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.

money matters

Why so negative? Colorado lawmakers seek to rebrand controversial tool that limits spending on schools

A student works at Tollgate Elementary School in Aurora. (Photo by Nic Garcia, Chalkbeat)

Colorado lawmakers are tired of hearing about the “negative factor.”

So they changed its name — at least in statute.

Going forward, the tool that budget writers will use to spend down the state’s financial obligation to public schools to balance the state budget officially will go by its original name: the “budget stabilization factor.”

The change was made when lawmakers passed the state’s annual school funding bill earlier this month.

The negative factor “has been used as a pejorative,” said state Sen. Kevin Priola, the Henderson Republican who put forth the idea of the name change. “The budget is never perfect. But these are the economic realities we have to deal with.”

Some education funding advocates are rolling their eyes. The term, they say, has become so well known and accepted that any attempt to change it will be difficult.

“You can change the name, but the debt’s the same,” said Lisa Weil, executive director of Great Education Colorado, a nonprofit that advocates for more school funding.

The negative factor — oh, sorry, we mean the budget stabilization factor — is just one part of a much larger and complex formula used to determine school funding.

The budget tool was first created in 2009 when state lawmakers were forced to slash the budget after the Great Recession.

School advocates knew they couldn’t escape the cuts the rest of the state was facing. So a team of lawmakers, lobbyists, superintendents and financial officers helped developed the tool.

Here’s how it works: After lawmakers determine how much funding schools should receive based on a formula developed in 1994, they compare that amount to available tax revenue. The difference is that year’s “stabilization factor.”

At the time the tool was created, the group wanted the cuts to be systematic — applied equally across all schools — and transparent. As part of the compromise, the state was required to track how much money it was withholding from schools.

In 2014, funding advocates sued the state, claiming the negative factor was unconstitutional. But the state Supreme Court disagreed.

Since then, Republican lawmakers have become more critical about the provision that requires them to track how much money the state isn’t giving schools. They argue that other state services such as roads, hospitals and parks all share a burden when it comes to balancing the budget.

Lawmakers have withheld about $5.8 billion from schools since the budget balancing tool was created. However, funding has slowly crept up each year, just not as fast as school leaders would hope.

School Politics

Colorado schools were a hot topic at the state Capitol this year. Here’s what lawmakers did.

A teacher reads to her students at the Cole Arts and Science Academy in Denver. (Photo by Nic Garcia/Chalkbeat)

Colorado lawmakers this week are celebrating major education-related policy wins, including finding more money for public schools.

This year’s legislative session, which ended Wednesday, was marked by big compromises on issues that have befuddled policy makers for years: charter school funding, ninth-grade standardized testing and measuring the reading skills of the state’s youngest bilingual students.

With so many thorny debates behind them, lawmakers and Capitol observers are now looking toward other major policy questions they’ve put off for years, including reforming how the state pays for its public schools and making changes to Colorado’s school accountability laws and teacher licensure policies.

“The hope is now that the K-12 community can come together to focus on the big issues,” said Jen Walmer, Colorado state director of Democrats for Education Reform.

But before we get ahead of ourselves, let’s look back at the last 120 days:

Lawmakers found more money for schools than anyone could have imagined.

Before the legislative session began, school districts were preparing for the worst. Despite the state’s booming economy, constraints on how much the state could spend meant schools could have gone without much of a funding increase.

State Sen. Jerry Sonnenberg, a Republican from Sterling, on the first day of the legislative session.

The forecast became even more dire midway through the session when lawmakers learned the local tax base that generates about a third of all state spending on schools was going to shrink drastically. The worst predictions had the state’s education funding shortfall growing to more than $1 billion.

State officials found a technical workaround, and lawmakers were able to send more money to schools. On average, schools will see about $242 more per student next year.

However, leaders in both parties are aware that the state’s problematic constitutional constraints, tax policies and school funding formula still exist. That’s why a bipartisan coalition of lawmakers led a successful effort to create a committee to study and propose changes to the way the state funds it schools.

“We have more work to do. We need to continue with what we’ve done this session: have tough conversations,” said Speaker Crisanta Duran, a Denver Democrat.

“How do we make sure that students, regardless of race, income, regardless of whether they have a disability, that they have the opportunity to succeed?” she said. “There is no doubt that we have structural decisions we have to make when it comes to our budget.”

Republican leaders said they’re also anxious to see the committee get to work. But they’re less likely to support an influx of cash to the state’s schools.

“If we’re going to look at real overhauls to the system and funding, we need to look at all the options — not just throwing more money at the system — a system that by many’s accounting is not working well or efficiently,” said Senate President Kevin Grantham, a Canon City Republican.

He and other Republicans are encouraging the committee to look at how other states have focused their funding formulas on students rather than on a school’s size or geographic location, and used funding to expand school choice.

Lawmakers already have one option on the table: A proposal to set a statewide property tax rate, which was born out of the legislature’s budget office and floated early in the session. While there was a lot of talk behind the scenes, it failed to gain traction. Expect to hear a lot more about the idea.

The charter school funding compromise, which some called “historic,” was just one of many longstanding issues that were resolved this year.

The 2017 legislative session will likely be remembered as the most productive in a decade because of several big compromises.

State Rep. Brittany Pettersen, a Lakewood Democrat, sits alone on the House of Representatives floor as members of her own party filibustered her compromise on charter school funding. (Photo by Nic Garcia)

Lawmakers grinned Thursday as they ticked off a long list of accomplishments to reporters, including one that could send more local money to charter schools. In return, charter schools will be required to post on their official websites more tax documents and will no longer receive two specific financial waivers.

The last-minute charter school funding bill — sponsored by a bipartisan group of lawmakers that included state Reps. Brittany Pettersen and Lang Sias and state Sens. Owen Hill and Angela Williams — was the compromise no one saw coming.

“Anything is possible,” Pettersen said after the session.

Lawmakers had wrestled with the question of requiring the state’s school districts to share their locally approved tax increases with charter schools for two years. Despite vocal objections from several school superintendents, the legislature overwhelmingly supported the bill.

Early in the session, lawmakers eager to reduce the number of standardized tests reached another compromise with the governor’s office. High school freshmen will no longer be required to take the controversial PARCC English and math tests. Instead, they’ll take a test that is aligned to the college entrance exam, the SAT.

We kicked the PARCC test out of high schools,” said Rep. Paul Lundeen, a Monument Republican. “It’s gone!”

Other deals that were reached include the creation of a diploma seal of biliteracy for students who demonstrate proficiency in two languages and new regulations on how to monitor the reading skills of young English language learners.

Colorado schools will also see a financial boost for the next three years after lawmakers passed an omnibus bill that resolved a debate over a hospital fee that helps pay for the state’s health insurance program.

As part of the biggest compromise of the year, the state will raise taxes on recreational marijuana. Those taxes will send $30 million to rural schools next year and $40 million over two years to the state education fund, a sort of savings account for schools.

Rural schools flexed their muscles and blocked a bill to reform the state’s student suspension rules, but they didn’t get everything they wanted.

Not every piece of bipartisan legislation reached the governor’s desk.

Students at Merino Elementary School work during class.

A bill that aimed to reduce the number of preschool and elementary school students who are suspended was killed by a GOP-controlled committee at the request of rural schools, despite having overwhelming support from both Democrats and Republicans.

Rural school leaders said the bill attempted to create a statewide solution for a Front Range problem. A Chalkbeat analysis of suspension data, which rural superintendents refuted, showed otherwise.

Supporters of the legislation vowed to work with opponents this summer and fall and try again next year.

While rural schools were successful in blocking that mandate, they were dealt a setback when a bill that would have allowed them to remedy a teacher shortage by hiring unlicensed teachers was killed by its sponsors.

State Rep. Jim Wilson, a Salida Republican, said he couldn’t garner enough support for his effort. At least not this year.

“Like Arnold Schwarzenegger said, ‘I’ll be back,’” Wilson said.

Even though that bill failed, lawmakers did take steps to curb the state’s teacher shortage.

Stanley Teacher Prep resident Lily Wool works with kindergartner Samori McIntosh at Tollgate Elementary School in Aurora. Wood’s residency program is merging the Boettcher Teacher Residency program. (Photo by Nic Garcia/Chalkbeat)

Prior to the session, education leaders at the Capitol had few if any plans to take on the state’s teacher shortage. But retired teacher and freshman state Rep. Barbara McLachlan pushed to address the issue.

The Durango Democrat partnered with a host of other lawmakers from both parties to sponsor legislation to study the shortage and provide solutions. She also sponsored a bill that would allow rural schools to hire retired teachers without penalizing their pension. Both bills were sent to the governor.

Two other bills, including one to create multiple teacher preparation pilot programs, failed to advance. But with the issue on the legislature’s radar, expect it to come back.

“That’s the most pressing issue, next to funding,” said state Sen. Rachel Zenzinger, an Arvada Democrat.

Despite newfound freedom from Washington, lawmakers didn’t make any bold changes to the state’s school accountability system.

Several lawmakers early in the session seemed eager to take advantage of new flexibility from the federal government.

While the state education department was busy putting together a mandated statewide plan to adopt the new Every Student Succeeds Act, lawmakers were debating how they could update the state’s school accountability laws.

But only two bills making minor tweaks advanced.

A HOPE Online student works during the day at an Aurora learning center. (Photo by Nicholas Garcia, Chalkbeat)

One requires elementary schools that receive low quality ratings to address the needs of students in preschool through third grade.

The second bill requires the state to measure how well high school students are meeting updated graduation requirements. As part of the new requirements, which go into effect in the year 2021, high schools must adopt a list of options students can use to prove they’re prepared for college or a career.

Those options include the SAT exam, which all Colorado juniors are required to take; passing a concurrent enrollment college-level course; passing a Advanced Placement test; or completing a college thesis-like capstone project demonstrating knowledge of a subject.

“This bill is a really clever way to allow school districts to say, ‘This is what we care about, and this how we’re going to do it,’” said Luke Ragland, president of Ready Colorado, a conservative education reform group.

Some of the most anticipated school-accountability bills of the session never materialized.

One would have provided more clarity on what happens to schools that consistently receive low quality ratings from the state.

“This was a big undertaking, and the bill’s sponsors needed more time,” Ragland said.

It’s another issue Capitol-watchers can expect to see return next year.

As Ragland put it, “The lack of clarity at the end of the state’s accountability clock is bad for everyone.”