Chapter VII

Accountability Measures

Two statutory provisions intended to provide local accountability for adequate education spending, the minimum expenditure requirement of the ECS grant and the prohibition on supplanting of town expenditures for educational purposes, are discussed in this chapter. Both measures are aimed at ensuring towns use state equalization aid, which unlike categorical funding is not restricted for specified purposes, to support their elementary and secondary education programs.

Minimum Expenditure Requirement

Section 10-262j of the Connecticut General Statutes requires towns to spend a minimum per pupil amount on education in order to be eligible for state aid. The statutory minimum expenditure requirement (MER) was adopted as part of the legislature's response to the Connecticut Supreme Court decision in the Horton v. Meskill case. The intent was to establish the lower limit for expenditures on education by a town.

Under the statute, the MER is an amount calculated each year for each town based on its expenditures related to regular education program expenditures. The current formula for determining a town's minimum expenditure requirement, first adopted in 1998, is shown below.

In effect, the MER is a town's increase in ECS aid, if any, added to it's minimum spending level for the past year, adjusted for changes in enrollment. The resident student adjustment equals the lower of zero or the current year's resident students minus the previous year's students, times one-half the state foundation. As a result, a town's MER decreases if enrollment declines, but stays the same as the previous year if enrollment increases.

Figure VII-1 shows spending over a five-year period by school districts statewide and by the highest and lowest educational reference groups relative to the MER. As the figure indicates:

• statewide, the trend is toward greater spending in excess of the MER; and
• the increase is most pronounced for districts in the highest ERG.

Enforcement. The penalty for failure to meet the MER is forfeiture of an amount equal to two times the difference between a town's MER and its actual regular education program expenditures. The forfeited amount is withheld from the town's ECS grant for the second fiscal year following its failure to meet its minimum spending level.

The state board may waive the forfeiture upon agreement with the town or regional district that it shall exceed its MER during the fiscal year in which the forfeiture would occur by at least the forfeited amount. Funds expended to do so are not to be included in the calculation for any future MER.

The state board, under C.G.S. Section 10-4b, can investigate and require compliance if it determines a local or regional school board has not provided educational opportunities as required by various statutory mandates including the minimum expenditure requirement. The state education department regularly monitors MER compliance and will work with towns projected to fall short of MER.

The department determines compliance by collecting expenditure projections from each district at various points during the year; audited end-of-year figures are used to ensure actual compliance. Any town found to be within 5 percent of its MER is warned in writing to closely monitor expenditures. If projected expenditures are below the required minimum level, the town is required to submit a detailed expenditure report and any plan it has to avert a shortfall.

Usually a town will add funds if its school board cannot adjust its budget to achieve MER compliance. It is State Board of Education policy that shortfalls of less than 1 percent of a town's MER can be resolved at the local level without an official board investigation. However, if it is found the town is not providing a local board with sufficient funds to meet its minimum spending level, the state board can order the town to appropriate additional funds. The state board can and has gone to court to enforce such orders. As noted above, the board can impose financial penalties (i.e., forfeiture of state funding) for failure to comply with MER provisions. Actions taken by the board during the past decade to address cases of MER noncompliance are summarized below.

Between FY 91 and FY 00, State Education Department monitoring identified 23 cases of MER shortfalls involving 14 different towns. Over half of the cases (13) occurred in a three-year period following the major revisions to the ECS formula and MER calculation in 1995 (e.g., incorporating funding for "ordinary" special education costs in the ECS grant). Subsequent changes to the calculation of the minimum expenditure requirement in 1998 resulted in significantly fewer instances of spending shortfalls.

As the following table indicates, court orders to bring compliance were sought in two cases, both involving the city of New Haven, and forfeiture of ECS aid was ordered by board once. Forfeiture was waived by the board in nine cases as towns agreed to spend an amount equal to the shortfall penalty in addition to their minimum requirement in the following year. In five cases where MER shortfalls were less than 1 percent, towns were permitted to resolve the underspending issue locally. In four cases, no action was required as projected shortfalls were eliminated following review of final audited expenditure amounts.

Discussion. Conceptually, in a foundation system, a MER is directly linked to the per pupil spending amount determined necessary for an adequate level of services; a town's spending floor is calculated by multiplying the foundation amount times needs students. In this way, the MER will reflect any changes in costs included in the foundation or in a district's student population. Also, the base for determining state aid levels and a town's required minimum spending levels are the same.

The MER in Connecticut's ECS grant was linked to foundation and need students until 1995. At that time the state consolidated funding for special education with a town's equalization aid by increasing the foundation amount and including all special education pupils in the count of need students. Recognizing these changes would substantially increase each town's minimum expenditure requirement for the following year and create financial hardships, the legislature revised the MER calculation. Since that time, the MER is set at a town's minimum expenditure level for 1997 plus its annual increase in ECS aid.

Like other parts of the ECS program, the MER is becoming increasingly dissociated from actual costs of providing educational services. In theory, returning to the foundation times need student calculation for the MER would be an improvement but this alternative is complicated by at least two factors. First, significant spending increases on regular education program expenditures would be required in many towns. Second, while ECS grants incorporate state aid for "ordinary" special education costs, neither the foundation amount nor the MER have been adjusted since 1997 to reflect special education expenditures.¹ In fact, local spending that supports special education costs is specifically excluded from the calculation of a town's minimum expenditure requirement.

The committee believes no changes should be made in the MER until the cost commission recommended earlier completes its work in determining the appropriate foundation level and need student weights for the ECS formula. How to take into account special education students and the costs associated with their needs is a matter the commission will need to address and its findings can guide future decisions about setting the MER level.

Supplanting Prohibition

Section 10-262i(c) of the Connecticut General Statutes requires all ECS aid received by a town be used for educational expenses. Language added in 1998 (P.A. 98-168) further prohibits a town from using any increase in ECS funding to "supplant local funding for educational purposes" beginning in FY 99.

Data on the local share of education expenses for each town were obtained from the State Department of Education for FY 99 and FY 00. Changes in ECS aid were compared to changes in local share. Several towns appear to have violated the no-supplant prohibition.

• In FY 99, 10 towns reduced their local share. State ECS aid increased in six of the towns. In the other four towns, state ECS aid was reduced but the local share reduction was greater than the ECS aid reduction. The amount of the reductions ranged from $20,000 to over $1.1 million.
• In FY 00, 11 towns reduced their local share as state ECS aid increased in each town. The amount of the reductions ranged from $28,000 to over $2.5 million.

In correspondence to a committee request, the State Department of Education concurred with the analysis and acknowledged towns reduced their local share of education expenses. The statute contains no specific penalty for violations, although the State Board of Education has general authority to initiate an investigation, conduct hearings, require remedial actions, and order compliance with statutory education mandates under its jurisdiction.

Neither the state board of education nor the education department have notified the towns of the violations or taken any actions against them to compel compliance with the no supplanting mandate. The department has suggested comparing multi-year cumulative changes in total local expenditure to the changes in ECS aid is a more accurate reflection of district effort; using a four-year cumulative analysis would result in only one town in apparent violation of the statute. The program review committee does not believe this interpretation can be accommodated within the framework of the current statutory language.

The legislative history of the statute suggests the intent of the General Assembly was to ensure ECS grant money was used for educational expenses in addition to local money already budgeted. Supporters of the legislation cited concerns that towns could divert state funding for education to other unrelated local purposes.

In reviewing the application of the no supplant statute and analyzing the impact on towns, the program review committee concluded:

• the provision redefines ECS as solely an education grant and eliminates any local tax relief component from the state's equalization aid program; and
• the current statutory language is unclear and, in certain circumstances, may be unreasonable.

Although never stated in statute, a recognized purpose of the Education Cost Sharing grant as well as its predecessor program, the Guaranteed Tax Base, was equalization of tax effort (taxpayer equity). Before the no-supplant provision was enacted, towns had discretion over the uses they made of ECS funding, including purposes unrelated to education, provided they met their minimum expenditure requirement (MER), a statutorily defined minimum amount of education spending set for each town. As an accountability measure, the MER law permits local control over education spending decisions while ensuring local effort is maintained at a level the state deems necessary for adequate educational services.

The committee determined municipalities may have legitimate reasons to reduce their local share of education spending from a prior year, even while their ECS aid increased. Examples are outlined below.

• Reductions in the number or needs of a district's special education population could occur, and because special education is largely supported by local government, a reduction in the local share of education spending could be warranted.
• The no-supplant provision does not allow for possible efficiencies that may accrue from operating improvements or changes in service levels within a school district. In fact, a town could be penalized for implementing better management practices.
• The no-supplant provision does not take into account that a large, one-time expenditure (e.g., upgrading textbooks, other instructional materials or equipment) can temporarily increase local share. While the purpose for the spending increase has been met, the level of local spending would have to remain constant in subsequent years.
• As the cap on ECS increases is phased out, more aid is going to the capped municipalities. In 2002, the state also provided an extra $25 million in supplemental grants for towns subject to the cap. Theoretically, a capped town is paying a portion of its education budget that should be supported with state aid. It stands to reason that capped towns, in certain instances, may reduce local share while the phase-out is implemented.

It is apparent to the committee the no-supplant statute was passed in an attempt to promote greater accountability over local use of ECS funding. The law seeks to prohibit towns from using state aid for tax relief at the expense of education quality. However, as currently written, there is no possibility for towns to cut back on local spending even if justified by circumstances such as those outlined in above examples. In addition, the statutory language is difficult to interpret and apply and lacks any specific enforcement mechanism.

The committee believes there are two different ways to address the issues raised by the existing supplanting restriction. Under one option, unfair requirements for local spending can be avoided and the implied tax relief policy of the ECS grant can be retained by repealing the no-supplant provision. A second approach is to continue the current ban on supplanting, but amend the existing statutory language to clarify its intent and make it easier to implement. Both options are discussed in more detail below.

Option 1. Eliminate the no supplant provision and rely on the MER for accountability.

To permit legitimate local discretion over education spending and eliminate unclear and overly restrictive requirements on the use of state funds, the language in C.G.S. Section 10-262i(c) that prohibits supplanting of local funding for educational expenditures should be repealed.

Discussion. With the repeal of the no-supplant provision, the primary restriction on local use of state ECS aid is the minimum expenditure requirement. As discussed above, the MER ensures a certain level of local commitment to education spending as defined by the state. Under the way the MER is currently calculated, towns in effect must apply all ECS aid they receive to education spending. In addition, all towns at present must spend more than what they receive in ECS grants to meet their MER.

Thus, the MER law alone now results in statewide compliance with the statutory requirement that towns spend all ECS funding for educational purposes. It does not prevent towns from decreasing their contributions to educational spending above the minimum level. However, as above analysis shows, instances of supplanting have been rare and under certain circumstances reductions in local spending may be considered justified.

Option 2. Clarify existing no supplanting statutory language.

To clarify the intent of the no-supplant provision and make the spending restrictions more reasonable, C.G.S. Section 10-262i(c) should be amended to incorporate the following provisions:

• definitions of the terms "supplant" and "local funding for educational purposes" and the funding time period;
• a method for calculating changes in local share of a town's education spending based on cumulative totals over a three-year period;
• specific authority for the state education department to monitor compliance with the no supplanting requirements;
• a specific penalty for noncompliance, such as permitting the state education department to reduce state aid in the succeeding year by an amount equal to the reduction made in local share;
• allow a municipality to request approval from the commissioner of education to reduce its local share of education spending, with approval only being granted if the town demonstrates reductions are related to significant cost efficiencies or reductions in student needs, receipt of state aid to compensate for prior underfunding, or other circumstances the commissioner deems reasonable; and
• require the commissioner to annually report to the legislature all instances of reductions in local education funding including approved requests, indicating the amount of and reasons for the reduction of local share.

Discussion. The proposed amendments correct several weaknesses in the present law by making clear what types of funding and what spending timeframe is subject to the supplanting prohibition. Greater flexibility in applying the requirement is achieved by using multi-year calculations of spending and allowing the commissioner to authorize waivers from the requirement in certain cases. Accountability is strengthened by outlining the state education department's responsibilities, establishing an enforcement mechanism, and requiring reports to the legislature. The changes do make implementation of the requirement more complex and will require additional effort by the education department staff.

Each option represents a different policy approach to accountability for local spending of state aid. The program review committee recommends:

adoption of Option 2, which clarifies current statutory language prohibiting supplanting of local education funding and establishes an enforcement mechanism.

The recommendation makes the ban on supplanting workable by defining terms and specifying the state education department's role and responsibilities for ensuring compliance. Through the waiver procedure, a town can, with department approval, reduce its local share of spending for educational purposes in limited circumstances.

¹ Towns are responsible for all expenses associated with a special education student's program up to 4.5 times their average per pupil expenditure. A separate state grant is provided to towns to assist with 100 percent of the costs over that amount.

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