Tony Evers’ School Funding Proposal Nudges the State Formula Toward Rationality

I blogged in June about State Superintendent Tony Evers’ proposal for changing the state’s school funding formula.  At the time, the only component of the plan that was known was a recommended transfer of funds from the school levy tax credit to the general aid formula.  I wrote that this would hurt Madison, as we do better under the formula for the tax credit than we do under the formula for state aid.

Evers has now announced his complete plan.    There is much in it to like.  Among other provisions, it recommends two changes to the state’s general aid formula for schools that would be big improvements. 

The first would incorporate a notion of a school district’s needs into the formula by adjusting a district’s student count on the basis of its number of economically disadvantaged students.  The second change would provide a partial remedy to the perverse way in which the state formula punishes half the school districts in the state for spending more on the education of the students in their districts.

I hope to write more about the first proposed change, but here I’ll just focus on the second. 

The formula the state uses to apportion state aid among school districts is complicated.  It is designed to further two goals simultaneously.

The first goal is property tax equalization. This has been a part of the state’s formula since 1949.  The idea is to provide relatively more state aid to districts with relatively lower property values, so that property tax payers in each district end up paying roughly the same to support a similar level of school spending. 

For example, assume one district has twice as much property value per student as a second district – say the first district has $1,000,000 in property value per student and the second has $500,000 per student in property value.  If each district has the same number of students and spends $10,000 per student each year, that would work out to $1,000 in property taxes per $100,000 in property value in District 1, but $2,000 in taxes per $100,000 in property value in District 2.  The owner of a $100,000 house would pay $1,000 in property taxes for schools in the first district, but $2,000 in the second district. 

Assume the state has an amount of state education aid to distribute that works out, on average, to $5,500 per student in each district.  The equalization formula would call for District 1 to receive aid in an amount of $4,000 per student and District 2 to receive $7,000 per student.  That would leave the local tax payers to pick up the remaining $6,000 per student in District 1 and $3,000 per student in District 2.  This means the owner of a $100,000 home in each district would pay $600 in property taxes for schools.  (District 1:  $6,000 per student spread over $1,000,000 in property value per student; District 2: $3,000 per student spread over $500,000 in property value per student.)

The equalization component of the state’s school funding formula makes sense.  The Evers proposal does not tinker with it.

The second goal of the state’s school funding formula is far more problematical.  It effectively divides the state’s school districts into two groups – those that have per-student property values below the state average and those that are above the state average.

Those districts with below-average property values receive more in state aid the more they spend per pupil.  On a percentage basis, the amount of state aid they receive goes down the more they spend, but the total amount always increases.

The situation is different for districts with above-average property values per student.  These districts lose state aid to the extent that they spend on a per-student basis more than 90% of the state average per-student spending.

The Madison school district really suffers as a result of this feature of the law.  For the 2010-2011 school year, Madison’s per-student property value of $915,968 is well above the state average of $581,087.  For purposes of the formula, Madison spends $10,699 per student, which is only $368 more than the state average per-student spending of $10,331.  (You can find these figures here.)

However, the combination of these two factors – higher property value than the state average and slightly higher per student spending than the state average – results in Madison losing about $20,500,000 in state aid.  Without this feature of the state funding formula – which is known as negative tertiary aid – Madison would have received about $68,800,000 in state aid.  As it is, we receive about $48,300,000.

In large part due to negative tertiary aid, Madison, which has 2.83% of the state’s students (and 3.54% of the state’s economically disadvantaged students), receives only 1.06% of the general school aid the state distributes. 

I am unaware of any legitimate justification for this punishing component of the state funding formula.  I understand it was incorporated into the law in the 90’s, along with the state spending caps and QEO, as part of the effort to bring the rapid rise in property tax levies under control.  I think it is safe to say that it has served its purpose.

There is no logical nexus between a school district’s property value level and spending level.  No reason is apparent why the formula should encourage spending above 90% of the state average for property-poor districts, but punish the same spending by property-rich districts.  

More fundamentally, it seems perverse for a state that prides itself on education to penalize a school district so directly and aggressively for choosing to spend more to provide a better education for its students.   I know in Madison we would like to be able to invest more in order to upgrade the technology in our schools so that we can take better advantage of virtual classes and other innovative technology-based approaches to education.  We’d like to expand our AVID programs in the high schools and into the middle schools to enhance academic performance and eventual success in college for capable students from typically underperforming groups. We’d like to be able to provide more and better alternative programs for students who are not succeeding in our traditional schools.  We’d like to spend more on maintenance of our aging facilities.

If a school district, with the support of its community, chooses to spend more in these and other ways that are targeted to improving student achievement, enhancing graduation rates, and prudently managing our resources, what basis in the world is there for the state to punish that decision by reducing the district’s state aid? 

This policy should be even more objectionable to state legislators with a philosophical commitment to local control.  It imposes a remarkably heavy hand of state interference on decisions locally-elected school board members confront when balancing the needs of students and taxpayers.    

I would like to see the entire negative tertiary aid feature wiped clean from the state school funding law.  Tony Evers’ proposal doesn’t go that far.  Instead, it increases the spending ceiling before negative tertiary aid kicks in from 90% of the state average shared cost per student to 100% of the state average. 

This is a step in the right direction.  It is poor policy to punish high-property value school districts that exceed the state’s per-student spending average, but it is doubly perverse to punish such districts if their spending falls somewhere between the state average and 10 percent below it.   

It is a challenge to figure out how Madison would have fared on state aid this year if this sensible adjustment had already been made to the state funding formula.  One of the key variables in the formula is adjusted annually so that the formula works to distribute the amount of state aid that is available that year.  This means you can’t change any part of the formula without changing other parts.  Ignoring this complication, changing the negative tertiary aid trigger point from 90% of state average per-student spending to 100% looks like it would have resulted in about $22 million more in state aid for Madison this year.

So, hat’s off to Tony Evers for putting together a comprehensive and sensible proposal for reforming the state’s school funding formula.  Its ultimate fate seems uncertain at best in these times of change in the state legislature.  But it would be a worthy accomplishment if the proposal were enough to trigger serious discussion of the state funding formula.  It would be even better if the plan’s specifics could prompt a peeling-back of the formula’s mysteries so that the perversities it contains – like the negative tertiary aid component – could be exposed for all to see and for its supporters to attempt to defend.

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