Liveblogging: Senate Education Committee

Senators on the Education Committee have filed in as the roll was called, joined by Sen. Randy McNally, Chairman of Finance, Ways, and Means, along with Sen. Jim Kyle, carrying the Governor’s bills on education.

Commissioners of Education and Finance are also present. The discussion today is about fiscal capacity, as well as proposed accountability measures.

Finance Commissioner Dave Goetz asks committee members to refer to a "Core Principles of the BEP" document, which the committee did not yet have. It was distributed. Sen. Kyle asks if the committee can go into recess for five minutes so that members may receive the amendment language.

Patrick Smith of the Governor’s office goes over the basics of the BEP — that is was implemented in response to the original Small Schools lawsuit. In order to provide equitable opportunities, the State provides dollars to local communities on the basis of their ability to raise local revenue. There costs assigned for all the components of education (books, teachers, etc.) and the costs of these components are reviewed annually, whether or not there are any structural changes to the formula.

Smith: we’ve been hampered in addressing changes over the past couple of years, because of the disagreements over how the money is divided. The core principles embodies in BEP 2.0 is that it is simple and understandable, without the underlying complexities. After this is implemented, we can then address what other components should be included or excluded.

Comptroller John Morgan and UT Economist Bill Fox are present, and concur with the premise in BEP 2.0 that 90% of local revenues for education are derived from local option sales taxes dedicated to education, and local property taxes dedicated to education. Other basic principles in BEP 2.0 is the elimination of the Cost Differential Factor (CDF), and bringing the state share of teacher salaries from 65% back up to 75%. Note: Eliminating the CDF takes money from Oak Ridge, but increasing the State’s share of teacher salaries offsets that loss.

Funding 100% of at-risk students (up from 35%) and a greater share of English Language Learners are also part of the proposal. Finally, the State would fund 100% of student enrollment growth — currently, that funding is based on the previous year’s enrollment, leaving local governments in areas with population growth to cover the entire cost of newly-enrolled students for one year.

Bill Fox, UT Ecomomist: What we’re trying to do is to measure the relative contribution that each county should make to the combined local share of the BEP. It does not measure the effort made by counties — just what is its capacity to other counties relative to tax revenue. It does not try to measure the service (or expenditure) needs of the various counties. The existing formula relies upon regression analysis, and thus lacks transparency to most people, and contains unexpected results (as is common in regression analysis). The regression equation makes it appear that the larger the property tax base, the less the ability to raise revenue. That makes no sense.

Also, the current TACIR formula does contain elements that measure service responsibilities, but the fiscal capacity formula should measure only ability to pay.

The ability of a county to generate tax revenues based on average effort, using tax rates and bases. It does not depend on the actual effort — so if you have a high tax rate to support education, you are not penalized. This also solves the problem of city districts vs. county districts, since the city property values are incorporated into the county’s property tax base.

Senator Burks expresses concern that income levels are not included in the new fiscal capacity measure, because the residents of the smallest, poorest rural counties are unable to pay higher taxes due to their lack of income.

Dr. Fox: We believe that ability to pay has been included, because the tax base is the measure of ability. Therefore, when residents of smaller counties go to larger areas to shop and contribute sales taxes to the larger county’s schools, then those dollars count toward the larger county’s fiscal capacity, therefore qualifying them for less state revenue and the smaller county for more.

Sen .Kyle: Another proposal unveiled this year was one of a statewide property tax; while not exactly the same as an income tax, property value does tend to track income levels.

Comptroller Morgan: Value of property in an area is strongly related to income in an area. Wealthier people tend to live in more expensive homes. It’s important for everyone to understand in a simpler way of looking at capacity is a change from where we have been. It does get to be a question of whether you think using property and sales are a fair way of allocating responsibility.

Local governments in total pay 50% of non-classroom components, and if the new method is adopted, will pay 25% of classroom components. Based on current practice, when you look at all contributions to local school systems, it’s about 60% from property taxes and 40% from sales taxes. Averaged statewide, local contributions consist of about $1 on the property tax rate, and a little more than a penny on the sales tax rate. Under BEP 2.0, every county is being asked to use their tax base in the same way. It treats everybody the same in terms of allocating their burden.

The BEP is really two things: how much are you going to pay, and what do you get to fund your education program?

Including income in the formula would benefit Pickett County, but would adversely affect Polk County — not generally thought of to be a wealthy county. Including income really would present a moving target, and the only way to include that would be to pick a number that you like. Under the BEP 2.0 approach, the state is relieving local governments of a substantial burden by raising the teacher salary component to 75%.

Mike Williams: What other methods were considered when the BEP was first implemented? Fox: Both were considered back when the BEP was originally implemented. The reason that the new fiscal capacity formula is better is that is does not mix the measures of service responsibility and fiscal capacity. Fiscal capacity should only measure the ability to raise revenue based on property values and sales volumes.

Sen. Tracy: hasn’t there been a provision added to help the very smallest counties that would see a zero increase? Patrick Smith: Yes, that’s the provision that no system will realize more than a 40% impact. Putting a ceiling on the change helps counties like yours and Sen. Burks’.

Dr. Fox: BEP 2.0 absolutely does not penalize those areas that contribute more than they are required to — it does not penalize additional local effort.

Sen. McNally: There are counties where property and sales tax are not really reflective of ability to pay, such as areas with retirees who tend to have higher property values but lower incomes. There are also areas with high property values, but the residents have relatively low incomes (note: Sevier County is one of those).

Comptroller Morgan: we’ve just passed out a document that shows, as a share of the statewide average, the numbers under some different scenarios. The results of introducing income into the formula shows that places with a lot of shopping capacity benefit, where areas more reliant on property taxes suffer. Because we don’t tax income, we don’t have a precise measure, and messes up the simplicity of the formula.

Chairman Woodson: Simplicity is a goal, and introducing income brings in a component that we cannot accurately measure.

Randy McNally: We do tax investment income through the Hall Income Tax, and we can measure that (and some flows back to local governments). But, there is a cost factor associated with living in different areas. We’re looking at adjusting state employee pay based on salary differences — for example, it cost more to hire a nurse in Davidson County, and hiring teachers with, for example, a degree in biology and teaching certification is more expensive in areas that compete with the Department of Energy and its contractors.

Comptroller Morgan: That’s something that ought to continue to be looked at, but salary differences are also part of the "need" side, not the "ability" side. They’re trying to draw a strong distinction between the fiscal capacity formula — the local match equation — and the need side, which constitutes the rest of the BEP.

Patrick Smith: Remember that raising the base teacher salary as well as the state share of teacher salaries, it really helps some of the rural systems in lessening the disparity in teacher salaries.

John Morgan: To the extent that our difficulty in accepting this lies with the differing impact of property and sales taxes impact people of differing incomes in a disparate fashion, that is a problem with our basic tax structure, and fixing that is not within the purview of the BEP formula.

Sen. Woodson: The State should not be expected to pick up the slack for communities that have chosen to provide economic incentives via tax abatements or payments in lieu of taxes.

Morgan: The property portion will take into account the properties held by industrial development boards, so the value of those properties will be included in the numbers — those districts will not gain additional state money because they’ve given abatements. Those numbers are not yet in, but they will be included in the final numbers. People in one county should not have to pay more just because people in another county chose to give a tax break for economic development.

Sen. Rusty Crowe: What about the counties where much of the land is owned by the Federal or State governments?

Morgan: No value is assigned to government-owned properties (or churches, etc.), because local governments have no control over that. They do have control over tax abatements granted by industrial development boards.

Sen. Woodson: Please explain the "circuit breaker" provision.

Morgan: The circuit breaker is a mechanism to ensure that any county whose fiscal capacity has shifted more than 40% will be limited to a 40% change.  It seems reasonable to us (the Comptroller’s office)  that the State should ensure that every county receive enough to ensure that they are able to meet the mandated salary increases.  This is a significant improvement, but is far from the extent of educational improvements needed in the state.

Sen. Woodson: We can move forward with this approach, or we can wait for the judicial hammer.

Patrick Smith: We have someting of a guideline through the decisions in the Small Schools lawsuits; this proposal goes a long way in addressing adequacy in a couple of ways — at risk, ELL, real-world salary levels.  It also lets us get away from the "dividing the pie" arguments and move toward higher standards and delivering the right instructional content.

Sen. Williams: This document shows that we are in a proactive state, as opposed to a band-aid measure.

Morgan: BEP 2.0 is an important reform, which puts us on our way to full implementation.

8 Responses to “Liveblogging: Senate Education Committee”

  1. on 23 May 2007 at 10:37 am Volunteer Voters » Citizen Liveblog

    […] Citizen Netmom liveblogs the Senate Education committee. Share and Enjoy: These icons link to social bookmarking sites where readers can share and discover new web pages. […]

  2. on 23 May 2007 at 12:31 pm Banjo Man

    Netmon,

    This live blog helps us see the dyanmics as they happen. Great discussion. I’m glad to see all the players seem to be present, and particpating.

    Great Work. We need you four more years.

  3. on 23 May 2007 at 4:29 pm who's who

    What a great job!! I totally agree with Banjo Man, you are what we need for 4 more years and as long as you are willing to do it. You surely are dedicated and keep the public informed as to what is going on.

  4. on 23 May 2007 at 4:31 pm girlfriend

    This gives so much more dtail than a recap in ssome newspaper article. It helps us to understand how this is all going down.

  5. on 23 May 2007 at 8:34 pm daco

    Another great job Netmom. Thanks.

  6. on 23 May 2007 at 10:47 pm Ellen Smith

    Thanks for that comprehensive and timely reporting.

    After spending time in Nashville talking with legislators, listening to the committee proceedings, and watching faces, can you offer a prognostication on whether BEP 2.0 will be enacted? It seems like an excellent step forward for Oak Ridge and much of the state, but I know there would be some losers (especially in rural counties), so I expect there’s some serious opposition (understandably so…).

  7. on 23 May 2007 at 10:58 pm Netmom

    Because there’s a serious infusion of new state money, there are no losers. There are some that don’t gain as much as others, but none lose. Especially not rural counties. Comptroller Morgan asserted pretty strongly today that the teacher salary component is nicely aligned with the last court ruling, in that it should decrease disparity.

    I don’t think there’s much serious opposition to BEP 2.0, but the proposed funding mechanism — the 40-cent cigarette tax — faces a pretty serious uphill battle. Several legislators told me today that the BEP 2.0 would pass, but probably not the tax. Not sure where that leaves us.

  8. on 24 May 2007 at 12:57 pm Jacket

    “Not sure where that leaves us.”

    Up excrement creek w/o a paddle and looking for a way to fund it or else no new money being infused. The two choices. Funds from somewhere or no new money with the 2.0 in place.

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