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School Funding Cure is Overdue ~ Chris Mohr
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Last week I read a guest column in The Dublin Villager entitled "School Funding Cure Could Be Harmful," by Marc Schare a local business man residing in Worthington.  Mr. Schare's article mentioned many common challenges that are brought up when questions about school funding arise.

I would like to refer to Mr. Schare's article to point out some facts about school funding in Ohio.  

 

Educators are often accused of complaining about the school funding system in Ohio.  For the record, I am not complaining.  I am sharing information that may be helpful in understanding issues.  As President of the Ohio Association of School Business Officials (OASBO), I feel compelled to state the facts and  simply explain issues that school districts are facing.   It is often said that the devil is in the details.  That is very true in comprehending issues with Ohios school funding and is key to understanding why districts must return to voters requesting funding on a regular basis.

 

If you believe that school districts have to return to voters regularly because they are poorly managed, you are likely mistaken.  In most communities the school district is one of the largest employers, if not the largest.  They are a business and operate as such.  They have formal policies, procedures, annual audits, committees reviewing and recommending everything from curriculum to budget matters, and a plethora of state and federal laws that must be followed.  School districts even have a board of directors: elected citizens who are involved in every area of how a district's budget is spent.  They have a selfless and thankless job.  In my 25 years of public service I have never served a board of education which did not have business minded members. All have been dedicated to skillfully managing district funds..

 

Before you say we do not run like a business, consider most districts do many or all of these things to maximize their budgets:

 

  • Operate off of a five year financial plan projecting revenues and expenses out through June 2008.   In 1999 state law required districts to have a five year plan but many had them prior to this as a good business practice.  School districts are the only Ohio governmental entity required to do this.

 

  • Group purchasing with a consortium of other districts to maximize buying power for items such as: natural gas; electric; health care insurance; property, fleet and liability insurance; copy paper; office supplies; workers compensation; school busses; custodial supplies; food for cafeteria operations; and on and on.

 

  • All building projects are bid and, with rare exception, the low bidder is accepted.

 

  • Good business practices are followed, such as requests for proposals on many items such as banking services; copier machines; fuel for buses; and small scale projects costing $15,000 and less.

 

 

In fact, I have been involved in many community committees in my career where residents and local business people (many CPAs and presidents of companies) have scrutinized district expenses and revenues.  District spending practices are typically found to be highly controlled and, done well within good business practices.

 

There are common themes found in most all districts: districts have little control over revenues; revenues do not grow; expenses are driven by state and federal mandates. Districts often have to cut current programs to be able to afford new mandates and/or return to voters for additional dollars to pay for mandates.

 

Districts often cite education funding problems as revenue problems quite simply because they are the main culprit.  Revenue problems can be attributed to HB 920, "Phantom Revenue" and funding cuts from the State of Ohio.

 

The primary source of funding schools in Ohio is no surprise to home owners across the state it is property taxes.  HB 920 prohibits local taxes from growing every three years when property goes through a reappraisal (inflationary increase to reflect market values).  Every major study commissioned by the State has shown this is a serious problem for school funding.  This simple analogy may help make this issue clear.  Most citizens in central Ohio and around the state pay a 2% local income tax to the city in which they work.  If the citys tax base ( workers' incomes) goes up because workers get a 5% raise, then the city collects 2% on a 5% bigger base.  In other words, the city's taxes grow.  The same occurs with the state sales tax, state income tax, and local county sales tax.  The rate of taxation does not drop with an increase in income or sales.

 

For a school district let's assume property values increase by 5% due to adjustment with inflation (reappraisal). The property tax rates are then essentially reduced 5%.  In the Dublin City Schools our tax rates have been reduced 26 mills or $62.4 million since 1982.  Does that mean we would have been collecting more had this law not rolled back our taxes?  Yes it does, and we also wouldn't have had to ask voters for as many operating levies.  In essence we would have been collecting our current revenue without being on the ballot.  This is one of the reasons districts are forced to return to voters.  Our tax revenues do not increase as our tax base grows with inflation.  If  city and other state government's tax rates were rolled back when their tax base increased, I assure you they would be asking voters for additional levies as well. 

 

Please note that HB 920 is a funding flaw.  It prevents school district revenue from normal growth.  Therefore, districts must return to voters for more money due to a lack of ability to keep up with inflation, not because of poor management by districts.

 

Phantom Revenue refers to the process where the States funding formula credits a school district with more local revenue than the district actually gets.  This is particularly a problem following property value reappraisals every three years.  When property values go up, property tax rates go down (HB 920), our local revenue stays the same, and the states funding formula actually reduces state aid because the formula assumes districts get more local taxes.  In reality they do not.  

 

To illustrate this, in Dublin our state revenue will actually be reduced by an estimated $14.6 million over the next five years, down from what we are collecting in 2004 due to "Phantom Revenue."  This is one of the main issues in the court case where the Supreme Court found Ohios funding system flawed on four separate occasions.  The state funding formula is based on flawed assumptions. 

 

Nearly all lawmakers know about "Phantom Revenue," but they seem to ignore the problem.  In 2002 State Representative Jon Peterson, a former Delaware County Auditor, worked with OASBO to prepare a new law that would correct much of "Phantom Revenue."  This would have done much to stop the mistakes in assumptions found in the state funding formula but the new law was not supported by the state legislature in 2003.  Hopefully, it will be considered in the near future.

 

Please note that "Phantom Revenue" is a funding flaw affecting revenue; not poor management by districts.

 

Another current problem impacting school revenues is cut in state aide.  In the spring of 2003 all districts received a cut in state aide they were supposed to get and for which they had budgeted.  It was a cut of nearly $66 million.  That cost the Dublin schools $350,000 taken out of state payments from March through June 2003.  For the current fiscal year that began July 1, 2003, our per pupil funding amount was cut from a previously promised increase of 2.8% down to 2.2%.  That slight amount cut $330,000 from the Dublin City Schools.  Over five years that is a reduction in our operating revenue of $1.2 million.

 

Again, please note that this is a funding issue that directly impacts schools revenues; not poor management by districts.

 

Shifting to expenditures, we often hear that costs shouldn't be increasing more than the consumer price index (CPI) of 2.6% through September 2003, and schools should be doing more to reduce costs.   As mentioned above, schools engage in cooperation to purchase common goods in bulk, thereby lowering costs for many common items including including fringe benefits.  OASBO has developed several programs for districts to use that expands purchasing power to include the entire state in order to lower costs.

 

Nobody would dispute that most of a school district's costs are staffing, representing approximately 85% of a districts budget.  Everything we deliver to support a child's education involves a person providing a service.  In the mid 1980s state law was passed to legalize collective bargaining in Ohio's schools. Oftentimes unions take a bad rap and appear as though they are overly aggressive in seeking pay raises for their members. 

 

Teacher organizations do seek wages, benefits and working conditions for their members.  Most organizations have a good working relationship with the district administration and in many cases are district residents and taxpayers, too.  They typically work with the district and board of education to negotiate what is fair for teachers.  What is fair is highly subject to district finances; it is not an open checkbook, contrary to what many seem to believe.  It is also reasonable to consider that the workforce members of most school districts is made up of an average education level of a master's degree, and people who have spent, in many cases, more than $50,000 in college costs to prepare themselves to be teachers.  In addition, there are constant continuing education standards to be met that require post graduate classes. 

 

Bargaining agreements promote stability and consistency.  This is often overlooked as a very positive byproduct of the bargaining process.  These agreements give staff a process to follow to voice concerns.  They also create a consistent and fair pay level which removes unproductive competition for wages between staff.  All of this allows staff to focus on the task of educating and serving children, not dwelling on employment issues that would distract from this mission.

 

In Mr. Schare's article he indicated that OEA should standardize teacher pay schedules and state law should remove a local board of educations power to negotiate and outbid other districts for the best teachers.   Interestingly this concept is counter to the free market concept of supply and demand which is a founding principal of our economy.  School districts often are a reflection of the community they serve, which is no surprise since our board of directors is comprised of community members.  Local boards and communities should be allowed to attract the quality level of staff they feel that is expected by their community.  Should OEA or the State of Ohio decide to standardize all class sizes, staff salaries, number of administrators, etc., they may as well establish a State of Ohio School District, because that is essentially what would be the effect. This would likely create great discord throughout communities across Ohio.

 

In regards to other areas of a district's budget, many areas are growing at a much greater rate than inflation. Many of those come in the form of unfunded mandates.  Certainly No Child Left Behind (NCLB) is a major unfunded mandate from the federal level.  I am not sure why it is considered complaining when educators mention this. How would a local community feel if class sizes were increased because staff cuts were needed in one area in order to increase another area to comply with this requirement?  This is happening.  Districts seem to be blamed for adjustments when all they are doing is trying to manage the new mandates under threat of losing existing federal funding.  Educators agree that if the state or federal government want to undertake a major initiative in school district, they should be willing to pay for them.  It is absolutely unfair to place significant mandates on districts without supplying the money to pay for them. 

 

There are many current mandates for which districts still are not funded.  In the 1990's the federal government mandated inclusion for special education students.  That significantly increased costs of staffing for schools districts.  They promised a funding level of 40% of the costs (note it was not 100%), but to date, through February 2004, the federal government has paid only 13% of this amount due to districts.  There are many examples of unfunded mandates that have cost districts millions.

 

Other examples of costs increasing far more than the 2.6% CPI are:

 

  • electric and natural gas has gone up 15-20%;

 

  • fuel prices have continued to rise by at least a 10%;

 

  • health care insurance is increasing at over 10% a year for medical coverage and in many instances up to 20% despite changing coverage and cost shifting;

 

  • special education costs are typically going up 20% a year in most districts;

 

  • payments deducted from public schools for students going to private community schools is increasing 10% to 30% a year depending on the district.  In fact, the State of Ohio took $460 million from public school funding in 2003 and sent it to private schools.  Ohio leads the nation in public money going to private education, while funding for public education in Ohio fell to 36th in the country.

 

  • liability insurance has increased in many cases 300% since September 11, 2001. Property and fleet insurance has also gone up 50 to 80% since September 11, 2001 for most districts.

 

  • many districts in central Ohio are growing by over 200 students per year and have to add staff and open buildings which cause costs to increase by more than 2.6% CPI.

 

Many of these costs are not just going up sharply for districts, but the entire community as well.  Like households and other businesses, districts do tighten their belts.  In fact, many districts are making sharp cuts to their budgets to adjust to lower revenue, higher costs, more mandates and additional students.  Districts are doing what they can given the falling revenues and increasing academic standards with which they are trying to cope.

 

One thing is for certain: the time is coming that public education must be funded from a source of revenue that grows with inflation.  As noted above, the current funding system does not work.  It requires districts to return to voters for more money, then go through the cycle of cutting budgets and seeking levies.  This is a tremendous drain on a public school system, parents, students and the community.  By June 30, 2005, 176 districts will face a deficit.  This will grow to 308 by June 30, 2006.  Clearly there is a systematic problem with school funding in Ohio.

 

OASBO is working with the Governors Blue Ribbon Commission to help develop and promote forward thinking concepts on how to fund schools, including evaluating the entire tax structure of the state.  Like nearly all my colleagues in school business,  we do not believe that an endless stream of new taxes is the answer.  A source of funding that does allow growth, however, like other governmental entities in Ohio receive, is the only fair way to support our childrens education.

 

Mr. Schare's article was titled "School Funding Cure Could be Harmful."  OASBO, on the other hand, believes a thoughtful solution to school funding would be helpful to all of our children and our communities. While the cost of an education may be high, the price children will pay for a poor education will be far greater.

 

Chris Mohr is President of the Ohio Association of School Business Officials, and Treasurer and Director of Business Affairs for the Dublin City Schools.  He can be reached via email as mohr_chris@mail.dublin.k12.oh.us

 

Printed with permission from Chris Mohr.

 

 

 

 

Westerville Voters On Target for Education