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Basic Education Program

The Basic Education Program (BEP)

Carolynn Polanchek, Associate Legislative Research Analyst  -  (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 $4.8 billion dollars, 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 $4.8 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 2019-20, 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., $48,330 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.

BEP components

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.

Author: Paige Donaldson

Author: Linda Wesson

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.

BEP state shares by component

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.

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, and 16 percent in fiscal year 2019-20.

In fiscal year 2019-20, six counties received CDF: Anderson, Davidson, Knox, Roane, Shelby, and Williamson.

BEP Calculator

Comptroller quote

At over $4.8 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. 

Download User Guide

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

FY 20 BEP quick facts
BEP formula base $4,745,038,600
Enrollment growth and unit cost inflation 39,433,000
Instructional salary unit cost increase 71,250,000
Total BEP formula funding $4,855,721,600

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 $4,855,721,600
Growth funding 23,000,000
Teacher salary equity funds 14,500,000
Sevier County supplement 1,840,000
Total BEP appropriation $4,895,061,600

Any unspent BEP funds revert to the general fund at the end of the fiscal year. In fiscal year 2018-19, approximately $39.9 million reverted. 

FY 20 BEP quick facts