Natwar M. Gandhi, Chief Financial Officer
Testimony on the DC Public Education Reform Amendment Act of 2002
February 13, 2007

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Before the Committee of the Whole, Council of the District of Columbia
The Honorable Vincent C. Gray, Chairman

February 13, 2007, 10:00 a.m.
Council Chambers

Testimony of
Natwar M. Gandhi, Chief Financial Officer, Government of the District of Columbia

Good morning, Chairman Gray and members of the Committee of the Whole. I am Natwar M. Gandhi, Chief Financial Officer of the District of Columbia Government. I am pleased to present testimony on Bill 17-01, the "District Of Columbia Public Education Reform Amendment Act of 2007" introduced by Chairman Gray at the request of the Mayor on January 5, 2007.

In nine titles, Bill 17-01 proposes a comprehensive restructuring 0f the District of Columbia's public education system from pre-kindergarten to postgraduate levels, including the District's early childhood care and education, and adult education programs. This is a broad restructuring with complicated transfers of functions, funds, and personnel across old and new entities. To estimate the impact of this proposed Bill on the District's four-year Budget and Financial Plan, my office has been working with all involved agencies and instrumentalities on the details of the functions and funds involved. We will present the Council with the detailed Fiscal Impact Statement before the vote on this Bill.

I want to make three overarching points at the outset:

• As the CFO, I take no position on this governance and restructuring proposal.
• Over the FY 2008-2011 financial plan, there could be a net increase in costs, as one would expect with any such major governance reform. However, the District of Columbia has undertaken such restructuring exercises before, and from that experience, we know that such costs can be minimized by a systematic, well-planned transition from one structure to another.
• Additional legislation would be required to make the contemplated transfer of existing resources feasible.

Background

In my testimony today, I want to discuss three themes that have emerged from the work my office has done on this Bill.

First, we must remember that the Bill proposes changes in governance, which, in essence, reassign existing funds and functions within the District's public education system.

In this proposed structure, the Mayor would take over, from the Board of Education, the control of the District of Columbia Public Schools (or the DCPS); a newly created Department of Education would oversee all aspects of the public education system. Facilities management and construction would move out of the DCPS under a new Authority, and the State Education Office would assume all state level education functions currently scattered across a number of different agencies, namely the University of the District of Columbia, the Department of Human Services, and the DCPS. To reiterate, Bill 17-01 largely stipulates restructuring of existing funds and functions in the District's public education system, not the creation of new functions. Therefore, as a first approximation, this legislation could be budget neutral, or impose a marginal impact on the District's four-year budget and financial plan.

Second, while budget neutrality is a good first approximation, the legislation must address two important issues in its implementation, in order to reach this fiscal goal.

(i) One issue is that the legislation must approach the restructuring process with prudence and careful planning.

The proposed structure would move functions across different agencies. One particular transfer-the transfer of state level education functions into the State Education Office, particularly from the DCPS -- shall require the most attention. At the end of the restructuring, the State Education Office would take over 37 new functions, more than double its current budget and increase its personnel count by fivefold. Of these new functions, Adult Education would move from the University of the District of Columbia, Early Care and Education from the Department of Human Services, and 35 others from the DCPS (a list of state level functions is attached to this testimony).

In this process, both the State Education Office and the DCPS would have to absorb one-time costs associated with these large organizational changes, be it the costs associated with overhead or the costs of a change in the organizational structure, or even in the institutional culture. Without careful planning, these costs could be significant. At the same time, restructuring of large organizations is not a new concept, and many creative, tested approaches already exist at these agencies' disposal. For example:

• Co-location of staff, even for a temporary period, could significantly minimize the overhead costs.
• A task analysis and matching up of the consequent task list with the skills of the existing staff would help identify the required changes in the personnel. Streamlining the personnel would likely impose its own short-term costs, but longer-term gains from a smaller, more efficient staff could offset these costs.
• Finally, both the DCPS and the State Education Office could consider retaining professionals who specialize in such restructurings. Working with organizational reform experts could greatly reduce the costs 0f transition, while maximizing the longer terms gains from improved efficiency.

(ii) The second issue involves addressing of legal restrictions in the D.C. Code that prevents the movement of funds from the DCPS into the State Education Office.

Now, the DCPS is both a state and a local education agency. The restructuring proposes that the DCPS would conduct local education functions only, and the State Education Office would take over from the DCPS 35 state education functions. Logically, all the funding associated with those 35 functions should follow them. Under the current legal structure, of the funds that currently support these 35 functions the State Education Office would take over from the DCPS, $36 million cannot be moved out of the DCPS under the prevailing formula regime. DCPS receives two pots of District funds, one according t0 the Uniform Per Student Funding Formula (Formula Funds) for local education functions, and the other for functions currently considered "state" functions. The D.C. Code restricts the use of the Formula Funds to the local education agencies only-that is, the DCPS and the public schools it oversees, and the public charter schools.

The practical implication of this restriction is that the Formula Funds cannot fully follow the functions that would transfer from the DCPS to the State Education Office under the proposed reform as drafted. As a result, the State Education Office could receive only $78 million in funds to support the 35 different functions for which DCPS has requested $114 million in its FY 2008 Proposed Budget Plan.
Removing the restrictions on the transfer of the $36 million in Formula Funds is essential to reach the budget neutrality goal. Therefore, the restructuring must consider solutions to this legal issue, such as amending existing law on the use of Formula Funds to facilitate the intradistrict transfer of funds.

My third and last point speaks, once again, to the sweeping nature of the proposed Bill.

Given its broad perspective, it is only natural that the proposed Bill raises many points that would require further policy and implementation decisions before the specific costs associated with the restructuring could be fully identified. We are currently working with all the involved entities and instrumentalities to obtain clarifications and refinements on at least some of these points. The detailed fiscal impact statement we shall present to the Council before the final vote on this Bill will reflect the information we are now gathering on these points.

As a final note, I would like to emphasize that my remarks, and the fiscal impact statement my office is preparing on Bill 17-01 focus solely on a four-year financial plan horizon. Given its nature, this statement does not account for any potential long-term savings or improvements to the system.

This concludes my remarks. We will help the Mayor and Council in any way we can as they deliberate this important matter. I would be pleased to answer any questions you may have.

List of State Level Functions moving into the SEO (as they are identified in the Budget and Financial Plan)

From the UDC

1. Adult Education From the DHS
2. Early Care and Education

From the DCPS

3. Other Special Education
4. 7 Point Plan, Special Education 
5. Attorney Fees 
6. Labor Contingency
7. State Enforcement and Investigation Division 
8. Blackman Jones Settlement 
9. Impact Aid Surveys
10. Administration of Federal Aid and Grants 
11. Census of Minors
12. Employee Certification 
13. Special education litigation
14. Educational accountability and assessments 
15. Chief Academic Office 
16. Civil rights and multicultural affairs 
17. Information technology services
18. Intervention Service/New Youth Services Ctr. 
19. Office of Accountability 
20. Professional development 
21. Quality Management 
22. Standards and curriculum 
23. Strategic planning and policy 
24. Student residency
25. Transitory Services
26. Special Education DC Jail 
27. Juvenile Education 
28. Office of Compliance 
29. CAAPS maintenance
30. Career and Technical Education 
31. Chief of Staff 
32. General Counsel 
33. Human Resources 
34. Office of Bilingual Education 
35. Outside legal fees 
36. Procurement
37. Superintendent's Office

State level functions staying in the DCPS

38. Non-Public Tuition Payment, Special Ed 
39. Non-Public Tuition CFSA 
40. Non-Public Tuition -- Mental Health 
41. General Education Tuition Payments 
42. Special Education Transport 
43. Special Education Transport Admin
44. Board of Education Charter Oversight (will go to the PCBS)