Call to Order and Roll Call
The Education Assessment and Accountability Review Subcommittee met on Tuesday, October 12, 2010, at 1:00 PM, in Room 129 of the Capitol Annex. Senator Jack Westwood, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Jack Westwood, Co-Chair; Representative Kent Stevens, Co-Chair; Senators Vernie McGaha and Ken Winters; Representatives Bill Farmer and Harry Moberly Jr.
Guest Legislators: Representatives Teddy Edmonds and Derrick Graham.
Guests: Keith White, Office of Education Accountability; Clyde Caudill, Kentucky Association of School Administrators; and Sue Cain, Council on Postsecondary Education.
LRC Staff: Sandy Deaton, Audrey Carr, Janet Stevens, Ken Warlick, and Janet Oliver.
Approval of Minutes
Upon motion by Representative Farmer, seconded by Senator Winters, the minutes of the June 14, 2010, meeting were approved by voice vote.
2009-2010 Assessment Results
Terry Holliday, Commissioner, Kentucky Department of Education (KDE); and Ken Draut, Associate Commissioner, Office of Assessment and Accountability, KDE; provided information on the assessment results. A copy of the PowerPoint presentation was provided to committee members.
Commissioner Holliday said in-depth information on the assessment results is available on KDE’s Open House statewide longitudinal data system. The system with reports down to the school level may be accessed by legislators, parents, the media and the general public. The Website has information on the status of each district and school under No Child Left Behind (NCLB), the Kentucky Core Content Tests (KCCT) results for combined reading and math proficiency, ACT reports, and other assessment and accountability information. KCCT results show that although steady progress is being made in reading and math in grades 3-8, middle schools improved slightly and high schools had a decrease in math scores. Commissioner Holliday said that transitioning to end-of-course assessments will help identify gaps in instruction and hold teachers and students more accountable. Science results were similar to reading and math, showing some improvement at the elementary level, a decrease at the middle school level, and no change in high school. Social studies showed a drop at the elementary level, slight improvement at the middle school level, and a drop at the high school level. There was significant improvement at the elementary level in writing, but only slight improvement at the middle and high school levels. The “Gap to Goal” information related to results for various demographic groups showed slight improvement for some of the groups. This measurement will help districts focus on specific groups of students that need greater attention.
College readiness rates showed that 12,896 of the 40,528 graduates met the Council on Postsecondary Education (CPE) benchmarks on the ACT. This year Kentucky’s seniors will be provided access to COMPASS®, which is a computer-adaptive college placement test, and KYOTE, which is the Kentucky Online Testing Examination, to predict college readiness. Career readiness rates showed that 718 seniors achieved national industry certifications. WorkKeys, vocational aptitude battery assessments for the Armed Services, and other key industry certifications may be provided to this year’s senior class. Overall, 34 percent of the 2010 graduating class were college or career ready based on testing and certifications.
Commissioner Holliday said thirteen districts did not make adequately yearly progress for several consecutive years and KDE is currently prioritizing those districts to see which districts will be audited and provided support and assistance. Although there are 93 districts in various phases of consequences, KDE only has the resources and staff to provide assistance to five out of the lowest thirteen districts and ten of the lowest achieving schools. In the 2011-2012 school year, KDE will intervene in twenty of the lowest achieving schools and ten of the lowest achieving districts. There are 61 non-Title I schools in their first year of eligibility for state assistance and 107 in year two for a total of 168 based on the requirements set forth in 2010 House Bill 176.
Senator Winters said he is very concerned that many of the ten schools identified for needing assistance are in the same district. Commissioner Holliday said that KDE will announce on November 5th the five districts in which intervention will be provided and a subsequent announcement will identify the ten lowest achieving schools in which intervention will occur. Senator Winters asked that information be provided to committee members on the lowest achieving districts and schools when the final decision is made.
In response to questions from Representative Farmer, Commissioner Holliday said that a small, medium, and large district will be included in the five lowest achieving districts. He said that the combined reading and math assessment result is the only legitimate factor that can be used to select districts and schools for intervention.
In response to questions from Representative Moberly, Mr. Draut said the assessment results are from the second year of the interim assessment period. The KCCT will be administered in the current year and then the new assessment mandated by 2009 Senate Bill 1 will be administered in spring 2012 and based on newly adopted common core standards. Commissioner Holliday said approximately 1,000 teachers and 200 principals and instructional supervisors are now meeting monthly to develop a model curriculum framework for the newly adopted common core standards, which will be in place prior to beginning of the 2011 school year. Since Kentucky did not receive Race to the Top Funding, existing resources had to be redirected to establish a curriculum framework with lesson plans, model assessments, and links to online resources which can be used in the classrooms so that teachers and students will be successful with the new, more rigorous math common core standards.
Representative Moberly said the assessment results were dismal, especially at the high school level, and that providing resources is not the only issue that needs to be addressed, since some high poverty schools have produced successful results with effective leadership and dedicated staff. Commissioner Holliday said the recently adopted Kentucky Board of Education strategic plan outlines a systematic approach to improving education and includes holding districts accountable, changing the ways teachers and principals are evaluated, improving professional development, and assessing non-tested subjects through program reviews.
In response to a question from Senator Westwood about achieving career and college readiness, Commissioner Holliday said the Governor’s Task Force on Transforming Education will issue a report that includes recommendations to elevate and integrate career and technical education programs; increase dual credit and virtual learning access and allowing middle school students to participate; improve early childhood education by assessing kindergarten readiness and insuring that each student is reading on grade level by the end of third grade; and school calendar recommendations because of the negative impact that summer vacations have on the learning gap.
In response to a question from Senator Winters about revision of core content for other subjects, Commissioner Holliday said that new core content will be available for science in approximately one year and for social studies in approximately a year and a half. He said Arts and health and physical education organizations are doing similar work that will be endorsed by the Council of Chief State School Officers.
Kentucky School Districts’ General Fund Balance Reserves Study
Ms. Marcia Seiler, Director, Office of Education Accountability (OEA), and Sabrina Olds, Legislative Analyst, OEA, presented an overview of the School Districts’ Fund Balance Study. Members were provided a copy of the draft report and a copy of the PowerPoint presentation.
Ms. Olds said almost all of the school districts met the 2 percent minimum fund balance reserve requirement and about half of the districts had reserves beyond an amount recommended by school financial experts. Although the districts provided legitimate reasons for maintaining large reserves, appropriate codes need to be used to improve transparency. General Funds are the primary source of monies that districts use to pay salaries and operating expenses. The report also provides information on other fund balances used by districts. A combined fund balance for the state for 2009 was $774 million, which represented 14 percent of the $5.5 billion General Fund appropriation to districts. Ms. Olds said it is important when reviewing data to consider not only the dollar amount but also the percent fund balances. For example, Jefferson County’s 2009 fund balance was $124 million or 13 percent compared to West Point Independent’s fund balance which was $682,000 representing a 50 percent fund balance.
Ms. Olds said a common justification for the reserve is for rainy day funds. Districts are required to maintain a 2 percent minimum fund balance but there is no maximum balance required. Prior to 2001, the maximum amount was 10 percent and anything beyond that amount had to be set aside for school facility construction projects. The maximum percentage was removed by the legislature because districts raised concerns about being unable to save for other projects, such as athletic fields, central offices, bus garages, and related school needs.
The Southern Regional Education Board provided information that general fund balances in four states had to have a minimum 3 percent reserve or an equivalent of one month’s operating expenses and four other states had maximum reserves of 10-15 percent. There are no national standards although the Government Finance Officers Association recommends that districts keep a minimum of two months of General Fund reserves and the three major bond rating companies recommend 5-10 percent minimums.
Data showed that at the end of FY 2009, two districts had less than 2 percent reserve, 18 had 2-5 percent, and over 100 districts had balances of 11 percent or higher. Appendix D provides a breakdown of each individual district’s General Fund balance and percentages. General Fund percentages for most of the state remained relatively stable from 2005 to 2009 at about 12-15 percent, except the fund balances in Jefferson and Fayette County school districts almost doubled during the same period. Fayette County has set aside $13 million in restricted funds for facility projects and another $5 million because of pending litigation. Jefferson County’s year end reserve is not truly indicative of fund balances since the county experiences fluctuating cash flow related to property tax revenue. Districts that receive most of their revenue from the General Fund’s Support Education Excellence in Kentucky (SEEK) allocations do not have cash flow issues since the payments are received on a monthly basis and spread out evenly across the year. Statewide district fund balances grew from approximately $523 million in FY 2005 to $774 million in 2009, although Jefferson County’s grew by $77 million and Fayette County’s grew by $45.5 million.
Appendix F of the OEA study includes responses from superintendents and finance officers on district plans for utilizing the reserve funds, which included saving for construction projects that are on the School Facilities Construction Commission’s (SFCC) priority list; for non-priority construction, such as ball fields, central offices, and bus garage repairs; as a cushion for unexpected cash flow problems; and for emergency repairs that may be needed because of antiquated equipment. A survey of superintendents with 100 percent responding showed that 142 districts prefer to keep at least 5 percent or higher in reserve funds.
Ms. Olds said that although reserving a certain amount of unrestricted fund balance for unanticipated expenditures or rainy day funds is legitimate, the lack of transparency regarding those funds is problematic. Only 21 percent of the districts in the state actually were using the appropriate accounting codes from KDE’s Chart of Accounts to identify the funds. OEA found approximately $10.4 million coded to unknown codes and therefore KDE had not included the funds in their fund balance calculations. Also one of KDE’s object codes restricted for net assets is not recognized by the federal National Center for Education Statistics. Ms. Olds said that it is an OEA recommendation that a few additional codes be added to KDE Chart of Accounts to allow districts to account for reserves, which will be transparent to the public.
Ms. Olds said that another troubling issue is that some districts showed a negative fund balance in some of the other major funds at the end of the fiscal year, which is unlawful. KRS 160.550 and Regulation 702 KAR 3:050 prohibit a superintendent or board from knowingly approving expenditures in excess of the adopted budget. Also KDE does not appear to have a uniform process for identifying and intervening to prevent negative fund balances.
Ms. Olds said the report also contains several recommendations. It is recommended that KDE review the 2 percent minimum balance requirement which appears to be too low compared to the norm in other states. KDE should mandate that districts use restricted or reserve object codes when balances are over 12 percent or over two months worth of General Fund expenditures. Even though KDE has been revising its chart of accounts, other object codes need to be added to capture technology and other instructional needs and fund balance reporting to ensure transparency of those funds. KDE should also ensure that each district’s prior year-end and beginning balances match and that a uniform process be used for establishing district funding watch and deficit lists.
In response to questions from Representative Farmer, Ms. Olds said that OEA found that some districts ended a fiscal year with a negative balance which was not reflected in the beginning year balance for the next fiscal year. Each district reports financial data to their respective local boards on a monthly basis but KDE requires only a fiscal year-end report from each district.
In response to a question from Senator Westwood, Ms. Olds said that a large portion of Jefferson County’s school revenue is from local taxes, which has an impact on the cash flow issues the district experiences, compared to poorer districts which are primarily funded with SEEK monies. Ms. Olds provided further information on accounting practices used by districts and said that KDE needs to add codes to its chart of accounts so district reporting will be consistent and transparent.
In response to questions from Senator McGaha, Ms. Olds said that information contained in the report on planned uses for reserve funds was provided by district personnel. Districts may actually expend the funds for other purposes which should be captured under chart of accounts codes although there are coding discrepancies. She explained that “on behalf payments” refers to employee health insurance, transportation for vocational education, SFCC funds, and Kentucky Teacher Retirement System contributions if the teacher is paid with state grant funding.
In response to a question from Senator Westwood, Ms. Olds said some superintendents expressed an opinion that districts should be able to keep more than a 10 percent reserve and that the maximum reserve amount was removed by the legislature approximately ten years ago.
Commissioner Holliday said that KDE agrees that transparency is important and local school boards need to be accountable to their electorate. He said limited KDE staff is working diligently to provide oversight and monitoring of expenditures of all funds.
Hiren Desai, Associate Commissioner, KDE Office of Administration and Support, said that KDE generally agrees with the OEA report. Some of the recommendations were already being implemented and the chart of accounts will be updated to include additional codes to capture various data. He said some of the issues arise when there are changes in district finance personnel and because accounting methodologies used by districts vary. Commissioner Holliday said he informed the superintendents that the study would be discussed and provided them with some of the highlights in the study. Senator Westwood encouraged KDE to continue working with the districts on transparency issues.
Senator Winters said that Appendix C of the report should be examined in detail in relationship to the assessment results.
In response to a question from Senator Westwood, Ms. Seiler said that nothing substantive would be changed although minor editing may be done to address KDE concerns before the report is finalized. Senator McGaha made a motion to adopt the report. Representative Farmer seconded the motion and the motion was approved by voice vote.
Adjournment
There being no further business to discuss, the meeting adjourned at 2:30 PM.