SCHOOL BUDGETS: CHANGES NEEDED TO IMPROVE ACCOUNTABILITY
(from Maine Townsman, February 1999)
By Geoff Herman, SFR Director, MMA

Two elements in the dynamic of appropriating property tax dollars to Maine’s primary and secondary public schools are in need of repair. One element is the state’s relationship with local government and the level at which state government will subsidize the cost of K-12 education. The other element is the municipal-school relationship and the school-voter relationship as they pertain to the development, adoption and administration of the school budget.

In Maine, school budgets are shaped by the triangular nature of the relationship of the parties involved: the state, the school units, and the municipalities.

• School board members, representing school units, are positioned to identify the needs of the school system under their responsibility and advocate for the financial resources to meet those needs.

• Selectmen and councilors are responsible for all municipal operations, including collecting the property taxes necessary to operate municipal government and fund the local share of public education. The municipal officers are responsible for matching the perceived "needs" of government with the fiscal capacity of the tax base.

• The state, including the Governor, the Department of Education and the Legislature, provides oversight and guidance on educational issues and determines the level of state funding for education. State officials have shown a keen interest in public education in recent years, as witnessed by the landmark educational reforms of the mid-1980’s and the groundbreaking, standards-based Learning Results program to account for school performance in the 1990’s. During the 1990’s, however, state financial support for K-12 education has declined in a remarkable way as a percentage of total costs, from 51% to 44% of a $1.3 billion annual program.

What About Taxpayers?

Not to be forgotten in this mix of educational players are the constituents, the consumers of public education. As a fundamental principle of social organization in America, all taxpayers are held to be responsible for the financial support of public education, regardless of whether they have kids in the school.

As an inescapable matter of fact, however, the total universe of taxpayers can be roughly divided into two groups: those taxpayers who are the direct consumers of educational services and those taxpayers who are not, who benefit only from the "general diffusion of the advantages of education." The taxpayers who are the direct consumers of educational services tend to communicate most directly with the school officers with respect to educational policy and funding issues. With respect to the impact of the property tax burden, it is the municipal officers who are always on the hot seat.

Paved With ‘Good Intentions’

The state has long promised and never fulfilled an "intention" to fund 55% of the direct costs of K-12 education from the General Fund revenues generated by broad-based taxation. In fact, during the 1990s, the state retreated from that goal, rather than gain on it, so that the state as majority shareholder (51% ) in 1991 has become the state as minority shareholder (44%) in 1999.

Unfulfilled "intentions" of this kind are not unique to state government. Decades ago, when it enacted the special education laws, the U.S. Congress declared its intention to pay for 40% of the special education per-pupil costs it was mandating. Today, Congress is appropriating less than 10% of those costs.

These "intentions" always seem to crop up in the course of educational reforms enacted by the larger units of government who want to exert their influence on public education even though they are minority shareholders financially. A statutory intention to fund the reforms at certain levels attracts votes to the cause.

When the funding promises go unfulfilled, there’s always a steady source of reasons why. As far as Maine’s situation goes, some legislators say it was an inappropriate commitment in the first place. Others describe the sharply competing demands and the scarcity of state revenues, as though local revenues spring from an artesian well. Others argue that the state pays 100% of the costs of teachers’ retirement, and therefore contributes slightly over 50% to education (despite the fact that teachers’ retirement was never part of the statutory 55% "intention"). The vast majority of legislators, one-on-one, agree without equivocation that the state should honor its commitment, but for some reason at the end of the day the Legislature itself, rather that its individual members, fails to come through.

Honoring Its Commitment

Today, the state is so far removed from honoring its funding commitment, there is no possibility of its making good in the short term. Between the base funding of General Purpose Aid to Education (GPA) going into FY 2000 ($575 million) and 55% of the total $1.345 billion cost, the state shortfall is $165 million a year.

In at least a partial recognition that the sharp imbalance in state-local funding for education took a decade to come into full bloom and cannot be corrected overnight, the Maine School Management Association is distributing a resolve for the consideration of boards that would call for the state to achieve 55% funding in three years by adding $57 million a year to the GPA account.

With a recommendation more closely aligned with political and financial reality, the Legislature’s Education Committee is promoting 6% annual increases to the GPA account over the next biennium, which would provide increases in the $35 million range each year.

Between these two recommendations, there is the germ of a plan that would provide more money for education, be fiscally responsible, and at the same time increase the state’s share of education funding. As shown in the accompanying table (on page 14), a 10-year projection of K-12 education costs targets the total state-local cost at $1.9 billion in 2009. This projection assumes an annual growth rate of 3.5%, which is the average growth rate of the previous decade. If the state share of K-12 education were to be increased at the rate of 6% per year over the next decade, as was the case in FY 99, the state would begin to honor the funding commitment it made in 1985 in the year 2009. As early as 2005 under this plan, the state would break the 50% funding barrier. This is the "glide-path" recommendation to proper state funding.

Slowing Growth of Local Funding

One contingent of this funding plan, however, is that the steady application of increases in state funding should result in a lower demand for education spending at the local level. Otherwise, the increased state funding will only fuel year-to-year increases in total educational costs and chase up overall spending in such a way that no appreciable gain will be made on what has heretofore been the state’s light ante. (In this fiscal year, the municipalities spent $750 million for schools, compared with $592 million state contribution for direction K-12 education services).

If the municipal and school communities can agree on the need for increased state support for education, then they should also be able to agree on the need to slow the growth of the local contribution.

School boards and school administrators, who advocate for education and an increased state share of the funding for it, need to recognize and respect the municipal officers sensitivity, as a matter of role, to the property tax burden in their community. Unfortunately, a tension over what some have come to view as conflicting roles surfaces throughout the state at school budget time each year.

Accountability In School Budgeting

It is clearly the case that some level of tension is supposed to exist. It is appropriate that one entity articulates the perceived needs for the service, and another entity weighs the ability of the taxpayers to pay. That check-and-balance dynamic is the centerpiece of most governmental budgeting. Department heads or commissioners make a case for funding various programs at various amounts. At another level in the system, the board of selectmen or the budget committee or the Appropriations Committee, the various requests are all fit together into a spending package that is in some sense affordable to the taxpayers. Finally, the recommended package is sent to the legislative body for approval or modification.

There are some significant distinctions, however, between the model budgeting procedure that applies to most lines in a governmental budget and the school budgeting procedure.

First, elected school board members are laying out the needs of the school unit. Elected school officials have an inherent conflict: on one hand they openly advocate for education, while on the other hand, as elected officials they give the appearance of being held accountable to the taxpayer. In reality, it is the municipal official who is accountable to the property taxpayer, not the school official.

Second, schools enjoy an autonomy from municipal government, most vividly in the SAD or CSD systems, quite obviously in the municipal school-town meeting systems, and most subtly in the city council-municipal school structure. In municipal school systems, the school budget has been developed by one group and the municipal budget by another, and so there is an inherent competition for the legislative body’s finite resources. The school district structure doesn’t answer to a municipal legislative body whatsoever. The legislative body of a school district doesn’t even have a municipal budget to consider.

Finally, although there are two elected bodies competing for finite resources at the local level, there is only one that is responsible for causing the levy of the property tax, collecting the tax revenues from the citizens, and taking action when those citizens are unable to pay. Statewide, school budgets make up 60% of the property tax collection. In many communities, the school budget comprises 70% or 80% of the tax commitment. When one elected body is responsible for collecting revenues for the use of another elected body, a very fertile ground for tension develops in that structural disconnect.

Line-item Budget Format

MMA is advancing a legislative initiative this session that is designed to improve communications with the voters about the school budget. Municipal officials believe there are structural changes that need to be made to reconnect voters with the school budgeting process.

In a citizens poll conducted in January by the Potholm Group, 400 Maine citizens were asked a number of questions about the school budget process. One question focused on whether the current mix of school spending was properly balanced between administrative costs and student instruction. 49% of the respondents didn’t know. 36.5% of the respondents felt that too much was spent on administration. 14% felt the spending balance was about right. What is alarming about the statistic is that nearly 50% of the respondents in a statistically valid poll did not believe they had enough information to give a simple opinion about their school’s spending plan.

The poll results certainly suggest that citizens need more information and fiscal accountability with regard to the current school budget system in Maine. The MMA-supported bill, An Act to Establish a Standard Line Item Budget Format for all School Budgets, addresses this voter communication issue.

The current statutory framework establishes a school budget format that appropriates gross revenues to the school unit as a general rule, and requires the voters to go through special procedures to implement a line item budget format. Everyone who has been to a meeting to adopt a school budget knows the wording of the articles that adopt gross revenues to the schools — "To see what sum the Town will appropriate from the Foundation Allocation for school purposes and to see what sum the Town will raise as the local share of foundation allocation…" — but few people know what those words mean.

The premise of the MMA bill is that a line item format for a governmental budget should be the rule and not the exception. This bill would establish a uniform, 10-category line item budget format that would be applied to all school budgets, while retaining an authority for the voters to adopt alternative budget formats at referendum. The details of the line item budget format would be developed by the Commissioner of Education through rule making. School units that have already adopted line item formats would be grandfathered from any regulatory requirement to amend the formats they are comfortable with.

Under this system, the voters would know how much of the school budget is being appropriated to some fundamental categories—salaries and benefits, operations of facility, transportation, athletics and co-curricular, etc. All municipal budgets are adopted by line item, as is the state budget. Only the school budgets, which take a majority share of municipal revenues, are adopted as gross allocations unless the voters undertake the petition process to assert their interests.

The benefits of a line item format is not merely theoretical. In response to a question of preference in the citizens’ poll mentioned above, the respondents who had an opinion on the matter favored the line item format by a 3:2 ratio.

Respecting The Wishes of Voters

If there has been good municipal-school communication at the front end of the process, and if the budget is presented to the voters in a format that makes some sense, the next stage of the process is the act of budget adoption. In the majority of cases, that is done at a town meeting or city council meeting with an open vote. In over 30 of the state’s 77 SAD’s, the citizens have been sufficiently dissatisfied with the open meeting process to have successfully petitioned the SAD directors for a referendum vote.

(Curiously, Maine law does not even afford the voters in the other school district structure in Maine — CSD or Consolidated School District — the simple right to adopt their budget by referendum.)

In SADs, however, the voters are allowed the right to a referendum vote on the school budget, but not for long. As soon as the budget runs into trouble with the voters either in whole or in part, the SAD directors are authorized by law to overturn the voters’ express decision to vote on the budget by referendum and return to an open meeting process. There is not another known case, at least in Maine, where a representative body is empowered to overturn the method of voting chosen by the electorate.

MMA is seeking to amend the statute to return the authority to the voters to choose their method of voting on a budget (LD 1346, An Act to Amend the Laws Regarding the School Administrative District Budget Approval Process). By advancing this legislation, the municipalities are not advocating for the referendum process over the open meeting process. That should be a matter left up to the voters. In advancing this legislation, the municipalities are advocating for voters’ rights. If the voters feel more comfortable voting by referendum for what is, after all, their school budget, that is their right, and the law should not allow that decision to be overturned by any board of officers.

Conclusion

Most observers recognize the importance of investing in education to ensure that Maine and its citizens are well positioned to function and compete as we enter the new millenium. Likewise, most observers recognize the importance of ensuring that Maine’s tax burden is affordable. MMA is committed to working constructively with the Legislature, the Administration, and interested parties to address the various issues identified in this article.

Toward this end, MMA is seeking the cooperation of many of the principal parties. There have been several meetings with the Commissioner of Education, representatives of the State Board of Education, the Governor, and most recently with the superintendent and school board representatives of the Maine School Management Association, all for the purpose of organizing a visible, balanced and respected working group that will be charged with grappling with some of the root causes of the problematic municipal-school relationship. The details of the arrangement have yet to be firmed up, but the working group will likely involve a formal, facilitated process that is designed to:

• share information among all parties regarding their various sources of frustration;

• recommend protocols or "best practices" that will be developed to assist in communication during the budget building process;

• recommend areas of collaboration, such as combined purchasing or the reorganization of school and municipal administrative functions; and

• obtain a deeper understanding of the school funding issues at the federal, state and local levels.

SIDEBAR

A 10-Year Plan for State Increases To Education
(dollar amounts are in millions/percentages rounded off)

Fiscal Year

Total Expended

State Share

% of Total

Local Share

% of Total

FY 99

$1,345

$592

44%

$753

56%

FY 00

1,392

628

45%

764

55%

FY 01

1,441

666

46%

775

54%

FY 02

1,491

706

47%

785

53%

FY 03

1,543

748

48%

795

52%

FY 04

1,597

793

50%

804

50%

FY 05

1,653

841

51%

812

49%

FY 06

1,711

891

52%

820

48%

FY 07

1,771

944

53%

827

47%

FY 08

1,833

1,001

55%

832

46%

FY 09

1,897

1,061

56%

836

44%

Except for FY 99, which uses actual figures, the State Share is increased by 6% annually, and the Total Expended is projected on the assumption of an overall 3.5% annual increase – the average annual increase over the previous decade. The Local Share is the difference after the State Share is subtracted from the Total Expended.