Trying to Understand Colorado's School Funding Problems

Yesterday Colorado's Senate Education Committee approved House Bill 10-1369, the school finance bill. If passed, it requires every school district to reduce the state share of their total program funding by 6.35 percent. (State Share = Total Program - Local Share) But here's the catch: seven Colorado districts (Clear Creek, West Grand, Gunnison, Estes Park, Park, Aspen, and Summit) collect less than 6.35 percent's worth of state aid. For example, Park only collects $81 of state aid. (This seems impossible, but that's what the state says.) Instead of losing just that $81, they have to reduce local revenues (which means reducing their override mil levy) by more than a quarter million dollars so they have the same 6.35 percent reduction as every other district. How cutting local revenues helps the state budget is beyond me, so it seems the legislature is doing this in the name of equity. I'd like to think I'm somehow reading the information incorrectly, but I'm afraid I'm not.

(Update 3/31/2010: The Colorado State Senate approved the school finance bill, but thanks to an amendment proposed by Bob Bacon of Fort Collins, the seven districts named above will not suffer any loss of local funding.)
(Update 4/16/2010: After the House rejected Bacon's amendment, a committee agreed that the seven districts will lose money through state categorical grants. I'm not totally sure what that money is, but I hope to find out. The compromised bill still has to be approved by both houses.)
(Update to the update 4/16/2010: Previously I had confused the "factors" from the "categoricals," and the post now recognizes them properly.)

It may sound crazy, but it's just another example of Colorado's school funding problems. Colorado's school finance formula, established in 1994, determines base funding (a set per-pupil amount) and funding factors (extra money for cost of living, personnel costs, district size, at-risk students, and online students). Together, these define "Total Program" funding. In addition to Total Program funding, some schools get state "categorical" funding, which provide extra money for six categories: small attendance centers, English language proficiency, gifted and talented, special education, transportation, and vocational education. Colorado's tax revenue and education spending picture is defined by three sometimes contradictory laws: the Gallagher Amendment, TABOR, and Amendment 23.

Gallagher, passed in 1982, protects Coloradoans from increasing residential property taxes. Unfortunately, it might be doing that job too well -- Gallagher mandates that residential properties account for 55 percent of all property tax, the same as in 1985. The housing boom of the 1990s and early 2000s added greatly to the value of Colorado's residential property, forcing property tax rates down significantly in order to keep revenues in line with the 55 percent rule.

TABOR (the Taxpayer's Bill of Rights), passed in 1992, puts revenue and spending limitations on all levels of Colorado government, including schools. Government can't grow any faster than inflation plus population growth. In good years, excess revenue is returned to taxpayers. Unfortunately, that means Colorado has a difficult time building up a rainy-day fund in the event of hard times, such as those we have now. In 2005 Coloradoans passed Referendum C, a five-year "time-out" from TABOR, but during that time the state didn't have many opportunities to stockpile surpluses.

The restrictions of Gallagher and TABOR were causing some pretty dire restrictions on education funding, so in 2000 voters passed Amendment 23. The amendment was to restore funding to pre-TABOR levels and mandate minimum increases (at least the rate of inflation) for education spending. You should be wondering: if Amendment 23 requires spending increases, how is the legislature decreasing school spending next year? Due to the tight budget, lawmakers have had to "reinterpret" Amendment 23 to apply it only to base per-pupil funding, and not categorical factors.

So what are the consequences? Gallagher lowered property taxes, reducing one of a school district's primary local revenue sources, and pushed greater funding responsibility onto the state's general fund. TABOR placed restrictions on the general fund, causing underfunding of schools. Amendment 23 promised better funding for schools, but it didn't solve the revenue problems and Colorado still ranks very low nationally in various measures of K-12 spending. There's a current movement to exempt education spending from TABOR, but doing so would allow the legislature to backfill spending in other areas with education dollars, then raise taxes to fill the education hole. Whether you like TABOR or not, creating a loophole is probably not the best way to untangle Colorado's education spending knot.

One effort to untie the Gallagher/TABOR knot is the Lobato v. State case. That case challenges the state's constitutional responsibility to maintain a "thorough and uniform system of free public schools." If successful, the lawsuit would force Colorado to re-examine its 1994 school finance formulas, which in turn could force changes in Gallagher and TABOR. Defining "adequate" school funding isn't easy, and much of what was done in 1994 involved the political negotiation of available funds, and not an analysis of how much is actually costs to educate a student. There are three common ways to do this:

  1. The "Successful School District" Approach (Empirical Identification) - Identify school districts that are performing at or above a set level, then examine how much it's costing them
  2. The "Professional Judgement" Approach (Resource Cost Model) - Ask experts to estimate the resources necessary for success
  3. The "Statistical Prediction" Approach (Cost Functions) - Use statistics to extrapolate funding based on extrapolations of current data

A good adequacy analysis will use multiple approaches and look for agreement between the models. Analyses recently completed for Colorado suggest adequacy levels near 150 percent of current state funding. Such increases could dramatically change education and school funding in Colorado for the long-term. In the short-term, however, it appears there is no fix to the current budget hole.

(If I've been incorrect in any of the above, by all means, suggest a correction in the comments!)

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