School officials have always had to make difficult decisions when building annual budgets. Superintendents and school business managers annually face the complex task of providing for student needs with fewer education dollars. Recent funding changes and the constitutional tax cap have contributed to making the 2013 budget process the most challenging in many years.
When the General Assembly passed Public Law 146 in 2008, local property taxes were removed as a source of operating funds for schools. The state of Indiana intended to replace this loss of revenue by raising the sales tax rate from 6 percent to 7 percent, making support of school operating budgets nearly 100 percent the responsibility of the state. Moving from a relatively stable form of revenue (property tax) to a tax that fluctuates with the economy (sales tax) has resulted in significantly lower revenue for most school districts during the current prolonged recession.
Additionally, in January 2010, support of school operations was cut by $300 million in order to bolster the state’s reserve fund. This mid-year cut compounded school funding problems, causing most districts to remain below the funding levels in place prior to that cut.
As the amount of support per child over the past four years has declined, schools have made significant cuts to operating budgets, eliminating many programs that benefit our children.
Property tax caps were added to the Indiana Constitution in November 2010, capping property taxes at 1 percent of gross assessed value for homesteads, 2 percent for other residential property and farmland and 3 percent for commercial, industrial, utility land and buildings and business equipment. The local school corporation’s share of the property tax funds its debt service, capital projects, transportation, bus replacement and pension bonds. The tax cap ensures that less revenue will be available for these funds, causing the district to tap into its general fund revenue that has already experienced significant losses. School districts that increased their total debt by constructing school buildings prior to the tax cap face even greater complexity in building their budgets, often having to take more money from the general fund to fulfill all debt obligations.
The chart accompanying this column is an example of how one school district — MSD of Boone Township — is affected by the tax-cap legislation.
How are these funding changes affecting our students now and in the long term? Some districts — which have multi-year salary freezes in place — still have not been able to maintain their current offerings. Communities that lack the ability to embrace a local tax increase will see their school leaders forced to prioritize and systematically eliminate programs.
The State Board of Education has encouraged districts to rein in spending without “affecting instruction.” Experience has proven this impossible. Citizens who believe that the educational programs provided in their schools are essential need to inform state leaders that financial support of Indiana’s public schools must be a high priority in the next state budget.
The opinions are solely those of the Northwest Indiana Public School Study Council.