EDUCATION COMMITTEE

The Education Committee was assigned three studies. Section 32 of Senate Bill No. 2421 directed a study of the manner in which elementary and secondary education is funded in this state and the feasibility and desirability of instituting alternative funding methods. House Concurrent Resolution No. 3052 directed a study of school district data collection and reporting requirements. Section 1 of House Bill No. 1155 directed a study of the criteria by which a student's school district of residence is established and whether that criteria correctly assigns benefits and responsibilities to the appropriate school districts.

The education committee was also directed to receive reports regarding annual school district employee compensation, requests for and waivers of accreditation rules, requests for and waivers of North Dakota Century Code (NDCC) Section 15.1-21-03, which relates to instructional time for high school courses, student scores on recent statewide tests of reading and mathematics, changes to the teacher licensure process, data envelopment analysis, and the failure of school boards to meet a statutory threshold for increasing teacher compensation.

Committee members were Senators Layton Freborg (Chairman), Dwight Cook, Robert S. Erbele, Tim Flakoll, Gary A. Lee, and Constance Triplett and Representatives Merle Boucher, Thomas Brusegaard, Lois Delmore, Pat Galvin, C. B. Haas, Lyle Hanson, Kathy Hawken, Gil Herbel, Bob Hunskor, Dennis Johnson, RaeAnn G. Kelsch, Lisa Meier, David Monson, Phillip Mueller, Jon O. Nelson, Mike Norland, Margaret Sitte, and Clark Williams.

The committee submitted this report to the Legislative Council at the biennial meeting of the Council in November 2004. The Council accepted the report for submission to the 59th Legislative Assembly.

PROVISION OF EDUCATION STUDY

Background

Article VIII, Section 1, of the Constitution of North Dakota provides:

Section 1 has not been changed since its enactment in 1889. Article VIII, Section 2, of the Constitution of North Dakota follows with the directive that:

Article VIII, Section 3, of the Constitution of North Dakota requires that "instruction shall be given as far as practicable in those branches of knowledge that tend to impress upon the mind the vital importance of truthfulness, temperance, purity, public spirit, and respect for honest labor of every kind." Finally, Article VIII, Section 4, of the Constitution of North Dakota directs the Legislative Assembly to "take such other steps as may be necessary to prevent illiteracy, secure a reasonable degree of uniformity in course of study, and to promote industrial, scientific, and agricultural improvements."

Since at least the 1930s, the state has attempted to meet its constitutional directives by providing some level of financial assistance to local school districts. By the late 1950s, state support for education had evolved into the foundation aid program. During its nearly 50-year history, the program has grown to the point of now providing $489.3 million for student payments and transportation, $49.8 million for special education, $69.4 million for tuition apportionment, $5 million for supplemental payments, and $51.8 million for teacher compensation payments.

School District Demographics

Today the state's public schools provide education services to 99,174 students. Fifty percent of those students are enrolled in the eight largest school districts, and the 205 remaining districts provide services to the other students. Within 10 years, given the best-case scenario, it is expected that the number of students will fall to 89,980. However, if the more accurate cohort survival projections are employed, the number of students will likely fall to 81,531.

Pending Litigation

The continued decline in the number of students, coupled with increased expectations for services and a belief that the resources available for education are both insufficient and inequitably distributed, has resulted in the commencement of an education funding lawsuit against the state. The plaintiffs in the case of Williston Public School District No. 1 v. State of North Dakota include the Williston, Devils Lake, Grafton, Hatton, Larimore, Surrey, Thompson, United, and Valley City Public School Districts. The trial is expected to begin in October 2005. A similar lawsuit was commenced 15 years earlier. Although three of the five members of the North Dakota Supreme Court determined the state's funding system for elementary and secondary education did not meet constitutional requirements, the plaintiffs lost in Bismarck Public School District No. 1 v. State of North Dakota, 511 N.W.2d 247 (N.D. 1994) because Article VI, Section 4, of the Constitution of North Dakota requires four members of the court to declare a statute unconstitutional.

In light of the pending litigation, the committee reviewed a variety of funding issues, including per student payments, weighting factors, equalization factors, mill levy caps, teacher compensation payments, minimum teacher salary requirements, tuition apportionment, vocational education, joint powers agreements, and nonoperating districts. However, it was the areas of transportation funding and supplemental payments that received the greatest amount of attention and ultimately resulted in committee recommendations.

Supplemental Payments

North Dakota Century Code Section 15.1-27-11 directs the Superintendent of Public Instruction to calculate the average valuation of property per student by dividing the number of students in average daily membership in grades 1 through 12 in a high school district into the sum of:

• The district's latest available net assessed and equalized taxable valuation of property, plus
• All tuition payments and county and unrestricted federal revenue received by the district, divided by the total of the district's general fund levy, high school transportation levy, and high school tuition levy.

If the quotient is less than the latest available statewide average taxable valuation per student and if the district's educational expenditure per student is below the most recent available statewide average cost of education per student, the Superintendent of Public Instruction is further instructed to:

1. Determine the difference between the latest available statewide average taxable valuation per student and the average taxable valuation per student in the high school district;
2. Multiply the result determined under No. 1 by the number of students in average daily membership in grades 1 through 12 in the high school district;
3. Multiply the result determined under No. 2 by the number of general fund mills levied by the district in excess of 150, provided that any mills levied by the district which are in excess of 210 may not be used in this calculation; and
4. Multiply the result determined under No. 3 by a factor calculated by the Superintendent of Public Instruction to result in the expenditure, over the course of the biennium, of the full amount provided for the purpose of this section.

The result is the supplemental payment to which a high school district is entitled, in addition to any other amount provided under NDCC Chapter 15.1-27.

The 58th Legislative Assembly (2003) increased the prior biennium appropriation for supplemental payments from $2.2 million to $5 million and further directed that the calculation include all unrestricted federal revenue. It was recognized that almost half of the money expended for education falls outside any equalization mechanism and that of those funds subject to equalization, the only mechanism in place before the 2003 legislative session was a mill equalization factor, which was increased during that session to 34 mills through June 30, 2004, and to 36 mills through June 30, 2006. Thereafter, an additional two mills are to be added each year.

The principal component of unrestricted federal revenue is impact aid. This is federal financial assistance made available to certain school districts that are affected by federal activities. Because federal property is exempt from local property taxes, impact aid is distributed to help replace revenue that would otherwise be available to pay for educating students who live on the federal property or whose parents work on such property. In this state, the primary recipients are the Grand Forks and Minot School Districts.

While the inclusion of unrestricted federal revenue in the state's supplemental aid calculation did bring additional dollars within the equalization formula, subsequent research indicated that the move was contrary to federal law.

Committee Consideration - Recommendations

The committee considered three bill drafts to address the needed removal of the phrase "unrestricted federal revenue" from the supplemental payment calculation. The first bill draft would have permitted the supplemental payments to continue under the 2003 language until the end of the biennium, at which point a new calculation that did not include unrestricted federal revenue would take effect. The second bill draft carried an emergency clause and therefore the supplemental payments would have continued under the 2003 language only until the time of the bill's enactment and filing with the Secretary of State. Thereafter, the remaining 2003-05 distribution would have taken place under the amended language. It was estimated that this bill draft would allow the remaining 8 percent of the biennial payments to be distributed under the new language. The final bill draft likewise removed the reference to "unrestricted federal revenue" from the supplemental payment calculation and carried an emergency clause. The bill draft also provided for a hold harmless provision.

When the Legislative Assembly elected to include unrestricted federal revenues in the supplemental payment calculation, certain school districts were able to benefit from that action while others would have received more funds had the distribution been calculated without the reference. The committee consequently considered reprioritizing the distribution of the 2003-05 contingent funds to make whole those districts that would have received more funds had the reference to unrestricted federal revenues not been included. Although representatives of the affected school districts indicated they had made plans to utilize the dollars, the committee determined the ending fund balances maintained by the school districts would more than compensate for any loss of anticipated funds and in the event any district was seriously harmed, a case for reinstitution of the funds could still be made during the 2005 legislative session.

The committee therefore recommends House Bill No. 1032 to remove the reference to unrestricted federal revenue from the supplemental payment calculation and to provide that this bill is an emergency measure.

Data Envelopment Analysis

Before the 2003 legislative session, the North Dakota Century Code provided for school district transportation payments that were based on the number of miles driven, the size of bus used, and in certain instances even the number of one-way trips taken by students. The payment system was based on historical costs, and efficiency was encouraged by capping the transportation payments at 90 percent of a district's stated actual costs.

Although dissatisfaction with the payment system was evident, no viable funding alternative presented itself. The 58th Legislative Assembly therefore removed all statutory references to the transportation funding system and provided that all school districts be given a block grant equal to the amount they received for transportation during the 2001-03 biennium. In addition, the Legislative Assembly appropriated $50,000 for completion of a data envelopment analysis project in the hope it would provide the basis for a viable and equitable transportation funding system that could be considered by the Legislative Assembly in 2005.

Data envelopment analysis is an alternate method for measuring and encouraging efficiency, as well as providing a basis for funding. Data envelopment analysis involves consideration of comparable operating units. With respect to school district transportation, all school districts in the state are divided into categories or peer groups. Once the categories or groups are established, the next step is to standardize the inputs. These would include costs for administrators, drivers, mechanics, repairs, fuel, etc. Data envelopment analysis also accounts for factors such as road conditions, which are outside management control. Through use of a mathematical formula, the variables are then analyzed to determine the relative efficiency of each district. Each district is compared to the other districts in its category or group. If funding is made a part of the formula, the funding is then based on the operational cost of the most efficient district in the category. Not only does data envelopment analysis provide a basis for funding, it also assists school districts in reconfiguring their transportation routes so that the greatest possible degree of efficiency might be attained.

Committee Consideration - Recommendations

The committee recommends House Bill No. 1033 to require the Superintendent of Public Instruction to use data envelopment analysis as the basis for calculating school district transportation payments. The committee amended the original bill draft to provide for a three-year phasein period so school districts that would lose money under a data envelopment analysis-based formula could have additional time to make budgetary adjustments. The committee expressed rather serious concern about the fact that approximately 75 school districts would gain money, approximately 125 school districts would lose money, and the remaining school districts would see minimal impact. The committee also was concerned that as the 125 school districts become more efficient, future increases recognizing their efficiency would come from the higher funding given initially to the 75 school districts. The committee concluded that money had been spent to conduct the data envelopment analysis study and therefore the entire Legislative Assembly should have an opportunity to examine the transportation funding system that would be generated.

DATA COLLECTION AND REPORTING STUDY

Background

North Dakota Century Code Section 15.1-02-08 provides that the Superintendent of Public Instruction is to implement a uniform system for the accounting, budgeting, and reporting of data for all school districts in the state. That section also requires the Superintendent to designate the software standards that school districts must use in their accounting, budgeting, and reporting functions.

Much of the data submitted by school districts is used to compile the Superintendent of Public Instruction's biennial report. In accordance with NDCC Section 15.1-02-09, that report must include the number of school districts in the state, the financial condition of each school district, the value of property owned or controlled by each school district, the cost of education in each school district, the number of teachers employed by each school district and their salaries, the number of students in average daily membership and the average daily attendance in each school district, the grades in which students are enrolled, and, when applicable, the courses in which they are enrolled. Information regarding the state's approved nonpublic schools is also compiled.

While the Superintendent's biennial report provides an overview of the state of education, other statutorily mandated reports are designed to elicit far greater detail. Examples of such reports include the employee compensation reports, school reports, school district biennial planning reports, and professional development reports. In addition, school districts must provide information regarding their approval and accreditation and their cost of education. Most significantly, school districts must provide any information required by the Superintendent of Public Instruction in order that determinations can be made regarding the amount of state aid to which they are entitled.

In addition to the data that must be statutorily provided to the Superintendent of Public Instruction, school districts are also required to file reports with other agencies and entities. These include discharge of personnel reports, school condition reports, educational technology reports, and various career and technical education reports. The Board of Education of the city of Fargo is also required by statute to "prepare and report to the mayor and the city council ordinances and regulations necessary for the protection, safekeeping, and care of the schools, lots, sites, and appurtenances and all the property belonging to the city, connected with and appertaining to the schools, and to suggest proper penalties for the violation of ordinances and regulations."

Performance Based Data Management Initiative

The Performance Based Data Management Initiative is a collaborative effort between the United States Department of Education and all state education agencies in the country. The initiative's goal is to improve the quality and timeliness of education data reportable by school districts and state agencies to the United States Department of Education. Under the initiative, a repository is being created for all performance-based program data. This repository, which is called the Educational Data Exchange Network, will allow the Department of Public Instruction and all other state education agencies to transmit all of their program performance data to the United States Department of Education.

The Performance Based Data Management Initiative will increase the focus on outcomes and accountability through improvements in data accuracy and, most importantly, streamline federal education data collections. The pilot phase has already been completed and in November 2004 the second phase of data transmission testing begins.

Participation in this initiative has forced the Department of Public Instruction to examine its own reporting and data collection requests. Already, many of the requests have been narrowed simply through the identification and removal of redundancies.

In May 2003 the Department of Public Instruction used 393 forms. By September 2003 that number had been reduced to 318 and by March 2004, 242 forms were still being used. That evidences a 38 percent reduction in forms and includes the elimination of approximately 70 annual reports.

Committee Consideration - Conclusion

The committee recognized this is an ongoing process and a fundamental transformation of the manner in which data is collected and accessed. Since the streamlining effort appeared to have had no negative impact on school districts in the state, the committee makes no recommendation regarding its study of school district data collection and reporting requirements.

STUDENT'S SCHOOL DISTRICT OF RESIDENCE DETERMINATIONS STUDY

Background

North Dakota Century Code Section 54-01-26 provides that every individual has a residence and that an individual's residence is determined according to the following premises:

1. It is the place where one remains when not called elsewhere for labor or other special or temporary purpose and to which the person returns in seasons of repose.
2. There can be only one residence.
3. A residence cannot be lost until another is gained.
4. The residence of the supporting parent during the supporting parent's life, and after the supporting parent's death, the residence of the other parent is the residence of the unmarried minor children.
5. An individual's residence does not automatically change upon marriage, but changes in accordance with subsection 7. The residence of either party to a marriage is not presumptive evidence of the other party's residence.
6. The residence of an unmarried minor who has a parent living cannot be changed by either that minor's own act or that of that minor's guardian.
7. The residence can be changed only by the union of act and intent.

Residency determinations play a major role in delineating responsibility for the provision of elementary and secondary education and often have significant financial consequences. While residency determinations affect issues of annexation, home education, postsecondary enrollment options, tuition, and open enrollment, they seem to elicit the greatest concern when applied to student placements for purposes other than education. For this limited instance, NDCC Section 15.1-29-14 defines a student's school district of residence as:

[T]he district in which the student resides:

1. At the time that a state court, tribal court, juvenile supervisor, or the division of juvenile services issues an order requiring the student to stay for a prescribed period at a state-licensed foster home or at a state-licensed child care home or facility;
2. At the time a county or state social service agency places the student, with the consent of the student's parent or legal guardian, at a state-licensed foster home or at a state-licensed child care home or facility;
3. At the time the student is initially placed in a state-operated institution, even if the student is later placed at a state-licensed foster home or at a state-licensed child care home or facility; or
4. At the time the student is voluntarily admitted to a state-operated institution or to a state-licensed child care home or facility.

The section further provides if after a student placement is made, the student's custodial parent establishes residency in another school district in this state, the school district in which the custodial parent has established residency becomes the student's school district of residence for purposes of paying tuition and tutoring charges. A "custodial parent" is defined as "the parent who has been awarded sole legal and physical custody of the student in a legal proceeding or, if there is currently no operative custody order, the parent with whom the student resides." If the student resides with both parents, then both are considered to be custodial parents.

Reimbursement for Services Provided - Responsibility for Costs

When a student is placed in a school district for noneducational purposes, the student's district of residence is determined under NDCC Section 15.1-29-14 and that school district becomes obligated to pay tuition to the admitting district. The responsibility of the student's district of residence is limited to the state average cost per student. Any remaining charges are paid by the state within the limits of legislative appropriations. If the student requires special education services, the responsibility of the school district of residence increases to 2.5 times the state average cost per student plus 20 percent of all remaining costs.

Frequently, students placed under NDCC Section 15.1-29-14 for noneducational purposes are in the foster care system and their families are transient. An address provided at the time of the student's placement can impose significant financial obligations on the school district within which the address is located. If the student's parent relocates and establishes residency in another school district, the financial burden is then statutorily placed on the school district in which the parent resides. However, given the transitory lifestyles of many such parents, school districts are often incapable of determining the address to which a parent has relocated and must therefore maintain financial responsibility for a student who at best may have only very tenuous connections with the district.

Committee Consideration - Recommendations

The committee recommends Senate Bill No. 2033 to establish a student's school district of residence at the time of placement and require the placing agency to review that determination each September 1 thereafter. The bill also clarifies that the state is responsible for the financial obligations of a student if the student's custodial parent or legal guardian is no longer a resident of this state, if parental rights have been terminated, if the student no longer has a custodial parent, or if the Superintendent of Public Instruction determines that all reasonable efforts to locate the student's parent or legal guardian have been unsuccessful. The committee concluded that determinations regarding a student's residency are complex and often result in unintended outcomes and that is why previous efforts by individuals or groups acting alone did not meet with success. This time, however, representatives of several school districts, special education directors, the Department of Public Instruction, and the Developmental Disabilities Division and the Children and Family Services Division of the Department of Human Services came together to craft a solution that the committee found to be both workable and acceptable.

MISCELLANEOUS REPORTS

School District Employee Compensation Reports

North Dakota Century Code Section 15.1-02-13 directs each school district to report employee compensation data to the Superintendent of Public Instruction before September 11 of each year. Because of this deadline, the 2003-04 data was not available for presentation to the committee. However, the committee did receive the data governing the 2001-02 and the 2002-03 school years.

Between the 2001-02 and 2002-03 school years, the average teacher base salary increased by $2,129. One hundred thirty-eight school districts had average teacher base salary increases that were lower than the state average. Between the 2001-02 and 2002-03 school years, the average total compensation for teachers increased by 5.6 percent. In 85 school districts, the average total compensation for teachers was less than the state average.

While the average total compensation for teachers rose by $2,471 between the 2001-02 and 2002-03 school years, the average total compensation for administrators rose by $3,190 during that same period.

Requests for Waivers of Accreditation Rules

The Superintendent of Public Instruction received a request to waive the education improvement standard. The request was denied because the relief sought was for the current year, whereas waivers are granted only for the succeeding school year.

The Superintendent of Public Instruction received a request to waive the counselor qualification standard. The request was denied because the issue was satisfactorily addressed in the rules governing counselor credentials.

Requests for Waivers Relating to Minimal Instructional Time for High School Units

The Superintendent of Public Instruction received a request to waive the instructional time requirements for high school units. The request was denied because alternatives were not sufficiently delineated, simply spending less time on noncore areas was not considered to be innovative, and the requesting district was not accredited at the high school level.

The Superintendent of Public Instruction received a request to continue the reconfiguration of school days. The request was conditionally approved because several of the included schools were on an accredited-warned status.

Failure of School Boards to Meet a Statutory Threshold for Increasing Teacher Compensation

Chapter 667 of the 2003 Session Laws directed the board of each school district to use an amount equal to at least 70 percent of all new money received for per student payments under NDCC Section 15.1-27-04 and tuition apportionment payments under Section 15.1-28-03 for the purpose of increasing the compensation paid to teachers and for the purpose of providing compensation to teachers who begin employment with the district on or after July 1, 2003. This directive did not apply if the board determined by a two-thirds vote that compliance would place it in the position of having insufficient fiscal resources to meet its other obligations. In the case of such a determination, the board was to notify the Superintendent of Public Instruction.

The Superintendent of Public Instruction received no notices under this section.

Other Reports

The committee was directed to receive the results of the state assessments in reading and mathematics and to receive a report regarding potential changes to the teacher licensure process. Because these topics were directly related to the work of the interim No Child Left Behind Committee, presentations to the Education Committee were considered to be redundant and therefore not requested.

The committee was also directed to receive a report regarding the data envelopment analysis project. Because of the complexities involved with data envelopment analysis, the committee considered it to be part of the education funding study and it is included in the portion of this report related to the financing of elementary and secondary education.