Science

Carolynn Polanchek, Associate Legislative Research Analyst
  Carolynn.Polanchek@cot.tn.gov  (615) 401-7972

The Basic Education Program, or BEP, is the funding formula for Tennessee’s K-12 public schools. The BEP represents a huge portion of the state budget – over $4.7 billion, or more than a quarter of total state dollars in the budget. The BEP formula is also exceedingly complex, with 46 different components that generate funding and an equalization process that sets state and local shares of funding. Given the magnitude of taxpayer funds involved, the Comptroller’s Office has repeatedly emphasized the importance of independently verifying the BEP and making the formula as transparent and understandable as possible.

This page is the culmination of our efforts to explain the BEP, and has been created to outline the basics of the BEP, allow users to download the BEP Calculator and see the BEP calculation, and provide some quick facts and statistics about school funding.

Basics of the Basic Education Program

Created in 1992, the Basic Education Program (BEP) is the main source of K-12 education funding and distributes over $4.7 billion to public school districts. It has two parts: a state share, and a required local match contributed by local school districts. State and local shares are set based on each county’s fiscal capacity, or ability to raise local revenue; counties with higher fiscal capacities receive less state funding and must contribute more local matching dollars than counties with less ability to raise local revenue. The BEP is split into four main categories, which together contain 46 different components that generate funding – for example, teacher salaries or textbooks – but districts have considerable flexibility on how to spend their BEP money. For this reason, the BEP is often referred to as a funding formula, not a spending plan.

The BEP generates funding based on 46 components grouped into four main categories

The BEP has four main categories:

  • 1. Instructional Salary. The largest category at over $3 billion in state and local dollars for fiscal year 2018-19, the Instructional Salary category generates salaries for classroom teachers and other staff with teaching licenses (such as librarians and principals).
  • 2. Instructional Benefits. Created by 2016 legislation, the Instructional Benefits category covers retirement contributions and insurance premiums for the same positions in the Instructional Salary category.
  • 3. Classroom. As it sounds, the Classroom category contains materials used in the classroom – textbooks, classroom supplies, and technology, for example.
  • 4. Non-Classroom. The final BEP category is the second largest and covers some remaining and miscellaneous school expenses, such as school buses, maintenance and operations, and capital outlay.

Within the four broad categories, 46 different components generate funding. All components are driven, in some form, by student enrollment – generally, the more students in a district, the more BEP money the district receives. Each component is based on a unit cost (i.e., $47,150 for each teacher’s salary, or $77.50 per textbook). By adding up all 46 components, the BEP formula attempts to estimate the cost of running a school and the amount of funding needed to provide a basic education.

Word Cloud

Related Resource

4 Categories of the BEP Infographic
Author: Paige Donaldson

A funding formula, not a spending plan

The BEP is often referred to as a funding formula, not a spending plan. Put simply, this means that while the BEP generates a set amount of money for each component – $300,000 in a district under the classroom supplies component, for example – the district does not necessarily have to spend that money on that component. In other words, BEP funding is generally not earmarked down to the component level; the district that receives $300,000 for classroom supplies does not have to spend that money on supplies, but could instead put it toward teacher salaries or classroom-related travel. This gives districts flexibility when determining how to use BEP funds at the local level.

On a broader level, however, the BEP formula contains several more general spending requirements. The overall pot of money in the Instructional Salary category must be spent on teacher salaries, though districts do not have to spend the money on specific types of teachers. For example, while a district does not have to spend the money generated for P.E. teachers specifically on P.E. teachers, it must spend that money on some sort of teacher salary in the Instructional Salary category. Districts with an average teacher salary higher than the state average may spend money generated in the Instructional Salary category on teacher benefits.

State law requires that Classroom category funding only be spent on Instructional or Classroom items. Funding generated in the Non-Classroom category may be spent in any of the BEP’s four categories.

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BEP Funding Infographic
Author: Paige Donaldson

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Report
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The BEP sets state and local shares of funding based on a county’s ability to pay for education

The BEP has two parts: a state share and a statutorily required local match. When the BEP was created in 1992, one major change from the previous funding formula was the BEP’s use of fiscal capacity to “equalize” state funding. This equalization is intended to put all counties on a level playing field, regardless of their size or relative wealth. The equalization process is based on each county’s ability to pay for education, or fiscal capacity. Counties with less ability to fund education – a lower fiscal capacity – receive more state funding and have a lower local match than counties with more capacity to raise revenue.

Overall, the state pays a set percentage of each category: 70 percent of both Instructional categories, 75 percent of the Classroom category, and 50 percent of the Non-Classroom category. The actual match rates may vary widely from county to county, however. For example, a county with a high fiscal capacity may receive a 55 percent, rather than 70 percent, state share in the Instructional categories, with a 45 percent local match. Conversely, a county with a low fiscal capacity may receive 90 percent state funding and have a 10 percent local match.

Funding Percentages

Two models provide fiscal capacity data:

  • 1. The Tennessee Advisory Commission on Intergovernmental Relations (TACIR) model considers four different factors, including property and sales tax base as a measure of local revenue and per capita personal income. The TACIR model tends to work in favor of smaller counties with less local revenue.
  • 2. The Boyd Center for Business and Economic Research (CBER) at the University of Tennessee model uses two factors: property tax base and sales tax base. The CBER model tends to work to the advantage of districts with larger fiscal capacities; under the CBER model, the state often pays more state funding for larger districts and less for smaller districts than under the TACIR model.

As set in law in 2016, the final fiscal capacity index equally weights data between the two models. The calculation is done at the county level, so that all districts within a county have the same fiscal capacity.

For more information regarding each index and its calculation, see the explanations in the interactive text of the BEP Calculator.

Related Resource

Fiscal Capacity Infographic
Author: Paige Donaldson

Counties with high private sector wages receive additional money for salaries

Somewhat analogous to a cost of living adjustment, Cost Differential Factor (CDF) is, in a sense, a “cost of doing business” adjustment. CDF was developed based on the idea that school districts in counties with generally higher wages may need to offer higher salaries to attract and retain teachers. As a result, counties with relatively higher than average wages in the private sector receive a CDF adjustment, or additional BEP funding for salaries and retirement contributions.

Over the past decade, CDF has been gradually phased out. It was reduced to 50 percent of its full calculated value in 2007, and 25 percent in fiscal year 2016-17. The appropriations act further reduced CDF funding to 20 percent of its calculated value in fiscal years 2017-18 and 2018-19.

In fiscal year 2018-19, six counties received CDF: Anderson, Davidson, Knox, Roane, Shelby, and Williamson.

At over $4.7 billion dollars and more than a quarter of all state dollars in the budget, the Comptroller’s Office has repeatedly called for independent verification of the BEP formula. The office has also advocated for increased transparency and greater public understanding of the formula.

The Comptroller’s Office of Research and Education Accountability (OREA) has addressed this need on all three fronts by recalculating and verifying the BEP formula, explaining the computation of all 46 components in detail, and making the calculation publicly available for all Tennesseans. The resulting BEP Calculator, available for download below, uses input data for student enrollment, unit costs, and other factors to reconstruct the entire BEP calculation from scratch. The Calculator provides a step-by-step look at the entire BEP calculation for any combination of districts and counties, and gives users the ability to run various "what if?" scenarios. Users can adjust unit costs and funding ratios, such as teacher salaries and insurance premiums, to see the impact of different inputs on state and local BEP money.

Requires Microsoft Office 2013 or later. Users with Office 2010: Click here to download a version compatible with your software.

Download User Guide

If you receive this error message when trying to run the Calculator, please use the Office 2010 version, available for download underneath the red button.

Calculating the BEP independently from the Tennessee Department of Education (TDOE) over the past three years has allowed OREA to identify several issues with the formula.

resource icon Fiscal year 2018-19
In fiscal year 2018-19, the dollar value of OREA’s changes was negligible: $242,000 in underallocations to 55 districts and $131,000 in overallocations to 26 districts amounted to a net state underallocation of $111,000. Of the $4.7+ billion statewide total in fiscal year 2018-19, this discrepancy represented a 0.0024 percent difference in the total BEP allocation. No district’s state funding changed by more than 0.15 percent, and 61 districts had no change in funding.

OREA brought four revision points to the attention of TDOE in late July 2018; in response, TDOE indicated that it will incorporate the revisions into its mid-year update when insurance premiums increase in January 2019.

OREA’s revision points:

  • Corrected the coding of one elementary school and two schools with all grades that were previously classified as high schools, affecting the net number of school based positions generated for librarians;
  • Removed duplicated student counts in the career and technical transportation component for three special school districts in Carroll County;
  • Reran the transportation regression to include updated transportation counts from two districts; and
  • Updated the unit cost for special education instructional materials that had been accidentally transposed.

FY 19 BEP Calculator FY 19 BEP summary FY 19 BEP analysis spreadsheet
Original FY 19 BEP memo  
Original – Office 2010    

resource icon Fiscal year 2017-18
In fiscal year 2017-18, OREA found that funding had been misallocated for 141 of the state’s 142 school districts: overallocations to districts totaled $6.81 million and underallocations $9.74 million, for a net state underallocation of $2.94 million. Of the $4.5+ billion statewide total in fiscal year 2017-18, this discrepancy represented a 0.06 percent difference in the total BEP allocation. No individual district experienced more than a 1.97 percent gain or loss in its final state share.

OREA brought its revision points to the attention of TDOE in late August 2017. TDOE will make adjustments for the 122 districts with underallocations, and states that it has implemented review and verification procedures to ensure that all revision points are addressed.

OREA’s revision points:

  • Inputted the updated CBER fiscal capacity index into the BEP calculation to reflect the most recent data available to determine state and local shares;
  • Corrected the coding of six elementary and special schools that were previously classified as high schools, affecting the number of school based positions generated for librarians, library assistants, and principals (similar issue previously noted);
  • Revised the enrollment count used to estimate 12th grade students taking career and technical college readiness exams to more accurately reflect the number of students taking the tests (repeat revision point);
  • Updated the number of miles transported for the career and technical transportation component for one school in Carter County;
  • Made technical corrections in the transportation component for the districts in Shelby County and reran the regression with updated inputs;
  • Corrected the Department of Children’s Services’ allocation for K-6 counselors (repeat revision point); and
  • Updated the per-pupil amount used in the Department of Children’s Services’ minimum funding adjustment.

FY 18 BEP Calculator FY 18 BEP verification full report FY 18 BEP analysis spreadsheet
Original FY 18 BEP summary  
Original – Office 2010    
Updated insurance    
Updated insurance – Office 2010    

resource icon Fiscal year 2016-17
In fiscal year 2016-17, the dollar value of OREA’s changes was negligible: in total, districts lost $835,000 in state funding and gained an additional $1,197,000 for a net statewide increase of $362,000 in state dollars. Of the $4.3+ billion statewide total in fiscal year 2016-17, this discrepancy represented a 0.00825 percent difference between TDOE’s calculation and OREA’s changes. No individual district experienced more than a 0.22 percent loss or gain in its final state share, and 37 districts saw no change in funding. OREA brought nine points of revision to the attention of TDOE in late September 2016; in response, TDOE stated that it intended to apply those changes to its calculation in the upcoming fiscal year 2017-18.

OREA’s revision points:

  • Corrected the coding of five high schools previously classified as elementary schools, affecting the number of school based positions generated for K-8 librarians, 9-12 librarians, 9-12 assistant principals, and K-8 library assistants;
  • Eliminated rounding of overflow positions for 9-12 librarians, 9-12 assistant principals, and school secretaries to comply with Public Chapter 1020 (2016), which eliminated rounding for all positions;
  • Corrected the Department of Children’s Services’ allocations for K-6 counselors, psychologists, and social workers;
  • Revised the ADM used to estimate 12th grade students taking career and technical college readiness exams to more accurately project the number of students taking exams;
  • Updated the total miles transported for the career and technical transportation component;
  • Updated the insurance rate for transportation and maintenance and operations personnel;
  • Created a “blended” state and local share rate for the Instructional Salary and Instructional Benefits category using all data from both categories, rather than salary data only;
  • Updated existing state and local share percentages for the Classroom and Non-Classroom categories to reflect changes in allocations above; and
  • Updated the mandatory increase calculation to reflect both the new Instructional state/local split and changes in allocations above.

FY 17 BEP Calculator 17 BEP verification full report FY 17 BEP analysis spreadsheet
Original    
Original – Office 2010    
Updated insurance    
Updated insurance – Office 2010    

resource icon BEP Calculator presentation to legislative committees
February 7, 2017
PowerPoint presentation

BEP formula base $4,595,082,600
Enrollment growth and unit cost inflation 48,820,000
Instructional salary unit cost increase 55,124,000
New Response to Intervention (RTI) component 13,334,000
Teacher retirement increase 22,214,000
January insurance premium rate increase 10,464,000
Total BEP formula funding $4,745,038,600

In addition to money used to fund the formula, growth funding and teacher salary equity funds are included in the BEP appropriation. An additional $1.84 million is earmarked for Sevier County to offset diverted sales tax revenue from a Tourism Development Zone located within the county.

BEP formula funding $4,745,038,600
Growth funding 37,000,000
Teacher salary equity funds 14,500,000
Sevier County supplement 1,840,000
Total BEP appropriation $4,798,378,600

Any unspent BEP funds revert to the general fund at the end of the fiscal year. In fiscal year 2016-17, approximately $30.1 million reverted.