In looking at the budget for 2007-2008, it is important to keep in mind who we are as a school district. The profile of our district keeps evolving. We are affected by factors over which we have no control. These include national and international economic trends, local housing patterns, and immigration routes from across the world. Our students come from families who have just arrived in our country or in Austin and from families that have been in our city and school district for generations. While many families remain in the middle of town and swear allegiance to their neighborhood schools, the trend in our student population is toward the edges of our district, particularly to the southeast, southwest, north central and northeast. A large number of our students attend more than one school during the course of a school year. While we have little control over most of these factors, we are responsible for the education of the children who arrive on the doorsteps of our schools as a result of some of these driving forces. That is both our challenge and our opportunity.

During the past school year, the Austin Independent School District (AISD) had more than 82,000 students on 112 campuses. If current trends continue, next year we will probably be a few hundred students shy of 83,000 and will continue to grow at that rate. More than 60 percent of our students come from Economically Disadvantaged homes. That's a 29 percent increase in student poverty since 1999. The academic challenges facing students from Economically Disadvantaged homes are compounded by the fact that many of them come from recent immigrant families, who speak little or no English. The immigrant population of Travis County has grown by more than 230 percent¹ since 1990, and that is reflected in the tripling of immigrant students in our schools over the past ten years. In this past school year, 12.7 percent of our students were African American, 3.1 percent were Asian, 57 percent were Hispanic, .2 percent were Native American, and 26.8 percent were Anglo. Twenty-four percent of our students were identified as having Limited English Proficiency (LEP), compared to 16.8 percent in 1999. This past year, we opened two new schools-Perez and Clayton elementary schools. Next year we will open four-Overton and Blazier elementary schools, Gus Garcia Middle School, and the Ann Richards School for Young Women Leaders at Porter. In addition, the Liberal Arts and Science Academy will operate as a separate school on the LBJ campus.

¹2006-07 Travis County Immigrant Assessment, Travis County Health and Human Services and Veterans Service Research and Planning Division, June 2007, pp.5-6.

The 2006-2007 school year was a year of many changes, including major work at the secondary level with the support of outside partners. With support from the Bill & Melinda Gates Foundation and the Texas High School Project, we began to see the beginning of the transformation of our high schools to better serve all our students. The district closely coordinated the new state high school allotment ($4.9 million) with the identified academic needs of each high school. Akins High School initiated its New Tech High program as one of its small learning communities in a large high school redesigned to keep close track of every student. LBJ, Reagan and Travis high schools spent the year working closely with the experts from First Things First in order to open as redesigned high schools in August 2007. Our Office of School Redesign has orchestrated professional development on advisories for all our high schools and will continue to facilitate professional development this summer and through the next school year as all our schools prepare for significant change. We also began close work, funded by Gates, with the Austin Area Urban League, the Greater Austin Hispanic Chamber of Commerce, Michael Lofton, and Austin Voices as partners in the high school redesign process. The Michael & Susan Dell Foundation (MSDF) began a partnership with AISD in bringing AP Strategies to the school district. This provides professional development for all core area teachers in all our middle schools and high schools for teaching Advanced Placement (AP) and pre-AP courses in all our secondary schools. The program also provides incentives for successful AP teachers and students in the seven AISD high schools with traditionally low AP participation. This is bringing rigorous advanced coursework to all our secondary schools. In addition, MSDF began working with the district on building a set of tools for teachers to assist them in ongoing analysis of student progress, providing them with new evaluative tools to help make instructional adjustments for student success.

In 2006-07, we experienced our first year under the new state school finance system. In that first year, it provided some breathing room in terms of resources when compared to the three previous years. At the same time, the limitations on capturing increased revenues in the future from rising property valuations and the requirement to hold elections for increases in the Maintenance and Operation (M&O) tax rate will mean that the district will be dealing with new fiscal constraints in the years ahead. At the same time, the state and federal government continue to raise the bar for performance levels required for state and national accountability while our student population is characterized by increasing poverty and increasing numbers of English Language Learners, both factors that usually require extra support and services for academic success. The proposed budget we are presenting today is a plan to address our current academic needs while protecting our future through prudent fiscal management.

Academic Performance

The good news is we continue to see our students making significant academic progress in most areas. This should be seen in a context in which the Texas Assessment of Knowledge and Skills (TAKS) tests are becoming more difficult. AISD students showed improvement in 63 percent of all TAKS categories. Performance remained steady in ten percent of the categories, and it declined in 27 percent. Every group of students in every grade level has shown significant improvement over passing rates on all tests since the current system was instituted in 2003. In nine out of 14 comparisons, achievement gaps have narrowed between African American and Hispanic test takers relative to Anglo test takers. The biggest overall gains in 2007, compared to 2006, occurred for all tests taken by 7th graders, including English Language Learners and Economically Disadvantaged students. We are seeing significant improvement across the district and across grade levels.

But we still have much work to do. While most students and schools are moving forward, some are not keeping pace. We have schools that may enter the first, second, third or fourth year of Academically Unacceptable status in the state system or not meeting Adequate Yearly Progress in the federal system. These are not necessarily the same schools in all instances, as each system has its own set of measures. Some schools may miss by one group in one category, while other schools may miss in several categories. While we are waiting for the final federal evaluations, we know from our analysis that we will need to invest heavily in additional support for a number of schools to help them reach at least the Acceptable status in the coming year. You will see that additional support reflected in the budget we are recommending.

There are, of course, a number of other indicators that we use in assessing our student and school performance. We continue to see large numbers of National Merit Scholars. The number of our students entering college is rising. The increasing rigor of our Advanced Placement (AP) and pre-AP courses is better preparing our students for college. Our district, however, faces new challenges. While the promise shown by our students grows, the accountability requirements from the state and federal government grow, and the demands facing our students and teachers grow, the resources available to us over the next few years may not keep pace with the need.

School Finance

This past year we entered a brave new fiscal world as a result of legislative changes in the school finance formula. The 2006-07 budget year did mean a loosening of some of the state budgetary constraints we faced prior to this legislative action, having been restricted by the $1.50 tax rate ceiling for several years despite increasing challenges facing AISD students in an accelerating high-stakes accountability environment. The school district was able to exercise its authority as an independent school district to raise its tax rate by four cents without a vote of its constituency. In 2006-07 all revenue generated by the additional 4¢ M & O tax rate were allocated to enhance the district's fund balance which is a priority for the Board and the Administration. In the first year of the school finance legislation, this meant Austin Independent School District (AISD) taxpayers had a property tax rate of $1.4930 per $100 valuation-four cents added to the State's newly mandated $1.33 base rate for Maintenance and Operation (M&O) revenue, plus $0.123 for the district's Interest and Sinking (I&S) rate. For the first time, however, the overall property valuation that is accessible to school taxes will be capped, beginning this year. No matter how high property values climb in the future, the increased value will not be part of the school district's tax base.

The good news is that AISD will not raise its tax rate for the coming year. For the 2007-08 budget year, all districts will work from the State's new $1.00 M&O tax rate base as a starting point. The additional four cents added this past year will make our M&O rate $1.04 for 2007-08. We have also been able to manage effectively the implementation of the September 2004 bond referendum, so that we will not have to increase our I&S tax rate. While the district received authority to raise the I&S tax rate by more than 4.6 cents, our good stewardship is holding down costs and taking advantage of assessment value increases.

Thus, in FY 2007-08, Austin ISD taxpayers will have an estimated overall $1.163 tax rate ($1.04 for M&O and $0.123 for I&S), which represents a reduction of 33¢ in the overall rate from last year and a reduction of 46¢ in the overall tax rate over a two-year period from $1.623 in FY05-06 to $1.163 projected for FY 07-08 (see Table 1 below).

Table 1 - AISD Tax Rate Changes

Unlike our previous experience prior to reaching the old $1.50 M&O tax rate cap, we will not be able to raise our M&O rate in the future without an election. Such elections used to only apply to bonds for capital improvements. Now they will apply to increases for such things as teacher pay raises, increased health insurance and utility costs, or additional staff development and support for needy schools and students. In addition, the law only allows us to go to the voters for an additional $.13 for Maintenance and Operation in the foreseeable future. There is a state cap of $1.17 for the M&O tax rate. When we go to the voters for a tax rate increase in future years, our yield on that increase is also capped. For the next two pennies of a tax rate increase, we should receive about $4.3 million per penny. After we reach $1.06, we will receive about $3.3 million per penny because the Chapter 41 school finance equalizer applies to the additional tax revenues raised.

When we look at the district's fund balance, our prudent financial actions have resulted in restoring a robustness when compared to recent years. We estimate that the unobligated fund balance will reach between $110 and $120 million by August 31, 2007. The audited, unobligated fund balance for September 1, 2006, was $57,882,193. We have been able to build that fund balance over this past year for several reasons. First, we raised the tax rate for M&O by four cents last year, and we banked that money in the district's fund balance account, just as we promised. That was a savings of $17.2 million. The district saved another $3.77 million over the past year as we had anticipated. We also saw increases in state funding of $13.6 million and an increase of $10.7 million due to increased property values. In the recommended budget for FY 2007-08, district revenues will be slightly more than district expenditures and, therefore, we are protecting the integrity and viability of our district's financial health for the future.

It's very important not to take this increase in our fund balance for granted. Our ability to raise taxes in the future will be very limited, as Mr. Throm will outline in his budget forecast for the next three years. The bottom line is, like all Texas school districts, we have some difficult financial situations ahead of us. We must be very prudent in our spending this year and in the future. The Administration cautions against dipping into the current fund balance unless there is an absolute necessity. We anticipate that we may need to drawn upon our strong fund balance reserve to maintain the district's fiscal solvency in the years ahead.

2007-2008 Recommended Budget

The 2007-08 Recommended Budget is aligned with the district's mission, its results policies-giving priority in the recommendations to the Board priorities defined under Academic Achievement (R-2) and College and Careers (R-3)-and the six Strategic Plan priorities. We appreciate the Board's guidance when it set its "Priorities for Developing the 2007-08 Budget" at the April 16, 2007 Board retreat. Our work focus on these priorities is ongoing. Salaries and benefits for our approximately 11,500 employees represent our biggest expenditure. Most of the rest of our budget is a continuation and acceleration of best practices that are helping us achieve success as a diverse school system, including professional development, instructional support, and student support services. (See "Educational Mission and Priorities," p.38) For example, we are continuing the third and fifth grade Student Success Initiative (SSI) for struggling learners, and we are expanding our SSI support to struggling eighth graders this year, using a combination of local, state and federal funds. In looking at our college and career focus, we are expanding the focused, sequenced Career and Technology Education (CATE) offerings at our campuses. These include programs in Fire Fighter Technology, Health Sciences, EMT, Criminal Justice, Engineering, Media Technology, Auto Repair and Teaching Careers. AP Strategies will expand to offer incentives for students passing an AP Science test, in addition to current incentives for the Math and English/Language Arts tests. The Michael & Susan Dell Foundation has agreed to continue funding the Project Advance college preparation facilitators on every high school campus for the coming year, as we build this function into the skill sets of campus personnel for the following year.

We are fully confident that our ongoing education plan with its emphasis on quality "first teaching" in all classrooms, supported by three-tiered interventions, provides the best systemic approach to build high achievement for all students. This new budget also includes recommendations to target emerging challenges facing some of our students and schools, as well as the needs of our schools losing ground in the state and federal accountability systems. Changes and additions are necessary as we strive for continuous improvement. The budget recommendations were discussed fully with our citizens' Task Force on the Budget, which recommended a couple of additional items to be included in this document. The recommendations also include our agreements with Education Austin and the Austin Association of Public School Administrators (AAPSA) for the 2007-08 budget.

The compensation plan endorsed by the Board last year for the coming year was grounded in the idea of holding funds generated by last year's four-cent tax increase in fund balance and targeting them for the upcoming school year as part of the two-year compensation agreement we reached with Education Austin and AAPSA in 2006. With an increase in revenues, the proposed budget includes employee compensation exceeding levels agreed to in 2006. The key elements of that plan for 2007-08 were:

• Following a 7.5 percent salary increase in 2006-07, there would be a 3 percent pay increase for all employees in 2007-08, and one cent of the four-cent tax increase would be used for a teacher incentive program;
• The increase in health insurance premiums for district employees would be covered;
• Art, Music, and PE at the elementary level would be funded at a 7.5 staffing level; and
• There would be increases in the bilingual teacher stipends.

These additions are included, and in some cases enhanced, in the proposed budget, as well as additions for instructional enhancements and staffing changes due to student growth. The emerging needs of struggling campuses and bilingual support are specifically targeted.

Major Additions for the 2007-08 Recommended Budget

The most important element for student success is a highly qualified teacher, backed by first-rate professional development and instructional support, in every classroom. A major element of our recommendations for next school year is the compensation package for teachers and other employees of the district. This includes the recommendations based on the agreement reached with Education Austin and AAPSA in 2006, as well as a pilot plan for implementation of a teacher and principal strategic compensation plan at nine campuses. The 80th Legislature provided funding for additional employee compensation but did not specify employee groups to target with the funding. Because the additional state funding, plus the district's commitment to a 3 percent increase, would provide a 3.9 percent increase for teachers, the Administration is recommending a 3.9 percent increase for all employees, using the revenue available from the health insurance funding of $4.8 million instead of the allocated $5.9 million and the additional revenues we will receive from property valuations to supplement the state "Educator Compensation" funds for teachers.

Our recommendations for additional compensation and support for 2007-08 are as follows:

• A 3.9 percent average salary increase for all employees ($16,121,130);
• The full cost of employee health insurance coverage ($4,900,000);
• An increase of Art, Music and PE at the elementary level ($1,738,284);
• An increase to the Bilingual stipend for recruitment ($335,000);
• The strategic compensation initiative to be launched in nine pilot schools, as well as a special incentive pay plan to support Johnston, Pearce, and Webb ($4,150,800).

The Administration is recommending a $13.6 million increase for direct instruction ($1 million more than in the preliminary recommendations). This addition is designed to: address the immediate and long term needs of our struggling learners and at-risk campuses; provide additional support for our bilingual teachers; enhance our professional development; strengthen our middles schools; reduce class size for special areas at our elementary schools; and provide the necessary staff to keep up with student growth. These recommendations include new expenditures of some $14 million aimed to supporting student learning across the district, namely:

• Address student growth ($7.6 million);
• Enhance support for the Bilingual program, above the Bilingual stipend increase ($683,395);
• Systematize support for Academically Unacceptable and Needs Improvement campuses ($811,784);
• Strengthen middle school interventions ($1,623,500)-including extra support for struggling learners, implementation of the BEST program to enhance middle school instruction at all campuses and enhancing teaching time at five middle schools with the greatest need, and a transition summer school for students preparing for 9th grade;
• Establish 7.5 ratios for elementary Art/Music/PE classes ($1,738,284);
• Expand Positive Behavior Support (PBS) ($389,839); and
• Support curriculum and professional development initiatives ($1,242,419).

Each year we also face rising costs in maintaining and operating our school district. We must pay more to maintain our current level of services. This includes rising costs for utilities and upkeep. To maintain basic operations, the Administration is recommending some $8 million in increases in several areas:

• Utilities ($1.9 million);
• Buildings and grounds maintenance and repair ($1,563,665);
• Workers Compensation ($1 million);
• Payroll time and attendance software upgrade ($1 million);
• Health and safety support ($1,544,791);
• Student transportation through our Capital Metro contract and incentive stipends ($597,000); and
• Athletics for game coverage and increased student travel ($387,542).

Three additional items deserve attention. We are recommending:

• $335,945 be added to the budget of the Dropout Prevention program, targeting Mendez and Pearce middle schools and Johnston and McCallum high schools and
• Support for recommendations growing out of the African American and Hispanic Quality of Life Task Forces ($240,000).

We are awaiting word from Communities in Schools as to whether it has funding to provide services in four additional schools, which will require some matching support from AISD that will be brought to the Board in the future, if appropriate.

Conclusion

The budget recommendations we bring to you today are the result of Board direction, staff analysis, advice from the District Advisory Committee, and the deliberations of the Budget Task Force. They represent our best plan to in reconcile student needs in this high-stakes environment with sound fiscal management to protect the district's educational and fiscal health for the future.

Respectfully submitted,
Pascal D. Forgione, Jr., Ph.D.
Superintendent of Schools
Austin Independent School District