Sep 28 2012

Cuts here, tax increases there

Published by at 8:12 pm under Idaho,Mendiola

Mark Mendiola
Eastern Idaho

A dramatic drop in legislative funding for public education has forced a steep rise in the number of Idaho’s 115 school districts resorting to supplemental override levies to breach the gulf in their money needs.

Idaho’s total public school expenditures as a percent of all expenditures fell from a high of about 35 percent in 1982 to slightly more than 26 percent in 2013. Idaho public school total fund expenditures as a percent of Idaho personal income fell from about 4.7 percent in 1992 to about 3.4 percent in 2013.

Addressing the City Club of Idaho Falls on Sept. 21, Michael Ferguson questioned whether the Idaho Legislature is short changing the state’s school districts and violating the Idaho Constitution, which requires it to “to establish and maintain a general, uniform and thorough system of public, free common schools.”

The Idaho Center for Fiscal Policy’s director – who served as chief economist for six Idaho governors from 1984 to July 2011 – also asked if the Legislature was complying with the constitution’s mandate that “all taxes shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax.”

Ferguson said, “What this basically says is that for purposes of the property tax, a taxing entity can’t levy different rates on different taxpayers.” The property tax component of school funding has changed quite a bit in recent years in Idaho, he noted. There was a swap for sales tax done in 2006 that took away an equalized management and operations (M&O) levy.

““With the elimination of the equalized M&O levy, we’re now in a situation where all property tax dollars that are used to fund public school M&O are non-equalized,” Ferguson said.

“Since then, we’ve seen a pretty dramatic increase in the use of unequalized property tax levies. Since education is a state duty, a state responsibility, I would question whether using unequalized property taxes really fulfills the intent of having uniform property taxes.”

Public education funding is “probably one of the most important fiscal policy issues facing the state of Idaho,” he said. Ferguson has focused since the second half of 2011 on the consequences of the “Great Recession” on education funding in the state.

Michael Ferguson, left, director of the Idaho Center for Fiscal Policy, converses with City Club of Idaho Falls members. (Photo/mark Mendiola)

Ferguson said the data he discovered was startling and “like a kick in the gut.” It points out serious issues of which most people are unaware, but need public discussion. “So, basically what we have is strong support for eliminating business personal property tax and a pretty difficult budget situation.”

At the end of the 2012 legislative session, the state’s ending budget balance for Fiscal 2013 was estimated at $4.5 million. As of Aug. 12, that was increased to $35.2 million with a new revenue forecast and actual Fiscal 2012 results. “Sounds like things got better,” he said.

Yet, under the Fiscal 2013 structural balance as of the end of August, ongoing revenue totals $2.666 billion with $5 million one-time revenue while ongoing spending totals $2.695 billion. The difference or “structural balance” is negative $29 million.

“So, basically what that means is that for the current fiscal year, even though we have a positive ending balance projected … from a one-time standpoint, it’s negative when you look at it from an ongoing perspective,” Ferguson said. “So, we don’t have a lot of slack in terms of the budget as it stands now.”

House Bill 563, enacted last session, removed $36 million out of the revenue stream by cutting the top personal income tax rate from 7.8 to 7.4, he explained. Had that not been included, the structural balance would have been positive $7 million.

During the 1980s, there was a spike in the number of districts running supplemental levies, but that gradually declined to the end of the 1990s. By 1999, 41 Idaho school districts used supplemental override levies as budget tools to enhance their revenues. By 2011, 83 districts were using them, dipping to 81 in 2012. Preliminary data indicates a record 84 districts will be employing the override levies in 2013.

Dollars associated with supplemental overrides increased at a dramatic rate and leveled out by the end of the ’90s into the early 2000s, when they totaled about $50 million. The total dollar amounts since have been going up dramatically until stabilizing at $136 million to $139 million between 2011 and 2012.

“The preliminary data for 2013 with those 84 districts that will be running supplementals is it will go up to about $171 million,” Ferguson said. “So, there’s yet another pretty steep rise in the use of these unequalized supplemental levies.”

The taxable value per student in the McCall-Donnelly School District is $4.7 million, but the state’s lowest values in the Blackfoot and Snake River districts are $160,877 and $153,437, respectively. “The cost of running remote rural districts is a lot greater than it is with a large district,” Ferguson said. “So, those numbers are going to vary quite a bit.”

Superintendents have told Ferguson the disparity between wealthy and poor districts can create civil war.

“With similar levies, you don’t get nearly the amount of revenue. One of the problems is when you’re in a poor district, it doesn’t really get you very far to run a property tax supplemental levy. You don’t get much in the way of additional funding.”

Many poor districts don’t run supplemental override levies and work strictly off what the state provides. The number of Idaho school districts going with four-day weeks has increased in tandem with declines in legislative education funding the past dozen years. There were 15 such districts in the 2009-2010 school year; 22 districts in 2010-2011, and 34 districts in 2011-2012.

“So, there are consequences from having the lower levels of funding and not having property tax available either because you didn’t have the market value or you didn’t have the voters that were willing to approve it,” Ferguson said, noting property tax has a lot of disparity in terms of what it will provide for funding schools.

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