From the State Budget to Your School District to Your Property Tax Bill

School districts across Wisconsin already know to expect less state aid this year, but next week the Department of Public Instruction will tell them exactly how much they’ll lose, which many hope to make up by increasing property taxes.

State funding for districts has steadily increased since 1993-94 when revenue caps were established.  This year, however, Lawmakers dealing with a $6.6 billion budget shortfall, decided to cut school funding by 2.7 percent.

How much state aid a district loses depends on a funding formula, which takes into account student population and property values.  Nearly every district will lose some level of funding, with 94 districts seeing a 15 percent or more reduction from last year.

DPI projects North Lakeland will loss all its funding.  The next four districts to top the list are Swallow (16.6 percent), Wisconsin Dells (16 percent), Elcho (15.7 percent) and Princeton (15.4 percent).  State law limits year to year state aid reductions to 15 percent.  The Legislative Fiscal Bureau said four of those districts will receive special adjustment aid to make up the difference, but North Lakeland is an exception.

North Lakeland is a property rich district that only received $8,610 last year, and because it’s such a small amount, the district does not qualify for the adjustment.  The loss of funds did not surprise nor trouble Richard Voughd, North Lakeland’s superintendent.

“That’s not a drastic cut,” he said.  “I anticipated all along that we would lose all our state aid.”

Other districts, where aid reduction was a much smaller percent, will be affected far more drastically.  For example, the Eau Claire Area School District will receive 3.75 percent less aid than last year, which comes out to $2.3 million dollars.  The Pulaski Community School District is projected to lose only 1 percent of its aid, $240,988.  However, that district relies on state aid for two-thirds of its general fund budget.

Raising Property Taxes

The immediate problem for districts is how to make up the loss in revenue.  Looking ahead, if districts don’t make up for the loss, their decreased revenue this year will become their new revenue cap for next year.

The solution to both problems for districts seems obvious: raise property taxes.  According to the Wisconsin Tax Payers Alliance, 181 districts could raise taxes by 10 percent or more, while another 111 districts could raise taxes by 5 to 10 percent.

School districts have until the last day of this month to levy new property taxes, but there’s a catch.  State law requires most districts to allow its residents to vote on property tax levies.  That vote is usually taken at a district’s annual meeting, which are being held now.

The Pulaski Community School District proposed a 12 percent property tax increase to make up for its loss, but voters turned it down.  Now the district will have to figure out what to cut out of its budget.

Voters in Greenfield rejected an 11.4 percent levy and in West Bend, a 12.1 percent levy was shot down.

Not every school district has to go through the voters to levy new property taxes.  In districts like Eau Claire, it’s up to the school board.  It recently approved a 6.7 percent property tax increase.  Despite the decision, district officials said they are not oblivious to the hardship property tax levies place on their communities.

Dan Van De Water, executive director of business, questioned “How is a community going to absorb something like that?”

Confused State Lawmakers

Despite the chain reaction set off by the state aid reductions, lawmakers insist the state budget shielded most Wisconsinites from tax increases.

When assembly democrats unveiled their new agenda of “Standing Up for Wisconsin Families,” majority leader Tom Nelson stated “We were able to pass a state budget that protects 99 percent of Wisconsin residents from tax increases.  At the same time we were able to ensure that our kids continue to receive one of the best educations provided by any public schools in the country, by preventing drastic cuts to our schools.”

Nelson would not comment on what he exactly meant by that statement.

The Legislative Fiscal Bureau said lawmakers did not realize the extent of education cuts when they voted on the budget, because they misinterpreted data provided by the bureau.

In June, the bureau gave lawmakers estimates that compared how much aid districts could receive with and without the cuts for the 2009-2010 school year.  Later in July, after the budget had been signed into law, DPI provided estimates on how aid would differ from the 2008-2009 school year.

The two sets of data illustrated how cuts would affect school districts in two completely different ways.  For example, LFB explained the cuts would cost Arrowhead UHS 10.1 percent of its aid for this year, while DPI projected that would be a 15.2 percent drop from last year.

Many people were confused by the two sets of data, thinking they both were trying to predict how much aid districts would lose compared to last year.  To make matters worse, LFB used 2007-08 school year data as the basis for its projections.  Lawmakers were accused of not using the most recent information before voting on the cuts.

Dave Loppnow, Legislative Fiscal Bureau, explained DPI had not yet compiled that data for 2008-09 when the bureau produced its estimates for the legislature.  Since that information was not available, Loppnow explained “It wasn’t a prediction of what [school districts] were going to get.  The exercise wasn’t an attempt to do that.”

Loppnow said lawmakers did not want the cuts to cost districts more than 10 percent of their aid for this year.  At the same time, state law does not allow districts to lose more than 15 percent of aid from one year to the next.  Even though lawmakers might not have understood LFB’s projections, the final cuts met both sets of requirements.

Loppnow stated “I don’t think there was a mistake made.” However, he said he’s received phone calls from legislators who thought they made a mistake.  Loppnow has been able to explain to them what happened.

Legislators Taking Action

With the decision to cut school aid behind them, some lawmakers are now addressing the dilemma districts face because of the revenue funding formula.

The state sets new revenue caps each year based off of a district’s revenue from the previous year.  That encourages districts to raise as much revenue as they are allowed, whether or not they actually need the money.

Two state lawmakers are proposing what they call one possible solution to the problem.  Senator Bob Jauch, D-Poplar, and Representative Gary Sherman, D-Port Wing, recently introduced a bill that would set revenue caps every two years.

“Many school districts fear making the cuts they need to balance the needs of property tax payers with their current budget reality.  This bill is intended to provide some relief from that fear, recognizing that some drastic cuts are needed in this economic climate,” stated Jauch.

Jauch and Sherman expect the Assembly and the Senate to pass the bill within the next couple of weeks.  That would give districts another option to consider when finalizing their budget and property tax plans.  However, they would have to move quickly to take advantage of that potential new law.  The deadline for districts to make property tax decisions is the end of this month.

By Bill Osmulski
The MacIver Institute