The second meeting of the Interim Joint Committee on Education was held on Thursday, July 19, 2007, at<MeetTime> 1:00 PM, in the Willow Room of the Galt House in Louisville, Kentucky. Senator Ken Winters, Co-Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Ken Winters, Co-Chair; Senators Walter Blevins Jr., Vernie McGaha, R. J. Palmer II, Tim Shaughnessy, Johnny Ray Turner, and Jack Westwood. Representatives Larry Belcher, Leslie Combs, Jim DeCesare, Milward Dedman Jr., Jon Draud, Ted Edmonds, C. B. Embry Jr., Bill Farmer, Tim Firkins, Jim Glenn, Jeff Greer, Jimmy Higdon, Mary Lou Marzian, Reginald Meeks, Russ Mobley, Carl Rollins II, Charles Siler, Dottie Sims, Ron Weston, and Addia Wuchner.
Legislative Guests: Representatives Joni Jenkins and Derrick Graham.
LRC Staff: Audrey Carr, Sandy Deaton, Jonathan Lowe, Jacinta Manning, Janet Stevens, and Lisa Moore.
Senator Winters asked for a motion to approve the minutes of the June 25, 2007 meeting. Representative Siler made the motion to accept the minutes and Representative Combs seconded the motion. The motion was approved by voice vote.
Senator Winters introduced Dr. Robert Barr, Co-Author, "The Kids Left Behind" (2007) and "Saving Our Students - Saving our Schools" (2003). Dr. Barr said for a variety of reasons young men and women who are in school in Kentucky today have almost no future economically without education. He also said with the baby boomer generation approaching retirement, there will be a huge demand for highly skilled workers to replace them. He said the numbers of students graduating in the areas of technology, math, and science is diminishing and the gap is frightening.
Dr. Barr said the most important role an educator has is to talk to high school and middle school students and their parents and help them to understand that the world is rapidly changing around them and they need to be prepared upon leaving high school for the future. He also said if the dropout rate is reduced in the United States by one percent, 100,000 additional students would graduate, and this would reduce the cost of the state corrections' budgets by $1.4 billion. He said there are more people in prison in the United States than in any other country in the world, and 80 percent of the men and women in prison are high school dropouts, while 60 percent have the lowest of literacy skills that makes life non-functional in the real world.
Dr. Barr highlighted several items from his report. He said if a child arrives at school behind and lives in poverty, he or she is probably not going to be ready to learn and will never catch up unless they have extra instructional time. He said children living in poverty generally have poor nutrition and no health benefits, and there is generally no reading going on within the home because there are no books. Some schools have been creative to address this problem by lengthening the school day with before and after school programs, and lengthened the week by adding Saturday programs. He also said all day kindergarten is important for children from poverty who arrive with deficiencies in reading readiness.
Dr. Barr said research suggests that the gap narrows between affluent students and students in poverty over the course of a school year given there is an effective teacher within the classroom. He said research also identifies that students' achievement levels drop significantly over the summer. Some schools do offer summer programs three days a week with tutors available to assist students who need extra help.
Dr. Barr said high poverty, high performing schools, organize their curriculum. Successful teachers have a prescribed curriculum that relates to assessment. He said this has been the practice with advanced placement testing for a long time, but "teaching to the test" is a good practice, as is aligning curriculum to assessment.
Dr. Barr said never let students get too far behind and do not wait until the end of the year to assess progress. He also emphasized that reteaching is just as important as teaching. He mentioned that some schools have shown tremendous success with the four-day instructional week and using Fridays for career exploration and intensive remediation for students who need it.
Dr. Barr said a positive attitude is the most important thing for teachers and administrators to display in schools. He said students will live up to or down to the expectations of people around them.
Dr. Barr said teachers and administrators must be held accountable for student performance, and Kentucky is doing better than other states in this area. He said coaches and mentors should be provided for struggling teachers as well as allowing them to visit more effective classrooms.
Senator Winters asked what schools were utilizing the four-day work week and how do they staff the schools on Fridays. Dr. Barr said he did not have the list of exactly which schools were doing this, but said teachers love it because it frees them up from regular classroom duty and allows them to work with students in a different way. He said research on achievement shows improvement with four-day school-instructional weeks instead of declines. He will provide a list of schools on the four-day work week to Senator Winters so that he can follow up with them, but believes this is a creative idea worth investigating.
Senator Winters mentioned some innovative schools he visited recently in Austin, Texas. He observed the way the schools utilized engineers and technology from business and industry as a resource within the high schools and wondered if Kentucky could model this plan on Fridays if Kentucky schools were on the four-day school week.
Dr. Barr said nationally the gap between the poor and the affluent in the elementary schools is almost non-existent, it is almost as good at the middle school level, but the gap has not been closed at the high school level. In fact, the gap has grown greater in the last seven or eight years between poor and affluent students in the high schools.
Dr. Barr said the best research for high schools is the project entitled "High Schools that Work" that concludes several things that work in a high school. First, everyone needs to be enrolled in a college preparation curriculum and focus needs to be placed on careers. He said all high school students declare a major just like when a student is enrolled in college.
Representative Belcher said he agrees that teachers and administrators need to have positive attitudes, but parents should be accountable as well for their child's performance. Dr. Barr said schools should teach parents what they can do to supplement learning for their child. He said families that are poor tend to move frequently because they get to the end of the month and cannot pay their bills, so they move, which can disrupt student learning by switching schools so much. He said in some cases the schools are the only chance the child has to be protected from the parents through legal recourse.
Representative Meeks said he was appreciative of the fact that Dr. Barr made a strong connection between poverty and the lack of education, but he is concerned about Dr. Barr's statement that Kentucky is doing so much better than anyone else. He said 1,800 African American students have graduated from the high school over the last seven years and only 20 Ph.D.s have been awarded, and the numbers are troubling to him. He also said the number of African American students graduating has not increased over a significant period of time, nor have ACT scores. The same can be found with students in Appalachia.
Dr. Barr said he did not know the dropout group numbers for Kentucky specifically. Nationally, there is a 60 percent dropout rate for African American and Latino students. He said one sad feature of the No Child Left Behind program was that it did not factor in dropout rates. He meant by his earlier statement that Kentucky was far ahead of other states in addressing and working with low-performing schools. He was impressed with the scholastic audits and highly skilled educators that have been implemented into Kentucky's educational system and had not seen these approaches utilized in other states.
Representative Meeks asked how important it was to find someone to lead Kentucky's education department. Dr. Barr declined to answer the question.
Senator Westwood said he figured if Kentucky could reduce the dropout rate by one percent this would result in a reduction of $30 million in the corrections budget, and 1,300 additional students graduating. He also said that he has been very concerned, specifically in the last few years, about Kentucky's dropout rate. He said research indicates the majority of students who are dropping out are doing so out of boredom. Schools need to offer students legitimate reasons to stay enrolled in school and customize their education to have some relevance to their lives. He said it has long been overlooked that Kentucky's vocational schools are seen as a dumping ground and they should be made to be a cool place to go.
Representative Graham said he is concerned that the gap is closing in middle school between poor and affluent schools and not in the high school. He is in his 25th year as a teacher in high school and asked what is contributing to the gap in the high schools. He asked if there was a correlation with the number of classes that students are required to take in one year or one semester.
Dr. Barr said the high school has had a tradition that teachers only teach their main subject and nothing else. He said another issue may be relevancy and that personal relationships are not formed.
Representative Graham asked what to do as the gap increases and some students never achieve after attending four years of high school. He said if they are released from high school they end up becoming a burden on society either in the prison system or on the welfare rolls.
Dr. Barr said the goal is to get students as educationally prepared as possible. He said some typical high school students that do not perform well during their traditional four years of high school can attend a community college and succeed for a variety of reasons. He said the relationships between high schools and community colleges and technical schools need to be strong as these are the jobs that are in demand for the future.
Senator Winters introduced Ms. Alicia Sneed, Director of Legal Services, and Dr. Phil Rogers, Executive Director, Education Professional Standards Board (EPSB), to discuss 16 KAR 1:030 and 16 KAR 9:080. She explained 16 KAR 1:030 and asked the members if there were any questions.
Representative DeCesare asked about the fee involved for the drug testing cost in 16 KAR 1:030. Ms. Sneed said that if an educator has his or her certification suspended or revoked because of drug use, in order to renew his or her certification, the educator will have to pay the drug testing fee.
Representative Rollins asked if 16 KAR 9:080 was a change or establishing a new regulation. Ms. Sneed said it is establishing in regulation a program that has been piloted for several years. She said 1,933 temporary provisionals have been issued in the last four or five years for classroom teachers and administrators.
Representative Rollins asked how many colleges and universities used the alternative certification program. Ms. Sneed said there are currently 16 colleges offering alternative certifications. She also said at least one university was offering an alternative certification program for superintendents.
Representative Belcher asked if 16 KAR 1:030 was indicating that disciplinary action against a teaching certificate could be from any complaint or report, or just isolated to a controlled substance complaint. Ms. Sneed said it deals with any complaint or report because currently the EPSB requires the superintendents to report, but any other agency, parents, or other teachers can now file a complaint too. She said drug testing was added to this regulation because it seemed like the most logical regulation to place it in.
Representative Graham discussed the requirement of teachers who have been out of the classroom for several years having to complete six additional hours of coursework to return to teaching in the classroom. He did not understand why the coursework could be any class they chose and not a specified course.
Ms. Sneed said she was not sure what the specific coursework was supposed to be, but would get the information to Representative Graham. She said teachers have to have three years of classroom time in order to renew their certificates every five years. She said courses can be substituted for the three years experience. Representative Graham said he would meet with Ms. Sneed after the meeting.
Senator Winters asked for a motion to approve 16 KAR 1:030 and 16 KAR 9:080. Representative made a motion to accept the administrative regulations, and Representative Marzian seconded the motion. The motion was approved by voice vote.
Senator Winters introduced Mr. Gary Harbin, Executive Director, Kentucky Teacher Retirement System (KTRS), to explain administrative regulation 102 KAR 1:175. Mr. Harbin explained the administrative regulation and answered questions from members.
Representative Rollins asked what the limit would be if the one percent limit was removed from venture capital. Dr. Harbin said the limit would be five percent in the future for the whole category of alternative investments, which include venture capital, private equity, timberland, and infrastructure investments.
Representative Rollins asked if the investments had to be made in Kentucky. Mr. Harbin said they do not. KTRS invests the money wherever the best deals are found. He said there are some investments now in venture capital that are classified as other investments in venture firms in Kentucky.
Representative Meeks said some legislators share deep concerns about investing Kentucky dollars in Sudan in support of the government which are carrying out atrocities against its people. He asked Mr. Harbin what the KTRS policy is regarding investing money in these type countries.
Mr. Harbin said KTRS does not invest in companies that invest directly in the Sudan. These are primarily foreign companies located in Russia and China. He said federal agencies have started compiling a list of companies that are investing in the Sudan and KTRS has those lists and are avoiding those companies.
Representative Meeks asked if there is a directive for KTRS investors to avoid companies investing in Sudan from the board. Mr. Harbin said the board has a position statement that has been given to managers to avoid investing in companies that have a direct relationship with the government of Sudan. Representative Meeks asked Mr. Harbin to share with the committee what the specific reference to the stock is. Mr. Harbin said there is a pot of money that allows up to 15 percent of assets in foreign companies as opposed to the ten percent cap that was in place before. He said currently there is seven percent of assets invested in foreign companies.
Representative Wuchner asked about removing the limitation that 75 percent of venture capital investments must be in state, which appears to potentially increase the percentage of venture capital investments by removing the specific section that was limited to one percent of the assets of the system at book value and adding them in the alternative investments category which shall not equal more than 10 percent of the assets of the system. Mr. Harbin said this change was needed because it was previously seen as a limitation that the investment committee should not have. He said KTRS does try to focus on investing in Kentucky companies, not only in venture companies but in companies that are domiciled here. He said the small amount of assets that have been invested in venture companies thus far have primarily been in Kentucky and will impact new businesses in Kentucky positively.
Representative Wuchner asked if there was an internal directive to invest in Kentucky companies or is it better to wait and weigh one investment against another. Mr. Harbin said there is no internal directive as to the percentage of investments, but there is an effort made to invest in Kentucky both in venture capital investments and regular investments.
Representative DeCesare asked if the administrative regulation change is to try and increase returns or reduce risk. Mr. Harbin said both. KTRS is trying to reduce risk by further diversification, and as such, stabilize and increase returns.
Representative DeCesare said placing 65 percent of all investments totally in stocks seems high compared to most corporate structures. He asked who was handling these investments. Mr. Harbin explained the KTRS policy for making investments. He said an investment consultant is hired to advise the KTRS how the allocation should be set and also to determine a target allocation on an annual basis. For example, 63 percent of KTRS investments should be made in stocks this year. He said investing 65 percent in stocks is a pretty conservative estimate compared to most pension plans because the stock market, for the most part, has outperformed most other investment classes historically by quite a few percent per year. He said 35 percent of KTRS assets are invested in bonds in order to receive the cash flow to meet obligations going out. He said there is $96 million per month being paid for retirement benefits, and $14 million a month to pay for healthcare benefits. He said $40 million per month has to be made in cash flow in order to meet the payroll.
Representative DeCesare asked how the Becker group decided what to invest in, and if the group is held accountable in any way for its investment suggestions. Mr. Harbin said the Becker group is just one piece of the KTRS investment team that outlines the asset allocations. The other piece of the investment team are the managers. The Becker-Burke company along with another outside company, the Rogers-Casey company, monitors the performance of the asset managers.
Representative DeCesare asked if this administrative regulation allows for more diversity than what is currently in place. Mr. Harbin said it does allow for more diversity in the portfolio.
Representative Farmer said this regulation changes the amount KTRS can invest in a single stock from 2 to 2.5 percent. He asked if this was actually contracting the number of investments because this would increase exposure at that level. Mr. Harbin said KTRS is changing the basis of calculating the 2 and 2.5 percent. The 2 percent was based on 2 percent of the stock at book value, and he said the change moves to calculating the 2.5 percent at market value in order to stay where they were.
Representative Farmer asked about the stock percentage that is being invested. He asked about the age and life expectancy of the recipient of the pension plan. He said Kentucky is approaching an aging group of people that will be drawing off of this pension, and he is concerned about the current age that this 65 percent is based on and their life expectancy.
Mr. Harbin said this is a complex process that the actuary goes through that is called asset liability modeling. The actuaries project the benefits based upon every person that is in the pension plan and they base what the returns should be in the future in order to continue those benefits at the current levels. He said moving from 60 to 65 percent is suggested on the same basis as moving from 2 to 2.5 percent, trying to get from book market value to market value. He also said that the value of bonds has not been increasing as rapidly as the value of stocks and the current portfolio today shows a higher percent of assets in stocks at market value than at book value.
Representative Farmer said he is concerned with the change in accounting procedures. Mr. Harbin said the accounting profession changed about fifteen years ago to use market value as the basis for valuing assets of pension plans. He said the proposed amendment brings the older policy up to date to reflect market values.
Senator Blevins asked about investing up to one percent of retirement funds into venture capital. Mr. Harbin said Kentucky is currently a state that has a very low incidence of needing venture capital. A large venture capital investment in Kentucky today would be right below $5 million, which would be a very small percent of Kentucky's assets.
Senator Blevins asked what the total amount would be if 75 percent of the one percent is placed in venture capital. Mr. Harbin said a ballpark figure of one percent would be $160 million and 75 percent of that is $100 million. He said investing $100 million in venture capital in Kentucky would cause a lot of venture capital firms to establish themselves in Kentucky.
Senator Blevins said he believes the statute should be changed and not the administrative regulation. He said this administrative regulation is taking a step back and he cannot vote in favor of it.
Representative Rollins said investing in venture capital in Kentucky involves riskier investments and asked Mr. Harbin if he agreed. Mr. Harbin said they would be much riskier investments with higher failure rates. For example, right now about 15 out of 100 deals work, with 85 deals failing. Representative Rollins said the KTRS should not be investing the KTRS funds into venture capital with such risks.
Senator Winters asked for a motion to approve administrative regulation 102 KAR 1:175. Representative Rollins made the motion for approval, and Representative Weston seconded the motion. The motion was approved by voice vote with Senator Blevins casting a nay vote.
With no further business before the committee, the meeting was adjourned at 3:00 p.m.