Legislators exploring options to pay for education

JEFFERSON CITY, Mo. -- While taking an ax to the budgets of most state agencies, lawmakers went to extraordinary lengths last spring to increase spending for public education. But with an estimated shortfall of at least $350 million in the current state budget, some are wondering if that was a good idea.

If a $135 million increase for elementary and secondary education hadn't been approved, the budget hole that lawmakers and Gov. Bob Holden would have had to address before the end of the fiscal year on June 30 would have been nearly 40 percent smaller.

With the benefit of hindsight, state Sen. John Russell said a better course of action might have been to fund education at the previous year's level instead of putting school districts in the potential position of not receiving money that was appropriated.

"We needed to be doing some long-range planning last year. The problem, in all reality, is we should never have gone with a $135 million increase," said Russell, chairman of the Senate Budget Committee.

Holden, a Democrat, has said he may have to withhold $259 million in state aid to local schools if revenue to make up the shortfall is not found within the next few weeks. Holden proposes raising the money by selling bonds secured with future proceeds of the state's financial settlement with tobacco producers.

Majority Republicans in the General Assembly have an alternative fix that would use some bond proceeds, but mainly involves postponing selected spending and carrying a smaller balance into the next fiscal year. Holden said those ideas had previously been considered and rejected, but he is keeping an open mind.

Whatever the impact to education in the current budget, there is almost no chance for an increase for fiscal year 2004, which begins July 1. In fact, because one-time money was used for education in the current budget, another $193 million will be needed just to keep education funded at the FY 2003 level.

House Speaker Catherine Hanaway, R-Warson Woods, said lawmakers will again try to increase education spending but predicted breaking even is the best that can be realistically achieved.

With work on the new budget just beginning, that battle is weeks away from being fought.

A donnybrook is likely to ensue this week, however, on a related education funding issue -- Republican legislation to distribute gaming revenue directly to local schools instead of through the complex formula designed to ensure equity between rich and poor districts.

Complex formula

Few aspects of state government are as complex as the education formula, commonly called the foundation formula. Indeed, it is often said -- and never disputed -- that only a few dozen people fully understand it.

The current formula was written in 1993 on the heels of a lawsuit initiated by the Lee's Summit School District and joined by 124 others that challenged the previous formula as unfair.

Cole County Circuit Judge Byron Kinder found that the system at the time exacerbated the disparity between rich and poor, creating schools that ranged from the "golden" to the "god-awful." He declared the old formula unconstitutional and gave lawmakers until the end of the 1993 legislative session to fix it.

The gap between rich and poor resulted from the reliance on local property taxes to fund schools. Districts with high property values would get more return per penny of tax than those with low values.

The current formula was designed to equalize the total amount of money a district received per penny of property tax, said Geri Ogle, the Department of Elementary and Secondary Education's associate commissioner for administrative and financial services.

"When you consider state and local sources together, each district with the same tax rate gets the same amount of money," Ogle said.

Were the formula applied to all school districts, it would have meant some -- primarily, but not necessarily, wealthy ones -- would have seen their state aid reduced from what the old formula provided.

As a result, a compromise was struck to "hold harmless" such districts, meaning that they wouldn't lose money. However, these districts for the most part had their state aid frozen at FY 1993 levels, though some received a minor boost from a 1998 change in the law.

The Cape Girardeau School District is one of the 48 districts currently classified as a hold harmless system.

Since the formula is tied to assessed property values, which from a statewide perspective are always increasing, the amount of money needed to fully fund the formula likewise continues to rise.

To fully fund the formula for FY 2004 would require an additional $247 million on top of the $2.15 billion appropriated for FY 2003.

Trust fund debate

The lack of money to fully fund the formula and the hurdles to maintaining current spending will add fuel to the debate on the Classroom Trust Fund bill if it is brought to the House floor this week as scheduled.

A top GOP campaign pledge last fall, the bill would no longer use the $205 million a year the state receives in gambling revenue for the formula. That money would instead be distributed to each school district on a per-pupil basis.

Supporters say voters believed gambling money would provide additional funds for education when they agreed to legalize casinos in the 1990s. Instead, they say the money replaced other funds that otherwise would have gone into the formula.

Because of the current situation, however, the change wouldn't take place until FY 2007, and then only if general revenue is sufficient to fully fund the formula. The bill's sponsor, House Speaker Pro Tem Rod Jetton, R-Marble Hill, said protecting the formula is important.

"We're putting the safety measure in there so it won't take money out of the formula," Jetton said.

Opponents, such as Missouri National Education Association lobbyist Otto Fajen, say those changes could render the bill meaningless, but that if it did ever take effect it would land the state back in court.

"The only situation in which we can see this bill actually doing something is if it does something harmful," Fajen said.

By FY 2007, Fajen estimates it would take $1.1 billion more than it currently does to achieve full funding. Fajen helped craft the current formula in his former job as a senior Senate researcher.

House Minority Floor Leader Mark Abel, D-Festus, said such a massive infusion of new money is doubtful, even years down the line.

"Unless something dramatically happens to improve our finances, I can't imagine this ever kicking in," Abel said.

If that is the case, Jetton said there is no reason not to vote for the bill.

"My argument would be that if it's not going to do anything then it's not going to hurt to pass it," Jetton said.

Opponents say that if the trust fund were established it would further throw off equity since hold harmless districts would get new money.

Richard McIntosh, a lobbyist for the Hold Harmless Coalition, dismisses the notion that equity would be at risk. Hold harmless schools, he said, are in dire financial straits and deserve relief.

"We believe there is no equity in school districts receiving no material increase since 1993," McIntosh said.

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