DEPARTMENT OF EDUCATION
SUPTS. MEMO NO. 009
October 6, 2006
Billy K. Cannaday, Jr.
Superintendent of Public Instruction
2006 General Assembly, Special Session I, Adopted Amendments to Chapter 3 (2006-08 Appropriation Act) Contained in the Enrolled Version of HB 5032
Section 22.1-93, Code of Virginia, requires the Department of Education to provide ...estimates to be used for budgetary purposes relative to the Basic School Aid Formula... following the conclusion of the General Assembly session based upon the budget actions taken by the General Assembly with respect to public education.
The revenue estimates provided in this memorandum represent the state funding that is projected to be distributed to school divisions in fiscal years 2007 and 2008 based on House Bill (HB) 5032 as enrolled, which was adopted by the House and by the Senate on September 28, 2006. HB 5032 amends the existing 2006-2008 budget (Chapter 3) to correct the sales tax estimates for fiscal year 2007 and fiscal year 2008, and provides funding for a hold harmless sales tax payment to divisions in fiscal year 2007 only. HB 5032 does not provide for a hold harmless sales tax payment to divisions in fiscal year 2008. Fiscal year 2007 began on July 1, 2006, and ends on June 30, 2007. Fiscal year 2008 begins on July 1, 2007, and ends on June 30, 2008.
The corrected sales tax estimates in HB 5032 are $129.9 million less in fiscal year 2007 and $143.9 million less in fiscal year 2008 than the sales tax estimates contained in the Chapter 3 budget. Due to the reduction in the sales tax estimates in HB 5032, the state share of Basic Aid, Enrollment Loss, and Supplemental Basic Aid increases in both years. In addition, $56.7 million is provided in fiscal year 2007 only for the hold harmless sales tax payment to divisions in order to maintain the same level of projected state funding in fiscal year 2007 as provided by the Chapter 3 budget. These hold harmless payments will be made on a quarterly basis upon enactment of HB 5032. Otherwise, the funding actions contained in the Chapter 3 budget previously communicated in Regulatory Superintendents Memorandum Number 3 dated July 7, 2006, are maintained.
HB 5032 contains several important language provisions. For the purpose of calculating required local effort in fiscal year 2007, HB 5032 contains language authorizing the hold harmless sales tax payment to be counted as a credit toward the local share of costs of the Standards of Quality (SOQ) in fiscal year 2007. Further, additional state payments in fiscal year 2007 from Enrollment Loss and Supplemental Basic Aid resulting from the corrected sales tax estimate may also be counted as a credit toward the local share of costs of the SOQ in fiscal year 2007. This provision only applies to fiscal year 2007; calculation of required local effort in fiscal year 2008 will employ the normal calculations without any credit provided toward the local share of SOQ costs. Please see Regulatory Superintendents Memorandum Number 8 dated October 6, 2006, which contains the budgeted required local effort and match data collection for fiscal year 2007 based on HB 5032.
Upon enactment, HB 5032 authorizes the department to make the hold harmless sales tax payments to school divisions in fiscal year 2007 on a quarterly basis. The General Assembly stated its intent in HB 5032 to reduce the hold harmless sales tax payments based on any subsequent increases in the sales tax estimates appropriated by the General Assembly or in the event actual sales tax collections exceed the estimated sales tax. To account for this potential reduction to the hold harmless sales tax payments, HB 5032 authorizes the department to make adjustments to the quarterly hold harmless sales tax payments to prevent the overpayment of this account pending any subsequent increases to the sales tax estimate approved by the General Assembly or in the event actual sales tax collections exceed the estimated sales tax. Any reduction to the hold harmless sales tax payments in fiscal year 2007 due to a subsequent increase in the sales tax estimate approved by the General Assembly or due to actual sales tax collections exceeding the estimated sales tax will be communicated to school divisions in a separate superintendent's memorandum.
HB 5032 has been sent to Governor Kaine for action and will not be enacted into law until he signs it. The Governor has several options that include signing HB 5032 with no changes, returning the bill to the General Assembly with vetoes, returning the bill to the General Assembly with amendments, or returning the bill to the General Assembly with some combination of vetoes and amendments. You will be notified in a separate communication regarding the final action taken by the Governor on HB 5032.
Please note that HB 5032 and the entitlements for each school division contained in Attachment B to this memorandum are based on the departments latest projections of March 31 average daily membership (ADM) for those accounts that use ADM to determine the amount of funding.
The attachments to this memorandum include:
Several of the incentive and categorical account entitlements shown in Attachment B (Group III and IV accounts) are funded on a reimbursement basis and represent the departments latest projections of those reimbursements; however, final payments on these accounts in fiscal years 2007 and 2008 will be based on actual qualifying expenses submitted to the department for reimbursement.
Because Attachment B shows projected entitlements for each school division (based on the departments projected March 31 ADM only) in .pdf format, the entitlements cannot be changed to test the impact of different ADM assumptions. If you wish to see the effects of a different ADM on funding for your school division in those accounts where funding is based on ADM, please use the Excel calculation file described in the next paragraph.
In addition to the entitlement information contained in Attachment B, a downloadable Excel file has been created to assist school divisions in calculating projected state entitlements and required local matches for fiscal years 2007 and 2008 for most Direct Aid programs based on HB 5032. This Excel file gives divisions the opportunity to change ADM to test the effect on projected state funding and projected local match requirements using the departments projected ADM or a local projection of ADM. (Attachment B contains projected entitlement information for each school division in .pdf format based on the departments projected ADM only and cannot be modified.) Although we have confidence in the accuracy of our ADM projections on a statewide basis, experience has shown that the accuracy of our projections for individual divisions may vary. When divisions believe that they have more accurate projections of their March 31 ADM, they are encouraged to substitute their estimates for those provided in this memorandum when using the Excel calculation file to project state funding and required local matches.
Changing the projected March 31 ADM in this file only changes the estimated funding for accounts that are funded on the basis of ADM, excluding the school construction grants program payments that are funded based on ADM from the prior year. The estimated funding for all other accounts is unaffected by changing ADM in this file and, therefore, remains the same. The fiscal year 2007 entitlements will not be finalized until they are recomputed using actual March 31, 2007, ADM and other final program participation information.
Actual fiscal year 2008 entitlements will not be finalized until after a similar process is followed next year. The payment of semi-monthly SOQ account entitlements and other accounts paid on the basis of ADM will begin using DOEs projections of division March 31 ADM. These payments may be adjusted at mid-year based on the departments revised ADM forecast made each fall. All ADM-based payments will be made in this manner pending the recalculation of final entitlements based on actual March 31 ADM at the end of each fiscal year.
Attachment A to this memorandum provides detailed instructions for accessing the Excel file from the Department of Education Web site. The Excel file may be downloaded from the following Web address:
Questions regarding the adopted amendments to Chapter 3 as contained in the enrolled version of HB 5032, and the projections of Direct Aid entitlements for fiscal years 2007 and 2008 may be directed to budget office staff at (804) 225-2025.
C: local governing bodies