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Tallman Education Report: Gannon funding, tax cuts, debt repayment in Gov. Kelly's proposed budget


Posted Date: 01/14/2022

Tallman Education Report: Gannon funding, tax cuts, debt repayment in Gov. Kelly's proposed budget

Gov. Laura Kelly’s budget plan released Wednesday, Jan. 12, fully funds the final steps in the six-year Gannon school finance plan and includes funding for the first year that base aid for school districts is to be adjusted for inflation in 2023-24. 

With unprecedented levels of cash balances in the state general fund, the Governor also proposed a range of tax cuts, debt repayment and other adjustments, as well as spending enhancements to major state programs. Here are the highlights for education and the overall budget plan. 

Funding K-12 Education 

Base Budget Increases 

The Governor’s budget provides funding to increase base state aid per pupil from $4,569 last year (Fiscal Year 2021) to $4,706 this year, or a 3 percent increase, and to $4,846 next year (FY 2022), another 3 percent increase. Those are the Base Aid for Student Excellence amounts approved by the Legislature and the Kansas Supreme Court for the final year three years of the Gannon plan.  

The Legislature also approved a provision, starting in the following school year, FY 2023-24, that the base would increase at the average rate of increase for the previous three years in the Consumer Price Index for the Midwest region. Based on current projections, the Governor is recommending appropriating funding in FY 24 for a $160 increase in base aid, or 3.3 percent. (The Governor is not recommending appropriations for most other school programs and other state agencies.) 

Lower Regular Enrollment 

Last year, the Legislature appropriated base state aid funding for 2022 and 2023, using estimates for district enrollments developed in November of 2020. However, new estimates released last November cut the projected weighted enrollment (actual students plus weighted students) by 10,800 students this year and 8,510 next year. That means the cost to the state will be reduced from what was approved for the next two years (the base will be multiplied by fewer students than projected). 

The decline in enrollment is considered linked to the COVID pandemic. In 2019-20, the last count before COVID struck, the unaudited public school “headcount” enrollment was 492,102 (not counting certain students in preschool programs). Last year, the number dropped to 476,434. This fall, enrollment increased slightly, to 479,743, but that was lower than expected when the Legislature approved the budget last session. In other words, enrollment did not rebound as much as expected. School districts can use the highest of the prior year or second prior year “regular” or unweighted enrollment, so funding loss tied to enrollment loss is somewhat cushioned. 

Lower free lunch enrollment and at-risk funding 

In addition, the number of students counted for free meals has also declined from 182,202 pre-pandemic in 2019-20 to 161,628 this year, or over 11 percent. Because at-risk funding for services to help students who are struggling academically is based on the number of free lunch students, this means districts will receive less funding for these programs.  

School officials say the count of free lunch students has declined for two reasons. First, the federal government is currently providing free meals for all students, so families are not required to file an application to receive free or reduced-price meals. Districts may count students as free lunch if they qualify based on a Household Economic Survey, but families are not required to complete this survey. In addition, as the economy has recovered this year, some workers are earning higher wages or working more hours and no longer qualify for meal assistance. 

Special Education Aid 

The Governor’s budget provides $7.6 million increases in special education state aid in the current year (FY 2022) and $7.4 next year (FY 2023), or about 1.5 percent each year. The Governor does not make a recommendation for FY 2024. 

Although the dollar amount of special education state aid is rising, the percentage of “excess costs” covered by state aid is continuing to fall. Under state law, special education aid is supposed to equal 92 percent of excess costs, which is defined as total special education expenditures, minus average cost of students in special education if they were in regular education, minus federal special education and Medicaid reimbursement. However, the 92 percent target is not enforced in state law. The actual percentage of excess cost funded this year is estimated at 76.4 percent and projected to fall to 70.8 percent next year and 64.3 percent in 2024 if there is no increase in aid. 

Special education aid is covering a declining percentage of costs for several reasons. First, a growing percentage of students are identified as requiring special services each year. Second, the biggest special education cost is for teacher salaries, which tend to increase at the rate of base state aid per pupil, and special education teachers usually receive the same increase as other teachers. As noted, the base per pupil has been increasing at about 3 percent, while special education aid is growing at about half of that rate. Finally, the percentage of excess cost covered would be even lower if the State Board of Education was not using temporary federal COVID aid to cover some special education costs. 

Other Major K-12 Education Aid Programs 

The Governor's budget fully funds the estimated cost of local option budget, or supplemental general, state aid, which is expected to increase $20.6 million in FY 22, $16 million in FY 23 and $18.2 million in 2024. These estimated are tied to increases in base state aid per pupil. The LOB is a percentage of state foundation aid, up to 33 percent. 

The Governor increases capital outlay state aid by $6.2 million in FY 22 and $3 million in FY 23, and capital improvement (bond and interest aid) by $7.4 million in FY 22 and $3 million in FY 23. LOB, Capital Outlay and Capital Improvement aid are programs that provide state aid to districts with lower property tax valuation per pupil so “equalize” the tax rate required for local spending. 

For 2023, the Governor also adds $3 million to expand the school-based Mental Health Intervention Team program, $1.8 million to restore funding for professional development aid; $1.5 million for districts to provide transportation for high school students attending off-campus career technical education programs at postsecondary institutions, and $360,000 for national teacher board certification aid. The Governor also adds $100,000 for a statewide dyslexia coordinator position in the State Department of Education. 

Eliminate the Delayed School Aid Payment 

Since 2003, the state has delayed a portion of the final aid payment of the fiscal year, which is scheduled for late June, and made the actual payment in early July. However, school districts are required to account for the money as received in June, although they have not actually received the money. 

This practice was adopted when the state was faced with budget problems and a possible deficit at the end of the fiscal year in June. By delaying part of the aid payment, the state reduced its costs that year by shifting that expense to the next year. By requiring school districts to “pretend” funding was received in June, it did not look like schools had received less revenue. In effect, school districts provided a short-term loan to the state by relying on their own cash reserves. The annual amount has varied over the year, averaging at least $200 million. 

The Governor has proposed making the full final aid payment in June this year, FY 2022, which would increase the state aid by $199 million ($161 million in state financial aid and $38 million in LOB state aid). However, state aid would drop by the same amount next year, FY 2023. There are several arguments for making this change. School districts receive criticism from auditors for the maneuver, since they are recording receipts for a year in which they were not actually received. The practice artificially inflates July 1 cash balances. Reversing this practice now, when the state has high cash balances, would make it available in the future without making the delayed payment greater. 

Early Retirement of Deferred KPERS School Payments  

Faced with revenue shortfalls in 2017 and 2019, the Legislature skipped some of the scheduled payments to the Kansas Public Employees Retirement System for school district employees, and structured plan called “layering” to make those payments over a 20-year period ending in Fiscal Year 2039, with interest. 

The Governor is proposing paying off the entire $253.8 million in remaining layering payments in 2022, which will reduce state general fund payments by $25.8 million annually over the next 14 years and save $172 million in interest costs. Those funds will allow KPERS to begin investing those funds, rather than waiting for state repayment. 

Other Major Budget Issues 

Tax Reductions 

The Governor is proposing eliminating the state sales tax on food and food ingredients at an estimated annual cost of $450 million in FY 2023. This is an on-going reduction, meaning the state would not have this revenue in future years. The Governor is also proposing a one-time tax rebate of $250 per resident tax filer ($500 for married couples filing jointly) in FY 2022. Finally, the Governor is proposing to eliminate the $4 surcharge on vehicle registration renewals, with an estimated $12 million reduction in state revenues. 

One Time Expenditures 

In addition to ending the delay in school district aid payments, retiring the KPERS school layering payments and tax rebate plan, the Governor is proposing to move $600 million into the state’s Budget Stabilization or “rainy day” funding. Also, the Governor is proposing other early debt retirement, capital project paid with cash rather than borrowing and special projects and grants. The total of these one-time events is almost $2.4 billion.