Thursday, January 31, 2013

School Funding Constitutionality

The case of DeRolph vs State of Ohio has been back in the news of late, no doubt connected to the fact that Governor Kasich is announcing his new design for public school funding today. Of course, there is zero chance that the Governor's new system will quiet those who believe Ohio's school funding needs a major overhaul.

The argument can be boiled down to a philosophical question: Who should have control over funding, and through that, control over spending as well?

One view is that the state government should have almost complete control, which primarily means the power to raise taxes as needed to fund whatever curricula and programs our state officials deem to be necessary. They deeply object to the need for school districts to periodically ask local voters for more money.

The other view is that the people of each local school district should have a direct vote on the funding they are asked to provide, and that it is a good thing that the local school district must go before their local community to justify the need for more money. Readers of this blog know that I land firmly in this camp.

The DeRolph case is the one in which the Ohio Supreme Court held that the funding system in place at that time (1997) was unconstitutional, in respect to the Constitution of the State of Ohio, which says:
The General Assembly shall make such provisions, by taxation, or otherwise, as, with the income arising from the school trust fund, will secure a thorough and efficient system of common schools throughout the state; but no religious or other sect, or sects, shall ever have any exclusive right to, or control of, any part of the school funds of this state. (Article 6, Section 2)
Many Ohioans mistakenly believe the Supreme Court declared property taxes to be unconstitutional. This is not correct. What the Court said was that an over-reliance on local property taxes is a symptom of an unconstitutional system.

The second mistake many make is the belief that our current funding system is unconstitutional. The DeRolph  ruling applied to the funding system which was in place in 1997, and that system has been replaced - twice - first by the so-called Evidence Based Model made law during the Strickland Adminstration, and then again by the temporary funding system enacted in the first Biennial Budget of the Kasich Administration.

Neither of those funding systems were challenged in the courts, so we don't know if they too would have been judged to be unconstitutional.

Soon, we'll have yet another funding scheme in place. Will it be challenged?

At the bottom of this is an argument as to what this section of the Constitution really means. Some believe it means that every school district in Ohio should receive sufficient funding from the State such that a "thorough and efficient" education can be delivered to every student without the need for augmentation by any local property taxes whatsoever.

To accomplish that, two things have to happen: a) someone needs to come up with a way to determine exactly how much money is required - per student - to deliver a thorough and efficient education; b) the state has to collect enough tax revenue in order to fund that amount, plus fund all the other programs the citizens of Ohio expect from their state government.

So what is the answer to the first question?  How do we determine what constitutes a "thorough and efficient" education?  Is it just the basic courses needed to enable a student to pass the Ohio Graduation Test?  Is it the Common Core Standards?  This can be reasonably debated, but there is no one right answer. The Ohio Department of Education could be given the responsibility of making recommendations, but ultimately, this is a political decision which falls on the shoulders of the Governor and the General Assembly. Of course, those change every couple of years.

Pretending that we can come to agreement on what the curriculum should be, how much will it cost to deliver it to the students?

According to the 2011 CUPP Report issued by the Ohio Department of Education, there were in 2011 a total of 86 school districts rated "Excellent with Distinction," the top rating awarded. In those districts, the per-student spending ranged from $7,182 in Avon Local Schools (Lorain County) to $21,459 in Orange City Schools (Cuyahoga). The median among these schools is $9,582 and the average is $10,262. It is reasonable to assume this amount - about $10,000/student/year - should be enough funding to deliver a 'thorough' education, if we can agree that an "Excellent" rating on the State Report Card indicates 'thoroughness.'

So let's pick $10,000 per student per year as the amount of funding which is required to deliver a 'thorough and efficient education.' With the statewide enrollment at 1.6 million students, this means the State would have to come up with $16 billion, just to fund the K-12 schools.

That's a tall order. The current state budget puts aside $6.5 billion for K-12 education, out of a total state operating budget of $27 billion. Increasing the K-12 budget to $16 billion would mean adding nearly $10 billion (54%) to this line item, or 37% to the overall state budget. Who is ready for their state income taxes to go up 37%?

The more likely approach to increasing the K-12 budget by $10 billion would be to take significant amounts of funding from other budget lines. Where should we start?  Medicaid?  Higher Education?  I know some of you are saying that there is all kinds of waste and unnecessary spending in our state government which we can eliminate before we make any cuts, and that may well be true. But remember, what is waste to you might be a lifeline to others.

If the decision was made to radically alter our public school funding approach such that the state would provide this $10,000/student/year, and the extra $10 billion were raised via higher state taxes, then would it not be possible for many school districts to repeal most if not all of their local operating levies, offsetting most of the sting?

I absolutely would be willing to pay 37% more in state income taxes if it meant no local school property tax. After all, we're retired folks living off our retirement savings - meaning not much income - which makes our property taxes all the more daunting. My wife and I could save a ton of money if we shifted to a school funding system paid for with state income taxes.

Would it make much difference to a family in the prime of their earning years, which is usually when they also have kids in school?  Maybe not. There is a strong correlation between one's income and the value of one's real estate. It might be kind of a wash - that is, income taxes might go up about the same amount property taxes would go down.

How about the young adults just getting started in life, and who often live in apartments?  Certainly the amount of property taxes collected per occupant is much lower for apartments than for single-family homes. Changing the funding emphasis from property taxes to income taxes could really hurt these young folks, unless the income tax rates are progressive enough to prevent them from absorbing the full impact.

What about the wealthy districts which want to spend even more on their kids?

Of the 352 school districts rated Excellent or Excellent with Distinction, 119 of them - including Hilliard City Schools - spend more than $10,000/student/year. Seven of them spend more than $15,000/student/year.

Some argue that no district should get to spend more than any other district. They believe that if a community has the capacity to be taxed more, that 'excess' money should be drawn into the state coffers and redistributed to poorer districts. I think that's going a bit too far, and the Supreme Court said as much in the DeRolph opinion.

Stephen Dyer, one of the architects of Governor Strickland's Evidence Based Model and author of the blog 10th Period, echos the belief of many when he says dependence on local property taxes needs to be reduced because districts have to keep coming back to public with additional property tax levies. The concern of this camp is that the voters just might say "No!"  The world is much more manageable and predictable (to those with this perspective) if such matters are decided by elected officials who are responsive to lobbyists who write big campaign checks. I think the amount of money spent for lobbying at the Statehouse on education matters would astound most of us.

Why do school districts need more money every year anyway?  In a few cases, the reason is growth. As the student population increases, so does the need for more teachers and staff.

But for most school districts, the year to year growth in costs is driven by compensation and benefits increases. If you are not familiar with the way teachers are compensated in Ohio, this article may help.

I'm not trying to start a debate about whether teachers are underpaid or overpaid - please don't make vitriolic comments about that subject (they'll get deleted). All I'm saying is that school funding is spent almost entirely on compensation and benefits, and that any discussion about revenue needs to recognize that this is where the money gets spent.

So here's the point: The debate over who controls funding is a really a debate over who controls compensation - how many teachers, staff members, and administrators get employed, and how much they get paid.

Six years ago, a mighty effort was made to add a school funding amendment to the Constitution by referendum - that is, bypassing the Governor and the General Assembly. The campaign was called "Getting it Right for Ohio's Future."  This amendment would have given the State Board of Education the power to set the cost of a 'thorough and efficient education,' and would have required the General Assembly to allocate whatever money was needed to fund it. The amendment was supported by virtually all of the public education community, including the teachers' unions and many school boards - including Hilliard's. Our school board even authorized employees to serve (in their off-duty hours) as solicitors in the effort to get the 400,000 petition signatures needed to get the issue on the ballot.

Fortunately, this referendum effort was withdrawn before it went before the voters. I'm quite sure the primary message from the amendment campaign would have been to imply that a vote for this amendment would be a vote to reduce property taxes, and on that basis, it stood a good chance of getting passed and made law. I'm still not sure why the petition was withdrawn - maybe one of you know.

I'm eager to see what Governor Kasich brings to the table. I'm not eager to hear the bickering and propaganda that will follow.

Mostly I want to know what it means to Hilliard City Schools. I'll let you know what I find out.


  1. The Governor's office today released a fact sheet about his new funding system. It includes this statement:

    The continuation of “Guarantee Funds” allows no district to receive less in formula state aid than it did in the current 2013 fiscal year

    That might seem to mean that we'll get at least as much funding the next two years from the State of Ohio as we got this year, and can therefore breathe a collective sigh of relief. But we have to remember that "formula state aid" is only one of two funding streams from the State, albeit the largest one, at about $34.5m per year.

    The other is the reimbursement for the revenue lost with the elimination of Personal Property Taxes, way back in 2005, during the Taft Administration. Since then, we've been getting millions of dollars each year to reimburse us for the loss of that revenue stream.

    This revenue stream was scheduled to phase out at a pace that would cause it to disappear by FY2016, but in the first Kasich budget, the phase out was accelerated, causing it to drop from $12 million in FY11 to $6 million this year (FY13).

    We received some assurances two years ago that this funding stream would remain at $6 million through FY17, but it's not a sure thing. Any cuts in this stream just widens the funding gap I expressed concern about
    expressed concern about back in October.

    So we can't relax yet - we still need to hear the rest of the story....

    1. My friend Marc Schare (Worthington School Board) reports that during the press conference, it was announced that there would be no change to the phase-out schedule for PPT reimbursement. It that's what makes it through the General Assembly, then we should be able to count on at least stable funding from the state for the next two years.

    2. We should always be skeptical of government, ESPECIALLY with this administration.

      Kasich has been bragging his proposed funding scheme gives my district 25% more state funds. Well, it does in formula aid - a whopping $125 more per student.

      At the same time, he's told us that our TPP reimbursement is going to be eliminated. Combine that with formula aid, and our district is getting an 84% CUT in state funding.

      His whole "solution" to the constitutionality problem only makes it worse, IMO. He has defined wealth by taxable property per pupil. In other words, in order to determine what a local district can afford, he only considers property. Isn't that the problem?

      So our district is viewed as being just as wealthy as an adjacent district. We have almost the exact same taxable property value per pupil. However, our district has nearly 4 times the rate of "economically disadvantaged" students. 3x the limited english proficient. And our median household income? Less than half as much.

      See, we're largely a blue collar community with a few wealthier pockets. We also have a LOT of retirees. Because we have fewer students per household and had that TPP funding, we can currently spend just as much with a much lower tax rate. That's nice. But get rid of TPP and you just have property values. Then you have the problem that a 3% tax rate on property means something completely different when you're income is $50k per year than it does when your income is $100k per year. Those with higher household incomes have more disposable income and greater ability to pay than those with lower household incomes. But Kasich's proposed formula doesn't take that into account at ALL. It only looks at property values.

  2. Paul,

    If teacher salary is a taboo topic then I do not know what to say. The cost per student in Hilliard is $10,697 and the range for outstanding with e is $10k to $15k.

    Almost 90% of operating costs is salary plus other welfare costs (vacation, retirement ect).

    The web site indicates 15,726 students and 1146 teachers. I will assume they have placed anyone with a teaching cert in the class, even though they are not in classroom. The ratio as posted would be 13.7 to 1.

    If our costs are in the lower range of the class is that where our teachers are paid. Would a lower paid teacher fail to meet these same levels orf recognition.

    Has our large pay out for teachers to retire placed a less qualified teacher in the classroom? Is there any relationship between what a teacher is paid and the quality in the classroom.

    While it is good that our money is going to teachers in the room where the children are. How many of the teachers listed on the web site are in the classroom.

    If the costs of education is not in how many childern per teacher, and dollars per teacher. Please let me know why I pay what I do for school tax on a $250,000 house.

    1. Teacher salary isn't taboo as long as it's a respectful dialog. It just rarely is.

      I agree with you that the student-teacher ratio needs some examination. I have asked for some data that should help get this conversation started, if my colleagues a willing to have that conversation.

  3. It is a choice of continuing on a spending spiral that is not sustainable without major local tax increases, or the courage to make some cuts, align some classes that can be taken on line, and a hard look at curriculum and the number of students participating. The other wildcard is the upcoming contract negotiation and the increased costs associated with that increased expenditure.

    Notice the word courage which is shaky at best with the current group leading the way.

    We cannot even get our board or admin. to address a bloated supplemental contract situation. We continue to allocate funds at every board meeeting for outside
    activities to monitor. No one seems to care at all
    that we have employees collecting multiple stipends that are totally outrageous. Why are we subsidizing extra activities to the tune of 1,000 dollars plus apiece.
    Why are we paying coaches to supervise weight rooms. This is part of the responsibility as a coach. What should be noticed is that many are getting stipends to supervise out of season. I wonder that this does not somehow violate practice participation rules. If we are going to provide 18 hour access, then a fee should be
    assessed to the participant. If we are paying 1,000 for a Safety Patrol monitor, (ridiculous amount) why not recruit volunteers, or those out of work, seniors, or others for a much smaller stipend if this has to be a
    payinng position. Why have we negotiated these types of
    over the top paymengts. It is because well, it has allways been that way or it is just what it is, which is
    just reckless, ignorant, and more in line with the head in the sand attitude of the gang of four and its supportetrs.

    Next vote for levy will include eliminating busing, athletics, activities, shutting down buildings to the public, so instead of being able to save rightknow the same spending o9ccurs and no one gives a rats,

    It is a good thing our district employees do not work in the private sector, because there you do not get paid
    for every little extra thing. It is called cost containment

    And Paul in the name of communication perhaps Brian can give us a recap of total spending the last 3 years on supplementla salarys, it would show some good will toward the taxpayer on where the millions, note not thousands of dollars are being paid out for extras.

    1. I don't know if I'll still be a board member when the next levy debate takes place (likely in 2014), but I will not vote in favor of cutting more kids off from access to our transportation services. We might reasonably have a conversation about increasing the extracurricular participation fees, but that won't have much impact on the bottom line.

      As I've said many times, it's all about how many people we employ, and how much we pay them.

      I've have some data on supplemental and stipend pay: $1.5 million/yr for supplementals and $680,000/yr for stipends. As you say, this too needs to be part of the discussion.

  4. Paul,

    The "let the State pay for everything" crowd are in for disappointment when you consider Kasich's goal is to eliminate the State Income Tax entirely while not increasing the Sales Tax (one of the reasons he's high on the tax on companies exploiting our natural resources).

    The larger problem is that $10k/student is too high. Many private and charter schools do it on much less, and in many cases provide a better education.

    But then they don't throw massive dollars at sports programs...

    1. Whether $10K/student is too much or too little (or just right) is a matter of opinion of course. There are 7 public school districts in Ohio ranked Excellent or Excellent with Distinction which choose to spend $15,000 or more per student. Their choice, and they do it with very little State money.

      It would be a near-miracle for the Governor to eliminate income taxes. Listen
      to his presentation on the new school funding system - he laments being unable to do away with the so-called funding 'guarantee' because of the political opposition. That small potatoes compared to the income tax...

    2. By the way, our sports programs add under $200 per student to our annual costs. Extracurriculars are put on the cut lists simply for the political leverage.

    3. Paul... I am not talking about just the stipends. I am talking about all the capital expenditures on sports fields, etc., and the labor costs on the folks who take care of the buildings, stadiums, etc.

    4. I take your point regarding the labor costs (also utilities and other maintenance costs).

      Of course, all those capital costs are also 'sunk costs' in that we can't do anything about them now. Even if we completely shut down extracurricular athletics at this point, we still have to pay off the bonds issued to fund the construction.

    5. Some things to consider on private and charter schools "doing it for less":

      1) Many (not all) charter schools are performing terribly. I believe it is something like the bottom 110 schools across the state are ALL charter schools, and we only have ~350 charters in the state, IIRC. Many of the remaining ones still perform worse than the districts that they are supposed to be saving kids from. That's not an impressive record.

      2) Private schools costing less? Well, maybe. Our local catholic elementary costs ~$9,000 per year. That's below the list cost per pupil of the public elementary around the corner. But those costs are deceiving. The cost for the transportation, books, and some teacher aides at the catholic school are actually carried on the books of the public school district. That inflates the cost of the public district and artificially lowers the cost of the catholic school. Furthermore, the catholic school doesn't accept students with disabilities. And as I'm sure Paul can tell you - those are EXPENSIVE students. Not saying we shouldn't provide the services, but the costs are much higher. My wife teaches in one of these classes - the students require intensive 1:1 interaction, physical therapy, occupational therapy, speech therapy, etc. Those students can easily cost $20-25,000 per year. 1 in 6 kids in our district have disabilities. That's a HUGE driver of costs.

    6. I think our public schools are a bit like the US Postal Service:

      1. They exist because they are mandated by law.
      2. They once had pretty much an exclusive market, but that market has been cherry-picked by competitors who aren't required to offer the most expensive services (e.g. the high-needs kids for the schools; point-to-point envelope delivery from a little holler in WV to the most remote island in Alaska).
      3. Their labor forces are unionized while those of their competitors are not.
      4. Their prices aren't set by the market, but rather by political bodies.

      I come from the telecommunications world, which started out as competitive market with many players, then was allowed to consolidate to essentially one private corporation (AT&T) for the good of the country. Then technology enabled competition, AT&T was broken up, and for a while, there were lots of phone companies. Finally, as tends to happen in any capital intensive market, it has reconsolidated down to a few strong players.

      Through all that, universal telephone service has been maintained. Policies and funding structures were developed such that in order to be allowed to compete in highly profitable markets, the suppliers had to agree to still provide phone service to every residence in their region.

      I think the same thing can be done with the mail delivery market. Let the USPS set their own prices, but also require FedEx and UPS to have a relatively cheap offering for delivering an envelope to places with low population density, which they would have to subsidize with their more profitable routes.

      I think the same kind of thing could happen with our schools: remote the exclusive boundaries, and let school districts compete for kids. Subsidize the poor kids and high needs kids with a surcharge levied on all tuition.

      I just don't believe that we release all the potential in our education community until there is a competition for customers, balanced with a subsidy scheme to make sure we don't leave anyone out. It worked for telecom. I think it can work for schools.


    Upon reading the Dispatch and this web site addressing the Govenors proposed Education funding I wanted to learn more about history.

    In the past when proposed funding cuts were addressed this district web site was quick to say how bad this was and how it was going to effect HCSD. I suggest you look at the district news web site.

    One example would be the 3/16/11 posting. I have noticed there is no new news posting with a review of this non cut proposal. It seems like good news as there might not be any cuts!

    I was insulted when the district passed the last levy and their statement of how long they would make it last. I would like to remind the district and board that they levy will last forever, as we never pass anything but permanent levys. However they should learn that there will be new levy requests passed until the voters say so!

    So there are no big cuts coming from the state. Has or will there be a check from the state or county from the casinos? I have not seen that posted on the web site. It sems they only post cuts and possible cuts, not new or possible new money.

    So if there are no cuts and more money then the next levy might be longer than we thought. With all the cuts we make and all the savings plus no cuts and mory money, happy days are hear again!

    I suggest every tax payer watch what happens next, the teacher contract. I'am wiling to take bets on who makes more money in the future and what goes up to pay for it.

    Joe Taxpayer

  6. Thank you Paul for your update. If we conservatively look at an immediate response right now on adjusting the supplemental now or if necessary during the next contract
    we could easily save 450,000 per year, using cuts and fees
    and we could save in two years 900,000 dollars. Will certainly SAVE busing which I agree is untouchable in this large geographic district

    Courage and will we get any assitance from the media and during those pathetic question and answer so called independent question screeners throwing softballs at potential board members.