REPORT TITLE:
School-Based Budgeting


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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2908
HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO SCHOOL-BASED BUDGETING.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 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 current
 
 8 structure, "the division of funds among the schools has been an
 
 9 administrative process, outside of public view and beyond public
 
10 control.  Funds are dissipated in a burgeoning administrative
 
11 bureaucracy, and there is no clear accounting of how much money
 
12 actually reaches the schools for instruction and activities that
 
13 directly affect students and learning."  Accordingly, Act 272
 
14 directed the department of education to implement school-based
 
15 budget flexibility for the schools beginning with the 1995-1997
 
16 fiscal biennium.  "School-based budget flexibility" is an
 
17 operating budget preparation and allocation process that provides
 
18 maximum flexibility to individual schools in the preparation and
 
19 execution of their operating budgets.  Despite the statutory
 

 
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 1 mandate, school-based budgeting has not yet been implemented.
 
 2      The legislature further finds that education reform was one
 
 3 of the major issues for the 1997 economic revitalization task
 
 4 force, which brought forth a number of recommendations for
 
 5 educational change.  One of those recommendations builds upon on
 
 6 the foundation set by Act 272 -- the immediate implementation of
 
 7 school-based budgeting.  Like the legislature, the task force
 
 8 recognized that without it, individual schools cannot achieve the
 
 9 flexibility and autonomy necessary to determine the curriculum
 
10 and instructional needs of their students and be held directly
 
11 accountable for student achievement.
 
12      The purpose of this Act is to provide additional guidelines
 
13 to ensure the implementation of school-based budgeting beginning
 
14 with fiscal biennium 2001-2003.
 
15      SECTION 2.  Section 37-71, Hawaii Revised Statutes, is
 
16 amended to read as follows:
 
17      "§37-71  The budget.(a)  Not fewer than thirty days before
 
18 the legislature convenes in every odd-numbered year, the governor
 
19 shall submit to the legislature and to each member thereof a
 
20 budget that shall contain the program and budget recommendations
 
21 of the governor for the succeeding two fiscal years[.]; provided
 
22 that for the department of education, the governor shall submit a
 

 
 
 
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 1 budget that names each school as the lowest program level in the
 
 2 state program structure except for the district and state office
 
 3 programs.  The budget, in general, shall contain:
 
 4      (1)  The state program structure;
 
 5      (2)  Statements of statewide objectives;
 
 6      (3)  The financial requirements for the next two fiscal
 
 7           years to carry out the recommended programs; and
 
 8      (4)  A summary of state receipts and revenues in the last
 
 9           completed fiscal year, a revised estimate for the
 
10           fiscal year in progress, and an estimate for the
 
11           succeeding biennium.
 
12      (b)  The information contained in the budget shall be
 
13 presented generally in the following manner:
 
14      (1)  Information shall be displayed by programs or groups of
 
15           programs.
 
16      (2)  Program financial requirements shall be appropriately
 
17           crosswalked between the programs and expending
 
18           agencies.
 
19      (3)  Data shall be appropriately summarized at each level of
 
20           the program structure.
 
21      (4)  Program costs shall include all costs, including
 
22           research and development, operating and capital,
 

 
 
 
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 1           regardless of the means of financing, except that the
 
 2           means of financing shall be expressly identified, and
 
 3           regardless of whether the expenditure of any sum was
 
 4           authorized by prior appropriations acts, is authorized
 
 5           by existing law, or requires new authorization, except
 
 6           that the amounts requiring new authorization shall be
 
 7           appropriately identified.
 
 8      (5)  Financial requirements shall be presented to the
 
 9           nearest dollar, omitting cents; and the summary of
 
10           state receipts and revenues shall be presented to the
 
11           nearest thousand dollars.
 
12      (6)  The budget shall reflect the ensuing first two fiscal
 
13           year program costs contained in the six-year program
 
14           and financial plan.
 
15      (c)  The display of financial requirements for the ensuing
 
16 two fiscal years shall more specifically include:
 
17      (1)  At the lowest level on the state program structure, for
 
18           each program:
 
19           (A)  The total recommended expenditures, including
 
20                research and development, capital and operating
 
21                costs, by cost categories and cost elements for
 
22                the ensuing biennium; the planned allocation of
 

 
 
 
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 1                the total biennial request, by cost categories,
 
 2                and cost elements, between the two fiscal years of
 
 3                the biennium.  The means of financing and the
 
 4                number of positions included in any cost category
 
 5                amount shall be appropriately identified;
 
 6           (B)  A summary showing means of financing the total
 
 7                recommended expenditures, those amounts requiring
 
 8                and those amounts not requiring legislative
 
 9                appropriation or authorization for spending in
 
10                each fiscal year of the biennium;
 
11           (C)  A crosswalk of the total proposed biennial
 
12                expenditures between the program and expending
 
13                agencies[.]; provided that for the department of
 
14                education this subparagraph shall not apply to
 
15                individual schools.  The means of financing the
 
16                number of positions and the lease payments
 
17                included in any cost amount, and the net amount
 
18                requiring appropriation or authorization shall be
 
19                appropriately identified for each expending
 
20                agency; and
 
21           (D)  The proposed changes in the levels of
 
22                expenditures, by cost categories, between the
 

 
 
 
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 1                biennium in progress and the ensuing biennium,
 
 2                together with a brief explanation of the major
 
 3                reasons for each change[.]; provided that for the
 
 4                department of education this subparagraph shall
 
 5                not apply to individual schools.  The reasons
 
 6                shall include, as appropriate, the following:
 
 7                (i)  Salary adjustments to existing positions of
 
 8                     personnel;
 
 9               (ii)  The addition or deletion of positions;
 
10              (iii)  Changes in the number of persons being served
 
11                     or to be served by the program;
 
12               (iv)  Changes in the program implementation
 
13                     schedule;
 
14                (v)  Changes in the actual or planned level of
 
15                     program effectiveness;
 
16               (vi)  Increases due to the establishment of a
 
17                     program not previously included in the
 
18                     State's program structure;
 
19              (vii)  Decreases due to the phasing out of a program
 
20                     previously included in the State's program
 
21                     structure; and
 
22             (viii)  Changes in the purchase price of goods or
 

 
 
 
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 1                     services;
 
 2           As appropriate, references to the program and financial
 
 3           plan shall be noted for an explanation of the changes.
 
 4           Notwithstanding the provisions of subsection (b)(5),
 
 5           the proposed changes in the levels of expenditures may
 
 6           be shown to the nearest thousand dollars;
 
 7      (2)  Appropriate summaries of paragraph (1)(A) and (C)
 
 8           immediately above at every level of the state program
 
 9           structure above the lowest level.  Such summaries shall
 
10           be by the major groupings of programs encompassed
 
11           within the level.  The summaries of paragraph (1)(A)
 
12           shall identify the means of financing and the number of
 
13           positions and the lease payments included in any cost
 
14           category amount; and
 
15      (3)  A summary listing of all capital improvement projects
 
16           included in the proposed capital investment costs for
 
17           the ensuing biennium.  The listing shall be by programs
 
18           at the lowest level of the state program structure and
 
19           shall show for each project, by investment cost
 
20           elements:
 
21           (A)  The cost of the project;
 
22           (B)  The amount of funds previously appropriated and
 

 
 
 
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 1                authorized by the legislature; and
 
 2           (C)  The amount of new appropriations and
 
 3                authorizations proposed in each of the two fiscal
 
 4                years of the ensuing biennium and in each of the
 
 5                succeeding four years.  The amount of the new
 
 6                appropriations and authorizations proposed shall
 
 7                constitute the proposed new requests for the
 
 8                project in each of the fiscal bienniums.
 
 9           In every instance, the means of financing shall be
 
10           noted.
 
11      (d)  The summaries of the state receipts and revenues shall
 
12 more specifically include:
 
13      (1)  Financial summaries displaying the State's financial
 
14           condition, to-wit:
 
15           (A)  A display of the proposed, total state
 
16                expenditures, by cost categories, the total state
 
17                resources anticipated from existing taxes and
 
18                nontax sources at existing rates, by resource
 
19                categories (including the available fund balances
 
20                or deficits and anticipated bond receipts), and
 
21                the fund balance or deficit resulting therefrom
 
22                for the biennium in progress, for the ensuing
 

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

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

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

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

 
 
 
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 1           (B)  A summary of the proposed changes in the existing
 
 2                taxes or sources or rates, and the estimated
 
 3                increases or reductions in revenues in each of the
 
 4                two years in the ensuing fiscal biennium resulting
 
 5                from such changes; and
 
 6           (C)  The total estimated revenues with and without the
 
 7                proposed changes; and
 
 8      (8)  A summary of the State's total payments due under
 
 9           financing agreements required to carry out the
 
10           recommended programs and the kinds of financing
 
11           agreements and amounts thereof through which such
 
12           requirements are to be met in the biennium in progress
 
13           and in each of the two fiscal years in the ensuing
 
14           biennium.  The summary shall detail for the biennium in
 
15           progress and for each of the two years of the ensuing
 
16           biennium:
 
17           (A)  Of the total financing agreement requirements, the
 
18                amount, by cost categories, requiring new
 
19                financing agreement authorizations and the kinds
 
20                and amounts of financing agreements planned for
 
21                execution and delivery under such new
 
22                authorizations;
 

 
 
 
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 1           (B)  By cost category, the cumulative balance of
 
 2                financing agreements authorized in prior years but
 
 3                not executed and delivered and the amount thereof
 
 4                proposed to be executed and delivered; and
 
 5           (C)  A recapitulation of the total financing agreements
 
 6                to be executed and delivered, including both new
 
 7                authorizations and prior authorizations, by cost
 
 8                categories.
 
 9      (e)  The proposed budget shall include:
 
10      (1)  A statement of the percentage differences between the
 
11           current biennium recommendations and the previous
 
12           biennium appropriations for education programs.  The
 
13           information shall be displayed by programs or groups of
 
14           programs, with corresponding amounts and percentage
 
15           differences.  If any component of an education program
 
16           is added or removed, the governor shall provide an
 
17           estimate of how the addition or removal affects the
 
18           current biennium recommendations;
 
19      (2)  A statement of the difference between the total amount
 
20           proposed for the current biennium and the total amount
 
21           expended in the previous biennium for education
 
22           programs per pupil; and
 

 
 
 
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 1      (3)  Other financial statements, information, and data that
 
 2           in the opinion of the governor are necessary or
 
 3           desirable in order to make known in all practical
 
 4           detail the programs, program plans, and financial
 
 5           conditions of the State.
 
 6      As used in this subsection, "education programs" include
 
 7 instructional, personnel, transportation, facilities, facilities
 
 8 repair and maintenance, and other programs deemed appropriate by
 
 9 the department of education.
 
10      (f)  The proposed budget shall contain an item to be known
 
11 as the "contingent fund," which sum, upon approval by the
 
12 legislature, shall be available for allocation by the governor
 
13 during the ensuing fiscal biennium to meet contingencies as they
 
14 arise.
 
15      (g)  The proposed budget shall contain an item to be known
 
16 as the "education contingent fund", which sum, upon approval by
 
17 the legislature, shall be available for allocation by the board
 
18 of education during the ensuing fiscal biennium for the purpose
 
19 of adjusting for unanticipated changes in individual school
 
20 budgets as a result of personnel movements among schools.
 
21      [(g)] (h)  If it is deemed more practical, the six-year
 
22 program and financial plan and the budget may be combined into a
 

 
 
 
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 1 single document containing all the information required for each
 
 2 separate document."
 
 3      SECTION 3.  Section 37-74, Hawaii Revised Statutes, is
 
 4 amended by amending subsection (d) to read as follows:
 
 5      "(d)  No appropriation transfers or changes between programs
 
 6 or agencies shall be made without legislative authorization;
 
 7 provided that:
 
 8      (1)  Authorized transfers or changes, when made, shall be
 
 9           reported to the legislature;
 
10      (2)  Except with respect to appropriations to fund financing
 
11           agreements under chapter 37D, the University of Hawaii
 
12           shall have the flexibility to transfer appropriated
 
13           funds and positions for the operating cost category
 
14           among programs, among cost elements in a program, and
 
15           between quarters, as applicable; and the Hawaii health
 
16           systems corporation shall have the flexibility to
 
17           transfer special fund appropriations among community
 
18           hospitals facilities as applicable; provided that the
 
19           Hawaii health systems corporation shall maintain the
 
20           integrity and services of each individual facility and
 
21           shall not transfer appropriations out of any facility
 
22           that would result in a reduction of services offered by
 

 
 
 
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 1           the facility, with due regard for statutory
 
 2           requirements, changing conditions, the needs of the
 
 3           programs, and the effective utilization of resources;
 
 4           [and]
 
 5      (3)  The department of education shall have the flexibility
 
 6           to transfer general fund appropriations among the
 
 7           schools comprising the lowest program level; and
 
 8     [(3)] (4)  The university and the department of education
 
 9           shall account for each transfer implemented under this
 
10           subsection in quarterly reports to the governor and
 
11           annual reports at the end of each fiscal year to the
 
12           legislature and the governor, which shall be prepared
 
13           in the form and manner prescribed by the governor and
 
14           shall include information on the sources and uses of
 
15           the transfer."
 
16      SECTION 4.  Notwithstanding section 37-69(c)(3), Hawaii
 
17 Revised Statutes, for fiscal years 2001-2002 and 2002-2003, for
 
18 each school only the following shall be included in the program
 
19 and financial plan:
 
20      (1)  The total actual program cost for the last completed
 
21           fiscal year and the estimated cost for the fiscal year
 
22           in progress; and
 

 
 
 
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 1      (2)  At least two effectiveness measures and the actual
 
 2           level of effectiveness attained in the last completed
 
 3           fiscal year.
 
 4      SECTION 5.  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
 

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

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

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

 
 
 
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 1 [a]:
 
 2      (1)  A separate description of all existing financing
 
 3           agreements of the department of education that require
 
 4           funding, together with a statement of the amount of
 
 5           funding required[, and all];
 
 6      (2)  All proposed financing agreements of the department of
 
 7           education for the ensuing fiscal year[,]; and
 
 8      (3)  The amount the department of education will allocate
 
 9           for school lump sum funding;
 
10 to the governor for each fiscal year.
 
11      (b)  The governor may require the department of education to
 
12 submit an update of the expenditure plan based on changing
 
13 economic conditions."
 
14      SECTION 7.  Statutory material to be repealed is bracketed.
 
15 New statutory material is underscored.
 
16      SECTION 8.  This Act shall take effect on July 1, 2000.
 
17 
 
18                           INTRODUCED BY:  _______________________