Down and Out in Laurel: State names financial recovery team for school district

News that the state had named a financial recovery team to help manage Laurel School District’s finances was not wholly unexpected. The district, which now expects a $106,000 budget shortfall for the current fiscal year, has been steadily sounding alarm bells about its dire fiscal predicament over the past several months, including the possibility that it would not have funds available to meet payroll. While Laurel has taken some proactive steps to cut its costs—including a hard hiring freeze and agreeing to a novel administrative services sharing arrangement with Delmar—these steps were clearly not enough. The financial recovery team, which includes a mix of state officials and the business managers of two other Sussex County school districts, will now have extraordinary powers over Laurel’s finances, including approving district budgets and individual expenditures.

While Laurel’s dilemma is certainly man-made—indeed, many of Delaware Department of Education’s suggested budget cuts around cell phones, vehicle leases and office costs have not been enacted—the situation has indubitably been exacerbated by Delaware’s woefully outdated property assessments.  Properties in Sussex County have not been reassessed since 1974, when the median home price in the U.S. was $36,000. Notwithstanding the potential for further operating expense reductions, it’s no great wonder that Laurel lacks the wherewithal to fully solve this mess on its own. Each one cent increase in its tax rate generates only $11,000 for the district, meaning that Laurel is overwhelmingly beholden to the state for school funding. Until our policymakers can agree to proceed with a much-needed statewide reassessment, even more Delaware districts are likely to find themselves at the financial precipice.

Two Delaware Charter Schools Renewed…with Conditions

On Thursday, the State Board of Education approved charter school renewals for the Academy of Dover and Prestige Academy with potentially strict, but, as yet, undefined conditions related to student performance and financial management. These conditions will be promulgated over the next month in new regulations that would supplement or replace an inconsistently-enforced regulation that requires charter schools to “meet or exceed” the statewide average on state assessments. This regulation would set clearer standards for charter school performance and help DOE improve charter school oversight.

The inclusion of these conditions may have helped Academy of Dover, in particular, secure a renewal. Two board members indicated that they may otherwise have voted against renewal, which was somewhat surprising given that AOD’s DCAS scores are only modestly below state averages and certainly well above those of a handful of chronically under-performing Delaware charters. Moreover, the school received a Superior rating from the state last year.

While the specifics of the proposed regulation are still in development, a presentation by the National Association of Charter School Authorizers (NACSA) and Public Impact, an education policy and consulting firm, at the Board’s public work session earlier in the day shed light on the possible direction of impending policy changes. Among the various metrics recommended for tracking include:

  • Student growth (either towards proficiency status or relative to state averages)
  • Student proficiency
  • College readiness (e.g. SAT scores, graduation rate, post-secondary admissions or persistence rates)
  • Mission-specific academic goals of individual charter schools
  • Various school-wide financial metrics and ratios

While these measures are clearly more comprehensive and exhaustive than the existing regulation on charter school performance, they would also recognize that comparing all charter schools against state averages is potentially unfair and even misleading. Charters predominantly serving low-income populations might not be comparable to schools serving more affluent students. Thus, the academic framework envisions comparing charter schools against other schools with similar demographic characteristics, as well as comparing charter sub-group (e.g. low income, African American) performance against statewide averages for such subgroups.

Unfortunately, when measured against these metrics using current performance data, many charter schools substantially underperform the benchmarks outlined by NASCA and Public Impact. Indeed, Delaware has a highly bifurcated charter school environment. While many charter schools greatly outperform districts schools—in fact, the top three schools in the state for reading are charter schools, as are three of the top four schools in math—many others perform well below state-wide averages.

We think a robust accountability framework for charter schools will help improve their performance, particularly at schools that consistently underperform. At the same time, state leaders need to recognize how acutely underfunded Delaware charter schools are. On a per pupil basis, our charters receive roughly $10,000 in funding per year, compared with about $13,000 at traditional district schools. Over $1,250 of this gap is due to the lack of state and local tax support for charter school facilities, meaning that unlike districts, charters need to pay for their facilities costs—be they leases or mortgages—out of their operating budgets, thereby squeezing funds available to pay for critical instructional needs like teacher salaries and classroom supplies. Until state leaders recognize that they’ve created an unlevel playing field, many charter schools will continue to struggle to realize their full potential, regardless of the good intentions of any accountability framework.

It’s Time to Reassess…Our Homes

A recent push by the City of Rehoboth Beach to reassess properties in the sea-side community highlights a long-simmering problem with municipal finance in general and school finance in particular in Delaware: the burden of local property taxes is unequally spread from one property owner to the next. While Rehoboth Beach’s proposal would presumably only affect city taxes—and not school taxes—the proposal is another reminder of the urgent need for the General Assembly to mandate a state-wide property reassessment.

Roughly 31% of Delaware’s school funding comes from local property taxes—substantially less than the national average of 44%, but still an integral source of school funding. However, it is not how much, but how those taxes are levied that raises concerns. Properties in Sussex County have not been reassessed since 1974, when the median home price in the U.S. was less than $36,000. Properties in New Castle and Kent counties, meanwhile, have not been reassessed since 1983 and 1987, respectively.  Out-dated assessments create two, related inequities:

  1. Larger demographic and economic trends have caused different areas to experience vastly different rates of home price appreciation over the past several decades. It is unlikely that two homes that were assessed for the same amount in 1974 or 1983 would sell for equal amounts today. Thus, many home owners effectively overpay their proportionate share of property taxes, while many others underpay.
  2. Delaware’s Division III or “equalization” school funding formula—intended to correct for disparities in the tax bases of different school districts—does not accurately reflect the current market value of properties. Thus, districts with small property tax bases three decades ago—but larger ones today—may continue to receive relatively more state funding than districts with the opposite problem.

In other words, outdated assessments create highly convoluted systems of tax winners and losers—whether at the individual home owner or school district level. This is unfair to both homeowners and Delaware’s schoolchildren.

While mass reassessments are administratively expensive—Rehoboth beach officials estimate $40 per property—the biggest resistance typically comes from homeowners, who fear having to pay higher property taxes after reassessment. However, this fear is typically overblown. Higher assessments can be married with lower tax rates, resulting in the same amount or only modest increases in tax collections.  In fact, three years ago, a state task force recommended that any increase in property tax revenue incidental to a reassessment be capped at 7.5% initially and 5% as a result of subsequent reassessments.

Indeed, one of Delaware’s strategic advantages is its tax structure. A homeowner here pays a fraction—even pennies on the dollar—of what owners of comparable homes in Maryland, Pennsylvania or New Jersey pay. Coupled with the absence of a retail sales tax, Delaware is the ideal place to either raise a family or retire, and there is no reason for Delaware to lose this advantage.

Moreover, there is general agreement that properties need to be reassessed. A 2008 survey found that 71 percent of Delawareans “strongly favor” (40 percent) or “somewhat favor” (31 percent) a statewide reassessment of real property that would “ensure that everyone is paying the right amount in taxes to fund public schools.”

But the present system creates a vicious cycle—inequities in what individual home owners pay in taxes results in no one wanting to pay taxes at all. And so long as tax burdens remain inequitable within school districts, there will always be resistance to communities banding together for the common good to finance critical school infrastructure needs or basic operating expenses, ultimately resulting in better school systems for our children and higher home values as well.

Governor Recommends 5.6% Increase in State Education Budget

On Thursday, Governor Markell unveiled his FY 2013 proposed budget, which recommends increasing the state’s investment in public education by roughly $63 million, or 5.7% over current year funding levels. In particular, the governor recommends appropriating:

  • $27.4 million for an Educational Sustainment Fund, an unrestricted pot of money intended to compensate for the loss of a commensurate amount of federal funding next year. While substantial, this funding level is still $6.2 million less than what DDOE had originally requested in November.
  • $747.7 million in Division I funding for district personnel costs, a $29.1 million increase over the current year, reflecting nearly $9 million for regular salary increases—or steps—and $8.7 million for costs incidental to projected enrollment increases. Presumably, the remaining $11-$12 million increase is primarily related to higher state contributions for other employment costs.
  •  An additional $1.5 million in school improvement funds, intended to help turnaround schools as part of Delaware’s application for a waiver from the Elementary and Secondary Education Act
  • An additional $700,000 for the INSPIRE scholarship for qualified in-state students at Delaware State University. This increase is needed to absorb the second cohort of eligible students.
  • Additionally, the governor’s proposed FY 2013 capital budget recommends $116.1 million for major capital funding for school districts—a slight increase over the current year—and $7.3 million for minor capital expenses, down from $10.0 million this year.

The proposed budget bill would also allow school districts to enter into memoranda of understanding to share central services across districts, similar to the agreement that the Laurel and Delmar school districts recently entered into. While modest in scope, this is a very welcome proposal that reflects a key recommendation from the 2008 LEAD Committee Report on Cost Efficiency and, if implemented successfully, may result in meaningful cost savings and more flexibility in how state funds can be spent.

That said, in its current form, the governor’s budget proposal would force districts to continue to make financial sacrifices. The budget does not restore  as much as $30 million in funding cuts that districts have incurred since FY 2009 for programs as varied as school security, transportation and extra time. Moreover, while the combination of the Educational Sustainment Fund and the central service sharing proposal represent significant first steps in providing districts with more funding flexibility, taken as a whole, the governor’s proposal stops well short of embracing a truly flexible funding system, as we’ve previously advocated.

The Joint Finance Committee will hold a public hearing on the Governor’s education proposals on February 14th. Check back on the Rodel blog for more updates as the budget season unfolds.