1. The Funding of Public Education in Wisconsin: Is a Crisis Brewing? Andrew Reschovsky Professor of Public Affairs and Applied Economics Robert M. La Follette School of Public Affairs University of Wisconsin-Madison reschovsky@lafollette.wisc.edu

2. 2 Major School Funding Policy Issues Is it possible to improve the quality of education in Wisconsin using our current funding system? Is more money needed in order to improve educational standards and student performance? Where should the money come from? Should we reduce the reliance on the property tax for the funding of our schools?

3. 3 The Quality of Public Education in Wisconsin Are There Reasons to be Concerned? National Assessment of Educational Progress (NAEP): Wisconsin students perform above the national average, but Nearly ¼ of our students score below basic in 8 th grade test (23% in reading and 24% in math) Racial differences are larger than in most states: % Below BasicWhiteBlack 8 th grade reading 18 56 8 th grade math 16 70

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7. 7 The Quality of Public Education in Wisconsin Are There Reasons to be Concerned? (cont.) Because of the revenue caps most school districts are cutting programs and increasing class sizes A number of small districts are on the verge of collapse, e.g. Florence Todays educational standard arent high enough to adequately prepare students for success in the global economy of 2015 and thereafter

8. 8 An Overview of the Current School Funding System Revenue from all 3 levels of government 52% from the state; 42% from local school districts Most state aid allocated through equalization aid formula Local school district spending decisions restricted by revenue caps NCLB requires annual increases in the share of students (in each subgroup) achieving proficiency

9. 9 State School Aid in 2006-07

10. 10 State Equalization Aid For most districts, aid consists of 2 parts A fixed amount per student that is smaller in districts with higher property value per student An amount that is a fraction of last years spending For ~ 2/3 of districts fraction is >0, thus aid encourages spending For ~ 1/3 of districts fraction is < 0, thus each dollar of extra spending reduces next years aid

11. 11 Evaluating the Equalization Aid Formula Formula is designed to achieve access equality and spending equality Access equality exists when equal property tax rates allow equal levels of spending Formula is reasonably effective in meeting both equity goals But, the formula is not designed to assure that districts have sufficient resources to meet states student performance standards

12. 12 The Evolution of the Current School Funding System (cont.) In 1993, Legislature enacted the revenue cap Annual limit on the increase in the sum of per student property tax and equalization aid revenue 1993 spending pattern frozen in place The cap is currently about $257/student Revenue can exceed cap only if voters approve (via a referendum) As a result, average K-12 mill rate fell by 6.8 mills, a 43 % reduction, between fy96 & fy06.

13. 13 What is Wrong with the Current Funding System? Equalization aid formula and revenue caps takes no account of the differences across districts in expenditure needs--the minimum amount of money per pupil a district needs to meet the states student performance standards Expenditure needs vary for reasons outside the control of local school districts

14. 14 What is Wrong with the Current Funding System? (cont.) Expenditure needs vary because of differences in students Student from poor families Minority status Mental and physical disabilities Limited English proficiency And differences in school districts Number of students, i.e. scale diseconomies Area cost of living, Milwaukee metro vs. rural North

15. 15 What is Wrong with the Current Funding System? (cont.) Revenue caps take no account of differences in expenditure needs and for rate of increase in costs of health care, etc. Passing override referenda made very hard because many districts are penalized by aid formula for any increase in spending e.g. to increase spending per pupil by $100, Madison must increase property taxes by $162 Ability to recruit high-quality teachers is limited, especially in difficult environments

16. 16 What is Wrong with the Current Funding System? (cont.) Evidence that costs of special education are rising faster than available revenues and hence are crowding out funding of regular education Because property tax rate reductions provide untargeted tax relief, those facing high burdens (e.g. moderate-income elderly) receive little tax relief

17. 17 Elements of a Reformed School Funding System Adopt an expenditure-need adjusted foundation formula Aid is gap between each districts foundation level and what it can raise from a standard property tax rate Hold districts accountable for meeting student performance standards Assure that on the margin 100% of extra spending is funded by the local property tax This creates fiscal discipline and negates the need for a revenue cap Expand circuit breaker type property tax relief as a means of targeting property tax relief