School of Education

Timing, financial realities will force school budget compromise, School of Education professor says

School finance expert says funding increase unlikely to keep pace with inflation

Wednesday, June 10, 2009

As the Indiana General Assembly resumes work on a state budget agreement in a special session starting tomorrow (June 11), Indiana’s schools are unlikely to see a proposal that fully meets their needs, according to an Indiana University School of Education researcher of K-12 education finance. Rob Toutkoushian, professor in the Department of Educational Leadership and Policy Studies, said teacher contracts and the cost of living increase will make it unlikely the budget will cover all school demands.

 “Even in districts that have 2 to 3 percent increases scheduled for teachers, it’s going to be problematic if they are flat-funded or they only receive a 1 percent increase in funding,” Toutkoushian said. “Then it is a rend they’re going to have to make some cuts.”

Indiana governor Mitch Daniels has proposed a 4 percent increase for education funding over the two-year budget. The increase uses federal stimulus money for most of the increase, only boosting actual state spending by around a quarter of a percent.

Toutkoushian is concerned that the use of federal stimulus dollars will set up schools for bigger budget problems. “If those dollars are used for teacher salaries, then all of a sudden, 2 years down the road school districts are still on the hook for paying these salaries that were funded by the government,” he said. “That would mean notable shock to state funding if they’re going to pick it up or drop hiring or something else.”

He said the rhetoric has been a bit unfair regarding criticism that the governor’s proposed budget would hurt urban schools and help wealthier, suburban schools. Daniels is proposing a funding increase on a per-pupil basis, which would mean more for growing districts but drop funding for the large, urban districts of the Indianapolis Public Schools and Gary Community School Corporation, which are experiencing shrinking enrollments.

“So you’re seeing suburban schools such as Hamilton Southeastern experiencing 10 percent increases per year in enrollments,” he said. “So certainly, from their perspective, if they’re having 10 percent more students show up each year, they have to hire teachers, they have to put staff in place, and do other things to meet those needs.” The question, he said, is how much less money can the large urban districts use and provide necessary services. Toutkoushian also noted that from 2000-01 to 2007-08, while per-pupil education funding (all funds) for IPS grew by almost 50%, Hamilton Southeastern only saw a 9% increase.  In fact, wealthier districts such as Hamilton Southeastern tend to have substantially less General Fund dollars per pupil than districts such as IPS and Gary.

Underlying all of the school budget debate is the impact schools are feeling after the change in the school funding formula. Responding to a court finding that Indiana’s property tax assessment was unconstitutional, the state removed school funding from property tax rolls, shifting the burden mostly to sales and state income taxes. “So in good economic times, the revenues that states get from sales and income taxes are high,” Toutkoushian said, “so the states are flush with money and it’s easy to give high appropriations. But the opposite also happens.” In this session, lawmakers don’t have the freedom to raise property taxes to provide more funding for education when the state cannot increase their support.

Toutkoushian conducts research on a wide range of topics relating to economics and K-12 and higher education. He has worked with representatives at the state level on issues of Indiana school funding. At the IU School of Education, he also teaches courses on the economics of education and educational finance. He can be reached at 812-856-8395 or rtoutkou@indiana.edu.

Interview Excerpts:

Toutkoushian said the outlook is bleak for school funding this session: (Listen to this sound bite)
“I think what we’re going to see is that the increases that we get even under a best case scenario probably will not keep pace with inflation. So in that sense schools are going to be pinched tight in regards to just trying to keep up with the cost of living. The main thing that they’re going to face is contracted salary increases for teachers. So even in districts that have 2-3 % increases scheduled for teachers it’s going to be problematic if they are flat funded or if they only receive a 1% increase in funding, because then it is a real reduction to them and they’re going to have to make some cuts.”

Toutkoushian said the growing districts have not been receiving funding equal to their levels of growth: (Listen to this sound bite)
“The per pupil funding at schools such as IPS, Gary and other urban areas has been increasing much faster than it has been for places like Hamilton Southeastern and Carmel Clay, the wealthier districts. So you know, in the past few years we’ve seen the funding formula really benefit urban schools more than it has suburban schools on a per pupil basis and in large part that’s because these kinds of school districts are experiencing dramatic differences in growth rates.”

A compromise is likely to make the school budget come together, Toutkoushian said: (Listen to this sound bite)
“As far as the magnitude, so for the overall funding and perhaps with some of the changing in the funding formula, I think you may see compromises in all of those things. So the Republican and governor’s position tend to be that they want to make changes in the funding formula that would have dollars more closely following enrollment changes to go along with that idea that I mentioned before which is Hamilton southeastern if they have more students coming in the door they need to pay for them and so forth. The Democratic position has been traditionally been more to provide safeguards for school districts such as IPS and Gary that have declining enrollments to make sure that they can still meet their fixed education costs. So I think at the end of the day you’ll probably see some compromise between those positions, some middle ground in all of that.”

Schools will be pressed into obtaining loans and taking other measures as the debate moves closer to the start of the new fiscal year on July 1, Toutkoushian said: (Listen to this sound bite)
“So as they borrow the money, they’ll have to pay the interest on that borrowing so it certainly comes back and adds to the expenditures, to the school’s budget which they don’t have the revenue to pay for, so it’s just a further trouble that they have. The second issue that they have is the longer that this takes to work its way out through the government the more uncertainty there is from the school’s perspective as far as making hiring decisions.”

Toutkoushian said the move from funding schools with property taxes has removed a powerful weapon for lawmakers: (Listen to this sound bite)
“So that was one policy tradeoff that state legislators had in the past is they could say for example ‘we really want to give schools a 4% increase and the state can only afford to give a 2% increase then we can increase the property tax share a little more to make up for it.’ now that property taxes are no longer part of the general fund they can’t do that.”