2001-02 State Aid to School Districts
To: District Superintendents of
Superintendents of Big 5 City School Districts
Date: December 19, 2001
From: James A. Kadamus
Subject: 2001-02 State Aid to School Districts
The allocations to school districts proposed in the Executive budget are enacted, and the amounts listed on the computer run distributed with the Executive budget supersede the statutory aid formulas for the 2001-02 school year.
Three aid categories which did not appear on the Executive’s computer listing are also provided for:
- Growth Aid is provided for based on data on file with the Commissioner as of November 15, 2000.
- Building Aid is provided for at Present Law levels, except that approximately $113 million in aid payable in June is deferred and will be paid in July of the following school year. For 2002-03 and thereafter, Building Aid will be calculated based on assumed amortization (see below).
- Reorganization Incentive Building Aid is provided for on the same terms as Building Aid.
Although they do not affect the district’s receipt of aid, the following programs are provided for as set-asides within the amounts proposed by the Executive:
- Districts that received LEP funds in 2000-01 are deemed to have received the same amount for 2001-02 and must conduct LEP programs.
- Districts that received Early Grade Class Size Reduction Grants in 2000-01 are deemed to have received the same amount for 2001-02 and must use these funds to reduce early grade class size.
- Districts that received Special Services Aid for Career Education in 2000-01 are deemed to have received the same amount for 2001-02 and must use that amount to support career education programs.
- BOCES must set aside from payments received pursuant to §3609-d an amount equal to the amount of State Aid received for career education in 2000-01, and must use such amount to support career education programs in 2001-02.
- Districts that received Universal Prekindergarten grants in 2000-01 are eligible to apply for grants of up to the same amount in 2001-02. The grant will be deducted from the total allocation proposed in the Executive Budget. In addition, districts applying for Universal Prekindergarten grants will be eligible for a supplementary grant equal to the positive difference of the estimated grant for 2000-01 as set forth at the time the 2000-01 budget was enacted in the computer listing produced in support of that enacted budget and entitled "SA000-1" minus the estimated grant for 2001-02 as proposed in the Executive Budget in the computer listing entitled "BT032-1". This supplementary grant is not deducted from the total allocation. Additionally, a waiver for local maintenance of effort requirements for Yonkers is continued through the 2001-02 school year, the requirement that all teachers be certified is deferred for an additional year, until the 2002-03 school year, and amendments are enacted to insure that summer Prekindergarten programs can serve 5 year olds in the summer before they enter kindergarten.
- Districts are deemed to have received the same amount in Textbook, Software and Library Materials Aid as they received in the 2000-01 school year, and must comply with the laws governing those aid categories. This provision will enable those amounts to be deducted from Approved Operating Expense, as they have in previous years.
In addition, the following actions were taken as part of the supplementary budget enacted in October.
- $7.5 million that had been earmarked for Schoolwide Performance Grants in the Executive Budget is eliminated.
- Of the total $50 million that had been allocated in support of Teachers of Tomorrow for the 2001-02 school year, $25 million is being used for ongoing activities. The remainder is allocated as follows: $20 million is directed to support of Teacher Centers and $5 million is directed to support of the Mentor Teacher program.
The remainder of the aid proposed in the Executive computer listing is distributed as unrestricted, general purpose aid.
In addition to computerized aids, the following aids are provided for in the amounts requested by the Governor:
- BOCES aid for Special Act Districts
- Categorical Reading grants
- Consortium for Worker Education
- Education of OMH/OMR Pupils
- Employment Preparation Education
- Fort Drum School District grants
- Improving Pupil Performance grants
- Learning Technology Grants
- Magnet School grants
- Native American Building
- Prior Year Adjustments
- School Bus Driver Safety
- Shared Services Incentive
- Special School Districts
- Transportation for Homeless Children
- Tuition Adjustment
- Urban-Suburban Transfer
The following programs in General Support for Public Schools are not included in the enacted budget:
- Instructional Computer Technology
- AI/DP Grants
- Shared Services Aid for Noncomponent School Districts
The following programs in General Support for Public Schools were restored and are funded at base year levels
- Bilingual Education
- Aid to Small City School Districts
- Grants for Teacher Support
Building Aid for the 2002-03 School Year and Thereafter
Part F of Chapter 383 of the Laws of 2001 enacted significant changes in the methodology used to apportion State Aid to school districts for capital projects. Prospectively, for all school districts outside of New York City, aidable debt service associated with new projects will be aided based on an assumed amortization based on approved project cost, average interest rates and an assumed term of borrowing (New York City is already aided on the basis of assumed amortization). This is similar to the option that was available pursuant to subparagraph 4 of paragraph I of subdivision 6 of section 3602 of the Education Law when school districts chose to finance projects for less than ten years for reconstruction and fifteen years for new buildings. Projects paid for exclusively with a capital outlay are not affected
As of July 1, 2002, assumed amortization will be applied to all existing projects. The remaining aidable principal for outstanding debt will be aided based on an assumed amortization. Accordingly, all districts, other than New York City, will be able to refinance all or any portion of their outstanding debt without demonstrating net present value savings, so that the school districts’ existing debt service payments can be restructured to match the new aid payments. The statute also authorizes the Commissioner to grant waivers to school districts that are unable to refinance their debt due to State or Federal restrictions.
In addition, all districts other than New York City are now able to enter into an agreement with the Dormitory Authority for financing or refinancing of school district capital facilities or school district capital equipment. This mechanism provides an alternative way for districts to restructure their aidable debt service to match the new aid payments. If debt is financed through the Dormitory Authority, the Comptroller on behalf of the district will deduct payments due the Dormitory Authority directly from State Aid payments. If State Aid is not sufficient to make the payment, the district must pay the balance due to the Dormitory Authority.
The details of assumed amortization for new and existing projects are outlined below:
Assumed Amortization Applied to New Projects
- New Projects are those projects that are either approved by the Commissioner on or after December 1, 2001, or for which debt (including BANs) is first issued on or after such date.
- Each project will be assigned a useful life upon approval by the Commissioner.
The useful life will be:
- 30 years for construction or acquisition of a new school building;
- 20 years for construction of additions or for reconstruction, rehabilitation or improvement of a school building where the project would have a period of probable usefulness (PPU) pursuant to the Local Finance Law of 20 years or more.
- 15 years for all other reconstruction, rehabilitation or improvement of a school building.
- Each project will be assigned a cost allowance at the time of Commissioner’s project approval. For the purpose of calculating aid estimates, the assumed principal for the project will initially be the cost allowance less any capital outlay as submitted on the SA-4. The assumed principal will be recalculated upon submission of the SA-139 and any revisions thereto, and following submission of the final cost report, and subsequent payments will be adjusted accordingly.
- Each project will be assigned an assumed interest rate. The assumed
interest rate will be calculated by the Commissioner based on actual interest
rates for debt issued by school districts (or, in the case of dependent
school districts, by the city) for school building projects for the year
in which the project receives Commissioner’s approval.
- For each of the Big Four dependent school districts, the interest rate will be the actual average interest rate applied to all capital debt issued by the city related to school construction purposes, not including debt issued by the Dormitory Authority for the benefit of the district. For the purpose of calculating aid estimates, the assumed interest rate for the project will initially be the estimated current year average interest rate. In the following school year (the earliest year in which aid can be generated) when actual interest rates for that year are available, aid estimates will be recalculated using the actual average interest rate for that year. Base year (previous school year) and estimated current year average interest rates will be calculated annually, based on data on file with the Commissioner as of September first.
- For all other school districts (except New York City), the assumed interest rate will be the average of all interest rates associated with capital debt issued by all such school districts related to school construction purposes, not including debt issued by the Dormitory Authority for the benefit of the district. For the purpose of calculating aid estimates, the assumed interest rate for the project will initially be the base year average interest rate. In the following school year (the earliest year in which aid can be generated) when actual interest rates for that year are available, aid estimates will be recalculated using the actual average interest rate for that year. The base year average interest rate will be calculated annually, based on data on file with the Commissioner as of September first.
- For any school district (except New York City) which contracts with the Dormitory Authority to issue debt to finance or refinance a school construction project, the assumed interest rate associated with that project will be the interest rate of the debt issued by the Dormitory Authority.
- Periodically, but at least every ten years, the Commissioner will compare the assumed interest rate assigned to a project with that calculated for the current year. If the interest rate for the current year is at least one quarter of one percent below the rate assigned to the project, the interest rate for the current year will be used as the assumed interest rate for the project and remaining aid payments will be recalculated. Aid will not be recalculated if a district can demonstrate that it is precluded by State or Federal law, rule or regulation from refinancing the outstanding principal of the debt issued to fund such project.
- Assumed amortization will be calculated, providing for equal semiannual payments of interest and principal, and using i) the cost allowance as the aidable principal amount, ii) the useful life of the project as determined by the Department as the term of the assumed amortization, and iii) the assumed interest rate for the base year (the most recent average interest rate available) as the interest rate for the assumed amortization.
For new projects, the first aidable payment will be assumed to occur on either i) the date eighteen months after the date of Commissioner's approval, or ii) for those projects for which a construction contract is awarded more than 18 months after Commissioner's approval, the first aidable payment shall be assumed to occur on the date upon which the district certifies to the Commissioner that a general construction contract has been awarded. As a result, most new projects approved between July 1 and December 31 will first generate aid with a single assumed amortization payment in the following school year. Most new projects approved between January 1 and June 30 will first generate aid in the second school year following the current year.
Assumed Amortization Applied to Existing Projects
- Existing Projects are those projects that were approved by the Commissioner before December 1, 2001 and for which debt was first issued before such date.
- Each outstanding debt issue will be assigned a remaining maximum useful life by the Department, based on the useful life of each project contained therein weighted by the aidable costs of that project. If the remaining maximum useful life of the projects is less than the remaining term of the debt, the actual remaining term will be used as the remaining useful life.
- The unpaid aidable principal for each outstanding debt issue shall be:
- The product of the actual unpaid principal outstanding as of July 1, 2002 and a bond percent that represents the ratio of i) the sum of the total aidable project costs funded with the proceeds of such debt divided by ii) the total original principal of the debt,
- Plus the sum of any remaining project costs that are to be funded through the issuance of obligations on or after July 1, 2002, for any project that is funded through the debt issue and is not funded through any subsequent debt issue that was issued prior to July 1, 2002,
- Plus, in the event that the district undertakes a refunding, either on its own or through the Dormitory Authority, any incremental amount of refunding bonds necessary to provide for payment of the refunded obligations at their stated maturity or, if the bonds are to be called, on their call date.
- The assumed interest rate for such debt is to be calculated in the same way as it is for new projects.
- Assumed amortization will be calculated, providing for equal semiannual
payments of interest and principal, and using i) the unpaid aidable principal
for the outstanding debt issue, ii) the remaining maximum useful life
of the debt issue as the term of the assumed amortization, and iii) the
assumed interest rate.
For existing projects, the first two semiannual payments will be assumed to occur in the 2002-03 school year, generating aid in that school year.
- If districts wish to refinance existing projects in order to provide for debt service payments that coincide with the associated State Aid payments, the new legislation provides for an exemption from the requirement that the district demonstrate net present value savings in order to refinance debt. Where subsequent aid payments would be reduced as a result of applying assumed amortization to the existing debt, and where the district cannot demonstrate a net present value savings for the refunding, any additional base year costs and fees of refinancing are fully aidable to the extent that such expenses are not paid from the proceeds of the refunding bonds and are not otherwise eligible for aid.
- For projects with debt outstanding as of July 1, 2002, a waiver may be granted if a school district can demonstrate extenuating circumstances. The extenuating circumstances that would qualify a debt issuance for a waiver are to be developed by the Department in conjunction with the Director of the Division of the Budget. Under the terms of the waiver, the Commissioner is authorized to adjust the term, the interest rate and the annual assumed payments of debt service.