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    Moak, Casey & AssociatesTASA Midwinter Conference

    Tuesday, January 31, 2012

    Calm Before the Storm: Interim

    Developments in School Finance

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    Introduction

    January 31, 2012Moak, Casey & Associates

    Litigation

    Budget Context

    Impact of 82nd Legislature

    Interim Issues

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    LITIGATION

    January 31, 2012Moak, Casey & Associates3

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    Litigation and Public Policy

    January 2012Moak, Casey & Associates

    The role of the courts in Texas publicschool finance

    Mechanism to cure legislativeimbalances

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    Quality Counts (2012 State Rankings)

    January 31, 2012Moak, Casey & Associates

    Standards and Accountability A-(13th)

    Transitions and Alignment A (3rd)

    Achievement C- (17th)

    Status D (23rd) Chance for Success C (40th)

    Teaching Profession C+(15th)

    School Finance D+(40th

    ) Spending F (35-49th)

    Per Pupil Expenditure 49th of 50

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    Status of Litigation

    January 2012Moak, Casey & Associates

    Causes of Action: Adequacy: Rising standards and funding cuts leave

    insufficient revenue to provide the GDK.

    Meaningful discretion: Remaining tax rate

    capacity is insufficient to offset for funding cuts, andprovide meaningful discretion to enrich.

    Efficiency/Equity: Target revenue disparities incombination with unequalized funds producesunconstitutional student / taxpayer inequity.

    Rationality: The state has failed to provide arational system based on appropriate costadjustments and structure

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    Adequacy Challenges

    January 2012Moak, Casey & Associates

    What are the standards?

    Must the state face disaster before the courtsact?

    How do the multi year evolving statestandards work into the equation?

    Do the outdated cost adjustments impair the

    adequacy of the system? Does the potential for rising dropout rates

    indicate trouble for the Texas economy?

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    Demographic Environment

    January 2012

    Public school enrollment demographics The new minorities-Anglo (39%) and the

    Economically Advantaged (41%)

    Rising challenges-At risk (46%) and limited Englishproficient (17%)

    Family characteristics: Single parent families (35%)

    Children in poverty (24%)

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    Educational Environment

    January 2012

    Rising standards Curriculum reform

    4x4

    Criticism 50% administrative costs

    Investment beyond inflation and growth

    Growth and staffing resources

    Efficiency Comptrollers FAST reports District concern over budgetary reductions

    Limited flexibility

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    Educational Results

    January 2012

    Cumulative pass rate, Exit-level (2011) 92%

    Completion rate, 5-yr. (Class of 2009) 85%

    RHSP/DAP graduates (Class of 2010) 83%

    TAKS passing rate, All Tests (2011) 76% NAEP Gr. 4 reading, Basic+ (2011) 66%

    College ready (Class of 2010) 52%

    NAEP Gr. 4 reading, Proficient+ (2011) 32%

    SAT/ACT at criterion (Class of 2010) 27%

    TAKS Commended, All Tests (2011) 16%

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    Equity Challenges

    January 2012Moak, Casey & Associates

    Is the degradation of system equity since2004 severe enough to warrant renewed

    judicial intervention?

    Did the state go too far in creating the targetrevenue system?

    What weight does the state commitment toeliminate target revenue by 2017 have?

    Should the analysis be based on total taxrates or only operational rates?

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    Rationality Challenge

    January 2012Moak, Casey & Associates

    Does a separate but unequal funding schemeconstitute suitable and efficient provision?

    Does the use of 1980s weights and

    adjustments provide the state with a rationalbasis for funding public education?

    Are the state long term commitments to adjuststandards and financing sufficient?

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    Meaningful Discretion Challenge

    January 2012Moak, Casey & Associates

    Does the system provide both adequacy and theopportunity for enrichment?

    Has the state so controlled the tax that it operatesin a manner indistinguishable from a state

    property tax? What is the impact of the cuts?

    Do districts at $1.17 have meaningful discretionto enrich?

    Should the effective combination of limited voterappeal and the potential for recapture beconsidered in the analysis?

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    Litigation Timing

    January 2012Moak, Casey & Associates

    Four groups have filed Texas Taxpayers and Student Fairness Coalition, et

    al. (Equity Center)

    Fort Bend ISD, et al. (Thompson)

    Coalition of Revenue Contributing Schools, et al.(Texas School Coalition)

    Edgewood ISD et al (MALDEF)

    Discovery process underway

    District court ruling sometime in fall Supreme Court could direct brief rehearing

    after the 2013 legislative session

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    Closing Lawsuit Observations

    January 2012Moak, Casey & Associates

    Potential additional parties

    Legislative Committee

    Constitutional challenges as an element in a

    larger debate Proclivity of the court to grant state discretion

    in all but clear out of bounds situations

    Need for a clear constitutional priority forpublic education funding

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    BUDGET CONTEXT

    January 31, 2012Moak, Casey & Associates16

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    Property Tax Issues

    January 31, 2012Moak, Casey & Associates

    125 appraisal districts subject to review in2011 51% had no fails in review

    13% had more than 2 fails Majority of failures in areas of appraisal standards,

    operating procedures and governance

    77% exceeded standards for taxpayer assistance

    TCEQ has finally ruled against Valero onpollution control amendment Issue has been extent to which other state and

    federal mandates are covered beyond at-the-site

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    State Budget Context

    Ongoing structural deficit (continued use of one-time funding sources)

    Competing demands from various areas withinstate government Public Education Health and Human Services

    State Water Plan

    Higher Education

    Transportation Growing balance in Economic Stabilization Fund

    Improved economy since last revenue estimate

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    State Structural Deficit

    2010-11 School Year Impact of Property TaxRelief (in billions) M&O tax revenue at 2006 rates $23.9 B

    Reduced M&O property tax - $17.2 B School district M&O tax relief $ 6.7 B

    Reduced by $1.1 B due to increased values/rate increases

    State revenue offset - $ 2.2 B

    $1.3 B from margins tax Shortfall to be financed $ 4.5 B

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    One-time Revenue Sources

    January 31, 2012Moak, Casey & Associates

    2007 State used surplus and phased-in property tax

    reductions

    2009 Federal Stimulus Funds: $6.4 billion GR reductions

    paid for through stimulus

    2011 FSP payment delay: $2.0 billion

    Tax speed-ups: $700 million Under-funded Medicaid: $4.8 billion ($3.8 billion

    after certification of surplus funds by comptroller).

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    Economic Stabilization Fund

    January 31, 2012Moak, Casey & Associates

    Rainy Day Fund estimates growing $7.3 billion currently estimated by end of 2013

    $6.5 billion estimated at the end of the legislative

    session Rep. Donna Howard was right during floor debate

    about improvements in Rainy Day Fund revenue Sought offset against FSP cuts from future rainy day fund

    revenue gains above estimate

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    Improved State Economy

    January 31, 2012Moak, Casey & Associates

    Job growth, sales tax collections both frombusiness and consumer purchases as wellas automobile sales, signal that the Texas

    economy has emerged from the recentrecession.

    --Susan Combs, January 6, 2012

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    Revenue Estimate

    January 31, 2012Moak, Casey & Associates

    Biennial Revenue Estimate January 2011 $77.3 billion anticipated revenue

    May 2011

    Comptroller added $1.2 billion to estimate Other changes (speed-ups, etc.) added $1.7 billion

    Certification Revenue Estimate December2011 $82.7 billion anticipated revenue

    Increase of $2.5 billion from May

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    Moak, Casey & Associates January 31, 2012

    Improved State Economy

    $1,500.0

    $1,550.0

    $1,600.0

    $1,650.0

    $1,700.0

    $1,750.0

    $1,800.0

    $1,850.0

    $1,900.0

    $1,950.0

    $2,000.0

    January March May July September November

    1-Year Moving Average Sales Tax Collections

    2008

    2009

    2010

    2011

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    Sales Tax Tracking

    January 31, 2012Moak, Casey & Associates

    ($2,000)

    ($1,500)

    ($1,000)

    ($500)

    $0

    $500

    $1,000

    $1,500

    $2,000

    $1,000

    $1,200

    $1,400

    $1,600

    $1,800

    $2,000

    $2,200

    Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13

    CumulativeShortfallorSur

    plusinMillions

    CollectionsinMillions

    Projected and Actual Sales Tax Collections

    Projected Actual Cumulative Shortfal l Linear (Cumulative Shortfall)

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    Other Major Revenue Sources

    January 31, 2012Moak, Casey & Associates

    Revenue Source Current Official

    2012 Growth

    Estimate

    Current 4 Month

    Trend

    Motor Vehicle 8.5% 14.6%

    Sales Tax 5.4% 12.3%

    Franchise Tax ? ?

    Natural GasProduction

    16.7% 84.0%

    Oil Production -10.0% 47.2%

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    Cautions

    January 31, 2012Moak, Casey & Associates

    Improving revenue will not necessarily besufficient to cover current services statebudget

    Underfunded Medicaid in current biennium Higher costs of federal mandates in 2014 a concern

    Will need to cover the underfunding plus any growth

    24 payments in the Foundation School Program

    Growth in the cost of the FSP Growing demand for other state services

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    Legislative Turnover

    January 31, 2012Moak, Casey & Associates

    Governor seeking Presidency

    Lt. Governor seeking U.S. Senate seat State senate elects replacement for Lt. Gov.

    Four state senators not seeking reelection,including chairs of Finance and Education

    28 House members not seeking reelection

    Redistricting could mean additional turnover

    Significant turnover last session as well asthis one will mean less experiencedlegislature than in past sessions

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    ----------------------------------------- (2016?)

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    THE IMPACT OF 82nd

    LEGISLATURE

    January 31, 2012Moak, Casey & Associates29

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    SB 1 Impact Overview

    Misleading/false claims of increased statesupport $1.5 billion increase in state General Revenue Fund

    appropriations to the Foundation School Programcited

    Fails to account for formula reductions of $4 billion

    Fails to account for $1.4 billion in lost state grantfunds outside the Foundation School Program

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    Role of Federal Stimulus Funds

    January 31, 2012Moak, Casey & Associates

    Statements about general revenue increasesfail to mention loss of SFSF ($3.3 billion)

    Title I and IDEA stimulus funding decrease ($2

    billion) Education Jobs money ($800 million)

    available only in 2011-12

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    LBB Fiscal Size-up 2012-13

    All Funds appropriations to the FSP for the 201213biennium are $35.5 billion, representing a $1.9 billiondecrease from the 201011 biennium spending level.

    Appropriations of General Revenue Funds account

    for $29.2 billion of this total, a $1.5 billion increasefrom the prior biennium.

    Despite the $1.5 billion increase in General RevenueFunds from the 2010-11 biennial base, total FSP

    funding for the 2012-13 biennium is $4.0 billion lessthan what school district entitlement was projected tobe for the 2012-13 biennium prior to the actions of theEighty-Second Legislature.

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    LBB Fiscal Size-up 2012-13

    Outside the FSP, TEA administers several stateand federally funded educational grant andsupport programs. The 201213 biennialappropriation for these programs and agencyadministration is $1.3 billion in General RevenueFunds, a decrease of $1.3 billion (51 percent)from 201011 biennial spending levels.

    Biennial comparisons of appropriated funds is notthe correct way to look at the states commitment

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    MCA Survey on Staffing

    Included 60 districts, 39 percent of students Respondent enrollment growth 17,593 students

    Employing 9,586 fewer total staff (3,219 fewerteachers)

    11,833 more staff needed to maintain prior yearstaffing ratios

    Extrapolated statewide, 32,000 more staff

    needed to maintain old staffing ratios (12,000teachers)

    Most expect cuts to continue next year

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    Impact of SB 1 in 2012-13

    January 31, 2012Moak, Casey & Associates

    Restoration of regular program funding to98% (RPAF)

    Reduction of 7.65% for targets (ASATRimpact) More than 600 districts likely to be on formula

    Nearly 500 districts expected to gain revenue perADA compared to 2011-12 school year (WADAsdefinition changes between years)

    Over 500 districts expected to gain in total generalfund revenue due to growth in students

    More than $1 billion reduction in ASATR in 2012-13

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    January 31, 2012Moak, Casey & Associates

    -$400

    -$300

    -$200

    -$100

    $0

    $100

    $200

    YEARLY CHANGE IN REVENUE PER WADA

    2011-12 Change in Rev/WADA 2012-13 Change in Rev/WADA

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    Impact of SB 1 After 2012-13

    January 31, 2012Moak, Casey & Associates

    It is the intent of the legislature, betweenfiscal year 2014 and fiscal year 2018, tocontinue to reduce the amount of AdditionalState Aid For Tax Reduction (ASATR) to which

    a school district is entitled under Section42.2516, Education Code, and to increase thebasic allotment to which a school district isentitled under Section 42.101, Education

    Code. Section 42.2516 is repealed effective

    September 1, 2017

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    Impact of SB 1 By 2017-18

    January 31, 2012Moak, Casey & Associates

    Nearly 700 districts gain revenue fromelimination of RPAF (repealed effective09/01/15), elimination of ASATR, basic

    allotment increase of $83 Over 300 districts expected to lose revenue

    from those changes

    About $660M moves from losers to gainers

    Average losses $350/WADA, average gains$150/WADA

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    INTERIM DEVELOPMENTS

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    Interim Studies - House

    House Public Education Committee UIL

    STAAR Implementation

    Charter Schools DAEPs and JJAEPs

    Parental and Community Involvement

    House Ways and Means

    State Tax Structure Truth in Taxation

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    Interim Studies - Senate

    January 31, 2012Moak, Casey & Associates

    Senate Interim Charges Open records

    DAEPs and JJAEPs

    Most Senate charges not yet revealed

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    Special Interim Committees

    January 31, 2012Moak, Casey & Associates

    Select Committee on School Finance Joint Legislative Interim Committee

    Membership uncertain

    Recommendations by January 15, 2013 Committee dissolved September 1, 2013

    Joint Select Committee on EconomicDevelopment

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    Interim Studies - TEA

    Dollars Appropriated for Efficiency Tools Commissioner appropriated $1.5 million for the

    biennium to develop efficiency and productivitytools

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    Financial Accountability / Efficiency

    FAST System Methodology Number of stars determined by average of separate

    finance and academic performance ratings

    Academic rating based on statewide percentileranking of aggregated individual student growth

    Finance rating based on cost-adjusted spending perstudent compared to fiscal peers

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    FAST Spending Measure

    Cost adjusted spending per student: Operating expenditures (object codes 6100 6499)

    All funds

    Functions 11 53, excludes transportation and food

    service) Adjusts payroll (6100 6199) and contracted pay

    (6211, 6212, 6213, 6219, 6249, 6299) by thecompetitive wage index. Adjustments range fromreducing spending by 10% to increasing it by 45%

    Redistributes a portion of SSA funds from fiscalagents to member districts based on actual financialdata match to f-33 record

    Moak, Casey & AssociatesJanuary 31, 2012

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    FAST Spending Measure

    January 31, 2012Moak, Casey & Associates

    Exclusion of transportation and food serviceleaves out nearly $9.8 billion over the three-year period

    $338 million reallocated from fiscal agents tomembers over the three-year period

    $676 million remained in fiscal agents due tomismatch of data

    Cost adjustment adds and subtracts $9.794billion

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    January 31, 2012Moak, Casey & Associates

    6,000

    7,000

    8,000

    9,000

    10,000

    11,000

    12,000

    13,000

    Spending

    perStudent,

    20

    10

    FAST Cost Adjustment Impact by District Type

    Unadjusted per Student Adjusted per Student

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    January 31, 2012Moak, Casey & Associates

    ($1,000)

    ($500)

    $0

    $500

    $1,000

    $1,500

    $2,000

    $2,500

    Change Caused by Cost Adjustment

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    Interim Studies Sunset

    Sunset Commission to study TEA and THECB

    Will result in must pass education legislation

    House Senate

    Bonnen (Brazoria) Nichols (Cherokee)

    Anchia (Dallas) Patrick (Harris)

    Cook (Navarro) Birdwell (Hood)

    Dutton (Harris) Huffman (Harris)

    Price (Potter) Whitmire (Harris)

    Public member (not yet appointed) Public member (not yet appointed)

    Moak, Casey & AssociatesJanuary 31, 2012

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    Calendar for Sunset

    January 31, 2012Moak, Casey & Associates

    Activity TEA THECB

    Staff Review March mid-October

    September 2011 February

    Staff ReportRelease

    Mid-October Mid-March

    Public

    Testimony

    November 13, 14 April 10

    CommissionDecisions

    December 18, 19 June 5, 6

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    TEA Sunset Process

    January 31, 2012Moak, Casey & Associates

    Issues addressed in TEA Self Report include: Rule-making for school finance

    Elimination of certain reports, requirements

    Overlapping school and district improvement plans

    Unfunded grant programs SBEC revisions

    Charter school revisions

    Flexibility in implementation of required sanctions

    Reduced monitoring of certain school district functions

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    Amanda Brownson, Ph. D.

    Dee Carney

    Chris Grammer

    Bob Popinski

    Larry Throm

    Maria Whitsett, Ph. D.

    Joe Wisnoski

    Lynn M. Moak

    Daniel T. CaseyPartners

    Kathy Mathias

    Larry Groppel, Ed. D.Thomas V. Alvis, Ph. D.

    Consultants

    Susan Moak

    Kari Ruehman

    Administrative Staff

    400 West 15th Street, Suite 1410, Austin, Texas 78701-1648

    Ph. (512) 485-7878 Fax (512) 485-7888

    www.moakcasey.com

    Moak Casey & Associates52


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