Thefirst meeting of the Budget Review Subcommittee on Primary and Secondary Education of the Interim Joint Committee on Appropriations and Revenue was held on<Day> Thursday, June 4, 2009, at 10:00 AM, in Room 154 of the Capitol Annex. The meeting was held jointly with the Budget Review Subcommittee on Postsecondary Education of the Interim Joint Committee of Appropriations and Revenue. Representative Tommy Thompson, Chair, called the meeting to order, and the secretary called the roll.
Members:Representative Tommy Thompson, Co-Chair; Senator Tim Shaughnessy, Representatives Will Coursey, Ted Edmonds, Jimmy Higdon, Charles Miller, Rick Nelson, Carl Rollins, Dottie Sims, and Kent Stevens. Members of the Budget Review Subcommittee on Postsecondary Education present were: Representative Arnold Simpson, Co-Chair; Senator Tim Shaughnessy, Representatives Jim DeCesare, Kelly Flood, Jim Glenn, Melvin Henley, Reginald Meeks, Harry Moberly, Jody Richards, Carl Rollins, and Kevin Sinnette.
Guests: Joe Meyer, Deputy Secretary, Education and Workforce Development Cabinet; Dr. Larry Stinson, Interim Deputy Commissioner, Debbie Hicks, Director of the Division of Federal Programs and Instructional Equity, and Larry Taylor, Director of the Division of Exceptional Children, of the Kentucky Department of Education; and Robert King, President, Dr. John Hayek, Vice President of Finance, Planning, and Performance, and Sherron Jackson, Assistant Vice President of Equal Opportunity and Finance, of the Council on Postsecondary Education.
LRC Staff: Linda Jacobs Ellis, Tracy Goff Herman, Jonathan Lowe, Greg Rush, and Spring Emerson.
Chairman Thompson began by announcing that the meeting was being held jointly with the Budget Review Subcommittee on Postsecondary Education, and mentioned the very strong possibility of continuing to meet jointly throughout the Interim. He then welcomed Joe Meyer, Deputy Secretary, Education and Workforce Development Cabinet, who gave a brief overview of the American Recovery and Reinvestment Act (ARRA) as it relates to the cabinet and its agencies.
Representative Moberly asked how the ARRA funds fit into the context of the Governor’s budget proposal. Mr. Meyer replied that most of the programs being discussed are federally funded, with Vocational Rehabilitation and the Office of the Blind programs requiring a state General Fund match. The Office for Career and Technical Education (OCTE) operates a system of 53 area technology centers at high schools that serve multi-district programs, and if there were areas that merited a lack of additional cuts, one of them would be the OCTE as they have received the full brunt of every budget cut so far. There are no stimulus funds set aside for the OCTE, and there is a significant demand for their services. They have been protected from personnel cuts to date, but as people retire or resign, those positions cannot be filled due to budget restraints. Representative Moberly asked if some of the cabinet would be affected by the 2.6% cut, rather than being straight-lined in all areas. Mr. Meyer replied in the affirmative. Representative Moberly asked if the stimulus funds are restricted to categories and cannot be used to backfill other areas. Mr. Meyer agreed.
Representative Meeks inquired about the condition of the Unemployment Office in the downtown area of Louisville, and asked how those needs are being addressed. He also inquired about whether stimulus funds will be used to hire a number of temporary workers in Jefferson County, and if they will be paid more than the full-time state employees. Mr. Meyer stated that he is aware of issues in Jefferson County as well as other parts of the state. He said that the agency was completely overwhelmed by the severity and steepness of the economic downturn, and had little opportunity to prepare for it, so all adjustments had to be made on the fly. The demand on the computer system was so severe that it would crash at least one day per week, indicating a need to expand and upgrade. The air conditioning system at Sixth Street in Louisville should be replaced. The employees in question are state employees working in the Federally Funded Time Limited (FFTL) capacity, and will have the same job classifications with the same pay ranges as the merit system employees already in place. The interim people will not be paid more than current employees.
Representative Meeks expressed his appreciation and thanks for the openness and cooperation he has received from the agency.
Mr. Meyer stated that with all the problems and challenges the Unemployment Insurance agency faces, he would be remiss if he did not point out that the employees have gone to extraordinary end to do the best job they can under the circumstances, responding to unimaginable demands.
Representative Meeks asked if federal stimulus funds will be used to update the computer system. Mr. Meyer replied that some temporary fixes to expand its capacity have been made to deal with the current demand levels, but the queue system needs to be migrated off the mainframe so that it will become a much more cost effective and usable system.
Representative Simpson asked how much more borrowed money is anticipated in the next year and what are the terms of repayment to the federal government. Mr. Meyer replied he is unwilling to make an estimate as to how much will need to be borrowed for the rest of the year, but will say that they are currently spending over $100 million a month in benefits through the Unemployment Insurance program and will collect approximately $350 million in taxes this calendar year. He added as part of the stimulus package the federal government has forgiven the interest until 2011, and if they had not done that, the current rate would have been 4.25%.
Representative Simpson asked what the repayment terms are and if there are policies being developed in the cabinet to create more funding to augment the obligations, perhaps from employers. Mr. Meyer replied there is not a fixed repayment schedule; however, if not repaid within a certain time frame, the employers will begin to lose some of their federal unemployment tax credit. The approach being taken is through the Governor’s Task Force on Unemployment Insurance, which has been asked to look at the entire unemployment picture for trust fund solvency issues and identify changes in the program that could cause the trust fund cash flows to come back into balance. The report from that Task Force is expected by October or November of this year. Just recently, two of the nation’s leading unemployment insurance economists were hired, Wayne Broman from the Urban Institute in Washington, and Chris O’Leary from Michigan, and will be at the next Task Force meeting on June 10 to lay out their program to identify options and act as the expert resource for the cabinet.
Chairman Thompson asked if it is expected to begin paying principal in 2011 as well as interest. Mr. Meyer replied that it is uncertain at this time. He added that it would be included in the strategy being developed by the Task Force.
Chairman Thompson asked if the cabinet is pursuing any competitive grants that are available globally through the stimulus program. Mr. Meyer replied that they are still in the process of identifying any available grant opportunities.
Chairman Thompson thanked Deputy Secretary Meyer for his presentation. He then welcomed Dr. Larry Stinson, Interim Deputy Commissioner for the Department of Education.
Dr. Stinson began by explaining the contents of the handouts relating to their presentation. He stated that an item that would be found very useful was a handout discussing ARRA funding sources which contains a concise distillation of items within the ARRA that are available for public schools. Another item included in the packet was a list of activities that the Department of Education has engaged in relative to the ARRA and working through the process. He then introduced Debbie Hicks, Director of the Division of Federal Programs and Instructional Equity, and Larry Taylor, Director of the Division of Exceptional Children. He added that they will give overviews of programs that have already received ARRA funds and given notices to the school districts.
Ms. Hicks gave a presentation regarding Title I Part A program allocations which are designed to assist students that are considered at-risk in high poverty schools. She said the allocations come from the federal government based on census poverty levels and are one-time-only funds, of which half has been awarded and allocated to the school districts. It is anticipated that the other half will be awarded by September 30, 2009. The total amount of the award for Kentucky was slightly more than $155 million. She added that they have been working with the districts in helping them to understand how they can use these funds, which are very restricted and must follow the same guidelines as the regular Title I Part A funds, which means they have to be focused on instruction, student improvement, and professional development for staff. She also mentioned they are reimbursement funds and explained that each district spends the funds and sends a federal cash request to the department, who then reimburse the district from the federal allocation.
Ms. Hicks explained that the Title I School Improvement Section 1003(g) fund is a fairly new allocation and has not yet been received from the federal government for this year. She said it is targeted specifically to schools in corrective action or restructuring under the No Child Left Behind Act, which in Kentucky’s case means Tier 3, 4, and 5 schools are eligible for the funds. Another application must be submitted indicating how the funds will be used, and the application requirements should be revealed by September.
Ms. Hicks said Title V Part C is the Homeless Education grant, of which Kentucky received $1.3 million. She said that typically the Homeless Education grant is a competitive process, but with the ARRA funds a formula basis is allowed, or a combination of formula and competitive process. Kentucky chose the formula basis due to the number of districts supported being limited, which will allow those districts to receive a base amount and a per-pupil amount on top of the base.
Mr. Taylor gave a presentation regarding ARRA funds pertaining to students with disabilities. He explained that, of the Part B and Part C of the Individuals with Disabilities Education Act (IDEA), in Kentucky the Part C grant is housed in the Cabinet for Health and Family Services, so his presentation today is regarding Part B which is for students with disabilities ages 3 through 21. The ARRA funding pertaining to IDEA is a one-time allotment of $167 million, with a time frame for spending being retroactive to February 17 when the bill was signed, and goes for 27 months from that time. School districts have received 50% of the ARRA funds, with the other half of the funds to be made available October 1.
Representative Sims asked if some of the funds would be lost or if they were elected to be carried forward to the next fiscal year. Mr. Taylor replied that the funds can be carried forward and will not be lost.
Representative Flood asked how the interim period in CATS testing shifts would impact the spreading of the funds and if there would be enough information available to determine what are Tier 3, 4, and 5 schools. Ms. Hicks replied in the affirmative, explaining that Tier status is directly related to the NCLB adequate yearly progress report which is a separate report for the federal government. Representative Flood asked that information regarding those schools and their locations be provided to her at a later date.
Representative Flood requested information regarding additional costs related to educating children with disabilities. Mr. Taylor replied that examples would be students requiring special transportation, speech therapy, occupational therapy, physical therapy, etc. Representative Flood asked if the additional costs would impact the ability to offer new programming for children with disabilities, or if ARRA funds are only for existing services already being provided. Mr. Taylor answered that currently school districts are required to provide free and appropriate education for any student with disabilities, and most of the districts do a phenomenal job with the services already in place. He said that there are existing data sources and plans on what is needed to continuously improve outcomes for kids with disabilities, which sometimes involves more optimal services than those appropriate services already in place.
Dr. Stinson added that while a district may use the additional one-time federal funds to expand current services, the funds will not continue indefinitely, so there is a concern that the ability to continue that service would no longer exist. Representative Flood requested information regarding which districts would be interested in optimal services and what services they chose to optimize. Representative Flood commented that while the additional federal funds are welcomed, there is also more labor intensive tracking of funds, and she expressed her appreciation and honor for that work.
Representative Henley commented that the ARRA funds were designed at the federal level to augment the decrease in school taxes collected due to nationally eroded property tax values. He added that property reassessments will take some time.
Representative Meeks asked if the School for the Blind is eligible to receive ARRA funds, and if so, how much. Mr. Taylor replied that the School for the Blind and the School for the Deaf are both state schools that are eligible to receive ARRA funds under IDEA. He added that due to the number of students and the formula used, the amount received is less than $100,000 for the two schools combined. Representative Meeks asked if there is any flexibility on the part of the department to allow them to receive additional funds due to the nature of the services the schools provide. Mr. Taylor answered there is not, due to no provision being set aside for state IDEA dollars under the stimulus package. Representative Meeks asked if there were other funds they could potentially be eligible for. Ms. Hicks stated they are not eligible for Title I funds because they are state schools.
Representative Moberly commented that the SEEK formula distributes additional money for individuals with disabilities and asked if the Governor’s budget proposal anticipates schools would receive less SEEK money. Mr. Taylor replied that the formula for SEEK add-on dollars for students with disabilities would remain the same and those state dollars would continue to go to local school districts. The flexibility that local school districts have is that annual determinations are made for programs in each school district, and if a district meets the requirements they have the ability to reduce their maintenance of effort by 50% of the increase of money over the allocation of the previous year.
Representative Moberly stated that the districts may use additional IDEA dollars to free up their SEEK funding for individuals with disabilities and use it for something else. Mr. Taylor said there are additional stipulations and the funds can only be used according to Title I guidelines.
Senator Shaughnessy commented that if the SEEK formula doesn’t adequately take care of the students at the School for the Blind, then perhaps the SEEK formula needs to be looked at more closely. Dr. Stinson stated that SEEK money doesn’t go to the School for the Blind or the School for the Deaf, and that those state schools are a line-item allocation in the state budget.
Representative Flood requested that the information regarding competitive grants under IDEA be provided to her when it is received.
Representative Meeks asked if ARRA funds are available for state institutions to help with capital projects. Dr. Stinson replied that he would have to defer that question to the next presenter, Dr. Robert King, regarding higher education institutions. He added that in terms of the school districts, there is not as much opportunity to use the federal funds as had been originally thought. There is some money that could be used under some of the Title I enhancement grants as well as the State Fiscal Stabilization Fund if they have spent dollars on items as intended within the state ARRA first, then they could use some of that for construction but it is low on the list of priorities for those funds.
Chairman Thompson inquired about the search for a new Commissioner. Dr. Stinson replied that the State Board hired a consultant to help with the process, ads were placed, approximately sixty applications were received, and the board is to meet next week to review the applications and make plans to have the first round of interviews on June 15 and 16. Early in July the consultants will share their findings with the State Board and at that point it will be determined if a second round of interviews will be necessary, which will probably occur in mid-July. They are still on track with the intention of having the new person in the position effective August 1, dependent upon the individual’s availability.
Chairman Thompson inquired about the financial condition of the school districts and their preparations for the upcoming school year. Dr. Stinson replied that it varies according to the particular situation, adding that districts are in differing circumstances in terms of their carryover balances and their contingency funds. He said that there is uncertainty with what will happen with state funding as well as how the federal dollars can be brought into play, and as a result districts have had to take actions that give them flexibility once they learn what their funding sources will be. He added that they are taking it very seriously and trying to minimize the impact on instruction as much as possible.
Representative Edmonds asked if there were many school systems around the state denied a large number of the ten disaster days, and how many would have had to have gone through a second application process to prove they are deserving of more days than they were initially told they would get. Dr. Stinson said he did not have the specifics on that, but there were approximately 60 districts that did make application. There was a very low number that did not meet some of the criteria, perhaps fewer than ten. He added that most of those still could meet the requirements of the calendar expectations without needing the extra disaster days. There were four or five that resubmitted their applications.
Chairman Thompson thanked them for their informative presentation, and suggested that they aggressively pursue competitive grants and apprise the districts of those opportunities. He then welcomed Robert King, President of the Council on Postsecondary Education, and asked him to introduce the colleagues with him.
President King introduced Dr. John Hayek, Vice President of Finance, Planning, and Performance, and Sherron Jackson, Assistant Vice President of Equal Opportunity and Finance, for the Council on Postsecondary Education (CPE). He then gave a brief overview of where the universities are with respect to finances, the effect of the stimulus legislation, and cost containment strategies in use by the campuses.
Representative Simpson asked how ARRA funding relates to need-based scholarships and if there is any flexibility allowed for this. President King replied that within the federal stimulus funds, there are no restrictions that would prohibit that money from being used by an institution for need-based aid, and the decision would be made at the each campus and would be a function of their budget and their various needs. He added that the Higher Education Workgroup made a series of recommendations this spring which included a total reevaluation of financial aid resources, how they are used, and how they may be better structured to address need-based aid in Kentucky.
Senator Shaughnessy inquired about the broad flexibility of how the stimulus funds are spent. President King answered that when the new budget is adopted, what used to be a total source of funds from the state General Fund would now be some increment less than what was given to the universities in 2009, and whatever the difference is between the state’s portion in 2010 and that in 2009 would be picked up by federal stimulus dollars. The only limitations in terms of utilization of those dollars would be that it cannot be used for swimming pools or casinos, and perhaps a couple of other limitations of the same type. The campuses will have fairly significant freedom to decide how to use the funds within their operating budgets, so if they chose to apply some of it to need-based aid, they certainly could do that.
Representative Meeks inquired about flexibility regarding capital projects. Mr. Jackson replied that the portion of the ARRA funds that are available to postsecondary education allows by definition that institutions may be able to use those dollars for remodeling, renovation, energy conservation, etc. This is dependent upon how the Governor describes the use of those funds as they are allocated to postsecondary institutions. Representative Meeks asked if the CPE was advising the Governor to maximize that flexibility. President King replied in the affirmative, adding that because the federal stimulus fund is one-time money, the campuses are being encouraged to apply these dollars in ways that do not create recurring obligations. The use of the funds to perform deferred maintenance such as repair of air, electrical, or sewer systems are the kinds of things that a campus might choose to do. He went on to say that there is a program that the legislature initiated a couple of years ago called Regional Stewardship, and the campuses that participate in that program take it very seriously, and embedded in that is the recognition that those campuses try to behave in a way that is sensitive to and responsive to the needs of their local communities.
Representative Henley asked if there has been an increase in the number of advanced degrees. President King replied in the affirmative. Representative Henley inquired about Science, Technology, Engineering, and Mathematics (STEM) advanced degrees. President King replied that he would provide that information to him at a later date. Representative Henley stated that at one time the Kentucky National Guard paid for textbooks, tuition, and room and board for postsecondary education with a four-year commitment, and asked if they still do that. Dr. Hayek replied that he thought the program was still in place, and would check on it and provide the information later.
Representative Moberly welcomed President King to Kentucky and pointed out that he also has a legislative background by serving in New York’s state legislature. He commended President King for his performance in the short time he has been with CPE.
Representative Moberly commented that all of the institutions use their own operating funds for financial aid over and above the federal and state financial aid that’s available, so no student is denied the ability to attend college. There are significant amounts of need-based and merit-type aid available at the institutions from those operating funds, which have been preserved from budget cuts because they are discretionary funds. He asked if the ARRA funds could be used for the type of performance contracts that increase energy savings. Mr. Jackson replied that given the statutory provisions provided by the state, the savings from those contracts are to be used to pay off those contracts; however, for new energy opportunities those dollars can be used to pursue energy savings and energy saving projects on the campuses. Representative Moberly asked if the stimulus money can be spent to supplement state money on new construction. Mr. Jackson replied that in the instance of a shovel-ready project, the answer would be yes.
Representative Moberly thanked President King for making the information available and encouraged him to continue to provide information from the institutions on a regular basis.
Senator Shaughnessy inquired about the use of ARRA funds, asking if they can be used to fulfill obligations according to the stipulations outlined in the state budget, or if it could be spent for something outside that scope. President King answered that the same expectations described in the state budget would be fulfilled, regardless of funding source.
There being no further discussion, the meeting was adjourned at 12:08 P.M.