1. Presentation to HRC Education Finance Summit
School Funding and School Property Tax Reform: What the Constitution Says
Presentation to HRC Education Finance Summit
June 28, 2016
Kristen Fraser, OPR

2. Office of Program Research
Today’s presentation
Overview of main constitutional provisions that affect school funding and school property tax reform.
Address judicial interpretations of constitution and potential interaction with statutory solutions.
Overview and status update on the McCleary lawsuit.
June 28, 2016
Office of Program Research

3. Office of Program Research
Washington is special.
June 28, 2016
Office of Program Research

4. Office of Program Research
It is the paramount duty of the state to make ample provision for the education of all children residing within its borders, without distinction or preference on account of race, color, caste, or sex.
June 28, 2016
Office of Program Research

5. Office of Program Research
Paramount duty: Education is the primary obligation of state government.
State must define and fully fund a program of basic education.
The state has defined a basic program:
EALRs, BEA goals, minimum program offerings.
Funding formulas for general apportionment and categorical programs.
Basic education funding takes precedence over other state programs.
Court will subject basic education policy and funding legislation to higher judicial tests than other types of legislation.
June 28, 2016
Office of Program Research

6. Paramount duty: The duty is imposed on the state.
Delegation to school districts does not fulfill state duty.
State must define state program and fund it with regular and dependable revenues.
School district M&O levies are not regular and dependable because:
Temporary
Can be voted down
Vary based on property value.
“Regular and dependable” isn’t the whole story.
State must provide funding for state’s program from state sources.
Local levies cannot be used to support state program.
June 28, 2016
Office of Program Research

7. Paramount state duty versus local control
June 28, 2016
Office of Program Research

8. Paramount duty: State obligation Statutory policy: Local control
State has chosen to operate schools under a system of local control by locally elected boards.
Local control is (probably) not constitutionally required.
“For allocation purposes” permits local variation.
State funding must correspond with costs of providing the state program.
State obligation and local control require a careful balance.
Consider how state solutions should address risk of “levy creep.”
Consider how solutions will allow the state to defend itself against future litigation.
Article IX does not expressly grant school districts authority.
Local control of the state program and state funding is probably not constitutionally required.
LWV raises questions but that’s an entirely different story.
As Jessica explained, most state funding is distributed for allocation purposes only.
Subject to some limits, districts have local choices about how to deploy the state funding.
I have some illustrations in the appendix if you have questions about that.
One notable thing about McCleary is that it allows the state to operate a formula-based system.
The state is not required to reimburse school district expenditures.
This is really important: legislature has not delegated to school directors the ability to define the state’s program and the costs of that program.
But, McCleary confirms that the state’s funding formulas must CORRESPOND to the districts’ costs of implementing the state’ program.
Courts do not want to get involved in setting details such as staffing ratios. Cases such as Federal Way declare that this is not the judiciary’s role.
As Jessica explained, the state got to the McCleary situation because of “levy creep,” where districts use levy $$ to support salaries for the state program.
Your solutions will need to consider how you want to balance the principle of local control with the risks to the state of levy creep.
You want your solution to be defensible. Need to show it corresponds to the cost of providing the state’s program.
June 28, 2016
Office of Program Research

9. Paramount duty: Local levies for enrichment only.
Constitutional limits on use of M&O levies are the flip side of paramount duty.
Constitution does not obligate or entitle school districts to collect levies.
Local levies may be used only for “enrichments” to the basic program.
The state has defined the basic program.
Subject to permitted local variations.
The state has not defined “enrichments.”
Consider what protections are needed to prevent “levy creep” by limiting levies to enrichment.
June 28, 2016
Office of Program Research

10. Office of Program Research
CY 2016 Voter-Approved School District Levies
(may be less than statutory maximum levy)
June 28, 2016
Office of Program Research

11. Paramount duty: School construction?
Notwithstanding paramount duty clause, constitution anticipates both state and local responsibility for school construction costs.
School district capital levies: less restrictive local voting requirements.
School district bond levies: same voting requirements as other local gov’t bond levies.
Higher debt limit allowed for school capital costs than for other local gov’t costs.
State may guarantee school district bonds.
Common School Construction Fund establishes state revenue source for school construction aid.
June 28, 2016
Office of Program Research

12. Public school uniformity:
The Legislature shall provide for a general and uniform system of public schools. The public school system shall include common schools, and such high schools, normal schools, and technical schools as may hereafter be established.
June 28, 2016
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13. Uniformity clause and state funding
Uniformity applies to substance of program, not funding details. (So far.)
Uniformity does not require identical funding.
But, under paramount duty, funding must correspond to costs of program.
Consider extent to which state funding should be tailored to needs of individual districts.
Consider uniformity issues when setting levy policy.
June 28, 2016
Office of Program Research

14. Constitutionally dedicated school revenues
But the entire revenue derived from the common school fund and the state tax for common schools shall be exclusively applied to the support of the common schools.
June 28, 2016
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15. Constitutionally dedicated school revenues
Permanent Common School Fund (irreducible).
Common School Construction Fund.
PCSF earnings.
Timber and other revenues from state school lands.
“State tax for common schools”
Different taxes over time. Currently, the state property tax.
Courts treat statutory designation of property tax as a constitutional designation.
LWV expanded scope of constitutional protection.
Consider constitutional consequences of:
Changes to state property tax.
Statutory designation of any other tax for common schools.
June 28, 2016
Office of Program Research

16. Other constitutional restrictions that may affect school taxes
Property tax uniformity.
In former county school tax, school tax rates acceptable because they were uniform within each county.
Not clear if still good law.
Imposing tax for local purposes:
State may not levy a tax for local purposes.
May authorize local governments by uniform law to collect local taxes.
In former system, tate-imposed county property tax for schools is a state purpose.
No geographic commutation of state taxes.
These principles may affect “levy swap” proposals.
June 28, 2016
Office of Program Research

17. Office of Program Research
The state property tax, the debt limit, and the Budget Stabilization Account
Changes to the state property tax interact with the debt limit and the BSA (rainy day fund).
Constitutional limit on GO debt is based on GSR.
Under a 2012 amendment, state property taxes deposited in the GFS “count” toward GSR.
This means that the state property tax is part of the current debt limit calculation.
If property taxes currently collected in the GFS are diverted to a different account, the debt limit will decrease.
If property tax is increased and deposited in GFS, the debt limit will increase.
But, a portion of those revenues will also spill over into the BSA.
Consider impact of state property tax changes on debt limit and BSA.
June 28, 2016
Office of Program Research

18. McCleary v. State Overview and Update
June 28, 2016
Office of Program Research

19. The McCleary case: current status
Court: reliance on levies to fund state’s program: MSOC, transpo, salaries.
Initial ruling endorsed ESHB 2261 as a remedy.
2018 deadline comes from EHSB 2261 (2009).
But, court chose to retain jurisdiction for oversight.
Beginning in 2012, annual court orders directed legislature to provide a “plan” with annual benchmarks against which the court could measure progress.
Court orders also raised issues beyond ESHB 2261.
COLAs, construction, teacher shortage.
In 2013, 2014, and 2015 sessions, legislature did not provide a “plan” but substantially increased K-12 funding.
June 28, 2016
Office of Program Research

20. McCleary and contempt of court
Court (2015): State must present its plan for achieving compliance by its own deadline of 2018.
Court (2015): Sanction of $100,000 per day until state adopts a complete plan for complying with Article IX, section 1 by the 2018 school year.
E2SSB 6195 (2016): Legislature provided a “plan.”
Gather additional data.
Enact legislation in 2017 to eliminate reliance on levies for state’s program of basic education.
Legislature did not appropriate or otherwise segregate fine proceeds.
June 2016: Post-session briefing complete and awaiting judicial response.
June 28, 2016
Office of Program Research

21. Office of Program Research
Appendix
June 28, 2016
Office of Program Research

22. Simplified illustration of prototypical school formula*
0.076 school nurses
$1210 per-student MSOC rate
20 teachers
1.2 Admin
0.66 librarian
0.5 guidance counselors
1.7 custodians
June 28, 2016
Office of Program Research

23. Office of Program Research
Simplified examples of local decisions about state general apportionment allocations*
District A
District B
District C
District D
20 classroom teachers
18 classroom teachers
1 gym teacher
1 art teacher
19 classroom teachers
1 full-time librarian
1 full-time nurse
18 classroom teachers
Additional computers
*Rounded for illustration to assume 400-student prototypical elementary school generates 20 state-funded teachers
June 28, 2016
Office of Program Research

24. Office of Program Research
Simplified examples of using local funding to supplement state-allocated staff*
District E
District F
District G
20 classroom teachers
(state-funded)
1 PE teacher (locally funded)
1 art teacher (locally funded)
20 classroom teachers (state-funded)
2 additional classroom teachers (locally funded)
20 classroom teachers (state-funded)
Extra computers
(locally funded)
June 28, 2016
Office of Program Research

25. Office of Program Research
Simplified illustration of district use of local funding for salary supplements
Teacher A:
Basketball coach
Teacher B:
After-hours work
Teacher C: Grading papers
Teacher C
Administrator D
McCleary: Districts pay supplemental salaries for what is likely a state responsibility
McCleary: Some of the difference represents permissible local TRII contracts
June 28, 2016
Office of Program Research

26. Office of Program Research
Estimated Maximum and Voter Approved Local M&O Levies for Selected Local School Districts in 2016
June 28, 2016
Office of Program Research

27. Office of Program Research
Estimated Frequency Distribution of Local School District M&O Levy Tax Rates (CY 2016)
House Appropriations Committee. Data Source: OSPI, Report 2010 for CY 14 Levies
June 28, 2016
Office of Program Research

28. Office of Program Research
Rates necessary to bring in $1000 per pupil as compared to current voter-approved levy
June 28, 2016
Office of Program Research

29. Office of Program Research
Estimated M&O Collections at a Rate of $1.00 per $1,000 Adjusted Assessed Value
June 28, 2016
Office of Program Research

30. State Operating Budget 2015-17 (2016 Supp NGFS + Op Appropriations)
Source: leap.leg.wa.gov
June 28, 2016

31. State NGFS + Op Revenues 2015-17