Office of Superintendent of Public Instruction Public Schools: Depth, Breadth, and Causes of a Looming Finance Crisis 1.What are the causes and amounts of school district finance shortfalls? 2.In recent years, how have districts faired financially? 3.What do the next two years hold for district financial health? 4.What are the next steps?

Office of Superintendent of Public Instruction State, Local, and Federal Funds Total $9.3 Billion 2

Office of Superintendent of Public Instruction Constitutional Compact State’s Paramount Duty is to provide a general, uniform, and amply funded public school system 30 years ago, state defined basic education as a series of staffing commitments to schools and non-salary allocations Later added programs for struggling students Simple series of formulas ▫If students show up, so does the state funding Districts can raise local levy funds to enhance the state’s definition of basic education 3

Office of Superintendent of Public Instruction Of $6.5 Billion in State funds, $4.6 Billion is Driven Through a Single Simple Formula Learning Assistance (E) (B) Staff Ratios (A) Salaries & Benefits (C) Operating Costs (NERC) = State General Apportionment Busing (G) Special Education (D) Bilingual (F) District Enrollment 4 I-728 Gifted

Office of Superintendent of Public Instruction A.Salaries, health benefits B.Staffing ratios C.Non-salary costs D.Special education E.LAP/Bilingual F.Transportation 5

Office of Superintendent of Public Instruction Total Compensation Ranges Between 82% and 84% of Total Expenditures 6

Office of Superintendent of Public Instruction School Districts Spend Over $1 Billion on Health, Life and Disability Insurance 7

Office of Superintendent of Public Instruction 55,322 12,878** Differences in Teacher Salary Impacts Morale and Retention 1.Base salary most districts 2.Base salary of Everett  Equalizing will cost $167 million and raise most teacher salaries by 5% 3.Additional (supplemental) salaries on average nearly $8,500 per teacher statewide $61, Teacher Salaries (average experience and education) $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Base Salary Additional Salaries TypicalEverett 52, ,448* $68,200 * Projected from ** ; full-time staff only

Office of Superintendent of Public Instruction Supplemental Salary Increases 6.3% average increases driven by multiple factors: National Board Certification increasing State COLA applied to TRI schedule Increase in extra duties (new curriculum adoptions) Higher or more frequent class size overload pay New incentives (seniority incentive) COLA above state COLA 9

Office of Superintendent of Public Instruction Districts Must Subsidize Classified/Admin Salaries by $366 Million 1.Average total salary 2.State average allocation 3.District allocations vary, first step is to equalize salary allocations ($226 million state cost to equalize) 4.After equalization, the state still must identify an appropriate method to address true costs districts experience ($140 million difference between equalized allocations and district costs)  Districts also pay difference in salary and COLA/benefits $36,593 $96,445 $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 State Avg. Allocation Addt’l $ Above Max Rate State Allocation at Max Rate Classified Administrative 30,688 4,539 1,316 57,065 23,742 15, Building Blocks of K-12 Staff Average Salaries

Office of Superintendent of Public Instruction Local Funds Pay COLA on 4 Levels 1.COLA on average salary paid for “local staff units” ($44 million) 2.COLA on all supplemental salaries, all staff ($20 million) 3.COLA on unequalized portion of Classified and Administrative salaries, all staff ($10 million) 4.COLA on difference between the state maximum allocation and the salary districts actually pay, all staff ($5 million) $58,340 $36,593 Local Funds COLA Effect (4.1% in ) $79 million total $96, Building Blocks of K-12 Staff Average Salaries $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 State Avg. Allocation Supplemental Salaries Actual Avg. Paid State Allocation at Max Rate InstructionalClassified Administrative 50,393 7,947 30,688 4,539 1,316 57,065 23,742 15,638 11

Office of Superintendent of Public Instruction A: Salaries and Benefits Salaries increase at 4-7% per year COLA at 2-4% per year; supplemental salaries at 6% per year Health benefits increase 14% per year Pensions, significant recent growth More progress to be made to equalize salary allocations, $400 million/year plus COLAs compound differential funding levels Levy/I-728/Federal revenue will grow 4.7%  Result in compensation growth faster than levy revenue; districts must reduce staff in response 12

Office of Superintendent of Public Instruction Structural Disconnect Continues in School Year Cost of I-732 COLA on Local Funds (COLA projected at 4.1%) $81 per student Other Compensation (Health/Pensions)$36 per student 1% COLA above I-732 COLA for all Teachers in a District $28 - $35 per student Typical Local Funds Growth (2007 to 2008)$ per student 13

Office of Superintendent of Public Instruction Certificated Instructional Staff Ratios (B) The ratios do not represent true class sizes. Class sizes increase when planning periods, specialist teachers, librarians, counselors, etc., are purchased from the ratio above. Certificated Instructional Staff K-4: 1: : 1:21.7 Includes All Teachers, Instructional Coaches, Nurses, Counselors, Librarians, and all other Pupil Support 14

Office of Superintendent of Public Instruction Districts Choose Between Lower Class Sizes, More Hours per Day, and Student Support (B) Students per 1 FTE Staff 6 periods + 1 hr planning Certificated Instruction Staff K-4: 1: : 1:21.7 = 1:24.7 1:29.0 1:1,250 1:2,659 1:786 1: Current Teachers Grades K-5 Grades 6-8 Grades 9-12 Instructional Coaches Librarians Nurses Guidance Counselors & Pupil Support

Office of Superintendent of Public Instruction Districts Hire Many More Classified Staff Than Are Funded by the State (B) 16

$9,476 per CIS ( SY) $468 per student = State NERC Funding Intended to Cover All Non- Employee Costs Related to Basic Education (C) = 17

Office of Superintendent of Public Instruction In 16 Years, State Funding for All Non-Salary Operating Costs (NERC) Increased by $30 M After Covering Utilities & Insurance Increases 18

Office of Superintendent of Public Instruction An Increasing Number of Districts Spend Over 80% of Their NERC Allocation on Utilities and Insurance (C) 19

Office of Superintendent of Public Instruction Districts Spend Over $500 Million More on NERC Than the State Funds (C) 18-yr Cycle 8-yr Cycle 20

Office of Superintendent of Public Instruction Special Education (D) Districts spend $167 million more on special education services than they receive in state funding ▫Not all of the gap is defined as a state responsibility The funding gap is driven by the shortfalls in funding for staffing ratios, salaries and NERC ▫SE is funded at 93% of General Apportionment per Student ▫When salaries are underfunded, SE receives 93% of an inadequate amount to hire staff For every $100 million in new General Apportionment resources, $10 is generated for SE and closes the funding gap 21

Office of Superintendent of Public Instruction 22 LAP Funds Have Increased Substantially (E)

Office of Superintendent of Public Instruction 23 Buying Power for Struggling Students Remains Constant (E)

Office of Superintendent of Public Instruction Buying Power of State Transitional Bilingual Program is Constant (E) 24

Office of Superintendent of Public Instruction District Costs Exceed State Revenue (F) 25 Statewide (Expenditures minus Revenues) in Millions

Office of Superintendent of Public Instruction 26 A.Prior 8 years, factors that mitigated the state funding shortfalls B.Recent experience and impact on district reserves

Office of Superintendent of Public Instruction In Last 8 years, Several Factors Mitigated State Funding Shortfalls and Beyond Reduction in pension rates saved $364 million COLA suspension (3.1%) saved $187 million Increases in I-728 revenue and federal funding totaled $614 million Increase in levy authority to recognize I-732 suspension and I-728 delay Pension rates increase I-728 and federal dollars flatten Local funds continue to support COLAs Other costs continue to increase faster than inflation ▫Health benefits ▫Fuel Levy authority increases an average of 5% Levies approved to utilize 92% of authority 27 Appendix slides quantify these statements.

Office of Superintendent of Public Instruction : State Savings of $1.3 Billion in Employer Pension Contributions; $364 Million for Local Funds 28

Office of Superintendent of Public Instruction Ending Fund Balance Dropping 29

Office of Superintendent of Public Instruction 30 Largest Change for Smallest School Districts

Office of Superintendent of Public Instruction Some Large Districts have Less than 2% EFB 31

Office of Superintendent of Public Instruction Summary for School Year Statewide average Ending Fund Balances drop Roughly 600 staff positions eliminated statewide (equivalent to 1 school district serving 4,000 students) 7 districts on Binding Conditions (1 may exit) Evaluating the need for Binding Conditions for an additional 6 districts $2 Billion operating value for districts with 2% or less EFB ▫20% of students in districts w/ very little cushion 32

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Office of Superintendent of Public Instruction Outlook for the School Year Ending Fund Balances are low, so little cushion going into the year Local funds’ compensation costs will increase about $115 million; districts will have about $130 million increase in local funds ▫Assumes very low increases for supplemental salaries $15 million increase must cover all OTHER cost increases on a $2.7 billion base ▫Utilities/insurance projected at $17 million 4,000 teachers paid on I-728; $46 million in reserves (specific to I-728) ▫$46 million will pay for 680 teachers for 1 year 34

Office of Superintendent of Public Instruction Outlook for the School Year Ending Fund Balances will be lower About $130 million in additional revenue About $20 million in additional compensation costs ▫I-732 COLA drives zero increase because economists are projecting deflation of -.5% ▫Clearly much better financial outlook but at cost to employees 35

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Office of Superintendent of Public Instruction Are There Cost Neutral Ways to Assist Districts? Must be a conversation about how to make progress to meet Constitutional funding requirements Without new funding, face unprecedented decisions: ▫COLA results in lay-offs unless also fund district foundation resources ▫No new mandates or requirements ▫Evaluate waivers to 180-day requirement ▫Evaluate suspension of I-728 spending categories ▫Evaluate K-12 ratio requirements ▫Legislation to make route to consolidation more clear ▫Do not negatively impact levy base 37

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Office of Superintendent of Public Instruction State Underfunding is Not Disputed Questions to answer: ▫What is the appropriate definition of basic education? ▫Will that definition fix the shortfalls between district reality and state funding? 39

Office of Superintendent of Public Instruction Minimum Outcomes Needed from the BEFTF 1.Improve funding ratios for Certificated Instructional and Classified Staff 2.Salary Policy and Funding a)First, equalize classified and administrator allocations b)Then, allocate classified/administrator based on common-sense methods that cover actual costs c)Address state underfunding of teacher compensation d)Compensate teachers for excellence 40

Office of Superintendent of Public Instruction Minimum Outcomes Needed from the BEFTF 3.Improve funding level for NERC, inflate with common sense measures 4.Improve funding for LAP  Staffing formula driven by instructional programming reality and informed by research 5.Improve funding for ELL  Staffing formula driven by instructional reality and diverse community needs and informed by research 6.Implement a new formula with adequate funding for pupil transportation 7.Special Education  New $ driven via components

Office of Superintendent of Public Instruction Last Thoughts State is completing an analysis of what is an adequate funding level for public schools ▫Basic Education Finance Task Force (Legislative entity) ▫Recommendations due 12/1 (slightly late) ▫Anticipate recommendations for comprehensive overhaul Very few opportunities to redefine Basic Education Basic Education shortfalls are so large, fixes will take many years ▫Requires prioritization ▫Much of the early investments do not buy new programs 42

Office of Superintendent of Public Instruction Budget Context $5.8 Billion projected deficit for biennium (November) ▫Through 6/30/2011 ▫Eliminate all of Higher Education, still $2 B to cut COLA is 4.1% in ; 0% in ▫$360 M cost included in deficit projection ▫Drives an additional $158 M in local funds needed State cannot cut “basic education” Non-basic items include (b iennial savings): ▫K-4 enhancement ($388 M) ▫2 LID ($75 M) ▫Levy equalization ($456 M) ▫I-728 ($908 M) ▫Gifted education ($20 M) ▫Health Benefits inflation ($96 M if 7% inflation) 43

Office of Superintendent of Public Instruction For More Information Jennifer Priddy: (360) , or by , Superintendent Bergeson's BEFTF Proposal: dFundingTaskForce.aspx dFundingTaskForce.aspx Basic Education Finance Task Force:

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Office of Superintendent of Public Instruction and Beyond, Impact to Local Funds Was Minimized by Suspension of I-732 COLA 46 XXXXXX XXXXX XXXXX

Office of Superintendent of Public Instruction : Local Funds Avoided $551 Million in Compensation Costs 47

Office of Superintendent of Public Instruction From , I-728 and Federal Funds Increased by $614 Million; Beginning Only Small Increases 48

Office of Superintendent of Public Instruction Districts are Already Maximizing Levy Authority 49