Saturday, February 28, 2015

Sacking the School Finance Formula

By Duane Goossen

When Gov. Brownback spoke to Kansans in his state-of-the-state address last month, he called for a school finance formula that “should reflect real-world costs and put dollars in classrooms with real students, not in bureaucracy and buildings and artificial gimmicks.”  Then the next morning he did the exact opposite.  He released his budget, proposing a $127 million cut right at the heart of public education—from classrooms.

Not only that.  The governor wants to sack the state’s school finance formula in favor of a “block grant” to schools, which would make that $127 million cut permanent and shut off any future funding increases for schools from the state.

Why would he propose this?  How does this help Kansas?  Well, it doesn’t help Kansas schools or Kansas students, but it does help staunch a budget crisis created by a dramatic loss of income tax revenue.   School finance is the largest item in the state budget, putting school funds directly in the firing line when state finances deteriorate.

The governor says the school finance formula is too complicated, even suggesting that it was deliberately designed that way in order to confuse Kansans.

It’s not.  Rather the formula helps make sense of a complex situation, and provides funding in a fair and consistent way.  Kansas has 460,000 students with a wide range of abilities and varying needs.  Those students receive education in 286 school districts that range from tiny, to quite large, from rich in property resources, to poor.  Such a situation requires a reasoned, rational method for distributing funds which recognizes that one size does not fit all.

At root, the current formula provides a set amount per student.  That’s a fair foundation.  Growth in student numbers brings more funding, a decline, less.  But not all students are the same, so the formula adjusts funding upward for students who are “at risk” and need extra attention, for students who need bilingual education, and for students who are in vocational programs.  Large geographic districts logically receive more money per student for transportation.  The formula also helps equalize how much each Kansas citizen pays for education through property taxes.

Any formula may need to be adjusted from time to time to make it better, but dumping the entire Kansas school finance formula, as the governor proposes, will immediately lead to funding inequality, unfairness, and less money from the state.

If the governor and state lawmakers throw up their hands and claim they can’t comprehend the formula, they are abdicating their responsibility.  Giving school districts less money through a fixed block grant simply passes the buck to every local school district.  The governor is saying, in effect:  “If more students show up, tough luck.”

Aside from state funding, school districts only have one other significant source of revenue — property tax receipts.   A cut in state funds that will be frozen in place by a block grant forces districts into impossibly difficult choices.  To make up for disappearing state funding, school districts will have to reduce classroom spending or raise property taxes. 

School districts get this choice because the governor’s fiscal experiment is failing.  State tax revenue has fallen far below normal, reasonable expenses.   Instead of fixing the real problem, school kids and property taxes are asked to pay the price.

— This piece was first published in multiple Kansas newspapers last weekend.

Friday, February 27, 2015

The Governor’s School Finance Cuts

By Duane Goossen

The governor’s budget recommends significant school finance cuts for FY 2016 that would directly reduce money going to Kansas classrooms. The recent cuts that the governor imposed on the approved FY 2015 budget sets into motion some of those reductions right now.

The chart below outlines the governor’s budget proposals released in mid-January.

In the chart, note: The school funding proposal converts classroom support — general state aid and supplemental state aid — to a block grant that would be $127 million lower in FY 2016 than in the current year. However, soon after releasing his budget proposal, the governor used his “allotment” authority to unilaterally cut general state aid by $28 million in the already approved FY 2015 budget. That reduced general state aid from the $2.609 billion shown in his budget and in the chart above, to $2.581 billion. The $28 million FY 2015 cut became a head start on the reductions proposed for FY 2016.

Also note: The $90 million increase for retirement system funding (KPERS). The state covers the employer share of retirement contributions for all education personnel and has committed to increase that amount by about $45 million each year, until KPERS is in a more sound financial position. Last December, the governor broke that commitment by using his allotment authority to cut out the FY 2015 increase, but he then proposed a $90 million increase in FY 2016.

Here's the chart:

Money for retirement contributions is important, but cannot be used to fund any classroom costs. School districts receive the KPERS money from the state and immediately remit it to the retirement system. When added into the grand total, the KPERS funding increase hides a portion of the cut applied to classrooms.

Remember, though, that as bad as a $127 million cut to classrooms may sound, the situation could easily get much worse. The governor’s FY 2016 budget is predicated on his proposal for the state to raise $433 million in additional revenue from new cigarette and alcohol taxes, a large transfer from the highway fund, and elimination of income tax deductions. In this legislative session, approval for new revenue is hardly a sure thing, but without it, the cuts will be deeper.

Make no mistake, the governor has proposed to cut the state’s investment in education as a way to balance the state budget, not because it helps schools. None of these classroom cuts would be necessary if state income tax revenue had not dramatically plummeted.

Kansas needs a stable, ongoing source of revenue that matches normal, reasonable expenses. We are far from that now.

— This blog was first posted on on Feb. 18.

Monday, February 9, 2015

Revenue Continues Perilous Downward Path

By Duane Goossen

Seven months into fiscal year 2015, general fund receipts remain below last year’s level. That leaves a very grim outlook for the Kansas budget.

A quick review: In FY 2014 revenue dropped precipitously — $688 million down in one year. Now with FY 2015 more than half over, revenue is $65 million under the anemic pace of FY 2014. Yet, the official FY 2015 revenue estimate, even after post-election revisions, still forecasts growth of $116 million.

In summary:
  • FY 2013 Actual Receipts: $6.341 billion
  • FY 2014 Actual Receipts: $5.653 billion
  • FY 2015 Estimated Receipts: $5.769 billion
What happens if FY 2015 revenue does not grow? The FY 2015 budget was already $279 million in the hole using the assumption that revenue would reach $5.769 billion this year.

The bank account is empty. A rainy day fund does not exist. If revenue fails to increase enough to meet the projection, the hole to be filled in the remaining months of FY 2015 will be even bigger.
Several other things to consider:
  • The Kansas severance tax on oil is tied to price. With the price of oil quite low, severance tax receipts will be less than expected, but severance tax collections lag behind oil price changes, so the shortage will hit in the remaining months of FY 2015.
  • Sales tax receipts have grown only a weak 2.1 percent in the first 7 months of FY 2015. In a normal economic time, that growth should be 3 to 4 percent, and if tax policy had produced a shot of adrenaline for the economy, the growth should be much higher than that.
  • If the current FY 2015 revenue estimate ends up being too high, that means the FY 2016 and FY 2017 revenue estimates are also too high because they are based on FY 2015.
February and March receipt totals are unlikely to tell us much. If the pace of income tax refunds is slow, as it was last year, receipts will appear higher than they really are. The key months to watch are April and May. School districts and state agencies should be very cautious. Revenue remains uncertain, and more cuts may need to be applied late in the fiscal year.

The January revenue report is further evidence that Kansas finances are far out of balance. Kansas does not have a stable revenue stream nearly large enough to cover regular, normal expenses.

Note: This blog entry was first posted here on Feb. 5.

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