Update on Substitute HB49

Update on Substitute HB49

House Finance Committee

Prepared by Joan Platz

May 1, 2017

 

The Ohio House Finance Committee, chaired by Representative Ryan Smith, accepted on April 25, 2017 a substitute version of Governor Kasich’s FY18-19 Operating Budget, Sub. House Bill 49 (R. Smith). 

 

House Speaker Cliff Rosenberger, Speaker Pro Tem Kirk Shuring, and House Finance Committee Chair Representative Ryan Smith described at a press conference on April 25, 2017, their efforts to tighten and refocus HB49 to support House Republican priorities and address an estimated $800 million shortfall in state revenue for the current fiscal year, which ends on June 30, 2017.

 

Following acceptance of Sub. HB49 last week, the House Finance Committee held two days of hearings.  The committee is scheduled to meet this week and will consider an omnibus amendment, and report the bill out of committee.  The substitute bill will then be sent to the full House for a vote, and if approved, will move to the Senate, which is already holding informal hearings on the bill as introduced.  HB49 must be signed into law by July 1, 2017.

 

Total Appropriations for All Funds Groups and the General Revenue Fund

Comparison of Executive Budget and Sub.HB49 for FY18 and FY19

in the House Finance Committee

               

Type of Fund

Estimated Budget FY17

Executive Budget FY18

Sub. HB49

FY18

$ and % Change

Executive Budget FY19

Sub.HB49

FY19

$ and % Change

All Fund Groups

$64.13 B

$67.16 B

$66.16 B

($996 M)

-1.48 %

$68.59 B

$67.058 B

($1.532 B) 

- 2.23%

General Revenue Fund

$35.06 B

$33.09 B

$32.703 B

($394 M)

-1.19%

$33,82 B

$33.29 B

($528 M)

-1.56%

 

The substitute bill reduces spending compared to the executive budget by about $1 billion in FY18 and $1.5 billion in FY19 by reducing some line items by 1.5 percent, and imposing targeted reductions in others.

 

Changes Included in Sub. HB49 As Accepted by the House Finance Committee

 

Tax Changes

 

The substitute bill would eliminate proposed tax cuts of $3.1 billion and other tax shifts included in the executive budget, including increases in the sales tax for cigarettes and other tobacco products.

 

The substitute bill also eliminates the bottom two individual income tax brackets, reducing the number of brackets from nine to seven. The new lowest bracket would begin at $10,000.

 

Ohio Arts Council (OAC) Budget

 

Sub. HB49 includes a 1.5 percent reduction in the OAC General Revenue Fund line item in both fiscal years in response to lower than expected revenue collections this biennium, and subsequent adjustments in anticipated revenue for FY18 -19.  The bill includes $14.576 million for the OAC in both fiscal years, which is a decrease of $221,972 compared to the executive budget and the current budget for FY17.

 

The OAC’s All Fund Groups budget is $16.37 million in both fiscal years, which is $221,972 less than the executive budget in both fiscal years, but $53,000 more than the OAC’s FY17 All Fund Groups budget.

 

OAC Appropriations for All Funds Groups and the General Revenue Fund

Comparison of Executive Budget and Sub.HB49 for FY18 and FY19

 

Type of Fund

Estimated Budget FY17

Executive Budget FY18

Sub. HB49

FY18

$ and % Change

Executive Budget FY19

Sub.HB49

FY19

$ and % Change

All Fund Groups

$16.323 M

$16.598 M

$16.376 M

($221,972)

-1.34 %

$16.598 M

$16.376 M

($221,972) 

- 1.34%

General Revenue Fund

$14.798 M

$14.798 M

$14.576 M

($221,972)

-1.50%

$14,798 M

$14.576 M

($221,972)

-1.50%

 

 

Ohio Department of Education (ODE)

 

Compared to the executive budget, ODE’s All Fund Groups budget is $11.2 billion in FY18, which is $15 million more than the executive budget, and $11.39 billion in FY19, which is $22.4 million more than the executive budget.  Sub. HB49 would increase the ODE’s All Fund Groups budget by $145.8 million in FY18 compared to FY17, and by $167.4 million in FY19 compared to FY18.

 

The ODE’s General Revenue Fund budget in Sub. HB49 decreases by $10.1 million (-0.13 percent) in FY18 to $8.043 billion, and by $17.5 million (-0.21 percent) to $8.17 billion in FY19.  This is still an increase over FY17 levels of $7.9 billion.

 

ODE Appropriations for All Funds Groups and the General Revenue Fund

Comparison of Executive Budget and Sub.HB49 for FY18 and FY19

 

Type of Fund

Estimated Budget FY17

Executive Budget FY18

Sub. HB49

FY18

$ and % Change

Executive Budget FY19

Sub.HB49

FY19

$ and % Change

All Fund Groups

$11.08 B

$11.21 B

$11.225 B

$15.272 M

0.14 %

$11.37 B

$11.393 B

$22.438 M

0.20%

General Revenue Fund

$7.9 B

$8.053 B

$8.043 B

($10.18 M)

-0.13%

$8.19 B

$8.17 B

($17.5 M)

-0.21%

 

Compared to the executive budget, almost every line item in the ODE’s General Revenue Fund budget is reduced in Sub. HB49 with these exceptions:

 

  • GRF 200464 Education Technology Resources: $1.056 million increase in both fiscal years compared to executive budget.
  • GRF 200502 Pupil Transportation:  $549.2 million in FY18 and $529.6 in FY19.  No change compared to the executive budget.
  • GRF 200511 Auxiliary Services for nonpublic schools: Compared to the executive budget, Sub. HB49 increases funding for Auxiliary Services by $685,066 in both fiscal years.
  • GRF 200532 Nonpublic Administrative Cost Reimbursement:  Compared to the executive budget, Sub. HB49 increases funding for administrative costs by $314,934 in both fiscal years.
  • GRF 200540 Special Education Enhancements:  No change compared to the executive budget in both fiscal years.
  • GFR 200545 Career-Technical Enhancements:  Compared to the executive budget, this line item increases by $290,700 in FY18, and increases by $162,000 in FY19 compared to FY18.
  • GRF 200597 Education Program Support:  Compared to the executive budget, this line item increases by $1 million to $3 million in both fiscal years.

 

Lottery Fund Group:  Sub. HB49 increases funding for the Lottery Fund Group by $45 million in FY18 and $60 million in FY19.  This fund group includes line items for Foundation Funding, Community Connections, the Straight A Fund, and Community School Facilities funded through the lottery.  The bill also expands gambling to increase lottery revenues, adding video poker to Ohio’s seven racinos and the Lucky One game.

 

Compared to the executive budget, the line item for the Straight A Fund is reduced by $10 million to $5 million in both fiscal years; and the line item for the Community Connections program is reduced by $2 million to $8 million in both fiscal years. The substitute bill also allows larger Straight A grants to be awarded; allows colleges and universities to be part of consortia applying for a grant; and adds as another goal for receiving a grant, career and job pathways for underserved students.

 

Compared to the executive budget, the Lottery Profit Fund Group line item for Foundation Funding increases by $57 million in FY18 and $72.6 million in FY19, while the line item for Community School Facilities remains unchanged at $18 million in both fiscal years.

 

Funding Formula Changes

 

Sub. HB49 includes the following changes in the school funding formula:

 

  • Decreases the number of school districts losing state aid from 390 in the governor’s budget to 350 school districts in the substitute bill by proposing formula changes to support low wealth school districts.
  • Changes the formula for school districts with 10 percent or more of their property wealth attributed to decommissioned power plants to provide some relief.
  • Increases the state aid funding cap from 5 percent to 5.5 percent, increasing the number of school districts that can receive more state aid.
  • Raises the per pupil amount from $6000 to $6,020.
  • Increases capacity aid for poorer school districts by changing the multiplier from 3.5 to 4.0.
  • Exempts the transportation supplement for geographically dispersed districts from the funding guarantee.

 

Charter Schools

 

  • Requires student progress to count 60 percent of the academic evaluation score for charter school sponsors.
  • Allows the state to match SSID numbers of students attending charter schools to personally identifiable data to determine charter school enrollment and funding.
  • Changes the requirements for notifying community school sponsors about their ratings and how they can appeal.
  • Changes the charter school Sponsor Performance Reviews (SPR), which could increase the number of sponsors rated effective. 

 

The charter school SPRs became controversial in July 2015, when former director of the Ohio Department of Education’s Office of Quality School Choice, David Hansen, admitted that he omitted poor-performing e-schools from charter school sponsor evaluations.

 

Hansen later resigned, but the controversy led then State Superintendent of Instruction Dick Ross to appoint a three-member independent panel to revamp the charter school sponsor evaluation. The new SPR was adopted in December 2015, but because of some issues with the rule making process, wasn’t implemented until October 2016. 

 

Currently charter school sponsors are rated in three categories:  student academic performance; compliance with rules and laws; and following best practices. If a charter school sponsor receives a zero in any of these categories, the sponsor cannot receive a rating higher than ineffective, and cannot sponsor any new charter schools.

 

The results of 65 charter school sponsors evaluations were released in October 2016.  No charter school sponsors received an exemplary rating; five received an effective rating; 39 were rated ineffective; and 21 were rated poor. 

 

As a result of the poor ratings, charter school advocates have questioned the fairness of the evaluation, and have called for changes. 

 

The substitute bill specifies that a community school’s overall rating is a cumulative score of the individual components unless a sponsor receives a “0” on the academic performance component, blocks sponsors from receiving an automatic ineffective rating for scoring a zero in compliance with rules and laws or following quality practices.

 

College Credit Plus

 

  • Requires the Chancellor of Higher Education and Superintendent of Public Instruction to submit an annual report on outcomes of the CCP program, supported by empirical evidence.
  • Requires the annual report to include a number of measures that are disaggregated by students who participated in CCP and, upon graduation, enroll in an Ohio college during the same academic year.
  • Requires each report to be submitted annually by December 31st from 2018 to 2023.
  • Restricts awarding College Credit Plus (CCP) credit unless the student receives a C grade or higher.  Currently 95 percent of CCP participants maintain a GPA of 2.0 or higher.
  • Allows Institutions of Higher Education (IHE) to pay for one assessment for the CCP program. All additional assessments are the responsibility of the student.
  • Modifies the CCP textbook requirements by requiring school districts to pay colleges 50 percent of the cost of required textbooks, rather than $10 per credit hour per participant, or pay an agreed upon amount.  Home schooled students would be required to pay 50 percent of the cost of the textbooks.
  • Maintains current law in relation to an alternative CCP payment structure, as long as it complies with the rest of the program.

 

Current Agricultural Use Value Added Formula

 

Also affecting school districts, Sub. HB49 adjusts the Current Agricultural Use Value formula, (CAUV) which provides a property tax break for farmers.  Property tax values have been increasing for farm property, and so the amendment would adjust values for agricultural property by adding two new factors to be considered in calculating CAUV.  Schools and local governments will lose property tax revenue due to the change in CAUV, but the changes will be phased-in over six years.  The Legislative Service Commission estimates that schools will lose $4 million in 2017 and up to $14 million by 2022.

 

Earmarks 

 

  • Earmarks $500,000 in each fiscal year to be used as matching funds for the Accelerate Great Schools public-private partnership.
  • Earmarks $250,000 in each fiscal year to support various activities of The Childhood League Center.
  • Earmarks $150,000 in each fiscal year to support a pilot program in Lima City Schools to demonstrate that cognitive artificial intelligence can create a comprehensive learning solution to improve student performance.
  • Earmarks $100,000 in each fiscal year to support the Supporting Partnerships to Assure Ready Kids (SPARK) program in Ohio.
  • Increases 200-545, Career Tech Education Enhancements by $162,000 per year for Vo-Ag programs in Cincinnati and Cleveland. 

 

Educational Service Centers

 

  • Increases funding for educational service centers from $31 million in the executive budget to $39 million, and increases the per student amount from $20 in the executive budget to $25 for high performing ESCs, and from $18 in the executive budget to $23 per student for all other ESCs.  The level of funding in the substitute bill is still lower than current funding of $41.6 million.
  • Permits an ESC that has a rating of effective or higher to sponsor an e-school, without previous experience, and a community school regardless of the community school’s location.
  • Establishes a moratorium on additional school districts joining ESCs duringFY18-19.
  • Allows a portion of funding for Accountability and Report Cards to be provided to educational service centers to support training and professional development, rather than directing the funding to a “credible nonprofit organization with expertise in value-added progress dimensions.”

 

Higher Education Budget

 

  • Eliminates increases for higher education and the Ohio College Opportunity Grant program included in the executive budget.
  • Directs trustees rather than IHE to review and update tenure policies.
  • Reduces the number of sick days for university employees from 15 to 10.
  • Abolishes the State Board of Career Colleges and Schools and transfers the duties to the Department of Higher Education.
  • Removes the tuition freeze for IHEs that guarantee no increase in tuition for students for up to four years.
  • Eliminates the textbook provision included in the executive budget, but requires institutions of higher education to study and report textbook costs to the Chancellor, and determine ways to reduce textbook costs.

 

Joint Education Oversight Committee (JEOC)

 

  • Requires the JEOC to annually review the Ohio Department of Education’s manual for conducting charter school enrollment reviews, and hold at least one public hearing about the manual.
  • Changes the way members of the JEOC are appointed.  The substitute bill requires appointments to be made by the House Speaker and Senate President rather than the chair of the committee.
  • Requires JEOC to develop legislative recommendations for creating a Joint Transportation Pilot Program where at least two districts share transportation services.

 

Nonpublic Schools

 

  • Eliminates a provision that prohibited auxiliary service payments to nonpublic schools from exceeding $862 per student for each school year.
  • Prohibits nonpublic school administrative cost reimbursements to exceed $405 per student for each year, rather than $399 per student per year.
  • Eliminates the specific application window for the Jon Peterson Special Needs Scholarship program in lieu of a rolling application process.
  • Raises the appropriation for 200-511, Auxiliary Services, and 200-532, Non-public Cost Administration, by a combined total of $1 million each year.  Increases the permissible uses of auxiliary service funds.
  • Exempts a student who is attending a chartered nonpublic school that is accredited through the Independent Schools Association of the Central States (ISACS) and attending the school with a voucher from the requirement that he/she complete one of three high school graduation pathways and take assessments under the College and Work Ready Assessment System.
  • Maintains the graduation and testing requirements for scholarship students and nonscholarship students who are enrolled in a non-ISACS chartered nonpublic school, which requires the completion of one graduation pathway and to take the assessments under the College and Work Ready Assessment System.

 

Teachers

 

  • Eliminates the governor’s proposals to require the appointment of representatives from the business community to boards of education, and the requirement that teachers complete business internships for recertification. 
  • Requires the Superintendent of Public Instruction in consultation the Governor’s Executive Workforce Board to establish standards for the operation of business advisory councils.
  • Abolishes the teacher in residence program, but maintains the resident educator license and the alternative resident educator license.  Individuals currently participating in the program are not required to complete the program or its components.  The ODE is expected to save $5 million a year due to the elimination of the Resident Educator Summative Assessment (RESA).
  • Allows a public school or school district (including a community school and STEM school) to enter into an agreement to provide an early retirement incentive, severance pay, or both, to a teacher to retire, but only if the school or district determines that the agreement is financially sound, and in the case of a school district, the district complies with continuing law's tax levy provisions concerning any wage or salary schedule increase made during the school year.

 

Miscellaneous

 

  • Retains the provisions related to STEAM schools, which are types of STEM schools that integrate the arts with other courses.
  • Ends the Constitutional Modernization Commission on July 1, 2017.
  • Requires the ODE to study appropriate funding levels and methods for gifted education, and report recommendations by May 1, 2018.
  • Allows public and chartered non-public schools the option of using paper for state tests.
  • Prioritizes any unused ESSA Title IV funds to cover the cost of AP exams for low-income students.
  • Makes changes to the Bright New Leaders for Ohio Schools program including adding the Governor, Senate President, and Speaker of the House as ex officio members of the board, and allowing each of them a board appointment and a selection into the program. Allows an alternate principal licensure for an individual who has completed an MBA and the Bright New Leaders program. Removes language requiring OSU oversight and state support.
  • Adds nonvoting legislators to the Ohio Facilities Construction Commission.
  • Makes changes in provisions regarding early childhood education, and reduces the allocation from $70.3 million in FY18 and 19 to $67.8 million in each fiscal year.

 

Reactions to Sub. HB49

 

School Funding:  During the House Finance Committee hearings last week, school district officials from Belpre City School District, Princetown City Schools, Lordstown City Schools, and Twinsburg City Schools, requested that the House Finance Committee maintain Tangible Personal Property tax (TTP) reimbursements at current levels, or find another way to replace TPP revenue.  According to their testimony, the school districts will lose millions of dollars under the TPP phase-out of reimbursements, and have few alternatives to raise additional revenue.

 

Representatives from the three major education organizations, the Ohio School Boards Association, the Buckeye Association of School Administrators, and the Ohio Association of School Business Officials, thanked the committee for providing more aid to schools under this tight budget and eliminating two mandates in the executive budget:  the requirement that teachers complete business internships to renew their licenses and the requirement that boards of education include nonvoting representatives from the business community.

 

But the organizations would like to see changes in the school funding formula to eliminate the disparities in educational opportunities for students in the state.  The organizations recommended changes in the State Share Index (SSI) formula, which now uses valuation per pupil to determine district wealth.  As a result, some large rural poor districts are perceived as wealthy, because of the recent increases in the value of agricultural land.

 

The organizations also oppose reducing state funding for districts on the transitional aid guarantee, but also losing enrollment; phasing-out reimbursements for the tangible personal property tax; reductions in the transportation budget; and decreases in funding for Educational Service Centers.  They recommended that the phase-out of TPP reimbursements should be offset by increases in the state funding formula, or through a hold harmless provision.

 

CAUV Changes:  School organizations and the County Auditors’ Association also testified against the proposed changes in the Current Agricultural Use Value (CAUV) formula.  The proposed formula would reduce property values for agricultural property, therefore reducing revenue for local governments and schools.  The school organizations recommend an independent study to modernize the program.

 

On the other hand, the Ohio Farmers Union testified in support of the changes for the CAUV, which would lower property taxes on some agricultural property.

 

Charter School Sponsor Evaluations:  The Akron Beacon Journal reported last week that there is some concern about an amendment added to the substitute bill by Representative Andy Brenner, chair of the House Education and Career Readiness Committee, regarding charter school sponsor evaluations.  The amendment would make it easier for more sponsors to be rated effective and qualify to sponsor more charter schools. 

 

According to the article, Representative Kristina Roegner (R-Hudson), who has sponsored bills to increase charter school accountability, opposes the amendment, and has asked her Republican colleagues to remove it from the substitute bill.

 

Changes in Graduation Requirements:  Although some expected that changes in Ohio’s graduation requirements would be included in the substitute bill, that did not happen – as yet.  There still is a chance that the omnibus amendment will include some changes, or the Senate will add the changes.  Senator Peggy Lehner, chair of the Senate Education Committee, has said that she is drafting a bill to temporarily change the graduation requirements for the class of 2018.

 

The State Board of Education requested in April that the legislature allow the State Board to develop alternative graduation requirements, after school officials reported that a significant number of juniors in high school were not on track to graduate in 2017-18 school year under the new graduation requirements.  The current requirements offer students three pathways to graduate.  In addition to completing required coursework, students must earn a total of 18 points and a minimum number of points on end of course exams in certain areas; or earn a remediation free score on the SAT or ACT exam; or demonstrate industry and workforce readiness.

 

Superintendent of Public Instruction Paolo DeMaria appointed a special committee to develop graduation options not based on tests.  The committee recommended that students be allowed to graduate if they attend school regularly, or earn a 2.5 GPA, or demonstrate achievement through a capstone project, job, or community service.

 

Sources