School-Based Budgeting

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

HOUSE OF REPRESENTATIVES                H.B. NO.853        
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-
24 based budgeting.

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

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

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

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

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

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

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 1           and financial plan.
 2      (c)  The display of financial requirements for the ensuing
 3 two fiscal years shall more specifically include:
 4      (1)  At the lowest level on the state program structure, for
 5           each program:
 6           (A)  The total recommended expenditures, including
 7                research and development, capital and operating
 8                costs, by cost categories and cost elements for
 9                the ensuing biennium; the planned allocation of
10                the total biennial request, by cost categories,
11                and cost elements, between the two fiscal years of
12                the biennium.  The means of financing and the
13                number of positions included in any cost category
14                amount shall be appropriately identified;
15           (B)  A summary showing means of financing the total
16                recommended expenditures, those amounts requiring
17                and those amounts not requiring legislative
18                appropriation or authorization for spending in
19                each fiscal year of the biennium;
20           (C)  A crosswalk of the total proposed biennial
21                expenditures between the program and expending
22                agencies[.]; provided that for the department of
23                education this subparagraph shall not apply to

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

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

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 1           the ensuing biennium.  The listing shall be by programs
 2           at the lowest level of the state program structure and
 3           shall show for each project, by investment cost
 4           elements:
 5           (A)  The cost of the project;
 6           (B)  The amount of funds previously appropriated and
 7                authorized by the legislature; and
 8           (C)  The amount of new appropriations and
 9                authorizations proposed in each of the two fiscal
10                years of the ensuing biennium and in each of the
11                succeeding four years.  The amount of the new
12                appropriations and authorizations proposed shall
13                constitute the proposed new requests for the
14                project in each of the fiscal bienniums.
15           In every instance, the means of financing shall be
16           noted.
17      (d)  The summaries of the state receipts and revenues shall
18 more specifically include:
19      (1)  Financial summaries displaying the State's financial
20           condition, to-wit:
21           (A)  A display of the proposed, total state
22                expenditures, by cost categories, the total state
23                resources anticipated from existing taxes and

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

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

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 1      (5)  A schedule of projected debt service charges for
 2           general obligation bonds outstanding at the time of the
 3           submission of the budget and to be issued by the close
 4           of the budget biennium in progress and the close of the
 5           ensuing budget biennium.  The projection shall be
 6           separately stated for:
 7           (A)  Bonds currently outstanding;
 8           (B)  Bonds to be issued during the remainder of the
 9                fiscal biennium in progress and during the ensuing
10                fiscal biennium; and
11           (C)  The total bonds currently outstanding and to be
12                issued.
13           In each case, the projection shall be categorized into
14           debt service to be paid directly from the general fund,
15           debt service to be paid through reimbursements, and
16           total debt service.  The projection shall extend at
17           least five years beyond the close of the ensuing fiscal
18           biennium.  An explanation shall be appended to the
19           schedule, which shall include among other things, the
20           amount of bonds to be issued during the fiscal year in
21           progress and in each of the two fiscal years of the
22           ensuing biennium, the maturities of the bonds to be
23           issued, the method of retirement, and the interest rate
24           assumed in the projection;

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

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                                     H.B. NO.853        

 1                increases or reductions in revenues in each of the
 2                two years in the ensuing fiscal biennium resulting
 3                from such changes; and
 4           (C)  The total estimated revenues with and without the
 5                proposed changes; and
 6      (8)  A summary of the State's total payments due under
 7           financing agreements required to carry out the
 8           recommended programs and the kinds of financing
 9           agreements and amounts thereof through which such
10           requirements are to be met in the biennium in progress
11           and in each of the two fiscal years in the ensuing
12           biennium.  The summary shall detail for the biennium in
13           progress and for each of the two years of the ensuing
14           biennium:
15           (A)  Of the total financing agreement requirements, the
16                amount, by cost categories, requiring new
17                financing agreement authorizations and the kinds
18                and amounts of financing agreements planned for
19                execution and delivery under such new
20                authorizations;
21           (B)  By cost category, the cumulative balance of
22                financing agreements authorized in prior years but
23                not executed and delivered and the amount thereof
24                proposed to be executed and delivered; and

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 1           (C)  A recapitulation of the total financing agreements
 2                to be executed and delivered, including both new
 3                authorizations and prior authorizations, by cost
 4                categories.
 5      (e)  The proposed budget shall include:
 6      (1)  A statement of the percentage differences between the
 7           current biennium recommendations and the previous
 8           biennium appropriations for education programs.  The
 9           information shall be displayed by programs or groups of
10           programs, with corresponding amounts and percentage
11           differences.  If any component of an education program
12           is added or removed, the governor shall provide an
13           estimate of how the addition or removal affects the
14           current biennium recommendations;
15      (2)  A statement of the difference between the total amount
16           proposed for the current biennium and the total amount
17           expended in the previous biennium for education
18           programs per pupil; and
19      (3)  Other financial statements, information, and data that
20           in the opinion of the governor are necessary or
21           desirable in order to make known in all practical
22           detail the programs, program plans, and financial
23           conditions of the State.

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                                     H.B. NO.853        

 1      As used in this subsection, "education programs" include
 2 instructional, personnel, transportation, facilities, facilities
 3 repair and maintenance, and other programs deemed appropriate by
 4 the department of education.
 5      (f)  The proposed budget shall contain an item to be known
 6 as the "contingent fund," which sum, upon approval by the
 7 legislature, shall be available for allocation by the governor
 8 during the ensuing fiscal biennium to meet contingencies as they
 9 arise.
10      (g)  The proposed budget shall contain an item to be known
11 as the "education contingent fund", which sum, upon approval by
12 the legislature, shall be available for allocation by the board
13 of education during the ensuing fiscal biennium for the purpose
14 of adjusting for unanticipated changes in individual school
15 budgets as a result of personnel movements among schools.
16      [(g)] (h)  If it is deemed more practical, the six-year
17 program and financial plan and the budget may be combined into a
18 single document containing all the information required for each
19 separate document."
20      SECTION 5.  Section 37-74, Hawaii Revised Statutes, is
21 amended by amending subsection (d) to read as follows:
22      "(d)  No appropriation transfers or changes between programs
23 or agencies shall be made without legislative authorization;
24 provided that:

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                                     H.B. NO.853        

 1      (1)  Authorized transfers or changes, when made, shall be
 2           reported to the legislature;
 3      (2)  Except with respect to appropriations to fund financing
 4           agreements under chapter 37D, the University of Hawaii
 5           shall have the flexibility to transfer general fund
 6           appropriations for the operating cost category among
 7           programs with the same or similar objectives, among
 8           cost elements in a program, and between quarters, as
 9           applicable; and the Hawaii health systems corporation
10           shall have the flexibility to transfer special fund
11           appropriations among community hospitals facilities as
12           applicable; provided that the Hawaii health systems
13           corporation shall maintain the integrity and services
14           of each individual facility and shall not transfer
15           appropriations out of any facility that would result in
16           a reduction of services offered by the facility, with
17           due regard for statutory requirements, changing
18           conditions, the needs of the programs, and the
19           effective utilization of resources; [and]
20      (3)  The department of education shall have the flexibility
21           to transfer general fund appropriations among the
22           schools comprising the lowest program level; and
23     [(3)] (4)  The university and the department of education
24           shall account for each transfer implemented under this

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                                     H.B. NO.853        

 1           subsection in quarterly reports to the governor and
 2           annual reports at the end of each fiscal year to the
 3           legislature and the governor, which shall be prepared
 4           in the form and manner prescribed by the governor and
 5           shall include information on the sources and uses of
 6           the transfer."
 7      SECTION 6.  Notwithstanding section 37-69(c)(3), Hawaii
 8 Revised Statutes, for fiscal years 2001-2002 and 2002-2003, for
 9 each school only the following shall be included in the program
10 and financial plan:
11      (1)  The total actual program cost for the last completed
12           fiscal year and the estimated cost for the fiscal year
13           in progress; and
14      (2)  At least two effectiveness measures and the actual
15           level of effectiveness attained in the last completed
16           fiscal year.
17      SECTION 7.  Statutory material to be repealed is bracketed.
18 New statutory material is underscored.
19      SECTION 8.  This Act shall take effect upon its approval.
21                           INTRODUCED BY:  _______________________