Proposals for School Funding

If you made it through my entire post last week, you’ll have read about my beef with the Governor’s proposal to increase per pupil flat grants in the newest state budget. I also mentioned that the Governor’s increase to the School Levy Tax Credit (property tax relief) was diminishing the equalizing effect of the state’s main form of school funding, and that the DPI had proposed fixing the formula rather than increasing flat grants and tax relief. These are super wonky topics that have taken me a long time to wrap my head around – and I’m still regularly bugging my savvier tax policy friends with questions. So with that in mind, I did some number crunching to use the data to explain these various options for changing Wisconsin state school finance. Here’s what’s what:

The Contenders

Status Quo – This is the true result of the existing equalization aid formula. Schools receive support from the state proportional to their tax base. If the district has lots of property wealth, the formula should kick in less for them than for a district with low property wealth. The district decides how much it will spend per kid (this is called the shared cost), and the formula decides how much the state will contribute.

Status Quo + SLTC – What gets reported as the state’s contribution to each district’s shared cost is actually lower than reality once you factor in the School Levy Tax Credit (SLTC). Each district gets property tax relief equal to whatever percentage of the total tax revenue they contributed. So, say that altogether all the districts in the state levy $10M in taxes. If your district levied $100,000 of that, you get 1% of the SLTC budget. (The total state property tax levy was actually about $4.85 billion and the SLTC budget was $853 million in 2015-16.)

Walker Proposal – Here we’re looking at the effect of keeping everything else constant and adding on that per pupil flat grant and increased SLTC that Walker has proposed. For the sake of keeping this simple, I’ll just use the current equalization aid funding + the proposed new aid and SLTC boost.

DPI Proposal – DPI proposes scrapping the SLTC, no new per pupil flat grant, and three crucial changes to the equalization aid formula.

Minimum per pupil equalization aid of $3000. Right now, 19 districts receive no equalization aid. These districts have very high property wealth, making them ineligible for the funding. However, about a third of these districts serve 50%+ low-income students. Another 80 districts or so receive less than $3000 in equalization aid. So this change is a substantial increase in funding for these districts.

Increase the secondary cost ceiling. That probably means nothing to you unless you’ve been reading up on your state school finance policy. Here’s what that means: the equalization aid formula is set up in three tiers. At each tier, the state and the district will split a certain amount of cash, and the amount that the district pays is proportional to its tax capacity. DPI is proposing that the second-tier amount be raised, meaning that the state will split a little more with each district. In 2016-17, that ceiling was $9539. DPI would like to raise it to $10,464.

Add a 20% weight for low-income students in calculating property value per member. We know now that districts receive state support relative to their ability to generate revenue through local property taxes. What DPI wants to do here is essentially lower the property value per member for districts with lots of low-income students. Basically, if you had $1M in property value and 10 students, right now your property value per pupil is $100,000. Under DPI’s proposal, if 2 of those students were low-income, they’ll count as 1.2 students. So now you divide $1M by 10.4 students, giving you property value per pupil of $96,000. This means that districts will pay a smaller portion of each tier’s shared spending, relative to the size of their low-income student population.

The Results

Status Quo

Even though equalization aid is intended to allow property-poor districts to equalize spending and tax burdens across districts, it seems to be meeting neither of these goals. In the two graphs below, you can see that districts with higher tax rates actually spend less per student than districts with lower tax rates, and districts with the lowest property wealth tend to have the highest tax burdens. So not only are property-poor school districts not keeping up in per student spending, they are also faced with a higher property tax rate.

propval-mill-sq

sq-mill-spend

What’s more, the districts with higher property tax rates are the same districts that serve higher proportions of low-income students.

econdis-mill

So it would seem that the equalization aid formula is failing to meet its goals. But remember, this isn’t the whole picture. Now we factor in the School Levy Tax Credit.

Status Quo + SLTC 

The School Levy Tax Credit is distributed to school districts based on their share of the total property taxes levied for education in the state. Big districts in cities like Milwaukee, Madison, Racine, and Green Bay receive the largest dollar amounts in SLTC funds. However, these districts have more students and more taxpayers. The tax relief is spread out among many more taxpayers, thus meaning a smaller benefit is received by tax-paying residents in these districts. And in the context with which we’re concerned, property tax relief serves to increase the portion of that shared cost that the state foots the bill for. So we’re interested in the SLTC per student rather than the total amount. The graph below factors in the per student property tax relief received from the STLC. For example, say that a district’s shared cost is $10,000 per pupil and the state pays $2500 (25%) and the district pays $7500 (75%). If that district receives $1000 per pupil in property tax relief, the state now pays $3500 (35%) and the district pays $6500 (65%), increasing the share of state support by 10%. The graph shows the size of those increases by the amount of property wealth.

sltc-distribution

As you can see, the percentage increase in state support goes up as property wealth goes up, meaning that wealthier districts receive a bigger boost from property tax relief than poorer districts.

sharedcost-propval

All districts’ share of state support increases after the SLTC, but the slop of the red lines (after SLTC) is not as strong as the blue line. In a perfect world, we’d want the lines to be perfectly diagonal. Your support from the state is high at low levels of property wealth, and low at high levels of property wealth. As the line shifts from diagonal to horizontal, the difference in amount of state support received by poor and wealthy districts gets smaller. In real dollars, this shift translates to an average of $600 per pupil for the lowest property wealth districts and an average of $3100 for the highest property wealth districts – the same districts that were ineligible for any equalization aid because of such high tax base capacity. How does this impact the equalizing power of the equalization formula? See below.

sltc-impact

Walker Proposal

In general, Walker’s proposal simply adds $450 per pupil to each of the green bars in the previous graph. Every district’s per pupil state aid will rise by that much, plus a small increase from the expanded SLTC budget. Below, we see these increases by property wealth per pupil. While each group’s per pupil aid increases, remember that property tax burdens are highest for schools with the lowest property values, and Walker’s proposal does not alleviate that inequality.

walker-proposal2

In terms of the percentage state share of this spending, the graph below shows that Walker’s proposal (SLTC increase in bright blue,  SLTC increase + flat grant shown in yellow) increases the state share across all districts. The increase is slightly larger for districts with higher property values.

walker-proposal1

What is notable here, however, is that the impact of property tax relief and flat grant aid is to significantly increase the state’s contributions to wealthy districts. The equalization aid formula on its own (Status Quo, in navy) provides only a very small share to districts with high tax capacity. While property tax relief (current SLTC budget in green, proposed SLTC budget in bright blue) raises contributions from the state for everyone, the increase is greatest for wealthy districts. The DPI proposal aims to redistribute these resources to support property-poor districts with high-need students.

DPI Proposal

Now that we’ve established that a) the equalization aid formula doesn’t do that much equalizing, b) the SLTC disproportionately benefits property-wealthy districts, and c) Governor Walker’s proposal does not improve disequalized property tax burdens or per pupil spending, does the DPI proposal offer something better? Using the three changes outlined above, I calculated the revised mill rates and equalization aid.

mill-rate-by-proposal

In the graph above, we see that the DPI proposal reduces the tax burden to spend the same amount for all districts, and the biggest benefits land on the lower end of the property wealth range. High-wealth districts still receive some benefit, though smaller in scale. In the graphs below, we see the real dollar impact.

On the left, we compare the status quo equalization aid formula (blue) with the revised DPI formula (red). All districts would receive more equalization aid as the state takes on a greater share of the cost. The biggest gains, however, are for higher wealth districts. This is largely due to the inclusion of the $3000 minimum in the DPI proposal. On the right, we compare the DPI formula (red) with the status quo + SLTC (green). These two look very similar, suggesting that the real effect of the DPI proposal would be to a) lower property taxes for property-poor districts or b) allow districts to tax at the same rate and spend more. This effect is seen below. In red, districts would maintain the same per pupil spending and reduce property tax rates, while in orange, districts would increase per pupil spending and maintain property tax rates.

dpi-proposal-choices

The prior calculations assumed that districts did not increase their per pupil spending, but it is very possible that some districts would make another choice – to maintain property tax rates and increase per pupil spending with the additional equalization aid, or even to increase their own property tax rates to earn more from the formula. Districts currently spending the most per pupil might favor spending the same and decreasing property taxes, but districts with high need and low property wealth are incentivized to take advantage of the formula. Below is a demonstration of different decisions’ impact on the per pupil spending abilities of one example school district in the bottom quintile, one at the median, and one in the upper quintile of property wealth.

dist-examples2

The Status Quo (navy) represents these districts’ per pupil spending for 2015-16. Status Quo + SLTC (green) does not change because the SLTC does not add additional funding but rather decreases the local share of spending. DPI Proposal Choice 1 (red) does not increase spending because these calculations assume that districts elect to decrease property tax rates and maintain funding. DPI Proposal Choice 2 (orange) assumes that these keep their property tax rates and the increase in spending represents the state’s additional support. In DPI Proposal Choice 3 (purple), districts increase their per pupil spending from 2015-16 by $1000. Here, we still see a significant disparity across levels of property wealth. However, below we see that per pupil equalization aid increases significantly under DPI Choice 3 for low property wealth districts, suggesting that the state would take on most of the additional spending for these districts, while high-wealth districts would be responsible for more of that extra $1000. We also notice that for these example districts, two benefit more from SLTC than the DPI proposal. This suggests that the DPI Proposal may not meet the spending equalizing goals as well as I thought it would.

dist-examples

However, we do see that DPI Choice 3 does provide a greater benefit than SLTC to lower property wealth districts in terms of share of state support. The DPI proposal, which eliminates the SLTC, would distribute more of the state support benefit to property-poor districts.

dist-examples3

While two out of three of DPI’s proposals are effective in increasing state support for districts with low property wealth and high-need students, the $3000 minimum functions in very much the same way that Governor Walker’s proposed per pupil aid would. Particularly for the districts that receive no equalization aid or very little aid under the current formula, this part of the new proposal allows them to spend an extra $3000 (without increasing property taxes) on top of already far above average per pupil spending. I didn’t actually expect to see this. I figured the impact of the other two changes would be significant enough to close the gap a little more. Thus, I rescind my earlier enthusiasm for the DPI proposal, and advocate only for amendments 2 and 3: increasing the secondary cost ceiling and a 20% weight for low-income students in the equalized value calculation.

All of this is to say: what we’re doing right now isn’t working. If you live in a district with low property wealth, your educational resources are fewer than what’s available to a kid in a district with higher property values. We haven’t created a school finance system that helps the property-poor districts catch up, and that means we’re systematically giving high-income kids educational opportunities that low-income kids can’t access. Walker’s decision to add new cash to the budget is certainly better than no new funding at all, but the structure of that funding is crucial. We would do better to eliminate property tax relief that disproportionately benefits the wealthy and to target increased funding toward districts with high need students or low tax capacity.

If you’re calling your legislators, encourage them to amend the equalization aid formula to increase the cost ceiling and add a 20% weight to the equalized value calculation instead of spreading out the resources among districts who don’t need the extra help.

 

Advertisements

Education in the 2017 WI Biennial Budget: The Good, The Bad, and The Ugly

I’m blogging! For my first post and for your enjoyment, some rambling thoughts on the Governor’s budget proposal.

The Good

  • Additional aid for rural schools. The budget includes a sizable increase in sparsity aid, which supports small districts that face the challenge of generating fewer resources but must provide the same services. 228 of 424 districts would receive additional per pupil aid under Walker’s proposal. By my calculation, these districts are 40% low-income, on average, compared to a 32% average for districts ineligible for sparsity aid.
  • Expansion of school mental health initiatives. $3M to expand social work services in schools, $2.5M in grants to provide school-linked mental health services, $1M for school personnel training in trauma-informed care. Thrilled to see this.
  • Grant program for schools with early absenteeism challenges. Wish this wasn’t set up to sunset and disappear in two years, but I think it’s a worthwhile investment. Getting kids in the classroom every day is crucial, especially in foundational early years.
  • Milwaukee summer school support. Yes, absolutely. Related and also good idea that we need to see the legislature support: exemption to the school start date. Starting earlier in the year is well-supported in the research literature, and summer school programs can help students catch up if they are behind or get ahead if those opportunities are less available in the regular school year.
  • Bullying prevention grants. Yay! Self-explanatory and awesome.
  • Teacher Development Program. Not what I expected to see, but pretty pleased with this. Proposal for a program through UW Flexible Option for current school district employees to get fully licensed as teachers. This is for people who already have bachelor’s degrees and work directly with kids, but don’t yet have the teaching credential. The proposal even includes funding for financial aid and reimbursement for school districts that collaborate with schools of education in the UW System to get people certified. Teacher pipeline work is vital right now, and this is a great step.
  • $100M for the UW System. But not really all of it. Specifically, happy to see the $50M lapse come back to UW, $11.6M for employee compensation increases, $5.7M for student financial aid, and $200K for a rural physician incentive program.

The Bad

  • $87M increase for the School Levy Tax Credit. Ugh. Property tax relief is catchy and great, but this credit furthers the unequal tax burdens that local property taxpayers feel from district to district. We set up school finance in WI to make it possible for property-poor districts and property-rich districts to be able to spend similarly – without forcing the property-poor districts to tax the crap out of their residents. The formula has gone untouched for so long that it’s hardly doing its job anymore, but to continue these tax credits on top of it – which disproportionately benefit the folks with the highest wealth and the lowest tax burdens – we’re exacerbating the reality that wealthy areas can easily spend significantly more in their schools. Should also note that this $940M in property tax relief gets added into the total when the Governor says how much the state spends on education. In fact, not one cent of the $940M is spent in schools. Next time you read how much Wisconsin spends on education, remember to subtract almost $1 billion. (Source: https://www.lafollette.wisc.edu/images/publications/workingpapers/reschovsky2010-003.pdf)
  • $42.5M in the UW System funding is performance-based funding (PBF). PBF has consistently failed to work in the public sector. *Cue arguments about public sector inefficiency* But the long and short of it is that PBF works very well in organizations where the work is standardized and the outcomes are clear. That’s not the case in education! Universities are complex, outcomes are widely varied and sometimes ambiguous—career preparation is definitely the main goal, but so is learning for learning’s sake and so is personal growth and development. My professor explains the failure of PBF in higher education a lot better than me, so check him out. (Sources: https://tcf.org/content/report/why-performance-based-college-funding-doesnt-work/, https://wiscape.wisc.edu/docs/WebDispenser/wiscapedocuments/pb018.pdf?sfvrsn=4)
  • Allowing students to opt-out of segregated fees. AHHH! My 2013 self just fell over dead. Let me lead with this: segregated fees are getting too high, and a student government that’s concerned with college affordability would do well to remember that seg fees are basically a regressive tax. Cutting back would be advisable. I’d start with ASM spending specifically. However, regardless of the current seg fee rate, allowing people to opt-out is bananas. Allocable fee-funded things that become vulnerable in that situation include the campus’s Rape Crisis Center contract and the SAFEbus. I can understand the desire to opt-out of paying for student government or student organizations (though I firmly and vocally disagree), but you don’t get to opt-out of contributing to making campus a safe place. On top of that, from my reading of the Supreme Court case that decided the manner in which we allocate seg fees to student orgs (aka what my law school friend Kate told me about it), it is only because fees are mandatory that we make decisions on seg fee allocation in a viewpoint neutral manner (for non-student gov nerds, this means the arbiters of the money cannot consider the stance/beliefs of the organization in deciding whether it is eligible for money). Make fees optional and that requirement goes away. You’ll end up with a student government stacked with special interests where students fund their friends or their politics or their favorite causes. Hey, that sounds familiar…
  • K12 eligibility for new funding tied to Act 10 compliance. I shouldn’t have been surprised to see this one, but I was. Walker’s proposed per pupil increase (featured in “The Ugly”) is contingent on districts’ compliance with his signature presidential campaign-launching reform. If districts are contributing more than 88% to their employees’ health insurance premiums, no $$$ for you. I’m intentionally making no commentary on Act 10 itself here, but this part of the Governor’s budget is in direct conflict with a proposal just a few lines down: “School District Flexibilities.” Walker touts throughout his budget that he’s easing regulations, offering more local control. The same was his justification in Act 10—freeing districts from union control will allow them to compensate in a way that makes the most sense for the district, teacher recruitment and retention, blah blah blah. Okay, that’s all fine and good, but now we’re a few years and later and it’s “You have to use that flexibility I gave you in the way I think is best!” Hmm. This seems opposed to the local control that’s been a hallmark of GOP policy in Wisconsin. While I don’t think the per pupil aid that Walker’s proposed should exist at all (in the form he’s proposed it), this approach is politically-motivated and doesn’t seem to consider the potential impact on kids.
  • Milwaukee Education Performance Funding. Again, I reiterate my objection to performance-based funding in education. With respect to K12, this program will give more resources to the schools in Milwaukee that are doing well. How’s that going to help the schools that aren’t doing well? As with so many market-based education reforms, I reject the idea that competition serves kids well. School A does well and gets extra cash, and that’s great for the Milwaukee kids attending School A, but what about my kid who attends School B? What are we doing to help the kids who are left in the schools that are struggling? In this section of the budget, nothing. What’s more, it sounds like voucher schools are eligible for this performance funding as well. Now I’m just confused. The budget proposal talks about report card points as the measurement for success. The DPI posts report cards for voucher schools, but every school received a rating of…wait for it…”Not Rated.” A competition wherein the competitors are judged by different rubrics doesn’t make much sense to me. I’m opposed to this one in general, but especially opposed without more information on how performance will be measured.
  • Lastly, a list of good things that the Department of Public Instruction (DPI) requested that Walker’s budget rejects: Rural Schools Teacher Retention Grant, increases for Special Education aid and High-Poverty aid, ESL and Dual Language Immersion grants, an increase for the School Breakfast Program, and adjustments to the Equalization Aid Formula. Instead of offering rural districts the necessary support to keep great teachers, Walker proposed easing teacher licensing requirements. Instead of targeted aid for special education and high-poverty, Walker proposed a flat grant for all students regardless of need. Rejecting good ideas is a bad idea.

The Ugly

  • Elimination of the Educational Approval Board. Among other things, the Board is tasked with evaluating for-profit institutions and holding them accountable to performance and effectiveness standards. The budget proposes transferring these responsibilities to the Dept. of Safety and Professional Responsibilities, which is why this one falls into “The Ugly” for me instead of “The Bad.” Walker recently appointed an administrator from one of the state’s largest voucher schools to lead the department. 99% of the students at that school held vouchers – meaning just a few kids were actually paying tuition (Source: https://dpi.wi.gov/sites/default/files/imce/sms/pdf/MPCP_Sept_Enrollment_HC_FTE_by_School_2016-17.pdf, school #75 Saint Anthony School). I am making NO claims about the quality of the school, nor the intentions of its leaders; however, it strikes me that a private school completely reliant on public funding is similar to the situation of most for-profit colleges—private institutions unable to operate without access to federal financial aid. I hope I’m proven wrong, but I’m skeptical that the Department of Safety and Professional Services will offer the level of oversight and accountability that I feel is necessary to protect students.
  • Requiring the UW System to develop 3-yr degree paths for 60% of programs by 2020. I’m actually laughing. Has the governor’s office missed the headlines? Almost half of today’s college students are taking FIVE years to graduate. This makes “The Ugly” list because it’s so ridiculously unrealistic and a huge waste of resources. The Governor is challenging the structure of an excellent public system without any evidence to support that this is even a good idea. Combine this policy proposal with a second bad idea (internship or job as a requirement for graduation), how in the world can Walker expect students to complete the necessary coursework AND gain work experience? The answer is likely that Walker wants to see 3-year paths that simply exclude the requirements that make college education holistic (science reqs for non-science majors, humanities reqs for science majors, foreign language, cultural competency). This is a subtle way of resurrecting what he “mistakenly” tried in the last budget: changing the Wisconsin Idea.
  • And finally, the proposal that’s been throwing me into fits of rage for the last week: a per pupil flat grant. Quick note that I am frustrated to no end watching the Governor tout how great it is that he’s investing so much new spending in education in this budget when he has led some of deepest cuts to public education in the nation over the last 6 years. When adjusted for inflation, Walker’s education budget cuts have left us behind where we were pre-Recession, and lauding his “reform dividend” as the reason for the investment is disingenuous and self-serving. With that said, here’s my problem. On a basic level, flat rate per pupil aid makes no consideration for the needs of the student. Students have varied needs, and some students’ needs cost more to meet. That is a fact. As I mentioned above regarding property tax relief, Wisconsin’s major form of state school funding is structured to equalize the tax burden across school districts so that lower-income districts are neither under-resourced nor over-taxed compared to their wealthy neighbors. You can read more about the particulars of the equalization formula here if you’re feeling especially nerdy: https://dpi.wi.gov/sfs/aid/general/equalization/formula The State Superintendent and Department of Public Instruction have requested adjustments to this formula for at least the last two budgets. Fixing this formula has the potential to ease the tax burdens on property-poor districts, allowing them to spend closer to the levels that wealthy districts spend without burdening their residents with super high property taxes. Because right now the formula is not doing its job of equalizing, and Walker’s proposed flat rate spending will make the problem worse. Yesterday, the Governor tweeted a quote from the Elk Mound Superintendent. I trolled him a little bit, but what I said was true. Here’s the illustrative example: Elk Mound is the 5th most property-poor school district in Wisconsin. 63% of its students are low-income. Last school year, Elk Mound taxed its residents at a mill rate of 9.24, just about the average in Wisconsin. Combining state and local revenue, Elk Mound was able to spend $10,480 per pupil. Compare this to North Lakeland. Lakeland has per student property wealth 60 times higher than Elk Mound, more than $12 million in property value PER KID. Last school year, Lakeland residents were taxed at a mill rate of just 1.86—80% lower than residents of Elk Mound. And Lakeland spent $24,500 per pupil—more than twice as much per pupil as Elk Mound can spend. So we enter the conversation about Walker’s proposed flat rate aid knowing that already school spending and property tax burdens are both incredibly unequal and inequitable. Now add a flat rate per student to those totals. Lakeland gets the same additional support that Elk Mound does, despite the fact that Elk Mound is already taxing at higher rates, spending far less, and serving more high-need kids. For all the talk about fiscal responsibility and making cost-effective decisions, it seems like simple good sense to me that we should target our resources where they will be most useful. An additional $450 per kid for Lakeland has little impact when they already have significant school resources and residents with low tax rates. An additional $450 per kid for Elk Mound doesn’t ease the burden on their taxpayers and doesn’t get them anywhere close to providing the same level of services that Lakeland can. Walker’s per pupil aid investment would be far better spent in adjusting the current formula, fixing it so that it comes closer to equalizing the tax burdens and the school spending like it is intended to. Governor Walker has made it clear with this proposal that he believes kids with higher needs don’t deserve any extra help, and he’ll continue to damage education in Wisconsin if he sticks to it.

If you’ve made it through this whole soliloquy, then hey thanks! and also you might have too much free time. Use some of that free time to call your state legislators and urge them to reject some of the bad/ugly ideas and support the good ones. And don’t just take my word for it – check out the sources and ask me for more if you want to keep reading. Thanks for hearing me!