Program Review and Investigations Committee


<MeetMDY1> June 17, 2002


The<MeetNo2> Program Review and Investigations Committee met on<Day> Monday,<MeetMDY2> June 17, 2002, at<MeetTime> 11:30 AM, in<Room> Room 131 of the Capitol Annex. Sen. Katie Stine, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Katie Stine, Chair; Representative Gippy Graham, Co-Chair; Senators Charlie Borders, Ernie Harris, Paul Herron Jr., Vernie McGaha, Dan Seum, and Johnny Ray Turner; Representatives Adrian Arnold, Sheldon Baugh, Dwight Butler, Jack Coleman, Charlie Hoffman, Ruth Ann Palumbo, and Dottie Sims.


Guests:  Dr. Larry G. Stinson, Superintendent of Fort Thomas Independent School District; Dr. Fred R. Bassett, Superintendent of Beechwood Independent School District, Fort Mitchell; Commissioner Gene Wilhoit, Department of Education, and Kyna Koch, Associate Commissioner of the Office of District Support Services, Department of Education.


LRC Staff:  Ginny Wilson, Ph.D., Committee Staff Administrator, Lowell Atchley, Judy Fritz, Greg Hager, Ph.D., Tom Hewlett, Alice Hobson, Joseph Hood, Margaret Hurst, CPA; Dan Jacovitch, Cindy Upton, CPA, Erin McNees, Lynn Aubrey, Barry Boardman, Ph.D., Mike Clark, Ph.D., Kevin Mason, Perry Nutt, and Susan Spoonamore, Committee Assistant.


Minutes of the March 7, 2002 meeting were approved by voice vote upon motion made by Sen. Herron and seconded by Rep. Baugh.


Sen. Stine introduced and welcomed new member, Sen. Johnny Ray Turner.


Greg Hager, Ph.D., Program Review staff, explained the study proposal regarding the Analysis of Support Education Excellence in Kentucky (SEEK), a copy of which can be found in its entirety in the LRC Library file. Dr. Hager stated that the Kentucky Education Reform Act (KERA) of 1990 created a new educational system based on a framework of content standards, a testing system that measured student content learning, school accountability, assistance for struggling schools, sanctions against schools that repeatedly fail to make progress toward content standards, and the school finance formula called Support Education Excellence in Kentucky  to provide the necessary financial resources.  Dr. Hager outlined the three objectives of the study which are:  1) Provide a description of the elements of the SEEK formula and describe the patterns of SEEK funding. 2) Describe and evaluate the process by which SEEK calculations are made. 3) Elicit and report on the opinions of school superintendents about aspects of the SEEK formula. 


Dr. Larry G. Stinson, Superintendent of Fort Thomas Independent School District, discussed his views on the SEEK formula (a copy of his presentation can be found, in its entirety, in the LRC Library file).    In a brief summary, Dr. Stinson stated that the SEEK formula was too dependent on the assessed value of local school districts. He also said that in the Revised Forecast for the 2002-03 school year,  there were three components which would make a difference in funding for schools.  The components are per pupil assessment, the number of pupils, and the guaranteed base funding per pupil.


Sen. Stine asked if the revised forecast figures were identical for all of the legislative school districts. Dr. Stinson stated that the only difference would be the enrollment figure. The Guaranteed Base of $3,149.00 per pupil would remain the same for all districts in the state. 


Dr. Fred R. Bassett, Superintendent of Beechwood Independent School District, in Fort Mitchell, Kentucky, stated that since the SEEK formula was based on property assessments, the formula assumes that any increase in property assessments will result in the same increase in local tax revenues. Because of HB 44, his district can only capture a 4% increase in local revenue.  When a district has local assessments go up more than 4% in a year, they are going to lose money.


Rep. Coleman asked if the taxpayers would be paying less money than the year before if the districts took the 4%. He also asked that in situations where you can only raise 4%, is there a point where your bill would actually go down. Dr. Stinson stated that the answer to the first question was no. As to the second part of the question, he stated that the tax rate would go down.  If the assessment has gone up, the resulting payment is going to increase by some factor.


Dr. Bassett stated that if you put the regular tax rate on the 20% increase in assessments, the districts would get 20% more local money.  You can’t keep the same tax rate because of HB 44, so it rolls it back.  The new tax rate will only get 4%. 


Sen. Seum asked that if property taxes were going up because of the 100% assessment, would school districts still end up with less. Dr. Bassett stated that this was correct. He also stated that there were two possible fixes for the problem. One would be to ignore HB 44 and let the districts capture all of the increases in assessments. The other fix would be to do something to the SEEK formula so it does not take back more money than the districts can recoup locally. 


Dr. Stinson stated that as a consequence of the SEEK formula, assessed values increase while the state contribution decreases.  It is the assessed value and its changes that impacts the bottom line of SEEK.


Sen. Seum asked if there were school districts in the state being penalized on the 100% assessment. Dr. Stinson said that a district could be penalized, but he thought there were a couple of issues that needed to be looked at. Are the County PVA’s doing their jobs appropriately so that the properties are valued at what they are actually worth, and secondly how much effort is the local district making in terms of the tax rate it establishes? 


Dr. Bassett stated that he thought it would be easier to keep track of assessments for all the property in a particular district if the information could be computerized into a state central collection system. He said the assessment could be compared to the average selling price for a piece of property during the year. At the end of the year, you would have an average selling price compared to the average assessment. If it varied more than 10%, up or down, then something would be wrong with the way the assessments were being done in that particular district. 


Rep. Coleman stated that the SEEK formula was never intended to fully fund every district at 100%. He said the SEEK formula was calculated to equalize funding across Kentucky.


Dr. Bassett stated that he was not trying to say that they should get away from equalized funding. He said that the problem with the SEEK formula was that it was designed to only look at the property assessments. He also said that there are two types of taxes available to school districts. One would be property taxes, which are equalized under the formula, but not without glitches, and then there are permissive taxes, which include utility taxes and occupational taxes that are not equalized. He asked that the General Assembly take the time to look at the SEEK formula glitches.


 Dr. Stinson stated that he thought the SEEK formula was basically a good formula, although it had some pieces in it that needed adjusting.  Still, Dr. Stinson said he definitely subscribed to what was being referenced.  He said the districts that have low wealth factors should not suffer because of that.  He quoted one of his professors, a well-recognized school finance expert, who said that the best formula in the world that is not properly funded will not be very good, and even a very poor formula that has enough money flowing through it will do a good job.  Dr. Stinson stated that in looking at  how the state’s share in support of education at the elementary and secondary level has declined, at least on a percentage basis over the last twelve years or so, are we truly putting enough money through the formula?  He also asked that all districts be included in the study of the SEEK formula.


Dr. Stinson went on to say that the assessed value had a big impact on the SEEK allocation as did the enrollment projection.  He suggested using this year’s tax rate on last year’s assessments since this year’s assessment will not be known until late July or August. He said it would make it easier for the Department to develop it’s projections when the Legislature is doing it’s budget work, and it would make it a lot easier for school districts to develop their budgets as well. 


Dr. Stinson stated that in his opinion, the 4% limit within House Bill 44 magnifies the impact of the assessed value on SEEK.  Even though House Bill 44 is separate from SEEK, he said that SEEK is designed to be both state and local efforts, with the local effort being governed and controlled by House Bill 44. He said you have to look at the two together to really understand the full impact. Dr. Stinson pointed out that his presentation, based on a per pupil basis,  relates to Fort Thomas schools only, which focuses on the total dollar changes from 1990 to 2002. Dr. Stinson stated that Ft. Thomas’ assessed value had gone up by 49% but their tax rate, the revenue, had gone up by 92%, whereas the SEEK grant had only increased by 11%.  That was for the entire 12 year period, not just one year.  He stated that if the school district had not been limited by the two cumulative factors their budget this year would have been almost two million dollars higher than it was.  He said that several times they actually had a reduction in total revenues because their assessed value went up.


Dr. Stinson also pointed out that the gap between the highest and lowest funded districts was still pretty wide.  He said it was a fact of life that school districts receive varying amounts of federal dollars, and that his analysis of total revenue per student included federal funding.  He said the highest in the state was actually $13,000 per pupil, but that was because of unusual circumstances.  If you looked at the whole spread, it capped out at $9,574 as being the more accurate high figure.  The lowest in the state was $5,286 and average was $7,251.  That range being a full $8,000 between top and bottom, and even if you flatten the top a little bit, it would be in the $4,286 range.  In Ft. Thomas, the revenue per pupil for the 2000-2001 year was $6,325, a difference from the average of $926.  He said that may not sound like a whole lot until it was multiplied by the 2,184 students, which would mean a difference of  $2 million dollars to their budget.  He said that would be 23% of their payroll, or enough for them to look at $24 million dollars worth of debt service.


Dr. Stinson also reported on the status of teachers’ salaries in his district.  He said that in 1989-1990, their average salary was sixth in the state, and for this current year they are thirty-sixth.  Dr. Stinson stated that this may not be a big deal unless you happen to be a teacher, but legislators need to understand that is going to happen when they try to equalize dollars throughout the state.  He said he did not have a major quarrel with that, but he requested that members look at some specific spots on the salary schedule.  Dr. Stinson pointed out that the salary of a teacher who has obtained a Rank II with average training, a master’s degree and 15 years of experience, is ranked 160th in the state, and an even younger teacher with only ten years of experience is 172nd.  Dr. Stinson stated he would like to do something to adjust those rankings, but the mandated across the board salary increases have not allowed them to adjust as they would like.  He said that they do pay very well to teachers at the top of the scale with twenty-eight and twenty-nine years of experience, but when there is an across the board mandate, it raised their salaries just as much as everyone else’s.  Because of the across the board increases, they did not have the resources to make the adjustments in other places in their schedule. Dr. Stinson recommended that the mandate either be lifted, or a better mechanism be found to fund it outside the SEEK formula.  Dr. Stinson said that even with the Governor suggesting that the SEEK base go up 2.7%, his district would be getting a reduction in total state dollars.   If it was going to be required of them to increase their schedule by some factor, then it would have to come from outside the formula. He said that even though their beginning pay was pretty good, within the last five years about twenty-four people who have less than five years of experience have left, and in the ten to fifteen year category they have lost twenty-six teachers.


Another point Dr. Stinson raised dealt with facilities.  Data gathered from the Department of Education website shows how schools are classified based upon their age and their condition.  Statewide, two-hundred twenty schools are excellent, three hundred and one are considered better, three hundred ninety-three, good, average and so on.  He said Fort Thomas middle school is brand new this year so it is a category one, but all the other four are in category four.  Statewide, 30% of the schools are in category four or five.  Eighty percent of the Fort Thomas schools are in category four. 



Dr. Bassett explained that the point that Dr. Stinson was trying to make was that he was going to be required to cover a 2.7% raise for all of his staff with 3% less money.  Dr. Bassett stated that since the formula was based on assessments, the formula assumed that the local effort or the amount that was collected locally was going up and therefore the only difference the state had to make up would be the difference between how much is collected locally and the guaranteed SEEK base. The SEEK base amount is not going up at the same rate that the property assessments are going up. He also said that when the SEEK formula was developed, the formula tried to put a Tier II cap on the absolute maximum amount of tax rate that a district could put into place to keep some districts from getting way ahead of other districts. The glitch with that was the fact that prior to KERA, some districts had some very high tax rates, and when they were grandfathered in they were allowed to keep the very high tax rates. He also stated that his district was stopped from having a higher tax rate, and they were told that they could not raise their tax rate above 69-1/2 cents because that was the Tier II cap for his district. Dr. Bassett explained that he and Dr. Stinson were not asking that the SEEK formula be discontinued, but were asking that the formula be made more equitable. 


Dr. Stinson added that Ft. Thomas might be an extreme example, but it highlighted what he thought were the problems within the formula.  He said that the last two or three major studies that were done to evaluate the effectiveness of SEEK had not included all districts.  The districts who made the biggest change or those who where at the highest ends or lowest ends were excluded.  He recommended that all districts be included in the Program Review study since they would all be impacted by the report.


Rep. Coleman asked if both districts were using utility taxes to raise school revenue.  Dr. Stinson and Dr. Bassett responded that they were using utility taxes. 


Dr. Stinson also raised two more points.  He said that there are some districts who have either high or low tax rates, and yet have a big disparity between that and what their total revenue is.  He referenced a sheet in his handout which indicated all of their school districts and their property tax rates for 2000-2001, put in order of rates. Raceland Independent was at the top of the list showing their tax rate as the 8th highest in the state, not the amount of revenue, the tax rate itself.  The other column did the same thing with total revenue per pupil, in order of who had the most to the least.  Dr. Stinson stated that the only districts listed were there those districts with a 100 point or more difference in their rank between the rate that they were levying and the total revenue they received.  He also said, it was not the same issue as assessed value, but it reflected the efforts that the districts were making. Dr. Stinson pointed out that the top grouping was those who had the higher tax rates but yet were among the lowest in total revenue.  The bottom 12 were the reverse, the lowest tax rates yet with some of the highest total revenues in the state.  Dr. Stinson said it was annoying to have the 17th highest tax rate in the state and still be ranked in the bottom 30% or less in terms of total revenue received – ranking 160th.  He stated that it might be understandable if there was a direct negative correlation, that the highest tax rate had the lowest amount and the lowest tax rate had the highest amount and every one was the same in between, but that was not the way that it worked.  He said that even though these were extreme examples it showed that something needed to be done about how the state was calculating the impact of these things.  (A copy of Dr. Stinson’s presentation can be found in the LRC Library file). 


Sen. Borders stated that he had heard more about SEEK today than he had at any point in his twelve years as a legislator, but that was probably more a legislature’s fault than the school districts. He said that while he felt there was no sense in revisiting the past, he felt the Committee needed to look at the issues and get them resolved.  Sen. Borders stated that according to the figures presented, Raceland Independent District had a tax rate as 8th highest in the state, but yet their revenue was 158th.  Then, he said there was Boyd County, which was within 3 miles of Raceland Independent, with a tax rate of 157th, but yet their revenue was 47th.  Sen. Borders stated that there must be some fairness in the system. 



Sen. McGaha stated that he would like to have other superintendents from other districts invited to come before the Committee to tell their story on how the SEEK formula had applied to them. He also asked if the calculations that were presented to the Committee included the extra local efforts. Dr. Stinson stated that the money from extra local efforts (permissive taxes) was included in the total revenue column. 


Gene Wilhoit, Commissioner of the Department of Education, stated that Kentucky was an extremely diverse state with school districts operating in different worlds in terms of their local resource base, and in terms of  their ability to pay, and in terms of their needs for their students. It was also a complex issue in terms of the way the resources were gathered and the way the Department projects revenue, and for districts it was complex in the way they spend. He also said that this was the most expensive enterprise that legislators could be involved in. When the formula was first rolled out, he said it did cause some difficulties and the quirks that are in the system do need to be addressed and identified specifically. The formula in terms of equity, appears to be holding forth, but bigger than equity is the matter of adequacy. The question of whether or not we have the resources in the right place in the system to reach the kind of educational goals that we have set for our children needs to be addressed.  He also agreed that there were definite conflicts with HB 44 because it limited districts to a 4% increase in revenue. Maybe permissive taxes should be included in the calculation beyond the property taxes. He said that the needs of the high growth districts were unique and very different than the needs of the other districts and there is a question of whether or not there is enough incentive at the local level. Commissioner Wilhoit recommended that the 4% glitch be fixed. He also stated that another concern is that kindergarten funding is only for a half day, not a full day. In addition, districts were being impacted by students who brought to school not only learning deficits, but the inability to communicate with the English language.  He also agreed that the accounting for the average daily attendance process should be simplified.  As to effective funding outside the formula, he asked if the Department should consider folding some of the programs into the formula, which would raise the general SEEK amount and reduce the outside funding.  He also asked if the add- on programs needed to be analyzed to see how the money was being spent. He said that the one most susceptible for analysis would be the at-risk category.


Sen. Harris asked if Commissioner Wilhoit was familiar with the legislation that was introduced last year to help the high growth districts with extra money for the construction of facilities. Commissioner Wilhoit responded that he was familiar with that legislation. He stated that over the next few years, there needed to be a concentrated effort to eliminate level 4 and 5 of buildings that were still in operation. 


Continuing, Commissioner Wilhoit stated that  the adequacy issue raised a lot of complexities. Some programs that are outside may have to be collapsed and put into the formula.  All districts have special education needs, and there are different ways to do the allocation of special education resources other than what is in place now. 


Sen. Seum asked if a district would be penalized if it decided to raise taxes. Commission Wilhoit stated that the local community should benefit from the increased taxes. 


Sen. Seum asked if a district would gain SEEK dollars if it decided to lower its taxes. Commissioner Wilhoit responded that the district would not gain SEEK dollars.


Sen. McGaha asked if all school districts had been included in the 10 year study analysis.  Kyna Koch, Associate Commissioner of the Office of District Support Services for the Department of Education, said that there were some examples that included all 176 school districts.  Not every chart or example included information from all the school districts. 


Sen. McGaha asked if the persons who conducted the ten year analysis were familiar with the funding formula. Commissioner Wilhoit stated that the Department deliberately did not bring back the same person who had prepared the first study. The Department wanted a fresh look at assessing the equity of Kentucky’s SEEK formula and they wanted the very best people in the country performing the analysis. 


Ms. Koch stated that the scope of the review was fairly narrow in that we asked for a look at the equity of the formula as it stood, and to make recommendations to the Department for any changes that we might be able to take to the 2002 General Assembly.  They found that there was substantial equity, but there were other unintended consequences.  She said the Department did not ask for an adequacy study on SEEK due to time constraints.


Sen. McGaha asked if any recommendations were made, and if so, were any of the recommendations brought before the 2002 General Assembly. Ms. Koch said that some recommendations were made on equity, and some of those recommendations were in the State Board’s first budget.


Dr. Ginny Wilson, Committee Staff Administrator, reviewed each of the  background summaries for the 2002/2003 suggested study topics, including the three additional topics that were presented during the meeting for consideration.


Outgoing Chair, Sen. Katie Stine, conducted the election of the new Chair for the Program Review and Investigations Committee. Sen. Stine nominated Rep. Graham to serve as Chairman for the 2002-2003 term, seconded by Sen. Turner. Motion made by Sen. Harris and seconded by Rep. Baugh for nominations to cease. Motion passed. There being no further nominations, Rep. H. “Gippy” Graham was elected Chairman by acclamation.


Rep. Gippy Graham nominated Sen. Katie Stine to serve as Co-Chair for the 2002-2003 term, seconded by Sen. Herron. Motion made by Rep. Sims and seconded by Rep. Coleman for nominations to cease. Motion passed. There being no further nominations, Sen. Katie Stine was elected Co-Chair by acclamation.


Rep. Graham, stated that due to the time constraints, he would like to hold off on voting on the study topics, and adopting the Committee Operations Manual until the July meeting.  He also asked that staff correspond with Committee members before the July meeting to get a prioritized list of study topics. 


Upon motion made by Rep. Coleman and seconded by Rep. Palumbo, staff was given approval to be involved in the developments at the Kentucky State University in order to collect data and documents necessary to keep the Committee up-to-date on what was happening at KSU. Motion passed.


Rep. Hoffman requested that staff add to their list of study topics the question on whether or not the ordinances or statutes involving non-partisan elections were truly working in the spirit intended. 


Rep. Graham requested that the Chair and Co-Chair meet with staff to select 10 to 12 study topics for the Committee to choose from. There being no opposition to the request, the Chair and Co-Chair are to  meet with staff. 


Meeting adjourned at 2:00 p.m.