School-Funding Reform Increasingly Paired with Tax Reform

Growing pressure on states to simplify virtually incomprehensible school funding formulas, paired with state revenue shortfalls, is leading to creative budgeting and tax-reform proposals. In states as different from each other as Alabama and Vermont, school-funding proponents and some business leaders are finding themselves on the same side of these issues.

A case in point is the tax-reform proposal currently before the Maine legislature. The House Taxation Committee proposed a property-tax-relief bill that would also have the effect of raising more money for schools. The Committee's plan would require cities and towns to raise at least $10 per $1,000 of assessed taxable value for education-an increase for property-wealthy districts-in order to receive state aid. The state would pay the difference between that tax revenue and the cost of providing Maine students with an adequate education that would meet state standards. Districts would not be barred from raising money over and above the $10 rate. Members of the House say that the plan would help the districts that spend the most money on education and thus encourage more local spending on schools.

Maine business leaders support this tax plan for a number of reasons. First, a bill is pending that would define "an adequate education" according to state standards by requiring all districts to implement the Essential Programs and Services model. The Essential Programs and Services approach is the result of a six-year effort by education advocates, according to the Press-Herald. Implementing it under the Taxation Committee Plan instead of a competing Maine Municipal Association (MMA) ballot referendum is projected to save the state $64 million. The Committee's plan also offers property-tax cuts to communities that consolidate such local services as police and trash disposal into regional services, another historic business favorite. Thirdly, the Maine Chamber of Commerce seems to think that packaging the tax-reform proposal as a school-funding-reform initiative on the November ballot would make it an easier sell to voters, who may very well welcome jettisoning the current, arcane school-funding formula for one they can understand.

Similar patterns are appearing in other states, including Alabama, Vermont, and Texas. If the commission looks to other states that have recently moved towards reforming their education-funding systems, its proposals will likely include tax reform. In Vermont, the statewide gains in funding equality made since Act 60 became law in 1997 were preserved in late May by a rare bipartisan compromise. The compromise, like the Maine Taxation Committee's plan, sets minimum taxation rates for homes and businesses, with the result of raising money for schools. Vermont businesses supported the deal because their tax rates were set at $1.59 per $100 of assessed property value. That number, while higher than the $1.10 per $100 ($11 per $1,000) that owners of residential properties will pay, will remain stable and predictable, rather than being subject to the ups and downs of yearly budget decisions, as has been the case in the past.

In early June 2003, Governor Bob Riley of Alabama pushed a tax-reform referendum (anticipated additional revenue: $1.2 billion) through a special session of the state legislature with the support of education advocates and reform-minded business leaders who believe that investing in schools will help the state's economy in the long run. The outcome of this September ballot initiative bares watching in a state where powerful timber and farm landowner lobbies successfully blocked school-finance reform in the 1990's.

Over the summer, the Texas legislature will review a plan by the lieutenant governor that would raise the state sales and vehicle taxes, which would allow the state to eliminate the recapture ("Robin Hood") provision in its funding system and lower property-tax ceilings while still generating more revenue for education. On June 11, Lieutenance Governor Dewhurst announced that a committee of six senators, six House members and up to five residents appointed by the governor will concentrate specifically on school funding. A 23-member House committee appointed in Texas by House Speaker Tom Craddick prior to the lieutenant governor's proposal is also in the process of studying education finance, and Craddick insisted on June 12 that all members of his committee will have roles in the education-reform process.

As the consequences of this year's deep education cuts in some states and insufficient increases in other states become apparent in the 2003-2004 year, other states may reconsider their previous positions. A planned tax increase for Utah schools supported by a business coalition passed the Senate in the 2003 legislative session but failed the House. The National Center for Education Statistics (NCES) reports that Utah is last in per-pupil spending, while a Salt Lake Tribune poll found that education, not the economy, is the top priority for Utahans. The House may not be able to hold out next year.

Prepared June 10, 2003