New School Finance Ruling Explained

A three-judge panel has found parts of the new block grant funding law for public schools unconstitutional because it short-changes some students and taxpayers without any educational basis.

The court found that legislation passed this year reduces funding for many districts while leaving others untouched and essentially freezes funding for all districts without taking into account changes in student enrollment, demographics or costs.

On an appeal from the state, the Kansas Supreme Court has paused action on the three-judge panel’s ruling and has said it would request written and oral arguments soon.

The latest decision comes one year after the Kansas Supreme Court ruled the school finance system was violating the Kansas constitution because it failed to provide equitable funding in two areas. The first was local option budgets, which pay for part of school district operating costs. The second was capital outlay funding, which is used for building construction, repair, remodeling and equipment.

Both of these programs are funded primarily by local property taxes, but the state had created aid programs to compensate school districts for significant differences in local wealth. Without this assistance, property taxes in low wealth districts would have to be much higher than wealthier districts, or would raise much less funding for students. For example, a one mill levy raises between $20 and $50 per pupil in 72 school districts; between $50 and $75 in 92 school districts; between $75 and $100 in 42 districts; between $100 and $200 in 58 districts; and between $200 and $500 in 15 districts.

In other words, the bottom quarter of school districts in terms of local property wealth require mill levies four to 10 times higher than the top quarter of districts to raise the same amount per pupil.

In 2014, there was no disputing state aid for Local Option Budgets had failed to keep up with LOB costs, which meant significantly higher property taxes in lower wealth districts; and the state stopped paying ANY state aid for capital outlay, which meant districts had to rely exclusively on local mill levies, with the vast disparities noted above.

In response to the Supreme Court decision, the 2014 Legislature passed a bill to fully fund the estimated cost of these programs, adding about $130 million. School districts adopted their budgets and mill levies last August based on state aid formulas. However, the actual cost to fully fund the two aid programs turned out to be about $50 million more than expected. Here is why:

LOB aid was $35.4 million higher than expected because a change in the factors used to calculate aid resulted in a higher entitlement for each district. The change did not provide these districts with a higher LOB (i.e. more money to spend); rather, it reduced the amount of property tax required to fund the budget. In fact, statewide LOB property taxes dropped by $91.6 million between 2013-14 and 2014-15, mostly in lower-wealth districts that had been forced to raise taxes to make up for the state shortfall.

Capital outlay aid was $18.6 million higher than expected as districts raised their local capital outlay mill levies to receive more state matching funds after four years with no state aid created a backlog of school building and equipment needs.

Governor Brownback originally recommended the full amount needed to fund these additional costs, but Senate Bill 7, which the Legislature passed and the Governor signed, changed the state aid formulas to cut funding back to the original estimated level. That meant district budgets were cut about $50 million in the middle of the school year.

The three-judge panel found this unconstitutional because these cuts fell exclusively on lower wealth districts. Districts with the highest local property values in the state - which already could fund schools with much lower tax rates - were not affected by the reductions. However, property poor districts will have to increase mill levies simply to raise the same level of LOB funding, and will receive less funding for buildings and equipment simply because their mill levies raise less per pupil. In addition, the reduced funding level was then continued for the next two years under the block grant program. The panel ordered the state to restore lost funding.

The panel also adopted a temporary restraining order against the new block grant program, which is designed to freeze school operating budgets at last year’s levels for the next two years.

Under the block grants, districts that have increased enrollment, more special needs students or more high cost programs will not receive any additional funding unless approved by a legislative committee (from funding deducted from all other districts). That means districts with the greatest need for funding would receive less money per pupil. At the same time, districts with fewer regular or special needs students will receive the same amount of money - which translates into more dollars per pupil.

The three-judge panel said that general state aid under the block grants must be distributed based on actual enrollment, weighted for special needs and programs.

The Governor and Legislature have stated the block grant program is a temporary bridge while a new school finance formula is developed. However, a new formula could have been adopted without repealing the previous formula - as has been the case every other time in state history.

What has never been explained - and what the court could not accept - is the justification for cutting per pupil funding in some districts but not in others, requiring higher property taxes in some districts but not in others, and allowing some districts to raise more revenue than others, without any articulated educational reason.

The Kansas Supreme Court has promised a quick hearing on the state’s appeal of the decision. Perhaps an explanation will be offered there.