10/16/09

The State Board of Education School Finance/Permanent School Fund Committee met on October 16, 2009, to consider an agenda that included discussion of the Proposed Amendment to 19 TAC Chapter 105, Foundation School Program, Subchapter B, Use of State Funds, Section 105.11, Maximum Allowable Indirect Cost.  The meeting was a workshop to receive information. 

Committee Chair David Bradley introduced the item and reviewed previous action related to this issue.  He pointed out that at First Reading, the indirect cost rate was set at 35%, simply as a placeholder in order to allow the SBOE to move to a Second Reading.  He also mentioned that the Committee had requested that TEA staff provide the percentages necessary to hold school districts harmless, i.e. to require them to spend no more in indirect costs than had been required in school year 2008-2009 under previous law.

Rita Chase, Managing Director of Audits for TEA, reported that in school year 2008-09 most districts spent more for direct costs than the 85% minimum expenditure requirement for Foundation School Program Special Programs. She was also asked about the feasibility of indirect cost rates that vary for the different special programs. 

Member Agosta commented on input received from school districts in his area.  Member Allen was encouraged to provide information regarding input on the impact of the indirect cost rate on Houston ISD.  Mr. Allen pointed out that the Houston ISD development of the budget for a school year 2009-10 started a year in advance (the fiscal year for Houston ISD started on July 1, 2009)and a change in the rate at this point would have an adverse impact on current operations.  He added that Houston ISD staff informed him that if changes are necessary it would be better for adjustments to be made as part of the planning for the school year 2010-11 budget.

Member Nunez added that school districts in the El Paso area have similar concerns.

Chair Bradley called on expert witness Tom Canby, Director of Research and Technology, Texas Association of School Business Officials, to provide information for committee members.

Tom Canby provided copies of a slide presentation ( Attached (618.00 KB)) prepared to illustrate how Foundation School Program special program funds have been spent for a 7-year period for the state as a whole (graphs shown in Slides 8 through 12 prepared through eFACTS+).  These graphs show that special program weights and allotments in the state aid formula system have not kept up with direct costs of these special programs for all districts combined, but Mr. Canby added that there are significant differences from one district to another.  Some school districts spend a multiple of the FSP Special Education allotment like Eanes ISD, for example, while a few only spend the required minimum (85%) amount of the allotment.   The variations in resource allocations patterns for Special Education across the state illustrate the varying costs to deliver instructional services.  As a whole, the charts illustrate how school districts have allocated significant additional instructional resources than the minimum required by state law in various FSP special programs, including Special Education. 

Tom also referred to variations in uncontrollable costs, including significant rate increases for property insurance for school districts along the Gulf Coast following the hurricane activity, since 2005.  He also referred to variations of $1,000, in some instances, in Revenue Targets per WADA (weighted average daily attendance) for highly comparable school districts.  Additionally, small school districts (about 40% of rural school districts) that are losing enrollment year-over-year have additional challenges.  The cumulative affect of these and other factors highlight the need for flexibility to help school districts meet local needs.  In summary, the 81^St Legislature’s amendment of the indirect cost rate for State Compensatory Education, increasing from up to 15% to 45%, was a significant patch to the Foundation School Program state aid system.  The term “indirect cost” has become a misnomer when the needed change to the indirect cost rate is primarily necessary to free up resources for the Regular Education classroom.

Member Lowe mentioned that she had visited with representatives of a number of districts in North and West Texas and found that these districts need flexibility in spending special program funds.  She also pointed out that the graphs were helpful in illustrating how districts are already spending more in direct costs for special programs than is required by state law.

Rita Chase provided information regarding the percentage for indirect costs needed to hold districts harmless.

There was some discussion regarding the November meeting and the posting requirements.  It was announced that testimony will be accepted at the November meeting, but time limits for testimony will be necessary with an overall limit on the number of speakers.  Committee members requested that comments be sent to them for review prior to the November meeting.