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Overview of the Foundation School Overview of the Foundation School Program August Payment Deferral Program August Payment Deferral House Appropriations Committee, Subcommittee on the Current Fiscal Condition October 17, 2012 Prepared by the Legislative Budget Board

Foundation School Program Payment Schedule Texas Education Code, § 42.259, stipulates a schedule of monthly payments of state aid to school districts by payment class. • School districts are sorted into payment classes according to property wealth per student. Category 1 Less than 1/2 the statewide average property wealth per student Category 2 Greater than 1/2 the statewide average property wealth per Category 2 Greater than 1/2 the statewide average property wealth per student and not more than the average Category 3 Greater than the statewide average property wealth per student • School districts receiving less state aid overall (wealthier school districts) receive a greater proportion of their state aid at the beginning of the fiscal year. • School districts receiving more state aid have their payments allocated more evenly across the months of the fiscal year. 10/17/2012 Legislative Budget Board 2

Foundation School Program Payment Schedule Percent of FSP State Aid Entitlement Paid Per Month by Payment Class Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Cat 1 15% 10% 10% 10% 10% 5% 10% 10% 10% 10% ($) Cat 2 Cat 2 22% 18% 9.5% 7.5% 5% 10% 13% 15% ($$) Cat 3 45% 35% 20% ($$$) % T otal State 24% 18% 8% 3% 3% 2% 3% 4% 5% 8% 10% 12% Aid, FY2013 estimated 10/17/2012 Legislative Budget Board 3

History and Mechanics of the August Deferral Why? Deferral of the August FSP payment has been used as a budget management tool by shifting the final biennial payment into the next fiscal biennium to achieve a one- time savings to the state budget. When? This strategy has been used twice: 1. 78 th Legislature ► August 2005 (Fiscal Year 2005) payment was deferred to September 2005 (Fiscal Year 2006). Action reversed with the August 2009 payment (80 th Legislature). 2009 payment (80 th Legislature). 2. 82 nd Legislature ► August 2013 (Fiscal Year 2013) payment is deferred to September 2013 (Fiscal Year 2014). How? • Change in statute to alter the FSP payment schedule is required both to defer the payment and to reverse the deferral. Historically, this has occurred in two separate bills with the payment remaining deferred until a future legislature enacts reversal. • The August payment for Category 2 and 3 districts is delayed by about two weeks (Category 1 districts do not receive an August payment). 10/17/2012 Legislative Budget Board 4

State Budget Implications of the August Deferral Deferral Biennium : one-time savings equal to the value of the deferred payment, 2012–13: $1.9 billion Subsequent Biennium : cost relative to prior biennium related to making 24 payments (as opposed to 23) Deferral Each Subsequent Biennium Biennium Until Reversal S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A E C O E A E A P A U U U E C O E A E A P A U U U E C O E A E A P A U U U E C O E A E A P A U U U P P T T V V C C N N B B R R R R Y Y N N L L G G P P T T V V C C N N B B R R R R Y Y N N L L G G P P T T V V C C N N B B R R R R Y Y N N L L G G P P T T V V C C N N B B R R R R Y Y N N L L G G 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Savings are realized in the first In each subsequent biennium a total of 24 biennium the deferral takes effect, payments occur. since there are 23 rather than 24 T wo payments are made in September: payments of state aid. • prior fiscal year’s August amount • new fiscal year’s September payment 10/17/2012 Legislative Budget Board 5

State Budget Implications of the August Deferral Reversal Biennium: One-time cost of making 25 payments Deferral in Place Reversal Biennium Biennium S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A E C O E A E A P A U U U E C O E A E A P A U U U E C O E A E A P A U U U E C O E A E A P A U U U P T V C N B R R Y N L G P T V C N B R R Y N L G P T V C N B R R Y N L G P T V C N B R R Y N L G 24 24 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 13 14 15 16 17 18 19 20 21 22 23 25 When an August payment deferral is In each biennium after a deferral is in reversed, a total of 25 payments occur within place, a total of 24 payments occur. the biennium. T wo payments are made in September: The August payment at the end of the • prior fiscal year’s August amount biennium is paid within the biennium rather • new fiscal year’s September payment than being delayed until the beginning of the next fiscal year. 10/17/2012 Legislative Budget Board 6