Background Information

1. Background Information • May 25, 2001 – Judge Collins Kilgore in Pulaski County Circuit Court found that the Arkansas system of public education was unconstitutional. • Commonly known as the Lake View Case. • Judge Kilgore declared that the school finance system was both inequitable and inadequate.

2. Background Information con’t • November 21, 2002 – The Arkansas State Supreme Court upheld Judge Kilgore’s ruling and agreed that the school finance system of Arkansas was both inequitable and inadequate. • State was not meeting its constitutional commitment to “maintain a general, suitable and efficient system of free public schools.”

3. Background Information con’t • The Supreme Court held that as part of the remedy, the State must conduct a school finance adequacy study, pointing out that such a study had been requested in the Court’s ruling beginning in 1994 and again by Judge Kilgore in his 2001 ruling. • 15 years of litigation.

4. Background Information con’t • 2003 – The General Assembly created the Joint Committee on Education Adequacy. • The newly-formed Joint Committee on Educational Adequacy contracted with Lawrence Picus and Associates (school funding experts) to assist the Committee in carrying out its charge to conduct an Adequacy Study.

5. Education Adequacy Study • Educational adequacy is defined as: • The standards included in the state’s curriculum frameworks, which define what all Arkansas students are to be taught; • The standards included in the state’s testing system. The goal is to have all, or all but the most severely disabled, students perform at or above proficiency on these tests; and • Sufficient funding to provide adequate resources as identified by the General Assembly.

6. Education Adequacy Study con’t • This definition of educational adequacy is consistent with the statutory language quoted by the Arkansas Supreme Court in the Lakeview Case. • The JC on Educational Adequacy together with Picus devoted 4 months to the study and review of AR school finance in adequacy issues to determine this definition and cost of an adequate education in AR. (2003)

7. Education Adequacy Study con’t • September 1, 2003 – An Evidence-Based Approach to School Finance Adequacy in Arkansas was filed with the General Assembly and the Governor. • “evidenced-based.” • “ingredients needed to deliver quality education.” • “adequate expenditure level for each ingredient.” • “aggregating to a total cost.” • “based on existing models of comprehensive school design rather than just making judgments.”

8. Education Adequacy Study con’t • The 2003 Picus Report including funding and staffing recommendation based on a school size of 500 students. • Then Senator Dave Bisbee is widely credited with converting that school-based funding formula to a matrix used to determine the per-pupil level of foundation funding. • Actually called the “Bisbee Matrix” for awhile.

9. Education Adequacy Study con’t • The Legislature adopted the Bisbee matrix during the 2nd Extraordinary Session of 2003. • Also passed Act 57 of 2003 which requires the legislature to conduct an adequacy study each biennium to assess needs related to providing an adequate education. • Not even close to being finished!!!

10. Supreme Court – Special Masters • After the 2nd Extraordinary Session of 2003, four school districts (Rogers, Barton-Lexa, Little Rock, and Pulaski County) petitioned the Supreme Court to keep the Lakeview Case open for another review. • The Supreme Court appointed (Feb 2004) two special masters to “examine and evaluate legislative and executive actions taken since Nov 2002 to comply with the court’s order and the constitutional mandate.”

11. Special Masters Report • Funding for education had increased. • New special funding provided (NSLA). • “Doomsday Clause.” • New accountability requirements. • Not sure if the definition of “adequacy” was what the Court was looking for.

12. Special Masters Report con’t • Suggested the retention of small community elementary and middle schools and consolidated high schools for a greater variety of curricular offerings. • Noted the increased funding for Early Childhood Education was less than half recommended by the original Adequacy Study.

13. Special Masters Report con’t • Commented on the “undeniably substandard school buildings found in many school districts.” • Concluded that much well-intentioned legislation is now in place in response to the Court’s decision. No guarantee that the initiated plan will be followed beyond current appropriations. • Report filed April 2004.

14. Supreme Court Ruling • In June 2004, the Supreme Court rules that the actions of the AR legislature were adequate and further action in this matter should await implementation of the Acts passed by the Legislature. • End of Lakeview??? Not even close!!!

15. Fast Forward • 2005 Legislative Session. • Lake View plaintiffs file motion to reopen the suit claiming that 2005 actions by the State were insufficient. • Supreme Court reappoints the special masters. • Bradley Jesson and David Newbern, both former Arkansas Supreme Court Justices.

16. Fast Forward con’t • In Oct 2005, special masters conclude: • School funding was not adequate. Funding had not been increased to adjust for increased costs due to inflation. • State had not lived up to its promise to make education the State’s first priority. • Suggested that the determination of funding levels appeared to be a function of available resources and not the needs of school districts.

17. The Supreme Court….. • Accepted most of the special masters’ findings and recommendations. • Held that the State had not conducted an appropriation “recalibration” of the adequacy study to ascertain what the funding levels for 05-06 and 06-07 should be. • Established a deadline of December 1, 2006 for the Legislature to find a solution. • December 15, 2005 Ruling.

18. Fast Forward – Phase 2 • Special session convened April 2006. • Substantial increases in funding. • The legislature “re-employed” Picus and Associates, with aid from the BLR, to “recalibrate” the funding levels for AR schools for 06-07 and 07-08. • This report was submitted August 2006.

19. Lake View – Final Ruling • In May 2007, the Arkansas Supreme Court held that the State’s system of funding public schools met the constitutional requirements of providing an adequate education and substantially equal educational opportunity for all public school children in Arkansas.

20. Review – Steps to Adequacy • 2003 General Legislative Session. • JC on Education Adequacy established. • 1st Picus Report. • 2003 Special Legislative Session. • 1st Special Masters Report. • 2005 General Legislative Session. • 2nd Special Masters Report. • 2006 Special Legislative Session. • 2nd Picus Report (recalibration).

21. What’s the Goal? A dollar amount per child $

22. Adequacy Revisited • Act 57 of 2003, as amended by Act 1204 of 2007, requires the Legislature to conduct an adequacy study each biennium to assess needs related to providing an adequate education for all Arkansas K-12 students. • Joint Subcommittee on Educational Adequacy Joint House/Senate Education Committee Legislature by September 1st prior to the next regular Legislative Session.

23. Where are we today??? • The Adequacy Committee has adopted the adequacy study and sent to Joint House and Senate Education Committees. • No decision yet on a recommended inflationary factor. Discussion continues on which inflationary index to use. • No decision yet on an “enhanced transportation funding” recommendation.

24. Results of Lake View • Increased teacher salaries. • First statewide plan to improve academic facilities. • Standardized and improved curriculum requirements. • School accountability measures. • Increased funding to school districts.

25. “Challenges” • Continuing disparity of teacher salaries across the state. • Funding decisions are driven by available funds. • Adequacy is a process to be revisited over and over again.

26. “More Challenges” • Decline of “institutional memory” as new legislators come to Little Rock due to term limits. • Inclination to turn the funding “matrix” into an “expenditure” matrix.

27. Where does Pine Bluff Schools’Revenuecome from? Local Taxes 25% State 56% Federal 18% Other Local 1%

28. REVENUE Four major categories of revenue: State- Operating and Restricted Local Property Taxes – URT |Above URT| Debt Service Federal Grants Other – Paid Meals|Athletics|StudentActivities|Disposal of Assets|Rent|Refunds|Donations|Refunds There are specific codes we must use for accounting for revenue that we receive. They are found in the Handbook 2R2.

29. Property Tax URT – Uniform Rate of Tax Maintenance & Operation – 25 mills Amendment 74 Additional M&O Mills may be assessed by the district if voted on and approved by the patrons Additional Mills Debt Service Mills Excess Debt Mills Dedicated Mills Capital Outlay Mills

30. State Aid – FY16 Foundation Funding ($6,584.00) Based on previous year’s 3 qtr. ADM Student Growth Funding Loss of Students Funding Isolated Funding (varies) Bonded Debt Assistance (varies) General Facilities Funding (varies)

31. State Foundation Aid = URT (25 Mills) + State Funding • State Foundation Funding per student for FY16 is $6,584 per student based upon previous year 3Q ADM. Thus: $6,584 X 4,226.27 = $27,825,762 The local tax revenue is subtracted from this amount and later “trued-up” to 98%.

32. Aid Notice (4) $369,138,907 (total assessed value) x .025 (URT) (5) x 98% = $9,043,903 (7) + 5 Yr. ave. Miscellaneous Funds @100% ($6,827) (10) ÷ 4,226 (PY 3 qtr. ADM) (15) = $2,142 Local Revenue per student $6,584 - $2,142 = $4,442 State Funding x 4,226 = $18,775,031 + (5) 9,043,903 + (7) $6,827 = Foundation Funding of $27,825,761 (5) Calculating State Aid – Pine Bluff (2015-16)

33. Example of Property Taxes House appraises for $150,000 Property Assessment Ratio 0.20 Assessed Value $ 30,000 Tax Revenue For Pine Bluff Schools $ 1,251 Millage Rate .0417 Mills to the school district. Mills are in thousandths. Assessed Value $30,000 The property assessment is 20 percent applied to the “true market value” of real property and to the usual selling price of personal property. The example above explains how to calculate the amount that Rogers Public Schools receives from your property taxes. The assessed value is multiplied by the millage rate which is 41.7 for Pine Bluff Schools. One mill is equal is one thousandth of a dollar.

34. URT Classified As State Aid House appraises for $150,000 Property Assessment Ratio 0.20 Assessed Value $ 30,000 Tax Revenue For Pine Bluff Schools $ 750 Millage Rate .025 Mills to the school district. Mills are in thousandths. Assessed Value $30,000

35. Local Contribution of Property Taxes House appraises for $150,000 Property Assessment Ratio 0.20 Assessed Value $ 30,000 Tax Revenue For Pine Bluff Schools $ 501 Millage Rate .0167 Mills to the school district. Mills are in thousandths. Assessed Value $30,000

36. Revenue – State and Local Sources FY 05-06 $50,694,713 FY 10-11 $50,056,251 FY 13-14 $49,495,570 FY 14-15 $50,630,004

37. GENERAL FUNDSTATEMENT OF SELECTED INFORMATION

38. Pine Bluff SD Legal Balances June 30, 2006 $ 7,811,617June 30, 2011 $13,337,738June 30, 2014 $ 7,119,567June 30, 2015 $ 6,274,871

39. The Legal Fund Balance The Legal Fund Balance • Unrestricted Fund Balance is used to determine fiscal distress. • It is your operating balance minus restricted funds.

40. Fiscal Distress • A.C.A. § 6-20-1901 et seq. Indicators of Fiscal Distress The following indicators have been the most common in the past five years: 1. A declining balance determined to jeopardize the fiscal integrity of a school district. 2. Material state or federal audit exceptions or violations. 3. Material failure to comply with state law governing purchasing or bid requirements.

41. Arkansas law authorizes the state to take over a school district for reasons of academic or fiscal distress, and if a district consistently fails to meet academic or financial standards, it may be forced to merge with a nearby district. Among the signs that signal that a school district is in fiscal distress are declining fund balances, having to pay late fees or penalties on tax deposits, failure to provide timely financial reports to auditors, defaulting on debt obligations and failure to comply with state laws that set minimum teacher salaries.

42. Potential “acts or violations” • Material failure to… • Properly maintain school facilities • Violation of local, state, or federal fire, health or safety code provisions • Violation of local, state, or federal construction code provisions or law • Material state or federal audit exceptions • Failure to provide timely and accurate legally-required financial reports to ADE, Division of Legislative Audit, General Assembly or IRS

43. Other ways to violate…. • Materially… • Insufficient funds to cover payroll, salary, employment benefits or legal tax obligations • Failure to meet legally binding minimum teacher salary schedule obligations • Failure to comply with state law governing purchasing or bid requirements • Default on any school district debt obligations • Discrepancies between budgeted and actual school district expenditures

44. Other material ways… • Materially…. • Failure to comply with audit requirements of 6-20-301 • Failure to comply with any provision of the Arkansas Code that specifically places a school district in fiscal distress based on noncompliance.

45. What Happens then? • Finding by State Board of Education • Publication of notices • Limited rights of appeal • Submit plan to ADE within 10 days • ADE oversight of plan and implementation • Required ADE approval of plan • ADE technical assistance • ADE recommendations/mandated staffing and fiscal practices.

46. Other ADE actions… • Replace superintendent • Suspend local board authority • Transfer authority to new board/superintendent • Required reporting requirements • ADE monitoring of accounts and operations • Training required for district board members and employees.

47. Final Action • Consolidation • Annexation • Reconstitution • Other appropriate action

48. ANY QUESTIONS ?