Interim Joint Committee on Appropriations and Revenue

 

Budget Review Subcommittee on Postsecondary Education

 

Minutes of the<MeetNo1> 1st Meeting

of the 2010 Interim

 

<MeetMDY1> July 22, 2010

 

Call to Order and Roll Call

 

The<MeetNo2> first meeting of the Budget Review Subcommittee on Postsecondary Education of the Interim Joint Committee on Appropriations and Revenue was held on<Day> Thursday,<MeetMDY2> July 22, 2010, at<MeetTime> 10:00 AM, in<Room> Room 154 of the Capitol Annex. It was a joint meeting with the Budget Review Subcommittee on Primary and Secondary Education of the Interim Joint committee on Appropriations and Revenue.  Representative Tommy Thompson, Chair, called the meeting to order, and the secretary called the roll.

 

Present were:

 

Members:<Members> Senator Vernie McGaha, Co-Chair; Representative Arnold Simpson, Co-Chair; Representative Tommy Thompson, Co-Chair; Senator Tim Shaughnessy; Representatives Reginald Meeks, Jody Richards, Carl Rollins II, Kevin Sinnette, and Tommy Turner.

 

Guests:  Jonathan Lowe, Jefferson County Public Schools; Jim Thompson, Education and Workforce Development Cabinet; Terry Holliday, Commissioner, Department of Education; Hiren Desai, Associate Commissioner of Administration and Support, Department of Education; and, Kay Kennedy, Director, Division of District Support, Department of Education. 

 

LRC Staff:  Tom Willis, Tracy Goff Herman, Greg Rush, Linda Ellis, and Marlene Rutherford. 

 

Mr. Desai and Ms. Kennedy provided an update on the funding for the Read to Achieve (RTA) and Math Achievement (MA) programs; local district use of capital funds for operating purposes; the status of the review of the classification of primary and secondary school buildings; and the status of Category 5 facility projects.   

 

Read to Achieve and Math Achievement – Funding for 2009-1010 and 2010-2011

Mr. Desai provided a summary of the Read to Achieve (RTA) and Math Achievement (MA) programs.  He said that during the last month the department had talked with many school superintendents and finance officers at the district level and  there was some confusion on how the funding would work this year on RTA and MA programs. Hopefully, those concerns had been addressed since the RTA and MA program funding had not been reduced.  For fiscal year 2011, the total line-item for funding was divided by the number of schools, and the schools were given a maximum amount of funding.  In fiscal year 2010, the department took $1.5 million from the line-item allotment for RTA to pay for a third-party assessment of the program, which through the bid process was awarded to the University of Indiana.  After the $1.5 million was taken from the allotment, districts were reimbursed for fifty percent of their costs for the previous year and fifty percent for the costs for this year.  Therefore, in FY 2010 districts were given a total of $60,000 of which $30,000 was for reimbursement for the prior year and $30,000 for FY 2010.  The department also committed to the districts that it would reimburse for FY 2011 the additional $30,000 of their FY 2010 costs.  Each year the department has relied on a carryforward which was not part of the line-item appropriation but funding from the prior year which districts had not claimed.  This has caused complications in the program for the last few years.  If a district did not claim reimbursement of the amount appropriated for each school, the surplus would carry forward into the next year and would be divided between the schools for that year.  In FY 2010 the carryforward ended and the department reimbursed districts for FY 2010 expenditures.  After reimbursement, $717,000 lapsed back to the General Fund.  The department has advised the districts that $30,000 would be paid out of the FY 2011 allotment for FY 2010 in the first quarter and the balance of funding of $27,500 for FY 2011.  Mr. Desai indicated that in FY 2011 districts would be given $27,500 for expenditures and in FY 2012 the department would use the allotment for that year to reimburse FY 2011 expenditures.  The department has addressed concerns from superintendents and district finance officers by providing the ability to use FY 2012 funding to pay for FY 2011 expenses and also allowed flexibility in the RTA and MA funding rules so districts may use local funds for part of the teacher’s salary but have more flexibility or be able to re-direct the work of the teacher to other instructional activities.

 

Mr. Desai pointed out that when this program began the intent was to have schools funded for five years and new schools would participate and the old schools would roll off but this was never accomplished.  There are 326 schools in the RTA program and 112 in the MA program.  None of the schools have rolled off and the same schools continue to be funded.  In FY 2011 the department will continue to provide funding.  He also noted that the contract with the University of Indiana to perform an assessment of the program has been canceled for FY 2011 so that all the money for the program will be given to the school districts. 

 

In response to questions by Representative Thompson, Mr. Desai stated that the $60,000 total funding for each of the 326 schools has been frozen since 2006.  It was the hope of the department that as the RTA program was funded at higher appropriation levels more schools would be brought in, but there have not been any new schools brought into the program.  There is no anticipation that new schools will come into the program in FY 2011.  He said that some superintendents are still considering whether they will fund half of the teacher position from local funds and if that is done, they may choose not to receive the funding in 2012 which may allow for more monies available for additional schools to be brought into the program.  Mr. Desai also indicated that some districts that historically had not done so in the past requested reimbursement at the end of this fiscal year.  In the MA program, so many districts drew money down for expenditures that there was no money left to pay for MA and monies were used from the FY 2011 allotment to pay for more than fifty percent of the allotment for 2010.  He also pointed out that there is a cutoff date to request funds for expenditures after the close of a fiscal year. 

 

Local District Use of Capital Funds for Operating Purposes

Ms. Kennedy discussed the local district use of capital funds for operating purposes.  She stated that districts were allowed to request use of capital outlay for operating expenses for FY 2010 and that during the 2009-2010 school year, requests were of such a nature that there was very little impact to the actual capital project funding.  For capital outlay the approval process was lenient to allow the districts to receive the operating funds.  The department developed stringent guidelines for requesting the use of capital funds for FY 2011 and FY 2012.  House Bill 1, passed by the 2010 Extraordinary Session of the General Assembly, allowed flexibility in the use of all local district capital funds without forfeiting the district’s eligibility to participate in the School Facilities Construction Commission (SFCC) program.  Districts that meet certain criteria outlined in those guidelines may request the use of any capital funds for general operating expenses.  The process becomes more involved because the department not only has to consider capital outlay funds, but construction funds and SFCC funds.  A Capital Funds Request Form has also been developed by the department that districts need to complete in order to consider how those funds will impact the district’s total financial picture relative to other capital projects. 

 

In response to a request for clarification by Representative Meeks, Ms. Kennedy pointed out that there are three different funds in the capital outlay area: capital outlay; building fund monies; and, construction funds specific to projects.  The capital outlay funds come directly from the SEEK allocation at $100 per student.  Those funds were designated in FY 2010 to be used for general operating expenses.  In FY 2011, the concept expanded to the building fund monies that come directly from the Facilities Support Program of Kentucky (FSPK), facilities nickel, and the construction fund from which funds are allotted when construction begins on particular projects.  She also indicated that the department considers the capital needs for a particular district.  Before a district requests the use of capital funds they are asked to consider four items in the guidelines:  1) whether the district has school facilities  classified as a Category 5 on the May 18, 2010 list;  2) whether the district has school facilities classified as Category 4 or 5;  3) whether the district currently has a project in whole or in part which is funded with urgent-need funds;  and, 4) whether the district is using 80 percent or less of its capital outlay for debt service payments.  The department reviews information submitted by the districts with its information in the facility plans and in the annual financial reports.  Ms. Kennedy stated that the department had received requests from eleven districts that have indicated an interest in utilizing funds in this manner for the upcoming year. 

 

Status of the Review of the Classification of Primary and Secondary School Buildings (HB 1 2010 Extraordinary Session)

Ms. Kennedy pointed out that the General Assembly allocated $2.5 million to review the classification of primary and secondary school buildings and that the department is considering this review as a capital project.  The RFP is on target to be issued in January 2011, with implementation by July 1, 2011.  She said that the RFP will seek to procure services from a third-party vendor to perform the review as well as make recommendations for procurement of a software system that will allow the department to maintain the rating and evaluation system of the district facilities. 

 

Members of the Committee were concerned about any role that school districts may have in the review and recommendation in classifying school buildings in their districts and emphasized that review of all buildings in all counties needs to be done objectively and with consistency and that the same guidelines should be utilized in all districts for the evaluation.  Ms. Kennedy stated it was the intention of the department to solicit the services of a vendor to provide the department with data, adding that typically within a RFP a limit is placed on subcontracts.  The department wants a fair and objective evaluation.  The department’s concern is to have data that can be maintained over time that continues the objective look at the facilities and how they change over time. 

 

In response to comments and questions by Representative Meeks concerning the Capital Outlay Requests for FY 2010, Ms. Kennedy stated that the percentage column is for comparison and describes the ratio of what was requested by the district in 2009-10 to the actual 2009-10 allocation.  It does not take into consideration any previous balance in the account which may have reflected more money available.  She cautioned the committee that the amounts reflected in the information that the districts have requested have not been confirmed by the final year-end financial reports.  What the districts have actually spent in FY 2010 would not be verified until later in the school year when reviewed by the department. 

 

Ms. Kennedy responded to questions asked by Representative Sims, stating that when districts go through their planning process they evaluate different parts of a school building such as the roof, heating and cooling, or flooring, and as those areas are renovated over time it does impact the overall categorization of the building.  A district may have an old building but as renovations and upgrades have been done within the building, the building itself is not categorized at a higher number.  The district does perform a regularly scheduled planning process which includes evaluation by their local architect for information on the different areas of the building that do contribute to the final categorization number. 

 

In response to questions posed by Representative Miller, Ms. Kennedy indicated that gymnasiums would be included in the evaluations as they are a part of the facility plan.  District facility planning includes a local planning committee composed of central office staff, parents, board members, etc. who approve the plan.  As the district proposes projects they are weighed against the plan.  If a project has not been prioritized in the community, the department weighs that project against the facility plan and works with the district to make sure it is addressing the highest needs first. 

 

Responding to a questioned posed by Representative Rollins, Ms. Kennedy indicated it was her understanding that an architect performs the evaluation, whether on staff with the district or an architectural firm hired by a district.  At this time there is no provision for the department to perform an evaluation.  Ms. Kennedy indicated that the department understands very clearly the concerns of the committee and as the RFP is being written the department would want a vendor to respond as to how they could create an objective evaluation system or process across the state.  She indicated that the department will balance as best it can the control and uniformity in the evaluations of all school buildings. 

 

In response to comments by Senator McGaha as to how many vendors would be used, Mr. Desai stated that it would depend on the capacity of the vendor(s) to perform the work across the state.  The department prefers to obtain a single vendor who would use the same criteria across the state but at this time it is unknown how many vendors the department will be able to obtain.  The department wants the evaluations to be consistent and objective so the department can make decisions and not have local district involvement.  Ms. Kennedy stated the importance of quality control measures included in the process that would allow a review of the evaluation for consistency.  She also indicated that a software vendor would be separate from a vendor that would perform the evaluation but both components could be included in a single RFP to streamline the process and allow vendors to bid on separate or both items. 

 

There was discussion of information systems personnel developing the software to maintain the rating and evaluation system of district facilities.  Ms. Kennedy stated that any decision to purchase versus build a system is a cost benefit analysis.  An in-house design/build process would lengthen the time to create the system.  If there is software available that meets the needs, even though it may need to be customized, may be more cost effective because of the time factor. 

 

Senator Shaughnessy stated that he felt it important that the Committee not lose sight of the way in which various districts participate at the local level in terms of funding.  Some communities at the local level have not contributed to the same extent as others.  Representative Richards commented that there is a perceived lack of fairness in how schools are evaluated and would hope that before the process advances too far that the department would provide a report on how the process is progressing so the Committee can determine that the districts are treated equitably and fairly.  Representative Stevens echoed the comments made by Senator Shaughnessy and Representative Richards and emphasized that there needs to be consistency and all schools districts should be evaluated by the same guidelines. 

 

Representative Rollins noted that the taxable property or revenue streams are more available in some districts, and some local districts cannot raise the money necessary to update, build, or replace Category 5 schools.

 

In summary, Chair Thompson indicated that this is a very important topic with the Committee and Legislature, and urged the department to consider accelerating the RFP and issuing it before the January target date, and that the Committee on Postsecondary Education (CPE) model be reviewed and considered.  The objective is to have a firm perform an analysis on standard criteria and a creditable ranking of the conditions of all the schools in the state. 

 

Status of Category 5 Facility Projects (HB 1 2010 Extraordinary Session)

            In order to be eligible for Category 5 funding, a school district must have had a school facility classified as a Category 5 on May 18, 2010, which was identified in the 2010 Extraordinary Session.  Ms. Kennedy updated the Committee on the progress of those districts in addressing their facilities needs.  She explained the second nickel and project status reflected on the project update list provided to the Committee.  Levying a second nickel is a process that goes through a normal tax levy process that is overseen by the department each year.  Once assessments are received by the Department of Revenue, the Department of Education issues back to the districts their tax options for the upcoming year.  She noted that the taxation process is just beginning for the districts with classified facilities on May 18, 2010 that have the authority to levy the second nickel.  A district must levy a second nickel before status equalization can occur.  She brought to the Committee’s attention correspondence sent to the Category 5 facility projects districts setting out guidelines on how to get funding for their Category 5 projects, the process to follow in order to levy their second nickel, and a summary of the Category 5 facility projects list which was considered by the General Assembly during the 2010 Extraordinary Session.  She said the department will also be sending an e-mail (draft provided) as part of its normal tax levy process so the district will further understand the options they have to levy the second nickel for funding the Category 5 facilities. 

 

In response to a question by Chair Thompson, Ms. Kennedy indicated that the schools on the Category 5 list must first levy the second nickel in order to be eligible for the equalization.  She also pointed out that there are some attractive funding options available with the Qualified School Construction Bonds (QSCBs), the Qualified Zone Academy Bonds (QZABs), and the Build America Bonds (BABs), which the fiscal managers will be working with the districts to take advantage of those funding options.    Chair Thompson stated that it is important that the districts have some equity in the process and that the second nickel is important. He said the Committee looks forward to updates on how the process is progressing. 

 

            Chair Thompson requested a brief explanation of restructuring within the department.  Mr. Desai stated that furloughing of employees is being handled by the Personnel Cabinet, adding that the furloughs will not affect school district employees.  The department is working with the cabinet to identify time frames that the department can furlough employees with the least impact on school districts.  He said that the department is now working under a new organizational structure and that information would be shared with Committee members and staff at a later date.  He said that the department was reorganized to focus on Senate Bill 1 as a priority and to reduce costs in response to budget reductions.  The department is flattening the organization, reducing the number of managers from 35 to 23, abolishing the two deputy commissioner positions (the department is considering having a chief of staff to assist the commissioner), reducing the number of eight associate commissioners to six, and reducing the number of directors from 24 to 16.  All are non-merit reductions, and no merit employees would be affected.  He said that duties and responsibilities may need to be further redirected to focus on Senate Bill 1. 

 

In response to a question by Chair Thompson concerning the Race to the Top competition, Mr. Desai said that hopefully the department would know the state’s status by the end of July and would update the Committee. 

 

In earlier discussions about the lapsing of RTA and MA funds, Chair Thompson asked if there were other any other programs that did not request all funds which would then lapse to the General Fund.  Mr. Desai said that there was some money left in the health insurance and life insurance funds that lapsed.

 

Representative Richards noted that there is a disparity in math funds being spent.  Mr. Desai said that the funding received for RTA is under $20 million per year and the funding for MA is under $6 million per year.  Both programs are important and the department would like to see both funded at higher levels; however, historically those programs have been funded at those levels.  He pointed out that in 2008 funding for RTA was at about $23 million and MA was at $7 million, but as a result of budget reductions the funding levels are lower.  Representative Stevens noted that improving math skills of students relates to the ability of students to be able to read and it is not as big a disparity as it appears. 

 

            There being no further business before the Committee, the meeting was adjourned at 11:30 AM.