When Governor Haslam announced this week that he plans to eliminate his proposed 2 percent salary increase for Tennessee Teachers, he didn’t just leave educators out in the cold. He’s now left counties and school districts across the state with even fewer resources to implement the State Board of Education’s plan to mandate that school districts adopt differentiated pay scales.
His announcement embodies a more disturbing trend that continues to see inadequate resources allocated to our state’s public education system. As of 2011 we were sixth from the bottom, beating out only Mississippi, Arizona, Oklahoma, Idaho and Utah. And that number doesn’t appear to be going up anytime soon, at least on the state’s end. 2010-2011 did see a 2.2 percent increase in state per pupil spending, which represents only a $177 increase per child.
Local governments need to face up to the fact that we can expect little to no additional help forthcoming from the state at this point. With that in mind, it’s time for counties across the state to come up with alternative ways to increase funding for their schools.
First, Who Funds Schools in Tennessee?
In Tennessee, the primary local funder is the county. Cities can contribute to schools as Memphis did in the days of MCS, but the burden by default lies with county government. While the state contributes a significant portion to education funding (54 percent in Shelby County), local governments have no control over this amount, which is determined by the states Basic Education Program formula. With the exception of special school districts, which are very uncommon (by my count only 26 exist), school districts themselves have no taxing authority and must rely on the state and county to provide almost all of their funding.
The Biggest Sources: Sales and Property
The most readily available tool for raising county revenues is the property and sales taxes. Across the state, every county but three has a sales tax of 9 percent or higher (as of 2005) including all city, state and county sales taxes. Because they are already high, sales tax increases seems a risky political option at best.
Property tax rates vary much more highly, from a high of $7.29 composite across the city and county in Shelby/Memphis to a low of $1.24 composite city and county in Cumberland. If municipalities currently have lower property tax rates (you can find your municipality’s property tax rate here), this represents the most viable and immediate option for increasing funding for public education, though it will likely prove dicey in a time where the trend has swung away from raising taxes in any form.
An Immediate Alternative: User Fees
For counties or special school districts where a property tax raise is simply untenable, a few options exist. In the short term, the most available option for increased revenues is to increase user fees. These fees are charged to residents for specific services to recover the operating costs for those services. Typical user fees target water services, fire protection, garbage collection, parking fees, recreation fees and licenses and permits. While funding generated by user fees would not go directly to education, it would free up departmental funding in some areas that could then be allocated to the education fund.
This isn’t just a Tennessee specific policy. Governing.com reports that increases in user fees have brought in an additional $1.5 billion in revenue for local governments across the country in the past three years. Residents typically find user fees a more acceptable form of taxation because they only impact those that use a specific service, making them seem fairer to the public. Think about the last time you paid for public parking, trash service or park permits. You just paid a user fee.
A Long Term Alternative: Increase the Property Tax Base.
For municipalities where tax increases are simply untenable in any form, another option is to increase the tax base. One mechanism to facilitate this is a tool called Tax Increment Finance, or TIF as it is more commonly known. TIF focuses on redeveloping blighted areas by freezing property taxes for a predetermined period of time and uses existing revenues to pay for public works improvements to attract businesses to the area. In the long run the idea is that businesses will move in, increasing the future property tax value of the area. Once reassessed, the windfall in property tax revenue can eventually be used to support other programs.
While this is not a common practice in Tennessee at the present, several local governments have already demonstrated the power of TIF as a means of increasing their property tax base, notably Hendersonville, TN. The city is currently undertaking a project that is projected to raise property values from $26 to $187 million in the TIF area. This equates to $4.6 million in new property tax revenue for the city which can then be allocated to public education.
TIF has also been used to high effect in Chicago, where it is estimated that TIF has generated an additional $4.6 billion in additional property revenue since 1986.
Because it targets business and brings in additional consumers to a municipality, TIF has the added bonus of increasing sales tax revenue along with the property tax, meaning local governments can expect a double increase in the long run.
A Legal Alternative: Sue the State
If all else fails, counties and special school districts across the state could consider banding together and suing the state for full funding of the state’s Basic Education Program (BEP). For perspective, former Governor Bredesen overhauled BEP in 2007 and proposed to allocate an additional $475 million to public schools each year. However, the legislature has never fully implemented this plan, and is projected to fall short by $146 million this year.
This is the most extreme option and not to be taken lightly given the backlash that it is likely to cause. However, a precedent for this type of action exists as districts across the country have been doing this for some time. Courts in Kansas and Washington have in the past ruled in favor of local school districts that brought suit against their state governments charging that inadequate amounts of money were being spent on education. Currently ten states across the country have school-finance challenges working their way through state courts, and most recently districts in Texas won their suit for increased funding.
If successful, this option would produce an enormous windfall for counties and special school districts to the tune of the a fore mentioned $146 million yearly. Locally, Shelby County would see an additional $28.4 million per year if BEP were fully implemented.
Other Alternatives
While I believe these represent the best alternative funding sources for local governments, other options exist as well in Tennessee. State law allows for a local business tax, a wheel tax, a hotel/motel tax, a beer wholesale tax and PILOTs, which are another way to increase property tax base. The chart below shows revenues from 1999 from each of these taxes. Each county would need to determine which of these additional taxes would be a feasible alternative for raising revenue and determine which already exists in their area ($ in millions of dollars):
Other types of taxes that local governments may consider, millions of dollars
Source: http://www.state.tn.us/tacir/PDF_FILES/Taxes/MiscLocalTaxesandFees.pdf
Conclusion: No Easy Options
None of these options are easy, but given the unlikelihood of increased state funding, local governments need to start looking for alternatives to ensure that their public education systems continue to receive adequate funding. We should be doing everything in our power to find every dollar available to continue to support public education in our state.
By Jon Alfuth
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Categories: School Finance
One way to get extra money for schools is to end the excessive standardized testing. That costs Shelby County Schools millions of dollars a year, and the state, millions more. Plus, ending the testing will make education better. It’s a win-win.
Unfortunately that’s not something that Shelby County (or any Tennessee County) has control over, so its kind of a moot point given the nature of the piece in focusing on ways that counties can raise additional revenues.
They do have control over the interim testing. Isn’t that correct? I was under the impression that “discovery testing” was a district decision. The district pays for it, not the state.