Delaware DEPARTMENT OF EDUCATION Susan §, Bunting, Ed.D. Toned Bing cry of Eateaton 401 Fo Sivt Ste 2 Vor, poz) 00 Deparhinent Dover, Delaware 199013639 Ras i DOE WEBSITE: hpivaw dock 2. of Education ‘August 22, 2017 Dear Legistators: | am writing to confirm receipt of your August 4, 2017 concems related to the local per pupil expenditure calculations. | appreciate your continued interest in this topic and hope to provide you with additional information that may offer a broader perspective of the issues addressed in your letter. There are several ‘components of this discussion, which are likely best addressed separately: timeline of communication, Department recommendations and path forward, ‘Timeline of Communication ‘As you may recall, the Department completed a comprehensive analysis in spring 2016 in preparation for the Fiscal Year 2017 choice and charter biling process. That review resulted in recommendations that the local per pupil calculations include all non-MCI (Minor Capital Improvement) match expenditures and exclude a number of other local expenditures that had previously been included in these calculations. After receiving expressions of concem regarding the timing of the changes to the calculation methodology and legislative interest on the topic, the Department agreed to pause changes to the calculations and continue using the existing methodology for that fiscal year. As a direct result of that decision, the Department become a co-defendant in a lawsuit brought forward by Delaware Charter Schools against the Christina School District and the Department. AS you know, the end result of the lawsuit was a settlement agreement reached and signed by all parties. Although the lawsuit was largely focused on three specific appropriations ultlized by the Christina School District, part of the settlement agreement required that the Department formalize its annual process and timeline for preparing the annual local per Pupil expenditure calculations. ‘As such, the Department formalized the annual process and timeline and communicated information, including the attached document entitled "Choice and Charter Process to LEAs’, to all districts and charter schools on January 13, 2017. In accordance with the agreed upon procedures, on June 1% the Department released exclusion recommendations to districts, which included the exclusion of 10 categories of expenditures that have not previously been excluded from the calculations and deferred a decision on the non-MCI match expenditures until the state budget was finalized. At that time the Joint Finance Committee was conducting conversations regarding the use of match tax rates to offset reductions in state funding for a variety of expenditures, and the Department was hoping to avoid unintended consequences of any such actions on the local per pupil calculations. As part of the outlined process, districts were notified that they could request a meeting with the Department no later than June 15% to discuss the recommended exclusions and were reminded in the June 1% communication to notify the Department of any questions. The Department received no communication or request for a meeting from any school district at that time. Upon passage of the Fiscal Year 2018 Operating Budget, the Department revisited the non-MCI match tax discussion and, given no changes to the intent of match tax through the budget bill, continued to recommend the inclusion of those expenditures in the calculation methodology. On July 14", in accordance with the documented process, the Department provided notification to the charter schools of the expenditures that were recommended for exclusion from the calculations and followed up with all districts to share the updated recommendation on the non-MCI match tax expenditures. The "HF DELAWARE DEPARTMENT OF EDUCATION Is ANEQUA OPPORTUNITY EMPLOVER TF DOES NOT ISCRIMINATT ON THE BASIS OF RACE. COTOR RTIOION NATIONAL ORIGIN SEX SEXUALPage 2 communication to the charter schools reminded them of their opportunity to request a meeting with the Department no later than August 1#. No such request was received from the charter schools, A July 20" email from the Smyrna Schoo! District Business Manager was the first notification the Department received from any schoo! district regarding concems related to the list of approved exclusions. That ‘communication included a request to meet with both my team and me to discuss their concerns; that meeting was held at the close of their regular business managers’ meeting on Thursday, August 3 During that meeting the Department provided the basis of the recommendations related to non-MCI match expenditures and listened to the concems of the business managers in attendance. Department Recommendations In accordance with 14 Del. C. §408 and §509, the local cost per pupil is calculated on the basis of total local operating expenditures with the specific exceptions of tuition, debt service, minor capital improvements (MCI), and cafeteria expenditures. In addition to those exceptions, the Secretary of Education is authorized to approve any other local expenditures deemed to be inappropriate for inclusion in the calculations. The Department's belief is that the formula outlined in the Delaware Code is intended to ensure that operational expenditures follow the students from their district of residence to either a different district of choice or charter school. Given that the non-MCI match tax appropriations are raised for operational expenditures such as Extra Time supports, Technology initiatives andlor reading and math specialists, the Department's position is that those funds should follow students of the resident districts regardless of where they select to receive their public education This position was communicated to districts and charters last year, was a major point of discussion during the legal proceedings and represents what the Department believes to be the intent of the Delaware Code as written. In order to provide the districts with sufficient time to prepare and adjust for these changes to the caiculation methodology, the Department has recommended a phase-in approach, which would allow 50% of the funds to be excluded this year and 25% excluded next year with full implementation of these funds being included in Fiscal Year 2020. To provide some insight into the magnitude of funds involved, in the current year the exclusion of 50% of these funds equates to approximately $828,000 statewide with varying impacts depending on the local district decisions to utilize the match tax option. ‘The following three factors are important to keep in mind: (1) newly approved categories of expenditures to be fully excluded in Fiscal Year 2018, (2) inequities in choice/charter payments based on local decisions to implement match tax, and (3) legal settlement opportunity with the Christina School District for choice payments, + The 10 categories that were newly approved for this fiscal year equate to a savings of roughly $1.7 milion for districts in Fiscal Year 2018 ‘+ There is a not a consistent practice statewide on the usage of match tax. That results in inequities such as the Indian River School District chooses not fo raise @ match tax but rather to use current expense funds to support Extra Time programs, which are included in the per pupil expenditure calculations. That results in Indian River's Extra Time ‘expenditures being included in the calculations; meanwhile, another school district that raises a match tax for Extra Time would not have dollars for similar services follow their students. The proposed universal implement of including non-MC! tax expenditures will eliminate this inequity ‘+ During the legal settlement process, five traditional school districts were given the ‘opportunity to pursue additional local funds for choice payments from Christina School District, including the Red Clay Schoo! District. itis the Department's understanding that those districts have recently reached an agreement, which will result in additional local funds being received by each those eligible districts.Page 3 To fully understand the net impact of the proposed methodology for Fiscal Year 2018, please see the attachment document entitled “FY18 Net Impact’. To help you understand the layout of the document, | will use Christina School District (CSD) as an example. For CSD, the exclusion of non-MCI Match expenditures costs the district a total of $411,000 for choice and charter bills. However, they regain $1.5 mmllion through the addition of the 10 newly approved categories for exclusion. As a result of the recent ‘agreements with five of their peer districts related to the legal settlement, they will lose $350,000. The net impact of these three gains and losses equates to a net gain for the district of approximately $776,000. Path Forward The Department is in the final recommendation stage of the process as outlined in the attachment, with final recommendations to be made and certified no later than August 31*. During the past year the Department had a number of legislative and school leader discussions, navigated through a lawsuit, and has continued to review all recommendations to ensure an appropriate application of the legislative intent of 14 Del. C. §408 and §509, ‘The Department will spend the next week reviewing the items specifically requested by the business managers, as mentioned above, and will communicate final recommendations in accordance with the lawsuit agreement, As always, | am happy to meet with any member of the General Assembly to discuss this process and calculation methodology. If there is legislative interest in amending the Delaware Code authorization to provide more clarity in the expenditures to be excluded, my team and | stand ready to participate in those discussion as well helpful in understanding the details behind the communication, ‘sting process for local per pupil expenditure calculations. Please feel free to Stions, | hope this “in recommendati Secretary of Education ce: David Blowman Kim Wheatiey Brook Hughes ‘Attachments: Choice and Charter Process to LEAS FY18 Net Impact