Opinion and Forefront

KETZENBERGER: Referenda may divide school funding equity

March 12, 2011

John KetzenbergerOn election nights when I worked at the Fort Wayne Journal Gazette, I used to pity my colleagues in Ohio bureaus. They had to wrangle what seemed like boring results from school funding referenda while I got to chase colorful candidates.

More reporters across Indiana know what my former Ohio bureau colleagues had to bear. Indiana, since 2008, is a referendum state. And even though 46 others have long held referendums to determine school funding—either construction or general fund—we’re just learning the implications.

There have been 60 referenda since the process was initiated for school districts to boost property taxes, including 32 for construction projects and 28 for general fund purposes. More details later, but 60 percent of the referenda failed.

This comes at a time when school funding, which was cut 3 percent last year, is stagnant, meaning the state is likely to spend less money for public education in the next two-year budget than lawmakers appropriated for the fiscal 2011-2012 budget. Since voter approval is necessary for districts to tap property taxes for additional funding, the failure rate begs these questions:

• Do schools really need the money?

• Is the recession hurting the schools’ chances for success?

• Will the referenda process lead to funding inequities across the state?

A little history first. The enabling legislation was part of the comprehensive property tax reform enacted nearly three years ago. This reform also included property tax rate caps and removed property tax proceeds from the school funding formula.

Before these changes, schools got about 20 percent of their operating funds from property taxes. And districts were able to adjust their rates to raise more money for operations or construction by a majority vote of the school board.

The General Assembly did impose a check over the last decade on local schools’ ability to raise property taxes. Known as referendum by petition, the process kicked in if disgruntled voters or property owners got enough signatures to defeat the proposed increase. About half of the 94 petition-referenda brought between 1995 and 2007 managed to kill proposed projects, according to a study by the Center for Evaluation and Education Policy at Indiana University.

The Center keeps track of the referenda since 2008, too, and found that of the 28 held to boost general spending, 15 failed. It’s even worse for the 32 construction projects. Nearly 66 percent, or 21, of the proposed projects were rejected by voters.

Schools clearly need to do a better job showing voters that they need the money, the CEEP study concluded. Most of the 22 general fund referenda last year were meant to maintain current educational programs, yet 13 were defeated. It amounted to a double-whammy for losing districts that saw their state funding cut, too.

The recession and slow recovery have made it harder for schools to win approval for tax increases for both general spending and construction. As the recession raged in 2009, more than 71 percent of the 21 referenda failed, including 13 of the 15 proposed construction projects.

The win rate improved last year, but the CEEP report noted, “school corporations should anticipate a degree of skepticism on the part of some voters who may still be struggling with their personal finances.”

Yet as most local voters punished their schools, their counterparts in Minnesota approved 66 percent of the tax increases proposed there. Voters in the Gopher State, however, have a much longer history with referenda.

One more observation based on the referendum trends in Indiana: The process may create funding inequities. There were 15 referenda in urban or suburban areas in 2010, and voters approved 10 of them. There were 18 in rural areas and just three gained approval. It’s apparently easier to swallow a tax hike when there are more property owners sharing the burden.

This disparity may decrease as the economy improves and schools gain savvy in the process, but there is one crystal-clear conclusion: A nifty cottage industry is emerging for referendum consultants.•

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Ketzenberger is president of the Indiana Fiscal Policy Institute, a not-for-profit dedicated to non-partisan research into the state’s tax policies and budget practices. Send comments on this column to ibjedit@ibj.com.

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