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New K-12 funding formula will impact local taxpayers, but how much?

Education Commissioner Penny Schwinn talks to a student after a press conference Friday, Oct. 8 in Nashville. Schwinn said the new budget formula would be “student-centered,” rather than “district-centered.” (Ian Round/Daily Memphian file)
Education Commissioner Penny Schwinn talks to a student after a press conference Friday, Oct. 8 in Nashville. Schwinn said the new budget formula would be “student-centered,” rather than “district-centered.” (Ian Round/Daily Memphian file)

The proposed new funding formula for public schools will lead to a “fiscal cliff” looming on the horizon for local schools. Or it won’t. Or maybe it’s all just a mirage.

“Counties are going to be stuck with a higher bill after four years,” said state Rep. John Ray Clemmons (D-Nashville) in a recent committee meeting.

“There is no fiscal cliff,” replied Penny Schwinn, the state’s education commissioner. “We’ve lowered the local bill. The majority of school districts will do really well.”

Who is right? It’s complicated.

False argument?

What is at issue is reform of the Basic Education Program (BEP). The proposed new funding formula is known as TISA, or the Tennessee Investment in Student Achievement (TISA) funding formula.

David Connor
David Connor

“It’s a false argument,” said David Connor, executive director of the Tennessee County Services Association,” said of the local impact.

TISA would reduce the required local match. But that is “essentially meaningless,” he said. Districts already are putting in a lot more than required.”

Nearly $2 billion a year more than required under BEP.

That’s just one of the complicating factors state legislators are encountering as they try to assess the impact of Gov. Bill Lee’s big push to change the way public schools in Tennessee are funded.

Senate and House finance committees are expected to take up the proposed Tennessee Investment in Student Achievement (TISA) funding formula this week. A final vote in both legislative bodies could come soon.

The stakes are high. A new funding formula will impact every public-school student, teacher and community across Tennessee for years and maybe decades to come.

It also will impact every taxpayer, although no one is entirely sure when, where, or by how much.

“It’s difficult to project, difficult for us to tell,” Connor said. “It’s such a significant change in how it’s calculated.”

Half and half

Before the BEP was established in 1992, the state covered about half the cost of each pupil’s K-12 public education. Local governments were required to cover the other half.

That didn’t work so well for students in many small, poorer rural school districts with low property and sales tax revenues.

“Many schools in the rural districts had decaying physical plants, inadequate heating, showers that did not work, buckling floors, leaking roofs, inadequate science laboratories, and outdated textbooks and libraries,” the state Supreme Court explained.

“Some of the school districts were unable to offer advanced placement courses, more than one foreign language, or the state-mandated art and music classes, drama instruction, and athletic programs.”

In 1988, 77 small school districts sued the state for help. The court ruled in their favor, saying the state had a constitutional obligation to provide “substantially equal educations for all students.”

That ruling gave birth to the BEP, which repaired but didn’t resolve the funding issues. Legislators have revised it over the years, but it still comes up short.

“Tennessee’s BEP formula funding is wholly inadequate to properly fund school districts across the state,” the Education Law Center reported last year. “Tennessee’s BEP formula funding is deeply inequitable, with staffing shortages in the poorest districts noticeably worse than in wealthier districts.”

State’s share varies

Under the BEP, the state now covers about 66 percent of the amount of K-12 funding generated by the formula.

But the state’s share varies, depending on each county’s “fiscal capacity” — its ability to generate local property and sales taxes.

For example, the state covers about 90 percent of the BEP bill in Appalachia’s Union County, but only about 25 percent in the Franklin Special School District in suburban Williamson County.

The state covers about 55 percent of the BEP in Memphis-Shelby County Schools. But less than half the total bill for more affluent Davidson County.

Local school funding varies widely for other reasons.

The BEP generates about $11,000 per student, which is about $4,000 less per student than the national average.

In fact, Tennessee ranks 45th in the percentage of annual GDP that is allocated for K-12 schools.

Of the 141 school districts in the state, 111 don’t have a single social worker on staff. Twelve districts don’t have a social worker or psychologist.

And every school district hires more classroom teachers than the BEP funds — about 11,000 more across the state.

Local governments try to fill the gaps.

Burden falls on districts

Nearly every school district in the state provides more funding than the BEP requires.

In fact, actual local funding exceeds what the BEP requires by 76 percent overall.

Some districts can afford to provide more local funding than others.

The Franklin Special School District provides more than $9,000 per student in extra funding. McMinn County in East Tennessee adds an extra $29 per student.

Shelby County adds $2,269 per student, about $800 more than the average district, but less than half of what Nashville-Davidson County Schools provide.

The BEP’s inadequacies and inequities are being challenged again.

In 2015, Shelby County Schools, the state’s largest district, filed a lawsuit claiming that the state’s funding pie for public schools isn’t big enough, and it isn’t apportioned fairly.

The BEP “fails to take into account the actual costs of funding an education,” the lawsuit claims, especially for “a disproportionately high number of students who are minorities, have disabilities and live in extreme poverty,” the lawsuit stated.

Metropolitan Nashville Public Schools joined the suit in 2017, and 87 smaller districts joined in 2020.

Lawsuit postponed

The lawsuit was originally set for trial in Davidson County Chancery Court in 2019 but presiding judge Claudia Bonnyman retired that January.

The lawsuit was set again for trial in 2020, but presiding judge Ellen Hobbs Lyle recused herself after Republican legislators tried to have her removed from the bench for her ruling that expanded absentee voting.

Gov. Bill Lee
Gov. Bill Lee

The lawsuit was set again for trial in 2021, but it was postponed after Republican legislators passed a law that required the case be removed from Davidson County Chancery Court and be heard instead by a three-judge panel representing East, Middle, and West Tennessee.

The lawsuit was set again for trial earlier this year, but it was postponed after Gov. Lee announced his intention to replace the BEP with a new “student-based” funding formula.

“K-12 funding is complicated, it’s bureaucratic,” Lee said last year. “Everyone recognizes that our BEP formula is one that few understand (and) many do not like.”

Lee’s proposed TISA formula might be less complicated, but its potential fiscal impact on local government isn’t.

In large part, that’s because the new formula doesn’t change two arcane but key factors in how the state calculates local shares.

Capacity matters

The first is fiscal capacity. That’s an annual estimate of each county’s ability to raise local revenue for schools.

Counties with less ability to fund education — a lower fiscal capacity — generally receive a higher percentage of state funding and have a lower local match than counties with more capacity.

But Tennessee’s unique approach complicates the matter.

“The way Tennessee calculates local fiscal capacity is a big reason our state has one of the most complex education funding formulas in the country,” the  opens in a new windowSycamore Institute explained.

The state uses two models to estimate each county’s fundraising capacity.

One considers only two variables: county property tax revenues property sales tax revenues. It’s called CEBR.

The other considers four additional variables: per capita income, student population ratios, local tax burden, and property values. It’s called TACIR.

What the acronyms mean is much less important than how they work.

TACIR tends to favor rural counties. CEBR tends to favor a handful of urban counties, such as Shelby and Davidson. The calculations are updated every year.

TACIR was the original model for the BEP. The state introduced CBER in 2008, intending to phase out TACIR. But in 2016, the legislature decided to keep both models.

The new funding formula as originally proposed used only CEBR “to provide additional financial assistance to economically distressed and at-risk districts.”

Legislators put TACIR back in.

“Tennessee may be the only state that averages two calculations of local fiscal capacity,” Sycamore noted. “This approach is hard for the average citizen to understand, (but) Tennessee’s complex model may better capture the nuances of local fiscal capacity than simpler methods.”

Drop in the bucket

There’s a second key factor in local education funding that isn’t changing. It’s called maintenance of effort, or MOE.

Using its two fiscal capacity models, the BEP calculates a minimum amount of funding that each school district must contribute to its K-12 schools.

But to make up for the BEP’s shortcomings, nearly every school district in the state contributes more than the BEP minimum.

Take Memphis-Shelby County Schools, for example.

The BEP requires the district to put in at least $283 million a year into its K-12 school budget.

But the county already puts in about $486 million — more than $200 million more than required — to cover the large, relatively poor urban district’s needs.

The larger figure is the district’s MOE. State law prevents school districts from reducing the amount of local money they already contribute.

That’s how the mirage forms, some argue.

Under TISA, the opens in a new window state’s share of K-12 funding for MSCS would rise from $654 million to $759 million by 2030 — an increase of $105 million.

But that’s less than half the extra $232 million MSCS will be putting in every year by 2030.

TISA would shrink the local funding gap some, but not nearly enough to close it.

The same is true statewide. TISA’s required local match would be $2.5 billion, down from $2.6 billion under BEP.

“But we’re actually putting in about $4.3 billion in local funds which we can’t reduce,” Connor explained. “So they reduce the required local match, but that is essentially meaningless.”

Pay raises

Legislators from both parties brought up another X factor: Teacher pay raises.

The state plans to raise a teacher’s minimum salary from $39,000 to $45,000 by 2026.

When minimum salaries go up, so do all salaries in the state’s schedule for licensed teachers.

And pay raises would go to all existing teachers, including the 11,000 or so teachers whose salaries aren’t covered by the BEP.

Rep, Scott Cepicky
Rep. Scott Cepicky

“If we give a pay raise every four years to teachers, what happens in Year Five?” state Rep. Scott Cepicky (R-Culleoka) asked. “It’s going to change the bottom line for the local districts.”

That’s the “fiscal cliff” some see in the distance.

Schwinn is telling legislators and counties not to worry. “There is no fiscal cliff,” she said. “We’ve lowered the local bill.”

Schwinn noted that the TISA proposal includes $125 million for teacher pay raises next year. And state projections show local shares won’t exceed MOE’s for at least seven years and probably more.

But the projections don’t include pay raises. The state would have to add another $100 million or so every year to cover each $1,000 annual pay raise. That would increase TISA’s per-student base about $100.

Local districts would be required to cover about a third of that, or about $30 per student, depending on their adjusted local share and how many extra teachers are funded locally.

“If the General Assembly continues to earmark funds for teacher salaries, and the State Board of Education keeps raising the minimum salary schedule in response, that could cause the local contribution to go up much sooner, unless they make drastic cuts elsewhere in order to pay for the raises without investing new local dollars,”  opens in a new windowConnor explained.

“Those systems wouldn’t technically be required to put more money in, but they would have to redirect a lot of their current spending right now to salaries. Personnel costs are such a large percentage of education funding, at some point you cannot make enough cuts elsewhere to come up with the funds to cover increasing personnel costs.”

This story first appeared at dailymemphian.com under an exclusive use agreement with The Institute.

Written By

David Waters is Distinguished Journalist in Residence and assistant director of the Institute for Public Service Reporting at the University of Memphis.

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