According to the Chattanooga Times-Free Press:
Every school district in Tennessee could be part of the Hamilton County Department of Education’s lawsuit against the state’s Basic Education Program school funding formula if a judge grants a motion to grant it class-action status.
“While the larger districts have been the ones voicing concerns about the underfunding of education, this underfunding has ramifications literally everywhere,” school district attorney D. Scott Bennett said.
Hamilton County Schools and six nearby school districts — Bradley, Coffee, Grundy, Marion, McMinn and Polk — are plaintiffs in the lawsuit Bennett filed on March 24 in Davidson County Chancery Court.
The suit claims the state has “breached its duty under the Tennessee Constitution to provide a system of free public education for the children of this state.”
Achieving a level of adequate funding as contemplated in the lawsuit would cost an estimated $500 million. Should the motion be granted, all 141 school systems in the state would effectively become a party to the suit — an unprecedented show of strength in what has historically been small school systems suing over equity. This suit differs from the previous “small schools” suits in that it focuses on the inadequacy of the funding formula rather than on any inequities that may exist.
That’s money House Majority Leader Gerald McCormick says the state can’t afford:
“They are suing the taxpayers, that’s who they are suing,” said House Majority Leader Gerald McCormick, R-Chattanooga.
Fully funding the BEP has been estimated to cost $500 million. McCormick said that would have to come out of existing programs, such as funding colleges and universities, because the state constitution mandates K-12 education but not higher education. And Tennesseans don’t want higher taxes, he said.
Of course, McCormick also supported legislative efforts designed to keep local school systems from suing the state for adequate funding.
A look at three revenue issues reveals that McCormick is just plain wrong in his assertion that addressing BEP funding inadequacy would necessitate higher taxes.
First, state revenues are continuing a trend of coming in over projections. Andrea Zelinski notes:
Year to date nine months into the fiscal year, state revenues are $444 million more than anticipated.
So, if Tennessee invested 100% of these over-collections into K-12 education, we’d come very close to the $500 million needed to adequately fund the BEP and provide more resources to local school systems to educate their students. Of course, it’s wise to save some of that money, but even a 25% investment would mean an additional $111 million a year for our schools. All with no new taxes.
Next, it’s important to protect the existing tax base. Governor Haslam took a small step on this front this year for the first time in his administration. The Revenue Modernization Act is projected to result in $20 million in new revenue by closing loopholes and helping the state collect the taxes it is owed. This is a start, but by way of comparison, the Bredesen Administration collected $500 million in revenue by aggressively protecting the tax code and ensuring that taxes owed were taxes paid. That is, they went after corporate tax avoidance strategies in smart, effective ways, year after year. It’s estimated that between $30 and $50 million a year in revenue can be protected each year by closing loopholes.
Add the mid-range, $40 million, to the low estimate of new revenue coming in over projections available for use and you’re looking at over $150 million in new money each year for schools over and above current funding levels.
Finally, I wrote in 2014 about the state’s planned loss of revenue. More specifically, the state is phasing out the inheritance tax – a move that has limited benefits but has a definite impact on the bottom line in terms of revenue collection. Specifically:
Additional revenue is lost by the gradual phase out of Tennessee’s estate tax, previously impacting estates over $1 million. The plan is to phase that out entirely by 2016, with an estimated revenue loss of around $30 million this year and around $97 million in 2016-17’s budget. So, that’s roughly $76 million, or close to half of the projected shortfall for the upcoming budget cycle. To his credit, Haslam says he wants to hold off on efforts to repeal the Hall tax on investment income – a tax paid by a small number of wealthy Tennesseans with investment income. However, he has also said reducing or eliminating the Hall tax is a goal. Phasing out the tax, as proposed in legislation under consideration this year at the General Assembly, would mean a loss of $20 million in the 2015-16 budget year and an ultimate loss in state funds of $160 million a year and in local revenue of $86 million a year.
If the estate tax was returned to its previous level, it would mean some $97 million in available revenue next year. Policymakers could tinker with this formula to ensure some taxes are collected, but the rate is lower and easily collect $50 million a year in revenue. Adding these three items together and being conservative, Tennessee could easily invest $200 million more a year in its public schools.
That means Gerald McCormick is wrong. Making significant new investments in Tennessee schools DOES NOT require raising taxes or implementing new taxes. It does require political will and a little hard work.
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