Monday, July 14, 2008

Our Education Fund "bucket" has a couple of leaks

There has been a lot more discussion (still not enough) about class size issues in Utah. The biggest hurdle that class-size reduction faces seems to be the funding that it would take to achieve it. According to a January 2007 USOE (Utah State Office of Education) estimate, a reduction of just one student in the pupil-teacher ratio for K-6 would cost about $37.5 million in additional teachers' salaries, not to mention the $293 million in facilities.

Whoa, right!? If that seems like a lot of money to come up with, you're right, it is! And it's also just about the amount of money leaking out of the Education Fund and in to two other "buckets" of money that up until the mid 1990's were completely separate. Let me explain. Prior to 1996, the three major buckets of funding included:

  • Education Fund (formerly known as the Uniform School Fund) - This money came primarily from state income taxes, as well as corporate taxes and a small amount of property taxes. Income tax revenue, by constitutional mandate, could ONLY be used for public K-12 education.
  • General Fund - This money came from state sales tax revenue which covered most state programs, including higher education, human services, health, corrections, and general government.
  • Transportation Fund - This money came primarily from motor fuel taxes, and provided for UDOT and the Utah Highway Patrol.

As I mentioned, these funds WERE completely separate due to their separate revenue streams so the funds allocated to K-12 education were protected. They had to go to our public schools and could not be diverted to other projects or used to replace other funding. The threat of funds being used for roads and prisons was non-existent during the budget process because state income tax revenue was not available for such projects. It HAD to go to K-12 education.

In 1996 everything changed. New legislation, in the form of a constitutional amendment, allowed income tax revenues to be used for higher education as well as our K-12 schools. Most people don't even know about this subtle move. What does it matter if we fund a program from one budget or another? It likely seemed reasonable at the time since, after all, the money was still going for education. Right? Perhaps the intentions were not ill conceived, but ever since the two streams were comingled, public education has had to compete with other state programs for resources. This competition for funds begins when General Fund appropriations for higher education do not cover the anticipated costs so the Utah Legislature supplements General Fund revenues by diverting Education Fund revenues to higher ed. It's all still considered the Education Budget, but our K-12 schools are the entities giving up a portion of their funding to pay for the change.

The title of this post mentions a "couple of leaks". I've told you about one, but the problem gets worse. During the 2007 General Session, the Utah Legislature passed Second Substitute HB 314 and Substitute HB 383, which diverted a stream of sales tax revenues into the Transportation Fund. Remember the buckets? Which bucket does sales tax usually go in? That's right, it should have gone to the General Fund! Money that would have gone into General Fund programs was transferred into the Centennial Highway Fund, the Critical Highway Needs Fund, and other special Transportation Fund projects. These projects should have been funded by the Transportation Fund. Yet another merging of funding streams has just occurred. Nowadays it seems as if all taxes can be used for any pet project of the legislature.

So what are the effects of these merges or "leaks" as I like to call them? Due to the bills most recently passed, this fiscal year will see $302 million of sales taxes diverted into Transportation Fund projects. This diversion isn't leaking directly from the Education Fund, it's leaking out of the General Fund because that's where legislators choose to go to make up the difference when the revenues from motor fuel taxes aren't able to cover inflationary needs for salaries or for construction cost hikes from the increased cost of asphalt, concrete and steel. But wait! If they leak money to the transportation fund, what about Higher Education? Remember what happens when Higher Education cannot be fully funded? Yep, the Education Fund is raided and leaks into the General Fund to meet those needs. Perhaps if the General Fund bucket hadn't been allowed to spill over into the Transportation Fund, we would have had the money for higher ed. without taking it from K-12 schools. Hence, the couple of leaks!

As much money as is needed to reduce the pupil-teacher ratio by one was diverted to transportation projects in fiscal year 2007-2008. So those who are fighting for class size reduction see a choice being made of more asphalt and sound walls over smaller class sizes. Unfortunately, there are other revenue issues working against K-12 education funding. You can quickly see how this one example takes away a lot of money that could go to class-size reduction. I'll uncover a few more funding issues in upcoming posts.