Location:
EDUCATION - FINANCE;

OLR Research Report


February 17, 2010

2010-R-0057

ECS MINIMUM BUDGET REQUIREMENT

By: Judith S. Lohman, Assistant Director

This report explains the Education Cost Sharing (ECS) minimum budget requirement and its legislative history.

REQUIREMENTS FOR RECEIVING ECS GRANTS

Three requirements apply to towns receiving state ECS grants. The first is that they spend their entire ECS grant for education. The second is that they not use an increase in their ECS grant in any year to supplant local funding for education (the nonsupplant requirement). The third is the minimum budget requirement or MBR, which currently requires that towns budget at least the same amount for education in FY 10 and FY 11 that they budgeted in FY 09, minus any amount by which a town reduced its FY 10 local education budget to offset federal money paid directly to its board of education under the 2009 federal stimulus act.

THE MBR — 2005-2007

State law requires towns to spend 100% of their ECS aid for educational purposes and to spend the funds only on the authority of the town's local or regional board of education. In addition, starting with FY 1999, towns are barred from using increases in ECS funding to supplant local education funding (CGS 10-262i(c)).

In 2005, the General Assembly made the prohibition against supplanting local education funding more explicit by enacting a minimum budget requirement (MBR) (CGS 10-262i(d)). The first MBR required any town that received an increase in ECS funding over the amount it received in the previous year to have a budgeted education appropriation that at least equaled its appropriation for education in the previous year plus 100% of the ECS increase (PA 05-245).

In 2007, because of the substantial increase in ECS grants appropriated for FY 08 and FY 09, the General Assembly modified the MBR for those fiscal years. Instead of having to budget 100% of their ECS increases for education, towns were required to budget only a percentage of the increase, thus permitting them to use some of the FY 08 and FY 09 ECS increases for non-educational purposes (PA 07-3, June Special Session).

Under the 2007 act, the MBR for FY 08 and FY 09 was determined as follows.

Each town's education budget had to equal at least its budgeted appropriation for education for the prior year plus from 15% to 65% of its ECS grant increase.

The exact percentage of its ECS grant increase each town had to budget for education was determined by the average of the differences between that town and the highest-ranked town in three categories: (1) current program expenditures per student, (2) per capita wealth (equalized net grand list adjusted for income), and (3) percentage of students scoring below proficiency on state mastery tests.

The bigger the average of the differences, the higher a town's MBR percentage (i.e., the closer to 65%).

Any town whose school district was in the third year or more of failing, as a district, to make adequate yearly progress (AYP) in math or reading, had to add 20 percentage points to its MBR for education (i.e., a minimum of 35% and a maximum of 85%).

2008 MBR CHANGES

In 2008, the legislature modified the MBR again. The 2008 modifications were to take effect starting with FY 10. They would have required each town, based on the same calculation required for FY 08 and FY 09, to budget at least 50% to 80% of any ECS increase for education annually. In addition, for FY 10 only, the 2008 law required towns with school districts in the third year or more of failing to make AYP in math or reading to budget 80% to 100% of any ECS grant increase for education (PA 08-170).

2009 MBR CHANGES

ECS Grants and Federal Stimulus Funds

In the 2010-2011 state budget, the legislature, with one exception, froze ECS grants to towns at the 2009 level, giving towns no increase in ECS grants for FY 10 or FY 11. To help pay for maintaining the ECS grants, the state used funds it received from the State Fiscal Stabilization Fund (SFSF) under the federal economic stimulus act, the American Recovery and Reinvestment Act of 2009 (ARRA) (P.L. 111-5).

SFSF funds are contributing approximately 14% of the state's cost of maintaining ECS grants through FY 11. However, the federal law requires states to pay SFSF funds used for education directly to local or regional boards of education, while state law requires ECS grants to go to towns. Because many town fiscal authorities did not take this direct payment requirement into account when adopting local FY 10 budgets, the legislature allowed them to amend their budgets later to reduce their education appropriations by up to the amount of funding their local or regional boards of education received directly from the SFSF. The permission applies to any town whose fiscal authority failed to account for its board of education's direct receipt of SFSF funds when passing its municipal budget before June 30, 2009 (PA 09-1, June 19 Special Session).

The Current MBR for FY 10 and FY 11

The 2009 decision to freeze ECS grants to towns also led the General Assembly to modify the MBR. The MBR law adopted in 2008 for FY 10 and the subsequent fiscal years covered only ECS grant increases. Because the budget act for FY 10 and FY 11 called for no increases in ECS grants, the 2008 MBR law would have had no effect in those years. The nonsupplant requirement would also be without effect because that requirement likewise applies only to ECS grant increases.

The only remaining requirement on towns' ECS grant spending would be the requirement that the entire ECS grant be devoted to education. Without a new MBR, therefore, towns could have reduced local education funding as they chose, provided they used all their ECS grant for education.

The 2009 education implementer act eliminated that possibility by establishing a new MBR for FY 10 and FY 11. Under the MBR currently in effect, towns must maintain a budgeted appropriation for education at least equal to the amount they budgeted for FY 09, minus any reductions in FY 10 appropriations a town made to offset direct SFSF grant payments to its board of education (PA 09-6, September Special Session, 30).

The effect of the current MBR is to prohibit towns from reducing education budgets in FY 10 and FY 11 below their FY 09 levels. By law, the penalty for failing to meet the MBR is a reduction in the town's ECS grant for the subsequent fiscal year equal to twice the amount of the shortfall (CGS 10-262i(f)).

JL:ts