Evers Calls for Abolition of School Levy Credit: MMSD Property Tax Payers Stand to Lose Again

Last week, State Superintendent of Public Instruction Tony Evers unveiled a package of proposals for overhauling the state’s system for funding schools.  Good for him.  Any effort to jumpstart a serious discussion about school funding reform is a positive step.

Our local legislators tell us that serious reforms of the state funding formula are unachievable as a practical matter unless someone figures out a way to inject a lot of new state money into the system.  (The challenge isn’t figuring out how to inject it, but figuring out where the additional billions would come from.)  In the absence of new money, any changes would create losers as well as winners in a zero-sum game and the prospective losers will be able to block the changes.

It seems like the Evers proposal is looking to the school levy tax credit for his solution to the new money dilemma.   The state currently provides almost $900 million in school levy tax credits.  This amount is sent from the state to counties and municipalities and shows up as a credit on property tax bills.  The credit is intended to offset to some extent the property tax levy for schools.

Evers proposes that this tax credit be abolished and the $900 million actually go to the schools and be distributed under the general school aids formula.

In principle, there are reasons to think Evers’ proposal is a good one.  If the state is going to count the amount it spends on the school levy credit as part of its funding of state schools, better the money should actually go to the schools.

Regardless of its theoretical justification, Ever’s proposal raises a more immediate concern: What’s in it for us?  Here, the answer is unequivocal:  this component of the Evers proposal would be bad for Madison tax payers.

As we know, Madison does poorly on the state’s formula for general school aid.  On the other hand, Madison does, relatively speaking, much better on the school levy credit.

The distribution formula for the school levy credit is based on a municipality’s level of property tax levies for school purposes during the three preceding years.  One would think that this amount would be somewhat inversely related to the extent to which a school district is favored by the state aid formula – to the extent that a district receives a lot in state aid, it doesn’t have to ask its own property owners for as much through the property tax.  This relationship appears to hold for Madison, since it receives relatively more in the school levy credit from the state than it does in general state aids.

According to a Legislative Fiscal Bureau report, the school levy credit represented about 31% of the total state support that the Madison school district received in 2007-2008, including general state aids and categorical aids as well as the school levy credit.  On a state-wide basis the average school district received about 12.4% of its state support in the form of the school levy credit.  (These figures are for the 2007-2008 school year, the last year for which the data are available.  It seems quite likely that the percentage for Madison has increased since then, since Madison’s general state aids have taken a dive and more money has been pumped into the school levy credit.)

Put another way, in 2007-2008 the Madison school district received about 1.3% of the total state aid distributed to school districts in the form of general school aids.  But it received about 5.5% of the total state aid distributed in the form of the school levy credit.

The Evers proposal calls for the school levy credit to be abolished and the funds currently distributed through it to be reallocated to general school aids.  If the amount of overall state support for schools in 2007-2008 had been re-allocated in this way, Madison would have lost a staggering amount – more than $31 million.

More precisely, the school district would have received about $9.6 more in general state aid, but property owners in the district would have lost $40.9 million in property tax credits.  To stay even, property owners would have had to pony up an additional $31.3 million in property taxes.  For those accustomed to thinking in terms of the property tax impact on the owner of the mythical $250,000 house, without doing the precise calculations (which I decline to do partly as a matter of principle),  my guess is that the a $31.3 million property tax hit would work out to about $400 for that $250,000 dwelling.

Other components of the Evers proposal seem more favorable to Madison, such as including a poverty factor in the general school aids formula and putting further limits on the amount by which a school district’s state aid can be reduced from year to year.  (It is emblematic of how Madison has fared under the state’s school funding formula over the past few years that at this point we’re most interested in limiting our losses from one year to the next.)

BTW, T.J. Mertz makes a good point in his AMPS blog:   MMSD has basically ignored the beneficial impacts to us of the recent increases in the school levy credit while we bemoan how poorly we’re doing on general state aids.  A practical reason for this is, in the eyes of the property taxpayer, the district doesn’t get any credit for the increase in the school levy credit, while we take all the hits for the increase in the property tax levy attributable to the schools.

Tony Evers is to be commended for his efforts to re-kindle conversation about the state’s school funding system and the myriad ways in which it can be improved.  But before Madison folks jump on the bandwagon in support of Evers’ proposals, we ought to be aware that the centerpiece of his proposal would stick it to us once more, and we’ve had it stuck to us quite enough lately, thanks.

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2 Responses to Evers Calls for Abolition of School Levy Credit: MMSD Property Tax Payers Stand to Lose Again

  1. Carol Carstensen says:

    You are right in your analysis of the School Levy Tax Credit. However, if I read the DPI press release correctly there may be another part to Evers’ proposal – that some of the levy amount go to categorical programs, the largest of which is special education. If, say, half of the levy credit amount went to special ed that would have a very positive affect on the Madison budget situation.

  2. Carol

    My understanding, based on a close reading and lots of conversations with people around the state is (and this has not been made clear) that the categorical aid reforms mentioned in the framework will consist of eliminating some categoricals and reallocating to others.

    The real potential “good” news for Madison is in the poverty equalization factor, the cap on annual state aid cuts to any district and maybe in the very near future the guaranteed minimum state aid per student.


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