FOR IMMEDIATE RELEASE MAY 3, 2007

CONTACT: LYDIA LENKER 615.741.3763 (OFFICE) 615.289.9375 (CELL)

BEP 2.0 – FAIR, SUSTAINABLE, ACCOUNTABLE
GOVERNOR UNVEILS PLANS FOR BEP OVERHAUL NASHVILLE – Governor Phil Bredesen today outlined plans for a dramatic overhaul of education funding in Tennessee, a strategy developed in concert with members of the General Assembly and designed to restore fairness, sustainability and accountability to the funding process. The proposal – dubbed BEP 2.0 – was outlined in a speech to a special Joint Convention of the General Assembly. It is the result of extensive conversations between Bredesen and the leadership of both Houses regarding the Basic Education Plan (BEP), and builds upon a proposal Bredesen presented earlier this year designed to put schools first by allocating additional state money for school systems with high numbers of at-risk students and those with high growth in student populations. In his speech, Bredesen noted three primary factors that made the expanded plan possible: an indepth examination of the BEP formula, prompted by concerns expressed by Senate Education Committee chairwoman Jamie Woodson; broad political leadership in the Legislature to bring about real reform; and substantial new recurring funds paired with a bipartisan consensus to invest them wisely. “A rising tide floats all boats and makes big changes much easier,” Bredesen said. “The chance is here to seize the moment.” The $475 million plan would receive at least half of its funding this year, with the remainder implemented as state finances allow, Bredesen said. The new money would be used to: • • • • • Fully fund the state’s portion of the costs associated with at-risk students Fully fund the state’s portion of student growth costs in the year they occur Expanded funding for English Language Learners, with a goal of one teacher per every 30 students (currently the ratio is 1:45) Increase the state’s portion of instructional salaries from the current 65% to 75% Increase the average teacher salary from $36,700 to $40,000

The plan also calls for a re-design of the way Tennessee allocates money to school systems by replacing the current formula with a new calculation that is simple, fair and transparent. The new formula would use a county’s amount of assessed property and sales tax revenue to determine ability to pay. Bredesen emphasized that the proposed BEP reform is a two-way contract. “It goes hand-in-hand with accountability from our school boards, our administrators and our teachers for their performance. We’re saying, ‘We’ll step up to our responsibility to get you the resources you need; you need to step up to your responsibility for results,” Bredesen said.

To increase accountability, Bredesen proposed a focus on three primary areas: • • • Increased standards for student achievement Increased state involvement in the outcome of failing schools Increased expectations on state colleges of education to turn out qualified teachers

“We’ve shown we can make tough decisions in hard times; let’s show we can make smart and sustainable investments in good times,” Bredesen said in his speech to legislators. “This is a unique time. If education is really the first priority for you, seize the moment, seize the tide.” ###

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ADDRESS TO THE GENERAL ASSEMBLY: BEP 2.0
GOVERNOR PHIL BREDESEN MAY 3, 2007 Lieutenant Governor Ramsey, Speaker Naifeh, Speaker ProTem DeBerry, Members of the 105th General Assembly, Constitutional Officers, Justices, friends, guests and my fellow Tennesseans. I thank you once again for the privilege of addressing you in these chambers. I have rarely asked this privilege outside of my State of the State messages. My message this morning is about education, as you expect, but it is even more about seizing the moment. This chamber this morning is full of people who care deeply about educating our children, and you know how much I care about that same thing. It’s not a political position for me, it’s a personal belief. I grew up in my Grandmother’s house; she had a 6th grade education. She had 11 children, and just one of them has a college degree; he got it in the military. Yet they all have had great American lives; owned their own homes, sent their kids on to college — I’m one of those kids. They were able to do this because you could come back from World War II, get a job in a factory, and be in the mainstream of the economy of our country. The world is changing: you can’t do that anymore. Kids today who are willing to work hard but don’t have that education are not going to be in that mainstream, they’re going to be on the outside looking in. This chamber is full of people like me; people who remember or have connections to the world of the ‘50s and ‘60s where that factory job worked, but who now have a public responsibility to children with a very different future. We’re the generations who have a foot in both worlds, and we have to make sure we pivot off that foot that’s in the future and not the one rooted in a past that no longer exists. === I asked for this time because in the past few weeks it has become clear that we together have an opportunity to seize the moment when it comes to education. Even with some tough fiscal issues, I’ve worked hard to support education: full BEP funding even when we were cutting everywhere else, Books from Birth, Pre-K, Math and Science High School. You’ve been full partners in this. With our financial house in order, this year I felt I was able to step out further and propose some significant new investments in our schools and a revenue source — the cigarette tax — to sustain those investments over the long haul. But I’m here this morning because we have a chance now to expand and broaden and improve the approach I proposed last winter. We have a chance to address not only the funding shortfall in our school systems, but the fairness shortfall as well. I trace the origins of this expanded approach back to a conversation with Senator Woodson not long after my State of the State message. As you know, Senator Woodson is the chairman of the Senate

Education Committee. She told me — and I’m paraphrasing — “You know how much I support education, and I like your proposals, but I don’t think they go far enough. We all know the Basic Education Plan— the BEP—is flawed, and if you put more money into that with all its flaws don’t you just make the eventual sorting-out we have to do even harder?” It was a very good point. Craig Fitzhugh — House Finance chairman — is a hard-nosed businessman, and he talked with me about making sure that accountability was an integral part of anything we did. Les Winningham has been committed to making sure that rural districts were treated fairly, and Randy McNally had a number of issues including making sure that districts like Oak Ridge were not penalized for having been willing to invest in public education over the years. I’m here this morning to say that I heard you. Last month I asked Speaker Naifeh and Speaker Ramsey for their OK for me to begin talking with those four committee chairs: Education and Finance in the House and Senate; two Democrats and two Republicans. The Speakers gave me the green light, and we have worked with those committee chairs, and later with the speakers and the majority and minority leaders, to reach the point we are at this morning. This is not the Bredesen plan; if you have to attach names it is the Bredesen, Fitzhugh, McNally, Winningham, Woodson plan. That’s alphabetical, by the way. This broader look has been made possible by several things that have happened since my State of the State address. First, based on Senator Woodson’s concerns, a group of us rolled up our sleeves and worked to really understand the BEP formulas. Second, thanks to the work of the Committee Chairs I have mentioned, the Speakers, and others in the General Assembly, there is now the broad political leadership to bring about real reform. Third, while the final numbers won’t be in until next week, it is no secret that we expect to have substantial additional recurring funds to work with this year and a bipartisan consensus to invest them wisely; a rising tide floats all boats and makes big changes much easier. The chance is here to seize the moment. I want to emphasize that our reform plan is a two-way street with our school systems; it’s a contract with them. We’ll make sure that they have the money they need to educate our children, but it doesn’t stop there: they’ll be accountable for results. Let me start by talking about BEP reform and how we get to a fairer and better version; I call it BEP 2.0. The original BEP was passed in 1992; it has served our state well. It was passed to settle 16 years of litigation over education funding, a situation I hope we never get ourselves in again. Like what I am about to propose to you, it was partially funded in its first year — in that case with a half-cent sales tax increase, far more difficult than the cigarette tax I’ve proposed — and the remainder funded over the next six years. That BEP today has two parts; on one side, it’s a way of calculating each year how much we should spend on a student in Tennessee. It takes into account everything from the salaries of teachers and administrative people, to the cost of constructing schools, to the cost of books and diesel fuel. On the other side it determines for each district how much of the cost of education is the state’s obligation and how much belongs to local government. That side of the BEP has become unfair over the years and badly needs to be addressed. Going back to the first part of the BEP — figuring out how much money is needed for each student — we’re proposing to fix a number of widely recognized problems. Paying the full cost of at-risk students, funding student growth in the year in which it occurs, funding the costs to a district of English Language Learner, ELL, students, putting a realistic cost for teachers in the formula and paying a full 75 percent of that teacher cost.

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Once we have determined how much our state is going to spend in a given year on each student, we then need to decide how the cost is to be split between state and local government. This is where we have gotten off the trail; there are some real inequities in how the money is split that need to be addressed. One element of this split is the cost differential factor — the so-called CDF you have heard so much about. This factor allocates a total of $108 million to 17 school systems, ostensibly to recognize the higher cost of doing business in their communities. That’s the theory; as a practical matter it was a political fix in 1992 to get more money to some urban school systems. As you might expect, what has happened over the years is that it no longer works in the way intended. For example, the largest beneficiary of the CDF today is Williamson County, which gets an 18 percent premium on their state funding — paid for by other counties' taxpayers — despite being arguably the county in Tennessee most able to carry the load. Conversely, Hamilton County — Chattanooga — is an urban system with the second largest number of failing schools in the state; Hamilton County gets nothing - that's not fair. This reform plan eliminates the CDF. This state/local split is also determined by a fiscal capacity formula that is outdated and obscure. Rather than being plain spoken and clear, it uses regression analysis to calculate coefficients, and reminds me of an old black and white movie where the mad scientist sets some dials on a machine in the basement of the castle, and turns the crank, and it clanks and lights and bells go off, and finally it spits an answer out the bottom. The mad scientists in the fiscal capacity case are some great people in the Department of Education, but the process is the same. We propose to dramatically simplify this process and make it transparent to the public. If you have taken freshman algebra and own a $20 calculator you should be able to figure out what your district is entitled to. These changes will make BEP 2.0 more fair, more defensible in court, and more transparent to the public. When you add up the cost of these changes, the answer is an additional $475 million, and that is more than we have to work with this year, even with the 40-cent cigarette tax increase and extra growth money. What we propose to do is to echo what our state did in 1992; bite off a big piece this year, establish a secure long-term funding mechanism, and continue to build the funding in the years ahead until we finish off the plan. The advantage of this is that we are doing what good managers do; set a framework in place and then work each year to complete it, rather than constantly picking at one issue after another. === This BEP reform is part of a two-way contract. It goes hand in hand with accountability from our school boards, our administrators and our teachers for their performance. We’re saying, “We’ll step up to our responsibility to get you the resources you need; you need to step up to your responsibility for results.” First, there are standards. Before you can hold someone accountable, you have to be clear with them what is expected, and there are serious issues with standards in Tennessee. Among the most serious is our lack of “truth in advertising”; we are telling our kids and our schools that they are doing well in cases where they simply are not. I’m not the only one who feels this way; in their report on public education last month, the U. S. Chamber of Commerce gave Tennessee an ‘F’ in “Truth in Advertising.” Here’s why: when our 8th grade students take the Tennessee tests in math, we tell 87 percent of them and their parents that they are “proficient”. When our 8th grade students take the national standards exam, the NAEP tests, 21 percent of those same 8th graders are graded as “proficient”. If our kids were just going to be competing with other Tennessee kids, we could get away with this. But you know that’s not the world these kids are going to live in.

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There are legitimate differences in opinion among liberals and moderates and conservatives about how to improve our schools. One thing however everyone can agree on is the need to be completely honest about just where we are; to be honest with our parents, to be honest with our children and to be honest with ourselves. Second, any effort to improve our schools ought to start with those that are clearly failing. We have in Tennessee 20 schools today that have hit the wall; under our own laws are called out for having failed to show adequate progress for at least six years running; these are failed schools. Seventeen of them are in the Memphis school system, two are in Hamilton County, and one is in Nashville. That list will grow by another five or six this August. Under our existing laws, the state has broad powers in these cases; we can close the schools, we can remove the schools from the school system and make them charter schools or run by one of our universities, we can even remove school board members. We’ve never used those powers. I commit to you to take a far stronger hand in fixing these schools by aggressively using the laws we already have. Third, we need to demand more from our colleges of education. The reality is that they are sending us too many teachers who don’t have the hard content knowledge that it takes to teach effectively. Most of the teachers in the Tennessee school system are products of our state’s own colleges of education, and we are going to start holding their feet to the fire on teacher preparation. Our colleges of education need to be less of an academic department of the university and more of a professional school, like a law school or a medical school. When a student goes to medical school, they don’t spend a lot of time on the “History of Medicine”; they don’t take a watered-down “Math for Doctors” course. They study content; they learn professional skills: how to diagnose, how to treat, what to do if someone has a heart attack. And they learn it both in the classroom and in the hospital. Our colleges of education need to be more like that, and specifically they need to send us teachers who know their subject matter, who know how to use the tools of their trade — their test scores for example — and who have had practical experience in doing so when they arrive at our door. We've got some great teachers in Tennessee. I’ve gotten to know a lot of them over these past four years, and the good ones are ready for some changes. They think of themselves as professionals, they want to be paid like professionals, and they’re willing to be held accountable like professionals. === So that’s where we are: I put a good plan on the table last winter; and you — Democrats and Republicans both — have broadened and improved it. That’s the way things should work. I want to add a postscript. In order to put BEP 2.0 in place, we know that we have to come up with money in addition to what the 40-cent cigarette tax will produce. The working assumption has been that if we had an additional $140 million of revenue growth in hand when the funding board meets next week, we would be able to increase our state pay raises to a full 3 percent and still have enough left over to realistically consider the more comprehensive BEP 2.0 model. Our early tax collections indicated that this was a reasonable hope, perhaps a stretch. Updated results have come in these last 36 hours, and the likelihood is that we will have considerably more than the $140 million. The possible range has been in the $100-300 million area, and it now seems likely that when the funding board considers the numbers and projections next week, their estimate could be near the upper end of that range. That opens up a number of possibilities at this late date, including pre-funding some future year additions to the BEP percentage formula and the possibility of phasing in the cigarette tax over time. I discussed the situation with the speakers as soon as I was aware of it, and will work with them and you over the next few days to intelligently take into account this fortunate development. We’ve come a long way together on education reform, and if we can continue in that spirit for the next few days, we’ll all be proud of what we have accomplished. ===

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We’re at a crossroads. I’ve served in public office for 12 years now, and have been through 13 budgets. I’ve had some very tough years; I have never had a year with as much new money as we have before us now; this is unique and is unlikely to happen again. We've shown we can make tough decisions in hard times; let's show we can make smart and sustainable investments in good times. Believe me, I understand the politics and pressures this good fortune produces. We need to keep those politics and pressures at bay; this is a unique time, seize the moment. If education is really the first priority for you, seize the moment, seize the tide. I rarely use quotations in my speeches, but I want to close with one, from Shakespeare: “There is a tide in the affairs of men, Which, taken at the flood, leads on to fortune. Omitted, all the voyage of their life, Is bound in shallows ….” This is one of those moments; seize the tide. ###

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SUMMARY OF CHANGES TO THE BEP
Change 1: Change the way we measure a county’s ability to contribute toward the cost of education (Fiscal Capacity)

Currently • Determined by a complex statistical regression equation that attempts to calculate a county’s revenues that can be raised and applied to education • No longer provides the best representation of local capacity to raise revenue for schools • Has begun to produce questionable results on how education dollars are allocated Proposed change • Move to a simpler method that is based on measuring two factors – property and sales tax • These two factors represent more than 90% of the amount of local revenue available for education Change 2: Eliminate the CDF

Currently • The “Cost Differential Factor” is a mechanism that inflates salary dollars for certain systems • CDF attempts to calculate wage competitiveness in a local work force • Calculation is based on an analysis of 90+ industry subgroupings • Purpose is to evaluate the wage levels in other industries that could compete with teacher salaries in a county; has moved away from original intent • Only 17 systems benefit from the CDF currently Proposed change • CDF is eliminated • Redirect funds that have gone into the CDF to funding cost of increasing state share of teacher salaries • Increasing state share of teacher salaries to 75% from 65%

May 3, 2007

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SUMMARY OF CHANGES TO THE BEP (CONTINUED)
Change 3: Increase state’s share of instructional funding to 75%

Currently • State currently provides 65% of the funds needed to pay teachers in Tennessee. The remaining 35% is provided by local governments • Funding for teacher salaries represents the largest share of all BEP dollars Proposed change • Adjust formula to place a greater portion of the responsibility for funding teacher salaries on the state • State will assume a greater share of funding for salaries – increasing from 65/35 state-local share to 75/25 • “Maintenance of Effort” statute still applies: local systems must maintain current level of funding Change 4: Increase unit cost for teacher pay

Currently • Current unit cost figure for teacher salaries is not yet reflective of “real world cost” • Increases financial burden on local governments to fund teacher salaries for positions outside the BEP • Allows for greater disparity in teacher pay among school systems Proposed change • Move the unit cost for teacher pay toward a higher target that more accurately reflects “real world cost” • Teacher pay is reviewed annually, just as other education costs, i.e. textbooks • Migrate unit cost from approximately 36,700 to a target of $40,000

May 3, 2007

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BEP Scenarios (in thousands of dollars)
IMPACTS FROM SCENARIOS OPTION 1 100% AtRisk, $38,000, ELL 1:35 50% 283,322 2,988 325 1,665 2,955 598 439 626 117 239 3,545 1,523 1,567 573 65 282 536 484 160 407 1,852 475 1,392 891 1,808 304 1,387 161 2,114 603 1,370 751 226 197 457 13,780 460 166 2,974 1,565 1,588 538 782

May 3, 2007

Estimated Base Improvement from FY07FY08 Statewide Anderson County Clinton City Oak Ridge City Bedford County Benton County Bledsoe County Blount County Alcoa City Maryville City Bradley County Cleveland City Campbell County Cannon County Carroll County H Rock-Bruceton SSD Huntingdon SSD McKenzie SSD South Carroll Co SSD West Carroll Co SSD Carter County Elizabethton City Cheatham County Chester County Claiborne County Clay County Cocke County Newport City Coffee County Manchester City Tullahoma City Crockett County Alamo City Bells City Cumberland County Davidson County Decatur County DeKalb County Dickson County Dyer County Dyersburg City Fayette County Fentress County 399 0 268 1,539 249 457 641 269 509 1,639 271 491 185 102 46 19 203 40 107 553 96 499 242 798 68 282 94 674 73 177 448 146 0 990 6,102 176 176 993 510 189 840 307

SCHOOLS FIRST 100% AtRisk and Growth 144,650 1,121 97 468 1,457 386 430 1,571 231 462 1,624 593 1,292 311 5 129 273 202 49 178 1,128 246 569 500 1,325 230 1,052 105 791 184 338 380 105 78 1,100 10,701 310 408 1,687 532 587 1,028 492

OPTION 2 All Factors in Dial 60% 286,262 3,303 365 1,940 3,016 556 349 753 127 262 3,715 1,558 1,289 563 79 279 550 494 171 412 1,717 477 1,512 896 1,659 263 1,170 152 2,256 637 1,520 745 219 194 121 11,384 459 39 3,035 1,639 1,628 213 723

FULL BEP 2.0

Total 100% 476,005 5,136 592 3,041 4,795 984 597 1,035 198 344 5,939 2,672 2,259 978 132 466 851 842 271 683 2,906 814 2,562 1,381 2,612 457 2,043 260 3,596 1,057 2,532 1,184 351 319 488 21,710 717 157 4,701 2,731 2,681 405 1,210

BEP Scenarios (in thousands of dollars)
IMPACTS FROM SCENARIOS OPTION 1 100% AtRisk, $38,000, ELL 1:35 50% 283,322 1,066 667 750 607 236 1,154 1,508 920 2,735 1,034 785 4,094 10,860 172 1,437 783 2,597 206 1,200 1,480 433 1,000 518 570 511 663 570 1,048 179 10,114 299 1,569 2,432 398 1,146 268 339 395 1,733 457 97 1,647

May 3, 2007

Estimated Base Improvement from FY07FY08 Statewide Franklin County Humboldt City Milan SSD Trenton SSD Bradford SSD Gibson County SSD Giles County Grainger County Greene County Greeneville City Grundy County Hamblen County Hamilton County Hancock County Hardeman County Hardin County Hawkins County Rogersville City Haywood County Henderson County Lexington City Henry County Paris SSD Hickman County Houston County Humphreys County Jackson County Jefferson County Johnson County Knox County Lake County Lauderdale County Lawrence County Lewis County Lincoln County Fayetteville City Loudon County Lenoir City McMinn County Athens City Etowah City McNairy County 546 80 241 128 92 860 299 623 1,234 301 215 770 567 145 343 262 1,179 178 257 576 183 251 144 775 248 150 198 1,035 225 1,277 253 300 398 208 445 116 491 124 815 127 -3 654

SCHOOLS FIRST 100% AtRisk and Growth 144,650 912 328 300 293 99 509 542 886 1,305 449 514 1,775 4,508 280 995 635 1,441 104 859 741 208 506 271 620 393 385 335 1,315 485 3,345 268 980 1,033 325 479 105 819 536 1,123 255 53 660

OPTION 2 All Factors in Dial 60% 286,262 951 639 770 614 240 1,237 1,598 786 2,762 1,125 706 4,208 12,370 75 1,253 670 2,535 216 1,018 1,515 455 974 518 450 488 651 530 759 11 12,112 253 1,419 2,467 338 1,168 285 249 298 1,709 445 96 1,697

FULL BEP 2.0

Total 100% 476,005 1,637 1,052 1,282 979 399 1,923 2,674 1,176 4,508 1,748 1,192 6,861 25,177 157 2,114 1,200 4,136 345 1,736 2,383 712 1,666 851 811 704 1,160 889 1,334 99 26,638 399 2,388 4,107 592 1,998 480 278 431 2,740 756 187 2,779

BEP Scenarios (in thousands of dollars)
IMPACTS FROM SCENARIOS OPTION 1 100% AtRisk, $38,000, ELL 1:35 50% 283,322 1,152 5,507 1,259 100 2,835 3,906 224 938 365 12,952 0 1,119 1,827 762 946 281 0 700 3,992 1,141 176 1,211 3,091 12,097 2,780 983 431 432 915 16,957 53,951 901 183 3,290 1,214 1,662 6,064 3,426 295 763 317 122

May 3, 2007

Estimated Base Improvement from FY07FY08 Statewide Macon County Madison County Marion County Richard City SSD Marshall County Maury County Meigs County Monroe County Sweetwater City Montgomery County Moore County Morgan County Obion County Union City Overton County Perry County Pickett County Polk County Putnam County Rhea County Dayton City Roane County Robertson County Rutherford County Murfreesboro City Scott County Oneida SSD Sequatchie County Sevier County Shelby County Memphis City Smith County Stewart County Sullivan County Bristol City Kingsport City Sumner County Tipton County Trousdale County Unicoi County Union County Van Buren County 447 497 554 94 178 0 166 986 438 5,541 9 594 279 303 231 27 50 504 312 1,161 125 735 1,909 9,303 2,075 203 209 624 1,844 5,797 7,169 371 139 614 357 109 5,626 2,421 180 121 404 0

SCHOOLS FIRST 100% AtRisk and Growth 144,650 563 2,282 728 56 828 1,286 374 1,111 366 4,468 105 1,025 495 271 606 185 128 638 1,618 1,010 132 959 1,695 4,277 1,053 705 293 530 2,472 5,053 22,895 388 309 1,198 521 618 3,274 2,406 173 364 615 267

OPTION 2 All Factors in Dial 60% 286,262 1,153 5,784 1,185 100 3,123 5,219 108 692 294 14,141 0 993 1,951 809 868 261 0 608 4,238 991 155 1,108 3,243 13,403 2,965 831 401 330 915 18,558 51,524 934 104 3,343 1,233 1,692 6,601 3,262 293 766 114 122

FULL BEP 2.0

Total 100% 476,005 1,952 10,677 2,009 166 4,893 8,513 228 1,206 515 22,209 0 1,435 3,241 1,300 1,478 450 0 939 6,844 1,548 274 2,027 5,096 21,317 4,808 1,407 644 497 915 27,660 81,886 1,575 253 5,910 2,061 3,036 10,409 5,123 525 1,278 260 122

BEP Scenarios (in thousands of dollars)
IMPACTS FROM SCENARIOS OPTION 1 100% AtRisk, $38,000, ELL 1:35 50% 283,322 2,754 2,101 1,871 385 2,052 932 1,639 647 3,034 805 223 283,322

May 3, 2007

Estimated Base Improvement from FY07FY08 Statewide Warren County Washington County Johnson City Wayne County Weakley County White County Williamson County Franklin SSD Wilson County Lebanon SSD Dept. of Children Services Statewide 649 736 897 229 763 349 10,372 1,115 3,185 374

SCHOOLS FIRST 100% AtRisk and Growth 144,650 1,192 1,151 1,079 481 976 695 1,639 665 1,217 334 152 144,650

OPTION 2 All Factors in Dial 60% 286,262 2,865 2,183 1,931 256 2,123 846 1,639 647 3,294 759 205 286,262

FULL BEP 2.0

Total 100% 476,005 4,576 3,690 3,274 485 3,340 1,418 1,639 647 5,195 1,344 344 476,005