In the final days of the 2017 session, the Washington Legislature cut a deal to sharply increase spending on public schools in response to the state Supreme Court decision that struck down the school-funding system as unconstitutional.
That led to the high court last year ending its oversight of the long-running McCleary case. It did not end the policy headaches for legislators. They now are struggling to fix a key part of their funding package from two years ago referred to as the “levy swap.”
In exchange for raising the state property tax rate to pay for most of the K-12 funding increase, legislators in 2017 restricted the maximum amount that school districts can collect in local property taxes.
That has left one-third of the 295 school districts, including Tacoma, short of funding and facing draconian measures such as laying off employees while residents in rural areas have received property tax relief.
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“I think in their attempt to get rid of the lawsuit, the Legislature made a bunch of decisions and compromises that are going to need to be fixed,” said Greg Baker, superintendent of Bellingham Public Schools.
The state has pumped an additional $9 billion into funding public schools in response to the 2012 McCleary decision, which said the state had underfunded K-12 schools. In the current 2017-2019 operating budget, state K-12 spending accounted for 50 percent of the budget, or nearly $23 billion.
Last year, school districts collected about $2.6 billion through maintenance and operation levies, now called enrichment levies. That total will decline to about $1.6 billion this year, legislative staff members told lawmakers.
The $1 billion cut was too deep, said Chris Reykdal, the state’s Superintendent of Public Instruction.
“We never believed the court mandated a levy reduction. That was entirely a political decision. Why in the world would we do much restriction on something that is voter-approved and the money stays in the community?” Reykdal said.
The Senate Early Learning and K-12 Education Committee has considered a bill requested by Gov. Jay Inslee that backers say would have enabled districts to eliminate that $1 billion reduction in collections.
The committee’s chairwoman, Sen. Lisa Wellman, amended the bill Friday to define the maximum local levy as 20 percent of prior year revenue or $3,500 per pupil. The committee approved it. Wellman said she couldn’t say how much of the $1 billion that districts in the future could collect under her plan.
“We modeled 295 districts and from the looks of it, I didn’t find any that weren’t either OK, just as good or better,” said Wellman, a Mercer Island Democrat. “I can only tell you this works for us.”
After the vote, Sen. John Braun, a Centralia Republican who played a major role in the 2017 education-funding changes, said allowing greater reliance on local levies isn’t in line with the Legislature’s constitutional duty to provide for basic education.
“I understand why school districts and the education establishment would want the Legislature to increase local-levy authority, especially after seeing some of the salary increases negotiated this past summer,” Braun said in a statement. “But going down the road laid out in this bill will get our state in trouble, because some districts are always able to take better advantage of local taxing authority than others, and sooner or later that’ll create the same conditions which led to the McCleary lawsuit.”
A bill requested by Reykdal’s office would allow school districts over the next two years to get back about half of that $1 billion in local-levy authority. That bill remains in committee.
Lawmakers face thorny political challenges in sorting out the various proposals. By allowing property-wealthy districts to collect more from local taxpayers, they could inject more unfairness into the funding system. By not letting districts collect more, they could cause teacher layoffs and cuts to K-12 programs.
The debate is intensifying as legislators continue to write craft their own version of the 2019-2021 operating budget that Inslee unveiled late last year. A final decision might not be made until the final days of the session.
An analysis by the Washington Association of School Administrators found that changes in the state’s funding system since 2017 will leave more than 100 of the 295 school districts with less money for basic operating expenses in the upcoming school year.
“Unfortunately, the loss of local levy funding was far greater than the increase in new basic education operating revenue, leaving over 100 districts across Washington facing budget shortfalls of considerable scope and consequence,” said Joel Aune, WASA’s executive director. “The Legislature set out to ensure districts did not lose funding with a hold-harmless provision. But our research confirms that the hold harmless did not achieve its intended purpose.”
Aune said a short-term solution is for the state to spend $246 million in the upcoming two-year state budget to get 115 school districts to a financial break-even point and change how the state provides funding for teachers.
Tacoma Public Schools is among those districts.
The Legislature’s 2017 decision to redefine the maximum local levy that all school districts can collect — as the lesser of $1.50 per $1,000 of assessed valuation or $2,500 per pupil — has deprived it of revenue, said Rosalind Medina, the district’s chief financial officer.
The district’s levy collections — and the amount it gets from the state to ease the property tax burden of districts with lower property values — will decline from $65 million in its 2018-2019 budget to $43 million in 2019-2020, Medina said. The district hopes the Legislature will act this year so school officials can collect more.
“The longer this goes on, the less resources we’ll be able to actually collect,” Medina said. “If they don’t address it this year, I’m really at a disadvantage. We will have to make significant reductions to balance the budget. Eight-five percent of the district’s resources are spent on staffing. I would say that we would most likely have some level of staffing impact if no (legislative) action is taken,” she said.
Some local school officials said they don’t want the Legislature to allow districts to collect more.
On the third try, Ferndale School District recently won narrow voter approval for a new bond levy. It will pay for a new high school, facility repairs and upgrades, improvements to school security as well as modernizing the Performing Arts Center. The district is about 10 miles north of Bellingham.
In making their case to voters for higher taxes to pay for the new bond issue, school officials told residents that the Legislature’s response to the McCleary lawsuit included lowering local property tax rates as the state pumped billions more into the K-12 system.
“We passed the bond making some promises about taxes that are going to ring hollow if the state changes what they are going to do,” said Superintendent Linda Quinn. “It’s us who will look like liars if this comes to pass.”
Baker, the superintendent of Bellingham Public Schools, said there’s a deeper problem than the maximum amount school districts can collect from local levies. he said the state’s definition of basic education is inadequate, forcing districts to turn to local taxpayers.
“The state’s definition of basic ed says that a district our size, with nearly 12,000 kids and 22 schools, says we get about 1.7 nurses. Most people would say we need around 22 nurses. So we have to use our local levy to hire another six — (still) not nearly enough,” he said.
Baker said the amount that the district can collect from its operating levy has dropped from $33 million a year to $22 million. He said the district supports Inslee’s proposal because it could collect the $33 million.
“We’re looking at significant budget cuts next year unless the Legislature comes back with some fixes,” he said.
Legislators also need to worry about a tax backlash breaking out around the state, said Liv Finne director of the Center for Education Reform at the Washington Policy Center, a nonprofit think tank.
The bills that would allow school districts to raise the “levy lid” — the maximum amount they can collect from local levies — could cause significant local property tax increases within a few years, she said.
“Elderly couples on fixed incomes, young families trying to buy their first homes, middle-class families living from paycheck to paycheck would be most heavily impacted,” Finne said.
Dave Bond, superintendent of Kennewick School District in the southeastern part of the state, said the reduction in how much the district can collect from its levy — combined with the increased cost of labor contracts negotiated last year to avoid strikes — has led to a projected $5-6 million budget shortfall for next school year.
“We’ll do everything we can to minimize the impacts in the classroom,” Bond said.
Bond said under the new funding system, with many districts either as big winners or losers, it’s difficult for statewide groups representing school administrators and school boards to support a single fix.
Baker, the Bellingham Public Schools superintendent, acknowledged that districts will have to explain why they need to raise more money from local taxpayers.
“What some people will argue is, ‘Oh districts, you have more money than you’ve ever had but the fact that you have negotiated away the compensation is on you.’ That’s easy to say, but they don’t understand the realities of how this whole thing works. There’s a national movement to make the teaching profession more of a profession that has got competitive wages to attract and retain high-caliber people coming out of universities,” he said.
The Olympia School District faces a projected $8.5 million shortfall in the upcoming school year. If Inslee’s proposal becomes law, the district could collect an additional $6.8 million in the 2019-2020 school year and $13 million in 2020-2021, said Jennifer Priddy, Assistant Superintendent for Finance and Operations.
Apart from the levy problems, another change from 2017 has caused problems for the district, said Superintendent Patrick Murphy. That’s the state’s decision to distribute “regionalization” funds to about one-third of districts in areas with high housing costs to help them employ teachers and other staff members.
“We’re the only school district on the the I-5 corridor that touches Puget Sound that didn’t get regionalization,” he said, adding that he hasn’t received an explanation as to why from legislators.
Bill Keim, a former executive director of the Washington Association of School Administrators, said it appears the Legislature is “trimming around the edges to fix the most egregious pieces” of the 2017 changes to the funding system.
Don’t look for the state to face judicial scrutiny anytime soon, Keim said.
“The state has so completely changed the system that it will take time to build the data. I’d be surprised if there’s any major lawsuit short of a decade from now and maybe longer than that,” he said.