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its benefits on only those districts which can truly be said to suffer a Federal impact. Our proposal would continue the pattern adopted in appropriations for the last several years of giving higher priority to "A" pupils by creating an eligibility based on a 100 percent payment for heavy impact "A" districts and 90 percent for other "A's". "B" pupils would be paid at 68 percent and "B" out-of-State pupils would not qualify, thus reducing payments to wealthy school districts. No payments would be made for public housing pupils. Moreover, to make certain that we make payments only where there is a substantial impact, we propose to deduct five percent of the district's previous years current operating expenditures from its total eligibility and pay only the difference. About 900 districts presently receive more than five percent of such expenses from P.L. 874 funds and thus would be eligible for payment in 1976. Of the current districts receiving impact aid approximately 2,400 receive less than 2 percent of their total operating funds from that source. In a period when Federal dollars are at a premium, we believe that this program is a logical candidate to provide savings which are now necessary. But even without the fiscal constraint we feel the program must be brought in check.

In conclusion, Mr. Chairman, we believe that the new provisions of P.L. 874 which take effect in FY 1976 are extremely difficult to administer. We would also note that as a result of the handicapped and public housing provisions, the Federal government for the first time has a mandate to check on the utilization of impact aid funds at the local level. This eliminates one of the major advantages of these funds in the eyes of school administrators-their general purpose use. We suspect these may be the first steps in the direction of a full categorical program which moves far away from the bill's original intent.

We believe that this program has now reached a critical point in terms of administrative complexity, inequities in application, and lack of clarity of purpose. Only a major revision of the program will suffice. We urge that you consider our proposal and proceed to develop a new law which will eliminate or at least reduce the legislative-executive battles which have prevailed in this area for the past quarter century.

Thank you, Mr. Chairman. My colleagues and I will be happy to try to answer any questions you may have.

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Mr. BELL. Mr. Chairman, my statement will be brief. I will read part of it. I will refer to part of it and ask one of my colleagues to summarize so we will try to be careful with the time.

I have with me Charles Cooke, Deputy Assistant Secretary for Legislation, Bill Stormer, who is the Acting Director of the division that manages this program, and Al Alford, who is Assistant Commissioner for Legislation.

We appreciate this opportunity to appear before the committee to discuss the impact aid program and report on our progress in implementing the SAFA portion of Public Law 93-380.

As you know, this law has been revised substantially through the new language. The entitlement formulas and other methods of making payment are drastically changed. As a result, what was a complex law has become even more complex and confusing to both applicants and administrators.

The major implementation problem for 1975 relates to the question of equalization. This, Mr. Chairman, is the matter that the Senator from New Mexico was discussing.

As you know, a provision exists in section 5(d) (2) of Public Law 874 which prohibits States from taking impact aid payments into consideration when determining eligibility for or the amount of State funding.

Because of this prohibition school districts in some States received payments under the State aid program and under Public Law 874 which in some cases results in windfalls.

To counteract these adverse effects of this prohibition, Congress has added by means of Public Law 93-380 a means whereby this prohibition may, in effect, be waived in cases where States have a viable equilization program.

Under section 5(d) (3), a State is permitted to take into consideration SAFA payments to a school district in the determination of State aid under the State aid program designed to equalize expenditures among the local educational agencies.

The SAFA payments may be taken into account in determining relative resources or relative need for purposes of the State aid program but only, to use the statutory language, "in proportion to the share that local revenues covered under the State equalization program are of total local revenues."

In order to implement this amendment the Commissioner is required to promulgate regulations containing standards for determining which programs of State aid qualify for the exception.

Members of my staff have worked hard to develop these regulations from a number of alternative approaches.

We set forth our tentative approach to the problem in a so-called concept paper which was shared and discussed with representatives of affected State educational agencies, local educational agencies and other interested persons, as well as with interested congressional staff


We are now considering comments received in connection with drafting the actual notice of proposed rulemaking for clearance within the Office of Education and the Department.

Under our current thinking a State aid program would be evaluated under section 5(d) (3) in terms of a basic standard which would measure the degree of disparity in revenue or expenditure per pupil among local educational agencies in the State.

If such disparity was no greater than 20 percent then the program would be deemed to qualify for the exception and SAFA payments could be taken into account for the affected districts but only in the proportion allowed by the statute.

In the calculation of the disparity, allowance would be made for expenditures for children with special educational needs so as not to adversely affect a State aid program which took such needs into account in its distribution of State aid.

I might just say parenthetically that some State programs give weightings for handicapped students, for vocational students, and so on. Our formula, Mr. Chairman, would allow for that. It wouldn't penalize for what we think is a good program here.

If the program did not qualify under this so-called "disparity" test but the state could show that the application of that standard to the program was inequitable because of peculiar circumstances related to expenditures in that State, then the program might nevertheless qualify under a set of evaluative criteria which would take into account such matters as the degree of school revenues equalized, whether education expenditures were predominantly a function of school district wealth and the like. Provision of course would be made for administrative determinations and hearings.

In our reflection on this subject we have been guided by indications in the legislative history that the section 5(d) (3) exception was not to be "widely used'' and that the Commissioner should make "very careful and deliberate determinations" in granting exemptions. We drew this from the hearing language of this committee.

In addition our views have been refined as a result of comments on our concept both from affected State and local educational agencies and congressional staff.

We will move as quickly as we can to place in the Federal Register a notice of proposed rulemaking which will permit all parties to react formally to our regulatory proposal.

At the conclusion of the rulemaking process we will be in a position to make determinations under section 5 (d) (3), including determinations for those several States which were previously found out of compliance with section 5(d) (2).

A number of important changes are scheduled to go into effect in fiscal year 1976.

These include:

Creation of several subcategories of A children; exclusion from A and B categories children whose parents are employed outside the


State of the school district. School districts would need to continue to survey and claim these children for possible eligibility under one of the hold-harmless clauses.

One change would count all children who reside on Indian lands in the A category regardless of the employment status of their parents. Another change would provide for establishing of new subcategories for B children to provide varying local contribution rates for children who reside on Federal property only and those whose parents are employed in the same county as the same school district and those employed out of the county but in the same State and those in the uniformed services.

Another change would include the addition of a payment for handicapped children of parents in the uniformed services in both A and B categories equal to 111⁄2 times the usual rate if a special program for their educational needs is being provided.

There would be provision of three tiers for making payments when appropriations are not sufficient to provide full entitlement.

There would be an authorization of payments for low-rent housing children in the first and third tiers but not in the second. Such payments must be used for programs and projects designed to meet the special educational needs of educationally deprived children from lowincome families.

Another change is a modification and extension of assistance for decreases in Federal activities and new hold-harmless provisions, two of which began in fiscal 1975.

While we agree with some of these changes and in fact include them in our own bill we do anticipate major administrative problems with the majority of them.

At this time, Mr. Chairman, with your permission I would like to depart from my regular testimony and call on Mr. Stormer from our impact aid program to review at this time the complexities of these calculations under the new law.

You have a chart that is before you. The chart has impressed us with the intricacies of the tremendous task of making the calculations. I think it will also impress you and the members of the committee.

I am so convinced of the complexities that I believe that we actually need experts that are deeply involved in it to discuss it.

I would like to ask Mr. Bill Stormer at this time to discuss the overlay material that you have before you to give you a better concept of how complex these problems are growing.

Then I will continue with just a few more words on my testimony. Then we will be through, Mr. Chairman.

Chairman PERKINS. Go ahead.

Mr. STORMER. Mr. Chairman, I will try to use this overlay to illustrate the complexities of computing entitlement for a local educational


I will refer you to the base chart which we have supplied. The upper half of the chart represents the A category pupils. The lower half represents the B category pupils. We have made an assumption of a uniform local contribution rate of $500. This is shown at the top of the chart.

In this illustration the school district would be entitled to the dollar amount times the number of children in each category or subcategory.

If a district has 25 percent or more of its average daily attendance in A category type pupils it is entitled to 100 percent of the local contribution rate for each subcategory A-type pupil. That is rather easy to compute and illustrate in this base chart, that each of these youngsters would be entitled to $500 or some portion of it depending upon whether they were an A or a B or in one of the various subcategories.

To illustrate the manner in which payments may be made to school districts is even a harder task. The act calls for three levels or tiers of funding. The first level is at 25 percent for all categories of entitlement for each child.

At this point if you flip the chart back over it illustrates via the blackout that 25 percent can be paid for each of the various subcategories here.

If you flip page 1 over you are looking at the payments that could be provided under tier 2. In this regard tier 2 may be funded at varying percentages depending upon the authorization contained in the law itself.

But tier 2 may be funded only if every category pupil that is entitled to receive payment under tier 2 receives payment. If it is not funded in full it is not funded at all. Thus, only tier 1 funding may be accomplished.

If you look at an exception which is the bottom overlay you would note that we have a slight change in that if a district has 25 percent or more A-type pupils then the district is entitled to 100 percent entitlement for each of its A category pupils, even those which may be indicated down here on the fourth line as the A-civilian-type youngster living on Federal land and his parent is employed on Federal land, whereas by law it calls for a 90-percent entitlement, he would receive 100 percent, being in a heavily impacted district.

We do not illustrate tier 3 because the tier 3 authorization would say that in the event funds were available to fund tier 1 and tier 2, and tier 3 could not be funded in its entirety for all of the entitlement and each category would be funded in proportion to its unfunded entitlement and the amount of money that is left over.

I will deviate a little bit. One of the confusing situations that exist in this type of funding is that you can create an A youngster by a youngster living on low-rent housing property and his parent being in the uniformed services. There is a provision in the law that stipulates that low-rent housing may be funded in tier 1 and tier 3. But if you have an A category youngster living on low-rent housing and parent in the uniformed services he could be entitled to payment in tier 2. We have some problems identifying just how we treat this youngster in the payments under tier 2.

Does he get thrown out completely because he is associated with lowrent housing? Or do you pay that portion which is associated with the uniformed services? Or do you drop him down into the B category to be paid as uniformed services B?

These types of pupils can also confuse the situation by being of sufficient number that throws the district up into the heavily impacted status, having 25 percent or more A category youngsters.

I will leave the chart at this point and go back to the text.

The estimated requirements for regular entitlements in fiscal year 1976 and also payment tiers are attached at the back of the testimony in the table.

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