03/02/2015 – 65% Rule Waiver

Title 50 Waiver for 65% Rule
03/02/2015 Work Session
  Agenda Item – C.3.Approval of Title 50 Waiver
Minimum Direct Classroom Expenditures (MDCE) Report


“Classrooms First for Georgia” – Requires, at a minimum, 65% of a system’s total operating funds to be spent in the classroom.

Expenditures	FY2013	FY2014	FY2015 (budgeted)
Classroom	$ 519,389,964	$ 549,876,910	$ 598,678,971
Operating	$ 843,716,713	$ 893,149,340	$ 959,363,447
Percent In Classroom	61.56 %	61.57 %	62.40 %

Does 100% of INSTRUCTIONAL and EMPLOYEE BENEFITS from the Monthly Financial Report go into the Direct Instruction Expenditures sum?
No not 100%, but only those components that relate to “direct classroom expenditures” or “direct insturctional expenditures” as defined by the State.
What other Monthly Financial Report budget categories makeup the Direct Instruction Expenditures sum?
Using this cost classfication – under the Accounts Included for 65% Reporting issued by the State – the other areas that would be included (in the numerator) would be:

• Charter Schools
• Capital Outlay (mostly)
• Employee Benefits (mostly)

Rationale
In accordance with SBOE Rule 160-5-.29(2)(a) – Beginning with fiscal year 2008, and for every fiscal year thereafter, local school systems are required to either spend a minimum of 65 percent of their total operating expenditures on direct classroom expenditures, or increase their direct classroom expenditures as a percent of total operating expenditures by two or more percentage points over the previous fiscal year.
Video and Transcript

Dr. Michael Bell (Chief Financial Officer)
It a request for authorization from the board to submit a letter to the State Board of Education to indicate we did not meet the state targeted 65% direct classroom expenditure level in FY14 and request a waiver from them.
The last page in the agenda item is a state document, we don’t create this.  These are all state numbers.  It says from FY13 to FY14 we went from a 61% expenditure level to 62% expenditure level.
This isn’t an unusual waiver.  A number of school districts ask for them.
Stan Jester (School Board)
For FY15 the operating expenditures are $959 million.
Bell
We still have a third of the year to go.
Jester
The numbers for FY13 and FY14 are the same in that the operating expenditures as defined by the state is a lot more than our general operating budget as reported in the financial reports.  What accounts for that difference?
Bell
The state DE046 pulls information from it to do this calculation.  They pull from funds outside of the general operating budget.
Jester
As we define it.
Bell
As we define it and the state defines it.
Jester
It seem like it would be a good idea for those numbers to be reported on.  Are those ever reported to the board … those numbers in the difference?
Bell
If you look closely at the monthly financial report there are other funds that are reported in the monthly report outside of the general operating budget.  So they are reported.  We report special revenue which is all in ???.  We report athletics, school nutrition … those are not strictly speaking in the general operating budget.
Jester
So they are reported on but it’s just not part of the $800 million budgeted expenditures in FY15?
Bell
They are part of the general operating budget, yes.
Jester
Over the last few years as well as FY15, we are en route to need that waiver again.  Is it looking that way?
Bell
There are a number of variables that go into answering that question.  You’re concerned about the instructional expenditure levels.  Keep in mind, this calculation is formatted by the state with a numerator and a denominator.  So when we spend more that hits the numerator, it also increases the denominator.  But if the budget produces a numerator holding or increasing and a denominator deduction, the percentage will go up.
What we know now is when the state runs this report, we don’t populate the numbers, they round.  Once you get to 58.52% it will round to 59%.
Thurmond
Perhaps I can provide some clarity.  Consider the investments we made in the fund balance and how that is not counted by the state.  The fact that we went broke and had a $14 million deficit, I couldn’t think of anything that has impacted instruction more negatively and academic growth and achievement.
In order to continue to build upon improving instruction and academic growth in our district, we have to rebuild the fund balance.  That is the only thing that allows us to plan on making additional investments where they’re needed to help our teachers and students and parents.
If the state would allow us to count this $50 million dollars we are using to pay off the deficit and grow the fund balance, then that percentage would look differently.
Bell
If you just take the incremental growth in the fund balance for FY14, that’s $37 million.  We started FY14 with a $3.6 million fund balance.  We ended with $40 million.  That increment of $37 million … if you go to that state form in the agenda and add that $37 million to classroom expenditures, you’ll end up with 65%.
If we spent the fund balance on classroom instruction, it would take us over 65%.
Jester
So, over the last couple of years the revenues have increased but we’ve had to make some really tough decisions.  We’re adding to the fund balance right now.
Bell
And that’s not something the state considers.
Jester
So, we get dinged for trying to build up our fund balance and digging ourselves out of the hole we were in.
Thurmond
Yes.  That was the right decision.  If we just followed the state formula, we would have spent the money and not invested it in the fund balance.
Jester
We’ve built up a respectable fund balance. In FY16 I look forward to us being over that 65%.
Marshall Orson (Board Member)
That’s where I was headed.  This is a challenge for all of us.  Remember, that 65% is a floor … it’s not a ceiling.  I hope we can all agree, the most bang for our buck comes from the investments we make in the classrooms with our teachers that directly benefit students.  That’s not to say that 99% of the money should go to the classroom.
I would like to ask that as we go into the FY16 budgeting cycle, that we be more ambitious with the investments in the classroom.  These are ultimately policy decisions that rest with the board.  We need your leadership and guidance on this.  We have the opportunity to be leaders in the district and say the 65% is a floor and we are going to try and raise that above and beyond the 65%.  Because we will see a great return on investment from doing that.  It’ll also demonstrate leadership across the county and across the state.
I know that’s not easy, but we have a great opportunity to do that.  We can’t remake history, but everything we do now should be forward looking.  65% is not ambitious enough when it comes to spending on our children.
[00:11:07]
Thurmond
I agree with everything that has been said.  We’ve been living in the basement, the first floor looks pretty nice.  It’s also important that the major investment this board has empowered the administration to make is to address the issues of pay inequity in the district.  Particularly with the school based personnel.  That will be a significant number.  That is instruction.
If we fulfill that commitment to our school based personnel, the floor will be a floor.  It’s going to take that and not just in FY16.  But this must be a multi year commitment.  We are that far behind.  We are no longer competitive with at least 3 of the 5 major districts.
That’s going to impact those percentages we’re talking about.  I agree 100%.
Vickie Turner (Board Member)
Not to belabor the point, I want to echo what Mr. Thurmond said.  We can learn from our history, but we don’t need to belabor where we were.  We need to focus on where we are headed.  I expect that FY16 will render the results that we can all say we’re proud of.  It may not be the ceiling, but progress is progress.
Jim McMahan (Board Vice Chair)
We have made huge strides in a short period of time.  From a $14 million deficit to $50+ million in reserves.  Even if we stay where we are in revenue and expenses, we can invest that $37 million in the classroom next year.
I move that we make 65% of the operating expenditures spent in the classroom a requirement for the budget next year.
Michael Erwin (Board Member)
How comfortable are you that approximation will get us there?
Marshall Orson
We’re not doing formal business here.  It’s about getting at a sentiment that we can get where we want to be.
Nina Gupta (Nelson Mullins Lawyer – General Counsel)
There isn’t anything that’s been noticed on the agenda for this kind of action.  So, unless we can articulate an emergency that would require this kind of notice, I recommend that there not be a formal motion.  But, if you would like to express a board aspiration that this is an expectation you would like to see, then certainly you can express that sentiment.  But, I don’t think there is any basis for a formal board motion and vote at this time.”
[………….]
Jim McMahan
[Withdraws his motion]
Erwin
What is the ballpark figure to get us to 65%?
Bell
Between $50 and $60 million
[continue transcription]