What It Means to Be Basic Aid
What It Means to Be Basic Aid Schools For Sound Finance
What it Means to Be Basic Aid Created for Schools For Sound Finance Members
©2016 School Services of California, Inc.
©2016 School Services of California, Inc.
Overview of State Aid vs. Basic Aid
1
Proposition 98 defines the state’s total obligation to public education and is met with a combination of property taxes and state funding Most California school districts are funded by a mixture of property taxes and state aid The state targets a funding goal and the state makes good on shortfalls in property tax By the same token, increased property taxes reduce the state’s share of the obligation In a minority of districts, property taxes exceed the target established for state aid The district keeps the “excess” property tax but receives only limited state funding, historically restricted for specific purposes These districts are called “excess property tax” or “basic aid” districts We call ourselves “community” or “locally” funded districts
© 2016 School Services of California, Inc.
What It Means to Be Basic Aid
©2016 School Services of California, Inc.
The Old System – Revenue Limits and Many, Many Categorical Programs
Under the revenue limits and categorical programs system, property taxes were used to satisfy the district’s revenue limit; categoricals were wholly state funded Every district had a revenue limit Most districts received state aid to make up the difference between their local property tax level and their revenue limit needs For basic aid districts, the revenue limit was fully funded through local property taxes Revenue limit funds were intended for the basic educational needs of all students and were cut during the Great Recession by about 10% All districts received categorical funds from the state to be used for specific reasons and for specific students During the Great Recession, these funds for all districts were made flexible and reduced
Locally Funded Districts Under the LCFF
©2016 School Services of California, Inc.
2
The Local Control Funding Formula (LCFF) replaced the revenue limit and categorical system with a single funding stream The LCFF now accounts for both general education funds (base grants) and targeted funds (grade span adjustments and supplemental and concentration grants) Categorical programs ceased to exist with a few exceptions like special education (SF)2 successfully fought to keep basic aid district dollars previously allocated through categoricals from being taken by the state, even though the programs disappeared These funds are now received as Minimum State Aid (MSA) and are entirely flexible Under the LCFF, property taxes are now used to satisfy the entitlement grant for districts A basic aid district is one in which property tax revenues meet or exceed the district’s annual LCFF entitlement
© 2016 School Services of California, Inc.
3
What It Means to Be Basic Aid Property Taxes and Excess Taxes LCFF and Property Taxes MSA & Proposition 30 Total LCFF Entitlement
Total LCFF Entitlement
4
Total LCFF Entitlement
Excess Taxes
State Aid Property Taxes
©2016 School Services of California, Inc.
State Aid Property Taxes Property Taxes Low Property Tax District
High Property Tax District
Basic Aid District
Difference Between Basic Aid and State Aid – ADA and Property Taxes State Aid
Basic Aid
Average daily attendance (ADA) drives funding received under the LCFF Demographics drive supplemental and concentration grants
©2016 School Services of California, Inc.
5
Property tax changes increase or decrease state aid, not income ADA increases result in increased total revenues For total revenues, ADA matters, property tax doesn’t
Changes in ADA don’t greatly affect unrestricted revenues But do affect some restricted income like special education dollars Changes in property taxes increase or decrease unrestricted income
ADA increases result in lower perpupil revenues For total revenues, property taxes matter, ADA doesn’t
© 2016 School Services of California, Inc.
What It Means to Be Basic Aid Similarities Between Basic Aid and State Aid – Everything Else!
6
The state focuses on meeting the needs of English learners, foster youth and children from low-income families – applies to all school districts The Local Control and Accountability Plan (LCAP) demands the same actions from basic aid school districts as it does for state-funded school districts
©2016 School Services of California, Inc.
Requirements associated with the categorical programs that remain – i.e., special education, Educator Effectiveness funding – apply to all school districts that receive the funding Because of cuts during the Great Recession, some school districts were cut into basic aid status and do not have revenues significantly higher than state aid school districts, especially if they have small populations of students generating supplemental and/or concentration grants
©2016 School Services of California, Inc.
Basic Aid Terms “Hold Harmless” and MSA – When the state moved from revenue limits and categoricals to LCFF funding, (SF)2 fought for a “hold harmless” against any additional loss of state revenues This resulted in the MSA provision – no basic aid district received fewer funds than they did prior to the LCFF “Fair Share” – During the Great Recession, basic aid district categorical funds were reduced in proportion to the cuts made to state-funded district revenue limits The state’s intention was to restore the fair share cuts made to basic aid categorical program funding as state-funded district revenue limits were restored The LCFF eliminated revenue limits and most categorical programs Old categorical dollars for basic aid districts were locked in at 2012-13 levels with the MSA provision
© 2016 School Services of California, Inc.
7
What It Means to Be Basic Aid
©2016 School Services of California, Inc.
Things to Watch Out for – Potential Changes to Law
Recognize that state law can – and does – change Before the dot-com bust in the 2000s, basic aid districts received $120 per ADA in constitutionally required “basic aid” unrestricted funds State law was amended to provide that state categorical income would be counted toward meeting the $120 per ADA minimum Since most categorical programs ceased to exist, MSA funds are now counted towards meeting that requirement Proposition 30 requires that all districts receive at least $200 per ADA in Education Protection Account funding Similar provision to the Constitution’s $120 minimum, but counted separately As a result, basic aid districts benefit directly from Proposition 30 State-funded districts benefit from Proposition 30’s impact increasing Proposition 98 funding
Things to Watch Out for – Potential Changes to Law
©2016 School Services of California, Inc.
8
9
The biggest fear is legislation that sweeps “excess” property taxes from basic aid districts In 2003, then-Governor Gray Davis proposed to solve a fraction of the State Budget deficit by redistributing “excess” property taxes away from locally funded school districts Davis reversed course at the May Revision in response to overwhelming efforts by (SF)2 and its members Such a scenario is still possible – and something that we must guard against Community-funded districts receive state aid through the MSA provision in the LCFF The Legislative Analyst’s Office recommended not including this provision during the creation of the LCFF – and is now focusing on these funds provided to county offices of education
© 2016 School Services of California, Inc.
What It Means to Be Basic Aid The Upside of Basic Aid
10
The benefits of being basic aid include: The district is funded above its computed state aid level Loss in ADA doesn’t hurt – unlike in the many districts with declining enrollment Growth in property taxes yield meaningful increases in revenues ©2016 School Services of California, Inc.
Proposition 30 provides real revenues
©2016 School Services of California, Inc.
The Downside of Basic Aid Being basic aid is not all good news It’s very hard to accurately project property tax growth, making long-term forecasts unreliable District receives few additional unrestricted funds when enrollment grows (or is higher than estimated) Property taxes don’t always grow Burst of housing bubble led to lower assessments and reductions in property taxes – with no additional state aid to offset the loss (unless a district became a state aid district) LCFF has created community expectations while state revenues aren’t increasing Basic aid districts must always worry about potential changes in state law
© 2016 School Services of California, Inc.
11
What It Means to Be Basic Aid
©2016 School Services of California, Inc.
Negotiations Are Different for Basic Aid Districts
12
There are some major differences in negotiations in basic aid districts You are likely to have more money than your neighbors The teachers will expect that you can do more, as does every other constituency in the district But your revenues are not unlimited Basic aid communities tend to be more involved in their schools Board members and parents know more about what is going on – and get lobbied by everyone The superintendent is an active community leader – and gets lobbied by everyone The community does not want a battle between the teachers and the administration
Schools For Sound Finance
13
(SF)2 has been the association for basic aid districts for as long as there have been basic aid districts The association has a board of directors, comprising superintendents of basic aid districts The association contracts with SSC for support and advocacy The association’s Purpose Statement and Principles shape the legislative strategy, and an annual legislative agenda is adopted ©2016 School Services of California, Inc.
For the most part, we prosper when left alone It is during bad economic times that our “excess” becomes a potential target While times are good, it is important to cultivate political allies in local legislators We may need them in the future!
© 2016 School Services of California, Inc.
What It Means to Be Basic Aid Recommendations
14
Don’t wave red flags Don’t flaunt the benefits of “excess” property taxes Don’t highlight the differences between basic aid districts and state-funded districts
©2016 School Services of California, Inc.
Don’t fight the little things – focus on the big picture to protect basic aid existence as a whole Maintain higher-than-normal reserve to protect against low or negative growth in property taxes – or any changes in state law Be an active participant in your association and encourage your basic aid colleagues to join our lobbying efforts
Notes
©2016 School Services of California, Inc.
15
© 2016 School Services of California, Inc.
What it Means to Be Basic Aid Created for Schools For Sound Finance Members
©2016 School Services of California, Inc.
©2016 School Services of California, Inc.
Overview of State Aid vs. Basic Aid
1
Proposition 98 defines the state’s total obligation to public education and is met with a combination of property taxes and state funding Most California school districts are funded by a mixture of property taxes and state aid The state targets a funding goal and the state makes good on shortfalls in property tax By the same token, increased property taxes reduce the state’s share of the obligation In a minority of districts, property taxes exceed the target established for state aid The district keeps the “excess” property tax but receives only limited state funding, historically restricted for specific purposes These districts are called “excess property tax” or “basic aid” districts We call ourselves “community” or “locally” funded districts
© 2016 School Services of California, Inc.
What It Means to Be Basic Aid
©2016 School Services of California, Inc.
The Old System – Revenue Limits and Many, Many Categorical Programs
Under the revenue limits and categorical programs system, property taxes were used to satisfy the district’s revenue limit; categoricals were wholly state funded Every district had a revenue limit Most districts received state aid to make up the difference between their local property tax level and their revenue limit needs For basic aid districts, the revenue limit was fully funded through local property taxes Revenue limit funds were intended for the basic educational needs of all students and were cut during the Great Recession by about 10% All districts received categorical funds from the state to be used for specific reasons and for specific students During the Great Recession, these funds for all districts were made flexible and reduced
Locally Funded Districts Under the LCFF
©2016 School Services of California, Inc.
2
The Local Control Funding Formula (LCFF) replaced the revenue limit and categorical system with a single funding stream The LCFF now accounts for both general education funds (base grants) and targeted funds (grade span adjustments and supplemental and concentration grants) Categorical programs ceased to exist with a few exceptions like special education (SF)2 successfully fought to keep basic aid district dollars previously allocated through categoricals from being taken by the state, even though the programs disappeared These funds are now received as Minimum State Aid (MSA) and are entirely flexible Under the LCFF, property taxes are now used to satisfy the entitlement grant for districts A basic aid district is one in which property tax revenues meet or exceed the district’s annual LCFF entitlement
© 2016 School Services of California, Inc.
3
What It Means to Be Basic Aid Property Taxes and Excess Taxes LCFF and Property Taxes MSA & Proposition 30 Total LCFF Entitlement
Total LCFF Entitlement
4
Total LCFF Entitlement
Excess Taxes
State Aid Property Taxes
©2016 School Services of California, Inc.
State Aid Property Taxes Property Taxes Low Property Tax District
High Property Tax District
Basic Aid District
Difference Between Basic Aid and State Aid – ADA and Property Taxes State Aid
Basic Aid
Average daily attendance (ADA) drives funding received under the LCFF Demographics drive supplemental and concentration grants
©2016 School Services of California, Inc.
5
Property tax changes increase or decrease state aid, not income ADA increases result in increased total revenues For total revenues, ADA matters, property tax doesn’t
Changes in ADA don’t greatly affect unrestricted revenues But do affect some restricted income like special education dollars Changes in property taxes increase or decrease unrestricted income
ADA increases result in lower perpupil revenues For total revenues, property taxes matter, ADA doesn’t
© 2016 School Services of California, Inc.
What It Means to Be Basic Aid Similarities Between Basic Aid and State Aid – Everything Else!
6
The state focuses on meeting the needs of English learners, foster youth and children from low-income families – applies to all school districts The Local Control and Accountability Plan (LCAP) demands the same actions from basic aid school districts as it does for state-funded school districts
©2016 School Services of California, Inc.
Requirements associated with the categorical programs that remain – i.e., special education, Educator Effectiveness funding – apply to all school districts that receive the funding Because of cuts during the Great Recession, some school districts were cut into basic aid status and do not have revenues significantly higher than state aid school districts, especially if they have small populations of students generating supplemental and/or concentration grants
©2016 School Services of California, Inc.
Basic Aid Terms “Hold Harmless” and MSA – When the state moved from revenue limits and categoricals to LCFF funding, (SF)2 fought for a “hold harmless” against any additional loss of state revenues This resulted in the MSA provision – no basic aid district received fewer funds than they did prior to the LCFF “Fair Share” – During the Great Recession, basic aid district categorical funds were reduced in proportion to the cuts made to state-funded district revenue limits The state’s intention was to restore the fair share cuts made to basic aid categorical program funding as state-funded district revenue limits were restored The LCFF eliminated revenue limits and most categorical programs Old categorical dollars for basic aid districts were locked in at 2012-13 levels with the MSA provision
© 2016 School Services of California, Inc.
7
What It Means to Be Basic Aid
©2016 School Services of California, Inc.
Things to Watch Out for – Potential Changes to Law
Recognize that state law can – and does – change Before the dot-com bust in the 2000s, basic aid districts received $120 per ADA in constitutionally required “basic aid” unrestricted funds State law was amended to provide that state categorical income would be counted toward meeting the $120 per ADA minimum Since most categorical programs ceased to exist, MSA funds are now counted towards meeting that requirement Proposition 30 requires that all districts receive at least $200 per ADA in Education Protection Account funding Similar provision to the Constitution’s $120 minimum, but counted separately As a result, basic aid districts benefit directly from Proposition 30 State-funded districts benefit from Proposition 30’s impact increasing Proposition 98 funding
Things to Watch Out for – Potential Changes to Law
©2016 School Services of California, Inc.
8
9
The biggest fear is legislation that sweeps “excess” property taxes from basic aid districts In 2003, then-Governor Gray Davis proposed to solve a fraction of the State Budget deficit by redistributing “excess” property taxes away from locally funded school districts Davis reversed course at the May Revision in response to overwhelming efforts by (SF)2 and its members Such a scenario is still possible – and something that we must guard against Community-funded districts receive state aid through the MSA provision in the LCFF The Legislative Analyst’s Office recommended not including this provision during the creation of the LCFF – and is now focusing on these funds provided to county offices of education
© 2016 School Services of California, Inc.
What It Means to Be Basic Aid The Upside of Basic Aid
10
The benefits of being basic aid include: The district is funded above its computed state aid level Loss in ADA doesn’t hurt – unlike in the many districts with declining enrollment Growth in property taxes yield meaningful increases in revenues ©2016 School Services of California, Inc.
Proposition 30 provides real revenues
©2016 School Services of California, Inc.
The Downside of Basic Aid Being basic aid is not all good news It’s very hard to accurately project property tax growth, making long-term forecasts unreliable District receives few additional unrestricted funds when enrollment grows (or is higher than estimated) Property taxes don’t always grow Burst of housing bubble led to lower assessments and reductions in property taxes – with no additional state aid to offset the loss (unless a district became a state aid district) LCFF has created community expectations while state revenues aren’t increasing Basic aid districts must always worry about potential changes in state law
© 2016 School Services of California, Inc.
11
What It Means to Be Basic Aid
©2016 School Services of California, Inc.
Negotiations Are Different for Basic Aid Districts
12
There are some major differences in negotiations in basic aid districts You are likely to have more money than your neighbors The teachers will expect that you can do more, as does every other constituency in the district But your revenues are not unlimited Basic aid communities tend to be more involved in their schools Board members and parents know more about what is going on – and get lobbied by everyone The superintendent is an active community leader – and gets lobbied by everyone The community does not want a battle between the teachers and the administration
Schools For Sound Finance
13
(SF)2 has been the association for basic aid districts for as long as there have been basic aid districts The association has a board of directors, comprising superintendents of basic aid districts The association contracts with SSC for support and advocacy The association’s Purpose Statement and Principles shape the legislative strategy, and an annual legislative agenda is adopted ©2016 School Services of California, Inc.
For the most part, we prosper when left alone It is during bad economic times that our “excess” becomes a potential target While times are good, it is important to cultivate political allies in local legislators We may need them in the future!
© 2016 School Services of California, Inc.
What It Means to Be Basic Aid Recommendations
14
Don’t wave red flags Don’t flaunt the benefits of “excess” property taxes Don’t highlight the differences between basic aid districts and state-funded districts
©2016 School Services of California, Inc.
Don’t fight the little things – focus on the big picture to protect basic aid existence as a whole Maintain higher-than-normal reserve to protect against low or negative growth in property taxes – or any changes in state law Be an active participant in your association and encourage your basic aid colleagues to join our lobbying efforts
Notes
©2016 School Services of California, Inc.
15
© 2016 School Services of California, Inc.
