Financing education: adequacy and equity

Two principles have historically driven the debates over how to pay for schools. The first is adequacy, providing sufficient resources to do the job. The second is equity, distributing resources fairly on economic, geographic or other lines. The General Assembly this spring addressed adequacy, pouring $480 million in new money into the public schools. They also began the struggle over the equity issue, a challenge that some school finance experts believe is the most formidable facing Illinois.

Adequacy was the first order of business this year, following two lean budget years for schools and two unsuccessful pushes

An adequacy proposal: Priority One Common School Fund revenue existing base:
sales tax	$963 million
25% collections
lottery, all profits cigarette tax, 1985 boost	580 million 84 million
addition to base:
63 % of income taxes	2,689 million
Total	$4,316 million
Allocation of revenue: elementary & secondary ed. two-thirds higher education _______ one-third Source: The Priority One Plan: A Commitment for Education.

by educators for a tax increase. It would be an easier job this year thanks to the state's greatly improved fiscal condition. Revenues grew at healthy rates, lawmakers had spent conservatively, and a number of outstanding bills had been paid. The result was $800 million that could be designated for new spending even without a tax increase. In March Gov. James R. Thompson proposed $206 million in new funding for public schools, with only a cigarette tax increase required to provide enough revenue.

Lawmakers wanted more for schools. Senate Democrats moved their "Fund Education First" proposal. It would have allocated half of all new revenue to education. Their plan would have given two-thirds of the money to elementary and secondary education and one-third to higher education. For the current year (fiscal 1990), they claimed, it would have generated $441 million for both lower and higher education, almost $100 million more than Thompson had proposed. "The overwhelming sentiment among lawmakers is that the governor did not allocate enough to education when he asked that education receive only a bit more than a third of the $883 million in new spending which will be available to us in fiscal year 1990," Sen. Joyce Holmberg (D-34, Rockford) charged. The Senate bill died in House committee.

House Republicans had a different idea about how to provide more money for schools. A task force chaired by Rep. Gene L. Hoffman (R-40, Elmhurst) and Rep. Mary Lou Cowlishaw (R-41, Naperville) found state support for public schools declining and property tax support increasing. "With such unreliable funding, maintaining current programs is difficult at best and planning for future improvements or new programs is almost impossible. Sudden and drastic shifts in funding create a feast and famine mentality," the House GOP task force concluded.

The House Republicans proposed their "Priority One Plan" to guarantee schools a stable and growing revenue source. The plan would revamp the Common School Fund. Currently the Common School Fund receives one quarter of sales tax collections, all lottery profits and the revenue from the 1985 cigarette tax increase. That money, plus another billion dollars or so from the General Revenue Fund, is used for the state's support to elementary and secondary schools.

The Priority One plan would have created a new Common School Fund to pay for both elementary and secondary higher education on a two-thirds/one-third basis. To do so the GOP would give the new school fund 63 percent of income tax collections, or about $2.7 billion, at the pre-income-tax-increase rates. Thompson's budget book revenue estimates, the plan would have given public schools an extra $147 million and higher education an extra $45 million. But to give that much to education without a tax increase would have meant cuts elsewhere in the budget. Republicans were unable to get

The reliance on the property tax promotes geographic inequities. . .

their plan amended to a vehicle bill in the House.

What ultimately passed, with overwhelming support from the education community, was House Speaker Michael J. Madigan's (D-30, Chicago) temporary two-year income tax increase that provides half of that new money to go to education. Public schools will see $257 million from that tax increase, $206 million in new money from the original Thompson budget along with another $17 million that lawmakers added.

Fund Education First, Priority and the Madigan tax plan all addressed the adequacy of state school support. All put more money into schools. None of the three harms equity, since each was based on increasing state support statewide. But none tackled equity since that involves tangling with property taxes, still the primary support for public school education in this state.

The reliance on the property tax promotes geographic inequities because of geographic differences in property values. Between 1984 and 1988 the average increase in assessed value exceeded 5 percent only in Chicago, suburban Cook, the five collar counties and DeWitt County. There was growth averaging less than 5 percent per year in 18 other counties, eight in north

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Sen. John Maitland

Rep. Gene L. Hoffman

eastern Illinois and four in the Illinois section of the St. Louis metro area. In the remaining 77 counties assessments declined.

The State Board of Education has found local revenues falling fastest in the lower tax/declining assessment areas and rising fastest in the higher tax/increasing assessment areas. In short the rich are getting richer and the poor are getting poorer. Further evidence of that trend is demonstrated by a state board analysis of per pupil spending between the 1982-1983 and 1986-1987 school years. Over that period, the analysis found fewer districts above the state average per pupil expense and more below it.

The state board began looking at the equity issue, believing some change in the school aid formula would be needed to pass a tax increase. Sen. John Maitland (R-44, Bloomington) headed up a state task force that began meeting in February and looked at possible changes in the formula. In June the group came up with a prototype formula package that would overhaul the school aid formula and increase equity.

The prototype — offered as an alternative to promote discussion and not as a miracle cure for flaws in the state's education funding — included:

• Combining the 972 school districts into 131 entities for the purposes of property tax collection and state aid distribution. The entities include one for Chicago, 27 for Cook County townships outside Chicago, DuPage County north and DuPage County south, Lake County north and Lake County south, and one for each of the remaining 99 counties.
• Levying operating property taxes at uniform rates of $3.50 per $100 assessed valuation for each of the 131 entities.
• Distributing property tax money per pupil within a county, with a weighting of 1.4 for high school students.
• Distributing the state's general aid to equalize per pupil revenues among the 131 entities.
• Replacing money lost by school districts affected by the property tax rollback until assessments catch up, generally those districts whose property tax bases are growing. As property tax bases grow, state money intitially needed for replacement would go into the state pot for distribution via the new school aid formula.
• Taxing nuclear power plants with a state property tax and distributing that revenue statewide.

The net effect of all those changes is to increase property tax rates in 40 percent of school districts and to decrease them in another 40 percent. If you are a property taxpayer, you could be happy or mad 40 percent of the time. The same percentages would hold for educators, but in the opposite cases.

The creation of the 131 entities and the levying of a uniform property tax across those districts results in a level of equalization even before the state steps in. A property-tax-poor district in the same county as a property-tax-rich district will get a revenue boost from within that county.

But the most significant thing the prototype may do is give wealthy schools a stake in state funding. Currently schools with a booming property tax base receive little money from the state. As a result they have little interest in state education finance, often maintaining that they are better off without state rules and regulations. And the lawmakers who represent them have little interest in addressing school finance issues or in hiking taxes or state support because their schools may get nothing under the current formula. The prototype would have all entities coming to the same place, Springfield, for more money.

Maitland formally introduced a modified form of the prototype in late June, intending to promote discussion and not to offer a final solution. He dropped the 131 entities and the equalization within them,

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and he did not include a state property tax on powerplants. His plan moved towards the uniform property tax rate by mandating the rollbacks in high-tax districts and offering incentives to encourage low-tax districts to increase their rates. Maitland briefed Republicans, shared his ideas with Democrats and agreed to postpone action until 1990.

Maitland says that he thinks there is recognition from lawmakers that his proposal is the way to go. But he does not expect acceptance to be easy. Lawmakers are caught between a rock and a hard place because taxpayers favor the tax rollback, but school boards and school administrators often oppose it. And lawmakers from districts with low property tax rates will have trouble supporting a plan that would encourage their schools to hike taxes. "We have too darned many school districts that are taxing at a $2.20 and $2.30 tax rate and think they are paying the world in taxes," Maitland says.

To boost the case for his plan, Maitland uses the example of a retired couple living in the suburbs. On a fixed income they are being hit with ever higher property tax bills as the value of their home increases. By shifting the burden to the income tax, which a retired couple would not be paying, they will see relief.

The Maitland plan would boost the foundation level (minimum state and local support per pupil) to $2,500. It would require about $500 million in new money to implement. Half of that would be the state replacement of lost local revenues. That, says Maitland, translates into property tax relief.

Maitland is telling wary local school officials that if they do not work with the General Assembly on funding schools equitably, they will end up working with the courts. Maitland anticipates court action in Illinois challenging the way schools are financed. He says that the June 8 decision of the Kentucky Supreme Court points out what could happen in Illinois. The Kentucky decision in the case of Rose v. Council for Better Education would gladden the hearts of those who argue for equity. The Kentucky constitution states: "The General Assembly shall, by appropriate legislation, provide efficient system of common schools throughout the state." The Kentucky Supreme Court took no halfway measures. It declared the entire Kentucky school system unconstitutional and gave the General Assembly until the close of the 1990 session to fix it, but did not tell the lawmakers how to fix it.

In a key portion of the Rose decision the court held: "The system of common schools must be adequately funded to achieve its goals. The system of common schools must be substantially uniform throughout the state. Each child, every child, in this Commonwealth must be provided with an equal opportunity to have an adequate education. Equality is the key word here.

One of the chief critics of Illinos' education finance system, reads into the Rose case reason for an Illinois challenge. G. Alan Hickrod, director of the Center for the Study of Educational Finance at Illinois State University, believes that this state's system would fail the tests set out by the Kentucky Supreme Court in the Rose case.

Others are keeping an eye on other cases. Michael Belletire, the state board of Education's associate superintendent for finance, is watching school finance casees in the supreme courts of Texas and New Jersey. Belletire believes those cases will have more of a bearing on Illinois than the Kentucky case. "Even the lower echelon of our schools tend to do better than those in Kentucky," Belletire says.

Belletire says that it may take a crisis —like a court case — to spark movement on the school aid formula. He says that he would have guessed that lawmakers would have balked at putting $250 million into the schools this year without changes in the school aid formula. They barely hesitated. "My feeling is that the issue will not go away, but it will not play out, absent a crisis," Belletire predicts.

By putting $480 million more into schools lawmakers avoided a crisis. Correcting a system that allows $10,900 to be spent on some children's education and $2,100 on others' presents other problems. Without tackling property taxes, equity is insoluble. □

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