School Funding Made Simple

"The provision of an adequate public education for the citizens shall be a primary obligation of the State of Georgia. Public education for the citizens prior to the college or postsecondary level shall be free and shall be provided for by taxation.” (Georgia Constitution 8-1-1)

There are currently 1,496,012 students in our public school, each one of whom is entitled to and deserves an adequate education. In Georgia, the adequacy of a student’s education often depends upon his or her zip code. Due to the failure of Congress to fully fund federal programs, funding cuts at the state level, and constitutional limits on local taxation, even the most affluent zip codes are struggling to keep up with the escalating obligations mandated by state law and No Child Left Behind. A basic understanding of school funding is necessary to understand our current fiscal situation.

Public schools in Georgia receive a combination of federal, state and local funds to pay for the education of public school students.

Federal Funds are tied to specific programs for historically at-risk students:

• IDEA Special Education
• ESEA (Title I) Poverty
• ESOL Students with Limited English Proficiency

Federal funds for certain programs like special education and ESOL are based on the number of students who meet the eligibility criteria of the specific program. Funding for Title I is based upon census data.

The majority of state funds are provided to operate public schools are calculated using the following Quality Basic Education (QBE) formula:

(1) QBE “Earnings” + (2) Categorical Grants + (3) Equalization

(State funds provided to build public schools - capital outlay - are not addressed in this paper.)

(1) QBE “Earnings” = (Direct & Indirect Instructional Costs) – (5 Mill Share)

Direct Instructional Costs reflect the cost of putting a teacher in every classroom based upon the grade of the student (K, 1-3, 4-5, 6-8, or 9-12), any special program in which the student is enrolled (EIP, special education, gifted, remedial, alternative, middle school, ESOL, or vocational lab), and the teacher:pupil funding ratio.

This weighted formula counts each individual student for each segment of the day. The benchmark weight of 1.00 is assigned to a student in grades 9-12 who attends regular classes and receives no special services – the “least expensive” student to educate. All other students receive a higher weight. The resulting weight for each student is known as the “Full Time Equivalent” (FTE) count. The FTE count used in the QBE formula is always higher than the number of actual students. The teacher cost used in the formula is based on the state salary scale, including benefits (but not Social Security).

Indirect Instructional Costs include funding for central administration and school administration, facilities maintenance and operations (M&O), media centers and 20 additional days of instruction. These costs are calculated based on system size, school size or student population.

Note: Referring to Direct and Indirect Instructional Costs as QBE “earnings” leads local systems to erroneously believe that this is the amount of money they have earned and are entitled to receive. It is more accurate to think of QBE formula earnings as “gross” earnings, because, just like income, one does not receive the gross amount, only the net amount. The “net” earnings a local school system receives deducts the local 5 mill share and, when required, additional state cuts (“austerity reductions”).

Local Funding

"Authority is granted to county and area boards of education to establish and maintain public schools within their limits.” (Georgia Constitution 8-5-1)

Local systems are permitted to levy property taxes for the purpose of funding local public schools. “Millage” refers to the rate of the property tax levied. The millage rate is defined as “local tax revenues divided by the assessed valuation divided by 1000.” School systems may not levy more than 20 “Mills” (with a few exceptions) without voter approval. In addition to levying property taxes for the operation of their schools, local systems may also use bonds and SPLOSTS (sales tax) to finance school construction if approved by the voters. This paper is only addressing operational budgets. The funding of school construction - capital outlay - is a topic for another day.

The “5 Mill Share” in the QBE formula refers to the portion of the Direct and Indirect Instructional Costs that the state expects local systems to pay with locally raised funds. Currently, the state requires local systems to pay an amount equal to 5 Mills of property tax generated within their taxing authority. By law, the amount of money represented by the 5 Mills statewide cannot exceed 20 percent of the total QBE formula earnings (Direct and Indirect Instructional Costs).

Funds that are raised locally through locally levied property taxes, including the 5 Mill Share, do not leave the school system and are not sent to the state or to other school systems. (Bonds and SPLOSTS raised locally also are kept locally.) The 5 Mill share is simply the amount of the local funding “obligation” the state requires each system to pay.

Additional local funding raised from levying additional mills are used at the discretion of the local system for:

• Additional teachers/smaller classes
• Salary supplements
• Paraprofessionals
• Additional programs (e.g., SAT prep)
• Extracurricular activities
• Athletics
• Technology

Local systems also maintain that they use local funds for underfunded categorical grants (such as transportation and M&O) and for unfunded portions of QBE (e.g., Social Security).

I(2) Categorical Grants

Local systems receive additional funding in the form of “categorical grants.” These grants include funds for transportation, sparsity and low incidence special education students. In FY 2004, this amount was $168,655,966 and in the FY 2005 proposed budget it is $157,547,052 – a decrease of $11,108,914.

(3) Equalization

QBE earnings are intended to provide for an adequate education. Equalization is an attempt to address equity. The concept of equalization is related to the concept of the 5 Mill Share, discussed above. Because all counties are not created equal in terms of property tax wealth, they cannot raise the same amounts of money from local property taxes. The state provides additional funding to these counties according to a formula that compares the relative property tax wealth of all counties in the state. Systems at or below the 75% level can receive equalization funding in proportion to the amount of mills they levy beyond 5 mills. (The Equalization formula was changed in 2001 to reduce the participation level from 90% to 75% and to include all mills above the first 5. In the past only the mills between 5 and 8.25 were considered, thus creating a disincentive for local systems to raise their own millage rates.) In FY 2004, this amount was $279,355,299 and in the FY 2005 budget it is $341,006,547 – an increase of $61,651,248.

What has been proposed in the FY 2005 budget for QBE earnings?

In FY 2004, the amount of state funds that local systems will receive:

What has been proposed for the FY 2005 budget?

Points to Ponder:

• The $536,843,574 in austerity cuts in the FY 2005 budget represents a 10% cut in QBE formula earnings.
• Direct Instructional costs are fixed and increasing costs that local systems cannot change: the numbers and kinds of students who attend their schools and the cost of teachers on the state salary schedule. Both are increasing.
• The state does not fully fund teacher pay raises, so even though a system receives more money for salaries, it must contribute additional local dollars. For example, DeKalb County will receive $6 million from the state for the 2% pay raise in FY 2005, but it will cost DeKalb County $10 million to provide the 2% pay raise. This is because DeKalb, like many local systems, hires more teachers than the state formula provides and pays a local supplement on top of the state salary scale. These additional teachers and this additional salary is not included in the state’s 2% calculation. Further, the state pays no Social Security – this is totally paid for by local systems.
• Just to maintain the status quo, local systems will either need to cut expenditures, raise taxes, or use reserve funds. Most systems maintain there is no fat in their budgets – teachers and programs will be eliminated. Many systems are at or near the 20 mill cap and cannot raise taxes. Many systems have no reserves.

"The provision of an adequate public education for the citizens shall be a primary obligation of the State of Georgia.”