University of Arkansas Office for Education Policy

Not Your “Run-of-the-Mill(age)” Funding Debate

In The View from the OEP on October 23, 2013 at 1:22 pm

Last week, during the 1st Extraordinary Session of 2013, two bills (HB1010 and SB7) were filed that would allow the Arkansas Department of Education (ADE) to retain excess foundation funding from property-rich school districts.

To fully understand this proposal, let’s take a step back and review how foundation funding works for Arkansas school districts. Foundation funding is the minimum allowance per pupil distributed to districts ($6,267 in 2012-13 and $6,393 in 2013-2014). The local contribution to foundation funding varies by district and is determined by multiplying the uniform rate of taxation (URT) of 25 mills and the property assessment of the school district. In districts where funding from 25 mills does not meet the foundation amount, the state provides equalization funding, which makes up the difference between the local contribution and the foundation amount.

Arkansas Foundation Funding Formula

Local Funds raised  (25 mills URT * property assessment)

+

State Foundation Equalization Aid

=

Total Foundation Funding

When the current funding system, constructed in response to the Lake View ruling, was implemented for the first time during the 2003-04 school year, no district in the state had a property assessment level that generated local funds equal to or above the foundation funding level, so all districts were entitled to state equalization aid. As a result, there was no explicit direction as to what should happen if a district’s standard local “tax effort” (25 mills) were to result in MORE than the foundation level. Since the original drafting of the law, changes in enrollment and increases in local property tax revenues resulted in some districts being able to generate ALL of the foundation amount — and then some — on their own with no state equalization supplement.  Because there was no precedent for this situation, a debate emerged over who is the rightful owner of these excess funds. Essentially, there are two views on this issue:

  1. The “excess” funds belong to the local districts, where they were generated and collected.
  2. The “excess” funds belong to the state because they are the result of a state tax. The state will then distribute these funds to districts across the state.

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Clearly, as this remains a source of debate, there is no obvious or agreed-upon answer. In the past, the ADE collected the excess foundation funding from these districts (view #1). However, this practice was put before the state Supreme Court in response to a case involving the Fountain Lake and Eureka Springs school districts. In November 2012, the Arkansas Supreme Court overturned the state’s practice of collecting the excess foundation funding with the Kimbrell v. McCleskey decision. The Supreme Court’s decision allows for districts to retain excess funding generated by the 25 mills when that amount exceeds the foundation funding minimum. While the court case cannot be overturned, the legislature could pass an act to require districts to return the the excess foundation funds to the ADE.

In 2013-14, eight school district collect more than the foundation amount: Armorel, Eureka Springs, Fountain Lake, Mineral Springs, Nemo Vista, South Side, Quitman, and West Side. To be clear, this funding does not come from revenue generated from the mills above the minimum 25. All traditional school districts have millage rates above 25 mills (the state average in 2011-12 was 37 mills), and that revenue is generally used for facilities and other capital expenses (see the OEP’s school funding databases here). The districts in question in the bills proposed during the special session generate more than the foundation amount from the required 25 mills.

HB1010 and SB7 garnered attention last week, as representatives, school officials, and constituents from the eight school districts sought to retain the excess foundation funds. The bills received support from Governor Beebe, who explained that the funding was misinterpreted by many people, as the 25 mills are state taxes (only able to be raised or lowered by the state) and that no funding would be taken from the local property taxes raised above the 25 mills. In the end, the two bills were dismissed; however, the issue of these funds may be brought up again in a future session (though Governor Beebe stated he would not push to bring up the issue during the 2014 fiscal session).[1]

In a future blog post, we will provide more information about the eight school districts with excess foundation funding this year, by answering question such as: What causes the excess foundation funding–enrollment or high property tax collection? How does that funding impact these districts? How much are we really arguing about?  Stay tuned for more information.

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  1. Looks like some of those districts (I’m thinking of Eureka and Fountain Lake) are drawing property revenues from retirement communities. So it is not necessarily the case that the excess funding is happening because rich people live there and property values are high. The student population may be relatively disadvantaged, yet the district could be revenue-rich because of a large population of retired people, who pay property taxes like everyone else but (generally) don’t have kids they’re sending to school.

    This is a wrinkle–the issue is about redistributing away from rich *districts*, which does not always mean rich *people*.

  2. Who is the author of this? Dr. Ritter? Others and Dr. Ritter? I’d like to give proper credit in a citation. Thanks!

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