School Organization Interim Study

Toward the conclusion of the 2003 Session, Senator Raikes along with 20 other lawmakers, sponsored an interim study resolution, LR 180, to examine:

[T]he organizational structure of elementary and secondary education in Nebraska and to develop a proposal to refine the structure to support an effective and efficient delivery of education to the students of Nebraska now and into the future.¹

Legislative staff performed the bulk of the data compilation, including staff employed by members of the Education Committee, Appropriations Committee, and Revenue Committee.  Staff from the Legislative Fiscal Office and Department of Education also participated in the in-depth analysis.

The "LR 180 Staff," as they referred to themselves, actually began meeting before the end of the 2003 Session knowing the immensity of the task ahead of them.  They consulted with sources and experts outside the Legislature, including professors at the University of Nebraska.  The basic plan was to divvy up the items to be researched among the various staff according to their own fields of expertise.  The staff planned to release the findings of their study in late August 2003.  The materials would be handed over to the Education Committee for review.  The committee would in turn develop a number of scenarios or options for purposes of public discussion at a series of hearings to be held in the fall of 2003.  Legislation would then be drafted in time for the 2004 Session.

The staff collected data regarding the existing school structure, data regarding demographic trends in Nebraska, including predicted changes in the concentration of students in various geographic areas, and analysis of regional and national information regarding organizational structures of elementary and secondary education.  The underlying objective and foundation of the data collection was to develop "a process to move Nebraska elementary and secondary education toward a structure that will effectively and efficiently support education with the available funds, taking into account predicted demographics and potential accreditation rules."²

The data was formally unveiled at a special briefing on August 21, 2003 at the State Capitol.  Attending the briefing were various members of the Legislature, the staff who performed the analysis, lobbyists, school officials, and news media.  Over the course of several hours, members of the LR 180 Staff reviewed the findings within their respective research assignments.  Some of their "observations" are provided in Table 146.

1. Number of Administrators - Historically the number of pupils per certificated administrative staff has been dropping despite declining numbers of school districts.  Another observation is that as districts increase in size so do the number of midlevel administrators.  There does not appear to be much research on the optimum number of students per administrator or teachers per administrator.
   
   
2. Pupil/Teacher Ratios - State pupil/teacher ratios have been affected by the largest school districts lowering their pupil/teacher ratios at both elementary and secondary levels.
   
   
3. General School Spending Patterns - The percentage of statewide school expenditures attributed to different district size categories is not very different than the percentage of enrollment attributed to each of the categories.  Small school spending is growing at a significantly slower rate than spending for larger school districts.  However, declining enrollments in the small districts v. increasing enrollment in the larger districts affects per pupil expenditures.  The percent of school district budgets expended on various categories does not vary dramatically based on district size.
   
   
4. Administrative Costs - A table comparing administrative costs for different sizes of districts reveals an interesting phenomenon.  The administrative costs go down as school districts increase in size, but the support services costs increase at about the same rate, canceling out the savings.
   
   
5. Historical Savings - Don Uerling, a professor at the University of Nebraska-Lincoln, completed a study of costs for several recently reorganized districts.  The staff group enhanced the study by analyzing a few more reorganized districts using Uerling's methods.  Both Uerling and the staff group found that the costs for reorganized districts two years later were less than predicted if the consolidating districts remained separate.  However, the savings vary dramatically, which may depend on local decisions made in implementing the reorganization.

The LR 180 Staff found that in 2003 Nebraska ranked high nationally in terms of total number of school districts, and near the national average in expenditures per pupil.  However, the expenditures per pupil varied among different sizes of school districts.  The school size grouping with the lowest expenditures per pupil contained districts with 2,000 to 5,000 students.  The staff found that most of the school districts in rural areas of Nebraska had experienced declining enrollments, and demographic trends suggested those districts would continue to lose students.³  Districts with more than 5,000 students were the only schools that had increased enrollment within the previous five years (an increase of about 2.9%).  Districts with fewer than 250 students had the slowest measure of growth in spending within the previous five years (on average 2.8% annually).  Interestingly, the spending habits of the state's largest seven districts grew at the fastest pace (on average 5.9% per year).  All other sizes of districts had declining enrollment.⁴

The study group found that there were limited cost savings when districts consolidate.  Although reorganized districts experienced local savings, those amounts were not as much as would be predicted by some models, especially at a statewide level.  It was also found that past incentives for reorganization were helpful in covering costs that were unique to reorganization.  While a reduction in the number of school districts could result in a reduction in the number of teachers, the salaries of the remaining teachers would most likely increase.  Increases in transportation for reorganized districts appear to create more of an issue with regard to the effect on students rather than an issue of significant cost.⁵

The important item to note about the initial research was that, at least at that point in time, the notion of reorganization was evaluated in terms of all school districts, including the state's largest school districts.  The LR 180 Staff looked at all options for possible reorganization.  This naturally gave reason for everyone involved in K-12 education to be concerned.

Following the compilation of the background materials, the Education Committee met twice in the fall of 2003 to develop ideas for public input.  Hearings were planned in three separate cities, Mullen, Broken Bow, and Wahoo.  In order to provide some guidance for public discussion, the Education Committee developed three alternatives.  The three ideas to be discussed at the public hearings could either operate together or individually to encourage a more financially viable school organizational structure.

The three ideas involved the "assimilation" of Class I districts into K-12 systems, reorganization incentives to encourage consolidation, and the recommendation for passage of LB 698, a carryover bill from the 2003 Session.  The assimilation idea would garner the most attention and the most controversy.  Class I supporters would demonstrate their displeasure with the concept during the three public hearings.  The idea to offer financial incentives to encourage school districts to reorganize obviously was not a new concept, but the LR 180 Staff did find that such incentives were helpful to the cause of reorganization.

The third idea, passage of LB 698, was perhaps a favorite to Senator Ron Raikes and various members of the Education Committee.  The bill was developed for the Education Committee during the 2002 interim and would base funding on districts of similar size and account for demographically based spending differences using actual approved costs.  There would also be adjustments for systems in size ranges that spend below average, teachers with above average levels of education, systems with growing numbers of students, and systems with less than 390 students that are not sparse or very sparse.  The last adjustment would require local taxpayers to support half of the additional costs associated with having less than 390 students in situations where sparseness is not a major factor.  LB 698 was, at the time, held in committee and awaited final disposition.

1. All Class I districts would be required to dissolve prior to the 2005-06 school year and all Class VI districts would become K-12 districts beginning with the 2005-06 school year.
   
   
2. The Class I school board would determine and notify the State Reorganization Committee and County Assessor before November 1, 2004 of the board's decision for either:
   
   
   1. All of the property of the Class I district to be merged into the K-12 district with which the property is affiliated or the Class VI system of which the property is a part;
      
      
   2. All of the property of the Class I district to be merged into the Class I school district's primary high school district; or
      
      
   3. All of the property of the Class I district to be merged into K-12 districts according to an agreement between the school boards of:  (i) The Class I district; (ii) all K-12 districts with which the property is affiliated; (iii) all Class VI systems with which property is a part; and (iv) all districts that will receive property pursuant to the agreement.
      
      
3. If the Class I school board fails to notify the State Reorganization Committee of their decision before November 1, 2004, the district will be dissolved by the Committee and all of the property of the Class I district will be merged into the K-12 district with which the property is affiliated or the Class VI system of which the property is a part.
   
   
4. If all of the property of a Class I district is merged into a single K-12 district or former Class VI district, all of the assets and liabilities of the Class I district (including the facilities) would be assigned to the single K-12 district or former Class VI district.
   
   
5. If the property of a Class I district is merged with multiple K-12 districts or former Class VI districts, the assets and liabilities of the Class I district would be divided based on the proportion of the valuation each K-12 district or former Class VI district receives (current law).
   
   
6. If all of the property of a Class I district is merged into a single K-12 district or former Class VI district and 15 or more resident students attended school in the building in the prior year, the Class I school building could not be closed unless:
   
   
   1. A vote is taken by the voters in the K-12 school district after the Class I district has dissolved and the voters who reside on property formerly in the Class I district are included as voters in the K-12 school district; or
      
      
   2. The school board of the K-12 school district is composed completely of members who have been elected in elections that included the voters who reside on property formerly in the Class I school district.
      
      
7. The certification of state aid would need to be moved from February 1, 2005 to March 1, 2005 for the 2005-06 school year in order to attribute the valuation of the Class I district to K-12 districts or former Class VI districts according to the method of dissolution chosen by the Class I school board.
   
   
8. Class I dissolutions occurring prior to September 1, 2004 would follow the current rules.

1. Incentives would be offered for mergers (not unifications) of K-12 districts effective for 2005-06 or later and resulting in a combined district of at least 390 students according to statistics from the school year prior to the merger.
   
   
2. For incentives to be paid in 2005-06, the membership of Class I districts would be incorporated into the high school districts either:
   
   
   1. Based on the percentage of valuation affiliated with the district or part of the system if the Class I district is dissolving along affiliation lines; or
      
      
   2. With the high school district if the Class I district is merging completely with the primary high school district.
      
      
3. The reorganization must be approved by the State Reorganization Committee prior to November 1st preceding the reorganization so that the incentive payments would be included in the calculation and appropriation of state aid.
   
   
4. The schedule for incentives would be as follows:
   
   

   Average daily membership range before consolidation	Average daily membership range after consolidation	Total per student incentive amount
   0.00 - 129.99	390.00+	$4,100
   130.00 - 194.99	390.00+	$1,900
   195.00 - 259.99	390.00+	$1,100
   260.00 - 389.99	390.00+	$900

5. One half of the calculated incentives would be paid in each of the first two years of the combined district.
   
   
6. Beginning with mergers taking effect for the 2010-11 school year, the incentives would be reduced by 50%.
   
   
7. Additional budget authority would be authorized in the amount of the incentives for the two years in which the incentives are paid.

1. Replace cost groupings (standard, sparse, & very sparse) with averaging technique based on the next 5 larger and next 5 smaller systems in terms of membership.
   
   
   1. The new averaged base cost would be called basic funding.
      
      
   2. Techniques are included to address the smallest and largest systems.
      
      
2. Replace current system of weightings and allowances with new allowances and adjustments.
   
   
   1. Allowances subtract unique costs from the system's expenditures before the averaging process and add them back to the individual system's needs.
      
      
   2. The new allowances would be for costs attributed to:  (i) Poverty; (ii) limited English proficiency; (iii) special education; (iv) special receipts; (v) transportation; and (vi) remote elementary sites.
      
      
   3. Adjustments add or subtract from the individual system's needs.
      
      
   4. The adjustments are:  (i) an averaging adjustment for systems with below average basic funding per student; (ii) a teacher education adjustment for systems with above average teacher education; (iii) a student growth adjustment; (iv) a student growth correction adjustment for overestimates of student growth; and (v) a local choice adjustment for systems with less than 390 students and not sparse or very sparse.
      
      
   5. Grade weightings would not be replaced, except that half-day kindergartners would count as 1/2 of a formula student.
      
      
3. Replace adjusted valuation with assessed valuation for the calculation of state aid.
   
   
4. Provide an exception to the budget limits to allow for the growth in the poverty and limited English proficiency allowances.
   
   
5. Increase the stabilization factor from 85% to 90% to assist in the transition and in stabilizing resources for school districts.