Chapter 13
Critical & Emerging School
Finance Issues
Emerging Issues in
School Finance Include:
• Investing resources to build or renovate schools
• Financing school capital outlay
• Providing appropriate compensation for quality
teachers
• Charter schools, vouchers, privatization
• Court rulings, and federal, state, and local
support for public education
School Facilities
• In times of tight budgets,• Deferred maintenance
cutting books and
building repairs never
results in public outcries
• If athletic programs,
drivers’ education, or
band uniforms are cut,
the public becomes
agitated & vocal
of school facilities has
grown to widespread
proportions
1995 GAO Report:
• GAO (General Accounting Office) in
1995 provided Congress with
information about the condition of
America’s public school facilities
• The report indicated it would take $112
billion to repair or upgrade America’s
public schools to “good overall
condition”
1999 Center for Educational
Statistics Report:
• Half of American
schools have at least
one building feature in
“less than
adequate” condition
• About 40% of
American schools have
at least one
unsatisfactory
environmental
condition
• Most oldest buildings in
greatest need of repair,
have no plan for
improvementAbout
10% of American
school buildings have
enrollments that are
greater than 25% more
than the designed
capacity
Congressional Budget
Denies Funds
• Congress failed to pass
capital-outlay legislation
that would have started to
address these needs
• In 1995, budget requests
for $5 billion and in 1999 a
scaled down request of
just under $1 billion were
denied
2000 NEA Study
• Found that it would take $322 billion to
repair and to modernize America’s
schools and provide schools with the
necessary technology
Selected 1995
School Facility Needs
• America’s schools
are in disrepair. The
average public
school is 42 years
old
• Twenty-eight
percent of the public
schools in America
are over 50 years
old
• America’s schools can’t
support today’s
technology
• Forty-six percent of the
public schools in
America lack the
electrical &
communication wiring
to support today’s
computer systems
Unmet State School Facility
Needs
Alabama
$
2,310,853,117.
California
$ 32,901,183,414.
Florida
$
5,487,697,936.
Kansas
$
2,296,811,280.
New York
$ 50,675,796,800.
Ohio
$ 24,977,840,000.
Texas
$ 13,654,055,206.
Total for 50 states $322,955,416,998.
School Construction,
1993-2002 – in $ Billions
1993
$ 10,778.
1995
$ 10,417.
1998
$ 17,095.
2000
$ 21,567
2002
$ 24,343.
Estimated Public School
Construction Costs, 2003-05
New School
Construction
Additions
$51,162,337,000.
Modernizations
$27,208,060,000.
Total
$15,352,273,000.
$93,722,670,000.
Approximate Cost of
Construction Principal & Interest
Construction Interest
Rate
Cost
Interest
Total Building
Cost
$1,000,000
3%
$517,774
$1,517,774
$1,000,000
4%
$718,694
$1,718,694
$1,000,000
5%
$932,559
$1,932,559
$1,000,000
6%
$1,158,383
$2,158,383
Interest Raises School
Construction Expenses
• Borrowing money for school construction is
an additional expense
• If a locality or state can borrow funds at 5%
for thirty years, every $1 million borrowed will
cost an additional $932,000 – virtually
doubling the cost
• Borrowing the same amount at 3% for the
same time costs about 50% of the loan
amount
Approximate Cost of
Principal & Interest
Construction
Cost
Interest
Rate
Interest
$1,000,000
3%
$517,774
Total
Building
Cost
$1,517,774
$1,000,000
5%
$932,559
$1,932,559
$1,000,000
6%
$1,158,383 $2,158,383
Arbitrage & Financing
School Construction
• Webster defines “arbitrage” as
purchasing in one market for immediate
sale in another at a higher rate
• Arbitrage is one way of helping to
reduce interest costs in financing school
facilities
Arbitrage & Financing
School Construction, cont.
• Schools are municipal entities. As such,
financing them is a safe investment with
certain tax advantages to those willing to
finance their construction
• Safer investments with tax advantages
usually bear a lower interest rate than riskier
investments
• As such, bonds or certificates can be issued
by the school system or by the governing
authority for up to $25 million per year
Arbitrage & Financing
School Construction, cont.
• Let’s say that the Alpha School District
needed $25 million for a new school. Bonds
or Certificates of Participation (COPS) for the
municipal project would be drawn up for sale
at a rate of 2% state, free of state taxes, for
30 years
• School District A can then invest those
proceeds at a higher rate of interest for a
period of 18 months and keep the interest
difference, or spread
Health Issues &
School Facilities
• Radon gas
• Lead paint & solder
• Indoor air quality
• Mold
Health Issues &
School Facilities: Radon Gas
• Radon gas: a naturally-occurring gas
formed from decomposing uranium
found in most soils
• 2nd leading cause of lung cancer in the
U.S. responsible for between 15,000
and 22,000 deaths each year
• Detection and treatment are important
in schools as younger lungs are thought
to be more susceptible to damage
Health Issues &
School Facilities: Lead
• Lead paint & lead solder in older
plumbing joints cause health risks to
young children
• Almost 1 million children ages 1-5 have
elevated lead levels
• Lead combines with blood’s hemoglobin,
depriving the brain of oxygen & replacing
it with lead
• This leads to neurological impairments
and learning problems
Health Issues &
School Facilities: Indoor Air
• Recently constructed “energy
efficient” school buildings were
designed to avoid letting air
conditioning & heat out of the building
• When a building is too energy efficient
and does not let fresh air into the
system, problems occur
• Today 6.3 million school-aged
children suffer asthma & miss more
than 14 million school days a year
Health Issues &
School Facilities: Mold
• Molds exist where water and
oxygen allow spores to grow
• Many molds can trigger
allergens causing asthma and
other allergic reactions
• Some molds produce toxins that
can be lethal
• Children are most susceptible to
the effects of mold
Human Resources
& School Finance
Employee
compensation
consumes
somewhere
between 70-80%
of school budgets.
•
•
•
•
Attracting & retaining quality
staff involves policy decisions
about human resources and
how educators are paid
through
Basic salary schedules
Fringe benefits
Professional development
Licensure/certification
requirements
1963 - The Equal Pay Act
• The Equal Pay Act was designed to “eliminate
pay or wage discrimination based on sex
where equal work, equal skills, and equal
effort are performed under the same working
conditions”
• Became part of Title VII of the Civil Rights Act
of 1964 and outlawed discrimination based
on sex, and race, color, religion, and national
origin
• Radically changed teacher pay
A Structured Salary Scale
for Teachers
• In the the teaching
• Elementary teachers
profession’s early
days, men’s and
women’s pay
scales varied
• Married heads of
households were
paid more than
single men
were paid less than
high school teachers
• Frequently, teaching
or administrative jobs
were favors given for
political affiliation and
loyalty
A Structured Salary Scale
for Teachers, cont.
• A typical salary scale
today is based on years
of experience and
degrees
• Many scales provide for
a step increase each
year for 30 years
• Stipends are provided for
graduate degrees
Structured Salary Scales
for Teachers Vary Greatly
• In City A, it takes 28 years to reach
the salary scale’s top
• In City B, it takes only 23 years to
reach the maximum teacher salary
• City A has a fixed annual
supplement for advanced degrees
• City B has a separate pay scale for
each additional sets of credits &
degrees
• Which teacher earns more
over a career?
Structured Salary Scales
for Teachers Vary Greatly
• Some school districts give
raises in fixed dollar
amounts
• Other districts give raises
in constant percentage
increases
• Which teacher earns more
over a career?
Hypothetical Salary Scale
Step
3% Step
$1500 Step
Difference
1
$40,000
$40,000
0
5
$45.020
$46,000
($980)
10
$52,190
$53,500
($1310)
15
$60,503
$61,000
($497)
20
$70,140
$68,500
$1,640
Sum
Increase
Increase
$1,074,806 $1,085,000
($10,194)
Teacher Salary Scales
In a business where salaries are 7080% of expenditures, it is vital to know
how to spend the funds to best effect.
 Does the salary structure attract and
retain the highest quality educators?
 What is being rewarded by the salary
schedule?
 Who should be rewarded by the salary
schedule?
Teacher Salary Trends
Are Important
Salary trends are important in attracting
and retaining quality teachers.
States that do not keep their salaries
competitive will have difficulty
employing quality teachers – and
increasing student achievement.
Which Starting Salary
Attracts Quality Teachers?
$34,258 –
44th highest
$42,212 –
18th highest
$36,479 –
36th highest
$30,265 –
51st highest
Which Starting Salary
Attracts Quality Teachers?
$53,507 1st highest
$33,249 –
47th highest
$37,109 –
33rd
highest
$50,515 –
5th highest
Salary schedules show what is valued
and rewarded in the school district
culture.
A salary structure may have the best
goals & foster the best policy to attract
and retain quality people, but it will not
be successful without involvement of
those impacted by the schedule & their
understanding & agreement, which is a
political process.
Teacher Licensure
& Certification
• Licensure and certification are a state’s
method for approving teachers for
professional practice
• Certification serves as a professional
benchmark for teacher quality
• All fifty states have some form of
certification process
Teacher Quality
& NCLB
Current No Child Left Behind standards
for “highly qualified teachers” include
that teachers must:
• Have a Bachelor’s degree
• Full state certification or licensure
• Prove they know the subjects they teach
Teacher Licensure
& Certification
• During teacher shortages, some states have
decided that instead of raising teacher
salaries to attract more high quality
candidates into the profession, it would be
less expensive to change the certification
requirements
• This alternative certification route usually
shortens the traditional pathway into the
profession in terms of coursework and
internship hours
National Board
Teacher Certification
• This rigorous certification process is recognized in
all 50 states with many providing additional
monetary incentives to those holding NBPTS
certification
• Three recent studies find that NBCTS’ students
outperform peers in grades 3-6 on standardized
achievement tests
• Policy questions involve whether to pay more for
NBPTS teachers, & how to fairly involve more of
them in low-achieving schools
National Board
Teacher Certification, cont.
How much should states invest in NBCT?
• North Carolina has supported NBPTS efforts by
reimbursing teachers for application fees upon
successful certification and provided a 12%
salary increase
• As a result, North Carolina has the highest
concentration of NBPTS certified teachers in the
nation at an annual cost of $25 million
• How big a stipend should NBCTs receive & what
students populations should they teach?
Benefits – Non-Wage
Compensations
• 5 categories:
– Paid leave - sick leave, vacations, & holidays
– Supplementary pay - overtime pay
– Retirement - defined benefit & defined
contribution plans
– Insurance - life, health, & disability
– Legally required of the employer – Social
Security, Workers’ Compensation, Federal &
State Unemployment Taxes
Benefits
• Benefits rank second only to salary and good
working conditions in motivating employees
to work to high levels
• Benefits are important to employees. They
are not taxed and provide services they
would not or could not provide for themselves
without the employer’s assistance
• The benefits provided educators vary widely
across the United States
Teachers’ Benefits, 2004
• Hourly salary for
public school
teachers was $33.47
• Fringe benefits
totaled $11.61 per
hour
• Benefits are not
included in
paychecks
• If Hourly & Fringe
Benefits were
combined, the
average annual
teacher salary
would be $53,552
Teachers’ Benefits, 2004
• Fringe
benefits total
almost 35%
of total wages
and salaries
• Retirement costs
account for
employers’ largest
benefit cost with
health insurance as
the second largest
cost
Legally Required Benefits
• Social Security
• Workers’
benefits, also known as Compensation insures
FICA, have a cost to
risk from employmentboth employee and
related injuries & has
employer
varied costs, depending
upon an incidence rate
• The employee and
over time
employer each
contribute 7.65% of
• Unemployment
salary up to $90,000 for insurance is paid by
a total of 15.3%
employers
Legally Required Benefits
• Most never consider
the costs of these
legally-required
benefits
• Employers’ personnel
costs pay for much
more than salary
Retirement Benefits
Vary Widely
• North Carolina
• Some districts allow
retired employees to
provides fully
purchase rate plan
paid heath
insurance
insurance
• Others do not provide
benefits for
this
service
after
the
retired teachers
defined COBRA period
after only 5
of severance to keep
years of service
insurance costs low
School Finance &
Health Care Costs
• Providing health care benefits is
emerging as a critical and contentious
factor in school finance
• In 2004, for example, workers’ health
care premiums in 35 states rose at
least three times faster than their
earnings, despite reductions in
coverage
School Finance &
Health Care Costs, cont.
• Workers’ costs for employer-sponsored health
insurance have risen by 36 % since 2000; earnings
increased only 12.4 %
• Employee contributions have increased 57% since
2001 for individual coverage, 49% for family
• Employer-sponsored insurance premiums have
jumped 11.2 % in 2004
• In addition, employers estimate that health care
costs will rise almost 13 % on average each year if
they make no changes in their health plans
School Finance &
Health Care Costs, cont.
• As a result, workers’ average monthly contribution
to premiums for family coverage has more than
quadrupled, rising from $52 in 1988 to $222 in 2004
• The 2004 health insurance cost for a typical family
of four past $10,000, five times the rate of inflation,
& three times faster than average earnings in the
past four years
• Today’s family insurance premium represents 21%
of the national median household income
School Finance &
Health Care Costs, cont.
• The U.S. health care industry has placed substantial
economic pressures on all employers
• As a result, educators’ insurance programs
increasingly want to reduce benefits, increase copayments, and limit the number of “family” members
eligible to receive these expensive compensations
• Unless school divisions place limits on benefits, the
financial burden threatens to overwhelm available
resources
Employers Reduce Their
Health Care Costs
• From 2001 to 2004, the proportion of workers and
dependents receiving employer-sponsored health
coverage fell from 65 percent to 61 percent – 5
million fewer jobs provide health benefits
• Other employers are sharing more of the costs
through larger employee payroll contributions or
higher out-of-pocket expenses
• 200 major employers surveyed said they 80%
planned to increase co-payments or cost share
compared with 65% in 2001
Factors Increasing
Health Care Costs
• Patients’ overuse of medical resources because
•
•
•
•
•
they do not pay the full costs
Administrative & paperwork costs
Fear of malpractice suits lead to administering
medically unnecessary tests & procedures
The medical needs & demands of 77 million baby
boomers
Escalating prescription drugs’ prices
Consumer expectations for easier & broader
access to care
Factors Increasing
Health Care Costs
• In addition, Wall Street pressures on for-profit
health plans to raise premiums in order to increase
profits also plays an important role
• The U.S.’s HMO’s showed combined net profits
of $10.2 billion in 2003, up 87% from $5.5 billion
in 2002 and 345% from $2.3 billion in 2000
• Blue Cross and Blue Shield plans alone saw their
total profits reach $5.4 billion in 2003, up 63% from
2002 and 164% from 2000
No Easy Solutions to Rising
Health Care Costs
• Policy makers disagree
• Patients, policy analysts say, need to again
become the central actor in the medical
marketplace and be given the same motivation
to economize on medical care that they have to
economize in other markets
• Consumers cannot buy a Cadillac health care
program on a Chevrolet willingness to pay, &
increasingly low medical co-payments lull medical
consumers into a false – and wasteful – sense of
economy
School Districts Respond to
Health Care Costs
• Significantly reduce benefits
• Significantly increase patient costs (premiums,
•
•
•
•
deductibles, co-payments, and changing out-ofpocket limits)
Slow salary growth
Limit hiring, increase outsourcing, or
Dropping insurance coverage, altogether
Levy surcharges in 2005 on employees who sign
up for family benefits when their spouse was
eligible for health coverage through a separate job
School Districts Respond to
Health Care Costs, cont.
• Cost shifting to employees is
inevitable as employers
redesign their benefits packages
to protect their “financial
exposure”
Same-Sex Domestic
Partner Benefits Controversy
• Involves significant economic aspects
• Because health care benefits – including
medical, dental, and vision coverage – are an
increasingly important part of the
compensation that employees earn & because
such benefits are usually available to spouses
and family members, homosexual employees
believe that they are under-compensated
unless they receive similar benefits for a
designated “domestic partner”
Same-Sex Domestic
Partner Benefits Controversy
• A small number of states, cities, and
major companies provide domestic
partner benefits to their employees.
• California is leading the U.S. in instituting
protections for gay and lesbian couples without
a court mandate.
• In Hawaii and Vermont, state courts compelled
their legislatures to extend equal benefits to
same-sex couples.
Same-Sex Domestic
Partner Benefits Controversy,
cont.
• Religious groups and conservative who
believe that this policy constitutes a social
endorsement of homosexuality as an
acceptable alternative lifestyle had
contentiously opposed this trend
• Nevertheless, public opinion has shifted to
the extent that most Americans support
many domestic partner benefits
Same-Sex Domestic
Partner Benefits
• Most public
school districts
do not now offer
benefits to samesex couples
• Public universities
appear more
accepting of providing
health benefits to
same-sex partners
Same-Sex Domestic
Partner Benefits, cont.
•
When the courts can
carefully separate religion
and government practices,
the ban on same-sex
insurance benefits may be
clearly seen as a religious
rather than a civic objection
& school human resources
practices will adjust
Emerging Issue: Vouchers
• Vouchers – using state funds to pay for other
public or private education
• NCLB legislation allows parents of the lowestscoring students attending schools that have
not made Adequate Yearly Progress for
several years to request vouchers to attend
other schools, either private, parochial, or
public
No Child Left Behind Act,
2001
NCLB’s requirements include:
• States develop approved student achievement
testing programs
• Schools make Adequate Yearly Progress (AYP)
towards 100% of its students passing those tests
by School Year 2013-14
• Highly qualified teachers be placed in every
classroom by 2005-06
• Compliance failure involves sanctions for schools
and transfer opportunities for students
No Child Left Behind Act,
2001, cont.
• The cost for states & localities to implement
NCLB has not been fully researched
• In Ohio alone, the cost is estimated to be as high
as $1.447 billion in addition to already existing
programs for its 1.8 million students...an
additional $800 per student per year
• Policy Issues: Should failing schools be
reconstituted, closed, or punished financially?
Should they be provided additional resources and
support?
Another Perspective:
School Efficiency
• Examining
standards/ student
achievement and
consequences
from a financial
efficiency point of
view instead of
sanctions
• Examining
efficiency with
student
performance
data is the key
to resource
distribution for
troubled
schools
School Efficiency
• Efficiency is
defined as
using the
resources in a
manner that
maximizes the
outputs
• Using production
function studies,
a dual metric
system allows
delineation of 4
types of schools
School Efficiency, cont.
• High-performing,
• Low-performing,
efficient schools
would be left alone to
serve as models
• High-performing,
inefficient schools
would be required to
increase achievement
or give up some of the
financial or support
services
efficient schools
would be given
additional resources
• Low-performing,
inefficient schools
would be
reconstituted
School Efficiency, cont.
• If schools were
distributed evenly
• Such an approach
across these four
might save even
quadrants, the cost of
more in terms of
implementing NCLB
human resources
from an efficiency
cost and public
metric would reduce
relations capital
the overall
implementation costs
NCLB &
School Efficiency
If the $800
additional cost
per pupil for
NCLB in Ohio is
repeated
nationally, the
cost would be
staggering
• 53.8 million students
enrolled in school for
the 2004-05 school
year
• An additional $800 per
pupil the additional cost
to education would be
$43,040,000,000 each
year
Vouchers: A Political Issue
• As NCLB legislation stands in 2004,
parents of the lowest-scoring students
attending schools that have not made
Adequate Yearly Progress over time
may request vouchers to attend other
schools – private, parochial, or public
Vouchers: A Political Issue,
cont.
• Vouchers have been a political battle
cry for opposing sides of the issue since
Milton Friedman first proposed them
• Using vouchers was addressed by the
United States Supreme Court in
June, 2002 when it ruled 5-4 in favor
of Cleveland’s voucher program with the
Zelman case
Vouchers:
Zelman Case, 2002
• The U.S. Supreme Court considered whether the
voucher program established to help parents with
children in failing Cleveland schools, violated the
First Amendment’s Establishment Clause
• The program offered limited income parents of
lowest scoring students the choice of attending
private schools and receiving tutoring
• In August, 1999, a federal district court rejected
the program as favoring religion, therefore,
violating the constitution
Vouchers:
Zelman Case, 2002, cont.
• On June 27, 2002, the majority ruled that the
program was … “is a program of true private
choice … neutral in all aspects to religion”
• In this decision, the Court leaned towards
approval of privatization in education without
violating the First Amendment
• Since the Court sees “privatization” as a
continuum, the essential element of separation of
church and state, however, will prevail
Vouchers:
Florida, 2004
• A Florida Appeals Court ruled on August 16, 2004
that the State’s first voucher law was
unconstitutional because it violated State
Constitution provisions of providing funds to
private, sectarian schools
• It was sent to the Florida Supreme Court for
review in August, 2004
• If the Florida voucher laws are to pass, voters will
have to amend the State Constitution
Vouchers:
A U.S. National Survey
• The 2004 PDK/Gallup Poll shows the public
opposes vouchers by 54% to 42% (with 4%
who “do not know”)
• With that level of public sentiment opposing
vouchers, it is unlikely that legislation will
pass to foster such court rulings
Federal Support for Education
• Without a major political
shift, no big changes in
federal education funding
appear imminent
• Federal politicians seem
content to let the states
bear the major burden of
funding schools
• Longstanding programs
may be subject to
recissions
• Funds will likely be
shifted or eliminated
from other programs
and placed in ESEA
funding
State Support for Education
• The primary responsibility for
the funding of education lies
with the state
• As such, the states have to
pay for larger and larger
percentages of education
budgets with NCLB’s
accountability – especially if
federal revenue remains flat
or declines slightly
State Support for Education,
cont.
• Lobbying for increased state
No NEW
TAXES!!
funding may cause political
infighting within state
legislatures as state
politicians increasingly eye
NO TAXES!
U.S. Congressional seats
• Running for office with a
Cut
history and platform of tax
TAXES!!
cuts has proven an effective
ticket to Washington politics
State Support for Education,
cont.
• As of 2004, 20 states have legal contests at
the state supreme court level regarding their
funding formulae
• This legislative tactic to increase state funding
on adequacy issues in the courts appears to
be a back door approach to finding
increased state revenue
• These partisan state politics may well
increase as federal dollars remain flat and
accountability levels increase
State Support for Education,
cont.
• Education associations (at the local, state,
and national levels), educators,
administrators, and higher education
personnel will need to work for a unified
method to increase funding for the good of all
students
• Public education supporters, teachers, and
association representatives must avoid divide
and conquer strategies to fragment the
support base for increased education funding
Local Support for Education
• Local support for education is likely to
increase in high capacity, high effort areas
• There is also a growing resentment from
these areas with state equalization efforts.
More frequently, equalization is referred to as
“Robin Hood” laws
• The clear meaning is that states are
engaged in stealing funds from the rich
localities to give to the poor localities
Local Support for Education,
cont.
• Low capacity localities will experience
increased stress to meet NCLB requirements
for AYP (adequate yearly progress)
• These “high needs” areas are suffering from
higher teacher turnover and teacher
shortages from retiring baby boomers
• Localities need state policy assistance to
help in recruiting highly qualified teachers
Connecticut’s Strategy
• The state's 1986
Educational Enhancement
Act that spent over $300
million to boost minimum
beginning teacher salaries
made it possible for lowwealth districts to compete
in the job market for highly
qualified teachers
Connecticut’s Strategy, cont.
• Raised teacher
• Instituted performance-
licensing standards
by requiring a major
in the discipline to
be taught
• Required extensive
knowledge of
teaching and
learning as part of
preparation
based examinations to
test subject matter &
teaching knowledge as
basis for receiving a
license
• Created a state-funded
mentoring program for
first-year teachers
• Created an elaborate
assessment program
Connecticut’s Strategy, cont.
• Analysis of the strategy’s
outcomes found that it
eliminated teacher
shortages and emergency
hiring in the high poverty
cities and created
surpluses of teachers
within three years of its
passage
• If states do not provide increased
equalization programs for attracting high
quality teacher applicants to low
capacity localities, the achievement gap
will increase, resulting in even greater
economic disparity between high and
low capacity localities
Conclusion
• Schools face varied and competing
demands for limited fiscal resources
• Devastating student health and
achievement issues lie at the heart of
school finance, & local school districts
face wrenching decisions about how to
best spend their inadequate education
dollars for the maximum return