School-Based Budgeting

Amends chapters 37 and 302A, HRS, to facilitate implementation of
school-based budgeting.  (HB853, HD1)

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HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  In 1994 the legislature approved Act 272, its
 2 landmark legislation to begin the systemic reform of public
 3 education in Hawaii.  The intent of that Act was to give
 4 individual schools flexibility and autonomy, empowering them to
 5 be directly accountable for student achievement and to "put
 6 students first".
 7      In Act 272, the legislature declared that "...under the
 8 current structure, the division of funds among the schools has
 9 been an administrative process, outside of public view and beyond
10 public control.  Funds are dissipated in a burgeoning
11 administrative bureaucracy, and there is no clear accounting of
12 how much money actually reaches the schools for instruction and
13 activities that directly affect students and learning."
14 Accordingly, Act 272 directed the department of education to
15 implement school-based budget flexibility for the schools
16 beginning with the 1995-1997 fiscal biennium.  "School-based
17 budget flexibility" is an operating budget preparation and
18 allocation process that provides maximum flexibility to
19 individual schools in the preparation and execution of their

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 1 operating budgets.  Despite the statutory mandate, school-based
 2 budgeting has not yet been implemented.
 3      The legislature further finds that education reform was one
 4 of the major issues for the 1997 economic revitalization task
 5 force, which brought forth a number of recommendations for
 6 educational change.  One of those recommendations builds upon on
 7 the foundation set by Act 272 -- the immediate implementation of
 8 school-based budgeting.  Like the legislature, the task force
 9 recognized that without it, individual schools cannot achieve the
10 flexibility and autonomy necessary to determine the curriculum
11 and instructional needs of their students and be directly
12 accountable for student achievement.
13      The implementation of school-based budgeting has been a goal
14 of the legislature for several years.  The governor and
15 representatives from the department of education had objections
16 to the July 1, 1998, start date imposed by a similar bill passed
17 in 1998.  The legislature understands that time is needed for the
18 department of education to coordinate its implementation efforts,
19 as school principals have previously never prepared budgets as
20 contemplated by this Act and need sufficient training to do so.
21 By mandating school-based budgeting to begin with the fiscal
22 biennium 2001-2003, the legislature allows the department of
23 education two years to prepare for the implementation of school-

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 1 based budgeting.
 2      The purpose of this Act is to provide additional guidelines
 3 to ensure the implementation of school-based budgeting beginning
 4 with the fiscal biennium 2001-2003.
 5      SECTION 2.  Chapter 302A, Hawaii Revised Statutes, is
 6 amended by adding a new section to be appropriately designated
 7 and to read as follows:
 8      "302A-     School-by-school budgeting.  (a)  For the
 9 purposes of this section, "school-by-school budgeting" means a
10 process in which schools are given maximum flexibility in the
11 preparation and execution of their budget.
12      (b)  Each public school shall engage in school-by-school
13 budgeting.  Participation in school-by-school budgeting shall be
14 mandatory for all schools.  Beginning with the budget preparation
15 for the 2001-2002 school year, each school shall prepare its
16 budget with the assistance of the department.  Each school shall
17 be allowed full discretion over the funds designated as school
18 lump sum.  Each school shall also be informed of the degree of
19 discretion allowed over other types of funding, and shall
20 formulate its budget to achieve instructional program goals.
21      (c)  The department, through either the state or district
22 offices, shall provide appropriate training and technical
23 assistance to schools in budget preparation and execution, and

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 1 ensure that school budgets are in compliance with federal and
 2 state law, and the statewide education policy as set forth by the
 3 board.
 4      (d)  The department shall provide reports from the state and
 5 district offices to the schools.  Reports relevant to budget
 6 preparation shall be provided no later than one month prior to
 7 the required date for a school's budget submission.  Reports
 8 relevant to budget execution shall be provided no later than one
 9 month prior to the start of each new school year.  Reports for
10 budget preparation shall include:
11      (1)  Statewide legislative, executive, and board actions on
12           the education budget;
13      (2)  A summary of guidelines provided by the governor in the
14           preparation of the budget;
15      (3)  Guidelines established by the department and the board
16           for school budget preparation;
17      (4)  The school's total budget ceiling with documentation of
18           adjustments to the level of funding as compared with
19           previous years;
20      (5)  Budget ceilings for all cost elements;
21      (6)  Explanations of criteria for staffing and funding for
22           the school; and
23      (7)  Other information as necessary for efficient and

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 1           effective budget formulation.
 2      (e)  Reporting requirements for budget execution shall
 3 include:
 4      (1)  Statewide legislative, executive, and board actions on
 5           the department budget;
 6      (2)  Restrictions by the executive, and application of these
 7           restrictions by the department by program ID, level IV
 8           and level V program, and cost element;
 9      (3)  Reserves held by the state and district offices, along
10           with the rationale and parameters of expenditure for
11           the reserves;
12      (4)  Descriptions of each type of allocation along with the
13           degree of budget flexibility that accompanies each
14           allocation;
15      (5)  Full explanations of the budget approval and appeal
16           process along with timetables relevant to the
17           processes; and
18      (6)  Other information necessary to provide the school with
19           an understanding of budget execution decisions,
20           policies, and procedures.
21      (f)  Prior to the beginning of each school year, schools
22 participating in school-by-school budgeting shall prepare
23 expenditure reports for the previous fiscal year that include:

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 1      (1)  Expenditures by each allocation type listed by cost
 2           element and means of financing;
 3      (2)  Variances between expenditures and the budget submitted
 4           for that fiscal year by allocation type, cost element,
 5           and means of financing;
 6      (3)  Funds carried over from the prior fiscal year by
 7           allocation type and means of financing;
 8      (4)  Areas of budget shortfall and surplus; and
 9      (5)  Other information that provides an understanding of
10           school level budget actions.
11 The reports listed in subsections (d), (e), and (f) shall be made
12 available to any interested party upon request.  Schools shall
13 provide adequate notification to administrators, teachers,
14 parents, and other school level personnel that these reports are
15 available for review."
16      SECTION 3.  Section 37-34.5, Hawaii Revised Statutes, is
17 amended to read as follows:
18      "37-34.5  Department of education; allotment and
19 expenditure plan; updates.  The department of education shall
20 submit an annual allotment and expenditure plan[, including] that
21 specifically identifies the amount the department will allocate
22 for school lump sum funding.  The plan shall include a separate
23 description of all existing financing agreements of the

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 1 department of education that require funding, together with a
 2 statement of the amount of funding required, and all proposed
 3 financing agreements of the department of education for the
 4 ensuing fiscal year[,].  The plan shall be submitted to the
 5 governor for each fiscal year.  The governor may require the
 6 department of education to submit an update of the expenditure
 7 plan based on changing economic conditions."
 8      SECTION 4.  Section 37-71, Hawaii Revised Statutes, is
 9 amended to read as follows:
10      "37-71  The budget.(a)  Not fewer than thirty days before
11 the legislature convenes in every odd-numbered year, the governor
12 shall submit to the legislature and to each member thereof a
13 budget that shall contain the program and budget recommendations
14 of the governor for the succeeding two fiscal years[.]; provided
15 that for the department of education, the governor shall submit a
16 budget that names each school as the lowest program level in the
17 state program structure except for the district and state office
18 programs.  The budget, in general, shall contain:
19      (1)  The state program structure;
20      (2)  Statements of statewide objectives;
21      (3)  The financial requirements for the next two fiscal
22           years to carry out the recommended programs; and
23      (4)  A summary of state receipts and revenues in the last

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 1           completed fiscal year, a revised estimate for the
 2           fiscal year in progress, and an estimate for the
 3           succeeding biennium.
 4      (b)  The information contained in the budget shall be
 5 presented generally in the following manner:
 6      (1)  Information shall be displayed by programs or groups of
 7           programs.
 8      (2)  Program financial requirements shall be appropriately
 9           crosswalked between the programs and expending
10           agencies.
11      (3)  Data shall be appropriately summarized at each level of
12           the program structure.
13      (4)  Program costs shall include all costs, including
14           research and development, operating and capital,
15           regardless of the means of financing, except that the
16           means of financing shall be expressly identified, and
17           regardless of whether the expenditure of any sum was
18           authorized by prior appropriations acts, is authorized
19           by existing law, or requires new authorization, except
20           that the amounts requiring new authorization shall be
21           appropriately identified.
22      (5)  Financial requirements shall be presented to the
23           nearest dollar, omitting cents; and the summary of

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 1           state receipts and revenues shall be presented to the
 2           nearest thousand dollars.
 3      (6)  The budget shall reflect the ensuing first two fiscal
 4           year program costs contained in the six-year program
 5           and financial plan.
 6      (c)  The display of financial requirements for the ensuing
 7 two fiscal years shall more specifically include:
 8      (1)  At the lowest level on the state program structure, for
 9           each program:
10           (A)  The total recommended expenditures, including
11                research and development, capital and operating
12                costs, by cost categories and cost elements for
13                the ensuing biennium; the planned allocation of
14                the total biennial request, by cost categories,
15                and cost elements, between the two fiscal years of
16                the biennium.  The means of financing and the
17                number of positions included in any cost category
18                amount shall be appropriately identified;
19           (B)  A summary showing means of financing the total
20                recommended expenditures, those amounts requiring
21                and those amounts not requiring legislative
22                appropriation or authorization for spending in
23                each fiscal year of the biennium;

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 1           (C)  A crosswalk of the total proposed biennial
 2                expenditures between the program and expending
 3                agencies[.]; provided that for the department of
 4                education this subparagraph shall not apply to
 5                individual schools.  The means of financing the
 6                number of positions and the lease payments
 7                included in any cost amount, and the net amount
 8                requiring appropriation or authorization shall be
 9                appropriately identified for each expending
10                agency; and
11           (D)  The proposed changes in the levels of
12                expenditures, by cost categories, between the
13                biennium in progress and the ensuing biennium,
14                together with a brief explanation of the major
15                reasons for each change[.]; provided that for the
16                department of education this subparagraph shall
17                not apply to individual schools.  The reasons
18                shall include, as appropriate, the following:
19                (i)  Salary adjustments to existing positions of
20                     personnel;
21               (ii)  The addition or deletion of positions;
22              (iii)  Changes in the number of persons being served
23                     or to be served by the program;

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 1               (iv)  Changes in the program implementation
 2                     schedule;
 3                (v)  Changes in the actual or planned level of
 4                     program effectiveness;
 5               (vi)  Increases due to the establishment of a
 6                     program not previously included in the
 7                     State's program structure;
 8              (vii)  Decreases due to the phasing out of a program
 9                     previously included in the State's program
10                     structure; and
11             (viii)  Changes in the purchase price of goods or
12                     services;
13           As appropriate, references to the program and financial
14           plan shall be noted for an explanation of the changes.
15           Notwithstanding the provisions of subsection (b)(5),
16           the proposed changes in the levels of expenditures may
17           be shown to the nearest thousand dollars;
18      (2)  Appropriate summaries of paragraph (1)(A) and (C)
19           immediately above at every level of the state program
20           structure above the lowest level.  Such summaries shall
21           be by the major groupings of programs encompassed
22           within the level.  The summaries of paragraph (1)(A)
23           shall identify the means of financing and the number of

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 1           positions and the lease payments included in any cost
 2           category amount; and
 3      (3)  A summary listing of all capital improvement projects
 4           included in the proposed capital investment costs for
 5           the ensuing biennium.  The listing shall be by programs
 6           at the lowest level of the state program structure and
 7           shall show for each project, by investment cost
 8           elements:
 9           (A)  The cost of the project;
10           (B)  The amount of funds previously appropriated and
11                authorized by the legislature; and
12           (C)  The amount of new appropriations and
13                authorizations proposed in each of the two fiscal
14                years of the ensuing biennium and in each of the
15                succeeding four years.  The amount of the new
16                appropriations and authorizations proposed shall
17                constitute the proposed new requests for the
18                project in each of the fiscal bienniums.
19           In every instance, the means of financing shall be
20           noted.
21      (d)  The summaries of the state receipts and revenues shall
22 more specifically include:
23      (1)  Financial summaries displaying the State's financial

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 1           condition, to-wit:
 2           (A)  A display of the proposed, total state
 3                expenditures, by cost categories, the total state
 4                resources anticipated from existing taxes and
 5                nontax sources at existing rates, by resource
 6                categories (including the available fund balances
 7                or deficits and anticipated bond receipts), and
 8                the fund balance or deficit resulting therefrom
 9                for the biennium in progress, for the ensuing
10                biennium, and for each of the two fiscal years of
11                the ensuing biennium; and
12           (B)  The changes proposed to the existing tax and
13                nontax rates, sources, or structure, and the
14                estimated cumulative increases or reductions, and
15                the estimated fund balance or deficit in the
16                ensuing biennium and in each of the two fiscal
17                years of the biennium as a result of such proposed
18                changes.  Proposals for changes in the existing
19                tax and nontax rates, sources, or structure shall
20                be made in every case where the proposed, total
21                state expenditures exceed the total state
22                resources anticipated from existing tax and nontax
23                sources at existing rates.

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 1           Such financial summaries shall be prepared for the
 2           total state expenditures and resources and for the
 3           general fund and special fund portions thereof;
 4      (2)  A summary of the balances of each special fund, actual
 5           for the last completed fiscal year and estimated for
 6           the fiscal year in progress and for each of the two
 7           fiscal years in the ensuing biennium;
 8      (3)  A summary of the State's total bond fund required to
 9           carry out the recommended programs and the kinds of
10           bonds and amounts thereof through which such
11           requirements are to be met in the biennium in progress
12           and in each of the two fiscal years in the ensuing
13           biennium.  The summary shall detail for the biennium in
14           progress and for each of the two years of the ensuing
15           biennium:
16           (A)  Of the total requirements, the amount, by cost
17                categories, requiring new bond issuance
18                authorization and the kinds and amounts of bonds
19                planned for issuance under such new authorization;
20           (B)  By bond categories, the total, cumulative balance
21                of bonds authorized in prior years but unissued
22                and the amount thereof planned to be issued; and
23           (C)  A recapitulation of the total bonds, both new

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                                     H.B. NO.           H.D. 1

 1                authorizations and prior authorizations, by bond
 2                categories, proposed to be issued;
 3      (4)  A tentative schedule by quarter and fiscal year of the
 4           amount of general obligation bonds and the amount of
 5           revenue bonds proposed to be issued in the ensuing
 6           fiscal biennium;
 7      (5)  A schedule of projected debt service charges for
 8           general obligation bonds outstanding at the time of the
 9           submission of the budget and to be issued by the close
10           of the budget biennium in progress and the close of the
11           ensuing budget biennium.  The projection shall be
12           separately stated for:
13           (A)  Bonds currently outstanding;
14           (B)  Bonds to be issued during the remainder of the
15                fiscal biennium in progress and during the ensuing
16                fiscal biennium; and
17           (C)  The total bonds currently outstanding and to be
18                issued.
19           In each case, the projection shall be categorized into
20           debt service to be paid directly from the general fund,
21           debt service to be paid through reimbursements, and
22           total debt service.  The projection shall extend at
23           least five years beyond the close of the ensuing fiscal

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                                     H.B. NO.           H.D. 1

 1           biennium.  An explanation shall be appended to the
 2           schedule, which shall include among other things, the
 3           amount of bonds to be issued during the fiscal year in
 4           progress and in each of the two fiscal years of the
 5           ensuing biennium, the maturities of the bonds to be
 6           issued, the method of retirement, and the interest rate
 7           assumed in the projection;
 8      (6)  A schedule of the current state funded debt, legal debt
 9           limit, and the legal debt margin, including the details
10           thereof.  In any budget which proposes appropriations
11           for which the source of funding is general obligation
12           bonds, the schedule shall include a declaration by the
13           director of finance and computations showing that the
14           total amount of principal and interest, estimated for
15           such proposed appropriations and for all bonds
16           authorized and unissued and calculated for all bonds
17           issued and outstanding, will not cause the debt limit
18           to be exceeded at the time of issuance;
19      (7)  Separately for general fund tax revenues, special fund
20           tax revenues, general fund nontax revenues, and special
21           fund nontax revenues:
22           (A)  By kinds of taxes or sources, the amount of
23                revenue from existing, authorized taxes or sources

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 1                at existing rates received in the last completed
 2                fiscal year and estimated to be received in the
 3                fiscal year in progress and in each of the two
 4                fiscal years in the ensuing biennium, with
 5                appropriate totals for the two bienniums;
 6           (B)  A summary of the proposed changes in the existing
 7                taxes or sources or rates, and the estimated
 8                increases or reductions in revenues in each of the
 9                two years in the ensuing fiscal biennium resulting
10                from such changes; and
11           (C)  The total estimated revenues with and without the
12                proposed changes; and
13      (8)  A summary of the State's total payments due under
14           financing agreements required to carry out the
15           recommended programs and the kinds of financing
16           agreements and amounts thereof through which such
17           requirements are to be met in the biennium in progress
18           and in each of the two fiscal years in the ensuing
19           biennium.  The summary shall detail for the biennium in
20           progress and for each of the two years of the ensuing
21           biennium:
22           (A)  Of the total financing agreement requirements, the
23                amount, by cost categories, requiring new

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 1                financing agreement authorizations and the kinds
 2                and amounts of financing agreements planned for
 3                execution and delivery under such new
 4                authorizations;
 5           (B)  By cost category, the cumulative balance of
 6                financing agreements authorized in prior years but
 7                not executed and delivered and the amount thereof
 8                proposed to be executed and delivered; and
 9           (C)  A recapitulation of the total financing agreements
10                to be executed and delivered, including both new
11                authorizations and prior authorizations, by cost
12                categories.
13      (e)  The proposed budget shall include:
14      (1)  A statement of the percentage differences between the
15           current biennium recommendations and the previous
16           biennium appropriations for education programs.  The
17           information shall be displayed by programs or groups of
18           programs, with corresponding amounts and percentage
19           differences.  If any component of an education program
20           is added or removed, the governor shall provide an
21           estimate of how the addition or removal affects the
22           current biennium recommendations;
23      (2)  A statement of the difference between the total amount

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 1           proposed for the current biennium and the total amount
 2           expended in the previous biennium for education
 3           programs per pupil; and
 4      (3)  Other financial statements, information, and data that
 5           in the opinion of the governor are necessary or
 6           desirable in order to make known in all practical
 7           detail the programs, program plans, and financial
 8           conditions of the State.
 9      As used in this subsection, "education programs" include
10 instructional, personnel, transportation, facilities, facilities
11 repair and maintenance, and other programs deemed appropriate by
12 the department of education.
13      (f)  The proposed budget shall contain an item to be known
14 as the "contingent fund," which sum, upon approval by the
15 legislature, shall be available for allocation by the governor
16 during the ensuing fiscal biennium to meet contingencies as they
17 arise.
18      (g)  The proposed budget shall contain an item to be known
19 as the "education contingent fund", which sum, upon approval by
20 the legislature, shall be available for allocation by the board
21 of education during the ensuing fiscal biennium for the purpose
22 of adjusting for unanticipated changes in individual school
23 budgets as a result of personnel movements among schools.

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 1      [(g)] (h)  If it is deemed more practical, the six-year
 2 program and financial plan and the budget may be combined into a
 3 single document containing all the information required for each
 4 separate document."
 5      SECTION 5.  Section 37-74, Hawaii Revised Statutes, is
 6 amended by amending subsection (d) to read as follows:
 7      "(d)  No appropriation transfers or changes between programs
 8 or agencies shall be made without legislative authorization;
 9 provided that:
10      (1)  Authorized transfers or changes, when made, shall be
11           reported to the legislature;
12      (2)  Except with respect to appropriations to fund financing
13           agreements under chapter 37D, the University of Hawaii
14           shall have the flexibility to transfer general fund
15           appropriations for the operating cost category among
16           programs with the same or similar objectives, among
17           cost elements in a program, and between quarters, as
18           applicable; and the Hawaii health systems corporation
19           shall have the flexibility to transfer special fund
20           appropriations among community hospitals facilities as
21           applicable; provided that the Hawaii health systems
22           corporation shall maintain the integrity and services
23           of each individual facility and shall not transfer

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                                     H.B. NO.           H.D. 1

 1           appropriations out of any facility that would result in
 2           a reduction of services offered by the facility, with
 3           due regard for statutory requirements, changing
 4           conditions, the needs of the programs, and the
 5           effective utilization of resources; [and]
 6      (3)  The department of education shall have the flexibility
 7           to transfer general fund appropriations among the
 8           schools comprising the lowest program level; and
 9     [(3)] (4)  The university and the department of education
10           shall account for each transfer implemented under this
11           subsection in quarterly reports to the governor and
12           annual reports at the end of each fiscal year to the
13           legislature and the governor, which shall be prepared
14           in the form and manner prescribed by the governor and
15           shall include information on the sources and uses of
16           the transfer."
17      SECTION 6.  Section 302A-101, Hawaii Revised Statutes, is
18 amended by deleting the definition of "school-based budget
19 flexibility".
20      ["School-based budget flexibility" means an operating budget
21 preparation and allocation process that provides maximum
22 flexibility to individual schools, complexes, and learning
23 support centers in the preparation and execution of their

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                                     H.B. NO.           H.D. 1

 1 operating budgets."]
 2      SECTION 7.  Section 302A-1302, Hawaii Revised Statutes, is
 3 repealed.
 4      ["302A-1302  School-based budget flexibility.  Beginning
 5 with the 1995-1997 fiscal biennium, the department shall
 6 implement school-based budget flexibility for schools, complexes,
 7 and learning support centers.  The flexibility shall be limited
 8 to the school-based budgeting program EDN 100 of the department
 9 for all schools except student-centered schools defined in
10 section 302A-101; provided that beginning in fiscal year 1998-
11 1999, and every year thereafter, the department shall distribute
12 the full appropriation due to a student-centered school pursuant
13 to section 302A-1123(d) directly to the student-centered
14 school."]
15      SECTION 8.  Notwithstanding section 37-69(c)(3), Hawaii
16 Revised Statutes, for fiscal years 2001-2002 and 2002-2003, for
17 each school only the following shall be included in the program
18 and financial plan:
19      (1)  The total actual program cost for the last completed
20           fiscal year and the estimated cost for the fiscal year
21           in progress; and
22      (2)  At least two effectiveness measures and the actual
23           level of effectiveness attained in the last completed

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                                     H.B. NO.           H.D. 1

 1           fiscal year.
 2      SECTION 9.  Statutory material to be repealed is bracketed.
 3 New statutory material is underscored.
 4      SECTION 10.  This Act shall take effect upon its approval.

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