The Slippery Slope of School Finance Predictions. Legislative Session

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1 The Slippery Slope of School Finance Predictions Presented by Moak, Casey & Associates TASA/TASB 2012 Legislative Session 2 1

2 Legislative Timetable November 12, 2012 Pre Filing January 8, 2013 First day May 27, 2013 Last day May 28, 2013 First possible date for Special Session I 3 State Leadership Stability in the short term Jockeying for next election season has already begun Elections message to incumbents difficult to discern, though overall dissatisfaction apparent 4 2

3 Legislative Turnover Senate Lt. Governor loses U.S. Senate seat to Tea Party endorsed candidate, remains Lt. Governor Result of Senate Republican Primaries: Ogden Schwertner Shapiro Paxton Harris Hancock Jackson Taylor Wentworth Campbell Wendy Davis v. Mark Shelton general election contest 5 Senate Education 82 nd Legislature Committee Members Shapiro (R) Chair Patrick (R) Vice Chair Davis (D) Carona (R) Gallegos, Jr. (D) Ogden (R) Seliger (R) Van de Putte (D) West (D) 83 rd Legislature Outlook Not seeking reelection Seeking reelection Running against Rep. Shelton Seeking reelection Seeking reelection Not seeking reelection Seeking reelection Seeking reelection Seeking reelection 6 3

4 Legislative Turnover House 40 House members (1/4 th of the total House) not returning so far Fall elections could mean additional turnover With significant turnover last session, at least 50% will be freshman or sophomore legislators 7 House Public Education 82 nd Legislature Committee 83 rd Legislature Outlook Members Eissler (R) Chair Defeated in primary Hochberg (D) Vice Chair Allen (D) Aycock (R) Dutton, Jr. (D) Guillen (D) Huberty (R) Shelton (R) Smith (R) Strama (D) Weber (R) Not seeking reelection Seeking reelection Seeking reelection Seeking reelection Seeking reelection Seeking reelection Running for State Senate Defeated in State Senate primary Seeking reelection Running for Congress 8 4

5 Legislative Turnover House Vacant Committee Chairs (13 of 36) Agriculture and Livestock Border and Intergovernmental Affairs Corrections Criminal Jurisprudence Elections General Investigating and Ethics Homeland Security and Public Safety Judiciary and Civil Jurisprudence Licensing and Administrative Procedures Pensions, Investments and Financial Services Public Education Redistricting Technology 9 Who s In Charge Over There? House Public Education? Rep. Aycock House Appropriations Rep. Otto, Chair of Article III (Education) Senate Education? Sen. Patrick Sen. Seliger Senate Finance Sen. Williams (already named) 10 5

6 State Revenues and Expenditures 11 State Budget Current State Biennial Budget $173.5 billion All Funds $87.7 billion General Revenue and GR related Current Biennium Revenue Surplus Rainy Day Fund is approaching flood stage Current Biennium Spending Hole Options to fill spending hole Use current excess revenue Use Rainy Day Fund Current Services Spending for Next Biennium Revenue for Next Biennium 12 6

State Revenues Much Better Than Projected Comptroller reports $3.7 billion more revenue in 2011 1212 than projected The previous projection (December 2011) was $2.

7 State Revenues Much Better Than Projected Comptroller reports $3.7 billion more revenue in than projected The previous projection (December 2011) was $2.5 billion more than the Legislature had when it was in session Significant share of additional revenue will automatically go to the Rainy Day Fund 13 Improved State Sales Tax Collections $2, Year Moving Average Sales Tax Collections $2,050.0 $2,000.0 $1, $1,900.0 $1,850.0 $1,800.0 $1,750.0 $1,700.0 $1,650.0 $1,600.0 January February March April May June July August September October November December 14 7

Major Tax Revenue Sources Current Official 2012 Growth Actual 2012 Revenue Source Estimate Growth Rate Sales Tax 5.4% 12.6% Motor Vehicle Sales Tax 8.5% 19.

4% 15 General Revenue Compared to May 2011 Estimate Additional General Revenue in December 2011 Estimate Higher 2012 General Revenue Higher 2013 General Revenue*

8 Major Tax Revenue Sources Current Official 2012 Growth Actual 2012 Revenue Source Estimate Growth Rate Sales Tax 5.4% 12.6% Motor Vehicle Sales Tax 8.5% 19.5% Franchise Tax 2.5% 16.1% Natural Gas Production 16.7% 38.3% Oil Production 10.0% 42.8% All Taxes 3.8% 13.4% 15 General Revenue Compared to May 2011 Estimate Additional General Revenue in December 2011 Estimate Higher 2012 General Revenue Higher 2013 General Revenue* Higher 2014 and 2015 General Revenue* Cumulative Additional General Revenue Current Biennium $1.5 Billion $3.0 Billion $2.7 Billion $7.2 Billion Next Biennium $7.2 Billion $14.4 Billion * Assumes constant revenue at 2012 level. 16 8

Rainy Day Fund Additions Compared to May 2011 Estimate Beginning Balance Projected Ending Balance, 2013 Rainy Day Balance 8 31 15

17 Property Value Growth and Enrollment Growth Modest value growth shown in 2011 final state study 2012 13 TEA projects 1.

9 Rainy Day Fund Additions Compared to May 2011 Estimate Beginning Balance Projected Ending Balance, 2013 Rainy Day Balance Current Biennium $5.0 Billion $8.0 Billion Next Biennium $11.8 Billion * Assumes constant revenue at FY 12 level. 17 Property Value Growth and Enrollment Growth Modest value growth shown in 2011 final state study TEA projects 1.3% 2011 up 1.2% (LBB projection: 0.97%) 2010 down 1.6% 2009 up 1.2% Enrollment Growth 67,000 in school year (1.4%) 81,000 in school year (1.7%) 18 9

10 15.00% Percent State Property Value Growth/Decline 13.00% 12.36% 11.00% 10.90% 10.58% 10.69% 9.00% 9.13% 7.00% 5.69% 5.00% 3.00% 1.00% 1.16% 1.16% 1.00% 3.00% % 19 Appropriations Requests Six state agencies account for 74% of all General lrevenue in the current bienniumi Texas Education Agency 37.6% Health and Human Services Commission 17.6% Department of Criminal Justice 7.2% Department of Aging and Disability Services 4.9% Teacher Retirement System 4.2% Department of State Health Services 2.6% Source: Legislative Budget Board, Fiscal Size up Biennium 20 10

11 Biennium Requests Agency 2013 Emergency Base Increase Exceptional Items Texas Education Agency $4.233 $0.259 Health and Human Services Commission $ Department of Criminal Justice Department of Aging and Disability Services Teacher Retirement System Department of State Health Services Subtotal $4.600 $ $3.850 Amounts in billions, and represent all funds other than federal. 21 TEA Legislative Appropriations Request Foundation School Program Appears to be full funding at formula levels (after cuts) Assumes 1.2% growth in property values No new awards for IFA, but continued funding of EDA (with roll forward) and IFA intact $4.3 billion increase in total Includes funding to offset the cost of the delayed FSP payment from this biennium (about $2 billion) 22 11

12 TEA Legislative Appropriations Request Exceptional items $220 million for Instructional Materials Allotment $22.1 million for assessment system $5.2 million for Texas Student Data System $2.1 million for educator certification online system $1 million for testing security and investigations $10.6 million for Windham schools 23 TEA Legislative Appropriations Request 10% Reduction Applies only to General Revenue items outside the Foundation School Program $126 million IMA 9% reduction $53 million 24 12

Transportation Criminal Justice 25 Scenario 1 2012 Revenue Levels, No Growth Revenue for 2013, 2014, and 2015 is identical to 2012

13 State Budget Context Improved economy since last revenue estimate Growing balance in Economic Stabilization Fund Competing demands from various areas within state government Public Education Health and Human Services State Water Plan Higher Education Transportation Criminal Justice 25 Scenario Revenue Levels, No Growth Revenue for 2013, 2014, and 2015 is identical to 2012 Each revenue source is maintained at 2012 level After 13.4% growth year over year in tax collections, growth rate is 0% for three straight years 26 13

14 Scenario 1 Revenues and Expenditure Needs Current Biennium Amount Additional General lrevenue FY 2013 (sum of $7.2 Billion 2012 and 2013, above May 2011 estimate) Rainy Day Fund Balance $8.0 Billion Available for Emergency Appropriation $15.2 Billion HHSC and DADS Medicaid Gap $4.6 Billion TEA Gap? $0.5 5Billion Other? $1.0 Billion Needs within Current Biennium $6.1 Billion 27 Scenario 1 Revenues and Expenditure Needs Biennium Amount Additional General Revenue FY 2012 through 2015 $14.4 Billion Rainy Day Fund Balance $11.8 Billion Available for Increased Appropriation $26.2 Billion Less 2013 Emergency Appropriation $6.1 Billion Net Available for Increased Appropriation $20.1 Billion TEA Human Services Other Agencies Base Needs Next Biennium Exceptional Items Total Base + Exceptional $4.2 Billion $5.9 Billion $1.0 Billion $11.1 Billion $5.0 Billion $16.1 Billion 28 14

8 Billion 2012 and 2013, above May 2011 estimate) Rainy Day Fund Balance 8 31 13 $8.0 Billion Available for Emergency Appropriation $18.

15 Scenario 2 All Revenue Sources Grow 4% per Year Base of 2012 grows 4% per year Transfers to Rainy Day Fund increase Undedicated taxes increase 29 Scenario 2 Revenues and Expenditure Needs Current Biennium Amount Additional i General lrevenue FY 2013 (sum of $10.8 Billion 2012 and 2013, above May 2011 estimate) Rainy Day Fund Balance $8.0 Billion Available for Emergency Appropriation $18.8 Billion HHSC and DADS Medicaid Gap $4.6 Billion TEA Gap? $0.5 5Billion Other? $1.0 Billion Needs within Current Biennium $6.1 Billion 30 15

Scenario 2 Revenues and Expenditure Needs 2014 15 Biennium Additional General Revenue FY 2012 through 2015 Amount $26.

Agencies Base Needs Next Biennium Exceptional Items Total Base + Exceptional $12.1 Billion $38.6 Billion $6.1 Billion $32.5 Billion $4.2 Billion $5.9 Billion $1.0 Billion $11.1 Billion $5.

16 Scenario 2 Revenues and Expenditure Needs Biennium Additional General Revenue FY 2012 through 2015 Amount $26.5 Billion Rainy Day Fund Balance Available for Increased Appropriation Less 2013 Emergency Appropriation Net Available for Increased Appropriation TEA Human Services Other Agencies Base Needs Next Biennium Exceptional Items Total Base + Exceptional $12.1 Billion $38.6 Billion $6.1 Billion $32.5 Billion $4.2 Billion $5.9 Billion $1.0 Billion $11.1 Billion $5.0 Billion $16.1 Billion 31 Summary of Scenarios Without the use of the Rainy Day Fund, slow revenue growth scenarios can t match th demand in base LAR plus exceptional items Moderate growth scenarios likely to exceed LARs Restoration of cuts? More tax relief? 32 16

17 State Spending Limit Pay as You Go Limit (Art. III, Sec. 49a) RequiresComptroller to certifyappropriations 4/5ths vote required to override failure to certify Limitation on the Growth of Appropriations (Art. VIII, Sec. 22) Applies to appropriations from state taxes not dedicated by the Constitution Limits increases to growth in total personal income in the state Applies to about $70 billion of current GR budget 33 State Spending Limit (cont d) New push to further limit growth in state spending to combination ofinflation and population growth Recent press conference by Governor Perry, Lt. Gov. Dewhurst and Senator Dan Patrick Governor Perry indicated some flexibility on education funding under a new limit Assuming about 2.1% annual population growth and 2% inflation, cap in would be about 8.3 percent above previous biennium 34 17

18 Legislative Goals New goals Top ten states in college and career readiness Elimination of Performance Gaps Old Goals Child centered resources keyed to needs Equitable schoolfinance system 35 Standards and Money Concern over standards is real, but Long term revenue growth will not take place without standards Legislative responses to higher performance marks is real Base line 2012 performance must increases to secure long term higher funding 36 18

19 2012 STAAR EOC Test Results EOC Test Participants* Achieving: Level II, Phase in 1 Standard Level II, Recommended Standard d Level III Eng. I Reading 68% 46% 8% Eng. I Writing 55% 34% 3% Biology 87% 41% 9% Algebra I 83% 39% 17% World Geog. 81% 40% 13% *Participants not limited to first time 9 th graders; results include accelerated students enrolled in earlier grade levels and mandatory participants enrolled in subsequent grade levels. Source: TEA STAAR EOC Summary reports, June EOC Test Participants* Achieving: Level II, Phase in 1 Standard Level II, Recommended Standard Level III Eng. I Reading 68% 46% 8% Econ. Disadvantaged 57% 33% 4% Non econ. Disadvantaged 81% 61% 13% Eng. I Writing 55% 34% 3% Econ. Disadvantaged 41% 21% 1% Non econ. Disadvantaged 70% 50% 6% Biology 87% 41% 9% Econ. Disadvantaged 81% 28% 3% Non econ. Disadvantaged 93% 56% 15% Algebra I 83% 39% 17% Econ. Disadvantaged 77% 28% 9% Non econ. Disadvantaged 90% 52% 25% World Geography 81% 40% 13% Econ. Disadvantaged 72% 26% 5% Non econ. Disadvantaged 90% 56% 23% Source: TEA STAAR EOC Summary reports, June

61% correct Level III Cut Points 2304 82% correct 2476 92% correct 4576 83% correct 3500 4000 4333 37% correct 63% correct 78% correct 3500 46% correct 4000 69% correct *Raw scores corresponding to

20 2012 STAAR EOC Test Cut Points* EOC Test (Paper Administration) Eng. I Reading Eng. I Writing Biology Algebra I World Geography Level II, Phase in 1 Cut Points % correct % correct % correct Level II, Recommended Cut Points % correct % correct % correct Level III Cut Points % correct % correct % correct % correct 63% correct 78% correct % correct % correct *Raw scores corresponding to scale score cut points are specific to EACH administration of a state test due to the use of post test equating procedures by the state testing contractor. This is done to help assure that there is a consistent level of difficulty of each secure test given over the series of administrations provided % correct September 2012 Source: TEA STAAR Raw Score Conversion Tables, May STAAR Bridged to TAKS (A Look at Apples and Oranges) Percent Met TAKS Standard by Grade Level Tested STAAR Subject in Spring 2012 Tested (English) Reading 92% 87% 87% 85% 87% 89% Mathematics 86% 89% 86% 82% 82% 78% Writing 96% 96% Science 87% 78% Social Studies 97% Average Raw Score by Grade Level Tested in Spring STAAR Subject 2012 Tested (English) Reading 65% 66% 67% 69% 66% 67% Mathematics 65% 67% 68% 60% 56% 55% Writing 59% 61% Science 73% 63% Social Studies 56% Sources: Table 1. TEA STAAR TAKS Equivalent Tables; Table 2. Calculated from TEA STAAR 3 8 September 2012 Summary Reports

21 AYP Waiver 33 states have been granted waivers under the federal AYP waiver process. Texas expressed intent to apply for a general waiver, not the AYP waiver that Sec. Duncan laid out. If granted, this waiver would provide much broader authority that the AYP waiver granted to other states. One other state has requested a general waiver not yet granted. 41 School Finance and the 83rd Selective increases Implement 2011 intent Restore the cuts Inflation plus population growth Respond to the court case Holding Pattern 42 21

22 Power in Appropriations The General Appropriations Act can change: Basic allotment (increase) RPAF (increase) Target adjustment factor (reduce) Transportation reimbursement rates Gifted/Talented weight (increase) Tier 2 guarantee level and DTR (increase) IFA/EDA program yield and $0.29 cap (increase) 43 Federal Funds Possibility of sequestration early in allocations to be largely unaffected allocations to be reduced by amounts for both and TEA posting revised allocations Child Nutrition unaffected 44 22

23 Other Issues Vouchers Charter Expansion and Facilities TRS Care TREs Economic Development Facilities and Debt 45 Litigation Plaintiffs Lawyers Issues Judge Timetable 46 23

24 Amanda Brownson, Ph. D. Dee Carney Chris Grammer Bob Popinski Larry Throm Maria Whitsett, Ph.D. Joe Wisnoski Associates Lynn M. Moak Daniel lt. Casey Partners Susan Moak Kari Ruehman Administrative Staff Thomas V. Alvis Ph. D. Larry Groppel Ed. D. Kathy Mathias Alicia Thomas, Ph. D. Consultants 400 West 15 th Street, Suite 1410, Austin, Texas Ph. (512) Fax (512) September 2012 Moak, Casey & Associates 47 24

SCHOOL FINANCE, COURTS, AND THE LEGISLATURE

SCHOOL FINANCE, COURTS, AND THE LEGISLATURE CONTEXT LEADING UP TO THE 83 RD LEGISLATURE September 28, 2013 Moak, Casey & Associates 3 The Legacy of 2011 Cut spending by $15.2 billion (All Funds) Cut public