Overview of the Foundation School Overview of the Foundation School - - PowerPoint PPT Presentation

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Overview of the Foundation School Overview of the Foundation School Program August Payment Deferral Program August Payment Deferral

House Appropriations Committee, Subcommittee on the Current Fiscal Condition October 17, 2012

Prepared by the Legislative Budget Board

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Foundation School Program Payment Schedule

Texas Education Code, § 42.259, stipulates a schedule of monthly payments

• f state aid to school districts by payment class.
• School districts are sorted into payment classes according to property

wealth per student. Category 1 Less than 1/2 the statewide average property wealth per student Category 2 Greater than 1/2 the statewide average property wealth per Category 2 Greater than 1/2 the statewide average property wealth per student and not more than the average Category 3 Greater than the statewide average property wealth per student

• School districts receiving less state aid overall (wealthier school districts)

receive a greater proportion of their state aid at the beginning of the fiscal year.

• School districts receiving more state aid have their payments allocated more

evenly across the months of the fiscal year.

10/17/2012 Legislative Budget Board 2

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Foundation School Program Payment Schedule

Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

Cat 1 ($) 15% 10% 10% 10% 10% 5% 10% 10% 10% 10% Cat 2

Percent of FSP State Aid Entitlement Paid Per Month by Payment Class

Cat 2 ($$) 22% 18% 9.5% 7.5% 5% 10% 13% 15% Cat 3 ($$$) 45% 35% 20%

% T

• tal

State Aid,

FY2013 estimated

24% 18% 8% 3% 3% 2% 3% 4% 5% 8% 10% 12%

10/17/2012 Legislative Budget Board 3

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Why?

Deferral of the August FSP payment has been used as a budget management tool by shifting the final biennial payment into the next fiscal biennium to achieve a one- time savings to the state budget.

History and Mechanics of the August Deferral

When?

This strategy has been used twice:

• 1. 78th Legislature ► August 2005 (Fiscal

Year 2005) payment was deferred to September 2005 (Fiscal Year 2006). Action reversed with the August 2009 payment (80th Legislature). 2009 payment (80th Legislature).

• 2. 82nd Legislature ► August 2013 (Fiscal

Year 2013) payment is deferred to September 2013 (Fiscal Year 2014).

How?

• Change in statute to alter the FSP payment schedule is required both to defer the

payment and to reverse the deferral. Historically, this has occurred in two separate bills with the payment remaining deferred until a future legislature enacts reversal.

• The August payment for Category 2 and 3 districts is delayed by about two weeks

(Category 1 districts do not receive an August payment).

Legislative Budget Board 10/17/2012 4

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Deferral Biennium

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Each Subsequent Biennium Until Reversal

State Budget Implications of the August Deferral

Deferral Biennium: one-time savings equal to the value of the deferred payment, 2012–13: $1.9 billion Subsequent Biennium: cost relative to prior biennium related to making 24 payments (as opposed to 23)

R P T V C N B R Y N L G R P T V C N B R Y N L G 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Savings are realized in the first biennium the deferral takes effect, since there are 23 rather than 24 payments of state aid.

R P T V C N B R Y N L G R P T V C N B R Y N L G 1 2 3 4 5 6 7 8 9 10 11 12 24

In each subsequent biennium a total of 24 payments occur. T wo payments are made in September:

• prior fiscal year’s August amount
• new fiscal year’s September payment

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Legislative Budget Board 10/17/2012 5

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Deferral in Place Biennium

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Reversal Biennium

State Budget Implications of the August Deferral

Reversal Biennium: One-time cost of making 25 payments

1 2 3 4 5 6 7 8 9 10 11 12

In each biennium after a deferral is in place, a total of 24 payments occur. T wo payments are made in September:

• prior fiscal year’s August amount
• new fiscal year’s September payment

13 14 15 16 17 18 19 20 21 22 23 1 2 3 4 5 6 7 8 9 10 11 12

When an August payment deferral is reversed, a total of 25 payments occur within the biennium. The August payment at the end of the biennium is paid within the biennium rather than being delayed until the beginning of the next fiscal year.

13 14 15 16 17 18 19 20 21 22 23 25

Legislative Budget Board 10/17/2012 6