The meeting of the Joint Subcommittee on Human Resources/K-12 of the Senate Committee on Finance and the Assembly Committee on Ways and Means was called to order by Chairman Raymond D. Rawson, at 8:13 a.m., on Tuesday, March 2, 1999, in Room 3137 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

Senator Raymond D. Rawson, Chairman

Senator William J. Raggio

Senator Bob Coffin

Senator Bernice Mathews (Excused)

Ms. Jan Evans, Chairman

Mr. Joseph E. Dini, Jr.

Mr. David E. Goldwater

Mr. Lynn C. Hettrick

Mr. David R. Parks

Millard Clark, Committee Secretary

OTHERS PRESENT:

Don Hataway, Deputy Director, Budget Division, Department of Administration, introduced himself and discussed (Exhibit C), a booklet titled "The Nevada Plan for School Finance," (Exhibit D), a hand out titled "Estate Tax Collections and the Distributive School Account," and (Exhibit E), a handout titled "Budget Division Worksheets, Distributive School account, Governor’s Recommendations." Mr. Hataway said there is good news and bad news. There are two supplemental appropriation requests in the current budget request. One is to cover the Distributive School Account shortfall in Estate Tax collections, and the other is to cover the Class Size Reduction budget shortfall in Estate Tax collections. At this stage it would appear that sales tax revenue is coming in higher than the Economic Forum estimated for Fiscal Year (FY) 1999, Mr. Hataway said. He declined to predict what the final number will be but said it appears the state will be able to substantially reduce the amount of supplemental appropriation required for the Distributive School Account (DSA). He said any savings in the DSA may, at least in part, have to be transferred to the supplemental appropriation for the Class Size Reduction budget.

Mr. Hataway said there are two more months (February and March 1999) of data to be compiled before the next meeting of the Economic Forum. He remarked, "Hopefully, there will be some turnaround of the revenues from the Estate Tax." This year, the Estate Tax revenue has been consistently poor each month, he noted.

Senator Rawson said that at some point the Legislature will have to make a decision on what the Estate Tax will actually support. The budget cannot just be left unfunded; the Legislature will have to prioritize the budget or find another source of funding, he stated. Mr. Hataway said that based on the historical trends, the collection of the Estate Tax should be higher this year than actual collections have been so far, although there are still 2 more months of data to collect.

Ms. Evans asked how soon the Legislature needs to process the two supplemental appropriation requests and whether there is any urgency on processing these requests. Douglas C. Thunder, Deputy Superintendent of Administrative and Fiscal Services, State Department of Education, said the class-size reduction (CSR) supplemental appropriation needs to be processed soon to provide some money for continuing to make the monthly payments. Mr. Hataway said it is known the minimum needed is the amount that was recommended for the Estate Tax and class-size reduction. The Legislature may want to consider processing the supplemental appropriation requests quickly and later, during the session, make adjustments if necessary, he said.

Ms. Evans said there is some latitude on the CSR appropriation request, and the Legislature may want to consider the request for supplemental appropriations or may choose to funnel the funds through the DSA for a short time. Mr. Hataway said that would be acceptable for the next biennium, but right now the Budget Division is dealing with two legislatively approved budgets which must be made whole to complete FY 1999. The supplemental requests will address those two shortfalls. He said the sales tax revenue appears to be coming in higher than anticipated by the Economic Forum last December, although it may come down quite a bit. Unfortunately, he stated, the saving resulting from improved sales tax collections may have to be used to balance the needs in the Class Size Reduction budget.

Senator Rawson asked whether the quarterly payment for the DSA would be made May 1, 1999, and whether the CSR payment is processed monthly or quarterly. Mr. Hataway said the CSR payment is normally prepared quarterly, but because of the cash flow problems, it is being processed monthly. Senator Rawson asked whether the FY 1999 Estate Tax collections will be used to pay the current CSR payment. Mr. Hataway replied the Class Size Reduction budget funding source is a combination of the General Fund appropriations and the Estate Tax. The earlier payments have allocated all of the appropriated money, so the remaining amount would be Estate Tax revenue. Senator Rawson said the Estate Tax collections for FY 1999, through January 1999, are about $4.5 million and asked whether it is proper to use the Estate Tax collected during FY 1999 for the Class Size Reduction budget shortfall during FY 1999. He asked whether the $4.5 million will be enough to last until the legislative session is over should the shortfall be budgeted for the next year. Mr. Hataway replied the money will be spent during FY 1999. Senator Rawson asked whether the $4.5 million will be enough to last until the Legislature adjourns. Mr. Hataway replied he did not think so and said additional General Fund money will be needed.

Mr. Hataway said Exhibit C had been discussed in previous meetings and he did not intend to discuss it in more detail unless there were questions on the basic parameters of how the Budget Division constructed the DSA for FY 2000 and FY 2001. He said he thought the primary interest would be the consolidation questions recommended in the budget. He stated that except for the vacancy savings built into the budget for new, non-teaching personnel, included for each year of the biennium, the methodology used in the construction of the basic projections is identical to that used during the past two or three biennia. Senator Rawson said the main policy decisions the Legislature will have to face are on the consolidation into the DSA of the special education and class-size reduction programs. He said the consolidation issue needs to be better understood and the consequences of the various alternatives should be considered.

Mr. Hataway said page 4 of Exhibit F, a memo from Jeanne Botts dated January 22,1999, mirrors page K-12 ED-82 in The Executive Budget, displaying the calculation used to arrive at the "Net change in biennium appropriation requirement" for the Distributive School Account, budget account 101-2610. The exhibit pages contain the projections for the DSA support requirements and revenues for each of the alternatives being considered. Page 4 of Exhibit F shows the Governor’s recommended budget. Exhibit F, page 5 shows a baseline projection with no added consolidated steps; the basic support would decrease by $14 and $24 per pupil for each year of the biennium. Mr. Hataway noted the primary reason for the decrease is the increase in revenues from two revenue sources within the DSA, the property tax and the motor vehicle privilege tax. This increase allows the basic support funding to be reduced. Exhibit F, page 6 shows the basic support consolidating only the elementary school counselors. Exhibit F, page 7 shows the basic support consolidating class-size reduction program, only. Exhibit F, page 8 shows the basic support consolidating the adult high school diploma program. Exhibit F, page 9 shows the basic support consolidating special education. Mr. Hataway said each one of these presents a per-pupil value for the consideration of the Legislature. If it is decided to consolidate a combination of programs, the value of each one can be seen, he stated.

Mr. Hataway explained Exhibit G, a two-page handout containing DSA summary information. The first page is a copy of budget account 101-2610, page K12 ED-82 from The Executive Budget, and the second page shows the Governor’s amended recommendations for the DSA. Mr. Hataway said this exhibit addresses the Estate Tax issue Senator Rawson wanted to discuss. He stated the Budget Division now has tentative recommendations on how the $8 million each year should be used during the next biennium. The problem is that the Estate Tax is not received on a smooth, uniform basis, Mr. Hataway said, and to accomplish an $8 million program, cash flow is essential. He said there are two alternative solutions to the problem. One is to authorize in the appropriation bill the ability for the Estate Tax or the class-size reduction program to obtain an advance from the General Fund. This has been done with a number of programs including the DSA, and it is anticipated an advance will be needed in May 1999 because of the timing of the collections. Mr. Hataway said the Budget Division does not like the first alternative, because there are already a number of programs authorized to obtain advances from the General Fund and the General Fund is a finite resource. The second alternative is to consolidate the CSR Estate Tax revenues totally within the DSA. This is the alternative recommended by the Budget Division. It would be very similar to what is done in regard to the adult prison high school program.

Mr. Hataway said that in summary, Exhibit G shows the existing alternative, which is recommended in the budget request and includes a transfer of $5,891,737 from the School Improvement account. An alternative would be to transfer $13,891,737 from the School Improvement account. The tentatively recommended programs the Budget Division is proposing are listed under the Special Education column, the second major column from the top of page 2. The numbers shown are tentative but the concept is supported for each of these programs. Mr. Hataway said the only caveat given for the last two programs, the criterion-referenced tests development and the high school test administration, is that both of these programs will require a request for proposal (RFP) to solicit outside vendor interest. Any savings from either of these two programs would be transferred to the remediation programs.

Mr. Hataway said the Budget Division recommends solving the cash flow issue with the Estate Tax by putting all of the funding into the DSA and authorizing the DSA to obtain advances and use General Fund appropriations in both years of the biennium. He said that while this is a major change in how the Estate Tax is used, that revenue would be a smaller part of the total revenues in the DSA and, therefore have a smaller impact on that account than if it continued to make up a substantial percentage of the revenue in a stand-alone program in another budget account.

Senator Rawson said the Governor has commented he would like more flexibility and more ability for the local areas to be able to spend the money in the most efficient way. But the Legislature is dealing with the issue of accountability, the Senator stated, and when the funds are rolled into the DSA, the Legislature needs the assurance the accountability is still there, the class-size money still accomplishes the class-size reduction it was intended to accomplish, and special education money still satisfies the formula that will keep the state out of court. Mr. Hataway said the Budget Division is looking at four programs for consolidation. Those four programs are the adult high school diploma program, the additional elementary school counselors, the special education program, and the class-size reduction program. Mr. Hataway said the total cost for the special education program is $60 million-plus a year; the class-size reduction cost is in the $80 million-a-year range; the elementary school counselors cost is $2.2 million a year; and the adult high school diploma program cost is approximately $7.2 million for FY 2000 and $7.6 million for FY 2001.

Mr. Hataway further stated that since making the initial presentation on this issue, he has received no questions on the elementary school counselors or the adult high school diploma program. He has been asked how the $8 million is recommended to be used for school improvements and the special education issue. Mr. Hataway said the Governor is still considering proposals to modify the statutes on class size. He said he did not have that information, but as soon as the Governor releases any changes proposed for legislative consideration, the changes will be incorporated into the final DSA appropriation and authorization bill.

Senator Rawson said the Legislature faces the situation in higher education now where different institutions have used money differently. The result is apparent differences in funding per student. The senator said an argument could be made, for example, for Elko County to be able to use its class-size reduction funds differently than the other counties because of the classroom space concerns in that county. Otherwise, Elko County might overbuild classrooms in light of the fluctuating mining impact. As soon as the Legislature begins approving different ratios, a federal court may decide the Legislature is unequal, Senator Rawson speculated. Even though, per student, the same amount of funding is allocated, the money may not be serving students in the same way.

Mr. Hataway indicated he wished to discuss the special education programs next. He said the Budget Division is not proposing any federal or state law be violated in any program. The special education program is well covered in terms of both federal and case law. Senator Rawson said that if the Legislature allows flexibility it means ultimately the various districts will develop different approaches to the special education programs. Eventually the Legislature may see disparities between the districts, he conjectured. Mr. Hataway said the only flexibility that exists currently is in the policy the 1997 Legislature adopted when it approved the additional funding for class-size reduction in the third grade, allowing a district to present the state with an alternate plan to instead adopt one of the programs that empirical evidence indicates is successful in improving the academic performance of students. He said not many districts have done this since it was approved. This is the only flexibility allowed; the ratios are built into the statutes which the districts must adhere to. Senator Rawson said that is one of the reasons the rest of the country sees Nevada’s funding plan as a model. He noted the Nevada Plan has not been subjected to the lawsuits other states have. Mr. Hataway said the Legislature must be comfortable with the changes being proposed. If the districts do not step forward and say they are comfortable with the proposals, the Budget Division will not fight for the changes, he stated.

Mr. Hataway said Exhibit E, page 2, columns W and Y, displays the sum total of all of the decision units included in the budget request. He said line 53, Total Expenditures, shows that the total projected expenditures recommended in The Executive Budget for all school districts for FY 2000 and FY 2001 are $1.7 billion and $1.8 billion respectively. Mr. Hataway noted the total state General Fund resources for FY 2000 and FY 2001 are $1.5 billion and $1.6 billion respectively. He observed that for the first time, the K-12 budget has exceeded the state General Fund in magnitude. He pointed out that all of the total expenditures of all of the school districts for special education are included in the $1.7 billion and $1.8 billion contained in the budget request.

Mr. Hataway stated the way the special education unit funding works is that a portion of these amounts is pulled out and funded as a special line item. The unit funding is less than 50 percent of the total expenditures. Noting the special education program started in 1973, Mr. Hataway said 414 units were funded in 1974 and 434 units in 1975 with an approximately $6 million General Fund allocation. The General Fund allocation has grown over the years but it has not grown nearly as fast as the actual cost, he pointed out. Mr. Hataway said less than 50 percent of special education costs was pulled out for the special unit category; the rest of the costs are still in the basic support fund. He said he has heard the consolidation plan was just "a devious plot" for the school districts to use the funds in a different manner. Mr. Hataway said the school districts already control over 50 percent of the total revenue spent on special education. The special education unit funds the rest. He said this does not make sense to him, but if it makes sense to the Legislature and the Legislature is comfortable with it, and the school districts want to continue to go through the application process for special unit funding, it is fine with him.

Mr. Hataway remarked that the school districts still have to adhere to the federal law in regard to how they serve the children in need of these special services. He said there is always the possibility the state will be sued over some aspect of the funding, but the Nevada Plan is very strong; this is one of the reasons why Nevada has been somewhat immune from lawsuits. Mr. Hataway reiterated the school districts control over 50 percent of the funds they use for special education currently.

Senator Rawson asked what problems would be created if the special education units were phased out. Mr. Hataway said he believes the state would continue to require the school districts to report their special education expenditures, using a separate document to identify what had actually occurred. The school districts have to adhere to the individual education programs reports they prepare for each child. Senator Rawson noted that even if the special education units were phased out there would still be data to identify what percentage of special education was funded. Mr. Hataway replied the number would be whatever amount the school districts had spent for special education services of the $1.7 billion and $1.8 billion for the 2 years of the biennium. He said he did not anticipate that report changing.

Mr. Hataway stated a special education unit originally covered the cost of a special education teacher’s salary and benefits but now the unit amount covers less than 50 percent of such costs. "It just evolved over time," said Mr. Hataway. Senator Rawson said it was "a crazy system." He said the Legislature tried several sessions earlier to put this into a class-size context but just could not come to terms with what the class size should be without putting a lot more money into it, so nothing changed. Mr. Hataway said he thought it should be up to the districts to speak up if they are not comfortable with the consolidation.

Ms. Evans asked whether language for the definition of flexibility will be submitted to the Legislature. Mr. Hataway replied the Governor is looking at the statutes, primarily on the class size issue; however, he did not expect to see any language about special education. He said there is no flexibility on special education; the federal law is clear that school districts are obligated to do certain things and provide certain services for the students who fall into those categories. These requirements must be met to receive the federal special education funding the districts also receive, which is over and above the amount from the state. Mr. Hataway said he doubted there would be any proposals to provide more flexibility for the school districts.

Ms. Evans asked why, if the stated purpose of the consolidation is "flexibility," the Legislature cannot simply define or grant what is meant in terms of flexibility, and leave everything as it is. Mr. Hataway replied flexibility is based upon the individual education programs, which must be prepared for each child. If certain services are required to be provided, several districts have said some of the services could be performed by an aide. Ms. Evans said she was not talking about just the special education program, noting there were four other programs that had been proposed for consolidation. She asked, "If flexibility is the stated purpose, can’t we simply agree on language that covers those four programs and leave everything as it is so the tracking and accountability does not change?"

Mr. Hataway replied it does not make sense to the Budget Division to have a special category for approximately 50 elementary school counselors when that represents a small number of the total elementary school counselors the school districts have hired. He questioned continuing a $2 million special allocation for these counselors versus putting the money into the DSA and letting the school district decide whether to double or halve the number of school counselors. He said that what the Budget Division is trying to provide, through the Nevada Education Reform Act, is that the school districts have standards with which they must comply and still remain within the $1.7 billion and $1.8 billion of funding available to them during the next biennium. The bottom line is improving the performance of the children in the programs, he asserted. Mr. Hataway stated that how the school districts improve the performance of the children should be up to the school districts within reasonable constraints provided by the state government. He said he hopes what is reviewed throughout the programs is whether the school districts are improving the academic performance of the children. Ms. Evans said she agrees with Mr. Hataway about improving the performance of the children. She said she is struggling to understand why the Legislature simply cannot grant "the flexibility that is desired."

Senator Rawson commented, "The flexibility being dealt with is a cash flow problem." Mr. Hataway answered, "That was on the class-size reduction program." Senator Rawson said the CSR is a significant piece of the consolidation. Mr. Hataway replied the Budget Division has proposed some suggested language to the Governor. He said the Governor is in the process of considering these issues and if he chooses to recommend to the Legislature some changes in the class-size reduction law, the Budget Division will bring the proposed changes to the Legislature in a timely fashion. He noted the Legislature started providing the flexibility two years ago by authorizing school districts to look at alternatives for spending the class-size funding that was already there. Senator Rawson said one of the reasons the special funds develop is that a particular session of the Legislature wants to bind future sessions to see that the money goes specifically for a certain project. He said the reality is, the Legislature knows it cannot bind future sessions of the Legislature because each session has a will of its own. The Legislature has the authority to make changes if it decides it wants to do so, he stated.

Senator Coffin asked whether the committee could depart from the usual method of hearing testimony wherein a person goes through his or her entire testimony and then answers questions asked by the committee. He said he would like to have comments from interested parties because these are major changes and each one affects the school districts in terms of the philosophical commitments that have been made to all of these programs. "To merge them affects somebody," he remarked. He wanted the committee to be able to hear comments from people on the consolidation of accounts, intermingled with the testimony from the Budget Division, so the committee could better understand the comments. Senator Rawson replied the committee would try to do that in a logical fashion. Senator Coffin voiced concern there would not be enough time to complete the hearing. Senator Rawson agreed and said he would also like to clarify some of the issues as the meeting progressed, "otherwise the hearing becomes just another overview."

Senator Raggio said he did not see the need to define flexibility. He said the consolidation issue has been made clear but some people are failing to hear that, regardless of whether the accounts are consolidated or not, the school districts will still be required to meet certain requirements. The federal and state requirements on the special education programs and the class-size requirements in the law must still be met. Senator Raggio said he is hearing that somehow the school districts will evade the class-size reduction requirements. The class-size reduction requirements are in the law and cannot be evaded, he stated. He said that when the Legislature states it will allow some flexibility, that is what it means; so long as the other requirements are being met, the school districts would have the flexibility to use the funding. Senator Raggio said he did not see the need for a definition of flexibility and asked, "How would you define it?" As long as the requirements in the law are met there should be no problem, he maintained.

Mr. Goldwater said he thought it essential to define flexibility. Often flexibility can mean reductions, he asserted, and if the law is not going to be changed to require the school districts to do specific things with the Estate Tax money, the only thing that can be said about flexibility is that it is a reduction. It will be a cut. Mr. Goldwater further contended that when the desire is to consolidate the programs into the DSA, flexibility simply means the funds are being put into the DSA to inflate the per-pupil guarantee that "does not get applied by pupil." If the class size is in the DSA, it is for grades at risk (kindergarten through grade 3). But the per-pupil guarantee is for grades K-12, so the number is being artificially inflated. This violates what the founders of the Nevada Plan had in mind, Mr. Goldwater maintained. He said it is essential flexibility be defined. "Is flexibility a reduction or an enhancement?" he asked. "If it is an enhancement the source of additional money must be identified."

Mr. Goldwater asked Mr. Hataway to comment on whether the intent is to change the law on what the requirements of class size are. He also asked Mr. Hataway to comment on putting the money into the DSA and inflating the per-pupil number "for money that will never go to 4^th through 12^th (grades). Even though it was said the money would go there, it really won’t go there," he asserted. Mr. Hataway replied the Nevada Plan would, for the first time, meet the total requirements of the intent of the Nevada Plan, which is to show the true basic support per pupil. There are programs within the projected amount of funds the school districts will spend which will only be spent on high school students, and other programs that are only used for elementary students. Class-size reduction is only for the 1^st through 3^rd grades. Local school boards and superintendents have to wrestle with these problems every day, Mr. Hataway continued, just as the Legislature is wrestling with how to adopt a final budget for the state. He said that yes, there will be an element of the DSA apportionment to the local school districts that will only be spent on class-size reduction, but there are also elements that will only be spent on other programs. He maintained this budget reflects, for the first time, the true basic support the Nevada government has provided to the local school districts. Mr. Hataway said the proposal to modify the DSA by bringing the entire Estate Tax into it would solve the cash flow problems that exist.

Senator Rawson said existing law requires that class-size be limited to 15 students to 1 teacher for K-3, but the CSR has not been funded at that level. He said the class size reduction has only been funded at 16 to 1 for the 1^st and 2^nd grades and something different for the 3^rd grade. He said it may be that if the Legislature is going to allow the flexibility being discussed, the term "flexibility" should be defined more realistically. It could be defined as a 15 to 1 ratio, or it could be further defined that there is more flexibility or the ratio is really 16 to 1 or some other ratio. Senator Rawson said it may not be a good idea for the Legislature to roll all of the programs together and still keep the 15 to 1 ratio in the law even though it would not expect the school districts to meet that ratio. Mr. Hataway agreed with Senator Rawson but said he did not at this time have suggested specifics from the Governor to share with the Legislature.

Budget Account 101-2706

Mr. Hataway said there are only two programs left in this budget at present. One is the apprenticeship program, which is funded on an ongoing basis, and the other is Goals 2000, which is supported 100 percent by federal funds. He said that in an effort to consolidate budget accounts, the Budget Division proposes transferring the apprenticeship program to the Other State Education Programs, budget account 101-2699. Budget account 101-2699 includes many smaller special programs, he noted. The Budget Division proposes transferring the Goals 2000 project to the Discretionary Grants budget account (101-2709), which is a conglomeration of small federal grants for special programs. These transfers would reduce the number of budget accounts used by the State Department of Education. Mr. Hataway said the Budget Division also recommends changing the name of the Class Size Reduction budget account (639-2710) to the Fund for School Improvement.

Senator Rawson asked whether there is money in the budget to continue or complete the Statewide Management of Automated Record Transfers (SMART) system. Mr. Hataway replied there is not. Senator Rawson said he would like an update on the status of the SMART system to see whether that project was completed or whether the money previously spent was just wasted money.

Jack Mayes, Executive Director, Nevada Disability Advocacy and Law Center, wished to respond to some of the concerns raised during the earlier discussion. He said the legal concept questioned by Senator Rawson "which could be enforced through legal actions" is called maintenance of effort. Mr. Mayes said the school districts will still be required to meet the mandates of federal laws such as the Individuals with Disabilities Education Act (IDEA). However, the concern is the accountability to the state because the state signs the assurances that the federal money received by the state will be used in accordance with its purpose. He said these are the real issues. Mr. Mayes stated he understands the need for flexibility, but his real concern is the accountability portion.

Senator Rawson said the legislators have expressed an interest in knowing how the school districts feel about the proposed changes. This hearing is an opportunity for everyone to express their opinion, he remarked.

Ruth Aberasturi, Student Support Services, Carson City School District, said she has concerns about the prospect of rolling the special education funding into the DSA. She voiced concern about accountability. Ms. Aberasturi said the unit money does not cover the cost of special education. Neither the state nor the federal government has kept up with the cost of special education and that cost is increasing, she said. Ms. Aberasturi said the current system provides the accountability and the school district must comply with the Nevada Administrative Code (NAC). She said if all of the funding were rolled into the DSA, differences would begin to develop among the various counties. Senator Rawson said the changes proposed for the funding would have no impact on the Nevada Revised Statutes (NRS) or the NAC. He said there would still be a requirement to track how much was spent on special education programs, and the ability to do so. Ms. Aberasturi replied it would be more difficult and would lead to differences among programs throughout the state.

Rick Kester, Director of Business Services, Douglas County School District, said Douglas County has no problem with rolling the various programs into the DSA. He said special education is now in the DSA and noted, "What are you going to do with the background laws and what mechanism will be used to distribute the funding within the DSA to individual school districts become the issues." Mr. Kester said whether the programs are funded in the DSA or funded separately outside the DSA is not the problem. He said some flexibility, which seems to be taking on a lot of different definitions, is supported by Douglas County for the use of class-size reduction money. Class-size reduction is defined by law, but whether or not it is funded in the DSA is not, Mr. Kester said.

Mr. Hettrick recalled that when the consolidation of funds was discussed during the overview phase of the budget hearings, Mr. Thunder had made a presentation showing that if the various components were "modulized" there was no change to the funding ratios or formulas. If everything were combined and the existing formulas were used, there would be a relatively minimal percentage impact on the funding formulas. Mr. Hettrick agreed with Mr. Kester’s comment that it was a question of how it is funded within the DSA, not whether or not the programs should be combined. If the requirement for each program is met, there should be no problem, he maintained. He said there was no law being changed, and the only change was that the program funds were being rolled into one budget account to be distributed to the school districts by the same method as before.

Vicky Newell, President-elect, Nevada Adult Education Association, said her concern is with one of the smaller accounts in the consolidation being considered, the adult high school diploma program. She said special education programs and class-size reduction programs have laws that must be complied with and the local school districts are encouraged to maintain the programs. The adult high school diploma program does not have the same requirements, she noted. Ms. Newell stated there are over 300,000 adults, 17 years and older, in the state of Nevada who lack a high school diploma. She emphasized the adult high school diploma program is the only program available to these adults to continue their educational process. Ms. Newell requested that language be developed to keep the funding needed to maintain the adult high school diploma program at the current level.

Marcia R. Bandera, Superintendent, Elko County School District, said she supports Mr. Kester’s comments and believes he is correct. She said the Elko County School District is attempting to get to the student teacher ratio of 22 to 1 for grades 1 through 5. If flexibility is allowed for grades 1, 2, and 3, and six more classrooms are available, the 22 to 1 ratio is attainable with an individual teacher in each classroom, she stated. She said this is better than a 30 to 2 ratio, and it has worked in Elko for the third grade where flexibility has been approved. Ms. Bandera said this was the kind of flexibility she was asking for; it is easily monitored by the State Department of Education, and the Elko County School District would produce any report requested.

Ms. Bandera said that when it comes to special education, the flexibility referred to is to continue to require that the funds be used for a teacher in a classroom, but based upon noted and documented circumstances, to also allow the funds to be used for an instructional aide and for professional services such as physical therapy and occupational therapy. She said the Elko County School District will contribute its share of the special education money. She noted it is easily documented because the State Department of Education monitors all school districts on a periodic basis. She stated, "The Elko County School District complies with the NAC and has very few due process [hearings]." Ms. Bandera said she sees nothing that would cause the school districts "to fly headlong into frivolous use of the money" if within certain reasonable limits the Legislature provides flexibility.

Continuing, Ms. Bandera said she resents people claiming the Elko County School District would no longer serve special education children or children with disabilities. She stated the adult high school diploma program will be run by the school district, whether the program is funded or not. She pointed out the school district was not required to have teenagers in the adult high school diploma program, but there was no alternative program so the district funded its own off-campus alternative program out of the regular Distributive School Account. "I can’t believe that the Elko County School District Board of Trustees would let me forget any of the special education groups," Ms. Bandera remarked.

Senator Raggio directed a general question to Ms. Bandera. Commenting there is no desire to change the class-size ratio for the 1^st through 5^th grades during this session of the Legislature, he asked Ms. Bandera whether there is a need to specifically define the limits of flexibility. He said there seems to be concern that the term "flexibility" be specifically defined to prevent anyone from exercising the flexibility in a manner inconsistent with everything accomplished to date or with what is productive for students. Senator Raggio asked whether Ms. Bandera sees a need to define the special education funding in a specific way to limit the funding to certain areas of usage and, if so, what her suggestion would be. He remarked he believes school districts have enough sense and responsibility to use the funding as they should. He reiterated he does not think there is a need to define "flexibility," but assuming there is, he wondered whether Ms. Bandera had any suggestions about what limits should be imposed on the school districts.

Ms. Bandera answered, "What is being requested is a differentiation within what traditionally has been used for the definition of a unit." She added, "If you decide to change from units to rolling everything together, the limits would be up to what the Legislature wants the State Department of Education to monitor for in terms of expectations." Ms. Bandera said that in the past neither the Legislature nor the State Department of Education has wanted the school districts to "run too free when something has changed." She said her suggestion for defining the use of unit money from the state is that if the Legislature does not want to do away with units, some flexibility is needed in the definition of unit.

Senator Raggio questioned, "As long as the standards required are met, or something along those lines, is that what is being suggested?" Ms. Bandera replied she is perfectly comfortable meeting standards. She said that if the expectations and the standards, which are mostly in the NAC already, are put in writing, the standards will be met. Senator Raggio stated her response satisfies him. He said the Legislature should not be overly directing these efforts, as long as the requirements are met. Ms. Bandera said she was not suggesting the Legislature consider class-size reduction for grades 1 through 5 at this point; she was hoping for some consideration for grades 1 through 3 at the 22 to 1 ratio. She said she would come back to the next session of the Legislature as ask for class-size reduction for more grade levels.

Michael Schroeder, Business and Financial Services Administrator, Washoe County School District, said the school districts are not concerned about merging the money into one account, but they are concerned about what formula would be used to distribute the money. He said there should be no problem as long as everyone receives the same amounts as they were receiving using the individual formulas prior to merging the money into one account. Mr. Schroeder stated the school districts had been and would continue to be able to track the money to satisfy the accountability concerns even if the money were merged into one account. He said there may be a perception problem created by looking only at the per-pupil amount. He said that when everything is combined it may appear there is more money available for general education when in fact a portion of the money is going for class-size reduction, special education, and adult education. Mr. Schroeder said it is really just a matter of how the money is distributed if it is all merged.

Senator Rawson asked Ms. Peterson and Mr. Thunder whether they had thought through the process of what special formulas would need to be developed to disburse the money if it were all moved to one account. He said there are issues which may not have been thoroughly considered. For example, Esmeralda and Eureka Counties have never received money for class-size reduction because their classes are already below the target ratio and the Legislature does not require adult education classes to be offered.

Mary L. Peterson, Superintendent of Public Instruction, State Department of Education, said a modular approach for the four different programs to be included in the DSA was provided to LCB staff. She said models had been prepared to show the net effect of each program if some, but not all, of the programs were to be combined. Ms. Peterson stated the real concern was the special education funding issue. She said the legislators had received Exhibit H, an information handout titled "Special Education in Nevada." Ms. Peterson said this document summarizes many of the points that have been discussed by the various people testifying at this hearing. She discussed page 6 of Exhibit H. Ms. Peterson said the rationale for separate funding for special education has always been that the school districts would be able to demonstrate there was designated funding for the special support. The units were awarded on a needs basis and were linked to the kind of disability the student has and the number of children with the same kind of disability. Page 6 of Exhibit H shows the recommendations that have been made by the Center for Special Education Finance (CSEF). Ms. Peterson said CSEF has looked at other states where there have been funding questions and litigation involving education finance reform. She outlined the criteria for effective state funding formulas for special education shown on page 6.

Ms. Peterson said the first recommendation was that the formula must be understandable. She said the most important of the recommendations was that the formula must be equitable. The dollars must be distributed to ensure comparable program quality regardless of district assignment. There must be wealth equity, district-to-district fairness, and adequate funding. Ms. Peterson said that as unit funding has been evaluated in the state of Nevada over the years, there have been several different studies prepared. The most recent study was completed during the last interim. These studies have examined the unit funding and, while it is not a perfect approach, the conclusion of the studies has been that unit funding basically meets the criteria, which must be met, and it meets the needs of the special education students. Ms. Peterson said that whatever is done with the funding, the recommendations contained in the "Special Education in Nevada" document (Exhibit H) should be adhered to. She said the codirector of CSEF, Dr. Tom Parrish, summarizes some of the problems the current system has on page 8 of the document.

Ms. Peterson recalled that Dr. Parrish suggested modifications to the current system. She said Dr. Parrish suggested there was a need to increase flexibility within the current system. She stated, "We have discussed the need for greater flexibility within the definition of unit." Ms. Peterson remarked unit funding is defined in the NRS and in greater detail in the NAC. Should the Legislature decide to provide greater flexibility, it can be done within the definition of "unit," she said. "The bottom line is that we understand the desire for greater flexibility, realizing we must have dedicated revenue, which demonstrates support for the special education student population," Ms. Peterson stated. She voiced her belief the flexibility can be achieved within the unit funding mechanism but that would require altering the definition while, at the same time, protecting the state and demonstrating the state’s support for special education.

Senator Coffin noted Mr. Mayes, Executive Director, Nevada Disability Advocacy and Law Center, has suggested there might be a problem. The senator said, "It is important to ensure there is language on accountability because if the state is responsible for the actions of the school districts, the Legislature should make sure the existing language is clear."

Mr. Thunder said if the modular approach is not used, one of the problems of distributing the special education funding is that there is a significant variation among the school districts in the percentage of students receiving special education services. Statewide, the average is 10.7 percent, but the percentages for the individual school districts go from a low of 7.9 percent to a high of 19.9 percent, he said. Mr. Thunder observed that if the existing formula is used for the distributions, those differences would be obliterated. He attributed some of the variations among school districts to the fact that currently those funds do not go through the "wealth factor," the "transportation factor," the "attendance area adjustments," and other factors which comprise the various elements of the formula.

Senator Rawson noted the Legislature struggled over the issue of special education when it was approaching 5 or 6 percent of the total student population. He said, "I don’t want to see any artificial barriers because people needing services could be denied." He added, "I think we probably need to seriously look at our criteria every once in a while because it’s grown significantly beyond what we thought would have been acceptable just a short time ago." Mr. Thunder said the Nevada percentages are slightly below the national average.

Mr. Thunder noted there were a couple of school districts which began class-size reduction programs before the state program started. These school districts have been "penalized" throughout the existence of the state class-size reduction program, he remarked. He said the Legislature should be cognizant of this problem and find a way to address the issue fairly. Mr. Thunder said that if the modular approach to the class-size reduction program were used and the Legislature were to continue using the existing allocation method, this problem would not materialize.

Mr. Thunder said the other two programs, the adult high school diploma program and the elementary school counselors program, are relatively small when compared to the special education and class-size reduction programs. He said the total cost for the elementary school counselors program is about $7 a student in each year. Mr. Thunder noted the $7 million yearly cost of the adult high school diploma program would be included in the basic amount-per-student calculation, but the people benefiting from the program are not among the students represented in the denominator of the fraction. He observed that funds which are completely separate from the rest of the school program would be included in the total basic support factor.

Senator Rawson said the Legislature has looked at the funding going into the prison system and realizes the total cost is not necessarily just the cost on a per-person basis but it is the total cost of setting up the programs that is shown. He wondered if it was time to develop a per-student formula for adult education within the prison system. Senator Rawson said he was not suggesting all of the adult education is within the prison system. Mr. Thunder replied the prison part of the adult high school diploma program is not included in the funds being suggested to be merged together. Senator Rawson said about $6 million each year is spent on the adult education program for the prison system. He did not know how many people were completing the program. He said he was not suggesting the program be cut, just examined.

Mr. Thunder said that when fiscal information is reported to the National Center for Educational Statistics, which is the branch of the U.S. Department of Education processing the educational statistics, it does not include the money spent for "adult" programs. He noted the comparative numbers are primarily expenditures per student, not revenue per student.

Senator Rawson asked whether adult education should be handled by higher education. Ms. Peterson replied she believes the adult education is appropriately placed in the high school program to serve those students who still have need to get a high school diploma. She said the funding mechanism is the real issue.

Senator Rawson said he would like to see a list of priorities for school improvements.

Ms. Peterson said there were two things still needing to be addressed. One was the proposed school improvement within budget account 639-2710, and the other was the existing budget account (101-2706) for school improvement.

Class Size Reduction – Budget Page K12 ED-89 (Volume 1)

Budget Account 639-2710

Ms. Peterson discussed enhancement 226 (E-226) on page K12 ED-91. She said the line item for School Improvement Programs includes $8 million for each year of the 1999-2001 biennium. Ms. Peterson said that during the last legislative subcommittee meeting the need to move standards-based reform forward by developing criterion-referenced tests, providing professional development, and remediation programs was discussed. She said that since the last legislative subcommittee meeting she has met with representatives of the Governor’s Office and clarified the Governor’s intent for the School Improvement Programs line item. She noted the Governor, in his State of the State speech, referenced $6 million for remediation programs. Since the last legislative subcommittee meeting, a list of priorities for the use of the $8 million included for school improvement programs has been developed. Ms. Peterson distributed Exhibit I, which contains 4 handouts, a 2 page hand out titled "Proposed School Improvements Priorities (BA 2710), a 13 page handout titled "Budget Account #2610, E-225 and #2673, E-230," a 10 page handout titled "Budget Account #2697, E-227A, and an 11 page handout titled "S.B. 482 Remedial Education Program, Budget Account 2697, E-230." She said the document titled "Proposed School Improvement Priorities (BA 2710)" (Exhibit I) contains a list of the seven top priorities the State Board of Education had when it forwarded the budget to the Governor’s Office in August 1998. As shown on the list, priority No. 1, cultural diversity, was for budget account 101-2673. Exhibit I shows the priorities from the original budget request.

Senator Rawson observed item 3 on Exhibit I was the third priority on the original list but now shows as the first priority on the revised listing. Ms. Peterson said that was correct. Senator Rawson asked whether the Governor’s first priority would be funded if there were sufficient Estate Tax funds. Ms. Peterson said there would be a mechanism to fund this first priority whether or not the Estate Tax is actually received as forecasted. Senator Rawson asked about the mechanism of funding and whether funding these priorities will require additional general funds. He asked whether these priorities are funded in the current budget request. Mr. Hataway replied one of the problems with the Estate Tax is that it is received monthly, with 50 percent going to the university system and 50 percent to K-12. He said the state Budget Division is working with the Office of the Attorney General to see whether they can establish some type of early-notice process through the courts to get an indication of what future monthly Estate Tax receipts will be. He noted that on average the collections are increasing each month but there is no way to predict the actual amount of Estate Tax received for future months or years.

Mr. Hataway further noted the Estate Tax has been growing each year until this year. He predicted the $8 million budgeted for school improvement programs each year of the next biennium will be received. He said the suggested change in the mechanics of distributing Estate Tax was strictly to address a cash-flow problem, not to create additional funding. He said if there is an $8 million reserve at the start of the next fiscal year, there will be no need to bring the remaining $8 million into the DSA. Mr. Hataway said the only other alternative available was to authorize an advance from the General Fund, but he was hesitant to use that alternative.

Senator Rawson said his understanding is that if the Estate Tax is not received as projected, the school improvement program will need additional General Fund money. Mr. Hataway replied that if the $8 million for school improvement programs were left in a budget account by itself, there would be no access to the General Fund because there is no General Fund revenue in the school improvement program. The advantage of rolling the entire amount into the DSA is that there is flexibility in how the funds can be used, he said. He emphasized that if the Legislature chooses to not roll the Class Size Reduction budget into the DSA budget account as is recommended, it will have to approve about $13 million of General Fund revenue to make the school improvement program whole.

Noting he has done a great deal of estate planning work as a financial consultant, Mr. Goldwater said many states are realizing the benefit of Estate Tax revenue and are getting very aggressive in attracting trust assets to their states. South Dakota, Alaska, and Delaware are a few of the states which have become aggressive, he said. He noted that historically, Nevada has had an inherent advantage because it has not had and does not have an income tax. However, some of the other states do not have income tax either, and some of the more aggressive states have changed their trust laws to attract the trusts, he pointed out. Mr. Goldwater said some local lawyers who do a lot of Estate Tax planning are moving the trusts away from Nevada. He remarked that the trust network is very quick to move from state to state. He noted it does not matter where the people lived; the Estate Tax is collected in the state where the trust assets are domiciled. Mr. Goldwater said he has submitted bills that will make Nevada the most aggressive estate domicile in all of the 50 states. The existing and proposed laws will assure Estate Tax will continue to be a good source of revenue to the state, he added.

Mr. Hataway said the Budget Division would be happy to work with Mr. Goldwater on the Estate Tax legislation. If anything can be done in statute to help the Estate Tax the Budget Division is interested, he stated. He said there was a change in the definition of "residence" in 1984, which increased Estate Tax collections. He said if anything more can be done, the Budget Division would like to assist.

Senator Coffin asked whether a corresponding cut needs to be made somewhere when something is added to the budget. Mr. Hataway replied the Budget Division was not proposing anything new in the DSA and no reductions are proposed anywhere in these "vital areas." He said that in order to free up the Estate Tax to provide funding for additional school improvements, General Fund money was added to the budget.

Mr. Thunder added that if, in the DSA account, the Local School Support Tax (LSST) comes in higher than budgeted and the Estate Tax collections are lower than budgeted, combining the funds into one budget account will eliminate the need to add additional General Fund dollars to the budget account. He said that if Mr. Goldwater’s idea comes to fruition "it could work the opposite way," and if more tax money is received than budgeted, less General Fund money would be needed. Mr. Hataway replied there would still be a fund for school improvement into which the Estate Tax would be deposited. If more money is collected from the Estate Tax, only the amount budgeted for school improvements would be transferred to the School Improvement account. Surplus money from the Estate Tax collections would result in less money needed from the DSA and, in turn, a build up of the state General Fund reserve.

Ms. Peterson said the top seven priorities listed in Exhibit I come directly from the budget submitted by the State Board of Education in August 1998. She said the four shaded areas are priority numbers: 3, Remediation Programs; 5, Professional Development; 6A, Criterion-Referenced Tests; and 6B, Contracting High School Proficiency Testing Program. The State Department of Education worked with the Governor’s Office to clarify the intent and meaning of school improvement, Ms. Peterson stated. These four shaded areas were identified as areas that could be funded as school improvement efforts using the $8 million identified in the enhancement portion of the budget request for budget account 639-2710, shown each year of the biennium. Included in Exhibit I are business plans for the remediation program, the professional development program, and hiring the contractor to administer the high school proficiency testing program.

Ms. Peterson explained that as part of the budget process, business plans were developed. She remarked the three business plans provide more detail on how the amounts for the three programs were developed. She noted the $5.8 million for remediation programs is very close to the $6 million mentioned in the budget by the Governor in his State of the State address. She said the $860,000 for each year of the biennium does not include additional days for professional development in teacher contracts; this was only the training portion of the professional development program. The $860,000 shown for each year of the biennium in Exhibit I was significantly different from what the Legislative Commission on Education would present to the Legislature the next day. Ms. Peterson emphasized the information being presented was from the original budget request. She remarked, "Certainly there is room for discussion, certainly there is room for negotiation on these final amounts."

Senator Rawson noted priority No. 7, the Statewide Management of Automated Record Transfers (SMART), was not funded. He said it was unlikely the Legislature could find enough additional money to fully fund the SMART program. Senator Rawson asked Ms. Peterson to identify how much it would take to maintain what is already developed and funded. He asked, "How much do the school districts need to be able to make some progress during the biennium?" Ms. Peterson said she would provide that information. She agreed there had been a significant initial investment in the SMART program, which she said is almost to the completion stage. "It would be a shame to desert the project at this point," she stated.

Mr. Goldwater noted it is assumed there will be vacancy savings, yet it is recommended professional development money be added. He asked whether the additional money requested is for teaching personnel only. Ms. Peterson replied the professional development money requested is for educators, including teachers and administrators. The vacancy savings, which are in the DSA, are for non-teaching personnel, she said.

Ms. Peterson said the fourth priority on the revised list of priorities for proposed school improvements is the program contractor for the high school proficiency test. She said a business plan for this program was attached to Exhibit I. The $974,000 shown in Exhibit I was the original budget estimate. Estimates from vendors received since the time the budget was submitted indicated the amount could be reduced to about $500,000 to $600,000, Ms. Peterson said, adding there is room within the priorities for some negotiation and discussion. She noted the total of the four priorities identified by the Governor was $7.9 million in each year of the biennium. The enhancement included in budget account 639-2710 of $8 million for school improvement programs for each year of the biennium will cover the major school improvement priorities identified by the Governor, Ms. Peterson stated.

Senator Raggio said he appreciated the effort in isolating the four priorities identified because, consistent with what was accomplished during the last legislative session, these four priorities are essential to continue the effort on education reform. The senator said he would like to see more alternative suggestions as to how the Legislature can allocate funds within these four areas. He noted the $974,000 for contracting high school proficiency testing programs each year of the biennium appeared to be high, and he liked the idea of being able to trim this to between $500,000 and $600,000. Senator Raggio suggested some reallocation between the first two priorities, the remediation program and professional development, so more money could be provided for the professional development program. He asserted this would still provide a meaningful remediation program and would give more attention to the area of teacher training. Senator Raggio said, "If the Legislature can reallocate [for teacher training], or use otherwise, some of the days now used for other purposes, or even reassign some days used for other purposes, we may avoid about $21 million of additional expense by adding 2 days to the school year." Senator Raggio stated the highest priority for the Joint Subcommittee on Human Resources/K-12 is to deal with these priorities.

Ms. Peterson said if there is agreement that the four priorities identified in Exhibit I are the top four priorities, the final numbers can be identified for each of the priorities. She said it may be possible to provide the professional development by using more short school days or reallocating existing days for professional development. Ms. Peterson said if it is expected the school districts will use short school days or release students after lunch so teachers may have the remainder of the day for professional development, it is important to get legislative approval. She said releasing students early is oftentimes not popular with parents and would generate a lot of feedback from the parents.

Senator Raggio said that at this time, when the highest priority is to reach the standards which have been set for the students, the necessity to train teachers to teach students to reach those standards has to be the highest consideration. He said if it means the students are released at noon for 3 or 4 days a year, the parents should understand; they should want the children to be taught to the standards. Senator Raggio said the schools are not there to be babysitters for students. The main purpose of the school is to teach the students, and if it is necessary to release them early 3 or 4 days a year, the parents must make the necessary arrangements, he said.

Ms. Evans asked, "What is the status of the money from the 1-year federal program on class-size reduction?" Ms. Peterson said the most current information received shows Nevada is eligible for about $7 million in federal class-size reduction (CSR) funds. There is a provision in the federal law that names Nevada and other states which have already initiated CSR efforts. She said in states like Nevada, where class-size reduction has already been initiated, the money can be used for purposes other than just to reduce class size. Ms. Peterson said the federal money could be used for professional development and to reduce class size for grades other than kindergarten through third grade (K-3). The school districts must apply for the funds, but there is no competition for the funds from other states. Because Nevada already has class-size reduction, the school districts can use the money either to reduce class size in other grades or for professional development, Ms. Peterson stated.

Ms. Evans asked when the money will be available and when it will be received. Ms. Peterson replied the application was due sometime in the spring and the money will be received July 1, 1999. Ms. Evans asked whether the money must be spent in one year or whether it can be spent over a longer time. Ms. Peterson said the money is distributed to school districts and there is usually a window of about 27 months in which to spend the money. Senator Rawson asked whether anyone has considered including the money in the Estate Tax trust fund, either through formula or directly, to offset some of the shortfall Nevada currently has. Ms. Peterson said there is a "supplement-not-supplant" provision in the federal class-size reduction program. She said, in light of the supplement-not-supplant provision, it is very clear the federal dollars cannot be used to supplant what is already being done at the state level. Ms. Peterson said the State Department of Education will distribute the money to the school districts. She added the money does not currently show up in the state budget but will in the future. Senator Rawson said it is not clear what money is received by the school districts beyond what is included in the state budget. There are grants, gifts, donations, and bake sales that bring money into the school districts, he noted.

Mr. Hataway said that when the budget was being prepared, this federal money was very new and the state Budget Division did not have detailed information. He said he has seen two different scenarios, one of which says the money goes directly to the school districts, not to the state. He stated that as soon as regulations are adopted and the Budget Division knows how to account for the funds, the money will be programmed into the budget by means of a work-program revision at the appropriate time. Mr. Hataway said the Budget Division just does not have the final information.

Ms. Peterson said funds in this budget account are provided through state and federal revenue sources and they support a variety of programs related to school improvement and apprenticeship within the state. She said The Executive Budget provides funding for state apprenticeship programs and the federal Goals 2000 program. Ms. Peterson noted The Executive Budget recommends the 50 elementary school counselors previously funded within this budget account be transferred to and become part of the DSA. She said the funds provided for state apprenticeship are distributed to community colleges to support the cost of related classroom instruction to indentured apprentices. Exhibit J, original is on file in the Research Library, contains 7 handouts, a 2 page handout titled "M-200 Growth in the Apprenticeship Program," a 3 page handout titled "1999 Governor’s Holocaust Education Report," a 9 page handout titled "Fund #101," a booklet titled "State plan to Implement Technology to Support Student Learning," a booklet titled "Nevada 2000 Comprehensive State Improvement Plan," a 2 page memo from Lamar Marchese dated December 3, 1997, and a 2 page handout titled "Budget Account 2706." This handout describes each of the service areas and the projected growth. Ms. Peterson said that when looking at apprenticeship enrollments, it can be seen that in Fiscal Year (FY) 1996 the actual enrollment was 1,804; in FY 1997 it grew to 3,276; and in FY 1998 it was 4,545. The previous projection for FY 1999 was 4,110, but the current projection is that the enrollment will exceed the FY 1998 enrollment of 4,545. The apprenticeship programs are included in budget account 101-2706, Ms. Peterson added.

Ms. Peterson said Goals 2000 is included in the Governor’s budget. The Educate America Act of 1994 provides funds to states for development of state education improvement and implementation. Exhibit J includes a document titled "Nevada 2000, Comprehensive State Improvement Plan, Second Annual Progress Report." This report contains a description of the school districts’ plans for the implementation and use of the Goals 2000 funds. The annual progress report was developed last fall and a copy is included in the report in Exhibit J, Ms. Peterson noted.

Ms. Peterson said that in the second through fifth years of the program, 90 percent of the funds provided under Goals 2000 must be subgranted to local school districts for implementation of local improvement plans and to improve preservice and professional development. The program is 100 percent federally funded and is designed to supplement school reform efforts. Ms. Peterson said the Governor’s recommended budget includes the continued funding for two classified positions at .5 full-time equivalence (FTE) each. The maintenance portion of the budget includes inflationary adjustments for printing, postage and insurance premiums. Ms. Peterson said the maintenance portion of the budget also includes a 10 percent increase each year to the university system for participation in the apprenticeship program. She said the maintenance portion of the budget also includes the recommended changes in fringe benefit rates.

Ms. Peterson noted the enhancement portion of the budget includes only one recommendation, the replacement of one computer and software for the Goals 2000 program. She said the handout titled "Budget Account 2706, Unfunded Decision Units" (Exhibit J) contains a summary of the unfunded decision units.

Ms. Evans asked how the school districts utilize the Goal 2000 funds. Ms. Peterson replied that originally the school districts used the funding to plan for and implement school reform. Currently, more of the money is used for standards-related activities and professional development for teachers and educators. Ms. Evans inquired about what accountability tracking was used to track the use of these funds. Ms. Peterson replied the school districts must report to the State Department of Education, on an annual basis, how the money was spent. She said the school districts must also submit an annual plan showing how the money will be spent during the next year. The "Nevada 2000, Comprehensive State Improvement Plan, Second Annual Progress Report," included with Exhibit J, also includes performance indicators which show the progress being made in each area.

Ms. Evans asked about the "one-shot" appropriation for satellite downlinks. She asked whether a plan for evaluating the effectiveness of the program has been developed and how participation in the courses offered through the network is measured. Mr. Thunder said the Clark County School District has informed him there is an update to the evaluation the district prepared, which can be provided. He said Channel 10, in Clark County, was used for the distance learning satellite service and was funded by the onetime appropriation in 1997 of $527,000. Ms. Evans said a chart was prepared which shows the extensive sitework funded by the onetime appropriation. She said it sounds wonderful in theory, and the Legislature is now looking at usage, level of participation, and the benefits of having the program. Ms. Peterson said there is a two-page handout from KNPR in Exhibit J which shows how public broadcasting is distributed, but there is no information specifically about the FY 1997 onetime appropriation. The information about the FY 1997 onetime appropriation was submitted to LCB staff as part of the letter of intent. Ms. Peterson said she would provide information to LCB staff showing the usage of the FY 1997 onetime appropriation.

Ms. Peterson said a report is included in Exhibit J titled "State Plan to Implement Technology to Support Student Learning." This plan was one of the enhancements included in the original budget which would have provided funding to continue the technology efforts begun in the 1997 Legislative Session. The Nevada Commission on Educational Technology developed this plan and the plan contains five major strategies. These strategies are to (1) promote access to high-quality content, (2) establish a statewide professional development program to support curriculum integration, (3) provide adequate technical support for classroom teachers, (4) conduct formative evaluations on an annual basis, and (5) continue to support the infrastructure needed for technology in the schools. Ms. Peterson said this plan was not included in The Executive Budget.

Ms. Peterson said the two-page handout included in Exhibit J describes how the funding was distributed for public broadcasting. The funding for public broadcasting is included in budget account 101-2706 and the funds were distributed to public broadcasting stations throughout the state. The spreadsheet attached to the letter from KNPR in Exhibit J shows how the funds were distributed during the last biennium.

Mr. Goldwater pointed out the 1997 onetime appropriation of $177,975 to purchase seven new buses for Classroom on Wheels and noted one of the unfunded decision units was the Classroom on Wheels program. He asked whether the money was used to purchase the buses. Ms. Peterson replied the money was used to purchase new buses and to retrofit existing buses. The unfunded Classroom on Wheels request was a continuation and expansion of the program. She said $177,000 was requested to continue expanding the program at the same rate as the last biennium.

Ms. Peterson said the three-page report in Exhibit J titled "Governor’s Advisory Council on Education Relating to the Holocaust" was funded in FY 1997 in budget account 101-2706. The report includes a description of how the funds were allocated and spent. This project is not funded in the Governor’s recommended budget for the coming biennium.

Mr. Hettrick said he believes the Governor has agreed to try to fund some minimum amount for the Holocaust education, and an Assembly bill is being prepared to fund this project. Ms. Peterson replied that was her understanding also. Senator Rawson asked whether it would be necessary to spend money again on curriculum, noting the curriculum work has essentially been done. Ms. Peterson said the Council to Establish Academic Standards for Public Schools has adopted academic content and performance standards on the English language, arts, math, and science. Senator Rawson clarified his question was for the Holocaust funding only and said, "There were some savings by not repeating pieces of the education already completed." Ms. Peterson replied, "Yes." She said the request in the original budget was to continue some of the training activities and the scholarships to Nevada educators. She said the Holocaust education and training were focused at the middle school level. The education and training were not just on the Holocaust; the training provides programming to students which reinforces tolerance and nonviolent kinds of resolution to conflict. Ms. Peterson said the other unfunded decision units are summarized in the two-page handout included in Exhibit J.

Keith Rheault, Deputy Superintendent for Instructional, Research and Evaluative Services, State Department of Education, said he did have contact with the counselors’ associations. There was some concern that by applying $7 a student in Eureka and Esmeralda Counties, the only way they will be able to maintain one full counselor for those students is through money specifically earmarked or received other than through the formula. These counties have not been able to see how the distribution of funds will work if the funds are rolled into the DSA, and there is some concern that some of the small districts, which have benefited by having earmarked money, may not receive enough money by using a formula, Dr. Rheault stated. Senator Rawson said he understood their concern. He said that if the money is rolled into the DSA, the Legislature will make sure the school districts do not get less money as a result of using a formula to make the disbursements. Equity and fairness must be maintained as changes are made, he said. Senator Rawson asked Mr. Hataway to notify the LCB staff when another property tax report is available. Mr. Hataway said he would contact the State Department of Education to see whether the department has an updated report.

Ms. Peterson urged the committee to keep in mind the considerations presented on the special education funding when discussing the issues of merging the various budget accounts into the DSA budget account. If the change occurs and the budget accounts are merged, the underlying principles must be in place to prevent legal challenges and to ensure the services needed by the students are provided. She said there is agreement on the priorities for school improvement and, pending the direction of the Legislature, she offered to work with LCB staff to accurately reflect the priorities of the Legislature and finalize the numbers. Ms. Peterson said the final point she would like to make is that in budget account 101-2706 there are only two items funded, the apprenticeship program and the Goals 2000 project. She said she believes there are other things included in this budget account which have been begun and which need to be continued, but she understands the constraints in the budget.

Ms. Evans asked Mr. Thunder for his comments on the roll-up costs and what the calculations were for this year. Mr. Thunder replied the DSA has traditionally used a 2 percent roll-up for movement on salary schedules for teachers and all others. The class-size reduction program used the 3 percent roll-up. He said the differential will not exist when the two programs are merged. Mr. Thunder said he would like to add a statement about the relationship of roll-ups to vacancy savings. He said most of the school districts have indicated the actual cost is increased from one year to the next because movement on the salary schedule is slightly higher than the 2 percent. Using 2 percent to project salary increases has worked because of salary savings resulting from vacancies, he explained.

Continuing, Mr. Thunder said the school districts have accepted the use of these percentages but do have some concerns about having to identify salary savings in each year. He suggested using these percentages was an attempt to make the DSA like the other budget accounts with which the Legislature works from other state agencies. He noted the DSA is not similar to other state agency budget accounts. For example, the DSA does not have categories for Personnel, Out-of-State Travel, In-State Travel and other line items found in the other state agency budget accounts. The DSA budget account has the major category of Basic Support Aid-to-Schools. Once the total amount available for Basic Support Aid-to Schools is identified, the local boards of trustees develop their budgets by negotiating with their various employee groups to identify a detailed budget similar to the state agency budgets.

Mr. Goldwater asked whether budgeting vacancy savings would restrict the ability of school districts, specifically the Clark County School District, to hire teachers and support staff. Mr. Thunder replied the total amount of vacancy savings included in the budget is relatively minor when compared to the total budget. For that reason he doubted it would have much of a negative impact on staffing but acknowledged the representatives from the school districts, which have more immediate information available, could have other opinions. Mr. Goldwater asked whether the assumed vacancy savings takes into account the number of new schools opening in Clark County and the impact that opening these new schools may have on staffing. Mr. Thunder replied the budget was developed by looking at the entire state, not just one school district’s or one individual school’s unique staffing needs.

Ms. Evans asked the State Department of Education to supply the entry-level and top-level salaries for FY 1997-98 and 1998-99 by school district. She also asked for comments on the recommended inflationary adjustments to the budget. Mr. Thunder replied the inflation items included in the DSA are essentially the same items that were included in the budget preparation instructions to all state agencies. These items include heat, electricity, water, liability insurance, property insurance, and postage. Not included in the inflationary adjustments are student transportation, textbooks, library, maintenance and repair, professional services, printing, binding, instructional services, other supplies, staff travel, and equipment.

Ms. Evans asked whether the only increase allowed for items such as textbooks and instructional materials was to address growth rather than inflation. Mr. Thunder replied she was correct that the increase was to cover growth in enrollment. Ms. Peterson noted the entry-level and top-level salaries have already been submitted.

Ms. Evans asked about the variability of the actual salary increases on the roll-up costs. She inquired:

Mr. Thunder answered that a school district which paid 4 percent in the first year would pay more in the first year. He said the mechanism now used would not deduct the extra percent from the first year’s budget.

Ms. Peterson said she looks forward to working the LCB staff to finalize the school improvement priorities. She urged that should the various budget accounts be merged into the DSA, special consideration be paid to the special education funding to ensure the integrity of the fund is preserved.

Al Bellister, Lobbyist, Nevada State Education Association, said there is simply not enough money going into K-12 public education. He noted the Budget Division did not add inflation increases into the budget for items such as textbooks and instructional supplies and said this was an indicator to him there is not enough money. Mr. Bellister said that in order to attract and retain the best teachers in Nevada’s public schools, it is necessary to look at the issue of salary. He said that looking at the Nevada public school expenditures on a per-pupil basis, for FY 1998, Nevada was 40^th in the nation. He said Nevada is simply not making an investment in the schools as some of the other states are. Mr. Bellister said he did not hear anyone mention the roll-up factor on fringe benefits for employees. He said he thought the Budget Division used a 2 percent factor as an increase for the benefits. He stated he thought most people would agree the cost of medical insurance is going up faster than 2 percent. He said information he found on the Internet showed medical inflation was increasing 2.5 times greater than the cost of living. A different source showed the cost of medical insurance in the western United States grew at about 7 percent last year, Mr. Bellister said. He urged the Legislature to look at the fringe benefits more closely.

Mr. Bellister noted this is the second time in the decade of the 90s where the Legislature is looking at not funding any salary increases. He said the 1993 Legislative Session did not approve any salary increases and the 1999 Legislative Session is also considering not approving any salary increases. He asserted it is time for the Legislature to seriously consider increased support for K-12 on a stable basis. Mr. Bellister said he had given the Legislature a copy of a report contracted by the National Education Association. The researcher was a nationally recognized expert in the area of local government finance, revenues and expenditures. The report looked at revenues and expenditures in all 50 states, and projected the next 8 years. Mr. Bellister said the report included states with good tax sources, stable revenues, and their expenditure needs. Some of these states actually have a budget surplus; their taxes will exceed their expenditures over the next 8 years, he mentioned.

Mr. Bellister said the report also looked at states that were not as advantaged as those states with a budget surplus. These less-advantaged states have tax sources and revenue streams that will not meet their expenditure needs over the next 8 years. These states were identified as having a structural deficit. Of all of the states with a structural deficit, Nevada had the largest. Mr. Bellister said his concern is that while the Legislature is looking at the short run with no salary increases, there might be no salary increases in the immediate future. He was concerned the public school employees will be asked to share a disproportionate burden of balancing the state budget. He urged the Legislature to look at adjusting the budget for salaries and benefits for public school employees over the coming biennium and into the immediate future.

Ms. Evans thanked Mr. Bellister for distributing the report to the Legislature. She said she was invited to speak at the National Conference of State Legislatures (NCSL) in Washington, D.C. in December 1999 on the subject of revenues. Ms. Evans said it was less than an edifying experience to stand before her peers from across the country and say, "Yes, that’s us, we are the worst in all of the findings because we are so narrowly based tax-wise."

Ms. Evans said she shares Mr. Bellister’s concern about salaries. She saw a recent program which highlighted the Clark County School District. The program indicated that in a year, between 1,500 and 1,700 new teachers must be recruited by Clark County and explained the very aggressive effort the Clark County School District has made in other states to attract teachers. Ms. Evans said she agrees the lack of salary increases will not help the effort to fill the teacher positions.

Mr. Bellister said he was very concerned about the difficulty Clark County has had in recruiting teachers and the impact that having no salary increases will have on the recruitment efforts. He said Clark County has a teacher shortage, especially in the area of special education. He mentioned that a report he read recently had looked at the teacher supply-and-demand issues for the state over the next 10 years. The report projected more teachers will be needed because of an increased student enrollment and because a large number of teachers will be retiring soon. The projection was that 2,000 or more teachers will be needed each year during the next 10 years. Mr. Bellister asserted, "Because of the increased demand for teachers, the market will be very competitive. We should make sure the teacher salaries are attractive to bring the best and brightest teachers to Nevada and to compete with the private sector." He said it has been well documented teachers’ salaries continue to lag behind those in the private sector. He said the Legislature needs to be mindful to do whatever is possible to increase teachers’ salaries and public school employees’ salaries.

Senator Raggio said the report he saw and the reports he has seen over the past three biennia show the average teachers’ salaries in Nevada have been consistently within those of the top 20 states, particularly when the fully paid retirement expense is factored in. The American Federation of Teachers lists the salaries, and the Nevada teachers’ salaries are consistently within the top 20 and often much nearer the top than 20^th. The senator said that when Nevada is mentioned as being 45^th or last on the list, it should be kept in mind that every state has a different method of funding. The state directly funds about 35 percent of the education expense; 65 percent is from local sources. Nevada gave up local revenues and designated them for education, Senator Raggio noted. He said that when looking at the basic school support guarantee, other issues of funding are often not considered, and all of the funding should be consolidated to get a truer picture of the total funds the state guarantees.

Additionally, Senator Raggio reminded Mr. Bellister, 50 cents of the property tax is outside the funding formula and is forgotten when total resources available for funding are discussed. Referencing the expenditures shown in Exhibit E, he pointed out the state is committing $600 million to $700 million but the total expenditures budgeted are $1.7 billion, which is more than the state General Fund balance. Senator Raggio said, "It’s all in how this information is reported." He said, "I don’t apologize for what Nevada is doing, I think we are doing a good job; we are ranking high on state salaries for teachers and are consistently in the upper half of the country." He stated he would like to see a report showing the total expenditures of all the states so a comparison could be made. He said it is necessary to clear the air on the commitment Nevada is making to education in the state. The senator said he keeps hearing references to an old report on the tax effort, and "everybody is telling us we need more stable taxes." But when he asks various different groups what taxes they would like Nevada to increase, the senator continued, he gets very different answers.

Senator Raggio said that "before we beat ourselves up without reason, we need to draw attention to what we are actually doing and the kind of commitment we are making." He noted the state General Fund is primarily used for K-12 and higher education. "We really should give more credit to what we are doing," he remarked. He said he would ask again, "Which taxes do you want us to raise?" He stated that when he goes into any group and asks, "Would you like to see more money committed to education?" everybody says they would. When he asks whether they would agree to a tax increase to get more money for education, everybody again says they would. He said when he asks which taxes they would like to see raised for that purpose, everybody says, "Every tax but the one I pay."

Mr. Bellister said he was not going to apologize for his remarks because he firmly believes Nevada needs to take a look at how the schools are funded and whether or not more money is needed for the schools. He said he firmly believes more money is needed. Mr. Bellister said the report he looked at recently was the "Congressional Quarterly Ranking" and it showed Nevada teachers’ salaries have slipped to 21^st in the nation. He said that while the salaries still rank in the top half for the nation, they have slipped because they were 19^th the prior year. Senator Raggio responded they did not include the state-paid retirement benefit in the salary ranking. He said they did not because it was not reported in that manner. He said that when the retirement benefit is added to the salary, Nevada teachers’ salaries will move to 15^th or 16^th in the nation. Mr. Bellister replied that as long as the base salary is used, the Nevada ranking slips even if retirement benefits are added. He said he thought it was indisputable that the Budget Division projection indicates the cost of living would increase during the next two years of the biennium by about 2 percent each year.

Mr. Bellister contended the purchasing power of the employees will be eroded and the competitive position of recruiting teachers to Nevada will be eroded if no pay increase is approved for the next biennium. Senator Raggio said it was known that even if the state did not include a salary increase in the school support, the teachers still have the ability to go to each school district and negotiate based upon the resources of the school district. He asked Mr. Bellister if he was saying there would be no negotiations by the teachers with the school districts for pay increases even if the state approved no salary increases. Mr. Bellister said there was no denying the teachers would bargain with the school districts as aggressively as possible for salary increases. He said his point is, the Legislature needs to look at the policy statement that having no salary increases would make about attracting and retaining the best employees in the classroom.

Mr. Goldwater said many of his contemporaries are completing graduate school and entering the teaching profession. The people he knows who are becoming teachers are not coming back to the Clark County School District to be teachers because of the salary situation.

Kristine Jensen, Nevada Concerned Citizens, presented the four-page testimony shown in Exhibit K, a 4 page letter from Kristine Jensen dated March 2, 1999, which recommends a ratio of 25 to 1 for kindergarten through the 12^th grade. She said she felt a 22- or 25-to-1 ratio is a positive alternative that will address the needs of all children more fairly and will be more economically responsible to the taxpaying public that supports them.

Mr. Hettrick commented he has done a great deal of looking at class-size reduction and he has problems with it. He said $401 million has been spent since the class-size reduction program began in 1991 and there has essentially been no change in student achievement. He was concerned that Nevada is spending $86 million a year on class-size reduction and that this amount will escalate. He projected Nevada will spend more than $860 million during the next 10 years on class-size reduction. Mr. Hettrick said he thinks it will continue to become harder to justify continued class-size reduction. He said the cost is escalating at such a rate that, unless significant improvement in test scores becomes evident, he doubts Nevada can continue to fund at the current rate.

Mr. Hettrick mentioned he had a study performed by the Clark County School District which indicated that for the district to implement the 16-to-1 class-size ratio, 1,100 additional classrooms would need to be constructed right now. He said the total impact of costs for the benefit received at this point cannot possibly justify continuing with the class-size reduction program. He stated that allowing flexibility in the student-to-teacher ratio could save $86 million this year. A lot of other projects could be funded with the money saved by dropping the class-size reduction program, Mr. Hettrick pointed out.

Randy C. Robison, Lobbyist, Lincoln County School District, discussed the unfunded project of education technology for schools. He said the state had planned to implement the educational technology plan, which was developed and adopted by the Commission on Educational Technology. He noted the Commission on Educational Technology was one of the several components of a bill from last session. Mr. Robison said Nevada has made tremendous strides in educational technology throughout the state. He said the value of the educational technology to rural school districts was in having local expertise specific to educational technology planning and implementation. He said that contracting for these services would create a significant financial burden to the rural school districts. He stated the Commission on Educational Technology, made up of members with general technology and educational technology expertise, has become a tremendous and invaluable resource for the rural school districts. in both the planning and implementation areas of educational technology.

Mr. Robison said he was well aware of the "laborious and comprehensive" prioritization process the commission went through in developing its legislative recommendations for this session, and he was aware the commission factored in the budgetary shortfalls that are expected. He encouraged the Legislature to fund the Commission on Educational Technology at least minimally to continue the commission’s efforts, "now that we have a chance to go through the state plan in more detail." The Commission on Educational Technology could greatly extend the benefits to all school districts in helping to continue through the planning and implementation of educational technology, Mr. Robison summarized.

Senator Rawson adjourned the meeting at 11 a.m.

RESPECTFULLY SUBMITTED:

Millard Clark,

Committee Secretary

APPROVED BY:

Senator Raymond D. Rawson, Chairman

DATE:

Ms. Jan Evans, Chairman

DATE: