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The Foundation Formula - What it is and How to Fully Fund it

April 04, 2002
By: Tiffany Ellis
State Capital Bureau

JEFFERSON CITY - The driving issue emerging in Missouri's legislature is one that both the governor and House Speaker define as their top objective, but many legislators are not able to explain -- full funding of the School Foundation Formula.

Missouri's School Foundation Formula is a mathematical equation used to allocate state funds among the state's 524 public school districts.

When the formula is fully funded, nearly 95 percent of Missouri's public school students receive equal amounts of combined state and local funding.

In most cases this means students in urban or suburban school districts receive the same access to comparable educational programs as students in rural school districts.

According to school finance consultant Dr. R. Craig Wood there is a three part foundation upon which school finance typically rests. That foundation includes property tax, income tax, and/or sales tax.

The core of Missouri's formula is the taxable property wealth of a school district. Other factors, such the number of low-income students, are included to provide more money to poor districts and less money to wealthy districts.

Some of those factors are also meant to encourage certain behavior by school districts. For example, a district can get more state funds if it raises it its tax rate.

While student enrollment is a factor, so too is actual student attendance. And the formula is based on a minimum number of school days. If a district drops below that minimum, it loses state funds.

Although different districts may not receive the same amount of funding for each student, equitable funding assures that state money is used to even out the disparities that exist between school districts.

Another component of the formula is the "hold-harmless" clause that protects school districts from getting any less state funds than they got in 1992-1993.

There now are more than 50 hold-harmless school districts that all get more state money than the formula would otherwise provide. Most became hold-harmless because they have raised their local school tax rates.

The hold-harmless provision also prevents taking money from a district to shift to other districts that have become more needy. Most often this happens because of changes such as declining property values in the district.

Instead, the legislature has to pump more money into the School Foundation Program so that all districts receive similar total funding.

That is what is meant by the full funding figure cited by the govenror and legislators. It's the amount of money that must be added to the School Foundation Formula to assure each factor used in the formula is considered equally among all the school districts.

Most recently hold-harmless districts have sparked concern over the fairness of the formula. This has caused some legislators to criticize other special exemptions made since the formula's latest version was developed in 1993.

They say that provisions such as hold-harmless contradict the basic goal of school funding that courts have required the state to achieve.

The 1993 revision occured as a result of a Cole County Circuit Court ruling that declared the prior formula unconstitutional because it did not assure equal funding per student across the state.

The decision was the result of a lawsuit filed on behalf of a group of Missouri school districts.

The state legislature responded to the decision with the "Outstanding Schools Act," approved in May 1993. In addition to a revised version of the school funding formula originally developed in the 1970's, the act included new measures to increase school accountability and performance as well as a tax increase to provide additional state revenue for K-12 education.

It went into effect in the 1993-94 school year during the late Gov. Mel Carnahan's first term. Changes from the previous structure were implemented gradually over the next four years.

"The current formula made significant improvements to the one that we had before," said Sen. Wayne Goode, D-St. Louis County, who wrote the original formula in 1977 and is considered an expert on school funding by many lawmakers.

Goode says that although the formula is complicated, the variety of factors included in the equation are necessary for fair funding.

"The current formula was in much better form when it passed," said Goode. "A lot of individual changes have been made to cater to certain situations, but the concept behind it is still good."

According to a report presented in January by the Missouri Legislature Joint Interim Committee on Education Funding, 41 states provide a higher percentage of state funding to local schools than Missouri.

But Goode said since education is a high priority for most legislators, the ranking can be attributed to the fact that Missouri is one of the lowest taxed states in the country.

According to Congressional Quarterly's 2001 state comparison, 43 states get more tax money from personal income than Missouri.

But these broader issues won't be discussed this legislative session - most elected officials are too busy searching for dollars to fully fund the current formula.

Although more than $2.6 billion has been budgeted this fiscal year for dispersement through the formula, it would take an additional $220 million to continue the same rate of funding next year.

"Without a major tax increase, full funding may not be possible," said Goode. "It's growing more quickly than we can afford."

However, the House has passed legislation sponsored by Rep. Chuck Graham, D-Columbia, that effectively lowers the full-funding figure by changing how one of the factors in the formula is calculated.

Under Graham's bill, full-funding would require $45 million less.

Because counties recalculate rising property values once every two years, the state sees a spike every other year when those values are plugged into the formula.

The amount the state pays to schools depends on the value of property, so when those numbers go up, so does state funding.

New values were used this year requiring the large increase. However, in years where there is no property reassessment, funding increases are smaller, typically about $80 million. Graham's plan would average those two numbers.

"This is about giving every child an equal and adequate education and that's what the Constitution requires," said House Speaker Jim Kreider, D-Nixa. "Full funding is what keeps judges out of the education system."

But until the final state budget is approved, with or without Graham's proposal, no one can guarantee full funding.