School Finance Working Committee Minutes
	July 27, 1999 First Meeting of Five for 1999

MEMBERS PRESENT

MEETING IN BRIEF

Organizational staffing provided by Richard Nelson, Legal Counsel
Minutes prepared by Kathy Hanlon, Research Analyst

1. Procedural Business.
2. Effects of Quality Education on Future Earnings.
3. Education Spending and Student Academic Performance.
4. Student Achievement Guarantee in Education (SAGE) Program.
5. Iowa Fiscal Update.
6. Department of Education Perspectives.
7. Job Training and Education.
8. Weighing the Effects of Dollars, Family, Peers, and Community on Public School Outcomes.
9. Committee Discussion.
10. Written Materials Filed With the Legislative Service Bureau.

COMMITTEE BUSINESS

1. Procedural Business.

Call to Order. The first meeting of the 1999 School Finance Working Committee was called to order by Co-chairperson Redfern at 10:15 a.m., Tuesday, July 27, 1999, in the Iowa Communications Network Classroom (ICN) in the Department of Human Service's City View Plaza, at 1200 University Avenue in Des Moines, Iowa.

Lunch and Adjournment. Members conducted a working lunch by rearranging the agenda to move forward presentations by Mike Lipsman, Fiscal Analyst for the Legislative Fiscal Bureau, and Ted Stilwill, Director of the Iowa Department of Education. The meeting adjourned at 2:45 p.m.

Next Meeting Date. The Committee unanimously agreed to meet next on August 17, 1999.

2. Effects of Quality Education on Future Earnings.

Overview. Co-Chairperson Redfern noted that he recently attended the Federal Reserve Bank of Chicago's Conference on Midwest Approaches to School Reform: Resources, Outcomes and Funding of Public Schools. Impressed by the presentations made during the conference, he invited a number of the presenters to appear at this meeting. One of those presenters, Dr. Craig Olsen, Professor of Business and Industrial Relations for the University of Wisconsin-Madison, appeared before the Committee via the ICN to present his research on high school inputs and labor market outcomes for high school graduates in Wisconsin. Dr. Olsen's research provides new evidence that the quality of schooling does affect future earnings -- that men educated in states with higher quality school systems earn more.

Study Results. Dr. Olsen believes previous studies erred in collecting information on high school graduates only into their 20s and 30s -- ages unlikely to reflect the payoffs of a quality education. His study, the Wisconsin Longitudinal Survey (WLS), controlled for family background characteristics and the effects of the parents, such as income and education levels. However, across-state differences and labor market differences between states, while important, are factors more difficult to accurately compare. The WLS data is from a single state, it measures earnings for individuals at least in their mid-30s, and measures school inputs received by respondents measured at the school or school district level.

The study results show that school resources have a significant effect 17 years following graduation. The effects of school resources on school quality are due primarily to teacher salaries and abilities. Districts that paid their teachers higher salaries attracted teachers who were better educated and had more teaching experience. School resource effects are less important than parent income and education, but if school and family resources are combined, there is a large difference in future earnings.

Teacher Salaries. According to Dr. Olsen, the rate of return for an investment of $20 per year per student, for an increase in teacher salaries of 1 percent back in 1957, would have been nearly the same as investing in a college degree at the time -- a rate of return of 10.81 percent. Spending more on teachers, therefore, has a significant impact. Study findings support the statement that investments in teacher pay and professional development result in favorable labor market outcomes for students following graduation.

Class Size. During Committee discussion, Dr. Olsen noted that class size had no significant effect on future earnings, and noted that districts with small enrollments do not benefit from economies of scale. Small districts have budget constraints and cannot afford to pay teachers well, and so must employ less-experienced teachers. Consolidation by smaller districts has improved education.

3. Education Spending and Student Academic Performance.

According to conventional wisdom, there is no correlation between educational spending and outcomes, but Dr. Kevin Smith (appearing via the ICN), Associate Professor of Political Science at the University of Nebraska -- Lincoln, reviewed for members the results of his research proving that, over the long term -- 10 years or more, money makes a difference and inequities of expenditure matter.

Political scientists believe education is important to increasing social capital. Therefore, even if money has no impact on test scores, it does not follow that money is not important to education. Dr. Smith suggests replacing test scores with other goals and objectives of education when judging schools -- for example, measure education spending as a percentage of gross state product (GSP) and the educational climate of state schools. Parental support of schools or lack thereof is in direct correlation to the amount of money invested by a state. States that pour more wealth into education are more likely to have climates conducive to learning. He speculates that students are advantaged when the system has equity.

Dr. Smith agrees with the conventional wisdom that problems with the educational system cannot be solved by throwing money at schools. However, problems can be corrected or ameliorated if the money is well spent. The relationship between increased teacher salaries and academic improvement is positive if the outcomes and teacher salaries are portrayed as a percent of statewide salaries. His conclusion is that what is important to outcomes is teacher salaries relative to their communities. It is important to compare teacher salaries with other salaries within the state, not with teacher salaries across the country.

Dr. Smith suggests that a good average teacher salary would be 110 to 150 percent of the average salary in the community.

4. Student Achievement Guarantee in Education (SAGE) Program.

Overview. Dr. Janice Zmrazek, SAGE Program Coordinator at the Wisconsin Department of Public Instruction, provided a history, overview, and evaluation of the SAGE Program via the ICN. The program is a statewide effort to increase the academic achievement of children living in poverty by reducing the student-teacher ratio to 15:1 in kindergarten through grade three.

Legislative Action. The Wisconsin Legislature approved the program as a pilot and appropriated $4.5 million in their 1995-1997 biennial budget to fund the program in one school per district (though Milwaukee was allowed seven), based on poverty figures. Some districts chose not to participate. After less than one year, teachers were calling the program a miracle and said children were reading and progressing as a result of the program's implementation. The Legislature has expanded the program to more schools (80 from 50) and increased the appropriation to $15 million in the 1998-99 school year. If the program is expanded to all schools at 65 percent of poverty, 60 to 70 more schools will be involved.

Districts that agree to participate must sign a contract and describe how they will achieve their goals and develop a plan. Schools must identify standards at each grade level, provide before- and after-school activities for students and community members, and implement professional development and accountability plans. Districts must define goals and how those goals will be measured -- and standardize their measurements. Districts spend most of the money on teacher salaries.

Evaluation Findings. The Wisconsin Legislature allocated $250,000 per year to the Department of Public Instruction for the SAGE Program. The Department contracts with the University of Wisconsin -- Milwaukee School of Education, for program evaluation.

SAGE schools overall achieved increased results. African American students made gains -- more gains than the white SAGE students. The gap continues between SAGE schools and those not in the program. However, gains in second grade were not as great -- possibly because schools may not be doing as much as they could with professional development and, because the state had budget problems, schools were not as likely to hire more teachers to reduce second grade class sizes, and almost one-third of the schools delayed beginning the program until after the start of the school year. The classroom climate in SAGE schools suggests the program is a success. There are very few discipline problems, leaving more time for teaching, individualized instruction, diagnosis of needs, and immediate feedback.

Infrastructure Needs. School districts with space problems are allowed to team teach, room share, and develop other innovations. Almost all Milwaukee schools are team teaching. Funds are not specifically allowed for new construction, but program funds may be used to remodel if remodeling is necessary before the program can be implemented. Some districts are using money to lease portable classrooms. The state is trying to create a bonding bill. The program's good results have helped pass some referendums.

5. Iowa Fiscal Update.

Condition of the General Fund. Mr. Lipsman provided a budget review of FY 1998-1999 and a budget outlook for FY 2000-2001. Net General Fund receipts to date for FY 1999-2000 have decreased by $4.3 million from the previous year and FY 1998-1999 net receipts were $25.4 million below the Revenue Estimating Conference (REC) April forecast. Refunds are much greater than anticipated. Ending balances for FY 1998-1999 decreased by $107.5 million to $301.3 million from the previous fiscal year and, based upon the current REC forecast, will decrease another $137.5 to $163.8 million in FY 1999-2000. However, a further decrease in the ending balance to $108 million may be expected given actual revenue performance so far during this fiscal year. The Iowa Institute for Economic Research forecasts suggest an even weaker ending balance of $34.8 million.

Given these estimates, and factoring in expenditures already committed to by the Legislature and the Governor, Mr. Lipsman finds the ending balance for the General Fund to be entirely depleted by the end of FY 2000-2001. Without additional revenues or a reduction in expenditures, appropriations are likely to exceed expenditure limitations. Reserve funds are fully intact. The recent downturn in agriculture and its effect on state revenues was unexpected. The downturn hit the production sector last year and will hit the commercial side this year. Indicators are being identified and followed to prevent similar surprises next April. Moneys from the tobacco settlement are not included in these figures because there is no commitment regarding the use of the settlement moneys.

6. Department of Education Perspectives.

Mr. Stilwill provided the Department's perspective on investments in education and improving student outcomes. He noted that research indicates teacher quality makes a difference, but there are too many variables and more research needs to be done to understand better what makes a difference.

The Committee must determine goals for Iowa's education system, then work to achieve those goals through changes in the school finance formula. Iowa has a historically strong commitment to equity, and ranks within the top five states nationally in program equity. The principle Iowa struggles most with is adequacy. Complete adequacy requires complete equity. A formula is meant to represent a certain amount of need and how the need should be met. The formula was for the most part put together in the early 70s. Needs have since changed. The state has more students with special needs -- students who do not have social or language skills that their predecessors in the 70s would have had -- and the numbers grow yearly. If intervention occurs before the end of first grade, students' reading skills can be turned around. Last session's Early Intervention Block Grant Act and the 1998 legislative session's Community Empowerment Act will help schools with that early intervention. The Department will monitor results to see if these investments will change the trend lines in reading and otherwise improve student outcomes. The state is not simply throwing money at the problem, but is changing traditional teaching methods. What matters is how the money is spent.

Flexibility. The formula should be simplified, and schools and the people they employ at the front lines should be given more flexibility to get results. Rolling categorical funding, such as Phase III funding, into the formula can improve flexibility.

The State's Role. The Committee and the Legislature may wish to determine the amount of oversight the state wants over community decision making, and the state's role in monitoring and providing assistance and building capacity. The Department should monitor and evaluate education programs and services offered by school districts, accredited nonpublic schools, and area education agencies.

The state needs to encourage districts to look beyond test scores -- to look at who is graduating, whether those graduating go on to college, and how long it takes graduates to complete their programs. It is fair to ask K-12 schools "how are you doing?"

Mr. Stilwill recommended that members rank order the "principles for guiding design of formulas" included in his handout. He commended legislators for the poverty factor they included in the Early Intervention Block Grant Act.

7. Job Training and Education.

Misconceptions. Dr. James Heckman, Professor of Economics at the University of Chicago, discussed via the ICN the results of research conducted regarding the lifetime process of learning and skill formation. Dr. Heckman indicated that current policies regarding education and job training are based on fundamental misconceptions about the way socially useful skills are produced, and what those skills are. The importance of families and environment, from early childhood through workplace education, to the learning process is underrecognized. There is an overreliance on achievement tests and various measures of cognitive skill in assessing the success of educational interventions and the development of valuable skill acquisition. Also underrecognized is the ability of competition and incentives to influence parental choice in education and improve the performance and quality of schools.

Value in Early Development of Noncognitive Skills. Whereas policymakers have traditionally assumed that formal educational institutions are the major producers of skill, in reality the family and private firms are equally, if not more, important. Dr. Heckman recommends additional education spending for early intervention for children between the ages of two through five. Intervening with parents may be more important than intervening with the children. Policies and programs directed toward families improve school performance more effectively than expenditures on teacher salaries or new computers. He stressed the recognition of informal sources of learning, the value of noncognitive skills, the cumulative character of learning, and the value of incentives in formal education.

Cognitive tests indicate learning, but cognition or ability is only one component in the portfolio of skills that lead to success in the general environment. The ability to fit into society is also very important and neglected in educational evaluations. Dr. Heckman believes Head Start is underrated and does not go far enough. If there is a fadeout in the cognitive scores of children who participated in Head Start, the long-term noncognitive results are good.

The costs of training those who are unskilled are very high. Variations in classroom size and changes in teacher qualifications have small effect. The interventions that are most effective involve changing noncognitive skills and motivation in adolescence. Studies indicate that if intervention is early, individuals who are subject to the interventions show much greater attachment to society at large when followed 20 years later. Early test score gains in cognition fade away, but noncognitive, socially beneficial skills remain. The most dramatic effect of improving noncognitive skills is crime reduction. Research shows that early intervention programs targeted at disadvantaged students result in money saved from crime costs reduction. Program costs are more than covered.

He also recommends increasing choice and competition. Most parents will try to choose wisely to get the best educational environment for their children.

8. Weighing the Effects of Dollars, Family, Peers, and Community on Public School Outcomes.

Dr. Thomas Pogue, Professor of Economics, University of Iowa, presented the results of a study estimating how the ACT scores of students in four designated states were impacted by their ethnic, family, and community environments, the characteristics of their schools, and their academic preparation and postsecondary education objectives.

If all schools were very good, a little bit of additional spending would not matter because there is a point of diminished return. Dr. Pogue agreed with other speakers that money spent wisely matters. Study results indicate that scores increase with increases in per pupil expenditures. Scores also depend on other variables that reflect the level of per pupil spending, such as the availability of magnet schools, advanced placement (AP) and honors courses, and whether students take four years of math or science. Funding should be based upon what it will cost to achieve the desired outcomes.

However, the unavailability of AP courses in many rural districts can lead to inadequacy statewide. If more than half of the high schools offer AP, leading to a differentiation between students whose districts can afford it and districts that cannot, legislators should consider whether financial incentives should be offered to provide access to AP programs. The state may also want to offer something different than postsecondary enrollment options during the last two years of high school.

Rural/Urban Differences. Dr. Pogue also noted another difference between students from small districts and large districts. Students from small districts have slightly lower ACT scores, and their college plans differ even when the students have the same scores as their counterparts in larger districts. Rural students are more likely to go to community college and a two-year program, while those in urban districts are likely to go on to four-year and graduate programs. Rural students are not receiving good counseling.

Mr. Stilwill suggested that improving inequity should not be left to local control. He further stated that consolidation is not the answer. He recommended a state-administered regional academy system partnered with various educational entities. The academies would look much like Des Moines' Central Campus, attracting students from various districts for advanced coursework. Dr. Pogue noted that providing the classes will not be enough -- students need good counseling and guidance toward these courses by teachers and counselors.

Low-Income Family + High-Poverty School District = Low Scores. Students from low-income families and high-poverty school districts scored lower than otherwise similar students from middle-income families and low-poverty districts. Test scores were lower for students from families in which English is not the primary language, minority students scored lower than otherwise similar nonminority students, and both minority and nonminority students attending schools that are effectively segregated had significantly lower scores than otherwise similar students. Test scores indicate that using more resources in the education of poor and otherwise at-risk students can offset the effects of adverse factors, such as poverty. However, despite experiencing academic success, motivated students from disadvantaged backgrounds still scored lower than did students from more advantageous circumstances.

Therefore, proposals for increasing accountability through measuring the success of teachers, schools, and school systems via standardized test scores, and making decisions about the allocation of resources among schools and programs based on those scores, fail to take into consideration a variety of other factors influencing student testing performance.

9. Committee Discussion.

Co-Chairperson Redfern noted that supplementary weighting will be the Committee's next priority. He asked members to share their suggestions for presenters with staff. Other subjects to be discussed in future meetings will include salaries, on-time funding and how it is being implemented, English-as-a-Second-Language, Talented and Gifted programs, and the implications of legislation achieved in the past session.

10. Written Materials Filed With the Legislative Service Bureau.

Heckman, James. "Doing it Right: Job Training and Education." The Public Interest, 135 (Spring 1999): 86-107.

Lipsman, Mike. "FY 1999 Budget Review and FY 2000-2001 Budget Outlook." Memo to Accompany Presentation. July 27, 1999.

Olsen, Craig A. "High School Inputs and Labor Market Outcomes for High School Graduates in Wisconsin." Video Conference Presentation, July 27, 1999.

Olsen, Craig A. and Deena Ackerman. "High School Inputs and Labor Market Outcomes for Male Workers in Their Mid-Thirties: New Data and New Estimates From Wisconsin." January 22, 1999.

Pogue, Thomas F. and James Maxey. "Outcomes of Public Education: Weighing the Effects of Dollars, Family, Peers, and Community." July 22, 1999.

Pogue, Thomas F., James Maxey, and Chia-Hsing Lu. "Public School Success and Failure: Weighing the Effects of Dollars, Family, Peers, and Community." May 17, 1999.

Smith, Kevin B. "Explanation of Figures." Handout to Accompany Presentation. July 27, 1999. "Comparison of Teacher Salaries." Follow-up Information. July 28, 1999.

Stilwill, Ted. "Comments." Handout to Accompany Presentation. July 27, 1999.

Zmrazek, Janice. "The SAGE Program." Handout to Accompany Presentation. July 27, 1999.

"Central Decatur Health Services 1998-99," submitted by Rita Audlehelm.

Fiscal data runs compiled by Mike Lipsman (LFB) and submitted by Representative Bob Brunkhorst.

Memo from Mike Lipsman (LFB) to Senator John Kibbie regarding additional amounts of state aid -- with attachments titled "Comparison of Budgeted and Estimated 'Fully Funded' FY99 K-12 Education Program Costs," and "State Foundation Aid -- Old vs. Current Formula Comparison," submitted by Senator Kibbie.

"State Fire Safety Report for Schools and Colleges," distributed by Roy Marshall, State Fire Marshal.

Written comments by Wayne Bauman, Iowa PTA Vice President for Legislation.

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