State, federal law limits local share contributions to schools

Borough funds maximum of cap

Posted: Wednesday, May 16, 2007

Editor’s note: This is the fourth in a series of stories examining school funding. Thursday’s story will compare the Kenai Peninsula Borough School District with other districts around the state.

  Students at Kenai Alternative High School work earlier this school year on a reading project. The Kenai Peninsula Borough contributes the maximum funds allowable by law to the Kenai Peninsula Borough School District. The money goes toward everything from books to computers. Photo by M. Scott Moon


Students at Kenai Alternative High School work earlier this school year on a reading project. The Kenai Peninsula Borough contributes the maximum funds allowable by law to the Kenai Peninsula Borough School District. The money goes toward everything from books to computers.

Photo by M. Scott Moon

Educating borough children in the coming school year is expected to cost $131 million, the amount the Kenai Peninsula Borough School District has requested in its latest budget proposal.

Nearly $37.7 million of that will come from borough property and sale tax revenues, money appropriated to the district as cash ($29.8 million) and in-kind contributions ($7.88 million worth of maintenance, utilities, insurance, custodial services and an annual audit), which represents what is known as the local share of school funding.

Local funding has a legal ceiling created by federal and state law known colloquially as “the cap.” In general, municipalities are barred from contributing locally sourced funding beyond the cap.

Historically, it has been the policy of the Kenai Peninsula Borough Assembly to fund borough schools to this legal limit.

The cap is a result of federal law created in the 1960s, which among other things, was designed to help balance education funding between rich and poor neighborhoods, and places conditions on states that govern the way federal education dollars may be applied.

It is tied to the Federal Impact Aid program that requires states to have an equalized formula distribution system in order to include these (FIA) dollars in calculations determining annual state aid to local school districts, said Eddy Jeans, director of the Division of School Finance within the Alaska Department of Education.

“It requires us to look at our formula and try and provide equitable distribution across the state. It balances the haves and have-nots,” Jeans said.

The federal impact dollars have been appropriated since the 1950s, but the program later became Title VIII of the Elementary and Secondary Education Act of 1965. The funds are appropriated as payments in lieu of taxes (or PILT) on federal facilities, such as military bases and other property that is exempt from state taxation and are aimed at supporting the education of military dependents and other students falling under certain federal programs. It goes to districts having at least 400 such students. The KPBSD has too few to qualify.

Under state statutes generally, however, public school funding consists of three elements: federal impact aid, state appropriations and a required local contribution.

Determining the total local municipal donation is a bit complicated, but essentially boils down to appropriations allowed by two provisions in state law one mandatory, the other optional.

The first requires a district to spend the equivalent of a 4-mill tax levy on taxable real and personal property within a district as of Jan. 1 of the second preceding fiscal year. That is, the local contribution applied when your child is, say, a freshman in high school would be based on the taxable value of property the year he or she was in seventh grade.

This amount, however, may not exceed 45 percent of a district’s “basic need” for the preceding fiscal year.

Basic need is figured using an even more esoteric mathematical formula that includes things like school size, student population, a factor for special-needs students and another for correspondence students, a district cost factor and other elements, but essentially amounts to multiplying the district’s adjusted daily membership (student population) by the base student allocation, an amount set each year by the Legislature.

Similarly, the second provision of state law allows a district to make an additional contribution equal to the greater of either the equivalent of another 2-mill tax levy, or 23 percent of the district’s calculated “basic need.”

In short, the maximum local contribution consists of the required contribution, plus the additional optional contribution.

Certain other provisions are made in state law regarding school districts established after July 1, 1998, but that does not concern the KPB district.

Jeans said Alaska used a federal test through the late 1970s and mid-1980s, but there were complications in meeting its requirements. In 1988, the funding formula was rewritten and local contributions were included. Since then, Alaska has met the test criteria, Jeans said.

The Kenai Peninsula Borough is one of only three municipal governments in the state that funds to the cap, the others being the Juneau School District and Unalaska. That laudable policy can create serious financial burdens when municipal governments face other budget problems.

On the Kenai Peninsula, the overall cost of delivering the educational product has continued to grow, despite a student census falling an average of roughly of 2 percent per year over the last decade. When policy requires funding to the cap, an ever rising school budget means an ever rising local contribution. Borough assembly members have suggested the fund-to-the-cap policy may one day meet its own limit.

In the 2002-03 school year, the overall school district budget was $89.9 million, including a local contribution of $30.6 million. By 2004-05, those figures had grown to $95.7 million and $33.7 million respectively. The current budget of $118.5 million includes local funding of $37.93 million.

The proposed 2007-08 budget includes a local contribution of $37.7 million, down about $233,000 from the current year’s budget as a result of a projected decline in student population.

However, while the $37.7 million represents a decrease, it is a decrease from an amended school budget. Schools Chief Financial Officer Melody Douglas said that after the current school budget was adopted last spring, the Legislature boosted the per-student allocation. That and a small increase in the number of Connections Program students ultimately increased total district spending and required a budget amendment.

Amending the budget upward necessitated a supplemental appropriation from the borough, pushing cap spending in the current year to $37.93 million.

Compared to the original FY 2007 school budget, the proposed $37.7 million in local cap spending next year actually represents a $951,000 increase.

It also represents better than half the $63 million borough general fund budget proposed for FY 2008, which starts July 1. When $2.38 million for retiring school debt is added to the equation, school spending makes up two-thirds of the borough’s proposed budget. The borough has maintained that fractional split for years.

If the cap were ever increased or eliminated, it is questionable whether the assembly and administration could find the money to increase funding to schools, given its own rising costs, including the looming obligations to employee retirement programs.

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