Knox Co. Schools Left with $3 Million Shortfall

In the midst of painful budget cuts for nearly everything else, Gov. Phil Bredesen remains committed to full funding of the state’s Basic Education Program for public schools. The formula-driven BEP is furnishing $3.6 billion to local school systems in the current fiscal year and calls for an $82 million increase in the fiscal year ahead to reflect enrollment growth and inflationary factors.

While state law doesn’t require this full funding, it does impose what’s known as a maintenance of effort requirement on localities that prohibits a reduction in their funding of their school systems from one year to the next. The statutory language governing this requirement is anything but a model of clarity. However, both the state attorney general and a chancery court in Shelby County have ruled it means that local governments responsible for school funding continue to provide “an amount at least equal to the funding level provided in the previous year.”

In Knox County, however, it seems clear that this requirement isn’t being met. In the fiscal year ended June 30, the county’s contribution to Knox County Schools’ operating budget dropped to $209.1 million from $212.2 million the preceding year. And unless there’s a dramatic improvement in sales-tax revenues in the next few months, the county’s contribution is destined to decline further in the current fiscal year.

The declines are due, of course, to a drop in sales-tax collections precipitated by a sagging economy over the past two years. Revenues derived from the 1.375 cents of local option sales tax collected in both the City of Knoxville and the rest of Knox County that have long been dedicated to Knox County Schools operations fell from $106.3 million in fiscal year 2008 to slightly less than $100 million in fiscal year 2009. And for the first four months of the current fiscal year, they are showing a further 8 percent year-to-year decline.

Continuing gains in property tax revenues from the $1.08 of the county’s property tax rate that’s dedicated to schools have partially offset the drop in sales-tax revenues. And County Finance Director John Troyer is optimistic that the decline in the latter will be abated for the balance for the current fiscal year if only because the year-to-year comparisons will be going up against the worst months of a recession that now appears to have run its course.

Still, the fact remains that local funding of Knox County Schools has not been maintained. So the question becomes what should be done about it.

The State Department of Education is responsible for enforcing the local maintenance of effort requirement, and its director of local finance, Wesley Robertson, interprets the requirement differently than the attorney general or the chancery court.

“We view it as a budget to budget number, and if their collections don’t come in, we don’t hold them accountable for that as long as they budgeted sufficient amounts,” Robertson says. He reckons that as many as half of Tennessee’s 95 counties may have suffered a shortfall akin to Knox County’s this past year, but he says all of them passed the budgetary test.

In any event, the state’s only enforcement recourse would be to withhold state BEP funds from a locality that fails to comply, and that would be like cutting off a nose to spite a face.

Two years ago, the state Legislature, by resolution, asked the State Board of Education to recommend a definition of maintenance of effort that would eliminate ambiguity. The board’s BEP Review Committee did so with a recommended statutory provision that no school system shall “receive less funds from a local legislative body than it received the previous fiscal year.” The committee went further by way of a recommendation that this funding be “adjusted for inflation based on the local government price deflator, which is an index used to adjust the Basic Education Program.”

The Tennessee School Board Association supports the clarification. But its director of government relations, Lee Harrell, acknowledges that the proposed inflationary adjustment was ill-timed. “With local governments struggling, legislators are reluctant to put any new burden on them,” Harrell says. Indeed, no legislator has even introduced a bill to do so.

Nor is Knox County’s sage School Superintendent Jim McIntyre disposed to make an issue of the $3 million or more he’s probably been shortchanged. He prefers to view the present statutory definitions as ambiguous and avoid making the mistake his predecessor Charles Lindsey did in getting crosswise with the county mayor and County Commission over funding.

Yet for all his boasts about how much he’s done for schools, Mayor Mike Ragsdale has failed to match Gov. Phil Bredesen’s commitment to sustain school funding in bad times as well as good. Ragsdale could have drawn upon county reserve funds to cover the $3 million just as he has done so this year to pay for everything from bonuses for county employees (when school teachers aren’t getting any) to road improvements. Instead, the school system is being left to cover this past year’s shortfall from its own reserve fund and to draw even more so this year upon shrinking reserves to support this year’s budget.

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