City Budget, and its Impact on State Budget Funding
At this writing, the State budget has not yet been adopted, and we are forced to put into place contingency plans to ensure that we end the 2002 fiscal year with a balanced budget. The City's Adopted budget assumes the use of $182 million in unrestricted State aid to help fund collective bargaining settlements. This earmarking of State funds has reduced by a like amount the funding that could have been available to mount new programs or enhance existing programs that have had successful outcomes. In addition, our base budget shortfalls, comprised largely of unfunded mandates and the remaining portion of the $88 million reduced from our administrative budget in FY01, creates a $120 million liability that also must be funded with unrestricted State aid. What these budgetary actions mean is that, unless expenditure reductions are made, the first $300 million of new unrestricted State aid must be used for purposes that will not augment our instructional program. In light of this significant financial risk, these initial allocations contain almost no new funding.


Contingency Plan
Pending further State and City budget developments, the Chancellor has also decided to commence a $120 million contingency reduction plan, to be implemented only if necessary after full budget information is available. Each district's share of this contingency is displayed on Table 1. The contingency plan for each district must first reduce spending for district office administrative staff to the maximum extent possible before including any reduction in instructional or direct support services to students. For example, headcount in district offices varies substantially, as documented in the District Office Headcount Survey that was recently distributed. The contingency plan of any district with administrative costs as a percentage of overall district personnel costs greater than 1.5% will receive particular scrutiny to ensure that all efforts possible have been made to achieve non-classroom savings. Details on each district's planning process for this contingency will be forwarded from the Chancellor at a later date.

Once the State adopts its budget, we will issue in final form the ultimate strategies that are required to achieve fiscal balance.


City Budget
As was the case last year, we again do not have a central surplus to be rolled to next year to fund instructional initiatives. That, coupled with the late and uncertain State budget, will mean that many initiatives highlighted in the Chancellor's Budget Request will not be funded this coming year. However, we are again providing districts with the use of their own surpluses from FY01 to fund, to the extent possible, local needs identified by schools.

New funding has been identified within the City budget for several priority areas, such as Science Saturdays, High Intensity English, Phase II of Classroom Libraries, and In-School Suspension Centers. Allocations for these programs will follow at a later date. Additional funding previously provided to districts for planning purposes to expand the summer instructional program is included in this initial allocation.


State and Federal Budgets
As stated earlier, the level of increased unrestricted State aid that will be allocated to the Board for FY02 is unknown. Until the State adopts its budget, we generally have assumed the level of funding included in the Governor's Executive Budget.

Restricted aid, as set out in the Governor's budget, including State "LADDER" programs, will continue to be funded, but at the same level as last year. For example, the Universal Pre-K program is assumed to remain at $146.5 million, the State Reduced Early Grade Class Size program is assumed to remain at $88.8 million, and the Minor Maintenance Program is assumed to remain at $33.3 million. We have assumed as additional funding only the $19 million in Universal Pre-Kindergarten unused in the current year and set aside for New York City for next year by provision of existing State law.

The Federal portion of our budget, comprising about ten percent of our funding, is assumed to be fairly stable. First indications are that Title I funding may be slightly higher than last year, and that there is an increase in IDEA funding. The IDEA allocation adjustment is being used to augment the Special Needs/Academic Intervention Services allocations in both the CSD and HSS allocations.

We have exercised financial responsibility in issuing these initial allocations; contingency plans are in place until we know the outcome of the State budget. Classroom services remain the priority, and they should be preserved to the greatest extent possible.


SIGNIFICANT ALLOCATION CHANGES SINCE LAST YEAR

Special Needs
Superintendents now have much more control over the allocation of special education funds, although the use of these new managerial tools varied widely last year. To support whole school approaches and the delivery of the special education services as described in the new Continuum adopted by the Board last year, in FY01 we developed a new "Special Needs/Academic Intervention Services" (SN/AIS) formula for CSDs that is less prescriptive and more flexible in permitting districts and schools to meet the IEP mandates of disabled students, as well as provide an array of supports to maintain students in the general education classroom.

For FY02, as part of our simplification of high school allocation formulas, we have developed a "Special Needs/Academic Intervention Services" formula for HSS as well, applying the same principles that were used when we developed the CSD formula last year. Unfortunately, it appears that only a modest increase in Federal dollars is available to supplement the SN/AIS funding stream in FY02. Details about this new formula are found in the sections following this Overview.


High Schools
As superintendents assume greater financial responsibility for their schools, as well as accountability for student achievement, we are reducing the number of centrally-managed programs and decentralizing budget operations. Starting in FY01, each of the six HSS began operating as its own financial management center (FMC), similarly to the way CSDs have functioned for many years. As an FMC, each HSS received most of its tax levy, State and Federal funds directly, as set out in this document. Decisions on allocations to schools were made by the superintendents, based on considerations such as, but not limited to, registers, special student populations, instructional programs and thematic focus. The Division of Budget Operations and Review will continue to provide technical assistance and support to the superintendents' staff as needed.

Allocation formulas for HSSs have been simplified since last year. Furthermore, allocations for each HSS are now exhibited along with CSD allocations, so that the tables found throughout this document contain comprehensive instructional allocation information. The attached summary chart displays the totality of allocations for each HSS. District designations for CSD and HSS are displayed in the Overview. Descriptions of the new high school formulas, and their component parts, are found in the detailed sections following the Overview.


Administrative Streamlining
At the Chancellor's direction, we have undertaken a concerted effort to downsize and restructure central administration so as to decentralize functions to superintendencies. Two major areas are already targeted for decentralization in FY02. First, the management of the $10 million high school drug program, SPARK, will be transferred from central to each HSS. Second, in the Fall, CSDs and HSSs will become responsible for the provision of related services by non-Board of Education providers (i.e., contract providers and independent providers under Related Services Authorization). Funds will be allocated to superintendents and scheduled in discrete account codes. These funds will only be accessible for payment of these services. The funds are not accruable to the superintendency, nor may they be modified.

The procedures for requesting non-Board of Education providers will remain the same for this first year of contracted related services decentralization. Technical assistance sessions will be held to build capacity, and it is anticipated that the responsibility for the provision of related services by non-Board of Education providers will be fully transferred to superintendents for FY03. The Chancellor will review the cost-effectiveness of this model as warranted.

As part of the Chancellor's overall effort to streamline the central administration, we have currently underway plans to offer "shared services" to superintendents. The plan is to identify services that CSDs and HSSs would be interested in purchasing from Central. These services, currently provided by Central Offices, would then be priced, offered and made available to CSDs and HSSs for purchase. Funds that had supported the Central Office would be reallocated to CSDs and HSSs. If there is little interest in buying the offered service, then the Central staff would be reduced or, in an extreme case, eliminated. Details about this new organizational structure will be forthcoming.