The EPS Model and School Spending

Six years after it was adopted by the Legislature as a guide to school spending, the Essential Programs and Services (EPS) model remains at the center of debates over state and local educational policy – though its purpose has changed significantly since it was first adopted.

In 2005, confronted with implementing the successful school funding referendum of the previous year that required 55% state funding of General Purpose Aid to Education (GPA), the Legislature turned to the fledgling EPS system for answers to the inevitable question: 55% of what? What school districts spent in the previous year, or some other figure?

Lawmakers decided that EPS would be the spending standard for all school districts. In the future, the levels specified by EPS, based on standard calculations of class sizes, number of students per administrator, and bus route mileage – along with many other considerations – would be the school budget target, with separate approval required, and no state funds available, for any local spending beyond the target.

In the early years, the unfamiliarity of EPS calculations contrasted with incremental (year-to-year) budgeting that is commonly used for municipal and school budgets, causing a good deal of confusion. Even superintendents occasionally were stumped for answers at the annual school budget meeting. Since then, EPS has become more familiar, even as it continues to be reshaped in frequent tug-of-wars at the State House.

In 2007, controversy attended the enactment of mandated consolidation, contained in the state budget, which required that all school units with fewer than 2,500 students join with other units in a formal administrative merger or face financial penalties in the form of withheld state aid. The EPS cost allocations for administrative support, transportation, special education, and facilities maintenance were reduced by the new law, as part of Gov. Baldacci’s decision to reduce projected GPA allotments by $36 million. In the first year, superintendent’s office support was cut in half, while the other three reimbursement categories were reduced by 5%. The theory was that local districts would be able to match the state reduction through consolidation efficiencies, lowering overall educational outlays by nearly $70 million.

Payment Crunch

The mandated consolidation law was prompted by the state’s attempted “ramp up” to 55% GPA funding over four years, which initially provided many more state education dollars per biennium into school budgets that would have been the case without the Question 1A initiative.

However, just two years into the “ramp up”, it was clear that the state was struggling to find the additional money to fulfill its 55% obligation. Even before the massive recession that has now reduced state contributions both in percentage and in absolute terms, state funding difficulties for education were evident. Since peaking at almost $978 million in FY 08, state funding (including curtailments) through GPA have now been reduced to $852 million for the FY 11 fiscal year (see Table on page 6).

Geoff Herman, MMA’s director of state and federal relations, estimates that state payments to GPA could fall to just over 43% for the 2011-12 biennium, matching the low point following the early 1990s recession. That situation helped set off a decade of debate over property taxes, highlighted by the successful MMA-supported Question 1A initiative in 2004 and three unsuccessful statewide referendums to cap taxes, spending or both.

Interestingly, Herman says that, compared to total school spending, rather than EPS, the state share would be about 42%, not greatly different than the EPS proportion. When the EPS model was first developed, the gap between the model and what many school units were actually spending for education was much more pronounced.

Jim Rier, the Department of Education’s director of management information systems, says the figures are accurate – and are similar because school districts have already cut spending to track closer to the EPS guidelines, a big change from recent years, when about three-quarters of school budgets were above EPS levels. Many of those school units that were spending below EPS have also closed the gap on the other end, with a significant infusion of GPA since 2005.

Herman said that MMA is concerned about maintaining the integrity of the EPS system, and ensuring that in the quest for savings, the state doesn’t modify the standards to justify lower payment levels which – unlike the current fluctuations in revenue – might be permanent.

Rier said he doesn’t believe that’s happening. The state did, for instance, suggest changing the class size standards for secondary schools from a 14-1 student-teacher ratio to 15-1, but withdrew the idea after local protests. Rier notes that Maine already has one of the lowest students-per-teacher ratios of any state, which was why the change seemed feasible.

Rier concedes that the first-year implementation of the consolidation law might have been difficult, and that actual savings in administration, transportation, and other areas were hard to obtain immediately. “But by this time, adjustments should be possible, and school districts know what’s expected,” he said.

He also points out that the original consolidation law anticipated continued reductions in the three program areas – an additional 2 ½% in the following biennium, for instance. That requirement has now been shelved, and allocations remain 5% below the original EPS level, which is adjusted annually to reflect changes in statewide costs. It is important to note that with Maine’s declining student enrollment, the natural growth of the EPS model has been very small since EPS was enacted (projected to average less than 2% annually between FY 06 and FY 13 – see Table below).

Local Perspective

From the local perspective, the picture on EPS is mixed, with views on the system often tracking its effects on a particular municipality or school district.

William Shuttleworth, superintendent of RSU 1 in Bath, the first new consolidated district, says that, “The intent of EPS is really good. We need a thoughtful and equitable model for school finance that can be applied statewide.”

With that said, though, he thinks there are issues with the system that continue to raise concern.

One involves a factor that has always been part of the state funding formula, which attempts to make up for low property values by targeting more aid to those “property poor” communities. The basis of the formula has not entirely changed – it combines the ability to raise dollars for education through local tax effort with the number of students educated in each district. EPS deals primarily with the per pupil allocation, although it also installed a new method for construction-related debt.

While communities with low property values get more state aid – total state support varies from as little a 10% to more than 80% of local budgets – high-value communities can lose aid as real estate prices spike. Declining school enrollment is the other key factor that reduces state funding to a school district under EPS.

This is a particular problem for coastal communities like those in the Bath area, Shuttleworth said. “Local incomes don’t go up because property values happen to rise,” he said. “It can put a real burden on taxpayers when the year-to-year (valuation) shifts are large, as they have been lately.”

Rural Dilemmas

Rural communities also often feel disadvantaged by EPS. Since it set payments based on class sizes, it tends to work against small schools, which almost necessarily have smaller classes.

“There was a big shift in state support toward the cities and larger towns,” said Clint Deschene, town manager in Hermon, of the early effects of EPS.

“They’re also the ones that got a free pass on consolidation.” Hermon itself has not seen its state share vary dramatically, but many of the small towns in the area have struggled, Deschene said.

Some of the difficulties were reflected in negotiations for possible consolidation that Hermon had with its neighboring towns of Carmel and Levant (SAD 23), which currently send most of their students under tuition agreements to Hermon High School, where they make up about half the student population of 600.

While debt service issues are dealt with separately under EPS, school maintenance is part of the model that some local officials have a problem with. Under EPS, there’s a standard figure for building maintenance regardless of age and condition of the school – something William Shuttleworth said is unrealistic. “I’ve got a high school building that’s basically a heat sieve. We’re really struggling to provide maintenance.”

Another EPS-related issue that provided obstacles in the Hermon-area consolidation talks was teacher salaries. EPS sets teacher pay standards according to labor markets, and the gap between Hermon and SAD 23 is considerable, Deschene said. Implementation of a separate minimum teacher salary requirement of $30,000 starting pay has also created disparities, he said, as districts that had not met the requirement get extra state support, while those that already managed to achieve the minimum figure do not.

At the moment, Hermon and SAD 23 remain on the list of unapproved school administrative units (SAUs), which have neither consolidated nor been exempted by the legislation or by the Commissioner of Education.

Administrative support received the biggest cut under consolidation, and even some consolidating districts felt the pinch, William Shuttleworth said. Cutting back to $210 per student was tough even though RSU 1 eliminated a central office and most of its staffing.

“If you tried this in private industry, they’d laugh at you,” he said. RSU 1 has managed to stick to the allocation, but only because “the superintendent works 60 to 70 hours a week,” he said.

A Satisfied Customer

One of the few towns or school districts that seems content with EPS in all its aspects is Falmouth, where Finance Director John McNaughton said EPS has closely matched the town’s educational priorities from the beginning.

As one of the few communities that has seen steadily increasing enrollment – overall, Maine has dropped from a high of 235,000 students to fewer than 200,000 over three decades – Falmouth has seen its state funding increase proportionately. System administration at just $200 a pupil was also not a problem because that’s where Falmouth has been all along, McNaughton said.

“We’ve been recognized as an efficient school district for a long time,” he said, and it was designated a “high performing district” under the consolidation law, exempt from its requirements.

Falmouth practices a lot of sharing between the municipal and school operations. The town takes on facilities and vehicle maintenance, insurance, and investment management for the schools. The One Falmouth Committee continues to examine new ideas for further cooperation, McNaughton said.

“Falmouth has always been an education-oriented community,” he said. “Parents are really involved in the school.” Satisfaction with the schools is so high that voters turned down a highly touted consolidation plan with SAD 51 (Cumberland and North Yarmouth) largely out of concern that the schools might change.

Athletics and Computers

There are a number of specific issues that often come up in discussion of EPS. One is extracurricular activities and athletics, which are funded at 10% of anticipated costs – just as they were in the old school funding formula.

To some observers, that makes sense. Athletic programs, which are often very popular in the community, have always been supported locally, not primarily by the state.

But in the era of EPS, where voters tend to expect school boards to spend along state-approved lines, this separation may be harder to maintain.

Hermon has managed to maintain a level tax rate for six years, Clint Deschene said, but it’s getting harder all the time.

When the subject of school budget cuts came up, an obvious place to look seemed to be the locally supported athletics teams, “but we were told in no uncertain terms not to go there by the community,” he said.

Shuttleworth also thinks there’s a good case for increased state support of extracurricular activities under EPS. “Participation in athletics correlates very strongly with achievement in school,” he said. “We ought to be encouraging it much more than we do.”

Another field where superintendents often find the state allocation inadequate is information technology, or IT. Hermon’s school budget, lean in other areas, is heavier on technology spending, but appearances are deceiving.

“Our program is not just for the school, but for municipal government, businesses and the community,” Deschene said. In the 1990s, the town offered free dial-up Internet service to all residents. “That may not sound like a big deal anymore, but it was back then,” he said. Municipal and school departments share a common phone and computer system, with extensions to the community, an information nexus that has helped attract new businesses and families to town. “It’s helped us grow when many other communities in our region were shrinking,” he said.

Shuttleworth said that he and other superintendents were not pleased by the way the Department of Education handled an expansion of the laptop computer program to high schools this year. “The commissioner said she ‘found’ the money, but what they did was require us to allocate our entire IT budget to the program,” he said. “I have about $10 per kid left after that.”

Participation in the laptop program is voluntary, and slightly over half of high schools are participating, with several others cutting their own deals with computer suppliers.

Cutbacks Looming

While EPS is still a major topic for school and municipal officials, few of them can discuss school finance without bringing up the looming shortfalls in state support that, at least at the moment, seem due to become dramatically worse once federal stimulus aid expires.

The consensus seems to be that most districts can deal with the $37 million curtailment ordered by Gov. Baldacci for the current school year, but that next year will be far more difficult.

“We’re just starting to build our budgets now, and we don’t like what we’re seeing,” Shuttleworth said. “There’s no way we can meet the projected numbers without serious layoffs and program cuts.”

Clint Deschene said that the shortfall could be so serious that Hermon might have to raise its tax rate by 20% just to keep its existing programs. Asked if he thought taxpayers could afford such an increase, he said, “No.”

Different Purposes

The continuing debate over EPS reflects some of the tensions in the original model, back to when it was simply a set of guidelines. On one hand, EPS simply reflects existing practices in the state, and standardizes such measures as class size and spending on maintenance and transportation for the typical district. Yet it also represents the desire of state officials and educators to promote certain spending priorities over others. If the state did, for instance, decide to increase allocations for information technology, it would promote more computer use but perhaps crimp textbook purchases.

The changes contained in the consolidation bill were dramatic and, to some, heavy-handed, but EPS is supposed to continue to evolve. Each year, one-third of the different lines in EPS are reviewed by the Maine Education Policy Research Institute (MEPRI), with changes recommended for possible adoption by the Legislature.

In that sense, EPS will always be a work in progress.

Douglas Rooks is a freelance writer from West Gardiner and regular contributor to the Townsman, drooks@tds.net