The previous post (Liveblogging Senate Ed) ended rather abruptly for a reason… a 20-minute recess was called, to reconvene at 10:55.  However, it seems that the House Education Committee was due to meet at 11, and expected some of the administration officials from the Senate Ed meeting to be present at their meeting.

House Speaker Jimmy Naifeh stormed into the Senate meeting room just at the end of the recess with some harsh words about folks thinking the Senate committee is more important than the House committee… once he got back to the House meeting room, he reportedly closed the meeting.

Senate Ed was recessed for an additional 30 minutes by the only member present — now-Independent Mike Williams.  At 11:30, Chairman Woodson recessed the meeting until 3:30 p.m.

So, I had a couple of hours to hang out and talk, trying to discern what’s likely to happen with BEP 2.0 and the cigarette tax.  There seems to be consensus among several legislators I trust that the education proposal will pass, but passage of the cigarette tax is much less certain… meaning that ongoing funding is much less certain.

At 1:30, the House Education and Finance Committees met in joint session to hear roughly the same presentation as the Senate committee heard in the morning.  Unlike the Senate session though, there were questions from several committee members about why income is not considered in the new fiscal capacity formula.

Comptroller John Morgan and UT Economist Bill Fox explained, multiple times, that the new measure of a county’s ability to fund education locally is derived only from the property tax base and sales volume — they’re only measuring the ability to raise local revenue, which is defined by tax base.  They aren’t measuring service needs (number of students, at-risk students, etc.) in the fiscal capacity formula; those things are accounted for in the components part of the BEP.

After three and a half years of studying this thing, I can tell you it’s brilliant in its simplicity.  Needs are addressed on the component side, where they should be; the fiscal capacity formula is simple and transparent, without any political shenanigans hidden in a formula too complex for most people to begin to comprehend.

Morgan pointed out repeatedly that regression formulas sometimes have odd consequences; in the current formula, as tax base increases, fiscal capacity decreases (meaning the county appears less able to pay, rather than more able).  It’s just completely backwards of what it should be.

Income is a measure of an individual’s ability to pay, but the formula is to measure a county’s ability to raise revenue.  Unless the Legislature is going to grant counties the ability to impose a county income tax (bad idea), personal income isn’t a measure of a local government’s ability to raise revenue.  It’s related, but not a good measure.

I don’t know why it had to be asked so many times, but it was.  It was a thoroughly long day.
*  *  *
Leaving the parking garage at the Sheraton, a blue SUV two cars ahead of me in the checkout line had an ACES bumper sticker just like mine — the one with the little red dinosaur, like the picture under my links that no longer goes anywhere.  I don’t know who it was, but I felt very excited to see the sticker there.

It’s amazing what four young parents can do.  Notice that we didn’t have a monster budget fight with the City this year?  I think they deserve some of the credit for that.

Senators on the Education Committee have filed in as the roll was called, joined by Sen. Randy McNally, Chairman of Finance, Ways, and Means, along with Sen. Jim Kyle, carrying the Governor’s bills on education.

Commissioners of Education and Finance are also present. The discussion today is about fiscal capacity, as well as proposed accountability measures.

Finance Commissioner Dave Goetz asks committee members to refer to a "Core Principles of the BEP" document, which the committee did not yet have. It was distributed. Sen. Kyle asks if the committee can go into recess for five minutes so that members may receive the amendment language.

Patrick Smith of the Governor’s office goes over the basics of the BEP — that is was implemented in response to the original Small Schools lawsuit. In order to provide equitable opportunities, the State provides dollars to local communities on the basis of their ability to raise local revenue. There costs assigned for all the components of education (books, teachers, etc.) and the costs of these components are reviewed annually, whether or not there are any structural changes to the formula.

Smith: we’ve been hampered in addressing changes over the past couple of years, because of the disagreements over how the money is divided. The core principles embodies in BEP 2.0 is that it is simple and understandable, without the underlying complexities. After this is implemented, we can then address what other components should be included or excluded.

Comptroller John Morgan and UT Economist Bill Fox are present, and concur with the premise in BEP 2.0 that 90% of local revenues for education are derived from local option sales taxes dedicated to education, and local property taxes dedicated to education. Other basic principles in BEP 2.0 is the elimination of the Cost Differential Factor (CDF), and bringing the state share of teacher salaries from 65% back up to 75%. Note: Eliminating the CDF takes money from Oak Ridge, but increasing the State’s share of teacher salaries offsets that loss.

Funding 100% of at-risk students (up from 35%) and a greater share of English Language Learners are also part of the proposal. Finally, the State would fund 100% of student enrollment growth — currently, that funding is based on the previous year’s enrollment, leaving local governments in areas with population growth to cover the entire cost of newly-enrolled students for one year.

Bill Fox, UT Ecomomist: What we’re trying to do is to measure the relative contribution that each county should make to the combined local share of the BEP. It does not measure the effort made by counties — just what is its capacity to other counties relative to tax revenue. It does not try to measure the service (or expenditure) needs of the various counties. The existing formula relies upon regression analysis, and thus lacks transparency to most people, and contains unexpected results (as is common in regression analysis). The regression equation makes it appear that the larger the property tax base, the less the ability to raise revenue. That makes no sense.

Also, the current TACIR formula does contain elements that measure service responsibilities, but the fiscal capacity formula should measure only ability to pay.

The ability of a county to generate tax revenues based on average effort, using tax rates and bases. It does not depend on the actual effort — so if you have a high tax rate to support education, you are not penalized. This also solves the problem of city districts vs. county districts, since the city property values are incorporated into the county’s property tax base.

Senator Burks expresses concern that income levels are not included in the new fiscal capacity measure, because the residents of the smallest, poorest rural counties are unable to pay higher taxes due to their lack of income.

Dr. Fox: We believe that ability to pay has been included, because the tax base is the measure of ability. Therefore, when residents of smaller counties go to larger areas to shop and contribute sales taxes to the larger county’s schools, then those dollars count toward the larger county’s fiscal capacity, therefore qualifying them for less state revenue and the smaller county for more.

Sen .Kyle: Another proposal unveiled this year was one of a statewide property tax; while not exactly the same as an income tax, property value does tend to track income levels.

Comptroller Morgan: Value of property in an area is strongly related to income in an area. Wealthier people tend to live in more expensive homes. It’s important for everyone to understand in a simpler way of looking at capacity is a change from where we have been. It does get to be a question of whether you think using property and sales are a fair way of allocating responsibility.

Local governments in total pay 50% of non-classroom components, and if the new method is adopted, will pay 25% of classroom components. Based on current practice, when you look at all contributions to local school systems, it’s about 60% from property taxes and 40% from sales taxes. Averaged statewide, local contributions consist of about $1 on the property tax rate, and a little more than a penny on the sales tax rate. Under BEP 2.0, every county is being asked to use their tax base in the same way. It treats everybody the same in terms of allocating their burden.

The BEP is really two things: how much are you going to pay, and what do you get to fund your education program?

Including income in the formula would benefit Pickett County, but would adversely affect Polk County — not generally thought of to be a wealthy county. Including income really would present a moving target, and the only way to include that would be to pick a number that you like. Under the BEP 2.0 approach, the state is relieving local governments of a substantial burden by raising the teacher salary component to 75%.

Mike Williams: What other methods were considered when the BEP was first implemented? Fox: Both were considered back when the BEP was originally implemented. The reason that the new fiscal capacity formula is better is that is does not mix the measures of service responsibility and fiscal capacity. Fiscal capacity should only measure the ability to raise revenue based on property values and sales volumes.

Sen. Tracy: hasn’t there been a provision added to help the very smallest counties that would see a zero increase? Patrick Smith: Yes, that’s the provision that no system will realize more than a 40% impact. Putting a ceiling on the change helps counties like yours and Sen. Burks’.

Dr. Fox: BEP 2.0 absolutely does not penalize those areas that contribute more than they are required to — it does not penalize additional local effort.

Sen. McNally: There are counties where property and sales tax are not really reflective of ability to pay, such as areas with retirees who tend to have higher property values but lower incomes. There are also areas with high property values, but the residents have relatively low incomes (note: Sevier County is one of those).

Comptroller Morgan: we’ve just passed out a document that shows, as a share of the statewide average, the numbers under some different scenarios. The results of introducing income into the formula shows that places with a lot of shopping capacity benefit, where areas more reliant on property taxes suffer. Because we don’t tax income, we don’t have a precise measure, and messes up the simplicity of the formula.

Chairman Woodson: Simplicity is a goal, and introducing income brings in a component that we cannot accurately measure.

Randy McNally: We do tax investment income through the Hall Income Tax, and we can measure that (and some flows back to local governments). But, there is a cost factor associated with living in different areas. We’re looking at adjusting state employee pay based on salary differences — for example, it cost more to hire a nurse in Davidson County, and hiring teachers with, for example, a degree in biology and teaching certification is more expensive in areas that compete with the Department of Energy and its contractors.

Comptroller Morgan: That’s something that ought to continue to be looked at, but salary differences are also part of the "need" side, not the "ability" side. They’re trying to draw a strong distinction between the fiscal capacity formula — the local match equation — and the need side, which constitutes the rest of the BEP.

Patrick Smith: Remember that raising the base teacher salary as well as the state share of teacher salaries, it really helps some of the rural systems in lessening the disparity in teacher salaries.

John Morgan: To the extent that our difficulty in accepting this lies with the differing impact of property and sales taxes impact people of differing incomes in a disparate fashion, that is a problem with our basic tax structure, and fixing that is not within the purview of the BEP formula.

Sen. Woodson: The State should not be expected to pick up the slack for communities that have chosen to provide economic incentives via tax abatements or payments in lieu of taxes.

Morgan: The property portion will take into account the properties held by industrial development boards, so the value of those properties will be included in the numbers — those districts will not gain additional state money because they’ve given abatements. Those numbers are not yet in, but they will be included in the final numbers. People in one county should not have to pay more just because people in another county chose to give a tax break for economic development.

Sen. Rusty Crowe: What about the counties where much of the land is owned by the Federal or State governments?

Morgan: No value is assigned to government-owned properties (or churches, etc.), because local governments have no control over that. They do have control over tax abatements granted by industrial development boards.

Sen. Woodson: Please explain the "circuit breaker" provision.

Morgan: The circuit breaker is a mechanism to ensure that any county whose fiscal capacity has shifted more than 40% will be limited to a 40% change.  It seems reasonable to us (the Comptroller’s office)  that the State should ensure that every county receive enough to ensure that they are able to meet the mandated salary increases.  This is a significant improvement, but is far from the extent of educational improvements needed in the state.

Sen. Woodson: We can move forward with this approach, or we can wait for the judicial hammer.

Patrick Smith: We have someting of a guideline through the decisions in the Small Schools lawsuits; this proposal goes a long way in addressing adequacy in a couple of ways — at risk, ELL, real-world salary levels.  It also lets us get away from the "dividing the pie" arguments and move toward higher standards and delivering the right instructional content.

Sen. Williams: This document shows that we are in a proactive state, as opposed to a band-aid measure.

Morgan: BEP 2.0 is an important reform, which puts us on our way to full implementation.

I received word this morning that the House and Senate Education Committees have finished their work, with the exception of items relating to the BEP  proposals (BEP 2.0 and others) along with the associated funding.

Thus, we’ve been asked to be "on standby" to go to Nashville next Tuesday and Wednesday for the final committee meetings, since we won’t have much time to react to what is presented.

Delta will be at Tremont, so hopefully He Who Tames Flying Monkeys can manage the rest of the crew.  Alpha doesn’t need management, just gas money until she starts her summer job.  Beta and Gamma are another issue.

Which brings us back to the conflicting priorities: to do the job of a school board member, or to work to ensure I keep that job?  For me, the choice is clear:  I will do what I was elected to do, and trust that that is sufficient.

This year’s legislative session in Nashville has brought a flurry of activity on education issues, with the biggest splash being the Governor’s proposed revisions to the state’s funding formula. 

Last week, the State Funding Board confirmed a significant surplus in state revenues, which brought about the usual flurry of activity about how to spend it.  Seems to me that the best policy would be to first fund those priorities that we’ve put off in recent years because there wasn’t enough money (i.e., improvements to school funding, health initiatives, etc.) and scuttle the inevitable pork projects and last minute ideas.

However, the newfound surplus does make it more challenging to pass the proposed 40-cent increase in the cigarette tax — a revenue source that might not be critical this year to fund BEP 2.0, but will most likely be needed in the future to continue implementation of the Governor’s improvements over the next few years.   Although I feel a tinge of guilt for advocating that they go ahead and pass this tax, knowing that no longer affects me personally (three months and a day without a cigarette — WOOT!), recognizing that we’d still be at about 60% of the national average in tobacco taxation seems fair enough.

*  *  *  Legislative Shenanigans
Other issues abound in Nashville, though.  Last week, Rep. Frank Nicely pulled a sneaky one, trying to add an amendment allowing elected superintendents an obscure bill having nothing to do with such; fortunately, the amendment failed on the House floor, but other bills remain that would achieve the same.

From the Tennessee School Boards Association’s TLN Notes:

Niceley is a vocal supporter of elected superintendents and made the same attempt last year. During his comments in support of the amendment, Niceley, who didn’t begin his House service until recently, stated that the appointed director of schools provision was "snuck in" back in 1992 and that legislators did not know what they were voting for. Speaker Jimmy Naifeh (D-Covington), who most certainly was around in 1992 and greatly involved in the discussions, quickly set Niceley straight, informing him that legislators were very aware of what they were doing. No question Niceley was mistaken, as more provisions than any other in the Education Improvement Act dealt with the appointed director of schools.

The case for keeping appointed Directors of Schools is summarized nicely here.

*   *   *  Locally…
Tonight, the Oak Ridge Board of Education will hold a work session on the subject of the BEP 2.0, and how the various implementations of the proposed changes might affect us.   The most difficult part of the school system budget is that we must enact it before any of our funding sources (the City, the County, the State, and Congress) pass their budgets, so the best we can do in formulating the revenue side is projections and educated guesses.

However, we’ve received assurance that there will be increased funding from the State in some fashion, and provided that the City approves it’s budget on second reading in the form that passed on May 7, we’ll be okay.  I think.  I’ll know more tomorrow.

Proposals to change the requirements for getting and keeping the lottery scholarship abound in the Tennessee legislature this year, with three-fourths of the students who start out with these scholarships losing them before graduation.

Currently, students need a 21 on the ACT or a 3.0 high school GPA to receive the scholarship, then must maintain a 2.75 GPA in their freshman year of college, rising to a 3.0 thereafter.

The Tennessean reports that the measure making the most headway is one to lower the overall college GPA requirement to 2.75, which would result in 1,600 more students retaining their scholarships, at a cost of $7M.

Perhaps a middle ground area would be more appropriate: leave the standards as they now are, but create a way for students to regain their scholarship eligibility after losing it, provided that they bring their GPA back up to the current standard.  So, if a sophomore finished out the year with a 2.8, lost the scholarship, then reapplied at the end of his junior year having brought his GPA up to 3.2, he would regain eligibility.

At this point, once it’s lost, it’s lost forever, no matter what the circumstances or how much the student improves.  Most reasonable people would concur that the policy is unforgiving; anyone who’s paid attention to how the GPA works understands that it’s harder to raise it substantially in later years.  Such students do deserve a second chance.

*  *  *
Speaking of which, I’m keeping my fingers crossed for Alpha today, as she heads in for her Calculus final at 10:00.  However, she called yesterday to tell me that her prof has posted their grades so far, and she needs a whopping 57 (out of 100) to keep her ‘A’ in the class.   She’s taken advantage of every extra-credit opportunity given, and has amassed a significant safety cushion in the process.  Much of the extra credit has been working quiz problems on the board — something I would not have expected her to do, given that she’s rather shy and reserved most of the time.

Unquestionably, she’s learning a lot more than just academics, and it’s really neat to watch.

The five largest school systems in the state have joined forces to lobby (threaten, cajole, bribe, etc.) the State Legislature for a funding mechanism more favorable to the biggest metro areas.  From yesterday’s Commercial Appeal:

“State funding is not equitable to the larger school systems,” [Shelby Co. Superintendent Bobby] Webb said.

Because sizable school districts are left to depend more on local taxes and less on state money than smaller ones, he said the school board has joined ranks with five of the state’s largest school districts under the Coalition of Large School Systems (CLASS) to fight for better funding.

During the meeting, the board agreed to pay $25,000 to CLASS to hire a lobbyist.

Of course, the very reason that the biggest cities have to depend more on local taxes is because the structure of Tennessee’s funding for education is based so heavily upon the sales tax (where the cities collect sales taxes from surrounding areas with much less retail), and because their overall tax bases — property as well as sales — are so much larger in proportion to others.

That was the basis for the successful rural schools lawsuits that resulted in the creation the BEP (Basic Education Program) more than two decades ago, and the chancellor who declared the case closed just last year openly stated that major changes to the BEP would be grounds to reopen the suits.
Assuming that each of the five school systems (Knox Co., Hamilton Co., Metro Nashville, Memphis, and Shelby Co.) ponied up the same amount, they’ve got $125,000 for a lobbyist now.  My guess is that should buy some pretty hefty effort.

It’s very discouraging to me that they would spend their time and resources on fighting for a bigger share of a too-small pie, when the rest of us are working toward adequate funding for ALL Tennessee students.  Ending the squabbling over crumbs will probably require an approach such as proposed by Comptroller John Morgan, where the State takes on a larger share of education funding (while still allowing local augmentation, rather than requiring a local match for the bare minimum).

Wouldn’t it be far better to actually spend our resources on educating children than on decades-long legal battles?  The lawyers have enough already; the kids don’t.