insights (2006-44)

State School-Funding Regression

The committee of the state Board of Education mandated to make recommendations for rectifying inequities in the state’s public-school funding formula has failed to do so.

Indeed, instead of making progress toward such a recommendation by a statutory deadline of Nov. 1, the committee has regressed by backing away from a recommendation it made a year ago that would have benefited Knox County schools and many other county school systems.

These benefits would be derived from making changes in the funding formula, known as the BEP, to take into account the fiscal capacities of all 136 school systems in the state, not just its 95 counties as is presently the case. The other, mostly municipal systems are widely believed to have the capacity to raise more money locally than their respective counties and should therefore be entitled to less state funding under the BEP, which is supposed to equalize all school systems.

A year ago, the BEP Review Committee of the SBE recommended, “the implementation of a system-level fiscal capacity index (including consideration of the TACIR prototype or other alternatives).” The prototype, developed by the Tennessee Advisory Commission on Intergovernmental Relation, would have reallocated $77million in state funding mostly from municipal systems to mostly county systems. Knox County and Hamilton County, which are just about tied for last in state funding per student, would have gained about $3.5 million and $11.2 million respectively.

Cities such as Oak Ridge, Maryville and Alcoa predictably fought the TACIR model on grounds that they shouldn’t be penalized for electing to put municipal revenues into their school systems atop allocations of county school funds that must that must be made to them in proportion to their enrollments.

In the absence of any alternatives, modifications of the BEP fiscal capacity index got lost in the shuffle in this year’s session of the state Legislature. But at the end of the session, the Legislature unanimously adopted a resolution directing the BEP Review Committee to “develop a consensus recommendation on a system-level fiscal capacity model… and include such recommendation in its November 2006 report.”

Over the summer, the executive director of the SBE, Gary Nixon, belatedly retained two Peabody College professors to develop an alternative to the TACIR model. Space constraints and glazed-eye effects dictate against trying to describe the complex methodology they devised. Suffice to say that the end result was a formula that would have benefited most municipal school systems while reducing state funding to many poorer county systems, including Claiborne, Grainger, Hancock, Jefferson, Morgan, and Union in the Knoxville area (though Knox County would have gained $17.3 million, and Hamilton County $12.5 million).

At the BEP Review Committee’s Oct. 23 meeting, highly respected state Comptroller John Morgan dismissed the Peabody model as one that “reduces funding to counties that are among the poorest in the state while advantaging systems that are already relatively better off.” In a meeting room laden with envoys from municipal school systems, the TACIR model got short shrift as well. And over the objections of Sen. Jamie Woodson and a few other members, the committee voted to defer making any recommendation on a more equitable funding formula.

The rationale for that vote, provided by the SBE’s chairman, Fielding Rolston, was that the committee needed to address the adequacy of state school funding before deciding how to distribute it more equitably. And Morgan weighed in with the observation that, “We haven’t collectively reached a vision of what we expect our education system to achieve, and until we have a sense of that it’s very difficult to talk about what it’s going to take to do it.”

For going on a year, Morgan has been championing an approach that would add about $2 billion to the present BEP total of about $5 billion, of which the state covers about two-thirds and localities the rest (with their respective shares varying widely based on their fiscal capacity). Under Morgan’s approach, the state would assume total responsibility for raising BEP funding from $5,100 per student presently to a level much closer to the southeastern average of $8,319 per student. This would be accomplished by imposing a state property tax and preemption by the state of half of the maximum allowable 2.75 percent local-option sales-tax rate. Localities would be relieved of assessing property taxes for schools and dedicating half of their local-option sales taxes to schools as is presently required. But those with sales-tax rates lower than the maximum would suffer reductions in their sales-tax revenues.

Morgan is due to present his plan to the next meeting of the BEP Review Committee on Nov. 21. And the committee has set Feb. 15 as a target date for making recommendations on both school-funding adequacy and equitability issues. But this sounds like the quest for the Holy Grail to me, and I’ll be surprised if the committee comes up with much of anything.

While Morgan’s approach would deal with equitability by largely equalizing base state funding of all school systems, his tax proposals for doing so and addressing adequacy are political non-starters. So are just about other revenue raising measures that might provide a rising tide that would lift all boats and thus avoid the winners and losers syndrome that has thwarted efforts to reallocate existing state funding.

Where the Legislature’s mandate to the committee to develop a consensus recommendation is concerned, one of its members—Kingsport School Superintendent Richard Kitzmilller—observed after the Oct. 23 meeting that, “the Legislature might as well have said, ‘jump up in the air and stay there.’”