District/School Administration Administration
The Massachusetts Board of Elementary and Secondary Education

Update on the Financial Situation in the Randolph Public Schools

During last week's Board of Education discussion on the Randolph Public Schools, Dr. Joseph Rappa, Executive Director of the Office of Educational Quality and Accountability (EQA), indicated that lack of adequate municipal financial support was one of the major problems facing the district. In particular, he stated that the town was improperly including its $3 million annual assessment for the Blue Hills regional vocational school district in its net school spending for the Randolph Public Schools, thus reducing the funds available for the needs of the local schools. Board members asked whether this situation warranted a referral to either the Attorney General or the Department of Revenue.

I asked the Department's school finance office to review the relevant data, including the most recent financial returns for FY2007, which were filed by the town within the past several weeks. As will be explained in further detail below, our conclusion is that these particular allegations were inaccurate and were based on a misunderstanding of the school finance data. Associate Commissioner Jeff Wulfson has reviewed and discussed the data with Dr. Rappa and Superintendent Silverman, and they concur. The town of Randolph is fully meeting its legal obligations for the financial support of the Randolph Public Schools.

Background: Net School Spending and Reporting

The concept of "net school spending" was established in the 1993 Education Reform Law to set requirements for municipal school spending, and to measure compliance with those requirements. Each year, the Department sets a "net school spending requirement" for each operating school district in the state. The specific amount for each district is based on two factors: the amount that the state estimates the municipality can afford from its local revenue sources, and the amount of Chapter 70 state school aid that the district will be receiving. The net school spending requirement is always at least equal to the district's foundation budget, which in turn is based on student enrollment levels and demographics. In some cases, the net school spending requirement can exceed the foundation budget.

After the close of each fiscal year, the Department receives detailed financial reports from each district and municipality, documenting all education-related spending during that year. The Department uses this data to calculate each district's "actual net school spending," which is then compared to the net school spending requirement to determine compliance. Not all education spending is included in the net school spending calculation. Among the items that are excluded are pupil transportation; facility capital costs; adult education and other community programs; federal and state categorical grant programs; and revolving funds. Municipal payments to regional school districts are included in the financial reports but only affect the net school spending for the regional district, not the local district.

Net School Spending in Randolph for FY07

The chart below shows the net school spending calculations for the Randolph Public Schools for FY07:

The district's total net school spending was $33.1 million (line 15), of which $27.5 million was spending from the school district budget and $5.6 million from other municipal departments. The municipal spending included amounts provided by the town for administrative services (line 1); building maintenance (line 6); pensions, health insurance and other employee benefits (lines 7 and 8); and payments for school choice and charter school tuition (line 12). The charter school tuition cost is partially offset by state reimbursements (line 14c). The $3.9 million in out-of-district tuition costs reported under the school committee budget (line 12) is for special education programs at private schools and educational collaboratives.

Note that the town's FY07 assessment for the Blue Hills vocational school district ($3.3 million) is not included anywhere in this calculation, although of course it would be reflected in the separate net school spending calculation for the Blue Hills district. Randolph's net school spending requirement for FY07 was $32.2 million (line 16), so the district exceeded its requirement by three percent. The erroneous conclusion regarding the reporting of the Blue Hills assessment was apparently the result of a misinterpretation of the data by EQA staff who were unfamiliar with the Department's financial reports.

Monitoring Net School Spending

Board members asked questions at the meeting regarding the Department's activities to ensure compliance with these requirements. We have published regulations (603 CMR 10.06) and technical guidance defining what types of expenditures qualify for net school spending, and we work closely with district officials to resolve any disagreements that might arise at the local level. We review all financial reports submitted by districts for reasonableness and to identify significant changes from prior years that might indicate reporting errors. We also require the financial reports to be reviewed during the annual municipal audit. Finally, it is important to note that the Department provides the software used to calculate net school spending; the calculations are not done by the districts or towns themselves.

If a district does not comply with its net school spending requirement, we can take one of several enforcement actions. If the underspending is less than five percent of the requirement, we can carry over the shortfall and add it to the next year's requirement. If the underspending exceeds five percent, we can also reduce the town's school aid. Finally, where the problem is chronic, we can ask the Department of Revenue to hold up approval of the town's tax rate or we can ask the Attorney General to initiate appropriate legal action. Our school finance office has done an exceptional job over the years in monitoring net school spending, and as a result the rate of compliance is extremely high.

Net School Spending in Randolph over Four Years and Related Data

The chart below summarizes Randolph's net school spending compliance for the last four years; the data for the current year (FY08) is preliminary, based on the district's approved budget:

It can be seen that Randolph met its legal net school requirement in every year. In each year, the actual net school spending was significantly higher than the district's foundation budget, although the extra spending was below the statewide average. Based on this data, there is no cause for a referral to either the Attorney General or the Department of Revenue for enforcement of the spending requirement.

Of course, the fact that the town has met its legal spending requirement does not necessarily mean that the district is adequately funded to meet all of its educational needs, nor does it necessarily mean that the town is not able to provide additional resources above and beyond the current spending levels. The first question, whether the district has adequate funds to meet its needs, is really a question of whether the state's foundation budget is indeed adequate; as noted earlier, the foundation budget is a key determinant of the net school spending requirement. The foundation budget formula was first developed in the early 1990's and was codified in the 1993 Education Reform Law. Since that time, there have been several minor changes to the formula as well as annual increases for inflation. The Governor's Readiness Project task force is considering whether to recommend a major new study of the foundation budget's adequacy.

The second question - can Randolph (and other towns) afford to spend more on K-12 education - has been extensively studied over the past several years. As a result of this study, the Legislature in FY07 adopted a new formula for calculating the local contribution component of the net school spending requirement. This new measure of municipal fiscal capacity, called the "aggregate wealth" formula, is based on both property values and personal income levels, and it is being phased in over a five-year period. According to this metric, the town of Randolph does not have the fiscal capacity to increase its local spending on education. In fact, the new formula is actually lowering Randolph's required spending from local revenues, while providing a higher level of funding from state aid.

The attachment to this memorandum contains some additional financial statistics related to the Randolph Public Schools, which may help to provide further perspective about the district's financial problems. The statistics are extracted from the data the Department is currently analyzing for the fiscal distress study. We expect to report on that study in January. Please note that the Department only recently received the data for FY07 and it has not yet been fully edited. Some points to note:

• Randolph's foundation enrollment has declined by more than 13% over the past six years, from 4,055 students to 3,512. Because of this decline, total spending per pupil has actually gone up slightly in the past three years. (The Department changed its method of calculating per pupil expenditures in FY05, so prior years' data would not be comparable.)
• Randolph's instructional spending per pupil has essentially been flat the last three years. Most of the increases in total spending per pupil have undoubtedly been concentrated in non-instructional areas such as employee health insurance.
• In both total spending and instructional spending per pupil, Randolph is below the state average (although, as noted earlier, still above the foundation budget floor).
• Randolph's Chapter 70 aid lost ground to inflation from FY02 through FY06, but the district received sizeable increases in FY07 and FY08, in part because of the formula change described earlier.
• It appears the district has been able to provide reasonable teacher salary increases in recent years while at the same time maintaining a student/teacher ratio fairly close to the state average. (Again, the downturn in both of these measures in FY07 needs to be verified.) The data on student/teacher ratio is somewhat surprising in light of the superintendent's presentation in October about the increase in elementary class sizes and the elimination of many high school class sections. This bears further review.

We will continue to review the spending and staffing patterns in Randolph and other fiscally distressed districts to better understand how budget problems are affecting educational services.

If Board members have any questions about the information contained in this memorandum, please feel free to contact me, associate commissioner Jeff Wulfson (781-338-6500), or school finance programs manager Roger Hatch (781-338-6527).

	Attachment 1: Randolph District Leadership Review - Appointment of Review Team Memorandum
	Attachment 2: Recent Trends in Key Financial Indicators