PASBO 2016 Commonwealth Budget Seminar
IFO: 2016 Revenue Update & Five‐Year Budget Outlook
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IFO: 2016 Revenue Update & Five‐Year Budget Outlook
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IFO: 2016 Revenue Update & Five‐Year Budget Outlook
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IFO: 2016 Revenue Update & Five‐Year Budget Outlook
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IFO: 2016 Revenue Update & Five‐Year Budget Outlook
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IFO: 2016 Revenue Update & Five‐Year Budget Outlook
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IFO: 2016 Revenue Update & Five‐Year Budget Outlook
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“This crisis is not about politics at all. This is about math.”
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“Pennsylvania now faces a $2 billion budget deficit.
That’s not a Democratic fact or a Republican fact. It’s just a fact.
It’s a fact supported by Standard and Poor’s – an independent rating agency. They have done the math. And they agree: Pennsylvania faces a massive structural deficit that will only continue to grow if we fail to address it responsibly.
This deficit isn’t just a cloud hanging over Pennsylvania’s long‐
term future. It is a time bomb, ticking away, right now, even as I speak.
If it explodes – if the people in this chamber allow it to explode –
then Pennsylvania will experience a fiscal catastrophe the likes of which we have never seen.
Please understand: We are not talking about a long‐term budget projection. We are talking about Pennsylvania failing to meet its basic obligations – this year. We are talking about pain that will be felt across our Commonwealth. This year.”
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• Personal Income Tax (January 1, 2016)
– 3.07% to 3.4%
– $587.6 million in FY 2015‐16 – $1.29 billion in FY 2016‐17
• Sales and Use Tax (April 1, 2016)
– Expansion to basic cable, movie tickets, digital downloads
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Partial Disapproval of Appropriation Bills
Section 16.
The Governor shall have power to disapprove of any item of any bill, making
appropriations of money, embracing distinct items, and the part or parts of the bill
approved shall be the law, and the item or items of appropriation disapproved shall
be void, unless re-passed according to the rules and limitations prescribed for the
passage of other bills over the Executive veto.
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Where are we now?
• 2015‐16 sent to Gov. Wolf totaled $30.3 billion
• Governor Wolf approved $23.4 billion in spending
• General Assembly and administration at a complete standstill
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2016‐17 Proposed Budget
• $33.1 billion budget
• $2.2 billion increase over proposed 2015‐16
– $1.6 billion in mandated cost increases
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Debt: $100 million
Corrections: $178 million
Human Services: $800 million
Pensions: $500 million
– $500 million increase to school districts
– $120 million other 26
Education Funding
• Remains a very contentious issue at the center of the 15‐16 and 16‐17 budgets
• General agreement that BEF should increase, but…
• How much, when and how to distribute new funds is uncertain
• 2 budgets to compound the confusion…start with 15‐16
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Spreadsheets and Caveats
• There is currently not a lack of available spreadsheets
• BUT there is a lack of spreadsheets with updated data…SO DO NOT USE THIS DATA FOR ANYTHING OTHER THAN ESTIMATING. WE BELIEVE THERE WILL BE UPDATED DATA IN THE NEAR FUTURE
• Spreadsheets for BEF/RTL and SEF
• Spreadsheets should be used for illustration only
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2015‐16 BEF/RTL
What’s happened so far…
– BEF: $2.78 billion distributed ($5.63 billion budgeted, $100 million increase)
– RTL: $250 million distributed ($50 million increase)
– Governor unilaterally distributed BEF and RTL using a modified “restoration” method
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2015‐16 BEF/RTL
• BEF was used to restore EAP money and partially restore any other decrease in BEF since 2010‐11
• Also, $3 million to Wilkinsburg, $12 million to Chester‐
Upland
• See BEF/RTL Spreadsheet, Column G
• RTL increase was used to partially restore 11‐
12 cuts to charter reimbursement line
• Districts got what they received in 2014‐15 (CSs got zero) PLUS an additional amount ($58 million) to partially restore charter reimbursement
• See BEF/RTL Spreadsheet, Column H
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Example: Bermudian Springs SD
2014‐15 BEF (D)
2015‐16 BEF‐January (G)
Increase:
$5,878,310
$5,932,408
$54,098
2014‐15 RTL (E)
2015‐16 RTL‐January (H)
Increase:
$261,223
$288,462
$27,239
2015‐16 BEF + RTL (I)
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$6,220,870
Refresher—New Basic Ed Funding Formula Data Elements
• New formula with new data elements:
– 3 poverty weights (acute, moderate, concentrated)
– ELL weight
– Charter School ADM weight
– Sparsity/Size (small, rural districts)
– Median Household Income Index
– Local Effort Capacity Index
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The Hybrid Formula
What’s on the table for 15‐16 distribution?
• Distribute $350 million using the higher of Restoration formula or the new BEF formula, then prorate
• Strictly using the higher of would require approximately $440 million
• Supplement so that no district gets less than 90% of what they would have gotten under the new BEF Formula
• Requires an additional $12 million
• $350 million + $15 million (Wilk/CU) + $12 million = $377 Million
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Modified Hybrid Formula
• Take the higher of Restoration or new BEF Formula
• Prorate down to $158 million
• Potential end result, but no one has actually proposed doing this yet!
• FOR ILLUSTRATION ONLY!
• BEF/RTL Spreadsheet, Column M
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Example: Bermudian Springs SD
2015‐16 BEF + RTL (I)
Increase over 14‐15 BEF/RTL
2015‐16 BEF+RTL using hybrid method & $377M increase (J)
Increase over 14‐15 BEF/RTL
2015‐16 BEF+RTL using Feb hybrid
method & $158M increase (M)
Increase over 14‐15 BEF/RTL
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$6,220,870
$81,337
$6,397,940
$252,407
$6,247,863
$108,330
2016‐17 BEF
• Proposed $200 million increase
• Distributed through new BEF formula
• This is the only straightforward formula calculation
• What ultimately gets decided for 15‐16 sets the base onto which the 16‐17 funds get added
• Estimating increase for 16‐17 using $200 million through the formula (BEF Spreadsheet, Column N)
• Can’t say for certain what the total $ you will get will be until 15‐16 is resolved
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2016‐17 RTL
• Like proposed in 15‐16, RTL to be rolled into the BEF line item under the Governor’s proposal.
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2015‐16 Special Education Funding
• $30 million increase (proposing $20 million more); $1.07 billion total
• Distributed through the new special education funding formula (distributing nearly $50 million)
• Based on Act 16 data from 13‐14
• See SEF Spreadsheet, Columns F & G
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2016‐17 Special Education Funding
• $50 million increase; $1.14 billion total
• Distributed through the new special education funding formula (distributing nearly $115 million)
• Based on Act 16 data from 14‐15 (eventually)
• See SEF Spreadsheet, Column H
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Example: Bermudian Springs SD
2013‐14 Base SEF (D)
14‐15 SEF (E)
Increase over Base SEF
15‐16 SEF using $27M (already approved) (F)
Increase over 14‐15 SEF
15‐16 SEF using $47M (includes
supplemental) (G)
Increase over 14‐15 SEF
16‐17 proposed Increase with $47M (H)
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$1,048,624
$1,066,036
$17,412
$1,090,975
$24,949
$1,108,908
$42,872
$42,396
• Pension reform is a change in plan design; it will not reduce costs to schools in the near term.
• We will (hopefully) reach the peak of the ECR in 2019‐20. The 30+% plateau will continue until 2035.
• IF the Senate passed pension reform plan is eventually enacted NEW employees will see a reduction of about 2/3rds in the value of their retirement plan compared to current employees. • Continued market decline will adversely affect the ECR
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Pension Recap
FY ECR
Funded Ratio
15‐16
25.84%
58.2
16‐17
30.03%
56.8
17‐18
32.04%
56.1
18‐19
33.27%
58.6
19‐20
34.20%
60.1
20‐21
33.51%
61.2
21‐22
33.51%
62.6
22‐23
33.75%
64.1
23‐24
33.84%
65.5
24‐25
33.94%
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Pension
• Elimination of Public Employee Retirement Commission • Create restricted account for PSERS obligations to remove from General Fund
• Reduce investment management service fees
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Break
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PlanCon
• For 2016‐17…
– PlanCon appropriation is $306 million (same as 14‐15)
• For 2015‐16…total confusion.
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PlanCon
The Plan…
$2.5 billion borrowing done through the Commonwealth Financing Authority:
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Pays for everyone currently receiving reimbursement
Pays for everyone in the pipeline
Dollars available each year for new projects
Debt repaid through current PlanCon line item
PlanCon
The Plan…
Zero‐out line item for 2015‐16
• Provides budgetary relief to state
• Districts paid for 15‐16 with bond proceeds
• No impact on districts owed reimbursement
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PlanCon
The Plan…
Make other critical PlanCon changes
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18 month moratorium (to begin at a future date)
PlanCon Advisory Committee (report due this fall)
PDE reporting requirements
PDE PlanCon queue flexibility
PlanCon
The Problem…
– The “Plan” is out the window (hopefully not permanently)…
– Zero dollars appropriated for 2015‐16
– Borrowing legislation not approved
– Administration now says borrowing is too costly (after advocating to eliminate the program) – Administration proposes $281 million for 15‐16
– NO MONEY TO PAY 15‐16 OBLIGATIONS!
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Charter School Reform
• Eliminate pension double dip
• Implement CS special education funding formula recommended by Funding Commission; saves districts $180 million
• Change to cyber charter rate calculation (additional deductions); saves districts $50 million
• Annual reconciliation/refund to districts if CS expenditures are less than tuition revenue
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Charter School Reconciliation
• Change in PDE policy
• Stemming from Chester‐Upland SD‐Chester Community Charter School Decision
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Property Tax Reform
• Didn’t materialize for 2015‐16
– Gov’s proposal (via PIT and SUT increase) failed
– House R proposal (via SUT increase) failed
– Backend Referendum proposal failed
– Property Tax Elimination failed
• Not included in 2016‐17 proposal
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Property Tax Reform
But…we’re not out of the woods…
• Election year politics
• 15‐16 budget impasse impact on PT rates
• Increase in BEF means general fund revenue needed, i.e. tax increases
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Property Tax Reform
Property tax elimination legislation
– PIT increase: 3.07% to 4.95% – SUT increase/expansion: 6% to 7%
– SD property taxes only
– Keep property taxes until debt is gone
– Each year districts get an inflationary increase each year if funds available
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Property Tax Reform
“Taxpayer Protection”
– Backend referendum
– Elimination of exceptions
– Elimination/reduction of adjusted index
– Supermajority of school board to increase taxes
– Local EIT/PIT referendum
– Fund balance caps
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Act 1 Index % By FY
4.4
4.1
3.9
3.4
2.9
2.4
2.1
1.7
1.7
2012‐13
2013‐14
1.9
1.4
2006‐07
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2007‐08
2008‐09
2009‐10
2010‐11
2011‐12
2014‐15
2015‐16
2016‐17
IFO Act 1 Index Projections
2017‐18
2018‐19
2019‐20
SAWW
2.80%
3.30%
3.40%
ECI
1.70%
1.70%
1.70%
Base Index
2.20%
2.50%
2.60%
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Mandated Spending Increases and Real Estate Taxes
Salary Estimate
$11,000,000,000
1% Increase in Salaries
Net Local Share of PSERS Increase
Health Insurance at 4% (using $2.7 billion as estimated cost)
Charter Schools (recent history)
$110,000,000
$212,014,000
Total Cost Increases
$580,014,000
Revenue Generated by Act 1 Index Tax Increases at Adj
Index
$340,000,000
Shortfall After RE Tax Increase
$240,014,000
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$108,000,000
$150,000,000
Other 2016‐17 Budget Highlights
• Increased Accountability
– Districts must provide plans re: use of new funds and demonstrate impact on performance
– New Office of School Improvement‐focus on persistently low‐achieving turnaround schools
– Modifications to SPP to reduce reliance on test scores
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NEW: For school improvement and turnaround (2), for financial watch (3) and for educator discipline (7).
NEW: For school improvement and turnaround (2) from federal.
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Other 2016‐17 Budget Highlights
• Career & Technical Education
– $15 million increase to CTEs for establishment and expansion of CTE programs‐focus on public/private partnerships
– $5 million CTE Equipment Grants
– $8 million for middle/high schools to offer college/career counseling
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Other 2016‐17 Budget Highlights
Social Security
• 2015‐16
– $437 million
– 2 month lag (10 months) saves state $84 million
• 2016‐17
– $536 million
– 12 months of funding, but offset continues
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Other 2016‐17 Budget Highlights
• Early Childhood Education
– $50 million increase for Pre‐K Counts; 34%
– $10 million increase for Head Start; 20%
• Increase the Minimum Wage
– Proposed increase to $10.15/hour, adjusted for inflation
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Every Student Succeeds Act
• Reauthorizes ESEA for four years
• Shifts authority to states
• Waiver expires in 15‐16; full implementation in 2017‐18
• Biggest changes impact standards, assessment and accountability
www.ed.gov/essa
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Every Student Succeeds Act
• Standards
– States must include academic content standards and aligned achievement standards in state plan for math, reading/ELA and science
– Can adopt alternate academic achievement standards
– Must include ELL proficiency standards aligned with academic standards
– Highly qualified teacher requirement goes away
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Every Student Succeeds Act
• Assessment
– States must implement high‐quality academic assessments in math, reading/ELA and science
– Maintains current schedule of assessments
– Multiple measures of student achievement
– State can set target limit on aggregate hours spent on assessment
– Maintains 95% opt‐out, but state determines consequence
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Every Student Succeeds Act
• Accountability
– Develop accountability system and plan for increased academic achievement, graduation rates and ELL English proficiency
– Intervene in lowest 5% of schools, high schools with graduation rate below 67% and where subgroups struggle
– State determines what interventions apply, and where intervention due to subgroup performance, intervention applies only to subgroup
– Annual report cards
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Every Student Succeeds Act
Overall, no significant financial implications:
• No change to Title I formula/comparability
• School Improvement Grants consolidated into Title I
• No change to Maintenance of Effort
• Budget caps, but small increases for next 4 years
• Title II formula does change‐potential loss of $ for PA
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Resolution?
• Compromise is not on the horizon…
– Rs and Ds are miles apart
– House and Senate are miles apart
– House leadership is miles apart
• No plan for resolution of 15‐16 or 16‐17
• Primary election is April 26
• General election is November 8
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Communicate with your Legislators
• Captive audience for most of Feb/March/April
• Visit, call, email, tweet‐‐‐frequently!
• Invite them to your school
• Develop a relationship and make your district the source for information
• Share specific data, impacts of impasse, need for more funding, etc.
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Budget Under Uncertainty
• You have to prepare a budget despite great uncertainty
• In addition to not knowing 2015‐16 State Funding amounts, have no idea what will happen in 2016‐17
• What should you do?????
• Discuss the potential with your Board that you may have to raise taxes because of this uncertainty
• If more revenue than anticipated eventually comes through, address that in 2017‐18 budget unless by some miracle this all gets resolved by June
• Fully disclose the assumptions you made, and put in the appropriate caveats
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Messaging
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