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Wednesday, October 5, 2011

Lottery Winners and Losers - The Perfect Storm

Who hasn't dreamed of becoming rich? I'm sure that most of us have spent time imagining what we'd do if we ever became rich? College savings for the kids (or paying off their college loans), a new house, new cars, new wardrobe, vacations, travel,...

It happens - like the phrase made famous by the New York State lottery advertisements - "You never know!" That's true. You never know. There are a lot of things you never know. Take, for instance, the impact that a small fortune of lottery winnings might have on your local school district in New York. It produces the "perfect storm" in Green Island - a very small school district with a resident winning a very large amount of lottery money.

Let me explain that the revenue generated by lottery sales does benefit public school education - however, the state subsequently reduced state aid to school districts at nearly the same amount as they provided in lottery funds, so it basically became a wash financially.

Now, let me explain in simplistic terms some of the major factors used by the state to determine the amount of financial aid to distribute to individual school districts across New York. This formula uses the aggregate income of a school district (extracted from data reported when you file your state income taxes and list the school district identifying code) and the wealth of the same district (as measured in aggregate property value) to arrive at a CWR rating for the school district. There are other nuances that enter into the equation (weighted student values based on needs) but these two elements are the primary leverage points. The state computes the CWR: Combined Wealth Ratio of each school district. The average for the state is 1.0. Green Island's most recent CWR is .62, which indicates we are below average in wealth. Some school districts downstate in Westchester County and parts of Long Island have CWR's above 5.0 (five times higher than the average!!) The actual computation performed by the state is very complex (see italicized paragraph below for the definition right out of the glossary of the New York State Education Department)

The Combined Wealth Ratio (CWR) compares district wealth to the State average wealth, which is defined as 1.0. A district with a CWR of less than 1.0 has wealth below the State average. Conversely, a district with a CWR of more than 1.0 has wealth above the State average. The CWR is calculated as follows: (0.5 multiplied by the Pupil Wealth Ratio) + (0.5 multiplied by the Alternate Pupil Wealth Ratio). The Pupil Wealth Ratio is equal to Selected Full Value of property divided by a weighted pupil count. The Selected Full Value of property is the lesser of (1) 1994 full value of property or (2) 117 percent of the average of the 1993 and 1994 full values. The Alternate Pupil Wealth Ratio is equal to the 1994 Adjusted Gross Income of a district divided by a weighted pupil count. The weighted pupil count is based on the adjusted average daily attendance of K-12 pupils resident in the district plus weightings for pupils with special educational needs, pupils with disabilities, and secondary school pupils; half-day kindergarten pupils are weighted at 0.5.

Had enough? Does that paragraph read like a test question on the Scholastic Aptitude Test?

I'm not presenting this information to bore you (now you have a sliver of insight into the exciting world of school superintendents). I hope that you have read this far and not moved on because this Blog entry has a potentially significant point for the taxpayers of Green Island. Check the tremendous news expressed in an excerpt of a news article announcing the winners of the Mega Millions Jackpot last March.

Seven state employee Mega Million winners of $319 million jackpot to be announced
Lottery officials will unveil on Thursday the seven state workers who won the Mega Millions jackpot worth $319 million.
They work for the New York State Homes and Community Renewal information services division, a source told the Daily News. They haven't reported for work since winning Friday night, but they haven't resigned either, another source said.

One of those winners is a resident of Green Island. I'm happy for the lucky person.

That means his income for the year (the winners all decided to accept a lump sum payment rather than having the prize money spread out over the years in the form of annuities) was astronomical by standards of you and I. The last data I reviewed regarding the aggregate income for residents of the small village of Green Island, New York revealed a total of approximately 42,000,000 dollars. The pay-out for the lottery winner from Green Island represents a significant percentage of that total before taxes were taken out from his winnings. That means that his winnings will eventually, when the state computes a later edition of the CWR formula, greatly distort the wealth of the village. That is, when lumped in with the incomes of everyone else, his winnings will raise the average income for Green Island many times over even though the incomes for all other residents have not likely grown beyond inflation. We currently have 43% of our learners eligible by federal standards to receive free or reduced lunches and we expect that even after the lottery winnings we will have the same 43% qualify free/reduced lunch. The winner's fortune does not change the demographics of our village. In other words, the vast increase in wealth of the district for one year will likely place our CWR far above the current .62 level. This will place our community on the levels of affluent suburbs (where less than 10% of children are eligible for free and reduced lunch). We are worlds apart from these schools but will be considered, for one year at least, their equal financially. That comparison does not begin to address the differences between our district and affluent districts but it could alter our state aid, thereby reducing our funding from the state and adding even more pressure on the community to generate the revenue necessary to adequately support the school system.

Families in wealthy districts are more likely to afford the support (tutors, materials and technology, enrichment programs out of school, educationally related travel [museums, historical venues, new experiences with customs and cultures,...] and other means of assisting the overall education of a child than families in districts with below average Combined Wealth Ratio indicators under 1.0, like Green Island.

I have contacted our local representatives in the Senate and the Assembly, as well as raising the concern with members of the finance department with the New York State Education Department. The impact will probably not be felt in the immediate future due to lag time in calculating state aid formulas. Also, the fact that state aid to education has been frozen may mitigate the impact to a degree. 

You never know...

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