Business As Usual

How Albany’s “Open Secret” Holds Back Real Progress in School Funding Equity

Karl Widerquist, Staff Economist

The Educational Priorities Panel



            In the winter of 2000-2002, the budget negotiations in Albany began with a lot of excitement about educational funding reform. Budget proposals from the Regents, the Assembly, and the Governor all included reform language that seemed to reflect long sought goals of the Educational Priorities Panel, such as cost indexes, measures of student need, and the elimination of tax aids. But the reform language came to a halt as the spring budget standoff dragged on into the summer. The budget that was finally passed was stripped of reform language, and largely moved in the opposite direction.

            Large political barriers exist to real reform of the system of state aid to school districts. This report examines the 2001 educational budget proposals of the Regents, the Governor, and the Assembly, to show that, although they contained reform language, the actual spending levels in each proposal strayed little from traditional levels. We present evidence that there is an “open secret” that limits New York City’s share of aid and therefore limits funds from getting where they are most needed.

            Table 1 summarizes the three proposals that are discussed in this report.


Table 1: The three proposals for state aid to school districts 2001-2002





Total increase in state aid to all school districts

$1,450,000,000 (11%)

$382,240,000 (2.79%)

$1,760,000,000 (13%)

Excess Cost Aid increase (for special education)

$92,560,00 (5.0%)

Consolidated into Flex Aid (total Flex Aid increases by 2.61%)

$123,000,000 (6.1%)

Educationally Related Support Services increase (to keep students in general education)

No changes discussed in proposal

No changes discussed in proposal

$7,400,000 (11%)

Building Aid increase

$369,690,000 (31.5%)

$169,670,000 (14.4%)

$374,000,000 (32%)

Transportation Aid increase

$61,350,000 (7.0%)

$63,450,000 (7.3%)

$58,700,000 (6.7%)


Combines Operating Aid, Tax Effort Aid, Tax Equalization Aid, and Extraordinary Needs Aid.

Combines Operating Aid, Tax Effort, Equalization, Transition Adjustment Gifted & Talented, Minor Maintenance Excess Cost, ERSSA, Extraordinary Needs Aid, Operating Standards Aid, and Limited English Proficiency into Flex Aid.

Consolidates 6 formulas into one Core Operating Aid: Tax Equalization Aid, Tax Effort Aid, Operating Aid, Tax Limitation Aid, Extraordinary Needs Aid, and Operating Standards Aid.

Changes in aid caps

Relieve cap on high needs districts. Eliminate caps within 5 years.

Not discussed in proposal

5.5% for growth in Core Operating Aid for most districts in the first year; eliminate cap in second year.

Pupil count

No changes discussed in technical supplement

Adjusts Total Aidable Pupil Units (TAPU) using weights for poverty, rural settings, and limited proficiency in English.

Replaces 0.25 weighting based on reading and math test scores with 0.25 weighting based on Free and Reduced Price Lunch.

Wealth measure

No changes discussed in technical supplement

Flex Aid Ratio equal to 1.37 minus the Flex Combined Wealth Ratio times 1.10.

No changes discussed in Ways and Means Committee report

Regional Cost Factor

Yes, applied to new consolidated Operating Aid.

Applies cost factor only to the increase in flex aid, thus it has a negligible effect on funding for high cost districts.

Applied to Core Operating Aid

Student need index

No changes discussed in technical supplement

Incorporated into adjusted pupil count

New need index for districts with lowest wealth and highest student poverty.

NYC’s share of increase


40.16% not including building aid

16.11% including building aid *


Sources: The Assembly Budget Resolution 2-year State Aid Projections, Regents 2001-02 Proposal on State Aid to School Districts, including Technical Supplement, December 2000, and 2001-02 Executive Budget Proposal.

* The figure reported in the governor’s budget, while others are reported in the budget proposal which does not mention building aid.

The Three Proposals



            The Regents’ proposal was approved on December 15, 2000. It recommended a 1.45 billion dollar increase in state aid to school districts and a reduction in aid caps on high needs districts with the goal of eliminating the gap within 5 five years. The Regents also proposed collapsing Tax Effort Aid, Tax Equalization Aid, and Extraordinary Needs Aid into Operating Aid to simplify the school aid formula. The new consolidated Operating Aid was to be multiplied by a regional cost factor to reflect cost differences around the state (see Table 2).


Table 2: The Regents’ Regional Cost Factor

Capital District


Southern Tier


Western New York


Hudson Valley


Long Island/NYC


Finger Lakes


Central New York


Mohawk Valley


North Country




            A cost index has been a goal of EPP for a long time, because it has potential to make a major difference in the funding level of districts in high cost areas such as New York City. But, after all the reform language New York City’s share of the increase in state aid to school districts was only 41.36%.



            The Governor submitted his proposal to the legislature on January 16, 2001. It included reform language, but it offered a much smaller increase in aid of 0.38 billion dollars—less than 1/4th of what either of the Regents or the Assembly proposed. The Governor’s proposal said nothing of relief from the aid caps, but it did consolidate even more programs. The governor proposed combining Operating Aid, Tax Effort, Equalization, Transition Adjustment Gifted & Talented, Minor Maintenance Excess Cost, ERSSA, Extraordinary Needs Aid, Operating Standards Aid, and Limited English Proficiency into what was to be called “Flex Aid.”

            The governor also used the Regents’ regional cost factor, but applied the cost factor in such a way that it had virtually no effect on the actual level of aid. It was applied only to the increase in funding. Because the increase was only about one percent of the budget, the cost factor only raised aid to high cost areas by about one-half of one percent. The stated share of the governor’s proposal going to New York City was 40.16%, but it excluded building aid, which gave a much smaller increase to New York City. Including Building Aid New York City’s share of the increase was only about 16%.



            In March, the Assembly proposed an increase of 1.76 billion dollars in state aid to school districts, raising aid caps to 5.5% in the first year and eliminating aid caps in the second year. They offered a wider consolidation of aid programs than the Regents but not as wide as the Governor, combining Tax Equalization Aid, Tax Effort Aid, Operating Aid, Tax Limitation Aid, Extraordinary Needs Aid, and Operating Standards Aid into “Core Operating Aid.” They proposed multiplying the new Core Operating Aid by the Regents’ regional cost factor. Yet despite all of these changes New York City’s share of the aid increase was 39.36%.


The Barrier to Real Reform


            The optimistic beginning to the budget negotiations degenerated into one of the longest and most difficult of the many long and difficult budget battles in New York State history. In the end the legislature basically adopted the Governor’s proposal stripped of its reform language. Most of the districts got an-across-the-board increase in funding of 2%. New York City’s share fell not only down to but far below its traditional level. All of the talk of reform came to nothing, and hope for better city schools seems farther away than ever.

            One of the greatest institutional barriers to improving educational funding equity is the “open secret” in Albany that the legislature and the governor have agreed to limit New York City’s share of increases in state aid to school districts to 38.86% or less. The implications of this open secret are distressing: the formulas for the state aid to school districts are meaningless. Whatever formulas there are, whatever need factors they are supposed to take into account, whatever resources are available to districts, the formulas affecting outcomes for every district in the state must be cooked so that the amount given to the largest district is a foregone conclusion.

            What is the evidence that this open secret exits? What does it imply for equity in New York State school funding? What does it imply about honesty in our state government’s policy-making process?

            Although most state officials will publicly say only that the open secret is a rumor, there is ample evidence that it exists. In several official reports, the New York State Comptroller’s Office has described and criticized the agreement to give New York City a fixed share of state aid to school districts, concluding, “[T]he formulas are annually ‘worked backwards’ until the politically negotiated ‘share’ for the City schools is hit in the calculations. In this context, the data feeding into the school aid formulas for New York City is really of no practical consequence whatsoever—the City will get the negotiated share of aid regardless of what data they report.”

            The Campaign for Fiscal Equity (CFE) presented substantial evidence of this open secret in its lawsuit against the State of New York. According to their evidence, between the 1986-87 school year and the 1999-2000 school year state aid to school districts increased in 12 out of 14 years. In 7 out of those 12 years in which funding increased, New York City received exactly 38.86% of the increase (see Table 3). New York City’s share has not been more than 38.86% at any time in this period. New York City received between 38.56% and 38.86% in 11 of the 12 years. If the governor and the legislature really decided how much to give each district based on the formulas it claims to apply, the chance of one district receiving the same percentage, down to the 2nd decimal place, in 7 out of 12 years would be so small as to be inconceivable. Clearly, there is something else going on in state budget policy besides the simple application of formulas.


            Table 3

School Year

New York City’s share of the increase in State Aid





























Source: Plaintiff’s exhibit P2670 from Campaign for Fiscal Equity, Inc. vs. the State of New York et al.


            During the CFE trail, Harold Levy, a former member of the Board of Regents and former head of the Regents’ State Aid Subcommittee, testified that despite the Regents’ goal of brining more resources to disadvantaged districts, the reason that New York City’s share of increases in state aid has remained stable is because of the state’s policy of giving New York City a fixed share of increases in state aid to school districts. He said that the number had been 38.86% recently, but he implied that the number has occasionally been adjusted. Thus, it seems that what little variation there has been in the amount granted to New York City has not been because of changes in New York City’s needs reflected in the aid formulas, but because of changes in the share the governor and the legislature agree to give to New York City.

            The state government has shown little interest in increasing New York City’s share, despite the courts findings that New York State has failed in its constitutional obligation to provide every child with a sound basic education. In the school year 2000-2001, New York City’s share declined to 37.27%, according to State Aid projections. The year 2001 budget process, which made policy for the 2001-2002 fiscal year, was extremely drawn out and contentious. Yet, the Regents and the Assembly proposed only very slightly larger share of the aid increase for New York City, and the governor’s proposal—when looked at in its entirely—moved in the opposite direction.

            Despite the consistency of the New York City’s share, proposals are usually written in such a way to make it difficult if not impossible to calculate what New York City’s share of total state aid to school districts is. It is also interesting to note that the three proposals included very different levels of aid, but very similar shares of aid for New York City. The Regents proposed an increase in computerized aids[*] of $608,634,464 for New York City and $1,467,908,377 for New York State, making the city’s share 41.46% of the state total, but computerized aids leave out a large number of small grants, which if included, could change New York City’s share. The Assembly proposed $669,127,183 for New York City and $1,700,038,744 for New York State, giving the city a share of 39.36%—exactly 0.50 percentage points more than its traditional share of 38.86%. The Governor’s budget (called the Executive Budget proposal) reported a $125,939,249 increase for New York City and a $313,595,627 increase for New York State giving the city a share of 40.16%. But—unlike the other two proposals—the Executive Budget did not include an estimate of Building Aid and Growth Aid. New York City tends to receive substantially less Building Aid per pupil than the average district, which reduces its share of the state total. If Building Aid computations had been included in the Executive Budget proposal, New York City’s share would have come to only 16.11% not 40.16%.

            The closeness of the figures in all three proposals to the old predetermined agreement are especially disappointing this year because this was the year that a new cost index was created. The cost index put New York City in the highest cost region in the state. New York City was assigned a regional cost fact of more than 150%, implying that its share of aid would increase by 50%. The executive proposal kept New York’s share down by applying the cost index to only a small part of state aid. According to confidential sources, the Assembly kept New York City’s share down to a politically acceptable level by revising its method for counting pupils. Under the Assembly’s new weighted pupil count, New York had 100,000 fewer pupils than under the old weighting system, reducing aid to New York City by $250,000,000, and bring its share down below 40%. If New York City had received an additional $250 million (as the new cost factor would have given it under the old pupil count), it would have received more than 54% of the increase in New York State aid to school districts. Why bother to create a regional cost index for state aid if the same body that created the index simply changes some other factor to ensure that the highest-cost district’s share of aid is just what it was before the introduction of the cost index?

            One could ask what is so bad about giving New York City a fixed share of state funds? After all, the state has the power to distribute aid to school districts in any way it chooses. Does it matter whether they do so by applying formulas or by choosing a number? New York City has about 38% of the state’s students, and it has about average wealth. Thus, wouldn’t one expect New York City to receive about 38% of state aid increases?

            However, the “shares” concept is not helpful to funding equity, and there are compelling reasons to believe both that 38% is not adequate for New York City and that this is not the way the state government should be doing business.

            First, even if 38% were a reasonable amount to give New York City, cloaking a fixed percentage of aid behind an extremely complex formula is dishonest and a waste of the taxpayers’ money. If the government simply made a law saying that New York City will receive X% of state aid, that would be one thing. But New York State has an extremely complex system of formulas that supposedly determine the level of state aid to each district based on various need factors and on the districts’ ability to pay. If the level of state aid for any school district is predetermined, then what is the function of these formulas? It seems that the function of the formals is deception: the state is trying to fool its citizens into believing that the formulas determine the level of aid, when in fact the level of aid determines the formulas. Dishonesty does not belong in ethical policymaking, and the governor and the members of both houses of the legislature need to have real integrity.

            Second, it is not reasonable for New York City to receive only 38% of state aid increases. In addition to being in the highest-cost region in the state, New York City has had a recent influx of immigrants, and its facilities are incapable of handling the level of attendance in many areas of the city. New York City’s share of aid has not increased to reflect its increase in population. New York City has a very high percentage of students with extraordinary needs—a high percentage of English language learners and a high percentage of at-risk students with disadvantaged socioeconomic backgrounds. The state government created a new aid program called Extraordinary Needs Aid (ENA) in the mid-1990s, claiming that it would aid districts with special needs. However, as Table 2 demonstrates, New York City’s share of state aid increases has not risen since the introduction of ENA. One could argue that ENA is a relatively small program within the state’s education budget, and thus it would not be expected to have a major impact on the city’s budget. But, if Extraordinary Needs Aid is not large enough to have an impact on districts with a large number of students with extraordinary needs, why does it exist? Is it simply another complication in the state’s education budget designed to make it look like the state is addressing problems that it refuses to solve?

            New York’ children deserve better from our state government. We need a state education formula that adequately addresses the needs of students; not one that puts political concerns above educational needs. We need to really apply this state aid formula to direct resources to the schools that need them the most. We do not need a formula that simply provides a rationalization for a politically determined level of aid. As long as the state government sticks to this predetermined aid share progress in recognition of the needs for New York City’s children. Many unmet needs of the city’s educational system have been recognized: its higher costs, its need for more schools and more teachers to deal with its recent influx of immigrants, its need for smaller class to better help English language learners and students from disadvantaged socioeconomic backgrounds and to bring its schools up to the quality of better-funded schools in other parts of the state. But none of these needs can be addressed as long as New York City’s share of state education funds is stuck at a predetermined figure that does not take these needs into account.

[*] Computerized aids include most of what we know as state aid to school districts, but exclude specific grants, which tend to be small.