The time has come for K-12 finance review

The time has come for K-12 finance review

We believe it is time to re-evaluate our state’s system of school finance in a comprehensive way.

Two bills before the Education Committee today — LB 182 and LB 323 — would provide such an opportunity. These bills would serve a similar purpose to the School Finance Review Commission, created in the late 1980s, to examine the state’s school funding system and our reliance on property taxes to fund K-12 education.

State still ranks 49^th in state support for K-12

While our education system, our economy, and our state have changed significantly in the past 25 years since the original School Finance Review Commission report was released, many things remain the same. At the time the commission was established, state aid to education was declining. Likewise, in FY13 we hit a historic low in state support for K-12 as a share of the economy since the implementation of our current school funding system.  While we bounced back slightly, the projections in the Governor’s budget would take us back to that historically low level.

Furthermore, at the time of the commission’s recommendations, Nebraska ranked 49th nationally for the percentage of K-12 education funded by state sources in 1990. Nebraska still ranked 49th in 2012.

Commission findings

In the report issued by the School Finance Review Commission in 1990, the commission found two major policy problems with the way Nebraska funded its public school system:

“First, the burden on property for school support is excessive by any standard of measurement, resulting in inequities to taxpayers and a narrow and unstable tax base for schools. Second, the current system of school finance, with its overemphasis on the property tax as the primary basis of support for schools and grossly inadequate equalization abilities, does not assure that all students in the state will have equitable access to appropriate and necessary school services.”

In fact, every major tax report in Nebraska since 1962 has found a low level of state support for K-12 education and heavy reliance on property taxes.

The commission also found that the historic resistance to greater equalization of school fiscal support in Nebraska was closely related to the inability of Nebraska policymakers to reach consensus on what constitutes “wealth” in terms of school district resources and in terms of taxpayers’ ability to pay for educational services.

Three-legged stool out of balance

Ideally, state revenue comes from a balanced mix of property, income and sales taxes – sometimes referred to as a “three-legged stool.” This maintains stable funding for schools and other services and spreads taxes more equitably. Nebraska’s three-legged stool is out of balance as property taxes account for 36 percent of revenue collected – while 31 percent comes from sales taxes and 25 percent comes from income taxes. This has ramifications for school funding and puts inordinate pressure on some groups to pay for key services.

Presently, real property value is the primary factor used to determine how much money a community has to pay for its schools. This ignores other important measures of community wealth such as income. This scenario has placed a lot of pressure on our farmers and ranchers to pay for schools. Rural Nebraskans now pay 40 percent more per person in combined property and income taxes than urban residents. This over-reliance on our agricultural community to fund education could result in cuts to schools state-wide if agricultural land values were to drop. Our state would benefit from a more balanced approach.

Property taxes have increased statewide

Increased property taxes are not just a rural issue, however, as property tax rates have increased throughout Nebraska in recent years. Playing a role in the statewide increase in property taxes are recent cuts in state aid to schools and other local governments, which have led to increased reliance on property taxes to fund the services these entities provide. Meanwhile, our schools have growing needs and challenges, further complicating the Legislature’s ability to lower property taxes without negatively impacting K-12 education.

Nebraskans deeply value our public education system. We know that a strong K-12 education system expands  opportunities for all and is foundational to the strength of our economy. The review processes proposed in LB 182 and LB 323 would help ensure our K-12 system remains a strength for our state for years to come.

NET Nebraska will stream today’s hearings on the bills starting at 1:30 p.m. and OpenSky will provide updates on our Twitter page.