Understanding Tennessee’s Maintenance of Effort in Education Laws

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Understanding Tennessee’s Maintenance of Effort in Education Laws

 

Key Points
Tennessee’s maintenance of effort laws ensure that local funds budgeted for schools do not decrease as state funding for schools increases. These laws, which also exist for county law enforcement, libraries, highways, and election commissions, are to prevent local governments from reducing funding when they receive new or increased funding from the state, a practice known as supplanting.
County commissions, city councils, and special school districts must budget at least the same total dollars for schools that they did the previous year to comply with maintenance of effort laws. If student enrollments are declining, the funding bodies have to budget at least the same dollars per student as the previous year. Dollars budgeted for capital projects and debt service are not included in maintenance of effort calculations.
If a local budget does not meet maintenance of effort requirements, the Department of Education can withhold state Basic Education Program (BEP) funds from the school district until the funding body passes a budget that is in compliance. The department does not track the number of districts that initially fail to meet maintenance of effort each budget cycle but estimates that each year a handful of districts have to revise their budgets in order to comply. Department staff indicate they have not observed a pattern of the same districts repeatedly failing to comply with maintenance of effort requirements. Generally, districts that have initially failed to comply with maintenance of effort requirements have ultimately come into compliance because local funding bodies have not allowed their school districts to operate without BEP state funding for an extended period.
New school districts in any county where the county and city schools are being combined are exempt by law from maintenance of effort requirements for three years. The Department of Education has interpreted this provision to include any newly-created district. In these cases, the first maintenance of effort amount will be set by a new district’s third-year operating budget and will be used as the baseline for maintenance of effort in subsequent years. Thus, the six new municipal districts in Shelby County, as well as Shelby County Schools – which is considered a new district following the creation of the six municipal districts – are all exempt from maintenance of effort compliance until school year 2016-17.
Maintenance of effort laws were passed prior to the implementation of the BEP, and maintenance of effort requirements differ from BEP local match requirements. The local funding required for
BEP purposes is based on the Department of Education’s formula for calculating the basic costs of education for a district’s enrollment and the county’s fiscal capacity to provide education funding. Many local governments contribute significantly more funds toward education than required to meet their local match. Maintenance of effort requires that districts maintain their current level of funding, regardless of how much it exceeds the required BEP local match amount.

 

IntroductIinotnroduction
The laws requiring school districts to maintain local funding levels for education were adopted in 1987, five years before the state’s Basic Education Program (BEP) funding formula was created in law. Maintenance of effort laws are sometimes confused with the local funding requirements of the BEP, also known as the “local match.” This brief provides a history of Tennessee’s maintenance of effort requirements, describes how maintenance of effort is determined, and explains how maintenance of effort is related to the BEP.
What is the purpose of Maintenance of Effort requirements?
What is the purpose of maintenance of effort requirements?
The purpose of maintenance of effort requirements at both state and local levels is to ensure that financial contributions by one funding body are used to enhance existing financial support from another. These laws ensure that new or increased funding provides additional support to a program or function, and does not result in simply replacing funding from an existing funder, also known as supplanting.
The state’s maintenance of effort laws for education require that local funding bodies allocate at least the same amount to school districts that they budgeted the previous year.A Maintenance of effort provisions are not unique to education funding. In Tennessee, several other county departments have maintenance of effort provisions, including law enforcement, public libraries, highways, and election commissions, although they may be calculated in different ways.1 There are also maintenance of effort requirements that states must meet for certain federal funds, such as the Individuals with Disabilities Education Act (IDEA) Part B funds.2
What is thWehaisttiosrtyhoefhTisetnonreysosfeTe’snnmeasisneten’saMncaeinotef nefafnocrteroeqf Eufirfoemrt erenqtsu?irements?
State maintenance of effort provisions for local education funding were passed in 1987. One provision prohibits school districts from using state funds to supplant total local current operating funds, excluding capital outlay and debt service.3 A second provision, passed under the same public act, prohibits school districts from submitting budgets to their local legislative bodies (county commissions or city councils) that directly or indirectly propose to use state funds to supplant any local current operating funds, excluding capital outlay and debt service.4
A Funding bodies for county school districts are county commissions and for city school districts are city councils. Special school districts are considered their own funding bodies because they can set a special tax rate with the approval of the General Assembly, giving them more direct responsibility for maintaining local funding levels than city and county school districts. City and special school districts receive local county funding, but the apportionments of county funds to these districts are made by the county trustee according to statute and not by county commissions.
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The third provision in the original maintenance of effort law is that newly-created districts in any county “where the county and city schools are being combined” are not subject to maintenance of local effort for their first three years.5 The language in the law is unclear as to whether the three-year exception also applies to new districts created in counties where county and city school systems are not being merged, as was noted in OREA’s 2012 report on statutory options for school district mergers.6 The Department of Education has interpreted this maintenance of effort exception to apply to any newly-created district.
Revisions to the maintenance of effort law were made in 1992, the same year the state adopted the BEP funding formula. The revisions provided that in a year when state funding is less than the amount in fiscal year 1990-91, or less than the previous fiscal year’s state funding, any local funds allocated to offset state funding cuts shall be excluded from maintenance of effort requirements. In cases where districts receive lower levels of state funding as a natural result of student enrollment decreases, however, the exclusion does not apply, and any local funds allocated to offset such declines in state funds would be included in future years’ maintenance of effort requirements.
A 1994 State Board of Education rule requires the Department of Education to review school systems’ budgets to ensure school districts are not using state funds to supplant local funds. The rule further states that revenue derived from local sources must equal or exceed prior year actual revenues, excluding capital outlay and debt service and adjusting for any decline in average daily membership (ADM).7
After the General Assembly passed increased education funding, dubbed BEP 2.0, in 2007, it requested a study by the BEP Review Committee to address concerns and perceptions that local funding bodies were cutting local funds on the heels of the increased state funding and to make recommendations on whether statutory revisions were needed.8 The committee recommended revisions that would require local funding bodies to appropriate at least the same level of funding as the prior year, including an adjustment for inflation. The recommendation was not acted on by the General Assembly.
How is mHaionwteinsaMncaeinotef neaffnocrtedoeftEerfmfoirnt edde?termined?
The Department of Education makes the determination as to whether districts’ proposed budgets meet maintenance of effort requirements. The department conducts several financial comparisons to test districts’ compliance, once districts have submitted their budgets to the department by the annual August 1st deadline. The department notifies a district if its budget does not meet maintenance of effort requirements and sets a deadline for the district to submit a revised budget in order to come into compliance.
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Compliance tests
Level One
The first test of maintenance of effort compliance is a determination that a district’s total budgeted local revenues for day-to-day operations are not less than its budgeted local revenues from the previous year, excluding capital outlay and debt service. Local revenues include property taxes, fees, and local sales taxes that are designated for schools, as well as any allocated license and permit fees, state shared tax proceeds, and city general fund revenues, if applicable. Districts can generally determine if they are in compliance with the level one test before they submit their budgets for department approval.
Level Two
A second level compliance test is triggered when districts do not meet the level one test, often because they have declining student enrollment. It is generally expected that districts’ budgeted revenue will decrease in such situations; maintenance of effort is thus determined on per-pupil revenues rather than total revenues. Districts must demonstrate that their budgeted per-pupil local revenues are not less than their budgeted per-pupil local revenues from the previous year. The department makes the determination using the weighted average daily membership (ADM) figures calculated for the BEP funding formula.B If districts do not pass the level one test, but can pass the level two test, they have met maintenance of effort requirements.
It is possible for districts with increasing enrollment to meet maintenance of effort requirements by holding total budget levels steady, while their per-pupil funding declines. Such a scenario might be due to realizing economies of scale or to local funding commitments that remain unchanged as enrollments rise, or both. In these cases, because districts have met the level one test, they are not subject to the level two test. (See also “Adjustment for Inflation.”) For example, in fiscal year 2015, nine districts with increased enrollments met their maintenance of effort obligations with budgeted local revenues equal to, or with very small increases (less than one-half percent) over, the previous year’s budget, resulting in lower per-pupil local revenues. Such situations occur in any district where enrollment increases outpace budget increases. Conversely, 20 districts with declining enrollments from fiscal years 2014 to 2015 had increasing per-pupil local revenues, despite declining or steady budgeted local revenues.
B Weighted ADM calculations are based on four reporting periods: 2nd month (12.5%), 3rd month (17.5%), 6th month (35%), and 7th month (35%).

For more interesting reading regarding maintenance of effort visit Comptroller.tn.gov.