That’s a Big Class

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.

MORE ON THE BEP:

Money Talks

Shelby County Votes to Sue

Why is he (Gerald McCormick) so angry?

Why is TN 40th?

For more on education policy and politics in Tennessee, follow @TNEdReport

 

Why is TN 40th?

Recently, I wrote about Tennessee’s history of not investing in its teachers. Specifically, Tennessee ranks 40th in the nation in overall teacher pay and 40th in growth in teacher pay over time. So, Tennessee teachers are paid low salaries and those salaries don’t improve much as teachers advance in their careers.

Now, I’d like to take a look at why Tennessee teacher pay is low and is not improving.

The simple answer is this: The BEP is broken.

The BEP is the Basic Education Plan which is the state funding formula for public schools. The formula includes a number of components, including funding for teaching and staff positions based on district size as well as allocations for teacher salaries and insurance. It is the mechanism by which the state fulfills its constitutional responsibility to provide a free public education to all Tennessee students.

The BEP is not the sole funding source for public schools. Instead, the BEP generates dollars that are sent to local districts and each district is also asked to pay a share of the cost of providing education to the students there. The formula includes a mechanism which identifies a district’s “ability to pay” and districts receive a percentage of the total anticipated education funding needs based on that ability. Small, rural counties typically receive a much larger percentage of their total education budget from state BEP dollars than do large, urban districts or wealthy suburban districts.

The idea behind the formula is to introduce an element of equity to Tennessee schools. That is, no matter where a child lives, he or she should have access to a high quality education. Sure, wealthier districts will likely always spend more to enhance the basic program, but at a fundamental level, a child in Hancock County should be able to access the same basic educational opportunities as a child in Williamson County.

One key indicator of equity historically has been disparity in teacher pay across districts. Yes, a teacher in Shelby County has a higher cost of living than one in Perry County. But, fundamentally, the gap between salaries should not be such as to deprive rural districts of the opportunity to compete for teaching talent.

Back in 2002, the small school systems that originally banded together to sue the state to create the BEP sued the state again. This time, arguing that because of the widening disparity in teacher pay, education funding in the state was no longer equitable. At that time, the highest-paying districts in the state were paying salaries nearly 46% higher than the lowest-paying districts (based on numbers from the TN Department of Education). The Supreme Court ruled in favor of the small schools and ordered the state to move toward funding fairness. As a result, the state made teacher salary a formal component of the BEP and funded it at a fixed percentage.

In the years following this adjustment, the pay disparity among districts dropped from 46% to 35%. The parties to the equity lawsuit agreed this was progress and from 2004-2009, the disparity hovered in the 35-36% range.

Following the economic recession of 2008-2009, however, investment in the instructional component of the BEP stagnated. This enabled wealthier districts to continue investing in their teachers while poorer districts could not keep up.

In 2014, the salary disparity among districts is just under 42%. Yes, that’s not far from the 46% ruled unconstitutional back in the 2002 case. And, the trend is heading in the wrong direction for equity, having worsened some 7 percentage points since 2008.

Why does this keep happening? The BEP is broken.

As I mentioned, the BEP includes an instructional component which provides districts funding for teacher salaries. The current instructional component sets a salary number of $40,447. The state then funds this component at 70%, leaving districts to pay 30% of the salary cost for that teacher.

There are a few problems with this. First, nearly every district in the state hires more teachers than the BEP formula generates. This is because students don’t arrive in neatly packaged groups of 20 or 25, and because districts choose to enhance their curriculum with AP courses, foreign language, physical education, and other programs. This add-ons are not fully contemplated by the BEP.

Next, the state sets the instructional component for teacher salary at $40,447. The average salary actually paid to Tennessee teachers is $50,355.  That’s slightly below the Southeastern average and lower than six of the eight states bordering Tennessee. In short, an average salary any lower would not even approach competitiveness with our neighbors.

But, this gets to the reason why salary disparity is growing among districts. The state funds 70% of the BEP instructional component. That means the state sends districts $28,333.90 per BEP-generated teacher. But districts pay an average of $50,355 per teacher they employ. That’s a $22,000 disparity. In other words, instead of paying 70% of a district’s basic instructional costs, the state is paying 56%.

There’s an easy fix to this and it has been contemplated by at least one large school system in the state. That fix? Moving the BEP instructional component to the state average. Doing so would cost just over $500 million. So, it’s actually NOT that easy. Another goal of those seeking greater equity is moving the BEP instructional match from 70% to 75%, essentially fulfilling the promise of BEP 2.0. Doing so would cost at least $150 million.

Oh, and there’s one other problem with the BEP as it currently functions that impacts equity. The BEP insurance component. The BEP provides funds (45%) for teacher insurance. But, the BEP only funds teacher insurance for 10 months. Teachers receive insurance for 12 months. This creates a gap that MUST be filled by local districts. Wealthier districts are better able to absorb this cost while continuing to offer competitive pay. Poorer districts often keep salaries low in order to make up the money needed to cover the state-mandated insurance match.

Taking the state’s insurance match from the BEP from 10 months to 12 months would cost $64 million. It would also free up funds that could be used to close the salary gap among districts while easing the burden on local taxpayers. While addressing the salary issue will take creativity and some patience, the insurance issue is one that can be fixed with the exertion of some reasonable effort. That is, someone willing to find a way to allocate $64 million to the BEP in a state budget that is over $30 billion. It may mean less money in reserves. It may mean making different choices in terms of budget priorities.

The BEP is broken. It can be fixed. Doing so will require a commitment to investing in teachers and schools. It will require an adjustment in the state’s priorities. But, the broken BEP can be fixed.

For more on education politics and policy in Tennessee, follow @TNEdReport