BEP Backlash

Is Tennessee’s school funding system broken? Local officials increasingly say ‘yes’

PHOTO: Kayleigh Skinner
Shelby County budget director Mike Swift studies information presented by leaders of Shelby County Schools during a budget hearing on July 5.

Shelby County Mayor Mark Luttrell says it’s time to rethink the cost of K-12 education — in Memphis, and likely in Tennessee as well.

Fresh from reviewing the latest funding allocations to Shelby County Schools, Luttrell points out what the state is paying, what the county is obligated to pay, and what the county actually pays to operate the state’s largest public school district.

Shelby County Mayor Mark Luttrell
Shelby County Mayor Mark Luttrell

It’s the $52 million gap between what the county is obligated to pay and what the county actually pays that worries him, especially given the state’s stagnant allocations and the county’s increasing contributions, often to pay for state-mandated education reforms.

“We’re giving a lot of money to education that’s over and above — that we shouldn’t have to,” Luttrell said. “[That figure] also tells us that the state is not meeting their full contribution.”

Luttrell’s conclusion is one that’s being reached by more and more local government officials across Tennessee amid tension over perennial requests from local school leaders for more funding.

Historically, the local government receives notice of the state’s education allocation, as well as the local education obligation, under the state funding formula known as Basic Education Plan, or BEP. School district leaders then go before the local government funding bodies, typically asking for more local money to cover their increasing costs, and get grilled over their spending priorities, before the final funding amount — and local property tax rate — is set.

But increasingly, in the midst of often heated discussions between local government and school leaders, officials are looking up from their spreadsheets and wondering aloud whether the funding system they’re working under might be broken, or at the very least outdated.

“The argument used to be how we divied up the pie,” said Wesley Robertson, a budget and finance consultant for county governments across the state. “Now they’re saying the pie is not big enough.”

Breaking down the BEP

Created in 1992 in an attempt to provide a fair and equitable allocation of state education funding between urban and rural districts, the state’s BEP is designed to provide a basic level of education for all Tennessee students, no matter what their school district. The formula uses 45 ratios based on factors such as what a typical class size should be and how much an administrator should be paid.

The BEP was last updated in 2007 — five years before Tennessee launched sweeping education changes under the federal Race to the Top initiative. Critics charge that the formula now low-balls the cost of education, with allocations that have not kept pace with inflation, on-the-ground enrollment challenges, a growing charter school industry and new mandates to improve the state’s worst-performing schools — efforts that require extra staff and expensive intervention programs.

While Tennessee taxpayers spend around $6 billion a year on education — which should be split about 50-50 between state and local revenue — around $4 billion currently is being paid by local governments, according to a Chalkbeat analysis.

The additional local expense has evolved due to several factors — the bulk of which stems from a misalignment between what the state deems an average class size and the local realities of staffing schools. Fluctuating student populations often force officials to scramble at the last minute to avoid overcrowding, but BEP doesn’t factor in the need for extra teachers.

In addition, BEP formulates an annual teacher salary at $40,000, but the average teacher salary across the state last year was $50,000. In Shelby County, a first-year teacher makes $42,000, with the average salary at $60,000.

Meanwhile, a growing charter sector is siphoning off thousands of students from Shelby County Schools, which results in decreased BEP revenue for the district but not a decrease in fixed costs such as loan payments for buildings, utilities or administrators’ salaries.

In Shelby County, county government now contributes more than $391 million a year to education through Shelby County Schools and six suburban municipal school systems. That’s $52 million more than they’re obligated to pay under the BEP, according to a Chalkbeat analysis.

Against that funding reality, the Shelby County Commission signed off earlier this month on its 2015-16 spending plan — without a tax increase — after numerous budget hearings in which leaders of Shelby County Schools asked for $15 million more to pay for new student computers and additional literacy coaches, among other things. They got close to $8 million more, but not before commissioners questioned the district’s spending priorities and suggested where the extra money should go.

“We need to bring prudence to Shelby County Schools, as we do for Shelby County government,” budget committee chairwoman Heidi Shafer told school leaders during a two-hour hearing in May.

"What incentive does the state have to fully fund the BEP if we keep picking up their slack?"David Reaves, Shelby County Commissioner

District leaders countered that they’re already there. The Shelby County Board of Education cut $125 million before approving a $1 billion budget this spring, laying off more than 500 employees, closing several schools and tapping into its savings account to stave off more cuts. During the last two years, the district has made $275 million in cuts.

District leaders complained to commissioners that they’re working off a spending plan that the state is woefully underfunding based on a formula that they say grossly underestimates the “true cost” of education. If the state paid its full obligation under the BEP, the district would receive an extra $100 million annually, according to board member Chris Caldwell.

“What incentive does the state have to fully fund the BEP if we keep picking up their slack?” asked commissioner David Reaves during one budget hearing in May. “We need to create a climate where there’s a burning need [for the state to fulfill its obligation].”

“If you want to get off the hot seat,” an exasperated Caldwell told commissioners, “you should go to the state and tell them to give us our due amount.”

Picking a battle

Shelby County isn’t an outlier. School leaders for all three of the state’s other largest districts—in Nashville, Knoxville and Chattanooga — asked their local funding bodies for additional money as well this spring.

The biggest request—for a 40-cent tax increase to generate an additional $34 million for schools—was hashed out in Chattanooga through Hamilton County Schools. Hamilton County Mayor Jim Coppinger rejected the proposal, forcing Superintendent Rick Smith to go back to the drawing board and reduce a proposed teacher pay increase from 5 to 2 percent.

Meanwhile, across the state, local governments are picking up $1 billion more than they’re obligated to under the state’s BEP formula, and district and local government leaders are increasingly shifting the focus of their frustrations to Nashville and the state Capitol, where the state distributes education funding based on the BEP.

“(Districts and local governments) can’t get anything done locally and they want to fight,” said Robertson, who represents county governments across the state. “Our message is, ‘You need to be on the same team. Come together and turn your attention toward the state.'”

In March, that’s exactly what boards for seven school districts in southeast Tennessee did. Led by the Hamilton County Board of Education in Chattanooga, the districts filed a lawsuit charging that the state has created a system that “shifts the cost of education to local boards of education, schools, teachers and students, resulting in substantially unequal educational opportunities across the State.” But unlike three prior lawsuits alleging built-in inequities in the formula, Hamilton’s lawsuit focuses on inadequacy and argues that the formula fails to “account for the true cost of educating students in Tennessee.”

Tennessee Gov. Bill Haslam delivers his 2015 State of the State address, in which he advocated the state not stray from his standards review process.
PHOTO: TN.gov
Tennessee Gov. Bill Haslam delivers his 2015 State of the State address.

The state is urging dismissal, arguing that the legislature has leeway in funding K-12 education. And Gov. Bill Haslam, who this year championed a $147 million increase in education spending across Tennessee to address BEP funding and increase teacher salaries, has repeatedly urged district leaders to engage the state in conversation instead of litigation.

“The reality is we’re making dramatic improvements in education,” Haslam said in April after lawmakers wrapped up their legislative session. “I challenge you to go around and look at any other state and see what they’re doing in terms of improving funding for education, and I’ll take Tennessee.”

Before recessing for the year, lawmakers considered a bill that would have required the state to fully fund the BEP, but the measure was tabled and never reached a committee vote. The bill is scheduled for discussion Thursday as a House education panel convenes its summer study session.

Shelby County school leaders aren’t waiting around for state lawmakers to act.

Shortly after passing its leaner budget, the district’s Board of Education voted to hire an attorney to explore suing the state over its level of funding. District leaders elsewhere in the state, including in Nashville and Knoxville, have explored similar action, though no additional lawsuits have been filed.

Caldwell has led the charge to take the state to court in Memphis, arguing that neither Haslam nor any individual legislator can guarantee anything to local school districts.

“We’re 45th in per-pupil spending in the country, and it’s beyond the time for empty promises. These kids don’t get these years back,” he said.

A looming new baseline

Luttrell is watching all of these moving parts with interest with the knowledge that Shelby County government is in a unique position to reset the cost of education in Memphis, despite whether the state eventually increases state education funding or tweaks the BEP further.

While Tennessee law prohibits reductions in local education funding from one year to the next, Shelby County government can choose to lower its contribution by 2017. That’s because state law allows an exception to local governments due to significant operational changes such as, in Shelby County’s case, the merger of the city and county school systems in 2013 and the break-off a year later of six suburban municipalities that created their own school systems.

Luttrell says he’ll be watching closely how Shelby County Schools Superintendent Dorsey Hopson manages his education budget and whether he makes more cuts, noting that the district operates dozens of under-enrolled schools. He’ll also be looking to see how the district reduces its worrisome liability for retiree benefits.

“We’ve got three years to ask the tough questions of education,” Luttrell said. “I’d like to be comfortable that we’ve done our due dilligence, and we collectively agree what should be our new baseline.”

money matters

Why Gov. Hickenlooper wants to give some Colorado charter schools $5.5 million

Students at The New America School in Thornton during an English class. (Photo by Nic Garcia)

If Mike Epke, principal of the New America School in Thornton, had a larger budget, he would like to spend it on technical training and intervention programs for his students.

He would buy more grade-level and age appropriate books for the empty shelves in his school’s library, and provide his teachers with a modest raise. If he could really make the dollars stretch, he’d hire additional teacher aides to help students learning with disabilities.

“These are students who have not had all the opportunities other students have had,” the charter school principal said, describing his 400 high school students who are mostly Hispanic and come from low-income homes.

A $5.5 million budget request from Gov. John Hickenlooper, a Democrat, could help Epke make some of those dreams a reality.

The seven-figure ask is part of Hickenlooper’s proposed budget that he sent to lawmakers earlier this month. The money would go to state-approved charter schools in an effort to close a funding gap lawmakers tried to eliminate in a landmark funding bill passed in the waning days of the 2017 state legislative session.

Funding charter schools, which receive tax dollars but operate independently of the traditional school district system, is a contentious issue in many states. Charter schools in Colorado have enjoyed bipartisan support, but the 2017 debate over how to fund them hit on thorny issues, especially the state’s constitutional guarantee of local control of schools.

The legislation that ultimately passed, which had broad bipartisan support but faced fierce opposition from some Democrats, requires school districts by 2020 to equitably share voter-approved local tax increases — known as mill levy overrides — with the charter schools they approved.

The bill also created a system for lawmakers to send more money to charter schools, like New America in Thornton, that are governed by the state, rather than a local school district.

Unlike district-approved charter schools, which were always eligible to receive a portion of local tax increases, state-approved charter schools haven’t had access to that revenue.

Terry Croy Lewis, executive director of the Charter School Institute, or CSI, the state organization that approves charter schools, said it is critical lawmakers complete the work they started in 2017 by boosting funding to her schools.

“It’s a significant amount of money,” she said. “To not have that equity for our schools, it’s extremely concerning.”

CSI authorizes 41 different charters schools that enrolled nearly 17,000 students last school year. That’s comparable to both the Brighton and Thompson school districts, according to state data.

Hickenlooper’s request would be a small step toward closing the $18 million gap between state-approved charter schools and what district-run charter schools are projected to receive starting in 2020, CSI officials said.

“Gov. Hickenlooper believes that working to make school funding as fair as possible is important,” Jacque Montgomery, Hickenlooper’s spokeswoman, said in a statement. “This is the next step in making sure that is true for more children.”

If lawmakers approve Hickenlooper’s request, the New Legacy charter school in Aurora would receive about $580 more per student in the 2018-19 school year.

Jennifer Douglas, the school’s principal, said she would put that money toward teacher salaries and training — especially in the school’s early education center.

“As a small school, serving students with complex needs, it is challenging and we need to tap into every dollar we can,” she said.

The three-year old school in Aurora serves both teen mothers and their toddlers. Before the school opened, Douglas sent in her charter application to both the Aurora school board and CSI. Both approved her charter application, but because at the time her school would receive greater access to federal dollars through CSI, Douglas asked to be governed by the state.

Douglas said that her preferred solution to close the funding gap would be to see local tax increases follow students, regardless of school type or governance model. Until that day, she said, lawmakers must “ensure that schools have the resources they need to take care of the students in our state and give them the education they deserve.”

For Hickenlooper’s request to become a reality, it must first be approved by the legislature’s budget committee and then by both chambers. In a hyper-partisan election year, nothing is a guarantee, but it appears Hickenlooper’s proposal won’t face the same fight that the 2017 charter school funding bill encountered.

State Rep. Jovan Melton, an Aurora Democrat who helped lead the charge against the charter school funding bill, said he was likely going to support Hickenlooper’s proposal.

“You almost have to do it to be in alignment with the law,” Melton said. “I don’t think with a good conscience I could vote against it. I’m probably going to hold my nose and vote yes.”

Payment dispute

Fired testing company seeks $25.3 million for work on TNReady’s bumpy rollout

PHOTO: TN.gov

Tennessee officials won’t talk about the state’s ongoing dispute with the testing company it fired last year, but the company’s president is.

Henry Scherich

Henry Scherich says Tennessee owes Measurement Inc. $25.3 million for services associated with TNReady, the state’s new standardized test for its public schools. That’s nearly a quarter of the company’s five-year, $108 million contract with the state, which Tennessee officials canceled after technical problems roiled the test’s 2016 rollout.

So far, the state has paid the Durham, North Carolina-based company about $545,000 for its services, representing about 2 percent of the total bill, according to a claim recently obtained by Chalkbeat.

Measurement Inc. filed the claim with the state in February in an effort to get the rest of the money that it says it’s owed. Since then, lawyers for both sides have been in discussions, and the company filed a lawsuit in June with the Tennessee Claims Commission. The commission has directed the State Department of Education to respond to the complaint by Nov. 30.

“We’re moving forward,” Scherich told Chalkbeat when asked about the status of the talks. “… We’re simply asking to be paid for the services we provided.”

Education Commissioner Candice McQueen declined last week to discuss the dispute, which she called “an ongoing pending lawsuit.” A spokesman for the attorney general’s office also declined to comment on Monday.

Scherich said he and other company officials have not been called to Nashville for hearings or depositions.

“Our lawyers and the state’s lawyers are still skirmishing each other,” he said. “…They argue about lots of things. It’s kind of like we’re establishing the ground rules for how this process is going to proceed.”

PHOTO: Grace Tatter
Education Commissioner Candice McQueen announced the firing of Measurement Inc. and the suspensions of most testing in April 2016.

Tennessee’s dramatic testing failure started on Feb. 8, 2016, when students logged on during the first morning of testing and were unable to load TNReady off the new online platform developed by Measurement Inc. The fallout culminated several months later when McQueen fired the company and canceled testing altogether for grades 3-8. In between were months of delays after McQueen instructed districts to revert to paper-and-pencil materials that would be provided by Measurement Inc. under the terms of their contract. Many of those materials never arrived.

The company’s claim suggests that the state was hasty in its decision to cancel online testing and therefore shares blame for a year of incomplete testing.

The Tennessee Department of Education “unilaterally and unjustifiably ordered the cancellation of all statewide electronic testing that occurred on February 8, 2016, following a transitory slowdown of network services that morning,” the claim says.

(In an exclusive interview with Chalkbeat the day before his company was fired, Scherich said Measurement Inc.’s online platform did not have enough servers for the 48,000 students who logged on that first day — a problem that he said could have been fixed eventually.)

The claim also charges that McQueen’s subsequent order to substitute paper test materials was “unnecessary and irresponsible” and impossible to meet because of the logistical challenge of printing and distributing them statewide in a matter of weeks.

In her letter terminating the state’s contracts with Measurement Inc., McQueen describes daily problems with the company’s online platform in the months leading up to the botched launch. “This was not just a testing day hiccup; the online platform failed to function on day one of testing,” she wrote.

McQueen said those experiences contributed to her department’s conclusion that Measurement Inc. was unable to provide a reliable, consistent online platform and left her with no option but to order paper and pencil tests. She also cited the company’s failure to meet its own paper test delivery deadlines for her ultimate decision to terminate the contracts and suspend testing.

The last sentence of the four-page termination letter says the state would “work with (Measurement Inc.) to determine reconciliation for appropriate compensation due, if any, for services and deliverables that have been completed as of the termination date after liquidated damages have been assessed.”

In addition to its invoices for work under the contract, Scherich said his company is owed another $400,000 for delivering test-related materials to the state after its contract was ended.

“We didn’t want to be a company that stood in the way of the programs of the state of Tennessee, so we provided all the information they requested,” Scherich said. “We were told we would be paid, we provided the information, and then we’ve not been paid.”

Founded in 1980, Measurement Inc. had been doing testing-related work for Tennessee for more than a decade before being awarded the 2014 TNReady contract, its biggest job ever. The company had a fast deadline — only a year — to create the state’s test for grades 3-11 math and English language arts after a vote months earlier by the legislature prompted Tennessee to pull out of PARCC, a consortium of other states with a shared Common Core-aligned assessment.

Scherich said the loss of the TNReady contract was “a major hit” for his company, but that Measurement Inc. has paid every employee and subcontractor who worked on the project. “We have had to go into debt to keep ourselves viable while we wait for this situation with Tennessee to be resolved,” he said, adding that the company continues to do work in about 20 other states.

To pursue its claim, Measurement Inc. has hired the Tennessee law firm of Lewis, Thomason, King, Krieg & Waldrop, which has offices in Nashville and Knoxville.

“I’m sure we’ll work out something amicable with the state over time,” he said. “I’m an optimistic person. But I think our lawyers and their lawyers will have to have a lot of negotiations.”

Below are Measurement Inc.’s claim against the state, and the state’s letter terminating its contracts with the company.

Editor’s note: This story has been updated with details about the claim’s status.