The perennial debate

How the heck does Colorado fund its schools? (And six other money questions you might be embarrassed to ask.)

PHOTO: Nicholas Garcia
A high school student at Vista Peak Preparatory works on a computer during an engineering class.

Since public schools were founded, arguments have raged over how to pay for them.

In Colorado, it’s one of the perennial debates that gets the best of lawmakers, lobbyists, school leaders and advocates every year. Further frustrating things, lawmakers can only do so much because constitutional amendments lock in much of the state’s budget.

It’s no chump change: More than $6 billion in Colorado tax money goes toward schools.

As Colorado lawmakers get to work on crafting the state budget, here are some questions and answers about how the school funding system works in the Centennial state.

How the heck does Colorado fund its schools?

Colorado funds its schools from two major sources of revenue.

The first pool of revenue is called the “local share.” This money comes from local property taxes on homes and businesses. The second pool is the “state share.” This revenue comes from income and sales taxes.

PHOTO: Sarah Glen
Over time, the state has had to increase its contribution to the state’s schools.

Historically, schools received about an equal share of their funding from the local and state shares. However, for a variety of reasons, the state has had to dramatically increase its contribution to schools during the last two decades.

Many schools, especially those that serve large populations of at-risk students, also receive federal money.

What about marijuana taxes? Aren’t schools seeing a windfall from recreational sales?

No.

The first $40 million of tax revenue collected from marijuana excise taxes — a wholesale tax — goes to a special fund to help school construction. That doesn’t go very far.

However, given a tightening state budget, Gov. John Hickenlooper has suggested increasing taxes on pot to help fund school operations. Lawmakers haven’t been keen on that idea.

Does every school district get the same amount from the state?

No. Lawmakers use a funding formula to determine how much money each school district gets. The formula, which was written in 1994, takes in a variety of factors including student enrollment, the district’s cost of living and how many at-risk students the district serves.

The large suburban district in Douglas County received $7,050 per student this year. Thirty-four percent came from local taxes, while the state picked up 66 percent of the cost.

The smaller Mapleton school district in Adams County, which serves a large Latino population, got $7,303 per student. But only 24 percent came from local property taxes, while the state kicked in 76 percent of the cost.

The tiny Aguilar school district in southeastern Colorado received $13,600 per student. The locals pitched in 25 percent and the state took care of the rest.

What determines the size of the local share?

School boards have no say in how much local property taxes contribute to their funding. That’s left to a complicated constellation of constitutional amendments and state law.

First there’s the Gallagher Amendment. Adopted in 1982, the amendment requires the state to maintain a 45 percent to 55 percent ratio ratio between the revenue collected from personal property and business property. When home values go up, the state is required to drop the percent on which property can be taxed. In 1980, the rate was 21 percent. In 2013, it was 7.98 percent. That means a smaller proportion of a home’s actual value can be taxed by school districts.

The second constitutional amendment in play is the Taxpayer’s Bill of Rights, or TABOR. Approved by voters in 1992, TABOR puts a cap on how much revenue the state and local governments can collect from taxpayers. It also requires governing bodies to seek permission from voters before increasing taxes.

While all but four school districts have received voter approval to keep excess tax revenue, lawmakers have put two key restrictions on school districts.

First, until 2005 school district property taxes could only increase by inflation and enrollment growth. When that revenue exceeds the limit, school districts had to reduce their tax rates. And because of TABOR, once the tax rate is lowered by statute, it can’t be raised without voter approval.

(If you want to sound super-smart at your next PTA or school board meeting, this was known as the “ratchet effect.” In 2005, voters approved Referendum C, which ended this effect.)

Lawmakers put an additional check on school districts in 2007 when they put a statewide cap on school districts’ tax rates.

What determines how much the state is supposed to kick in?

While there are two amendments that put restrictions on how the state can generate revenue to fund its schools, there is another Constitutional amendment that spells out how the state is supposed to spend that money.

Amendment 23, approved by voters in 2000, did a few things, but two points are still relevant today.

First, Amendment 23 requires the state to increase funding based on population growth and inflation. Second, it created the State Education Fund, an account lawmakers are relying on more heavily to pay for schools. It is financed by one-third of 1 percent of federal taxable income that is exempt from TABOR limits.

Wait, if lawmakers are required to increase funding each year, why does the state have an education funding shortfall?

During the Great Recession, when lawmakers were forced to slash hundreds of millions from the state budget, they argued that Amendment 23 only covers “base funding,” or the average every school district receives per pupil.

The amendment, they argued, doesn’t govern the additional money districts receive to compensate for size, at-risk students and other factors.

So in 2010, lawmakers created “the negative factor,” a new tool they could use to make across- the-board cuts to school funding after all other factors (size, at-risk students, cost-of-living) are taken into consideration.

As part of a compromise, lawmakers are required to report how much money they’re not giving to schools based on that legislative tool.

A lawsuit challenged the negative factor. But the state Supreme Court ruled in favor of lawmakers.

So while a large portion of funding must increase every year, lawmakers have places to cut education in a pinch. The current shortfall is at $828 million, down from a $1.01 billion in 2013.

Didn’t a bunch of school districts just pass tax increases?

Yes, and according to some, that’s making the situation worse.

As the state’s finances have squeezed, some school districts have turned to local voters to ask for more local revenue. These tax increases, known as mill levy overrides, exist outside of the state’s school funding system. The more voters approve doesn’t lessen the state’s burden.

There are some school districts like Boulder, Denver and Cherry Creek that have generated millions of local revenue but are still getting their equal share from the state. Meanwhile, districts like Greeley, Pueblo and Sheridan have never been able to convince their voters to approve a tax increase. That means they have to get by with whatever the state gives them.

Update: This post has been updated to reflect that the “ratchet effect” no longer exists after voters approved Referendum C.

life support

Partisan bickering puts financial lifeline for rural schools in danger

PHOTO: Nicholas Garcia
Students at Merino Elementary School work during class.

A bill that would send hundreds of millions of dollars to Colorado’s rural schools faces an uncertain future after party leaders in both legislative chambers Thursday accused each other of not negotiating in good faith.

The multifaceted bill is one of the most complicated of the session. It would send money to rural hospitals, roads and schools. But if lawmakers fail to resolve their differences, hospitals would face severe cuts — forcing some in rural areas to close altogether.

What makes Senate Bill 267 so controversial is that the cornerstone of the bill would redesignate a fee collected by the state that helps pay for Medicaid.

The money the state collects from hospital patients is funneled to the state’s general operating budget. The state’s constitution limits how much that pot of money can grow each year. The bill would redirect the hospital fee to an enterprise account that isn’t subject to that constitutional provision.

Democrats have wanted to redesignate the hospital fee since 2015. They believe reclassifying the fee would elevate some budgetary pressures that have forced schools and other state services to be underfunded. Republicans have staunchly opposed the change. They’ve said it would violate the constitution and the will of voters.

State Sen. Jerry Sonnenberg, a Sterling Republican, changed his mind this year after seeing the potential cuts to rural hospitals. He introduced the bill with state Sen. Lucia Guzman, a Denver Democrat, and state Reps. K.C. Becker, a Boulder Democrat, and Jon Becker, a Fort Morgan Republican.

The bill was always a long shot. There are plenty of provisions neither chamber liked. And it would potentially take a coalition of both parties to pass the bill

But a disagreement over whether the state should lower its spending gap in tandem with redesignating the fee has thrown negotiations into further peril.

Early Thursday, Sonnenberg told reporters he was done negotiating with Democrats. He signaled he would kill the bill that was scheduled for a second hearing later in the morning. While he backed away from his threat, he took shots at Democrats.

“We didn’t kill it,” he told Chalkbeat after sparing the bill. “I’m not ready to give up. But I’m close.”

Sonnenberg said he believes he’s given Democrats more than he should, increasing the amount he’d cap government spending at. But that hasn’t been enough for them, he said.
“I want to save hospitals,” he said. “They want more tax dollars.”

Democrats said they’re concerned the bill as written would trigger another round of budget cuts to all government services, including schools

“It puts our budget in problem territory in no time at all,” said Becker, the Boulder Democrat.

“The numbers just don’t add up,” said Speaker Crisanta Duran, a Denver Democrat.

House Democrats said they’re hoping to restart negotiations soon and will offer “creative solutions.”

Senate Bill 267 is scheduled for another hearing Tuesday.

“We are still holding out hope for rural schools,” said Michelle Murphy, executive director of the Rural Alliance, which represents the state’s rural schools. “We’re grateful to Sen. Sonnenberg and the bill’s other sponsors for their leadership and efforts to bring critical resources to rural communities.”

Show me the money

Why a key piece of legislation to fund Colorado schools is on hold

PHOTO: Nicholas Garcia
Students move about a classroom at the Denver Green School.

Funding for Colorado’s schools is caught in the political crosshairs at the statehouse with only 23 days left for lawmakers to complete their work this year.

Republican leaders of the state Senate called on House Democrats Monday to finish their work on the budget so the legislature can move on to flushing out specifics on how much money each of the state’s schools districts will receive.

But Democrats who control the House say they want to hold off on passing legislation needed to balance the budget while the Senate considers bills that could alleviate some financial pressure.

State Sen. Owen Hill, a Colorado Springs Republican, is the sponsor of this year’s School Finance Act, an annual bill that sets how much each school district receives per pupil.

Hill said he won’t move forward with the school funding bill until the House is finished considering two pieces of legislation that must be passed to balance the state’s budget.

The state’s budget locks in funding for the education department but the annual school finance bill spells out how much each district receives.

“We’re in a holding pattern,” Hill told reporters Monday morning. “Constitutionally, we have to fund our schools. And we can’t do that until the House finishes up the package of the budget.”

GOP leaders admitted they could introduce the funding bill at any time. For example, last year’s bill was introduced at the same time as the state’s budget. But given the complexity of this year’s state budget, leaders said they want more certainty before introducing this year’s school finance bill.

“The numbers don’t mean anything until we balance the budget and I refuse to do that on the backs of our school districts,” Hill said.

This year’s budget calls for a modest increase in school funding. On average, schools will receive about $185 more per student than this year.

That doesn’t mean the bigger picture is bright for school funding, though. The state is already not fulfilling its obligations to fund schools, and the shortfall is projected to increase by about $45 million, to $881 million. That’s because the state doesn’t have enough money to cover all of its costs.

Hill said his funding bill could include more money for rural schools and resources to address the state’s teacher shortage.

House Democrats said they’re waiting for the Senate to take up two bills that could free up more money in this year’s state budget, including a bill that would send $400 million to rural schools.

“With a bill addressing the hospital provider fee working its way through the Senate, and multiple transportation funding measures in different stages of the legislative process, we need to ensure that the entire budget package brings our budget into balance,” Speaker of the House Crisanta Duran said in a statement to Chalkbeat. “All of the bills have to work together, and we want to see how the bills currently in the Senate progress.”

State Rep. Brittany Pettersen, a Lakewood Democrat who is expected to co-sponsor the school funding bill, said it’s time to introduce the bill.

“We need to move forward,” she said. “There are a lot of balls in the air. And these bills are all intertwined. But I’m hopeful.”