Education Funding in South Carolina

Education Funding in South Carolina OVERVIEW South Carolina has one of the nation s most complicated public school funding systems. Funding for K-12 schools has rapidly increased year after year, far outpacing growth in enrollment and inflation. The impact of the statewide economic downturn on total education funding levels has been negligible to date, with a one-year drop of per-pupil funding of less than one percent. Total revenue for the state s 85 public school districts has soared from $3.4 billion in 1995 to $9 billion in 2009 while enrollment nudged up just eight percent. 1

The most significant change in recent years has been a shift in the way state funding is allocated to school districts. Total state spending per-pupil has risen steadily for many years, but the portion of that money appropriated through the Education Finance Act (EFA) has dropped, as funding through other state programs has risen. This adjustment, and confusion about the public reporting of school finances, has led many to falsely believe that all public schools are suffering drastic funding cuts. Act 388, which brought about a controversial shift in local and state tax collections for school funding, has further confused public and legislative perceptions. While the 388 swap was intended to slow the growth in local tax collection, total district revenue from local sources has not dropped, though state funding in-lieu of local taxes has nearly tripled. Funding levels have grown rapidly for years but the percentage of the school districts budget slated for student instruction has actually declined. Despite increases in funding levels, and deliberate adjustments in funding design, there remains no consistent relationship between total or state funding levels and district wealth. INTRODUCTION Statewide, public schools are funded at an average of $11,372 per child. This money comes from taxes assessed by local, state and federal governments. This $11,372 figure is a projection published in the state budget. Over the last five school years with publicly released receipts, the annual legislative projection has been an accurate gauge of the actual final revenues received by districts, with a mean difference between projections and final receipts of just nine dollars across a half decade. Schools collect another $1,100 per child from other sources such as bonds, investments, property management and other so-called non-operational or capital sources. All told, the 85 public school districts in South Carolina enjoy an average of more than of $12,400 in total public funding per student. A full district-by-district list of school funding levels (excluding the capital sources) for 2010-11 can be found on page 3 of this report. 2

FUNDING GROWTH While parents have been told about massive budget cuts the fact remains that public schools have enjoyed major long term budget growth. From 1995 to 2008 the total reported revenue collected by South Carolina s traditional public schools rose by $4.7 billion in real dollars, while student enrollment increased just eight percent. During the FY 1994-95 school year, the 85 public school districts received $3.46 billion in public revenues for their operations. One way to gauge the subsequent growth is a comparison with changes to the Consumer Price Index CPI which measures the change over time in prices actually paid for consumer goods and services. If the $3.46 billion in funding for public schools had grown in proportion to the rise in student enrollment and growth in the Consumer Price Index, then total districts revenues would have risen to $6.85 billion in 2008. Instead, the school districts received just over $8.15 billion in public funding during the 2007-2008 budget year, more than $1.3 billion above the natural growth driven by changes to the student population and the cost of delivering services to them. Many state officials, school board members and district administrators characterize cuts as the difference between actual and projected (or requested) funding levels within a single year, rather than a year-to-year difference in total funding. Even in the deepest depths of the statewide budget crisis (Fiscal Year 2008-09), the actual per-pupil revenues collected by school districts remained over $11,000 a drop of just $85 per student from FY 2007-08 when fund transfers and capital sources are excluded. 3

Making sense of the growth in government spending on public schools can be a challenge; one useful gauge of these funding levels is a comparison with private school tuition. A recent statewide survey of 308 independent schools found the median tuition charged by private schools in South Carolina is just $4,400 for grade seven and $4,500 for grade ten. In other words, the average private school s tuition fees are less than half of the operational funding received by public schools for each student, or just one third of the total perstudent revenue. Another point of reference is public school spending levels in other states. A report issued by the United States Department of Education in 2010, and citing FY 2008 data, found South Carolina spent $11,045 per student. South Carolina s per-pupil expenditures were ranked 23rd highest among the 50 states, well above the $10,889 reported national average. The figure was $9,682 in North Carolina. BUDGET REPORTING Public school districts and the State Department of Education have consistently under-reported K-12 spending levels to the public. This has led to confusion among parents, media and even state lawmakers. Some school officials back out or subtract revenues from, or spending on, school buildings, legal fees, land purchases and other areas they don t characterize as operations. Others point to single sources of state allocation, most notably the Base Student Cost (BSC), and claim this single indicator represents the totality of state or public aid to local districts. As regards the latter claim about the BSC, state funding for public schools is actually allocated through more than 170 distinct programs, provisos, regulations, pass-throughs, transfers and allocations. Money for the BSC comes from both the local districts and the state government, and is just one small part of the larger state funding picture. 4

The graphic on page 5 depicts per-pupil measured state funding for schools. The strictly BSC revenue is just four small circles in the EFA cluster (the namely Kindergarten, Primary, Elementary and High School allocations). BASE STUDENT COST (BSC) and the EDUCATION FINANCE ACT (EFA) Part of the confusion revolves around the fact that state funding, calculated on a per-pupil basis, has remained steady or grown in recent years while the level of the Base Student Cost (BSC) has dropped drastically. Adding to the complexity is the fact that funding for the BSC, comes from a mixture of both local and state allocations, with the local districts funding the entire BSC in certain districts and the state funding it all in other districts. On average the ratio is 70 percent state and 30 percent local. The size of total state aid has no necessary relationship with the level of funding for the Education Finance Act (EFA). While the BSC fell from $2,334 to $1,630 in just one year (FY 2010 to FY 2011), the total projected state aid per-pupil rose from $4,153 to $4,485 in the same period. Still, each year parents hear about funding of schools at levels of $1,600 per student 5

or about $8,000 per child or even at 1995 levels. The basis for these un-contextualized claims has to do with changes in the way schools are funded, not the levels of funding, as well as the way that politicians and school administrators choose to report their budgets. Understanding how state aid is steady, or has grown, despite fluctuations in the BSC is important because parts of the funding from the state government are truly student-based, while most federal and all local funding is allocated without regard to the specific number of students attending a certain school or enrolled at a specific district. Estimates of the percentage of state aid that is directly tied to (or calculated by) the number of students enrolled in a public school district range from 49 to 61 percent. In other words, when considering all levels of government funding, of $11,372 in total funding per-student, just 19 to 24 percent is student-based. ACT 388 Another point of debate, and often confusion, is the impact of Act 388, a measure passed by the state legislature in 2006. The legislation was designed to provide tax relief to families paying school operation taxes assessed on their homes by the local school districts. In response, state lawmakers raised portions of the state sales tax, and pledged to provide revenue to the 85 local districts in-lieu (to off-set, or in substitution) of the lost income provided by the local taxes on single family homes. In theory, local property taxes were supposed to decline in return for a corresponding increase in state sales tax. In point of fact, local revenues for schools have actually grown since the passage of Act 388, thanks to huge growth in taxation on other types of property (such as commercial buildings and second homes) and a rush to raise taxes assessed on single family homes before implementation of 388. The local growth has been in addition to the increase in state revenue provided through in-lieu arrangements. SCHOOL SPENDING There are also important disagreements about how the $11,372 in district revenues per student are actually spent. The State Department of Education has claimed that public schools in South Carolina spend an average of 71 cents per dollar on instruction. That claim supposes that activities such as in-service and staff training, guidance and counseling, program development and extracurricular support are actually forms of classroom instruction. Even when so-called instructional support programs are removed, the State Department of Education points to 57 cents on the dollar flowing to true instruction. This figure is still contentious, as it flies in the face of generally accepted accounting practices. Money spent on school construction, legal obligations, and other costs associated with the financing of school buildings and property are excluded 6

from the total expenditure figures used to calculate the percentage of spending on instruction. When those dollars -money raised from public sources and spent by school districts- are included, the figure drops down to 44 cents per dollar. Using the same data source and methodology taken from the Budget and Control Board s Local Government Finance Report, the figure was 50 cents per dollar in 1993. In a 50-state comparison, the US Department of Education ranked South Carolina 44th in the nation for instruction and instruction-related expenditures as a percentage of total K12 spending. One of the fastest growth areas in school districts budgets has been debt service. Across the state, 16 to 20 percent of the locally collected school revenues are allocated to debt service, much of the financial obligation was inccurred just prior to the implementation of Act 388. POVERTY, PERFORMANCE and FUNDING No hard-and-fast relationship exists between school funding levels and the incidence or severity of poverty within a school district. Neither state funding nor total levels of local, state and federal funding calculated per-pupil are directly correlated with the index of poverty across the 85 traditional public school districts in South Carolina. Some districts serving low-income areas do enjoy higher than average per-pupil receipts. Statewide, however, there is no statistically significant relationship between funding and poverty despite the fact that many funding sources, and most especially the Education Finance Act (EFA), were intended to reduce or overcome such inequalities of input. Consider, for example, that Marion School District Seven has a poverty index of 97.4 percent and is projected to receive over $16,600 per-pupil in FY 2010-11. Dillion District Two, on the other hand, reports 93.6 percent poverty with anticipated funding of $8,592 per student. The total number of these massive revenue disparities has diminished statewide in recent years, despite the fact that the percentage of state aid delivered through the Base Student Cost mechanism (a program specifically designed to equalize funding across South Carolina) has dropped both in absolute terms and as a percentage of total state aid. In other words, funding of school districts in South Carolina has equalized significantly in recent years, even as the role of the EFA (designed to equalize inputs) has diminished. Similarly, there is no consistent relationship between levels of student achievement and funding. There are a range of state programs specifically geared toward providing underachieving schools and districts with additional resources, and even a few state allocations that reward higher achieving or improving schools, but neither state aid nor total funding levels correlate with student test scores. 7

CONCLUSION Public schools in South Carolina will receive an average of $11,372 in funding per student during the 2010-11 school year. The money comes from local, state and federal government sources. Another $1,100 per student will be raised through bonds and school building programs. This anticipated funding level, a projection issued by state lawmakers, represents an increase of $131 per-pupil from the 2009-10 projections but a drop of $108 per student from 2008-09 projections. Final audited district receipts, issued by the State Department of Education, indicate that actual funding levels dropped a mere $80 per student from 2008 to 2009 but rose by $2,183 in the five years from 2004 to 2009. Only a portion of state funding to schools is student-based. Many state allocations, most federal funding, and all local revenue are not determined by the level of student enrollment. Most of the student-based state funding is provided through the Education Finance Act (EFA) and it s complicated the Base Student Cost (BSC) mechanism used to determined minimum state and local contributions. While the level of the BSC has declined, total state funding per-student has not. The passage and implementation of Act 388, a controversial plan to swap certain local taxes for state revenues, has not led to a decrease in local funding for schools. Growth in local revenue from other sources has, as of 2009, recaptured the revenue lost from the elimination of school operation taxes on single family homes. In the same period state funding to districts inlieu of owner occupied property taxes has tripled. While revenues collected by local school districts have grown steadily for years, dramatically outpacing changes in enrollment and inflation, the funding increase has corresponded with a reduction in the percentage of spending directed toward classroom instruction. Funding levels, both state aid and all source funding, have no correlation with district characteristics, such as poverty levels, or district achievement indicators, such as test scores. FRAMEWORK FOR REFORM Serious reform to school funding would need to cover the full range of district revenues. The addition or expansion of individual revenue lines or revenue calculators has, over time, led to the confusion that characterizes the status quo. In totality, these minor adjustments also tend to work against broadly stated legislative aims such as revenue equalization or funding simplification. Reform to funding of schools or school districts should not be confused with (related but distinct) changes in how the schools actually spend the revenues. Limiting or simplifying state funding of schools is very different from dictating how school districts make decisions about spending their total local, state and federal revenues. The experience of Act 388 highlights these complicated relationships between revenues and expenditures, and between local and state sources of funding. Act 388 also provides lessons about the role of unintended consequences and the gaps between funding rhetoric and realities. Finally, reformers need to be honest about the lack of convincing data (both in South Carolina and across the nation) detailing any significant correlation between funding reform(s) or expansion(s) and student achievement levels. The author, Neil Mellen, is Research Director at the South Carolinians for Responsible Government Foundation (SCRGF). Nothing in the foregoing should be construed as an attempt to aid or hinder passage of any legislation. Post Office Box 12646 Columbia, SC 29211 www.scrgfoundation.org