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TO:                  Superintendents of Schools, School Board Chairs, and Members of the State Board of Education


FROM:            J. Duke Albanese, Commissioner


DATE:             December 24, 2002


RE:                   Second Curtailment of Education Funding, FY ‘03



            Over the past several months, I have cautioned school superintendents and board chairs about the magnitude of the state budget difficulties and the need for all of us to be prepared to continue to share in the state’s solution to this problem.  Beginning last July schools participated in addressing the initial $240 million shortfall through a reduction in General Purpose Aid.  We worked hard at that time to keep the actual impact to schools to as modest an amount as possible with the curtailment totaling about $8 million.


As you know from earlier communications, the state budget for this fiscal year, FY ’03, is still facing a considerable challenge with an additional shortfall of $44.5 million anticipated.  Governor King – knowing that the economy continues to be sluggish in producing the revenues that we have come to expect in recent years and knowing that there will be a great challenge facing those policy- makers who will be working on the next biennium budget – is sticking to his pledge to address, as best he can, this year’s fiscal problems before leaving office. 


In order to counter the additional $44.5 million budget shortfall, Governor King must search across state agencies and state services for areas where cuts can be made.  These cuts, unfortunately, do not exclude the monies that are available for school districts in Maine.  As the largest line in the state budget, we have had to continue to search and identify accounts for reductions.  As unappealing as this process may be, I am glad to report that there will be no further reductions in regular General Purpose Aid to schools during this administration.  Governor King has agreed with our view that any further cuts in regular General Purpose Aid would have a widespread detrimental effect and, thus, GPA should be spared.


Importantly though, in making this decision, other tough decisions needed to be made about areas in which cuts were inevitable. 


      With an education share of this second curtailment pegged at $6,274,353, we had to turn to other alternatives.  Be advised that $2 million of this cutback will come with no consequences for school districts; we will pare $1.7 million from Debt Service due to the continued favorable bond market and positive construction bid environment.  Additionally, through audit adjustments, we will capture another $300,000 in savings for this fiscal year, FY ’03.


      The remaining balance of $4,274,353 comes with some pain, however.  $900,000 will be reduced in our out-of-district special education account.  Presently, there is $3,627,185 budgeted for reimbursements to school districts for special education students in out-of-district placements.  Each April, school districts apply to the Department for these funds and the monies are disbursed based on the total funding requests received.  Previously, we had projected that school units would receive 45 cents for every dollar spent this year.  The remaining local costs are submitted for reimbursement through the Program Costs component of the school funding formula, which are received two years after the year of expenditure.  As recently as FY 1999, the proration rate was as low as 26 cents on the dollar.  We project that reducing this fund by $900,000 will result in a proration level of approximately 34 cents on the dollar — lower than 2002, but higher than in recent years.  This necessary development is not one which we would choose in good times; however, like virtually every other state in the Union, Maine finds itself struggling with reduced revenues.  The reality is that we had made purposeful gains in this account, but now we are having to lower those expectations.


To satisfy the rest of the curtailment we have to go to a sensitive policy area, State Agency Clients/State Wards.  Over the last several months we have focused intensely on this policy area.  Specifically, we have undertaken cost containment measures, including scrutinizing every “advance payment” arrangement with school districts, negotiating for smaller rate increases with private providers that educate these students, while seeking to maximize receipt of Medicaid funds for eligible students.  Current projections for expenditures in these accounts indicate that a curtailment of $3,374,353 from these categories is doable, but not a sure thing.  Projections for special education expenditures, as you well know, are incredibly elusive. 


While we believe that this curtailment can be handled with the monies remaining, we must be cautious.  As you may recall, the 25% increase budgeted for the current year was supplemented by an additional $9.2 million for the biennium – in a time of scarce resources.  A year ago, when I made my Recommended Funding Level recommendation to the State Board, the Governor, and the Legislature, I had red-flagged this program as one experiencing explosive and, by my way of thinking, virtually unsustainable growth.  At the time, I suggested the possibility – out of necessity – of prorating these expenditures.  This was not a very appealing prospect, at that time, and it remains unattractive now, but we’ll need to have it in our back pocket. 


Since there are so many variables in this area, we have established the following contingency proration method:  commencing in April 2003, no State Agency Client payments will be made until June 2003; in June 2003, the total remaining bills for these accounts will be reviewed relative to remaining funds; if bills payable exceed balances – which we hope will not be the case – the rate of proration would be calculated for the entire year and a final payment would be made, based on the adjusted total amount due for the year. 


Knowing that this plan has been approved, school districts should continue careful monitoring of expenditures in local programming, commencing immediately.


While there is no easy solution to this very difficult budget climate, we feel that the mix of reductions outlined above is the best approach in meeting our curtailment obligations.  And, as tough as this additional curtailment may be, I believe that Maine schools – its educators and citizens – will do as they have in the past, working hard to stretch their resources, while always striving to minimize the impact on our children. 


Thank you for your continued tight management of your limited available resources.  Hopefully, your prudent administration of resources will be a buffer to any cuts that may result from this curtailment.