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State Deficit Poses Problems for K-12 Funding


Indiana lawmakers say the legislative session beginning Jan. 7th will be one of the most difficult in decades. The governor has already cut funding to make up a severe downturn in revenue, and services not being cut will see funding flat-line.

November unemployment was 7.1 percent, and the state is borrowing federal money to pay unemployment insurance.  On top of that, the legislature now has to wrestle with a new recipe for public school funding.

Compounding the challenge of crafting a balanced state budget in the midst of a recession is legislation passed during the 2008 session…property tax reform. Before that, school corporations had some control over local property taxes, which funded 15 percent of their general operating budgets. Bob Orlowski is the Assistant Superintendent of Administrative Services at South Bend Community Schools.

“Property tax is a pretty stable portion of the funding formula. And sometimes when the economic times were not as good across the state, they could always look at a larger increase in local property tax to ensure money for schools. Well, that is no longer in place,” Orlowski said.

Under the new rules, property taxes are capped, and the state has taken full responsibility for funding more than a billion dollars in general operating costs for public schools. But the circuit breakers, which in 2010 will be set at one, two, and three percent of property values in most of the state, will cut into areas still funded by local property taxes, like transportation and construction.

“We’ve already been behind on just our routine maintenance-roof replacement, things like that,” said Krista Stockman, spokeswoman for Fort Wayne Community Schools.

Under the property tax caps, Fort Wayne schools will lose about three million dollars in 2010.

“We’re an urban district, so our buildings are old. They’re not getting any younger; they’re not fixing themselves,” Stockman said.  “And that’s an area where we could see further cuts being made.”

A one-cent sales tax hike was implemented in 2008 to make up for lost property tax revenue. But sales tax revenue rises and falls with the economy. And the most recent economic forecast shows state revenue for the current budget 763-million dollars below last year’s forecast.

The state is now expecting just over half of the four-percent growth expected to pay for property tax relief. Lawmakers designated a cash reserve for education to help cushion the transition from property tax revenue to sales tax revenue, but it’s not clear if it will be enough. Because statewide enrollment generally increases annually, flat funding would actually be a cut in dollars per student

Chief Finanacial Officer Margaret Conway says the Evansville-Vanderburgh School Corporation’s lean 2009 budget still has to account for rising costs.

“You know, we have salary increases we have to honor per collective bargaining agreements, and everyone is pretty well aware that utility costs are gonna go up, as well as, most likely, health insurance costs are gonna go up,” Conway said.

Conway says cuts that directly impact classroom learning would be a last resort at the EVSC. But South Bend’s Bob Orlowski says staff cuts would be on the table if funding were to fall short.

“Probably across the board…I’m not just talking about teacher reductions, we would have to look at our entire operation and determine, you know, the number of dollars we would be short,” he said. “And we would have to go ahead and prioritize reductions in terms of personnel, because that’s where the majority of our dollars are at.”

Orlowski says staff cuts result in program cuts. And if teachers are reduced, that means larger class sizes, with corresponding challenges. But the government is pledging to make K through 12 funding a top priority.

Governor Mitch Daniels says school funding won’t be cut. Lawmakers, like House Democratic Floor Leader Russ Stillwell of Boonville say crafting a balanced budget will involve tough choices in allocating money.

“I think we have a moral obligation to K-12, to do everything within our possibility, to at a bare minimum keep up with the cost of inflation and those costs that have no control whatsoever by the school corporations,” Stillwell said.

But maintaining K through 12 funding could mean reductions in other more flexible parts of the budget, like higher education. Stillwell says the final budget will depend on a revenue projection in April. In the meantime, schools are anxiously watching the intervening forecasts, bracing for their own tough budget decisions.

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