Education funding and the Surplus

Most Utahns read this and other newspaper reports and think that the Legislature is not increasing education spending, or at least not increasing it significantly. However, by any measure the Legislature significantly increased education funding for FY2007. While many will argue that one year of significant increases does not negate the fact that other states spend more than Utah, the fact remains that the Legislature significantly increased education spending for FY2007, but the spending lobby won’t admit it.

While education spending is increasing at a significant rate – even after the $78 million tax cut, whether or not education has received any of the “surplus” depends on your definition of surplus.

Utah Taxpayers Association Vice President Mike Jerman has described two definitions of “surplus” which illustrate the fact that by any measure the Utah Legislature has dedicated generous amounts of surplus money to public education.

Definition #1: Surplus is any amount of revenue in excess of the previous year’s revenue.
Policy wonks and accountants may wince at this definition, Jerman says, but this is the definition that the media and many elected officials have used, and it’s the definition that most people in the public accept.

By this definition, legislative appropriations for education have increased substantially, although the percent increase depends on how the spending is measured.

When only state general/education fund dollars are considered, FY2007 education appropriations are a whopping 12.8% higher than FY2006’s pre-supplemental appropriations. (Supplemental appropriations are excluded from the FY2006 base year because FY2007’s supplementals won’t be known until next year.) This amount includes appropriations for state agencies that do not end up at the school district level.

When only state individual and corporate income tax revenue for the Minimum School Program is considered, FY2007 education appropriations are still an amazing 12.4% higher than FY2006’s pre-supplemental appropriation.

Mr. Jerman’s analysis shows that when total state, federal and basic/voted/board/K-3 local sources are considered, FY2007 education appropriations are still an incredible 11.3% higher than FY2006’s pre-supplemental appropriations. This amount includes appropriations for state education agencies that do not necessarily end up at the district level as well as school lunch expenditures that do not show up in per student operations spending amounts.

When total spending growth is examined on a per student basis, the increased number of students makes the percentage increase smaller than total spending percentages, yet still significant.  FY2007 spending per student won’t be officially released for another year. However, if we assume the following realistic increases:

• State income tax revenues for K-12 operations (including supplementals but excluding $37.3 million for school building program) increase 12%
• Property tax and other local operations revenues increase 5.5%
• Federal revenues increase 6.0%
• The split between state, local, and federal sources is 68% – 23% – 9% (the state portion may actually be higher because the state increase is much higher than the local and federal)
• Enrollment increases 2.8%

then per student spending will increase by roughly 7%, which is substantial. We wouldn’t be surprised if the actual increase approaches 8%.

Definition #2: Surplus is any amount of revenue in excess of projected revenues for that year.
Policy wonks are more comfortable with this definition, and by this definition education did not receive a lot of the surplus. However, Mr. Jerman explained, this is a moot point. Most state-level education appropriations are ongoing, but year-end budget surpluses are one-time dollars. Budgeting one-time revenues for ongoing appropriations is a big no-no. Moreover, one-time school district appropriations – like building a new school – are typically handled at the local level. In FY2005, state funding covered 6.3% of school district capital. The rest was covered by local property taxes. The state does spend some money for school district capital projects, but that amount ($37.3 million in FY2007) has never been a large amount compared to what districts spend using local dollars.

Some have argued that the surplus should have been spent on school construction, but there are a couple of issues with that. First, year-end state budget surpluses are typically spent on one-time state capital projects, like new buildings for colleges, universities, and state agencies as well as building roads and preserving transportation corridors. If the state did not fund these projects, then these projects would never be funded since local governments are generally not responsible for funding these projects, particularly state agency and university buildings. Local school districts, on the other hand, are primarily responsible for building schools. A local funding mechanism already exists for local capital projects but not for state buildings (although local funding of state roads is increasing but is still a comparatively small amount).

Ironically, those calling for use of one-time state revenues for school construction are the same ones who do not include capital expenditures when determining how much Utah and the U.S. spend per student. Utah could spend hundreds of millions of state or local dollars on capital projects, but the legislature would still be criticized for not spending money on education because capital expenditures are not included in per student spending.

Utah’s per student spending trails other states, but the spending lobby should at least acknowledge that the Legislature and taxpayers have significantly increased per student spending for FY2007 instead of claiming that FY2007 spending increases are “status quo.”  Moreover, Utah’s last place ranking in per student spending is very misleading for factors I discussed in my April 10 2006 Enterprise column.  To read the article, please go to utahtaxpayers.org and click on Enterprise articles