John Zerwas Oscar Longoria Chairman Vice-Chair TEXAS HOUSE OF REPRESENTATIVES COMMITTEE ON APPROPRIATIONS AGENDA SUBCOMMITTEE ON ARTICLE III CHAIRMAN ASHBY MONDAY, FEBRUARY 20, 2017 7:30 AM ROOM E1.030 I. CALL TO ORDER II. CHAIRMAN’S OPENING REMARKS III. TEXAS EDUCATION AGENCY • Aaron Henricksen, Analyst - Legislative Budget Board • Andrea Winkler, Analyst - Legislative Budget Board • Mike Morath, Commissioner - Texas Education Agency • Dr. Clint Carpenter, Superintendent - Windham School District IV. TEXAS SCHOOL FOR THE BLIND AND VISUALLY IMPAIRED • Trevor Simmons, Analyst - Legislative Budget Board • William Daugherty, Superintendent • Pamela Darden, Chief Financial Officer V. TEXAS SCHOOL FOR THE DEAF • Trevor Simmons, Analyst - Legislative Budget Board • Claire Bugen, Superintendent • Justin Wedel, Chief Financial Officer VI. SPECIAL PROVISIONS FOR THE SCHOOL FOR THE BLIND AND VISUALLY IMPAIRED AND SCHOOL FOR THE DEAF • Trevor Simmons, Analyst - Legislative Budget Board VII. TEACHER RETIREMENT SYSTEM • Trevor Simmons, Analyst - Legislative Budget Board • Brian Guthrie, Executive Director VIII. OPTIONAL RETIREMENT PROGRAM • Trevor Simmons, Analyst - Legislative Budget Board IX. JUNIOR COLLEGES / COMMUNITY COLLEGES • Junior Colleges/Community Colleges Summary, Emily Schmidt - Analyst, Legislative Budget Board TEXAS ASSOCIATION OF COMMUNITY COLLEGES • Raymond Lewis - Chair, Community College Association of Texas Trustees, Trustee, Galveston College • Jacob Fraire - President and CEO, Texas Association of Community Colleges • Dr. Johnette McKown - Chair, Texas Association of Community Colleges, President, McLennan College X. PUBLIC TESTIMONY AND ADJOURNMENT Texas Education Agency Section 1 Summary of Recommendations - House Page III-I Mike Morath, Commissioner of Education Aaron Henricksen, LBB Analyst, FSP Andrea Winkler, LBB Analyst, Non-FSP Programs and Admin Historical Funding Levels (Millions) $30,000.0 $28,031.6 $28,983.8 $27,520.9 $26,094.6 $26,689.2 FSP ONLY (LESS SET-ASIDES) 2016-17 2018-19 Biennial Biennial $25,000.0 Method of Financing Base Recommended Change ($) Change (%) General Revenue Funds $35,555,900,000 $35,555,900,000 $0 0.0% $20,000.0 GR Dedicated Funds $0 $0 $0 0.0% $19,517.3 $19,817.1 Total GR-Related Funds $35,555,900,000 $35,555,900,000 $0 0.0% $15,000.0 $16,925.7 $18,132.9 $17,856.7 Federal Funds $0 $0 $0 0.0% $10,000.0 Other $6,797,200,000 $8,278,500,000 $1,481,300,000 21.8% 2015 2016 2017 2018 2019 Expended Estimated Budgeted Recommended Recommended All Funds $42,353,100,000 $43,834,400,000 $1,481,300,000 3.5% All Funds GR/GR-D NON-FSP PROGRAM AND ADMINISTRATIVE BUDGET Historical Full-Time-Equivalent Employees (FTEs) 2016-17 2018-19 Biennial Biennial 900.0 Method of Financing Base Recommended Change ($) Change (%) 880.0 875.0 875.0 876.0 876.0 General Revenue Funds $2,094,339,325 $2,117,950,915 $23,611,590 1.1% 860.0 875.0 GR Dedicated Funds $0 $0 $0 0.0% 840.0 832.4 Total GR-Related Funds $2,094,339,325 $2,117,950,915 $23,611,590 1.1% 820.0 819.2 Federal Funds $10,187,228,601 $10,466,241,424 $279,012,823 2.7% 800.0 804.0 Other $86,105,987 $86,105,987 $0 0.0% 780.0 2015 2016 2017 2018 2019 All Funds $12,367,673,913 $12,670,298,326 $302,624,413 2.4% Expended Estimated Budgeted Recommended Recommended FTE Cap Actual FTEs TEA TOTAL 2016-17 2018-19 Biennial Biennial Agency Budget and Policy Issues and/or Highlights Method of Financing Base Recommended Change ($) Change (%) FSP: HouseBill 1includes updatesto major budget drivers including property value growth, General Revenue Funds $37,650,239,325 $37,673,850,915 $23,611,590 0.1% enrollment growth, and the Austin ISD yield. House Bill 1 includes an additional $1.5 billion over the amount estimated to be required to fund the current law FSP entitlement. This represents level GR Dedicated Funds $0 $0 $0 0.0% funding in General Revenue Funds, and an increase of $1.5 billion in Other Funds attributable to Total GR-Related Funds $37,650,239,325 $37,673,850,915 $23,611,590 0.1% projected increases in revenues from the Property Tax Relief Fund and recapture payments. Federal Funds $10,187,228,601 $10,466,241,424 $279,012,823 2.7% Non-FSP: House Bill 1 increases funding for Non-FSP Program and Administration funding by $23.6 million in General Revenue Funding from the 2016-17 Biennium. This increase is primarily Other $6,883,305,987 $8,364,605,987 $1,481,300,000 21.5% due to a $64.6 million increase in funding for instructional materials and technology, offset by a All Funds $54,720,773,913 $56,504,698,326 $1,783,924,413 3.3% $41.0 million change in program funding. The bill pattern for this agency (2018-19 Recommended) represents an estimated 65.2% of the agency's estimated total available funds for the 2018-19 biennium. Agency 703 2/16/2017 1 Texas Education Agency Section 2 Summary of Funding Changes and Recommendations - House Funding Changes and Recommendations for the 2018-19 Biennium General Federal Strategy in GR-Dedicated Other Funds All Funds compared to the 2016-17 Base Spending Level (in millions) Revenue Funds Appendix A SIGNIFICANT Funding Changes and Recommendations (each issue is explained in Section 3 and additional details are provided in Appendix A): FOUNDATION SCHOOL PROGRAM (FSP) House Bill 1 includes an additional $1,470.2 million above the amount estimated to be A) required to fund the current law FSP entitlement out of General Revenue Funds contingent $1,470.2 $0.0 $0.0 $0.0 $1,470.2 Rider Appropriation on school finance legislation. Maintenance and Operations: General Revenue costs are projected to decrease and B) Other Funds are projected to increase, primarily due to method of finance shifts resulting ($1,396.7) $0.0 $0.0 $1,481.3 $84.6 A.1.1 from increasing recapture revenue and revenue from the Property Tax Relief Fund. Facilities: Biennial costs for facilities are projected to decrease primarily due to rising C) ($73.6) $0.0 $0.0 $0.0 ($73.6) A.1.2 property values. FSP SIGNIFICANT Funding Changes and Recommendations (in millions) $0.0 $0.0 $0.0 $1,481.3 $1,481.3 As Listed NON-FSP PROGRAMS AND ADMINISTRATION Increase in supplemental funding for prekindergarten. Funding is allocated on the basis of D) $117.0 $0.0 $0.0 $0.0 $117.0 A.2.1. eligible prekindergarten students in average daily attendance. Increase in funding for the Instructional Materials Allotment (IMA) based on a distribution E) $64.6 $0.0 $0.0 $0.0 $64.6 B.2.1 rate of 50 percent of the Permanent School Fund (PSF) to the Available School Fund (ASF). Elimination of one-time expenditures and funding for programs including High Quality F) Prekindergarten Grant Funding, Reasoning Mind, FitnessGram, and Subsidy for ($127.3) $0.0 $0.0 $0.0 ($127.3) A.2.1 and B.2.2 Certification Examination. Agency 703 2/16/2017 2 Texas Education Agency Section 2 Summary of Funding Changes and Recommendations - House Funding Changes and Recommendations for the 2018-19 Biennium General Federal Strategy in GR-Dedicated Other Funds All Funds compared to the 2016-17 Base Spending Level (in millions) Revenue Funds Appendix A Reduction of funding for programs including Mathematics Achievement Academies, Literacy Achievement Academies, Reading-to-Learning Academies, Reading Excellence G) ($30.4) $0.0 $0.0 $0.0 ($30.4) A.2.1, B.1.1, B.2.1, and B.3.1 Team Pilot, Teach for America, State Funds for Assessment, Texas Gateway, Virtual School Network, Texas Advanced Placement Initiative, and Incentive Aid. OTHER Funding Changes and Recommendations (these issues are not addressed in Section 3 but details are provided in Appendix A): NON-FSP PROGRAMS AND ADMINISTRATION Increase in funding for the Child Nutrition Programs based on increased cost of food per H) $0.0 $0.0 $229.8 $0.0 $229.8 B.2.3 Texas Department of Agriculture (TDA). Changes in federal funding including Title I, English Language Acquisition grants, I) Individuals with Disabilities Education Act (IDEA) Part B, Striving Readers, Striving Readers $0.0 $0.0 $44.9 $0.0 $44.9 Multiple and Title II Teacher and Principal Training funding. J) Other changes in funding for administration and programs. ($0.3) $0.0 $4.3 $0.0 $4.0 Multiple NON-FSP SIGNIFICANT & OTHER Funding Changes and Recommendations (in millions) $23.6 $0.0 $279.0 $0.0 $302.6 As Listed SIGNIFICANT & OTHER Funding Increases $181.6 $0.0 $279.0 $0.0 $460.6 As Listed SIGNIFICANT & OTHER Funding Decreases ($158.0) $0.0 $0.0 $0.0 ($157.7) As Listed TEA TOTAL SIGNIFICANT & OTHER Funding Changes and Recommendations (in millions) $23.6 $0.0 $279.0 $1,481.3 $1,783.9 As Listed SIGNIFICANT & OTHER Funding Increases $1,651.8 $0.0 $279.0 $1,481.3 $2,015.4 As Listed SIGNIFICANT & OTHER Funding Decreases ($1,628.3) $0.0 $0.0 $0.0 ($231.3) As Listed NOTE: Totals may not sum due to rounding. Agency 703 2/16/2017 3 Section 3 Texas Education Agency Selected Fiscal and Policy Issues - House 1. Foundation School Program Major Budget Drivers Assumptions and Yields District Property Values (DPV)  The Comptroller’s October 2016 estimate projects strong property value growth primarily due to strong single-family and multi-family residential values. District Property Values  Under current law, DPV growth reduces the level of state aid needed to meet entitlement. Value Change Budget Years Affected Tax Effort Assumption: On a statewide basis, approximately 40 districts will successfully pass tax ratification elections each year, FY14 drawing roughly $40 million in additional state aid in FY2018 and $80 million in FY2019. Currently, 370, or 36 percent, of TY13: +5.83% TY13 school districts have adopted the maximum rate of $1.17. About 49% of taxing districts (500) have adopted M&O rates of FY15 $1.04. TY14: +8.77% TY14 Yields FY16 Basic Allotment: $5,140 TY15: +4.32% TY15 Equalized Wealth Level: $514,000 Austin ISD Yield: $99.85 per penny per WADA in FY2018 and $106.37 in FY2019. s FY17 n TY16: +6.60% TY16 Statute establishes the minimum Basic Allotment at $4,765, but allows a higher Basic Allotment to be established in the GAA. o cti FY18 The Basic Allotment was set at $5,140 in each year of the 2016-17 biennium. House Bill 1 continues the Basic Allotment at the e same level. The Equalized Wealth Level is statutorily tied to the Basic Allotment. oj TY17: +5.85 % TY17 Pr FY19 The Austin ISD yields, which apply to the golden pennies in the enrichment tier (the first six pennies levied above the A compressed tax rate), are projected to increase to $99.85 per penny per WADA in FY2018 and $106.37 per penny per P TY18: +4.89% TY18 WADA in FY2019, up from $74.28 in FY 2016 and $77.53 in FY 2017. C FY20 Based on Tax Year 2016 Travis Central Appraisal District certified values and TEA’s projected student counts for Austin ISD, robust property value growth combined with a declining student population produces a significant increase in Austin ISD-based yield. An updated yield calculation will be made when revised projections are received in March 2017. Student Growth Number of Rate of Student Growth Students Growth TEA’s October 2016 estimate projects growth in compensatory education (1.65%), bilingual education (3.86%), career & technical education (5.13%), FTEs served in special education settings (1.27%), and special education mainstream FY16 69,175 ADA 1.43% ADA (2.98%). FY17 75,824 ADA 1.54% s n 10-year average ADA growth is 1.64%. FY18 81,796 ADA 1.64% TEA ectio An 82,000 annual increase in ADA roughly translates to an increase of 122,000 weighted ADA (WADA) per year. roj With a statewide average revenue of about $6,215 per WADA for the biennium, this increase generates an additional P FY19 83,110 ADA 1.64% ~$750 million in state cost per cohort. Agency 703 2/16/2017 4 Section 3 Item Rider Appropriated Recommended FY2016 FY2017 FY2018 FY2019 Basic Allotment 3 $5,140 $5,140 $5,140 $5,140 Hold Harmless Reduction Percentage 3 92.63% 92.63% NA NA Tax Rate Compression Percentage 3 66.67% 66.67% 66.67% 66.67% Instructional Facilities Allotment 3 $0 $55.5 million $0 $0 New Instructional Facilities Allotment 3 $23.75 million $23.75 million $23.75 million $23.75 million Transportation Allotment 5 Transportation allotment elements are established by rider #5  House Bill 1 includes funding the New Instructional Facilities Allotment (NIFA) at 2016-17 levels. The Education Code §42.158 specifies that the maximum allowable appropriation for NIFA in a school year is $26.0 million.  House Bill 1 does not include appropriations for new Instructional Facilities Allotment awards, but does fully fund previous Instructional Facilities awards. Driver Agency Statutory Deadline ADA, Special October 1 - even year Program ADA, TEA March 1 - odd year and FTEs Tax Rate of CPA February 1 - each year Each District Total Taxable October 1 - even year Value in State CPA March 1 - odd year for Following Biennium Agency 703 2/16/2017 5 Section 3 2. 2016-17 Base Adjustment and 2018-19 Current Law Costs GR All Funds 2016-17 FSP APPROPRIATION (LESS SET-ASIDES) $35,507 $42,302  Payments to districts are subject 2016-17 All Funds BASE ADJUSTMENTS FROM 2016-17 APPROPRIATED to settle-up. State overpayments are recouped in subsequent years; state underpayments are New Costs/(Savings) owed in September. 1 Updated Drivers. Primarily due to student enrollment in ISDs being lower than projected. ($590) ($590) 2 Settle-Up, Prior Year and Other Adjustments. FY2015 and FY2016 underpayments led to larger than $640 $640  Based on TEA’s current projected costs in FY2016 and FY2017. TEA also made prior year and other adjustments. interpretation of the detachment $50 $50 and annexation process, the T OTAL, 2016-17 ALL FUNDS COST ADJUSTMENT OVER 2016-17 APPR OPRIATION state will not receive Houston ISD’s recapture payment in FY MOF Shifts 2017, estimated to be $144.8 3 Property Tax Relief Fund (PTRF). 2016-17 revenue higher than appropriated, decreasing GR draw. ($380) $0 million, nor will that local 4 Recapture. Revenue lower than appropriated, increasing GR draw, primarily related to the increase in the $380 $0 revenue offset state aid in the homestead exemption and the projected impact of Houston ISD detachment of property value (see Selected 2016-17 biennium. Fiscal and Policy Issue #5). Total, MOF Shifts $0 $0 TOTAL, 2016-17 BASE ADJUSTMENTS $50 $50 Total General Revenue-related MOF Shifts Available School Fund $19 Lottery Revenue $215 Foundation School Fund No. 193 ($184) Total $50 2016-17 FSP BASE (ADJUSTED) $35,556 $42,353 *Totals may not sum due to rounding Agency 703 2/16/2017 6 Section 3 2018-19 FSP COSTS OVER 2016-17 ADJUSTED BASE USING OCTOBER 2016 PROJECTIONS Costs GR All Funds 1 Enrollment Growth. 82,000 additional ADA in FY2018 and 83,000 additional ADA in FY2019. $2,650 $2,650 2 District Property Value Change. Projected DPV growth of 6.6% in Tax Year 2016, 5.85% in ($3,560) ($3,560) Tax Year 2017, and 4.89% in Tax Year 2018 results in reduced state costs. Includes estimated savings to the state of $160 million due to decreased state aid for district receiving Houston ISD property (see Selected Fiscal and Policy Issue #5). 3 Increase in Austin ISD Yield Growth. Rapid property value growth along with a decreasing $1,050 $1,050 student population in the Austin ISD has increased the Austin ISD yield applied to golden pennies from $74.28 in fiscal year 2016 and $77.53 in fiscal year 2017 to $99.85 in fiscal year 2018 and $106.37 in fiscal year 2019. 4 Savings Due to ASATR Expiration. See Selected Fiscal and Policy Issue # 6. ($600) ($600) 5 Settle Up. The 2018-19 biennium is projected to have higher settle-up costs than the 2016-17 $250 $250 biennium, primarily due to rising district property value collections. 6 Enrichment Tax Effort and Prior Year and Other Adjustments. House Bill 1 assumes a net $220 $220 $220 million in additional state cost due to the combined effects of tax effort increase and cost for prior year adjustments for DPV, collections, and payments associated with local economic development agreements. MOF Shifts 7 Recapture Revenue over base due to a projected increase in property values. ($1,130) $0 8 18-19 PTRF increase over base due to projected economic growth. ($350) $0 TOTAL 2018-19 CURRENT LAW COSTS OVER/(UNDER) 2016-17 BASE ($1,470) $10  Estimates for the Property Tax Total General Revenue-related MOF Shifts Relief Fund (PTRF) and Lottery Available School Fund $247 Revenue will be updated to Lottery Revenue ($111) reflect amounts included in the Foundation School Fund No. 193 ($1,606) 2018-19 Biennial Revenue Total ($1,470) Estimate. ADDITIONAL FSP APPROPRIATIONS IN HB 1 9 HB 1 FSP appropriations in addition to funding needed for anticipated enrollment $1,470 $1,470  Estimates will be updated for the growth and all other statutory obligations Conference Committee based on March updates. HB 1 FSP Cost Over 2016-17 Base $0 $1,480 TOTAL 2018-19 FSP APPROPRIATIONS IN HB 1 $35,556 $43,834 *Totals may not sum due to rounding Agency 703 2/16/2017 7 Section 3 3. Additional $1.47 billion in General Revenue Funds Above Amounts Needed for Anticipated Enrollment Growth and All Other Statutory Obligations. House Bill 1 provides $1.47 billion in General Revenue Funds in addition to the amounts estimated to be needed to fully fund 2018-19 student enrollment growth and all other statutory obligations. The additional funding is contingent on school finance legislation that improves equity, reduces recapture, and increases the state share of the Foundation School Program. 4. State Share of FSP Entitlement. The state share of the total FSP entitlement has decreased in recent years, primarily due to strong property value growth. State and Local Share of FSP Entitlement (in millions) Fiscal Year Local State Total % State Share 2012 $20,486 $17,388 $37,874 45.9% 2013 $21,358 $17,415 $38,773 44.9% 2014 $22,817 $18,773 $41,589 45.1% 2015 $24,432 $18,779 $43,211 43.5% 2016 $25,568 $19,783 $45,351 43.6% 2017 $27,329 $19,029 $46,359 41.0% 2018 $28,828 $19,599 $48,427 40.5% 2019 $30,177 $19,142 $49,319 38.8% NOTE: (1) Fiscal years 2017-19 are estimated. State funds are increased by $735.1 million in each fiscal year of the 2018-19 biennium for additional FSP funds contingent on school finance legislation that improves equity, reduces recapture, and increases the state share of the FSP. (2) Local share amounts reflected above include recapture revenue. 5. Recapture Analysis In an effort to address inequities among school districts in terms of access to revenue for public education, the Texas Education Code, Chapter 41, requires school districts with local property values per student above statutorily-established Equalized Wealth Levels (EWL) to exercise one of five options to reduce property wealth per WADA, a system referred to as recapture. Most school districts subject to recapture opt to remit tax revenues associated with property value above the EWL directly to the state. Recapture revenue is only used as a method of financing the state's FSP obligations, and is not used for any other non-FSP related appropriation. The EWL applicable to a district’s compressed M&O tax levy is statutorily tied to the basic allotment and is therefore established at $514,000 per WADA in each fiscal year of the 2016-17 biennium. The EWL applicable to any copper pennies a district opts to levy in Tier 2 is $319,500. Revenues associated with golden pennies levied in Tier 2 are not subject to recapture, meaning that districts retain 100 percent of those tax revenues locally. Analysis: For fiscal years 2004 through 2019, the following table provides the total recapture revenue, the percentage of recapture as a percentage of total M&O revenue, and the total number of districts paying recapture. Although the total amount of recapture revenue has grown in the 16 years shown, the percentage of total M&O revenue that recapture revenue composed has stayed within a general range of 3 to 5 percent until fiscal year 2018. In each fiscal year of the 2018-19 biennium, recapture revenue is projected to be 6 percent of total M&O revenue, which is higher than the 16-year average of 3.7 percent. Agency 703 2/16/2017 8 Section 3 Fiscal Year Total Recapture Recapture as a Total Districts Paying Percent of Total Percent of Total Paid Percent of Total Recapture ADA WADA (in millions) M&O Revenue 2004 $1,075.6 4% 125 11.1% 10.6% 2005 $1,114.3 4% 128 12.3% 11.7% 2006 $1,305.5 5% 142 12.5% 11.9% 2007 $1,426.5 5% 150 12.7% 12.2% 2008 $1,140.4 4% 178 13.2% 12.7% 2009 $1,463.5 4% 191 17.5% 17.0% 2010 $1,051.2 3% 201 11.4% 11.0% 2011 $1,043.8 3% 213 12.6% 12.2% 2012 $1,086.8 3% 222 13.6% 13.1% 2013 $1,068.4 3% 216 12.2% 11.8% 2014 $1,212.8 3% 226 12.3% 11.9% 2015 $1,492.6 4% 241 14.1% 13.6% 2016* $1,592.9 4% 229 16.6% 16.3% 2017* $1,871.4 5% 249 15.3% 14.7% 2018* $2,143.9 6% 239 13.6% 13.2% 2019* $2,453.0 6% 264 15.0% 14.5% * Fiscal years 2016 through 2019 are estimated. Figures above are calculated on current law entitlement, and because the method of funding distribution has yet to be determined, exclude any impact of the $1.5 billion above what is estimated to be required to fund the current law entitlement. 6. Houston ISD In fiscal year 2017, Houston ISD is subject to recapture for the first time with an estimated payment of $77.5 million. Statute requires any district subject to recapture to receive voter approval to purchase attendance credits from the state. On November 8, 2016 the vote to authorize Houston ISD to remit recapture payments to the state failed. The Education Code provides that, should such a vote fail, the Commissioner of Education shall detach certain non-residential properties from the Houston ISD and annex these properties to other school districts. On February 9, 2017, the Commissioner of Education identified properties with a combined estimated value of $8.0 billion to be detached from Houston ISD and annexed to the Aldine Independent School District, effective July 1, 2017. Because the receiving district’s property tax base will increase, state aid would decrease. LBB preliminary estimates included a savings of $160 million in the 2018-19 biennium in House Bill 1. On February 9, 2017, the Houston Independent School District Board of Trustees approved an additional election to be held on May 6, 2017 to reconsider the vote to remit recapture revenue to the state. Should the vote fail, the property detachment and annexation will proceed. Agency 703 2/16/2017 9