Adjusting the Foundation School Program Payment Schedule

“Smoothing Out”

Adjusting the Foundation School Program Payment Schedule

Background

Texas provides billions of dollars to school districts through the Foundation School Program (FSP) to help fund public education. As part of the state’s partnership with local school districts, a system was

established to distribute state funding throughout the year. According to the current state payment system, districts receive the majority of their funding from the state early in the fiscal year.

During the 80th Legislative Session, an amendment was offered to Senate Bill 1848 (SB 1848) that would have “smoothed out,” or more evenly distributed, FSP payments over the fiscal year. Supporters of the amendment argued that adjusting the FSP payment schedule was critical to lowering the state’s debt burden and maintaining its favorable bond rating. While arguing that smoothing out is necessary for the state's future economic viability, there was no indication of how much money smoothing out would actually save.

However, the change would have been very difficult for school districts that set their budgets based on the existing payment schedule. Many districts would incur increased costs from borrowing money to meet their own short‐term cash needs. Some districts would have lost revenue from short‐term cash investment interest. SB 1848 did not pass and state aid payments currently flow as they have in the past, but interest in smoothing out state payments remains.

While six years have passed since the 80th Legislative Session, the topic of smoothing out was broached again during an October 2012 interim Appropriations Subcommittee hearing on the state’s current fiscal condition.

FSP Payment Schedule

The state distributes the FSP payments to school districts throughout the year, with districts receiving the majority of their FSP funds between September and November. The state disburses FSP funds to districts according to three payment schedules depending on district wealth per pupil:

 Category 1 districts have wealth per pupil below half the statewide average and receive 35 percent of their payments during September through November.

 Category 2 districts have between half the statewide average and the statewide average and receive close to 50 percent of their payments during the same time period.

 Category 3 districts have a wealth per pupil above the state average and receive 80 percent of their payments within the first two months of the fiscal year.¹

District Impact

School districts do not collect local property tax revenue until months after the beginning of the school year. The current FSP payment schedule recognizes districts’ delayed access to local property tax revenue and thus provides the bulk of the districts' state revenue early in the school year. Property tax

1 Texas Education Agency, Schedule of Monthly School Fund Payments.

rate compression mandated by the state has necessitated a larger contribution of state revenue to public schools. The state contributes approximately 45 percent of the cost of public education in Texas.² Accordingly, the timing of the FSP payments is of critical importance to schools.

If the FSP payments to districts are smoothed out, Category 3 districts (i.e., the wealthier ones) are likely to experience the biggest reductions in their early state payments. However, Category 1 districts (i.e., the least wealthy ones) also will be impacted, as they are the most reliant on state aid and the least able to borrow money to cover a cash flow shortfall if the amount of state aid provided early in the year is no longer sufficient to meet the costs of starting school.³

State Perspective

In order to raise the money necessary to address the state’s cash flow shortages each fiscal year, the comptroller of public accounts issues “Tax and Revenue Anticipation Notes” (TRAN). These notes are short‐term bonds that mature over the course of the state’s fiscal year. In 2012, the comptroller issued

$9.8 billion in TRAN. These notes were issued in August of 2012 and will mature in August 2013.

While TRANs raise revenue for the state, issuing these bonds also increases the state's borrowing costs, as the state is required to repay these TRANs at an interest rate of 0.225 percent.⁴ Adjusting the FSP payment schedules to more evenly distribute state aid to school districts throughout the fiscal year would allow the state to avoid larger payments to districts early in the fiscal year, thus reducing the nominal amount of TRANs that will be issued and, in turn, the state's overall borrowing costs. However, this method for balancing the state’s ledger falls squarely on school district budgets. The smoothing out approach potentially addresses a cash flow problem for the state but at the expense of school districts.

Conclusion

Smoothing out the FSP payment schedule partially shifts the responsibility for funding property tax relief back to school districts as the state attempts to balance its books. Legislative committees may revisit the issue of smoothing out the state's payment schedule to school districts as they take inventory of the effects of the 2011 budget deficit and seek “efficiencies” to strengthen the state’s fiscal position. To date, the state has never determined exactly how much money would be saved by smoothing out the payment schedule. However, it is difficult to envision a smoothing out scenario that would be beneficial or revenue neutral for school districts.

2 Legislative Budget Board, “Fiscal Size‐Up: 2012–13 Biennium,” January 2012, p. 222.

3 Texas Association of School Business Officials, “Testimony to Texas Senate Finance Subcommittee on Government Issues,”

September 2008, p. 2–3.

4 Comptroller of Public Accounts, “Texas Short Term Notes Receive Highest Ratings,” October 2012.

Prekindergarten

Background

In 1984, the Texas Legislature established a half‐day prekindergarten program to help eligible four‐year‐

old students develop the language, mathematics, and social skills they will need to succeed in public school. A school district must provide a half‐day prekindergarten (pre‐K) program if 15 or more eligible students reside in the district.

Children Eligible for Free Pre‐K

Over the years, the Legislature has expanded the categories of students who are eligible for the state’s free pre‐K program to include: children unable to speak English; students deemed educationally

disadvantaged (i.e., eligible for free or reduced‐price lunch); homeless students; children whose parents are either on active military duty, in an activated reserve unit, or who were killed or wounded while serving on active duty; and children in the Texas foster care system.

A Texas school district may extend its free pre‐K program to three‐year‐old children who meet the same eligibility requirements. The district receives per student funding from the state for this expansion.

Districts also may allow other students to attend pre‐K, but the state does not provide funding for noneligible students.

Pre‐K Funding

The state provides funding to districts for each eligible three‐ or four‐year‐old student to attend a half‐

day pre‐K program. Districts may fund the second half of a full‐day program in a variety of ways, including, but not limited to, Title I or Title III federal funds; local funds; other state, federal, or foundation grants; and compensatory education funds.

In past years, the Texas Education Agency (TEA) administered the Early Start Grant program to provide districts with additional state funding to extend the half‐day pre‐K program to a full‐day program for eligible students. But, in 2011, the Texas Legislature eliminated funding for the state’s Early Start Grant program. The elimination of grant funding forced some school districts committed to offering full‐day programs to utilize local dollars to fund the second half of the day. Other districts scaled back their programs due to budgetary constraints.

Pre‐K Partnerships and Delivery Models

Given state and local interest in preparing all children to be ready for kindergarten (i.e., “school ready”), school districts, childcare centers, and Head Start have forged partnerships to leverage resources and serve more students. Some delivery models include school districts working in coordination with Head Start or with a private childcare center. The state standards applicable to such programs vary based on resources, location, and type of partnership. For instance, state pre‐K programs fall under the purview of TEA, while childcare centers are regulated by the Texas Department of Family and Protective Services (TDFPS). Texas public school instructors must be certified teachers. While childcare centers are not required to have certified teachers, their centers must be licensed by the TDFPS.

Accountability

To evaluate the effectiveness of school district pre‐K, Head Start, and community‐based childcare programs in preparing children for kindergarten, state leaders enacted the School Readiness

Certification System. Now known as the Kindergarten Readiness System, the Texas Education Agency operates the program, which is housed at the Region 17 Education Service Center. It is the only system in the nation that evaluates pre‐K programs utilizing multiple delivery models.

To determine a program’s effectiveness in preparing students for kindergarten, the Kindergarten Readiness System analyzes a student’s preschool data as well as the same student’s achievement on the kindergarten reading diagnostic instrument. High‐performing early childhood education programs are awarded the “Prekindergarten Center of Excellence” designation, a State of Texas gold standard for high quality pre‐K.

Currently, the Kindergarten Readiness System certification is available free of charge to school districts and childcare centers; however, that may cease if the Legislature does not allocate funds to support the program during the next session. During the 82nd Legislative Session, legislators discussed a proposal that would have deducted money from Foundation School Program (FSP) funds to pay the costs of the certification. That measure did not pass.

83rd Legislative Session

Pre‐K funding will likely be discussed during the 83rd Legislature. Elimination of the Early Start Grant forced many districts to scale back their pre‐K programs to half‐day programs even though their students were making gains in a full‐day program. Other districts have been forced to dip into local funds to continue their full‐day programs but will unlikely be able to sustain that funding strategy.

In document A GUIDE TO TEXAS PUBLIC EDUCATION (Page 33-37)