MINUTES OF THE MEETING OF JOINT SUBCOMMITTEE ON HUMAN RESOURCES/K-12 ASSEMBLY COMMITTEE ON WAYS AND MEANS AND SENATE COMMITTEE ON FINANCE Sixty-eighth Session May 23, 1995 The meeting of the joint subcommittee on Human Resources/K-12 of the Assembly Committee on Ways and Means and the Senate Committee on Finance was called to order at 8:18 a.m., on Tuesday, May 23, 1995, Chairman Lynn Hettrick presiding in Room 352 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. ASSEMBLY COMMITTEE MEMBERS PRESENT: Mrs. Jan Evans Ms. Sandra Tiffany Mr. Dennis L. Allard Mrs. Vonne Chowning Mr. Joseph E. Dini, Jr. Mr. Lynn Hettrick, Chairman SENATE COMMITTEE MEMBERS PRESENT: Senator William J. Raggio Senator Raymond D. Rawson Senator Dean A. Rhoads Senator Bob Coffin STAFF MEMBERS PRESENT: Mark Stevens, Fiscal Analyst Gary L. Ghiggeri, Principal Deputy Fiscal Analyst Jeanne L. Botts, Program Analyst BUDGET CLOSINGS SCHOOL IMPROVEMENT - PAGE 181 Jeanne L. Botts, Program Analyst, Legislative Counsel Bureau, explained the School Improvement budget, budget account 2706, contained a number of different programs. The Occupational Education budget account was not closed because of a question on the apprenticeship program. There was concern if general fund money was put into the account, the maintenance-of effort would be permanently increased in a program which is federally funded. It was proposed that the general fund appropriation allocated in the Occupational Education budget be moved to the School Improvement account. The Occupational Education budget was reduced by approximately $68,000 during the first year of the biennium, and the apprenticeship programs are still eligible for Carl Perkins funding for one year. But because the moneys are targeted to special populations, the department does not believe the entire $168,000 would be eligible for Carl Perkins funding. As a result, it is estimated in the first year of the biennium that $68,000 would be met with Carl Perkins funds, $251,000 by general fund appropriations, and in the second year the entire $320,000 would be general fund appropriations. Ms. Botts noted there was an addition of $2,900 in each year of the biennium to the Goals 2000 program to cover the salary cost of the education consultant. She indicated the elementary school counselors program was provided approximately $1 million for 23 counselors. The Governor proposed the number of counselors be doubled. Ms. Botts stated there was a question about whether the department should receive $55,283 in the first year of the biennium and $16,269 in the second year of the biennium to hire a contractor to develop, pilot test and implement a uniform and automated system for school districts to report the school-by- school data mandated in the school accountability reports. Money is also included to contract with outside consultants or the university for analysis and interpretation of the school district accountability reports. Ms. Botts pointed out the Governor has proposed $565,000 in budget account 2706 be used as seed money to create Family Resource Centers in service areas of 38 public elementary schools in Nevada. The budget account also contains the federally funded Goals 2000 project. During the subsequent two years 90% of the funding flows through to the school districts. Chairman Hettrick inquired if it would be possible to substitute unused State Legalization Impact Assistance Grant (SLIAG) funds in place of general fund appropriations for the apprenticeship program. Mark Stevens, Fiscal Analyst, Legislative Counsel Bureau, noted there were SLIAG dollars which were available in the Department of Human Resources director's office. It would be conceivable to use some money which was balanced forward instead of being reverted at the end of the fiscal year. Keith W. Rheault, Deputy Superintendent, Department of Education, noted in the past the department administered through a subgrant from Human Resources the SLIAG program for alien education. It may be possible to use administrative money, but the use of money was very specifically outlined. Mr. Stevens pointed out earned SLIAG dollars could be applied in any fashion by the state. Chairman Hettrick inquired who the committee could work with to arrive at a dollar amount. Mr. Stevens responded the committee could work with the Department of Human Resources and the Department of Education to determine if SLIAG dollars could be applied if there were no federal conflicts. Otherwise, the committee could use general fund dollars. Chairman Hettrick stated the committee should allow the use of SLIAG dollars. If they were not available, general fund dollars could be used. Senator Raggio inquired what the proposal would be as to the allocation of money for the counselor program. Mr. Rheault commented he had provided a breakdown of the funding, which would fund 50 positions allocated among the school districts on the basis of elementary school enrollment. Clark County would receive 26 positions, Washoe County would receive 8 positions, Elko County would receive 2 positions, and the remainder of the 14 counties would receive 1 position each. Ms. Tiffany asked if the counselors for Clark County would be distributed on a time-share basis for elementary schools; and if so, how many days a week would the counselors be at each elementary school. Mr. Rheault explained in the past the districts were required to submit an application breaking down where to best utilize the counselors. In the prior two years Clark County received nine counselor positions and most were located in the highest risk schools. The 26 positions could be shared between elementary schools. Ms. Tiffany inquired why were elementary schools targeted if the counselors were primarily to address drug abuse and the drop-out rate. Mr. Rheault stated he did not say drop-out rate but at-risk students. Ms. Botts pointed out A.B. 268 of the 1991 legislative session did provide for the first approximately 22 counselors, and it was specified in the law that they develop programs for elementary school children to reduce drug abuse and the drop-out rate. Chairman Hettrick asked if there was a detailed budget regarding how money would be spent for the contractor to develop, pilot test and implement a uniform and automated system for school districts to report the school-by-school data. Mary L. Peterson, Superintendent of Public Instruction, Department of Education, stated at the request of legislative staff a detailed budget was provided. Most of the money in the first year of the biennium would go towards contracting to develop a software package for use at the school site level. Some money was included for printing, supplies, and travel to the districts to assist them in learning how to operate the software. In the second year of the biennium funding would drop considerably and would be used to develop a data elements handbook for use in helping districts prepare their accountability reports. Chairman Hettrick asked if the software program was hinged on the Statewide Management of Automated Record Transfer (SMART) system in some fashion. Ms. Peterson explained the Smart system could be designed to collect all the data elements which needed to be reported for accountability purposes. The $55,283 budget request would provide the software package to gather all the data elements and format them so they are readable and user friendly to the constituents of the school districts. Ms. Tiffany stated she would like to roll this contract in with the SMART contract to avoid a duplication of effort and to provide compatibility. Senator Rawson asked if there would be difficulty in accomplishing this task. Ms. Peterson stated it was her understanding this was the kind of assistance that the local school districts would welcome because it would provide a standardized format and would eliminate a lot of man hours spent by the rural districts on preparing accountability reports. Senator Rawson noted there was $11.2 million put into the program as a one-shot appropriation, and he did not feel another .05% in additional funding would produce the data that was needed. He recommended the additional funding contained in the School Improvement budget be cut and allow the SMART system to be designed to provide what was needed. Ms. Peterson stated as long as the funding was provided through SMART, she would work with the committee on Senator Rawson's recommendation. Chairman Hettrick inquired if the intent was to have the department or the districts provide the accountability reports. Ms. Peterson responded the intent was to have the districts produce, print, and distribute their own reports. Chairman Hettrick asked if that was true even if the SMART system was used. Ms. Peterson replied yes, but the SMART system could be designed to collect the data elements required for the accountability reports. Chairman Hettrick inquired where the schools were located which were to receive the seed money to create Family Resource Centers. Ms. Botts indicated the Governor's budget provided that every school district would have at least one center but the sites were not named. Senator Raggio inquired where the funding for the Family Resource Centers was to be derived. Ms. Peterson replied some of the funding was in the Governor's budget and some would be provided through a bill. She clarified the Family Resource Centers were not limited to elementary school sites. Senator Raggio asked what portion of the funding was provided through the bill. Ms. Botts stated $565,000. Chairman Hettrick inquired as to the pleasure of the committee regarding the School Improvement budget. * * * * * SENATOR RAWSON MOVED TO CLOSE THE SCHOOL IMPROVEMENT BUDGET WITH STAFF RECOMMENDATIONS AND TO REMOVE ITEMS 4 AND 5 OF THE BUDGET CLOSING ACTION SHEETS. * * * * * Chairman Hettrick requested the possible use of SLIAG funds be added to the motion, and let staff review that possibility and adjust accordingly. Senator Rawson remarked he made the motion with the understanding that the Family Resource Centers will be dealt with in another issue, as this was not an attempt to eliminate them. * * * * * SENATOR RAWSON FURTHER MOVED TO ALLOW FISCAL STAFF TO REVIEW THE POSSIBLE USE OF SLIAG FUNDS AND TO MAKE NECESSARY ADJUSTMENTS WHICH WOULD NOT JEOPARDIZE THE CONTINUED OPERATION OF THE FAMILY RESOURCE CENTERS. SENATOR RHOADS SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY VOICE VOTE ON THE SENATE SIDE. MS. TIFFANY MOVED TO CONCUR WITH THE SENATE'S MOTION. MR. DINI SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY VOICE VOTE ON THE ASSEMBLY SIDE, WITH MRS. EVANS ABSENT AT THE TIME OF THE VOTE. BUDGET CLOSED. * * * * * OCCUPATIONAL EDUCATION - PAGE 233 Ms. Botts explained the only change in budget account 2676, Occupational Education, was the transfer of the apprenticeship program to the School Improvement budget account to prevent permanently increasing the required maintenance of effort. In addition, the state will change its method of computing maintenance of effort so as to meet the requirements in a different manner. * * * * * MS. TIFFANY MOVED TO CLOSE THE OCCUPATIONAL EDUCATION BUDGET WITH STAFF RECOMMENDATIONS. MR. ALLARD SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY VOICE VOTE ON THE ASSEMBLY SIDE WITH MRS. EVANS ABSENT AT THE TIME OF THE VOTE. SENATOR RAWSON MOVED TO CLOSE THE OCCUPATIONAL EDUCATION BUDGET WITH STAFF RECOMMENDATIONS. SENATOR COFFIN SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY VOICE VOTE ON THE SENATE SIDE. BUDGET CLOSED. * * * * * PROFICIENCY TESTING - PAGE 243 Ms. Botts explained decisions needed to made in budget account 2697, Proficiency Testing, regarding participation in the National Assessment of Educational Progress (NAEP) in which the Governor recommended $52,875 in FY 1996 and $17,625 in FY 1997. In each year there would be approximately $15,000 expended to hire a contractor to coordinate Nevada's participation in the testing program. In the event NAEP requires states to help pay for data analysis and reporting, $30,000 has been included in the first year of the biennium. A request was made to increase the hourly rate for teachers scoring students' writing samples, which would add an additional $7,554 to the budget of the Nevada Proficiency Examination program. Another request was made for approximately $4,000 per year for the department to maintain an independent contractor to maintain a scoring program for the High School Proficiency Exam. A decision needed to be made regarding the transfer from the Education State Programs budget of a 0.75 FTE education consultant who is working on the Nevada Proficiency Testing Program. Ms. Peterson noted it was thought NAEP was going to charge a $30,000 fee for data analysis and reporting, which has not been confirmed in writing. * * * * * MRS. CHOWNING MOVED TO CLOSE THE PROFICIENCY TESTING BUDGET WITH STAFF RECOMMENDATIONS TO ADJUST TEACHERS' PAY AND CUT $30,000 FROM NAEP. MS. TIFFANY SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY VOICE VOTE ON THE ASSEMBLY SIDE WITH MRS. EVANS ABSENT AT THE TIME OF THE VOTE. SENATOR RAGGIO MOVED TO CONCUR WITH THE ASSEMBLY'S MOTION. SENATOR RAWSON SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY VOICE VOTE ON THE SENATE SIDE. BUDGET CLOSED. * * * * * TEACHER EDUCATION AND LICENSING - PAGE 251 Ms. Botts explained there was an addition to budget account 2705, Teacher Education and Licensing, of approximately $51,000 of general fund money to allow the early hire of 3.25 FTEs recommended by the Governor. The Executive Budget recommended that the new employees not be hired until January 1, 1996. Fiscal staff recommends the teachers be hired earlier because the busiest time for licensing teachers is July, August and September. Any increase in fees brought about by pending legislation would reduce general fund support and increase the reversion in each year of the biennium. * * * * * SENATOR RAGGIO MOVED TO CLOSE THE TEACHER EDUCATION AND LICENSING BUDGET WITH STAFF RECOMMENDATIONS SUBJECT TO CHANGES IN REVENUE BROUGHT ABOUT BY PENDING LEGISLATION. SENATOR RAWSON SECONDED THE MOTION. * * * * * Ms. Botts noted A.B. 296 set a minimum for teacher licensing fees. It would take the Professional Standards Commission some time to set the fees and implement the regulations. She felt the budget could be closed with the general fund appropriation. As the fees are collected, the additional money would revert at the conclusion of each fiscal year. Senator Raggio inquired if the licensing fee line item would change if A.B. 296 were processed. Ms. Botts indicated the budget would not have to change since the budget has general fund and licensing fees. If the licensing fees were greater than expected, the difference would revert to the general fund to the extent of the total appropriation. Chairman Hettrick called for a vote on the motion. * * * * * THE MOTION CARRIED UNANIMOUSLY BY VOICE VOTE ON THE SENATE SIDE. MS. TIFFANY MOVED TO CONCUR WITH THE SENATE'S MOTION. MR. ALLARD SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY VOICE VOTE ON THE ASSEMBLY SIDE, WITH MRS. EVANS ABSENT AT THE TIME OF THE VOTE. BUDGET CLOSED. * * * * * DISTRIBUTIVE SCHOOL ACCOUNT - PAGE 171 Ms. Botts provided to the committee members adjustments to K-12 funding (Exhibit C) and explained revenue available for funding education had been reprojected in light of the estimates made by the Economic Forum. The Economic Forum does not forecast revenue for the Distributive School Account, but the assumptions they used were incorporated. The rates used by the Economic Forum for sales tax were applied to both the local school support tax (LSST) and the out-of-state sales tax which cannot be attributed to particular counties and is deposited to the Distributive School Account. Exhibit C depicts those increases. Ms. Botts noted fiscal staff received new estimates of the statewide and county assessed valuation, and the increases were incorporated. For the $0.25 portion of the property tax for school operations, the increased assessed valuation will generate approximately $9 million for the biennium. The increased revenue from LSST is approximately $8.2 million for the biennium and out-of-state sales will bring in approximately $2.8 million for the biennium. The information received by the Economic Forum includes reprojections of revenue from the Gaming Control Board which indicate the annual slot tax will decrease over earlier estimates, resulting in a revenue decrease to the Distributive School account of approximately $1.7 million over the biennium. The new revenue estimates will provide approximately $9.5 million and $9.2 million in each year of the biennium within the formula. Ms. Botts drew attention to the Savings section of Exhibit C which addresses funding in the second year of the biennium for the Lovelock prison education program. Phase II of the Lovelock prison is deferred until July 1997, so the program will not be expanded in the second year of the biennium. The budget still contains in excess of $500,000 per year for the Lovelock prison education program, but the additional amount for phase II is a savings. Ms. Botts called attention to the revenue changes outside the formula, including the change in the amount of the $0.50 portion of property tax which was reprojected to take into account the increased assessed valuation. The reason why more revenue was received from the $0.25 portion of property tax than the $0.50 portion was the result of the Governor's budget showing more property tax in the $0.50 portion outside of the formula than the $0.25 portion inside the formula, and Ms. Botts indicated she split the portions 2/3-1/3. Senator Raggio concluded the increase would normally double the $0.25 portion, but the adjustments were the result of changes in the figures of the Executive Budget, and Ms. Botts agreed. Ms. Botts pointed out the Executive Budget reflects $72 million from the $0.25 portion. Doubling that figure would result in $144 million, but the Executive Budget reflects $153 million, indicating more than 2/3 of school districts' share of property tax revenue was displayed in the $0.50 portion. The revenue should be split between resources excluded from the formula and those included on a 2/3-1/3 basis. Additional savings were reflected by the retirement contribution increase of 0.53%, resulting in a decrease in salaries by one half of the amount of the increase in retirement contributions for a savings of $2.6 million in FY 1995-96 and $2.9 million in FY 1996-97. All additional revenue and savings identified by staff total $14.1 million in FY 1995-96 and $12.1 in FY 1996-97 and $26 million for the biennium. Senator Raggio wanted to clarify that under the original formula the total amount of $26.3 million would revert to the general fund. To not reduce general fund support would result in additional support for K-12, which is not in the existing formula. He stated he was tired of hearing that education is under funded. Under the existing formula this money would be reverted money. If it is allocated to the school district, it will be added to the existing formula for K-12 funding. Ms. Botts explained the section of Exhibit C entitled Additions represents possible decision units if the general fund appropriation is not reduced and the $26 million is redistributed among the Distributive School Account (DSA) expenditures. Number 1 attempts to deal with the issue of starting salaries budgeted by the Governor's budget division which were low. Pages 4 and 5 of Exhibit C are a reconstruction of the salaries and new positions. She pointed out a computer run from the Department of Education of the actual average starting salary of teachers and other licensed groups in FY 1994-95 was used. For the licensed groups under the headings Instructional, Instructional Support, Administrative, and Other, the actual new hire average salary, if it was available, was used. It was Ms. Botts' understanding the Budget Division used approximately 65% of the average salary for the new non-licensed positions, which she increased to 75%. Ms. Botts noted a decrease in the retirement rate. The fringe benefits and the 4% and 3% salary increase recommended by the Governor were applied, resulting in a net change of approximately $6.6 million in FY 1995-96 and $9.4 million in FY 1996-97, for a total of $15.9 million for the biennium. Number 1 recognizes starting salaries as budgeted by the Governor were low. Senator Rhoads inquired what the starting salary of a teacher was and what would it be increased to. Ms. Botts replied the Governor budgeted the starting salary at $24,520. The actual starting salary in the current year based on the contracts of teachers who are newly hired is $26,711. Senator Rhoads asked if the non-licensed salary increased from $11,000 to $15,000. Ms. Botts stated she did not have that information but offered to provide it. She noted only the salaries of new hires would be increased, not existing positions. Senator Rhoads questioned if new teachers would have a starting salary of $26,711. Ms. Botts explained that figure was an average. The teachers would start where their experience and education would place them on each district's salary schedule. Mrs. Evans expressed concern because testimony indicated the new hires needed $28,000 to $29,000. Senator Rawson stated it was his understanding the figure represented the average of the new hire salaries. Ms. Botts remarked it was her recollection from the meetings between the districts and the division that substitute costs were included, which she broke down separately and did not add as part of the starting salaries. Douglas C. Thunder, Director of Fiscal Services, Department of Education, stated one computer run broke out the projected substitute costs which were applied to the starting salary of $26,000. If the portion of the substitute costs estimated to be attributable to the new hires were applied, it would increase to $27,579. The substitute costs are currently rolled in with the average for the continuing staff. Senator Coffin agreed with the calculations for the add-back. He inquired where the detail was for the new hires for the subsequent two years. Ms. Botts drew attention to the last two columns on page 4 of Exhibit C and explained the new hires would be hired at $26,711 for those years with the exception of page 5 where it depicts the application of the 3% and 4% salary increases. There is also a 2% roll-up for existing teachers, but the new hires would be budgeted at $26,711 plus the 4% and 3% raises. Senator Coffin requested the committee be provided with the calculated figures. Don W. Hataway, Chief Assistant Budget Administrator, Budget Division, explained page 4 of Exhibit C represented decision unit M-200 as it relates to the adjustment for personnel starting in 1995. In the decision unit dealing with the 4% and 3% salary increases, the starting salary was increased by those amounts for consistency. Mr. Hataway expressed his agreement with the methodology used in making the calculations with the exception that Ms. Botts used the actual average starting salary and the Budget Division recommended the average beginning salary for a teacher with a bachelor's degree. Ms. Botts explained addition number 2 was an estimate of the available amount for increases in inflation totaling $2.8 million in FY 1995-96, $2.9 million in FY 1996-97, or $5.8 million for the biennium. Addition number 3 includes one-time money in the amount of $4.7 million in FY 1995-96 which might be used for computer software and hardware as a result of the redistribution the $14 million and $12 million made available in the first and second years of the biennium, respectively, by revenue increases and savings. Mrs. Evans asked how the figures for inflation were calculated. Ms. Botts responded it partially was the amount that is available in both years of the biennium that is not needed to increase the starting salaries and fringe benefits. But the $2.8 million and $2.9 million would be the result if group insurance payments were increased by approximately $10 per month. Mrs. Evans pointed out during testimony concern was expressed regarding how inflation was calculated. Ms. Botts stated the Governor recommended approximately $1.8 million per year for inflation in the same categories for which inflation was provided in other budgets, i.e., postage, property insurance, utilities, medical and food. There were very few items for which inflation was allowed. There was testimony expressing concern by the school districts regarding inflation for text books, library books, instructional supplies, and other line items of the budget, as well as inflationary increases in the cost of insurance for health coverage for employees. Mrs. Evans concluded all the concerns were not being addressed. Senator Raggio stated an attempt was being made to justify the utilization of the $26.5 million for alleviating some of the concerns which were expressed rather than have it revert to general fund. The $15.9 million in addition number 1 of Exhibit C corrected the calculation on new hires, which was a justifiable correction. Attempts were being made to justify on a one-time basis the utilization of the remaining amount. He pointed out the same inflationary increases were applied throughout the Executive Budget. Chairman Hettrick noted the Budget Closing sheets reflect what the inflationary increase would be on the textbooks, library books and materials, and instructional supplies if it were approved. If it were applied in that fashion, $800,000 could be subtracted from each year of the biennium and the remainder would be available for use on whatever was needed. Mr. Hataway summarized three basic recommendations made by the Governor as follows: 1) Keep the general fund appropriation at the same level as the Executive Budget recommended; 2) Adjust the 1995 starting salaries to recognize the differential; and 3) Apply the remainder equally divided among instructional supplies, textbooks, and library supplies. The problem with the closing sheet is the one-time equipment cost will be removed from the base budget two years from now. The Budget Division recommended the entire difference be applied to the three complaint areas: textbooks, instructional supplies and library supplies. The dollar amounts are in the same area recommended by the Budget Division, but the methodology was different on how it would be distributed. Senator Coffin agreed with comments made by Senator Raggio. He inquired what was not being funded and by how much was special education under funded. Ms. Botts noted the Department of Education projected the shortfall for special education to be $42 million for 1995. The shortfall was that amount that special education teachers were being paid from general fund sources. There were a number of ways to look at the figures. The unit funding could be increased to approximately $45,000, but that would reduce basic support. Senator Coffin asked if $42 million would need to be added to the budget. Ms. Botts indicated adding $42 million would free up $42 million that could be used in other areas. Senator Coffin inquired how it would affect the per-pupil allocation. Mr. Hataway stated there were three alternatives: 1) Return all of the special education funds to the distributive school account that are budgeted separately outside and increase the basic support; 2) Totally remove all special education costs from the general fund and decrease the cost of basic support, which would leave a block of funding; and 3) Continue the present methodology to periodically add to the amount of unit support for special education. The Budget Division drove the costs by the roll-up costs and the projected regular growth of the districts, which was the third alternative. Senator Coffin asked how much of the $42 million required to fund special education was mandated by the federal government. Mr. Hataway remarked most of the special education mandates could be traced back to federal legislation, and there were federal funds over and above the general fund dollars provided by the state. Ms. Botts stated if $42 million was divided by approximately 250,000 children, the basic support would be reduced by $168 per pupil. She pointed out, however, if special education had an unlimited checking account, there would certainly be additional expenditures which were not currently being expended but it would not amount to $42 million. But because the services were mandated by federal law, districts were providing the services. If $42 million were added, the issue of where it might be spent would need to be addressed. A portion of the total spent on education is called special education units, but the cost is actually larger. A larger portion could be earmarked, but the rest of the pot called basic support would be reduced. Ms. Botts indicated the federal portion was approximately $400 per pupil. Gloria P. Dopf, Director, Special Education, Department of Education, explained the federal grant in total for the Department of Education is approximately $10.5 million, of which 75% flows through to the school districts. The amount per pupil which the districts receive is approximately $310, and is a very small percentage of the total expenditure for special education. The school districts in their report for funding indicated special education expenditures were approximately $110 million. Regarding the issue of enhanced funding, the picture given through the expenditures of the school districts and the amount expended for special education per year, the largest impact to the districts relates to the local portion spent for special education, which is increasing dramatically. The amount, therefore, that comes from general fund expenditures which could potentially be used for general education functions is decreased as special education amounts increase. Since 1985 the local funding portion of the special education support has tripled. Ms. Dopf noted at the beginning of the legislative session committee members were provided with report on special education funding in Nevada. The pictorial included in the report indicates that the percentage of the state funding portion of the special education program has decreased. As it decreases, the amount provided by the local districts has increased. The federal funding has decreased, but the federal portion is so negligible that it does not create a significant impact except to say if the federal portion was not available, services provided by the federal funding could not be funded through instructional units. Districts are reducing basic support by the amount of special education expenditures; however, since the special education program is mandated, a portion of the program could not be removed as representing the portion of the program being required by federal law. The totality of the program is required by federal law, and a free appropriate public education must be provided to all youngsters based on the Individualized Educational Program (IEP). The accumulation of the IEP services add to the total bottom line of what the districts must pay, regardless of where the funding source is derived. Mrs. Evans inquired how increases in the number of units and per unit funding was handled in the past. Mr. Hataway replied growth was built in. In the last biennial budget, Ms. Botts stated the unit amount was not increased, but the number of units were increased in proportion to the growth percentage expected in regular enrollment. Mr. Hataway remarked at that time the per unit value did not change, but growth was built into the units. Presently, roll-up costs per unit was being added onto the value as well as growth of the units. Ms. Botts noted during the 1993 legislative session the figure was held at $26,208 per unit, which was the same as the previous biennium. In the recommended budget the figure increases to $26,740 in the first year of the biennium and $27,151 in the second year of the biennium. Senator Rawson inquired if Ms. Dopf provided a memo reflecting two or three different ways to fund special education. Ms. Dopf stated she provided a memo which reflected a different view of the unit funding which contemplated a supplement to the basic support guarantee. The majority of special education youngsters spend 80% of their day in the regular education program, so basic support generated through the regular formula would be to cover their regular education costs. Special education in terms of revenue generation could be viewed as a supplement to that basic support that is responsive to providing funds for the special education program exclusively. The memo addresses various percentages of the basic support. Ms. Dopf was requesting the revenue portion be driven by the basic support guarantee. The underlying problem is how to increase the special education percentage and not decrease the basic support. Senator Rawson noted some states limit their special education to a percentage, and the state of Nevada was at approximately 11%. Ms. Dopf indicated the percentage for special education was approximately 10.9% of the regular education population, and the recommendation was to round the figure up to 11% so the mechanism did not entice an over-identification of the special education population. The more funds received by special education provides an enticement to identify more youngsters for special education. Ms. Dopf indicated there was an assumption within the recommendation to maintain a ratio of the average number of youngsters per unit. She stressed the assumption was a ratio, not an actual number of students per unit found in the district. One program may have a smaller ratio than 16:1 and another may have a larger ratio. Overall, the number of units in operation divided by the number of youngsters served creates a ratio of 16:1. Senator Rawson put forth the premise that special education is currently fully funded, but $26,000 was not being paid for the average teacher in special education. The teachers are actually paid approximately $35,000, which was coming from the allocation for regular classrooms. He requested staff provide a recommendation to consider changing the methodology. An alternative way of funding special education would let everyone in the system see what was spent on special education and what was being taken from the regular classroom. Senator Coffin expressed agreement with Senator Rawson's remarks. Brian Cram, Ph.D., Superintendent, Clark County School District, stated the federal government's participation in special education was an absolute sham. They provided mandates but no funding. Clark County pays approximately $30 million more than is provided by state and federal designated funding for special education. Tremendous penalties are assessed if the district does not provide exactly what is mandated when, in fact, the money is not available to fund the mandated programs. The number of OCR (Office of Civil Rights) complaints have quadrupled in the previous three to four years because the district is not able to keep up with the mandates. Dr. Cram expressed agreement with Senator Rawson's remarks regarding alternative methodology. Michael Alastuey, Assistant Superintendent, Clark County School District, offered to work with staff on any alternative methodology. Ms. Botts pointed out the figures for increases in basic support per pupil as delineated on page 1 of Exhibit C are $37.25 in the first year of the biennium and $34.59 in the second year of the biennium. Page 2 of Exhibit C compares the Governor's recommendation and the tentative budget being discussed. The Governor recommended $3,460 for basic support in the first year of the biennium and the tentative budget increases to $3,497. The Governor recommended $3,587 for basic support in the second year of the biennium, and the tentative budget increases to $3,621. The figures were compared to the FY 1994-95 basic support statewide average of $3,323. Ms. Botts drew attention to the comparisons of the tentative budget and the Governor's recommendations for the two local revenue items, LSST and property tax, and other sources of revenue to the DSA, including a reduction in the annual slot tax and an increase in the out- of-state sales. Ms. Botts stated the recommended closing sheets do not contain an adjustment for salary increases given by school districts after October 1, 1994. The cost-of-living increases recommended by the Governor for all employees of 4% and 3% and the fringe benefits adjustments are included, but no additional funding has been added to cover the 2% salary increase Clark County provided effective March 1, 1995, or the 2.5% increase that was approved for Washoe County, retroactive to January 1995. Although the legislature did not provide additional funding for a raise during the 1993-95 biennium, the Governor did recommend a 0.59% adjustment for licensed instructional personnel in recognition of salary increases granted by local school districts through negotiations through October 1, 1994. The reason that date was selected was the districts are required to report to the Department of Education on October 1 the actual contract salary of all licensed employees. The Budget Division compared that to the October 1 salary of the prior year, recognized the increase and budgeted additional funding. Therefore, this budget provides salary increases of 4% and 3% over the 1994 actuals or over the raises that were in effect October 1, 1994. Some of the funding for the 4% and 3% increases may be needed to fund existing salary levels in the coming biennium if raises are given. In those districts where a 2% or 2.5% increase was provided late in the year, the funding would need to come from the 4% recommended increase for FY 1996. In effect, the teachers would have received a portion of the raise early. Mr. Dini pointed out the new formula did not allow any latitude for any raise in Storey County. Ed Murkovich, Superintendent, Storey County School District, stated the Governor recommends a 4% increase, but under the present funding it appears Storey County will receive $20 per student more, which equals one third of 1%. He stated he did not understand how the formula works. The present funding level of $20 per student more would mean $10,000 more for operations next year. A 4% increase would be $220 per student more for operation. Mr. Murkovich stated it was probably coincidence that the six most populated counties were receiving a 4% and 5% increase. Ms. Botts inquired if Mr. Murkovich had looked at the increases in other local revenue sources, and Mr. Murkovich replied yes. Ms. Botts noted Storey County received a raise of 2.3% in FY 1994 and 3% in FY 1995. Mr. Murkovich agreed and explained the increases just mentioned were given because the district felt it could not win an arbitration in those cases. Chairman Hettrick mentioned the legislature can fund what it can afford to fund in relation to everyone else. If the 4% and 3% were changed for schools, all employees would expect the same treatment. Any raises provided in the past may have to be considered as part of the 4% and 3% raises. Mr. Murkovich stated Storey County was not being funded at 4%. Chairman Hettrick remarked the funding was significantly more than 4% and 3% if the per-student guarantee and other roll-ups were considered. Mr. Murkovich noted $5,573 was the basic support, and the proposal would increase it to $5,593. Mr. Thunder explained the numbers mentioned by Mr. Murkovich were how the individual district's basic support amount comes through the formula, which takes into account the level of assessed valuation. If the level increased significantly from one year to another, the amount of increase in a district's basic support from one year to the next would not necessarily reflect the statewide increase. Basic support and special education units are considered from the revenue side which leads to the consideration of percentage increases in salaries on the expenditure side. Jumping back and forth between the two sides leads to considerable difficulty in comparison. The formula addresses factors of variations of transportation among districts, the ability of each district to generate revenue outside the Nevada Plan, and also the sparsity and other aspects that distinguish one district from another. The amounts that are calculated for each district reflect significant variations between those amounts and the amount that is adopted by the legislature as the aggregate amount for the state. The reason for the differences are the factors mentioned. Mr. Thunder mentioned the numbers sent to the districts were based on the Governor's recommendations, and another run would be made after a decision is made by the legislature. Senator Rawson suggested there should be a prudent amount of money for the districts as a reserve to keep their accounts solvent and flowing. The state has a reserve of 10%, and there should be some discussion about allowing the districts to maintain an ending fund balance of 4% to 5%. Ms. Tiffany inquired if the reserve could be spent by the districts. Senator Rawson stated that would be open for discussion. Theoretically, the state can spend the ending fund balance. For prudent reasons it is not zeroed out at the end of the year. Ms. Tiffany expressed concern about discussing a new concept during the budget closing. She stated she was not against a reserve but was concerned about setting aside a reserve and the controls for the reserve. Senator Rawson suggested reserve may not be the proper term. He clarified it would be the school district's general funds and not the DSA's funds. The balance could be used to clear checks at the end of the year. Senator Rawson commented it was not suggested that more money be added, but an ending fund balance should be maintained that is not bargainable and so the districts would not need to revert to the state. Ms. Tiffany pointed out the function of the Interim Finance Committee was to provide a review process for spending outside the balanced budget. She inquired if it was expected the people would go to the school districts or come to the state. Senator Rawson made an analogy that if a district wanted a new school, they should be able to reserve some portion of the budget towards the school and know that it is an obligated reserve and does not have to revert to the state or be bargained into salary. He was not suggesting the legislature develop super controls, but they should be allowed the option of keeping some funds in their budget from one year to the next. Ms. Tiffany inquired if the 2% or 4% would be a portion of the $1.3 billion. Senator Rawson stated if Clark County was at $900 million, it would be approximately $20 million. He stated Clark County spent down to $1 million in their account, which was a dangerous situation. Senator Coffin stated the ideas presented by Senator Rawson were not a new concept, and he agreed with the idea of not spending all the funding. Chairman Hettrick reminded the committee members that A.B. 342 allowed for an ending fund balance. He stated it would need to be made very clear on how the money could be spent and whether it could be arbitrated. Ms. Tiffany stated the idea of a reserve needs to be defined and care should be taken about building anything into a base budget. Ms. Botts noted the revenue in school district general funds did not revert to the state general fund, but the balance in the DSA did revert. The school district has the ability to set aside a reserve for specific purposes. Ms. Botts pointed out there was a bill which would create a rainy-day fund in the DSA. Senator Coffin remarked the root source of the DSA is the general fund. Senator Rawson inquired about A.B. 342. Mr. Stevens explained the bill indicates that the reserve balances for school districts could not be considered in calculating the DSA fund amounts. There were discussions during the prior fiscal year regarding the beginning fund balance for school districts overall, and the ending fund balances were different as a result of the Budget Division requiring school districts to basically spend balances down. Ms. Botts noted that school districts have also requested interest income be reduced in the recommended budget due to the implementation of Governmental Accounting Standards Board (GASB) Rule 22 which will permanently reduce cash flow to districts. They calculated there will be an estimated loss of $2.1 million per year in interest income earned by school districts. Chairman Hettrick requested comments from the committee regarding holding any budget or proceeding with the closing. Senator Rawson requested the budget regarding the special education funding be held until the issues were reviewed. Senator Coffin stated he would make the same request and suggested thought be given to plugging money into the $42 million deficit. Senator Raggio remarked it was his understanding there were potentially three ways to handle special education in the budget. The one consistently used was the one presently used. He agreed it might be better to handle special education in another fashion, but that would not change the dollars and should not hold up the budget. What was important was how the dollars going into special education from the formula are reflected. There would not be a $42 million deficit, but there would just be a reduction in the regular education support which would be added to the special education budget. Senator Coffin agreed with Senator Raggio but stated Senator Raggio also made a case for the problem of subtracting from the per-pupil support in all other aspects. He remarked it was suggested a cap be placed on the percentage that the districts would have to spend. Ms. Botts stated the cap was on the number of students identified. Mr. Dini commented he was getting a mixed reaction from the three school districts he represented regarding medical insurance, operating costs, average starting salary and equipment and suggested the budget be held until the figures could be reviewed in greater detail. Senator Raggio requested an explanation of how the implementation of GASB 22 means $2.1 million needs to be raised. Mr. Alastuey explained the accounting profession has instructed both the school district and the state to recognize on a one- time basis an additional month of sales tax or the advance collection of sales tax at the close of FY 1994-95. Even though the accounting requirement is imposed identically on both governmental units, the effect, because of the way the school fund operates, is very different. Even though the cash flow does not change, the booking of the sales tax takes place on a one-time basis. That means with the state's 2% share of sales tax, there is no change in cash flow or interest earnings to the state. With respect to school districts, however, the paper gain is then taken in the same fashion as an actual sales tax gain on the part of the state and results in a cash deduction of state payment as opposed to the paper realization of gain on the part of the school district. In other words, the school district realizes the gain on paper whereas the state treats it as if it were real and withholds cash support. The state winds up with more money and the school district winds up with less money which applies in perpetuity after the one-time change is made. When the calculation is made at current rates, it exceeds $2 million per year, and in effect the state generates $2 million more in interest forever as well. Mr. Alastuey represented that the state would be enriched by the exercise of GASB 22. If the state chose to treat it in that fashion, the school districts should be made whole with the interest earnings. Chairman Hettrick noted Mr. Dini's request to hold the budget for a couple of days. He requested comments from the committee members. Senator Rawson did not see a problem with holding the budget in light of the request for information but cautioned against holding up the legislative session. CLASS-SIZE REDUCTION - PAGE 177 Ms. Botts drew attention to changes made on the Budget Closing sheets on page 4 by increasing the general fund appropriation of $856,641 in the first year of the biennium and increasing the state tax $883,341 in the second year of the biennium. The adjustments were made to add funding to continue the existing teachers in at-risk kindergartens. An error was made whereby the teachers were inadvertently left out of the totals in the Executive Budget. A letter from the Budget Division was received requesting that general fund appropriations be added in each year of the biennium. In the meantime, collections of estate tax revenue were coming in well above what was expected, and it was felt there should be sufficient funding by the second year of the biennium to be able to add estate tax. Ms. Botts noted there were 3% roll-up costs figured in each year of the biennium in the Governor's recommended budget. The reason for 3% rather than the traditional 2% used in the DSA is these tend to be teachers that are newly hired and are moving across and down the salary schedule which results in a greater than 2% roll-up cost. The salary increases of 4% in the first year of the biennium and 3% in the second year of the biennium are included in the Governor's recommendation. The amount of $20.6 million is recommended in the second year of the biennium to reduce the pupil-teacher ratio to 16:1 in third grade beginning in FY 1996-97, which will require approximately 600 new teachers. Ms. Botts commented the estate tax revenues recommended by the Governor will provide approximately $15.7 million in each year of the biennium, and the remaining cost of the program comes from the general fund. Ms. Botts explained the ratios contained in item 4 of the Budget Closing packet were as of the current school year. Approximately 68% of first and second grade classrooms are taught by one teacher alone in a self-contained classroom. The remainder are generally team taught, although there are others that utilize roving teachers. Based upon information received from the Department of Education, approximately 71% of third grade classrooms would be team taught. The 1993 legislature requested through a letter of intent that the Department of Education consider the effects of consolidating the Class-size Reduction program into the DSA fund and making a recommendation. The department recommended the two accounts be combined. Ms. Botts indicated the cost for third grade class-size reduction in the 1997-99 biennium was estimated at a minimum of $45 million. The cost of extending class-size reduction to third grade classrooms only in the highest risk schools is estimated at $4.98 million in FY 1997, which would fund 159.5 teachers. The cost of expanding class-size reduction in high risk kindergartens beyond the 23.5 teachers who have been funded since the Class-size Reduction Program began is estimated at an additional $1.95 million in FY 1997, which would provide 62.5 kindergarten teachers. The budget account also contains $130,680 each year of the biennium for estate tax funds that provide 45 scholarships each to UNR and UNLV to qualified students pursuing teaching degrees. Page 6 of the Budget Closing packet represents a history of the class-size program since its inception through the Governor's recommendations. Senator Rhoads inquired if there was an estimate of what it would cost the school districts to build the rooms necessary for class-size reduction. Ms. Botts replied she had not collected that information. Dr. Cram stated Clark County School District had a number of estimates for additional rooms which vary from 300 to 500. Chairman Hettrick inquired if a cost per room for building could be made. Dr. Cram stated he could not estimate that but offered to provide some figures. Senator Coffin asked if Dr. Cram was referring to classrooms for all grades or just the class-size reduction program. Dr. Cram responded the class-size reduction program. Mary Nebgen, Ph.D., Superintendent, Washoe County School District, stated her district had not estimated the cost of construction for additional rooms, but it was estimated that most of the third grade teachers would be teaming because first and second grades had used all available space. She felt, however, the situation would be temporary because new schools were being built to accommodate the first and second grade class-size reduction. The district was also purchasing portable classrooms at a cost of $50,000 per building which provides two classrooms. Senator Raggio inquired what percentage of first grades was fully reduced to 16:1. Dr. Nebgen responded in combination of first and second grades approximately two thirds of the teachers were in self-contained 16:1 classrooms and approximately one third were teaming. Senator Raggio asked the same question for Clark County. Dr. Cram stated the ratio was approximately 60:40 in first and second grades. Senator Raggio remarked the first grade did not achieve the self-contained ratio of 16:1. Dr. Cram stated not in all schools. Senator Raggio concluded there was no likelihood that if third grade class-size reduction were in place in 1996 there would be enough self-contained classrooms for the students. Dr. Cram commented there would not be one teacher in each classroom. Currently, Clark County was operating with two teachers in some classes. Senator Rawson commented there was discussion regarding folding the class-size reduction fund into the DSA. He requested staff provide information regarding that concept, what kind of authority the districts would like to have regarding alternatives, the leeway the districts would like to have in the administration of class-size reduction, the cost of doing full class-size reduction in kindergarten without including classroom construction, the effect of plugging in other ratios for class- size reduction, i.e., 19:1 for kindergarten, and some options regarding combinations of kindergarten and third, at risk or the most at risk. Mr. Dini expressed agreement with Senator Rawson's comments because the school districts he represented wanted flexibility. The districts should be given an opportunity to be innovative in creating their own structure. Chairman Hettrick agreed with Senator Rawson's and Mr. Dini's comments. Mrs. Chowning inquired if staff from Clark County felt the statement made regarding 71% of the third grade classrooms would be team taught was accurate. Mr. Alastuey stated that sounded like a reasonable estimate. Mrs. Chowning asked if the schools being built in Clark County were going to accommodate class-size reduction for first, second and third grade. Dr. Cram explained there was a single prototype for K-3 which would accommodate class-size reduction. Senator Rawson requested estimates on what it would cost to fill the new schools with 16:1 third grade class-size reduction. Senator Coffin noted in 1991 the Senate passed a bill which allowed bonding for quick construction of schoolrooms to facilitate the class-size reduction program, but it died in the Assembly Ways and Means Committee. He requested suggested legislation regarding bonding for construction. Judith Hill submitted written testimony which is attached as Exhibit D. Chairman Hettrick recessed the hearing until Thursday, May 25, 1995, at 7:00 p.m. RESPECTFULLY SUBMITTED: Jonnie Sue Hansen, Committee Secretary Joint Subcommittee on Human Resources/K-12 Assembly Committee on Ways and Means Senate Committee on Finance May 23, 1995 Page