possibility of an incentive-based system for transportation funding. Senator Windels made additional comments on the data provided for unreimbursed transportation costs.

02:16 PM

Senator Anderson discussed the factors involved in a particular school district's transportation expenditures. The committee continued to discuss the costs involved for school districts, including the cost of fuel, a school district's fleet of vehicles, and the size of a district. Ms. Godshall continued her presentation by discussing the English Language Proficiency Act and reviewed the way that funding is distributed. Students are classified in one of three categories, "A", "B", or "C," according to their language skills, and allocations are based on these student classifications. Table 2 in her memorandum reflects the funding allocations for school districts.

02:25 PM

Senator Anderson asked Ms. Godshall and Ms. Herrmann about levels of funding for English language learners and the fact that some school districts do not apply for funding under the English Language Proficiency Act. Ms. Godshall continued the presentation by walking through data on small attendance center funding, which is reflected in Table 3 of the memorandum. Thirteen schools in 11 school districts received small attendance funding for FY 2004-05.

02:29 PM

Ms. Godshall reviewed the funding formula for special education under the Exceptional Children's Educational Act, which allocates funds to administrative units, either school districts or Boards of Cooperative Services (BOCES). School district funding data was provided in Table 4 of the memorandum. Representative King asked questions about reading the data on unreimbursed expenditures as a percentage of school finance funding. Senator Bacon commented on the distribution formula, and the portion based on the distribution for FY 1994-95. In response to questions from committee members, Ms. Herrmann indicated how the distribution would change if the current level of funding was distributed on a per pupil basis.

02:44 PM

Senator Tupa asked Ms. Godshall about the data provided for Boulder School District. The committee continued to discuss the outcomes of different potential distribution formulas. Ms. Herrmann provided an additional hand-out reflecting percentages and distributions of special education funding (Attachment ). Representative King described the current funding formula as a static formula. Senator Bacon brought up issues regarding the manner in which school districts were held harmless under the 1994 law change. Representative King asked further questions about the data provided in Ms. Herrmann's chart.

02:55 PM

As Ms. Godshall continued her presentation, she discussed the manner in which funding is provided for gifted and talented students and vocational education. Vocational education is not administered by the CDE, but rather by the State Board for Community Colleges and Occupational Education. Ms. Godshall reviewed the distribution formula with the committee. The final table provided in Ms. Godshall's memorandum, Table 7, indicates estimates of unreimbursed programs costs as a percentage of school finance funding by administrative unit.

03:02 PM -- Charter School Administrative Costs

Ms. Herrmann discussed charter school administrative costs, and reviewed the chart of accounts as it relates to these costs. She distributed four hand-outs (Attachments .... through ). Ms. Herrmann described the policies and procedures involved in accounting for charter school funding. In addition, she reviewed the at-risk calculation for charter schools. Statutory provisions ensure that at-risk funding follows the at-risk child served by the school district or the charter school. She discussed the applicability of the provisions for school districts that have retained exclusive chartering authority and have a percentage of at-risk pupils of more than 40 percent.

03:14 PM -- Status and Impacts of On-line Education Funding

Kent Tamsen, Director of Educational Technology, Colorado Department of Education, reviewed definitions and enrollment in on-line education in Colorado. He provided a hand-out (Attachment ) and was joined at the table by Ms. Herrmann. Representative King discussed the extra slots for on-line funding that had been provided for FY 2002-03. Ms. Herrmann discussed the resolution adopted by the State Board of Education and distributed a hand-out on on-line requirements and auditing issues facing the CDE. (Attachment ). She discussed the history of funding for on-line students and the current use of waivers for students who do not meet the eligibility requirements for a school district's on-line pupil count.

03:25 PM

Ms. Herrmann continued by discussing recent challenges to the statutory requirements for funding on-line students. She reviewed issues that have arisen because of interpretations of completion of a prior year's school work. Ms. Herrmann continued the presentation by discussing questions concerning the status a student who was not included in a school district's pupil enrollment or on-line enrollment for the prior year and did not complete a semester the prior year, but was also not a home-schooled or private school student the previous year. Ms. Herrmann said that varying interpretations of current statutory provisions for the on-line pupil count have confronted the CDE.

03:32 PM

Ms. Herrmann continued the discussion walking through several other statutory provisions, including those for transferring from a regular program in a school district to an on-line program in the district. She said that additional requirements for auditing have caused delays in meeting auditing requirements. She also raised issues concerning the negotiation that occurs when an on-line student wishes to enroll for one or more courses in a traditional school. The interpretation and issues that have been raised were discussed by the committee.

03:38 PM

Ms. Herrmann also noted that there are new efforts by on-line programs to set up "learning centers" across the state, which are not located in the school district or in a contiguous school district. In some circumstances, these learning centers have allowed the students to establish on-line membership by enrolling in the on-line school district's learning center and receive half-time funding. Senator Windels and Representative King asked further questions about the status of new learning centers and how they are being considered at CDE.

03:46 PM

Mr. Tamsen responded to final questions about the end of federal educational technology grants for the upcoming year. He confirmed that the grants were ending. This funding had been received by Colorado Online Learning (COL), the state's primary provided of supplemental on-line services. Senator Windels expressed her hopes that the committee would be addressing on-line issues.

03:49 PM -- Task Force Perspectives and Feedback

For the purposes of providing feedback and perspectives on the issues discussed and presented during the meeting, the task force was represented by three school district officials, representing school districts of different sizes. Cindy Stevenson, Superintendent, Jefferson County Schools, representing one of the state's large school districts, discussed the categorical funding distribution for Jefferson County Schools and distributed a hand-out showing the school district's budgeted expenditures and the estimated funding sources for categorical programs in the district. (Attachment ). She discussed the pressures and stakes for school districts in providing categorical programs and said she would present a "wish list" or what the school district's priorities would be if it received the amount, $87.8 million, projected as its categorical funding gap.

03:52 PM

Dr. Stevenson reviewed a specific list of priorities compiled by Jefferson County school district administrators, including:

adding 15 days to every teacher's school year, to include additional time for teacher training and more direct intervention with students;
adding and updating materials and resources for students;
establishing intervention specialists and ensuring core intervention for students struggling with literacy and reading skills, in an effort to avoid subsequent special education costs;
increasing the availability of preschool in the district;
lowering kindergarten class size and implementing full-day kindergarten for those in high-risk and high-poverty schools;
reducing class size in grades 4-6 in high-poverty schools;
adding math and science teachers in the high schools;
implementing alternative programs and learning plans for at-risk students to address the dropout problem;
increasing safety measures at schools;
reducing student fees;
establishing leadership development for district leaders; and
replacing paraprofessionals with trained teachers.

03:58 PM

Peg LePlant, Chief Financial Officer, Englewood School District, represented one of the state's medium-sized school districts. She noted the school district's demographics, including the fact that 43 percent of the students qualify for free and reduced lunch. Ms. LePlant stated that $2.6 million from the district's general fund will have to go to special education, to provide services for approximately 500 special education students in the district. She described the challenges of providing for the district's special education students and its English language learners.

04:02 PM

Glen McClane, representing the Platte Valley School District, presented the perspectives of a small school district. He noted that transportation needs have a big impact on his district. Additionally, vocational education and funding play a major role in Mr. McClane's rural school district. He said that Platte Valley is basically unable to offer a true gifted and talented program, but that for purposes of special education, the school district is part of the Centennial BOCES. He provided figures for shortfalls in special education reimbursement, and added that the cause and effect of funding shortfalls may be difficult to assess in a small school district, as employees wear many different hats. He discussed some of the cuts that the school has had to make in recent years, including eliminating driver's education courses and cutting back on student materials and supplies. He estimated the categorical shortfall for his school district as over $1 million.

04:15 PM

Representative King asked about inflationary increases built into a school district's salary survey. Dr. Stevenson responded and noted that the district's recent mill levy override allowed the school district to sustain existing programs, but not to add any new programs. Mr. McClane and Ms. LePlant also responded to inflationary increases built in to the salary schedule.

04:20 PM

Representative Merrifield asked whether the three school districts received an increase in state funding for this school year. Ms. LePlant said that Englewood School District received less because Englewood is a declining enrollment school district. Dr. Stevenson said that Jefferson County School District is also a declining enrollment school district and noted that Amendment 23 was passed before additional expectations have been placed on school districts. Mr. McClane said that between the 2003-04 to 2004-05 school years, the district did receive more funding. He said that both enrollment levels and receipt of at-risk funding impact his school district.

04:25 PM

Senator Windels commented on Amendment 23 provisions and asked the school district representatives about both facilities needs and No Child Left Behind (NCLB) Requirements. Dr. Stevenson said that a recent bond issue has helped the school district with its facilities. She indicated that NCLB has placed mandates that the school district supports, but that the programs that would help meet NCLB goals, such as free preschool for students in poverty and full-day kindergarten for students in poverty, are not affordable for the school district.

04:29 PM

Mr. McClane said that capital reserve funds no longer cover his district's costs for capital needs, and the school district will be asking voters for approval of two bond issues in November. He said that the NCLB pressures are similar to those already expressed. Ms. LePlant said that the school district is not able to invest in new buildings and is trying to maintain its older buildings. She said the district's poverty level pose challenges, but the district has actually seen a decrease in its Title I funding because of way that census data is being utilized in allocations.

04:33 PM

Senator Windels thanked the three panel members for sharing stories from their school districts. She announced that the next committee meeting would be on September 13th. Representative King requested that representatives from charter schools be added to the next agenda.

04:37 PM

The committee adjourned