Fewer Students, Higher Taxes?

Here is a great essay that sheds light on why districts with declining enrollments (like the ECASD!) are put into an even tighter bind by the state's funding formulas for education.

Maria

Updated: 3/13/2008 7:47:01 PM

Fewer students, higher taxes?

By Douglas Kane
Why does losing students get a school district into severe financial trouble and force local property taxes to be raised? A lot of school districts in western Wisconsin are in that situation today.

The answer: there is a fundamental disconnect between the way we fund schools and the basic economics of education. We fund education on a "per pupil" basis, assuming that education is an "average cost" industry. Each student is backed by the same number of dollars.

On the spending side of the budget, however, it becomes clear very quickly that education is not an average cost industry. The fixed costs are high: a classroom, a teacher, teaching materials, a library, a gymnasium, a music room, heat, a school bus, a school bus driver. All have to be in place before the first student walks in the door.

The additional cost of putting three more students onto a bus and into a classroom of 18 are pretty low: a few more textbooks, an additional computer, another mile for the bus to travel. Likewise, three fewer students doesn't lower costs very much.

The math is simple. In a typical school district when three more students walk into a classroom, the school district gets an increase in revenue of $27,000 even though costs have barely increased. When three students leave a classroom, district revenues are cut $27,000 even though costs have barely decreased. It is not long before the district that is regularly losing students faces a crisis.

There is an additional problem for districts with declining enrollment. Not only do total district revenues drop, our school funding formula automatically shifts an increasing share of costs onto the property tax. State aid is reduced by the total $27,000 that supported the three departed students even though a large part of that $27,000 may have been local property tax dollars.

The local property-tax payers see no reduction in property taxes even though the school district lost $27,000 in revenue. Because they are still paying the same, or more, in property taxes, it is not surprising that they wonder why the school district is in financial crisis.

The local school board has only two options: raise property taxes even further just to continue paying for existing programs, or cut programs. Property taxes go up even as total revenues go down.

Our average cost funding structure makes "winners" out of school districts with increasing enrollments (usually suburban), and "losers" out of school districts with declining enrollments (usually rural and central city).

The Alma school district, on whose board I serve, illustrates the problem. Since 2000 our enrollment has declined from 406 to 301. State aid dollars have dropped 27 percent. Property taxes have gone up 55 percent. State aid has been replaced by local property taxes. Property taxes have gone up even though one-fourth of the students have disappeared and programs have been cut.

Homeowners are particularly hard hit as recent changes in property tax laws have resulted in 70 percent of all property taxes being levied on residential property (up from 50 percent not so long ago) while the share paid by business and agricultural property has gone down. Homeowners, as a group, do not have the economic capability to keep on paying an increasing share of school costs.

In the baby boomer era and succeeding years, when enrollments increased in most school districts, we could live with the disconnect between how we fund education and the underlying economics of education. Today, however, the demographics are different. Approximately 70 percent of Wisconsin school districts are losing students. The financial havoc caused by our system of funding schools is spreading. We cannot continue doing what we are doing much longer.

Any long-term fix has to match revenues with costs. The disconnect between revenues and the underlying economics of education has to be eliminated.

We need to adjust our pupil-based funding for1mula to reflect the fact that fixed costs make up a large part of school budgets, particularly in the short run. No school district can control the number of students it has to serve, just as no district can control how many of its students will come from poor families, or need education in English as a second language, or have disabilities that require additional resources.

We need to change the formula so school districts are not unfairly punished, and their property owners are not hit with large property tax increases, as student enrollment ebbs and flows, but the district's fixed costs remain largely the same.

Two interim measures could be taken that would reduce, but not solve, the problem. When enrollment drops, state aid should decrease only by the amount that the state actually contributed to support each student who left, not by the student's full cost as is now the case. For schools with declining enrollments, the revenue cap should apply to the total current revenues of the district, not revenue attached to each student.

Kane, of Alma, is a member of the Alma school board.