What do school districts mean when they say they’ll be worse off under new funding system?

Several school districts have expressed concern about the state’s new method of funding public schools (as enacted in EHB 2242; here’s our report on the bill). As Melissa Santos reports in the News Tribune,

District officials in Tacoma, Olympia and Seattle say they’ll face budget deficits under the state’s new school funding plan, with some saying they’ll be worse off than if lawmakers had done nothing.

How does this jibe with the state’s numbers that show that most districts (including these three) will get more net funding under the new system? It seems to me that there are a few possible explanations:

  1. Net new funding doesn’t actually cover what the state has defined as basic education.
  2. Net new funding doesn’t cover all enhancements to basic education that local districts previously funded.
  3. The state and districts are comparing the new funding to different things.

It’s certainly possible that the first could be a factor, but I suspect that a combination of the second and third explain much of the difference between estimates.

The key question is: What is “current law” (that is, the law in effect before EHB 2242)? In 2017 and 2018, districts can levy up to 28 percent of their revenues. (Many districts have grandfathered higher maximums. Seattle, for example, can levy up to 36.97 percent.) In 2019, pursuant to ESB 5023 (enacted earlier in 2017), the maximum levy percentage (the levy lid) was scheduled to drop to 24 percent (the “levy cliff”).

Thus, the state’s estimates of the net funding impact from EHB 2242 are compared to a world where districts can levy up to 24 percent. This is appropriate. Staff budget analysts must use current law as the basis for comparison in any fiscal impact analysis. Even if it is probable that a future Legislature would again extend the levy cliff so that districts would be able to continue to levy 28 percent, staff cannot make that assumption.

It seems like the districts are, though. They appear to be comparing their funding under EHB 2242 to what they wish and hope they would have in the absence of EHB 2242.

The Olympia School District writes,

The state incorrectly identifies that in 2019-20 the Olympia School District levy will be about $4.7 million lower than it is now. By starting the analysis with a lower levy amount to represent “current law” funding, the net new funding amount is inflated. (In fact, Olympia School District voters approved an increase in the levy for future years.) By substituting the current levy amount in this analysis (not the increase that voters have approved), the true change in future funding is $4.5 million net new resources, not $9.2 million.

That voters have already approved a levy increase is irrelevant. In 2016, Olympia levied 26.52 percent of its revenues; its voter-approved levy was $23.5 million. (See page 43 here.) Voters in Olympia approved a four-year levy in 2016; for 2017, the district will collect $25.5 million (this is less than its maximum levy). As the district notes, “There is no statutory limit on the amount a district can ask voters to approve.” If they approve more than the levy lid, the district is not allowed to collect it. Still, Olympia seems to be saying that it is basing its analysis on an ability to levy 26.52 percent of revenues.

Similarly, the Tacoma School District writes,

Due to multiple funding formula changes, new mandates for how school districts can spend state monies and elimination of flexibility for spending local voter-approved levies, Tacoma will receive less money per student in education funding beginning in 2018.

Tacoma provides a table showing that the district’s estimate of funding under prior law does not include a levy cliff; that is, it assumes the 28 percent levy lid is extended. (Tacoma is a grandfathered district; it can levy up to 35.47 percent.) In SY 2019–20, Tacoma assumes it would have been able to levy $100.0 million. The state assumes it would have been able to levy $81.1 million.

Seattle Public Schools says, "Education revenue from the state and what the district will be permitted to raise locally will fall short of what we currently spend on education to date."

Neal Morton of the Seattle Times tweeted a revenue analysis done by Seattle; the district also assumes that it would not be subject to a levy cliff in 2019 and thereafter. Even so, it estimates it will get more net funding in SY 2018–19 and SY 2019–20 than it otherwise would have. According to the Seattle Times,

Seattle schools will get more money under the plan, district officials acknowledge: Total per-pupil funding will rise from about $12,500 in the 2016-17 school year to $14,400 in 2020-21, according to a district analysis.

But they say that’s not enough to cover basic costs, especially in special education.

What does this mean for the future of the policy? As Santos reports,

State Sen. Christine Rolfes, one of the key lawmakers who worked on the new school policy, said it was her understanding that all districts “were going to be getting significantly more money.” But after hearing districts’ concerns, she thinks the dramatic drop in local levy rates that is scheduled to start in 2019 might be causing problems for some districts.

“It may be that we need to look at the $1.50 (per $1,000) levy limit that the Legislature imposed,” said Rolfes, D-Bainbridge Island. “That was more of a political decision than a school-based policy decision, and it might be something that needs to be revisited — if there is political support to revisit it.”

State Sen. John Braun, the lead GOP budget writer, said he’s happy to talk with districts about their concerns, but he remains confident the Legislature adopted a plan that benefits the state’s 295 school districts.

“To respond thoughtfully, we need to dig in and see how they arrived at their conclusions,” said Braun, R-Centralia. “By making different assumptions, you can get broadly different results.”

It would certainly be easier to evaluate the warnings from the districts if they would start with the same assumptions as the state—assumptions that are based on what the law actually would have been.

Additionally, the limit on local levies is an important check on the system. As we wrote last year, we seem to be in a bit of a vicious cycle:

State school funding drops (due to recession or other priorities), local levies make up the difference, courts rule that the state must pay more, repeat. The McCleary case was filed because spending devolved despite the Doran decisions. Whether it will be different this time will depend on whether sufficient safeguards are put in place to prevent future increases in local levy reliance.

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