equity in funding for iowa's public schools: is this an issue?, Exams of Finance

Download equity in funding for iowa's public schools: is this an issue? and more Exams Finance in PDF only on Docsity! EQUITY IN FUNDING FOR IOWA'S PUBLIC SCHOOLS: IS THIS AN ISSUE? A Dissertation Presented to the School of Education Drake University In Partial Fulfillment of the Requirements for the Degree Doctor of Education by Thomas J. Fish May 2002 EQUITY IN FUNDING FOR IOWA'S PUBLIC SCHOOLS: IS THIS AN ISSUE? by Thomas J. Fish May 2002 Approved by Committee: %.a- / Dr. Ben Norman of Education 4. STATE FUNDING PROGRAMS Texas School Finance Plan Ohio School Finance Plan State Funding Calculations Ohio Funding Issues lowa School Finance Plan Additional Levies in Iowa 5. SUMMARY, CONCLUSIONS, IMPLICATIONS AND RECOMMENDATIONS Summary of Issues Conclusions Implications and Recommendations REFERENCES APPENDIXES A. Vision lowa Infrastructure Grants 1 Capacity per Pupil B. State Corr~parisons funding fssues C. Coalition for Common Cents vs. State of lowa D. Net Taxable Valuations per Budget Enrollment E, lowa School District Expenditures All Funds F. lowa House of Representatives House File 660 Page 63 63 70 73 76 80 85 Chapter 1 CONTENT OF STUDY Over the past 10 years, the method for financing public schools has been declared unconstitutional in 18 states by their respective state supreme courts. The schooi-finance suits focused on the equity and adequacy of state funding. General fund budgets were not the sole focus of court litigation. Thirty-seven states provided various amounts of funding for school construction, renovation, or replacement of school facilities. The pursuit of funding equity became the legal strategy in challenging school finance systems. As the gap widened between rich and poor districts in the country, so did the services that students received when they arrived. Court rulings in recent years defined an equitable system of school funding as one ( I ) where all school districts within a state received an adequate "foundation" level of funding sufficient to provide a basic education to all its students; (2) where adjustments were made in funding for districts with relatively large numbers of students in poverty, with limited Engfish proficiency, and with disabilities; and (3) where local communities were allowed an "equal opportunity" to increase their school budgets by increasing local taxes. As state legislators wrestled with adequate funding for general programming and school facilities, the sources of funding were being increasingly scrutinized (Alexander & Alexander, 1992). Only five states have never been sued over school-finance issues: Delaware, Hawaii, Iowa, Mississippi, and Nevada. The State of Hawaii consists of only one school district, that one run by the state, so in effect there were only four states that could be challenged but have never reached litigation. In lowa there is considerable concern that there is not equitable distribution of funds, especiafly for school facilities. School infrastructure funding was historically a local issue with property tax as the sole source of funding. In 1998 a new funding mechanism in the form of county-wide local option sales tax was instituted and allowed school districts to generate local infrastructure funding. Districts in retail centers had the ability to generate infrastructure funds at a much higher rate that rural counties. The disparity between districts on a per- pupil amount in potential sales tax revenue was in a ratio of 1:10. Louisa County, a rural county in southeastern Iowa, could only generate $95 per student while Polk County, in the Des Moines metropolitan area, generated $980 per student. The combination of property tax, with an inherent wide range of assessed valuation, and local option sales tax combined to make the major funding mechanism for school infrastructure in lowa. The legislative priorities for several education groups for the 2000-2001 session contained language to provide equitable funding for school infrastructure. The lowa Association of School Boards completed its annual Delegate Assembly in the fall of 2001 and created resolution statements for presentation to the lowa Legislature. The following two statements were ratified by the Delegate Assembty: The Iowa Association of School Boards supports adequate state infrastructure funding for school districts, area 5. How did Iowa compare to the states of Ohio and Texas in school finance programming following the court rulings in each state? 6. What recommendations could be made for lowa from the direct comparisons made with Ohio and Texas prior to litigation and From finance reform implemented following court rufings? Methodology This three state comparative study focused on the funding mechanisms for school infrastructure in three states with recent history of court challenges or consideration for challenge to their school finance system. Selection criteria for the states that were compared to lowa and the sources of data in this comparative study are described in detail. The sources of data included professional education associations, state governmental agencies, and court transcripts. The general school finance programs and terminology used in the litigation states leading up to the court challenges and the reforms necessary to meet constitutional muster are thoroughly described. These descriptions led to direct comparisons of lowa to each state individually and coniparisons within the three selected states. Final conclusions are reported and recommendations for potential solutions in lowa are also provided. Selection of States Litigation of school funding systems were commonplace in the past decade. Several states across the nation and their respective supreme courts determined their school funding systems did not meet constitutional muster. Eighteen states were challenged in their respective Supreme Courts and were ruled unconstitutional. The two states chosen for this study have been through litigation at the state Supreme Court level with an end result in violation of constitutional language. Iowa faced a law suit pending to challenge the local option sales tax for school infrastructure in early 2002. Funding for facilities was the impetus for declaring school funding inequitable and unconstitutional in the states of Ohio and Texas. These three states noted inequities in school facility funding as part of the ruling for unconstitutionality. Ohio's school funding was challenged in the courts twice since 1997 with rulings of unconstitutionality in 1997 and again in May of 2000 (DeRolph v.State, 1997, DeRolph v.State, 2000). The Ohio Supreme Court ordered mediation with a 4-3 ruling in November of 2001 and hired Howard S. Bellman to facilitate discussion with state leaders and the plaintiffs representing the coalition of school districts that sued the state. The mediation faced a deadline of mid-February. Mr. Bellman faced a 10 week deadline to bring the assistant attorney general representing the Republican majority legislators and Governor Taft, a lawyer representing the school district coalition, and a senator who represented the interests of the Democratic minority in the legislature to consensus on the school finance program in Ohio (Sandham, 2002). Sources of Data -- The general sources of data examined in this study included the state education associations, state governmental agencies, university studies, and court documents, including, transcripts of the most recent applicable court cases. State Education Associations -- The School Board Associations in the states of Iowa, Ohio, and Texas provided publications for their school board members on school finance. The publications were meant to give an overview of the often complicated school financing systems for new and existing board members. The general descriptions from each state school board association publication were utilized to define the entire school finance program including facility funding. The school board associations were also contacts for infrastructure capacity components including property tax rates, assessed property valuation, student enrollments, per-pupil expenditures, per-pupil funding, and unique facility funding options in each state. The state teachers' associations were also data sources for many of the same district statistics that made up the school finance system. The National Education Association and respective state associations compiled student and district data for their membership and proved to be a valuable resource. All three states also had active Associations of School Business Officials (ASBO) that produced similar manuals and publications. School district finance analyzed and reanalyzed. They are a rich source of information that are relevant and grounded in the contexts they represent (Lincoln & Guba, 1985). The legal contexts in court documents in this study satisfied some accountability issues. Lincoln and Guba (1985) described a record to mean any written or recorded statement prepared by or for an individual or organization for the purpose of attesting to an event or provide an accounting. The examples of records in this study included state government annual reports, court transcripts, school board handbooks, and state finance manuals. They referred to documents as any written or recorded material other than a record that was not prepared specifically in response to a request from an inquirer. Examples of documents in this study would include newspaper editorials, speeches, and lesson plan notes. Borg and Gall referred to content analysis as a research technique where the raw material for the researcher may be any form of communication, usually written materials (Borg & Gall, 1989). The majority of content-analysis studies are based on data that was already available and written. The court records and school finance systems in all three states were available for review and analysis from the onset of this study. Content analysis was defined as a systematic procedure for describing the content of communications (Meriarn, 1988). Ethnographic content analysis may be used to document and understand the communication of meaning, as well as to verify theoretical relationships (Altheide, 1987). The investigator must look for insights in which "situations, settings, styles, images, meanings, and nuances are key topics" (Altheide, 1987, p. 68). Three State Comparison The school facility funding in Iowa was compared to Ohio and Texas prior to those states' Supreme Court decisions and following litigation with school finance reforms in place. Iowa's current school finance system was compared to the two selected states pre and post to finance reform. A three step process was followed to provide structure in making the comparisons. The first step of comparison identified common funding streams between the three states. (See Appendix 5.) Specific areas identified in step one will include foundation level funding from the state, categorical funding for specific expenditures, and school facility funding. The funding examples within the state descriptions provided a common structure for comparability between states. Step two examined the issues that led to court challenges and eventual Supreme Court rulings of unconstitutionality in Ohio and Texas. The issues developed across these states will be directly compared to Iowa's current school finance program for similarities and differences. Step three of the stale comparisons examined the remedies and reforms that the courts and legislatures implemented in Ohio and Texas to meet the language of their individual constitutions. An identical comparison completed in step two was made with the capacities to fund school facilities for Iowa to the litigation states after finance reform. Finally, a summary of issues was drawn up and conclusions, implications, and recommendations were made. Issues involved for revisions of state funding are stated in brief. Conclusions for this study are stated and the researcher's views of further issues are detailed in implications, from which a series of recommendations are derived for consideration by Iowa policy makers. invalid. The Court then ruled the finance system was not a violation of the United States Constitution and the Fourteenth Amendment but did violate the California State Constitution provisions and allowed the Legislature six years to bring the system into compliance. In 1976, the case was appealed to the State Supreme Court as Serrano I I and was affirmed. The court did recognize significant increases in foundation levels but considered those increases alone did not eliminate any of the constitutional issues from Serrano I. The Arizona Supreme Court ruled that the equal protection clause within the state constitution was violated and the "general and ~~niform" provision for commons schools was also violated in Shofstall v. Hollins, 1973. Arizona was the first state to receive legal challenge to the language of common schools. The court's interpretation of "general and uniform" was that the state should provide a minimum school year, certify staff, establish course requirements, and did not address the fiscal neutrality issue. Illinois also received a constitutional challenge in 1973 for the provision from Article X, Section I of the Illinois State Constitution: A fundamental goal of the People of the State is the educational development of all persons to the limits of their capacities. The State shall provide for an efficient system of high quality public educational institutions and services. Education in public schools shall be free. There may be such other free education as the General Assembly provides by law. The State has the primary responsibility for financing the system of public education. The plaintiffs felt the stipulation of primary responsibility for financing schools meant the state should provide more that 50% of financing for public schools. The Court disagreed and determined the statement was meant to be an objective and not intended to be a specific order. The most famous case may have been the Robinson v. Cahill decision tried in New Jersey in 1975. The case was first heard in 1972 where facts presented by the plaintiffs showed that 67% of the school revenue came from local tax base. Their claim was the system discriminated against the pupils in poor districts and the taxpayers in those districts by imposing an unequal burden. This lower court ruled that the equal protection guaranteed in the United States Constitution and the New Jersey Constitution was violated and most importantly the state provision of "thorough and efficient system of public education" was also violated. The decision was later heard at the Supreme Court level where the San Antonio v. Rodriguez decision was used to refuse the equal protection notion, but it did rule in favor of the plaintiffs by ruling that the New Jersey school finance system did not meet the constitutional mandate for 'Yhorough and efficient." The legislature in New Jersey made various attempts to satisfy "thorough and efficient" but failed in the eyes of the court, and on May 13, 1976, the court prohibited expenditures by local and state officials after July 1, 1976, for the support of New Jersey public schools unless appropriate funding was realized. On July 1, 1976, at1 schools in New Jersey closed for two weeks which allowed the legislature the impetus to enact a state income tax to comply with the "thorough and efficient" clause and the injunction from the Supreme Court was rescinded. The next case that was deemed unconstitutional came shortly after Cahill was heard in Connecticut in 1977. The Horfon v. Meskill case in the Connecticut Supreme Court reported a link between the range of course offerings, the student-teacher ratios, and library materials to the financial wealth of the district. The court expressed concern toward the lack of pupil equity by linking the variance in financial and educational resources to a variance in taxable resources. The court recognized, as in other states, the San Antonio decision regarding the "fundamental right'" issue but suggested that the Constitution of Connecticut provided a more restrictive protection. The court found the Connecticut Constitution deserved the application of the "strict scrutiny" test (Wood, 1986). We must conclude that in Connecticut the right to education is so basic and fundamental that any infringement of that right must be scrutinized . ..the state system of financing public elementary and secondary education as it presently exists and operates cannot pass the test of "strict scrutiny" as to its constitutionality. school districts lacking in funds and none lacked teachers, buildings, or equipment. They also ruled that "wide discretionary powers" are necessary for the legislature, and under the broad provisions of the Ohio Constitution, the legislature did not abuse its power and the school finance system was ruled as "thorough and efficient." The State of Ohio has since been challenged in DeRolph v. State of Ohio where the school finance system was determined unconstitutional in 1997 and was heard again in 2000 as DeRolph II after legislative actions were put into place. The Supreme Court of Ohio again ruled the school finance system violated the "thorough and efficient" clause and was deemed unconstitutional in May of 2000. The DeRolph /I decision based the "thorough and efficient" violation on the heavy reliance on property tax to fund school facilities and educational programming. The DeRolph cases were used extensively in this study for comparisons between states. In 1994, the Arizona Supreme Court held the state's educational financing system violated the Arizona State Constitution. The court ruled the finance system directly caused substantial capital facility disparities among schools in the state. The system relied heavily on local property tax, created arbitrary school boundaries, and made partial attempts at funding equalization. The same heavy reliance on property tax became the centerpiece of discussion in Ohio and Texas. The court struck down a 1996 amendment to the financing system, and in 1997 the legislature established the ABC Fund (Assistance to Build Classrooms Fund). The governor of Arizona filed a court action in Arizona Superior court seeking a declaration that the 1997 amendments complied with mandate from the I994 Supreme Court to meet the conditions of constitutionality. The Superior Court denied the governor's motion and she appealed to the Arizona State Supreme Court. The Supreme Court heid that the ABC legislation failed to remedy the system's excessive reliance on property tax at the school district level that varied greatly between districts. The legislature created a small fund which had no relationship to the capital needs of any district and did not equalize funding. ft afso imposed extremely different tax burdens on residents of different districts and did not set standards for adequate facilities. Districts were also allowed to opt against funding facilities by choosing not to issue bonds. The ABC legislation violated Arizona State Constitution language for "~~niform" public school facilities and thus the court declared it unconstitutional and suggested the heavy reliance on property tax be resolved by abandoning property tax in favor of funding by a sales tax, income tax, or statewide property tax. The State of Texas has significant history with the San Antonio case in the early 1970s. In 1984 the Texas Supreme Court held the school finance system in violation of the Texas Constitution which lead to new legislation to restructure the system. In t991 the court declared the school funding t~nconstitutional again leading to further amendments that created a two-tiered educational finance system called the Foundation School Program. The first tier of districts were guaranteed sufficient financing for each school district to meet the constitutional provision of a n-~inimum educational program based on average daily attendance. To receive these funds the district had to contribute locaf funds by taxing property in the district. The second tier districts were allowed to supplement basic funding levels with additional taxes up to a specific ceiling. Districts that exceeded this level could elect to consolidate or detach territory, purchase daily attendance credits, or contract to educate non-resident students. Texas has been challenged in court repeatedly and as recent as 1997. The court cases and school finance system will be fully explored in Chapters 3 and 4. There are only five states that have not had some form of litigation regarding school finance. Iowa has not been challenged in the courts, but the trend appears to be continuing to evaluate the constitutionality of school finance systems. The provisions on the basis of equal protection clauses and the definitions of education are the basis for the challenges in over 30 years of litigation. State Constitutional Descriptions of Education The provisions for education in state constitutions vary from very general terms to very specific terms. The descriptors include "thorough and efficient," "uniform," "suitable," and "adequate." These words are considered "terms of art" and are interpreted by the courts to establish the basis that state legislators must follow to establish public school systems in each state. The constitutional provisions must be satisfied and when legislators fail to fulfill these requirements the courts may determine their acts violate the minimal constitutional mandates. There are certain principles underlying all state constitutions. The following five conditions describe all state constitutions: A general diffusion of knowledge being essential to the preservation of the liberties and rights of the people, it shall be the duty of the Legislature of the State to establish and make suitable provision for the support and maintenance of an efficient system of public free schools. The Constitution of Ohio uses wording that secures a thorough and efficient system of common schools. Article VI, Section 2: The general assembly shall make such provisions, by taxation, or otherwise, as, with the income arising from the school trust fund, wifl 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. The Constitution of Iowa has original language that describes a system of common schools. Article IX, Section 12: Common Schools The Board of Education shalt provide for the education of all youths of the State, through a system of Common Schools and such school shall be organized and kept in each school at least three months in each year. Any district failing, for two consecutive years, to organize and keep up a school as aforesaid may be deprived of their portion of the school fund. The above section has been omitted from the codified Constitution with language indicating that certain provisions superseded or obsolete have been omitted from the codified Constitution. A section in the Code of Iowa does refer to the laws that apply to common schools must apply alike. Iowa Code Chapter 274: School Districts in General under Section 2 (274.2) General Applicability: The provisions of law relative to common schools shall apply alike to all districts, except when othenvise clearly stated, and the powers given to one form of corporation, or to a board in one kind of corporation, shall be exercised by the other in the same manner, as nearly as practicable. But school boards shall not incur original indebtedness by the issuance of bonds until authorized by the voters of the school corporation. CHAPTER 3 STATE FUNDING PRIOR TO LITIGATION Texas Timeline Through Court Intervention 1 965, Texas Governor John Connally appointed the Governor's Committee on Public School Education and charged the group with developing a long-range plan to bring Texas forward as a national leader in education. 1968, Texas The Governor's Committee recommended sweeping changes in education, specifically, massive injections of state funds through a broader Minimum foundation Program along with wide-spread consolidation of school districts. The majority of .the committee's recommendations were ignored by the Texas Legislature in 1969 and 1971. A constitutional amendment passed to phase out the state property tax for public education. A declining tax rate was set for 1968 and 1974. I971, Texas The federal district court in San Antonio ruled the Texas system of school finance unconstitutional in Rodriguez v. San Antonio ISD. The ruling determined the system violated the equal protection clause of the Fourteenth Amendment because of its excessive reliance upon disparate local property tax wealth and differing expenditures on pupils in low-wealth districts. The court granted the 1 981, Texas The Texas Legislature added approximately $1.5 billion to the Foundation School Program by granting the largest increases in teacher pay, maintenance and operation allotments, and state equalization aid. The local fund assignment was lowered; transportation aid was increased; the minimum aid feature of the Foundation School Program was retained, and bilingual education support was expanded. The governor vetoed the fast-growth adjustment portion of state aid, A special session resulted where the Legislature passed House Bill 30 that attempted to clarify previous property tax legislation. Mandatory reappraisal of property at least every four years was one of several property tax adjustments. In November a constitutional amendment was passed allowing local tax jurisdictions to grant additional homestead exemptions (above those granted by the state in 1978) on a local option basis. An exemption was allowed to be as high as 40% of value and then declining to 20% of value over time. 1982, Texas A constitutional amendment passed prohibiting all state property taxes still in existence from legislation in 1968. 1983, Texas Texas was confronted with fiscal issues due to the leveling of state revenue. Legislators were faced with raising taxes or cutting state spending increases by providing only sufficient funds for public education to meet the current law. The local fund assignment was lowered $1 . I 0 per $1,000 of equalized taxable value, and the state's contribution rate for the Teacher Retirement System was lowered from 8.5% to 7%. The governor appointed a Select Committee on Public Education and appointed H. Ross Perot as the chairman. The committee was asked to study reform for the financing of education and present findings to a special session of the Leg is fature. 1984, Texas The Select Committee on Public Education reported its findings and recommended several options including an appointed State Board of Education, a more equalized school finance structure, increased teacher salaries, a career ladder for teachers partially based on performance, class size maximums, and restrictions on extracurricular activities. The Edgewood ISD v. Bynum suit was filed claiming the Texas school finance system was unconstitutional under Article 1, Section 3 (equal protection) and Article VII, Section 1 (efficient system) provisions under the Texas Constitution. The Texas Legislature met in special session and enacted House Bill 72; this comprehensive bill addressed nearly all aspects of public education. The bill moved distribution aid from a weighted personnel unit to a weighted pupil of Average Daily Attendance (ADA) approach. The overall aid was increased 19% with an emphasis on equalization features that included a statewide local share of the Foundation School Program of 30%, an increased equalization aid for groperty-poor districts; an increased state minimum for teacher salaries with a new salary schedule; all minimum salary designations for counselors, supervisors, administrators and support staff; and instituting a career ladder for classroom teachers. New programs were also funded beginning with pre- kindergarten that started in 1985-86, class size maximums of 22 in grades K-2 for I 985-86, grades three and four in 1988-89, and movement of some state contributions to the Teacher Retirement System to the locai district. The Legislature increased state aid outlined by House Bill 72 and raised state taxes to generate $4.9 billion in additional revenue over a three-year period. The state general sales and use tax was increased from 4% to 4.125% with many exemptions removed from the tax to reduce regressive tax discussions associated with sales tax increases. 1985, Texas The State Legislature made few changes to the reform enacted in the previous year other than talented and gifted funding was provided a special allotment under the Foundation School Program rather than categorical funding. (The State of Iowa also made this same change in 1999 and moved away from allowable growth with direct property tax to the combination of state aid and property tax on a more equalized basis.) 1 990, Texas The Legislature met in a series of special sessions beginning in February. The first session expired with no progress. The second session ended on May 1 with a revenue bill to increase the state sales tax a half-cent which was promptly vetoed by the governor and a school finance bill that was held pending revenue certification. On May 1, 1990, State District Court Judge Scott McCown extended the deadline to June 4 and appointed three school finance experts to develop a court-ordered plan if the Legislature failed to act. A third session ended without a school finance bill as Judge McCown extended the deadline again to June 21. Judge McCown made ,the experts' preliminary plan public and stated that if the Legislature acted by June 20 the experts' final plan would be held in abeyance. On June 7 the governor signed Senate Bill 1 into law. Senate Bill I provided an increase in revenue of $528 million funded by a one-quarter cent increase in state sales tax, increased cigarette and alcohol taxes, but also reduced budgeted state expenditures in other areas for public education. The bill atso contained new finance provisions, accountability incentives, and an optional year-round school provision. The finance provisions included a five-year phase-in of reforms, the establishment of a standard that 95% of the pupils woufd be in a wealth-neutral finance system by 1995, an addition of facilities and equipment to the foundation program definition, the reforniulating of all funding elements to achieve the equity standard, increasing the basic allotment to $1,910 in 1990-91 and $2,128 in 1991 -92 and after increasing the local share of the basic foundation program by 41 % to $5.41 per $1,000 of taxable valuation, increasing the guaranteed yield in second tier program, and raising the tax rate matched by the state in the variable ratio guaranteed yield program. A retriaf of Edgewood ISD v. Kirby was heard by Judge Scott McCown where the court ruled the post-Senate Bill 1 system was still unconstitutional. The court did acknowledge the equity improvements but declared standards were not met to achieve equal yield in revenue at similar tax rates or to make provisions for equal access to funds for capital outlay. Judge McCown issued an injunction against the systerr~ in t 991 causing the plaintiffs to appeal to the Texas Supreme Co~~r t . 1991, Texas - The Texas Supreme Court in Edgewood Ilfound the trial court erred in not issuing an injunction against the distribution of state aid but delayed the effective date to April I , 1991. The Court determined (9-0) that the new system remained unconstitutional and still relied too heavily on local property taxes; allowed the existence of low taxed, high spending districts, and did not restructure the system. On a motion for rehearing (Edgewood /la), the Texas Supreme Court held that "recapture" was still prohibited and unequalized enrichment was not strictly prohibited. In April the Texas Legislature passed Senate Bill 355 along with a companion bill House Bill 2885. The new laws created 188 county education districts (CEDs) that covered 254 counties and all school districts. Some of the local taxing authority was assigned to the CEDs for the purpose of raising and redistributing the "local share" of the foundation program. School facility funding was emphasized through the second-tier guaranteed yield program of assistance. The basic allotment was again increased up to $2,200 in 1991 -92, rising to $2,800 in 1994-95, while increasing the local share from $5.40 per $1,000 of taxable valuation to $7.20 per $1,000 in 1991 -92 and again to $10.00 per $1,000 in 1994-95. The yield was also increased in the second-tier guaranteed yield program. In June of 1991 the district court began arguments to the constitutionafity of Senate Bill 351. The District Court upheld the CED tax as constitutional in August with the crass-claimants immediate appeal. 1 992, Texas In January the Texas Supreme Court ruled (7-2 opinion) that the CED tax was unconstitutional because a local district was levied a tax without local voter approval and therefore constituted a state property tax. The C o ~ ~ r t delayed the effects of the ruling untit June 1, 1993, thus allowing the unconstitutional tax to be collected in 1991 -92 and 1 992-93. A federal court suit was filed that claimed the Texas Supreme Court's ruling denied property taxpayers "due process of law" as guaranteed by the U.S. Constitugtion. The federal court denied an injunction on the basis far the necessity to fund schools and allow the Texas Legislature to act. The plaintiffs appealed the denial of the injunction. The Fifth Circuit Court of Appeals upheld Ohio Timeline Through Litigation 1991, Ohio --- The Ohio Coalition for Equity and Adequacy of School Funding filed a lawsuit in December with the Perry County Court of Common Pleas. It charged that Ohio's school finance system was uncons.titutional because it created funding inequities among Ohio's 61 1 school districts. This challenge of the "thorough and efficient" language and the Equal Protection Clauses was the first challenge of Ohio's funding system since 1979 when the Supreme Court funding challenge filed by the Cincinnati School District was rejected. 1993, Ohio -- 'The hearings began in the DeRolph case dul-ing October where the state contended that the current school finance system was a dual system and relied on state and local funds to maintain control of educational program decisions. During the 30-day trial the state argued that it was the local option to seek additional levies, together with differences in property value, that created the disparities among the school districts in expenditures per pupil. 1994, Ohio Judge Linton Lewis, in Perry County Court, declared in a 478-page decision the financing system in Ohio was unconstitutional because it created inequities between rich and poor districts. He found the public school financing system was neither efficient nor thorough and could not be allowed to continue in its present form. In August the Governor of Ohio and legislative leaders, over the objections of the State Board of Education, forced an appeal of Judge Lewis' decision to the Fifth District Court of Appeals. The governor and legislative leaders maintained the legislature, not the courts, had the authority to determine school aid and systems of financing. 1995, Ohio The appellate court reversed Judge Lewis' ruling in August of '1995. In the month of October, the DeRolph plaintiffs filed and appealed with the Ohio Supreme Court seeking to reinstate Judge Lewis' decision. 1996, Ohio The Ohio Supreme Court accepted jurisdiction in the DeRolph case in January. Forty state and federal government leaders from both parties submitted a brief in April to the Supreme Court seeking to reinstate Judge Lewis' decision. They contended substantial school finance reform was essential to provide ail children adequate educational opportunities required by the Ohio Constitution. 1997, Ohio -- In March the Supreme Court of Ohio reversed the appeals court decision by a 4-3 margin and held that Ohio's current school funding formula violated the Ohio Constitul:ion "thorough and efficient" common schools clause and ordered the Ohio General Assembly to complete a "systemic" ovehaitl of the school finance program within 12 months. The Ohio General Assembly submitted the first remedy in SB102 that created the Ohio School Facilities Commission (OSFC) and exempted public school buildings from the prevailing wage. Fierce debate and opposition came from the construction labor unions. The purpose of the OSFC was to push state funding to schools faster in matching fl~nds for building improvements and to assess the condition of Ohio's public education facilities. During June the Governor of Ohio approved the biennial budget bill, HB 21 5. The bill responded to the court's decision and addressed several finance issues including recomputation and increasing the basic student aid formula. The General Assembly completed the Public School Academic Accountability Act (SB 55) in November that addressed student performance standards and increased student contact time in core academic areas. The Assembly also approved a Fiscal Accountability Act (HB 412) that required schools to reserve funds for maintenance, textbooks, and fiscal emergencies. It also required school performance audits to be performed by the state auditor. These two bills were heavily criticized as being unfunded state mandates on Ohio's school districts. 1998, Ohio A revised school funding form~~la was proposed in (HB 650) to commit hundreds of millions of new state dollars specified to achieve an adequate level The Governor of Ohio signed HI3 282 as the first bill written solely for education in June. The bill appropriated a record $13 billion to fund schools in Ohio. The bill reduced property tax on business inventories but did not address residential property taxation, an obvious concern in the Supreme Court's 1997 DeRolph decision. The General Assembly also diverted $400 million appropriated for personal income tax redl~ctions to school facility construction. The Governor and legislative leaders announced a plan to provide $10.2 billion in state funds to build, renovate, and equip Ohio schools over the next 12 years. This proposal was contingent upon tobacco settlements, capital budget bills, and the sale of school facility bonds. The leaders believed this plan would address the school facilities issue in the DeRolph decision. The sale of bonds was also contingent upon another vote of the public (Issue A ) . In November the Ohio voters approved the Issue 1 as an amendment to the Ohio Constitution allowing general obligation debt through the sale of bonds for school construction. The issue was nearly identical to the proposed amendment rejected in May of 1998. Oral argument began in the DeRolph case at the Supreme Court. 2000, Ohio --- State lawmakers approved SB A92 that earmarked a good portion of the $10 billion of tobacco settlement money to school facilities. The state was allowed to submit the plan to the Supreme Court as further evidence to comply with school facility funding. The Supreme Court of Ohio determined in May, once again, that the legislature's restructured system failed to meet the constitutional "thorough and efficient" standard for common schools. The court determined in a 4-3 ruling that the system relied too heavily on property taxes that vary greatly from district to district depending on property wealth. The court found the new facilities plan to be on the right track but had some considerable work to do to ensure "safe and healthy" learning environments for all students. The court ordered the legislature to enact further remedies and report progress by June 15, 2001. The Joint Committee on School Funding and Accountability held a series of informational hearings in June that included the Coalition for Equity and Adequacy of Funding. In December the General Assembly enacted a bill (SB 345) written to ease "unfunded mandates" on school districts. The Committee to Reexamine the Cost of an Adequate Education recommended an additional $600 to $800 million be appropriated annually into the primary and secondary education budget. The panel also proposed a tiered approach to school funding that had the state cover more costs for special education and transportation and boost the per-pupil base cost spending. The tiered approach mirrored the funding program in Texas without a guarantee or additional facility funding. 2001, Ohio -- A senate bill (SB I) proposed a two-tiered funding approach providing a per-pupil amount of $4,566 for fiscal year 2002 and money to replace current funding for property-poor school districts. Supreme Court Judge Resnick emphasized the date of June 15,2001, as the deadline for the legislature to file a complete account of its enactment with the Court that reflected compliance. The account was to include a set of statewide academic standards, requirements that all school buildings be brought up to fire and building codes, elimination of overreliance on local property taxes, funding all state mandates, and an accurate determination of the per-pupil cost of an adequate education to be funded immediately. The Ohio Coalition for Equity and Adequacy of School Funding released a report in February indicating the majority of Ohioans (52.3%) would support "an increase in state taxes earmarked specifically" for schools, and only one-third of Ohioans thought school funding was adequate with only 25% who believed it was fair. Two house bills were introduced; HB 1 would implement recommendations of the Governor's Commission for Student Success, and HB 2 was written to set general policy and purpose for school funding measures. In November the Supreme Court ordered mediation as a way to settle and end the ten-year court battle on school finance. Representatives from both political parties and attorneys representing the school district coalition were given until mid-February of 2002 to come to a compromise agreement. (PPEL). In 1998 the Legislature in lowa enacted a bill to allow counties to impose a one-cent Local Option Sales Tax for the specific use in school infrastructure. The sales tax dollars were generated on retail sales in the county and distributed on a per-pupil basis. Counties were required to pass a referendum by a simple majority to enact the tax. The money was distributed on a per-pupil basis to individual districts on a head count of students residing within the county. The combination of property tax and sales tax revenue determines the capacity for each district to support school facility construction. (See Appendix A.) In general terms the State of lowa had a foundation program that combined state and local resources for school funding. The lower property wealth districts received more state revenues to make up for the disproportionate level of tax capacity. Until the 2000 legislative session, iowa has not provided funding for school facilities directly to school districts, though they have offered state and federal grant programs in the past several years. The traditional method of board-initiated bond referendums required a "super majority" or 60% voter approval for passage. Each school district was limited to a specified amount of bonding capacity determined by a maximum tax rate of $4.05 per $1,000 of assessed valuation for retirement of the debt. The larger the assessed valuation of the district the larger the bonding capacity and ability to retire the debt with pure property tax. Individual counties in lowa had the ability to pass and impose a local option sales tax earmarked specificatly for school infrastructure. The amount was collected county-wide by the state and re-distributed on a per-p~pil basis to districts with students residing within that county. The problem with this tax scheme was only the counties that contain retail centers and the state's population centers had passed the local option sales tax. The 2000 Legislature was presented a possible solution for equalizing funding by spreading the wealth of the more populous retail centers throughout the state but this was defeated. As a short term fix the legislature passed the Vision lowa Bill that would deliver $50 million over a three year period. A grant process was put into place for districts not receiving local option sales tax above the state average if all counties were to collect the tax. The highest sales tax producing county in lowa was expected to produce over $700 million in revenue for facility construction and property tax relief for 16 school districts over 10 years. The school districts not receiving local option sales tax or those receiving sales tax at a level below the state-wide average if a state sales tax existed could apply to share the $50 million grant over three years. The question of equity was a point of discussion throughout the legislative session and in rural districts. Rules written into the grant process defined school district capacity for infrastruct~~re and gave those with the least capacity preference. (See Appendix A. ) The State Legislature in lowa extended the sunset of the funding formula and foundation program for school funding in the 2000 and 2001 legislative sessions. The retail centers in lowa in Polk County (Des Moines), Scott County (Davenport), Blackhawk County (Waterloo / Cedar Falls). Pottawafiamie County (Council Bluffs). and Woodb~ly County (Sioux City) have passed a one-cent local option sales tax for school infrastructure. The counties adjacent to the retail centers generate far less in retail sales and actually provide up to 40% of the revenue in the counties that hold the retail centers. Warren County and Dallas County that ring Polk County would receive approximately $1 70 per student if the one-cent tax were in place in their counties. Polk County generated approximately $980 per student in 2000. Polk County ranked first out of 99 counties while Warren and Dallas ranked ninetieth and ninety-first.. The difference across the state in sales tax revenue per student ranged from $90 to $980 per student. The rural school districts and urban school districts were being divided by this issue along with the legislative leaders that represent them. The Vision lowa Bill allocated $1 0 million the first year and $20 million in the next two successive years. School districts with the least capacity to generate capital for school facilities were given highest priority to apply for the state grants. Each district was required to provide matching funds determined by a sliding scale based on each district's capacity to generate facility funds. An individual district could apply for up to $1,000,000 to enhance a qualified building project. This was the first venture for the State of lowa into school facility funding. It became an emotional issue for many and was the topic of many news articles regarding the perceived inequity. The issues ~~ltirnately returned to a comparison of dollars where an individual county could generate $700 million over 10 years while the state provided only $50 million over three years for the districts below the state average per pupil. Charter schools increased from 65 charters in 1998 to 153 charter schools in t 999 with 15 more scheduled to open in 2000. Charter schools do no2 have local property wealth to tax but instead received state funding roughly equal to funding received by the traditional public schools. The increase of funds to non- taxing entities was seen as a drain of revenue from the public schools funding source. Ohio School Financing Prior to Court Intervention Foundation Amount The formal foundation amount determined by the General Assembly on a per pupil basis had no correlation to actual costs. The amount was set every two years and was determined to be inadequate to meet the needs of the students of Ohio. This amount was determined by what the iegislatt~re "felt" it could afford rather than an amount necessary to meet actual costs of educating a student in Ohio. The School Foundation contained a guarantee that allowed a district to receive the greater of the program amount or the guarantee amount. This concept favored the property-rich district that needed minimal tax effort to generate increased revenue. The School Foundation Program also contained no aid expressly for capital improvements; aid was provided in the Classroom Facilities Act, and in Court it was founded to be insufficiently funded to meet the needs of districts poor in real property value. The amount of the charge-off in the foundation formula did not accurately measure the ability of the school districts to pay their local share of the basic program. Tax Reduction Factors Tax reduction factors were used to limit growth of real property tax revenues that would occur due to inflation of property values. The law required application of tax reduction factors when values escalated due to reappraisal. The net result meant a district received no additional revenue after each property assessment and prohibited the district from keeping pace with inflation rates on goods and services. The districts in Ohio were forced to increase taxes to make up the difference of lost revenue. The property-rich districts were again able to recover the needed revenue through minimal tax increases. Many districts were forced to continually go to the voters for dramatic increases in local tax levies to raise the necessary funds and met with increasing failure ca~rsing program cuts and reductions. This system of funding placed the burden of raising revenue squarely on the local school districts and local tax payers. In Cuyahoga Cot~nty the yield per pupil per operating mill ranged from $581.57 to $21.06 where it took 27 mills ($27.00 per $1,000 of taxable valuation) in East Cleveland to equal 1 mill ($1 -00 per $1,000 of taxable valuation) in Cuyahoga Heights. In Trumball County property value per pupil ranged from $1 94,649 to $42,297 (a ratio of 5.1) and in Clermont County the values ranged from $254,365 to $33,283 and a ratio of 8:l. Iowa has a comparable ratio of property value with a ratio of 6:1 statewide. As a result of the tax reduction factors, school districts lost over $1.472 billion in real property tax revenue in Fiscal year 1992. In that same year tax reduction factors reduced property taxes statewide 26.1 2%. Cost of Doing Business Factor The Cost of Doing Business Factor (CDB) was created to be an equalization factor in the foundation plan. The CDB applied equally to all school districts within a county regardless of the true cost of operation in each individual district. The factor automatically assumed costs were lower in rural districts as opposed to urban districts. The CDB factors did not fully reflect differences in costs associated with school districts operations and did not adequatety account for differences in costs within a county. The county-wide factor was one of several issues specifically identified the Court in its ruling (DeRoiph v. State, 1997). %ecial Students Aid to Dependent Children (ADC) funding stopped at the 20% concentration level. When needs increased, typically in poverty areas with low property value, the districts were forced to levy to provide for the students beyond the 20% concentration level. Handicapped students were not fully funded where costs extended beyond the foundation level and weighting factors. The amounts received for categorical programs, vocational programs, and special education were less than actual costs. The deficits were funded through This legislation (8 .5 . 102") required the commission to establish the Emergency School Building Repair Program and authorized money for major renovations and repairs of school facilities in some of the largest school districts in the state. Biennial Budget Bill The Biennial Budget Bill for FY98 and FY99 was signed into law on June 30, 1997 and made adjustments in the basic aid formula amount. It provided additional equity aid, additional funding for textbooks, additional funding for facilities, additional funding for the SchoolNet and SchoolNet Plus programs, and created the Disability Access Program. Academic Accountability Bill On August 22, 1997, the student and school district "Academic Accountability Bill" was passed and established school district performance standards and school district report cards. The bill also increased high school graduation requirements and instituted a "fourth-grade guarantee'3hat prevented advancement to the fifth grade unless the student passed a fourth grade proficiency exam, (The State of Iowa passed similar legislation in the 2000 session in House File 2272 that required comprehensive school improvement plans tied to school district performance standards.) School District Fiscal Accountability Act This act was signed into law on the same day as the Academic Accountability Bill and required school districts to maintain budget reserves and required set-asides for building maintenance, textbooks, and instructional materials. The act also created the School District Solvency Assistance Fund. School Funding Formula Two separate bills signed into law made up the bulk of the remedy for the General Assembly. H.B. 650 and H.B. 770 were signed into law in February of 1998 and June of 1998 respectively. H.6 650's purpose was to establish a new system for funding education. H.B. 770 modified H.B. 650's provisions. This legislation set out the essence of the current school-funding formula, including the base cost amount and the adjustments and subsidies. This bill also provided money for school facilities. C e t a l Appropriations Bitl - This bill signed into law on December 17, t 998, took effect forthe biennium ending June 30, 2000, and provided money for school facilities with some specific funds designated for districts with exceptional needs. Biennial Budget Bill for FYOO and FYOI -- -- --- This budget bill was signed into law on June 29, 1999; for Fiscal Year 2000 and Fiscal Year 2001 marked the first time that the state created an education budget separate from its main operating budget and placing the education budget into its own bill. H.B. 282 made adjustments to the per-pupil formula amount, made other adjustments in the funding formula, addressed gifted and talented education, and provided additional money for SchoofNet plus. H.B. 283 was signed one day after H.B. 282 allocated state budget surplus revenue to SchoolNet plus and for school facilities. Districts with exceptional needs were given additional compensation. Tobacco ---- Master Settlement Agreement A significant amount of the tobacco settlement funds were committed to for school construction and repair through S.B. 192 and signed into law on March 3, 2000. The legislation passed over a period of several years combined to make the components of the general description provided in the state funding section. Despite the efforts of the Generat Assembly the Ohio Supreme Court determined the mandate of the Constitution had yet to be fulfilled. (Specifically the state's failure to address the overreliance on local property taxes ) submitted to districts with a combination of low enrollment and more that 300 square miles. The district allotments for size, sparsity, and cost factors were applied to Basic Allotment to result in a new per pupil figure referred to as the Adjusted Allotment. Students enrolled in special programs were given instructionaf program weights. The program weights were applied to special education, compensatory education, bilingual education, career and technology education (vocational programs), gifted and talented education, and students enrofled in the public education grant program. Special education weights ranged from 1 .I for mainstream programming to 5.0 for the most severe students in special settings. Career and technology education students received and additional 0.37 weighting for the vocational programs in grades 7-12. Vocational students and special education students were counted on a full-time equivalent basis. As an example, a special education student receiving a 5.0 weighting would generate five times the Adjusted Allotment, while the vocational student received 1.37 times the Adjusted Allotment. Example: Adjusted Allotment = $3,400 5.0 Special Education student: 5.0 X $3,400 = $17,000 1.37 Vocational students: 1.37 X $3,400 = $4,658 Compensatory education provided an additional 0.20 funding for students who were not at grade level and added an additional 2.41 weighting for pregnant students. Bilingual students whose native language was not English received an additional 0.10 weighting to fund English As A Second Language programs. Gifted and Talented Education received an additional weighting of 0.12 for delivery and service of advanced programming. The weights applied to these three special programs were added to the total enrollment of each district. For example, each student enrolled in Gifted and Talented Education added 0.1 2 to the total enrollment. A sample calculation for each program would be as follows: District enrollment: 2,100 students Gifted Students (10) 10 X 0.12 = 1.20 Bilingual Students (30) 30 X 0.10 = 3.00 Compensatory Students (5) 5 X 0.20 = 1 .OO Pregnant Students (2) 2 X 2.41 = 4.82 Total Enrollment 2,100 + 1.2 + 3.0 + 1.0 + 4.82 = 2,110.02 The district gained additional funding for 70.02 students amounting to $34,608 if the Adjusted Allotment of $3,400 was used. Transportation funds were also included in Tier 1 but were not included on a per-pupil basis. These costs were computed on the number of students and bus route miles. The district received a total transportation payment based on these factors. To participate in the school finance system, a school district was required to levy a local property tax rate of $0.86. Texas tax laws listed tax rates per $100 of taxable valuation. A rate of $0.86 levied on a $100,000 home would be calculated as follows: $0.86 X (100,000 1 100) = $0.86 X 7,000 = $860.00. The Local Fund Assignment (LFA) was the district's share of the Tier 1 cost with the revenue generated by the $0.86 tax rate. Districts 'that could generate the entire Tier 1 costs from the $0.86 rate received no state aid while districts that could not generate the entire amount received the difference in state aid. This concept was common in many states and all three states in this study provided an equitable distribution of state funds in relation to varied property values. Tier 2 Tier 2 provided funds for equalization to school districts beyond the base funding level in Tier I. Districts were required to levy a property tax in Tier 1 while the Tier 2 tax was discretionary. Districts were allowed to levy up to $0.64 of tax rate for maintenance and operation in Tier 2, but were not required by Texas law to do so. Tier 2 generated resources for education through a guaranteed yield. A single penny of property tax generated $24.99 per student in "weighted average daily attendance," WADA. Weighted average daily attendance was the calculation made in a previo~~s section on weighted programs and their effect on district total enrollment. A district with property wealth below $249,000 per WADA received a combination of state and local revenue while ,the state revenue made up the difference to get to the $24.99 level per student. Districts with property wealth between $249,000 and $295,000 per WADA generated only local taxes in Tier 2. If a district had more than $295,000 per WADA, it generated more than the $24.99 per penny per pupil and then could only generate Tier 2 funds for maintenance and operations but could not use the revenue for capital outlay or debt service. Chapter 41 of Texas Education Code required 'that districts with wealth above the $295,000 per WADA be subject to a wealth reduction provision. The districts that were above WADA did not qualify for instructional facilities assistance. In 1999 the Texas Legislature appropriated new funds to assist school districts to pay old debt. The new Tier 3 guaranteed $35 per penny per unweighted student up to maximum of $0.12 of debt service tax. Districts who received Tier 3 funding were required to compress their tax rate to provide tax relief to local taxpayers. The Texas Legislature also recognized the needs of rapidly growing districts by providing $25 million of aid in the form of a per pupil allotment for new schools: For the first year a school was open in a district, the state provided $250 per student in the new facility. In the second year the district was entitled to $250 for each new student to the school. Ohio School Finance Plan The State of Ohio has experienced several court challenges in the past two decades. School finance has been the focus of the litigation brought forth by a coalition of school districts challenging the equity and adequacy of funding. The Supreme Court deemed the system of school finance unconstitutional twice since 1997 and as recently as May of 2000. The Court gave the Ohio Legislature the task of reconfiguring the finance system. The school funding description in this study reflects the system in place during the fiscal year 2000 and does not contain any changes from the 2001 Legislative Session. The State of Ohio along with local and federal sources allocated $14 billion for education. Ohio contained 61 1 public schools, 49 joint vocational districts, and 64 educational service centers that received these funds earmarked for education. Local revenues were generated through property tax and assessed as a mitlage rate. For comparative purposes 1 mill was equivalent to $1 per $1,000 of taxable valual:ion as used in Iowa. Ohio determined the amount of taxable valuation by calcutating the market value of a home and incorporated an assessment rate of 35% of the taxation value. As an example, if a home had a market value of $100,000, with the rollback factor the home would be taxed on $35,000. If 30 mills were assessed by the school district, an amount equal to $30 per each $1,000 of taxable valuation was collected. The $35,000 taxable valuation divided by 1,000 yields 35 to multiply by the $30 tax rate or $30 X 35 = $1,050 of property tax for the home owner. Properties exempt from property tax in Ohio were federal buildings and lands, state buildings and lands, political entities, educational buildings and lands, and religious properties. Ohio defined three different millage factors allowed by each school district. An "inside" or unvoted millage levy could be made by a school board without voter approval. The maximum amount allowed by constitutional provisions for an inside levy was 10 mills or $10 per $1,000 of taxable valuation. The average inside levy by school districts in Ohio was 4.6 mills. Local governments found it difficult to finance existing programs on the 10 mills of taxation and were forced to ask for additional mills by voter approval. The constitution of Ohio allowed the school district to go "outside" to the voters for the additional voted millage. This millage rate was called the "outside" or voted miils used to gain additional mills of taxation. As property values increased the voter rate was adjusted down to provide no increase in revenue due to the increases in property value or increases due to inflation. State law enacted in 1976 did not allow for a voted levy increase revenue for a district due to inflation or reassessed values. The new rate was deterrr~ined by the county auditor and was referred to as the "effective rate." This reduction factor stopped when the effective millage rate reached 20 mills or $20 per $1,000 of taxable valuation. The 20 mills was referred to as the "20 mill floor." If a school district had a voted millage rate of 22 mills and had a reduction factor of 4 mills that placed the effective rate at I 8 rr~ills then the county auditor was required to raise the millage to 20 mills. Ohio residents received an additional form of tax relief through a state- funded 10% reduction of the taxpayer's individual property tax. The county auditor certified the individual tax bill and deducted 10% from the bill and informed the state of the compensation needed. The school district received the 10% rollback compensation directly from the state. Property owners also qualified for a homestead credit of 2.5% to receive a total deduction of 12.5%. Levies were the mechanism for additional local revenue to increase the funds available for school district operations. The levy purpose was limited to the following: operating expenses, specific improvements, recreational purposes, community centers, support for public libraries, and educational technology. These levies could be proposed for a specified period and were usually from one to five years. The short period of time for the duration of (student enrollment X state formula amount X the cost of doing business) - (taxable property value X chargeoff) = state money to the local district. A sample district with 2,560 students, $102,700,000 of taxable valuation and a cost of doing business factor of 1.20 would produce the following calculation. (2,560 X $4,294 X 1.20) - ($1 02,700,000 X .023) = State share $13,191,168 - $2,326,100 = $1 0,865,068 School districts who served special education students received additional funding to educate them based on the severity of their disability. The students received weighted funding under three different categories. Students with a learning disability, a health handicap, or developmental handicapped were funded with an additional 0.22 at Category One. A Category Two student included those students who were hearing impaired, were physically challenged, were vision impaired, or had severe behavior disorders; these students received an additional 3.01 weighting. Category Three students were the most severe and included those with traumatic brain injuries or both visual and hearing impairments. These students were also weighted at 3.01, but districts were eligible for partial reimbursement of any costs that exceeded $25,000 per pupil. Disadvantaged pupils whose families received funds from the Ohio Works First (OWF) program qualified for additional school funding. These students came from economically disadvantaged situations and typically incurred additional costs beyond the state foundation formula for their education. Disadvantaged pupil impact aid (DPIA) was allocated on an index calculated by the state and could be used for safety and remediation, all-day kindergarten, or class-size reduction. Safety and remediation funds were remitted to districts with a DPlA index greater than 0.35; all-day kindergarten funds were given to districts with an index greater than one, and class size reduction funds were given to districts with a high concentration of poverty to reduce class size to a 151 student / teacher ratio. Ohio Funding Issues Phantom Revenue Phantom revenue was a factor associated with the millage reduction factor. The reduction factor caused the state foundation formula to misrepresent the amount of local revenue generated. Using the funding example above with a reassessed property value of $1 05,000,000, the state assumed the local share was 23 mills or $2,415,000. The state then would send a lesser amount to the district in the amount of $10,611,369 or a loss of $52,900 of state aid which in theory was made up by the local portion. The problem arose in the millage reduction factor on any local revenue growth in certain categories due to increased property valuation. The categories made up about 30% of the total property tax collected. The difference between the actual revenue the district received and the $52,900 was referred to as "phantom revenue." The state responded to this issue by enacting a law in 1997 that allowed the districts to phase in the growth in valuation over a three year period. This concept was known as "recognized valuation." This concept did not solve the issue but reduced the deficit in state funding and was a detriment to districts with rapidly growing tax bases. School districts losing enrollment or experiencing reduced taxable valuation faced significant loss of revenue for existing programs. The "state guarantee" prevented a district from receiving lower state funding due to a change in their state foundation form~~la c lculation. Tax -- abatements Tax abatement has been used for many years in Ohio as a commercial business development incentive. As in other states, tax abatement was a topic of controversy on its application and its effect on tax revenue for public entities. Abatements were granted by counties, townships, villages and city municipalities. Governing bodies were required to inform school districts of a pending abatement and could ask for limits on the percentage of abatement and length of time. However, districts had no ability to approve or disapprove any abatement. Ohio school districts received nearly 70% of all property taxes and therefore sacrificed the loss of revenue or the ability to lower tax rates. An abatement could last no longer than 10 years without the approval of the local school district and could be for no more than 75% of the value of the improvements. The Ohio tax reduction factor worked against the local districts when abatement was given on certain classes of property that directly reduced the funds a district would receive from the increase in commercial business growth. Legislation in the five years beginning in 1995 gave school districts assistance fund that provided money without interest to districts in severe financial need. Prior to 'the court rulings, school districts were solely responsible for their own facility needs. The districts with the least amount of property wealth received some assistance from the state, but the funding was generally not available. In 1997 an independent body called the Ohio School Facilities Commission was formed to administer a $300 million building program for emergency repairs and school constn~ction. The funding increased to $305 million in 1998 and $41 5 milfion in 1999. Local districts were required to contribute to the project based on the locaf wealth through a bond levy. These changes and programs were stiff in a state of flux due to the ruling in May of 2000. Additional funding options and developments were yet to be developed to meet the constitutional muster. lowa School Finance Plan The lowa Foundation Plan provided for a combination of state and local revenues to fund the niajor portion of the educational program. The state foundation plan was driven by pupil enrollment certified by the state in September of each year. This enrollment figure determined the funding for ,the following school year. The State Legislature of lowa determined a per pupil amount each year by determining a percentage of allowable growth. The allowable growth fluctuated between 3.5% and 4% over the five years previous to 2002. A proposal for only one percent was set before the Legislature in January of 2002 due to budget issues and decreased revenues from the recession period in 2001. A 4.3% across-the-board cut in December 2001 forced many districts to cut expenditures and use cash reserves supported by local property tax. An example of how the allowable growth affected the per pupil amount is demonstrated below: 2000-2001 Per Pupil Amount = $4,338 2001 -2002 Allowable Growth was set at 4% 2000-2001 Per Pupil Amount $4,338 X .04 = $174 of growth $4,512 per pupil The allowable growth percentage was determined early in each session to atlow school districts adequate time to plan budgets and staffing needs for the coming school year. The allowable growth was set for the following tvvo school years as a biennium rate. The 2002 Legislature was faced with a decision to reduce the allowable growth factor for the 2002-2003 due to the disastrous economic conditions in the Iowa economy. The second year of 4% was in jeopardy and will likely no more than 1% for FY2003. Weighted Er~rollment Each enrolled student counted as 1.0 in the district enroltment while those students in special programs received additional weighting. Special education students received weighting by the severity of the disability. Students identified with a learning disability who were served mainly in the regular classroom received a weighting of 1-67, those who needed a more restrictive environment were weighted 2.38, and those with the most severe issues were weighted at 3.60. The weightings were multiplied by the per pupil amount to determine the district costs for these students and for billing purposes between districts who shared students or programs. If the per pupil amount was $4,338, a student with multiple disabilities weighted at 3.6 would generate $4,338 X 3.6 = $15,517 for the district of residence. If the student attended another district, the receiving district was allowed to charge the resident district actual costs for the education of that child. Supplemental Weighting Supplemental weighting was granted fo a school district for sharing individual courses, vocational programs, teachers, and for non-English speaking students. Various weightings from 0.1 to 0.46 are allowed for these programs and were added to the total enrollment figure. Sample Foundation Calculation The sum of the actual enrollment, special education weighting, and supplemental weighting determined the district's weighted enrollment. The weighted enrollment multiplied by the state-determined per pupil amount determined the majority of the General Fund for school districts in Iowa. The combination of state and local revenue was equalized through 'the Uniforrr~ Levy of local property tax and state aid up to 87.5% of the certified enrollment times the per pupil amount. Weighted student enrollment for special education funding to the 100% level, the local taxpayer was impacted significantly in the lower property value district. A difference of nearly $200 in tax asking developed after the initial uniform levy of $5.40 mandated in all school districts in lowa. The 87.5% foundation level ceiling was capped by law. Each additional 1 % increase in foundation level equated to a $25 million decrease in property tax across the state. Additional Levies in lowa Physicai Pfant and Equipment Levy The revenue generated by the Physical Plant and Equipment Levy (PPEL) was used to remodel existing facilities, fund construction, purchase school buses, purchase building sites, repair roofs, and fund general district maintenance. The school board had the authority to levy $0.33 per $1,000 but needed voter approval to increase the levy beyond this amount. A majority voter approval or 50% plus one vote was needed to add an additional $0.67 per $1,000 for a period of 10 years. A district could also ask voters to add a second $0.67 per $1,000 under the exact conditions once the first levy was accepted by the voters. The maximum combination of all three levies could not exceed $1.67 per $1,000. This levy could also be partially funded by state income surtax to generate revenue from all residents and not just those owning property. lowa was one of only a few states that allowed an income surtax for school funding of any kind. Public Education Recreation Levy The Public Education Recreation Levy (PERL) was a rarely utilized levy available that could be voted in to effect on a one-time basis. The levy maximum was $0.1 35 per $1,000 and could be used for community education and playgrounds. The tax was in effect in only 19 districts in Iowa. A majority voter approval rate was needed to put the PERL in effect. Management Levy The Management Fund could be approved by the school board and used for early retirement programs, liability insurance, and property insurance. The levy amount was determined by the board each year to fund district insurance premium and retirement programs. The Management Fund could only be used for these general purposes and was directly generated by local property tax. Revenues from this fund were allowed to be carried forward to the next fiscal year. Debt Service Levy and Local Option Sales Tax The tax revenue generated through the Debt Service Levy was used to retire debt incurred for major construction and remodeling projects through bond issues. A bond referendum presented to the voters in Iowa must be passed by a "super majority" or 60% approval for passage. This fund was limited to $2.70 per $1,000 of taxable valuation unless the district went to the voters to approve additional taxing authority to $4.05 per $1,000. The increase in taxing authority also needed a 60% majol.ity to incur further debt. The Debt Service Fund was limited to locat property tax until iegislation passed in 1998 allowed individual counties in lowa to increase the sales tax one cent. Major construction and remodeling could also be funded through the local option sales tax revenue. This voter-approved sales tax increase needed a majority approval rate to implement the tax. Currently 23 counties have passed the local option sales tax. This funding stream caused considerable debate on equity and created a verbal divide between rural and urban schools. Revenue was distributed on a per-pupil basis by the student's residence. School districts in lowa were not based on a county structure, and many school districts crossed county lines and had students living in more than one county. Districts received local option sales tax revenue on only those students residing in the county where the sales tax was in place. The counties with local option sales contained the retail centers in lowa and, therefore, generated significantly more revenue than rural counties. The 99 counties in lowa had the potential revenue per student ranging from $980 per student to $95 per student if implemented in a student's county. School districts were allowed to use this revenue to build new facilities, remodel existing facilities, and pay down existing debt incurred in previous bond issues. Cash Reserve Levy The Cash Reserve Levy provided a mechanism to allow a district to build a contingency fund through property tax revenues. The school board could determine the tax rate levied each year for cash reserve to become a component of the general fund. The money in this fund could be accessed through a Phase Ill funding began as a financial incentive for educational excellence through innovative programs in Iowa schools. The majority of schools used this revenue for additional staff time in curriculum writing and professional development. Phase III dollars were distributed to districts in quarterly payments amounting to $36 per student. CHAPTER 5 SUMMARY, CONCLUSIONS, 1MPLICA1-IONS AND RECOMMENDATIONS Summary of Issues The venue for school funding challenges has remained at the state level with reference to state constitutions following the United States Supreme Court case of Rodriguez v. San Antonio ISD. The 1972 decision determined that education was not a fundamental right protected by the Fourteenth Amendment for equal protection. A strong message was sent to Texas from the high court to develop a more equitable system. All challenges to state finance plans have remained at the state level with no appeals to the federal court since Rodriguez. The Constitution of lowa contained original language defining common schools before it was codified in Article IX, Section 12, Common Schools: The Board of Education shall provide for the education of all youths of the State, through a system of Common Schools and such school shall be organized and kept in each school at least three months in each year. Any district failing, for two consecutive years, to organize and keep up a S C ~ O O ~ as aforesaid may be deprived of their portion of the school fund (Constitution of lowa, 1946). This section was omitted from the codified Constitution with language indicating that certain provisions superseded or obsolete have been omitted from the codified Constitution. A section in the Code of lowa referred to the laws that apply to common schools and must apply alike to those schools, lowa Code Chapter 274: School Districts in General under Section 2 (274.2) General Applicability: The provisions of iaw relative to common schoots shall apply alike to all districts, except when otherwise clearly stated, and the powers given to one form of corporation, or to a board in one kind of corporation, shall be exercised by the other in the same manner, as nearly as practicable. But school boards shall not incur original indebtedness by the issuance of bonds until authorized by the voters of the school corporation (Code of lowa, 2000). The code reference made a reference to provisions of law applying to all districts alike. The local option sales tax was in a ratio of 1 :I 0 in counties across lowa and property tax valuations in a ratio of 1 :6 as well, prompting the issue of equity for treating schools alike in reference to lowa Code. The Constitution of Ohio contained wording that secured a thorough and efficient system of common schools. Article VI, Section 2: 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