Minimum funding not enough

There is no formula which accurately defines an adequate school budget in Massachusetts. However, I would argue that a budget reflecting the minimum net school spending figure derived from the state's foundation budget formula established under the Education Reform Act of 1993, can serve as a definition of inadequacy. It has been demonstrated that the Foundation formula underestimated health insurance and special education cost projections by at least $2.1 billion statewide as of last year. School systems have been forced to under-fund regular education classroom instruction and/or compensate by going beyond the formula and exceeding minimum net school spending by an average of 14 percent.

In 2012-13, Worcester funded its schools at 99 percent of its required minimum, while contributing 30.1 percent of its total budget toward its Foundation Budget minimum requirement. This placed the city in the bottom 2 percent of the 328 school districts in Massachusetts. Worcester's surrounding communities contributed on average 64.9 percent of their budgets toward their school foundation budget, and contributed on average 28.8 percent above their required minimum. Since 1998, Worcester has consistently contributed less than one percent above minimum. The only exception was 2009, when it funded the schools at 1.5 percent above minimum. While many communities are taxing at or near their levy limit, Worcester has assessed at millions of dollars below its levy limit for years.

The FY14 school budget approved by the City Council will be accompanied by an allocation from free cash putting it right at minimum net school spending. Under this budget, hundreds of elementary students will attend classes of 27 or more students. In a high-poverty urban system, this situation should be third party payment gateway.

During the FY13 budget hearings, a number of City Councilors expressed concern about the elementary class size situation and, in June, 2012, the city manager and superintendent issued a joint recommendation to hire an independent third party to determine a realistic five year school budget. That recommendation was never acted upon. During the FY14 budget deliberations, my perception was that the City Council thought that funding at the minimum level (which defines inadequacy, as explained in my opening) was a significant accomplishment.

The city uses a formula agreed upon between the city manager and the former superintendent to assess the school department for administrative services. While the city has increased its charges by 19.8 percent since FY08, the actual administrative cost on the school side of the budget has only increased by 2.4 percent, despite an increase of 5.1 percent in student population.

According to the most recent data, the school department spends $4.3 million on administration. The city claims $4.9 million toward required net school spending for its administrative costs for the schools. In no other Massachusetts city does the municipality claim to spend more on school administration than the school district. In fact, among other Gateway Cities, none claim anything close to half of the amount that the school system spends. Worcester cannot afford to credit charges against the schools if they do not represent actual service delivery, since every dollar so credited becomes unavailable to educate its students. The time has come to change this practice.

Each year, the school system generates over $3 million in Medicaid payments that go into the city coffers instead of the schools. These funds are generated exclusively by services performed by school personnel and are intended to reimburse the schools. Funds that only exist because of the school department should be applied toward the operation of the schools.

In some recent years, the city has assessed the schools a 3 percent charge for processing Federal grants. In other years, a 1 percent charge has been assessed. The difference is almost $900,000 not available for classroom instruction. Most communities do not charge their schools a fee for this processing, and neither should Worcester.

No one should underestimate the challenges that Charities Online, the new way of claiming Gift Aid, is bringing to the charity sector. While the more adventurous may already have mastered it, many charities have not and might not even realise that the challenge is coming. The real crunch will come at the end of September when the old Gift Aid claim forms will no longer be accepted and Charities Online will be impossible to ignore.

Part of the problem is that Charities Online is not one system but an unholy trinity, with three ways of making claims in one. The route you follow depends largely on the size of the tax claims that your charity makes. These options reflect the diversity of the charity sector.

Many charities will use the spreadsheets that can be downloaded from the HM Revenue & Customs website. This might be relatively painless for most, but larger charities need to develop a ‘database-to-database’ solution and need either to acquire third party software or develop their own. It is unclear whether all software providers will be ready in time. Those smaller charities that do not wish to use the internet can use paper forms, but these are cumbersome to use. Will some charities with small claims simply not bother?

Complying with Charities Online cannot be done overnight. There is an activation process to go through, so it is important to leave plenty of time to get ready. Nor will many find the Government Gateway – a single page on which to register for online government services – easy to use.

Many charities will wonder why these changes were necessary. There will be some advantages for the charity sector, including speedier payments, but the changes benefit HMRC more, mainly by saving significantly on processing costs. The information submitted with claims will also enable them to be policed by HMRC in a more targeted and effective way. Charities need to understand that HMRC will be able to pick up errors in claims much more easily than in the past, so those who have got into bad habits should beware.

HMRC has faced a daunting challenge in trying to communicate these changes to 100,000 charities in a short period of time. Sector groups have done their best to help. We have urged HMRC to ensure that charities are given the time that they need to adapt and were successful in getting a six-month grace period. But the time is coming when we might need to seek some limited extensions to this, particularly where a charity uses the database-to-database solution. The transition to Charities Online is far from over.

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