Indiana public school funding woes come down to economy, new law

In 2008, the Indiana General Assembly responded to soaring statewide property tax bills by boosting the portion of K-12 education funding covered by the state government from 85 percent to 100 percent.

Since the state derives its revenue from sources other than property taxes, doing so offered some relief to homeowners. But it also meant that education funding would be more directly affected by economic ups and downs, since property tax payments remain relatively stable, but sales and income tax collections can vary significantly.

The current fiscal downturn began just months after the change took effect — a fact that forced legislators to make some tough choices in June 2009, as they prepared the biennial budget.

Legislators had to decide who would feel the most pain — urban and rural districts with declining enrollment but greater challenges, or rapidly expanding suburban districts where class sizes are growing quickly.

The funding formula they came up with left all sides somewhat displeased.

A coalition of three school districts, led by Hamilton Southeastern Schools, a quickly growing district just north of Indianapolis, has filed a lawsuit alleging the formula is unconstitutional.

Adding to the pain, now, Indiana's tax revenue has fallen short of expectations for 17 consecutive months, forcing Gov. Mitch Daniels to order spending cuts.

He reduced state agencies to bare-bones operations. He slashed $150 million in higher education spending. He ordered pay freezes and hiring freezes for state workers. And, in December, he made cuts he said came as a "last resort" to K-12 education.

School districts saw their funding levels reduced 3.5 percent from what they were set to receive through the two-year budget state lawmakers passed in June. That amounted to nearly $300 million in cuts statewide.

According to state Sen. Luke Kenley, the Noblesville Republican who is a key negotiator in General Assembly conference committees, lawmakers have worked out an agreement on a bill they're likely to pass this week that would give schools some extra financial flexibility.

Districts would be able to tap into of their capital projects funds, which are paid for with property tax collections and ordinarily cover expenses such as roof re-pairs and new computers.

They could use as much as 5 percent of those funds, or $850,000 this year for the Evansville Vanderburgh School Corp. and $400,000 for the Warrick County School Corp., to lessen potential teacher layoffs and program cuts.

That amount would double for school districts that agree to salary freezes for all employees except those teachers due long-scheduled incremental pay increases based on years of experience.

Some extra flexibility might be possible, Kenley said, by allowing schools to use reserve money left over in other funds at the end of last year for the same purposes.

All told, the bill could ease the burden of 3.5 percent state funding cuts that amounted to $6.5 million for the EVSC and $2.5 million for Warrick County schools.