Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. His column appears in Indiana newspapers.
There is almost no subject in public finance that is as easy to demagogue, distort and mislead as funding for schools. It is helpful to review what is happening in Indiana and how we got here.
In 2008, along with property tax reform, the entirety of the school operational funding was shifted from local taxpayers to the state general fund. This is part of a nationwide trend motivated largely by a series of successful lawsuits that forced states to eliminate the funding inequities between rich and poor communities. Indiana was wise to do this. The last thing Hoosiers need is for the courts to come up with school funding formulas.
The result of the funding shift was beginning in the 2008-2009 school year; the state paid instructional costs while local governments largely paid for new facilities and transportation. More money can be raised through local referendum, but schools today take almost half the state budget and more than four out of 10 local property tax dollars.
Those local property tax dollars are dependent upon the amount of taxable property in a school corporation, the tax rates collected by other taxing authorities and the amount of property taxes abated or absorbed into tax increment financing (TIF). The much larger state share is paid out through a school funding formula.
The Indiana school funding formula, like that in other states, sets a base rate and then adjusts it for a variety of factors. These factors basically result in more payments to school corporations with poorer kids. The result is that relatively affluent places like Zionsville get a tad more than $5,500 per student while Muncie received more than $7,100 per student and East Chicago schools something like $8,050.
The legislature has twice revised the formula in recent years. One move eliminated a clause that counted students after they left a school. The second flattened the payment differences between schools. Both of these moves were aimed at reducing the bias in funding that short changed growing communities. That bias remains very large. In the example above East Chicago receives more than $60,000 per classroom than does Zionsville.
The simple fact is that Hoosier students have been getting budget increases each year since the recession ended, yet a surprising number of folks think otherwise. Since funding is tied to students, not schools, population decline leads to overall budget reductions even when per student spending is rising. The demagoguery and distortion is easy when there is a very strong nexus between school performance and population growth. With a handful of exceptions, low-performing schools are losing population while high-performing schools are growing. Households vote with their feet on these matters.
Budget cuts and budget increases occur for good reasons, and we all should understand why and how these budgets change. In the end, trimming budgets is difficult, necessary work and Indiana taxpayers should not be subsidizing shrinking communities.