The 61st Wyoming Legislature Budget Session is in session and WEA's Legislative Action Team is hard at work. The primary focus for this session is the state's biennial budget. The Joint Appropriations Committee has already started work on the budget and, along with Governor Mead, will request all state agencies submit cuts to their budgets for the next biennium. Currently, these cuts have not been applied to school funding.

Other important areas of focus for this session will include legislative redistricting, education accountability, and both the regional cost adjustment and the external cost adjustment to the school funding model.

3 Issues of Interest to WEA:

1) Education Accountability
2) School Funding Model
3) Wyoming Retirement System

Education Accountability:

The Select Committee on Statewide Education Accountability, with the help of the SF 70 Advisory Committee, met during this last year to work on school-level accountability (Phase I) and will be introducing pertinent legislation in this session.  Both committees have decided to put off the issue of individual educator accountability until next year.

School accountability components to be included in the plan include achievement, readiness, growth, equity, and inclusion. 

Achievement will measure the extent to which students meet standards for proficiency on state tests. 
Readiness will see if high school students achieve outcomes meaningful to post-secondary success. 
Growth will look at the extent that students show progress on state tests over time. 
Equity will look at the progress made toward proficiency of low-performing students. 
Inclusion is meant to make sure students served for the full academic year are included in accountability measures.

Outlined goals for the accountability system include:

1. Become a national education leader;
2. Ensure all students leave Wyoming schools career- or college ready;
3. Recognize student growth and increase the rate of that growth;
4. Recognize student achievement and minimize achievement gaps;
5. Improve teacher, school and district leader quality;
6. Maximize efficiency of Wyoming education;
7. Increase credibility and support for Wyoming public schools.

The education accountability bill will also create four performance levels for schools: exceeding expectations, meeting expectations, partially meeting expectations, and not meeting expectations.  Levels will be tied to a progressive multi-tiered system of support, intervention and consequences that will be developed by the state board.

A reporting system will also be developed that shall describe the performance of each public school in Wyoming.  The report will contain an overall school performance rating along with ratings of indicators in the accountability system.  Those indicators will be used for support of the overall performance rating as well as to provide detailed information for analysis of school performance on the various components of the system.

Information in the report will also be disaggregated by subgroups and used to provide longitudinal information to track student performance on a school, district and statewide basis.

The bill also provides for Phase II, which the select committee will work on during the 2012 interim.  This part will center on the development of educator and student accountability systems.

2) School Funding Model: Regional Cost Adjustment & External Cost Index

The regional cost adjustment (RCA) makes adjustments to the school funding formula to account for the significantly higher costs that arise from circumstances in particular areas of the state.  This adjustment has been a component of school funding recommended by consultants and economists but not necessarily agreed to as how to implement it.

The Wyoming Supreme Court has been clear that having a valid regional cost adjustment is a requirement for the system to comply with the constitution.  The Court held that a regional cost adjustment needed to be made, but that the method used could not be applied in a manner that reduces the funding of any district below the basic cost of education derived from the formula. 

Joint Education Committee is looking at a proposal to change how districts receive this adjustment.  Currently, districts are allowed to choose between three alternatives: (1) their regional cost as adjusted by the Wyoming Cost of Living Index (WCLI); (2) their regional cost based on a Hedonic Wage index (HWI); or (3) only the base amount of the formula without any increase for regional cost.  Districts get whichever of the three provides the most revenue.  The current proposal is to move all districts to a revised Hedonic Wage index only.

A number of districts would suffer major reductions in funding by the abandonment of the WCLI, which includes housing and other local costs not apparently reflected in the new versions of the HWI.

The new formula is intended to compensate for the higher costs in those particular districts which incur costs substantially higher than the cost of education established by the base model.  What it produces, however, are major cuts in funding for 16 school districts. One district receives a $3.8 million annual cut, one is cut by more than a million dollars, two more by more than $400,000, and the others likewise receive very substantial cuts. These cuts would be phased in after a one-year hold harmless. It is self-evident that a formula that makes such extreme cuts has something seriously wrong. 

The External Cost Index (ECI) is an adjustment to the school funding model to adjust for the effects of inflation.  The Wyoming Supreme Court requires that the Wyoming Legislature look at this at least every two years.  This makes sure that inflation does not cause the funding amount to drop below what is necessary.

Joint Education Committee has recommended to the Joint Appropriations Committee that this adjustment be zero.  JAC accepted that recommendation.

3) Wyoming Retirement System: COLA Elimination & Defined Contribution

The Joint Appropriations Committee is responsible for oversight of the Wyoming Retirement System.  As part of their work, the Appropriations Committee voted to sponsor a bill that would make Cost of Living Adjustments (COLAs) for retirees almost impossible. This proposed legislation seeks to eliminate future COLAs in all open enrollment Wyoming public employee pension plans (impacting about 55,000 Wyoming residents). This bill also seeks to remove the Wyoming Retirement Board's authority to award COLAs and gives that authority to legislators. It would not allow for any consideration of COLAs until retirement system funding reaches an unrealistic parameter of 120% funded. This number is arbitrary and is not supported by any testimony or research.

The retirement board and staff have the necessary information and expertise to make COLA decisions. Currently, the Wyoming Retirement System works with actuarial experts to make an annual determination as to whether a COLA is affordable for each separate public employee pension plan. The legislature provided the retirement board with that discretion several years ago. The system has not paid out a COLA unless the particular pension plan was at least 100% actuarially funded. 

Providing the board with this discretion and expertise has kept Wyoming public employee pension plans better funded than the vast majority of states. In fact, the Wyoming Retirement System is consistently one of the best funded systems in the nation at 84.59% ("The Best & Worst State Funded Pensions," The Fiscal Times, March 24, 2011).

Furthermore, the retirement board and system staff already has the expertise, authority, and training to make informed COLA decisions. In fact, of all the Wyoming pension plans are over-funded or near 100% funded already. Most pension plan experts consider any pre-funded plan like Wyoming's public employee pension plans to be fiscally-sound if the plan funding ration is above 80%; the largest Wyoming pension plan fund, the State Public Employees Plan, is currently funded at 84.59%.

Another bill of concern that is expected to be introduced seeks to change the Wyoming State Retirement System from a defined benefit system to a defined contribution system.

Defined benefit system (DB): a predictable retirement income that is related to the salary an employee has earned over his/her career.

Defined contribution system (DC): a private accounts-based system, very much like a 401(k) plan, in which an employee contributes to the plan but future benefits are unpredictable.

Because WEA and a coalition of interested parties believe that the Wyoming Retirement System is sound and is NOT in trouble, it is believed that switching to a new pension plan system is too costly, too risky, and has not been properly researched. Other states that have tried the DC system approach have found it costly. West Virginia moved from a traditional pension plan to a DC system, found it lacking, and recently reverted back to a DB plan. Florida, Nebraska, and North Dakota have determined that DC plans are not efficient or cost effective, while New Mexico, Kansas, and Nevada have determined a switch to the DC system to be too risky.

A DC system is costly for employees and for taxpayers. States that experimented with systems similar to 401(k) plans found that employees did a poor job in picking investments and managing their own retirement plans, resulting in 50% lower returns than state-managed pension plans. This is a risk taken in unpredictable stock market, leaving taxpayers to pick up the tab down the line. Furthermore, taxpayers will pay considerably more to move to a private accounts system like a 401(k).