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Prioritizing Public Education Funding Program
The Prioritizing Public Education Funding Program generates new revenue to fund public education without raising taxes by capping certain income tax exemptions at current values, freezing the basic levy at the present rate and prioritizing schools to receive a percentage of future sales tax revenue growth, and enacts statutory protections against eroding current education funding.
The various funding components of Back to Schools Funding, collectively, are expected to generate an additional approximately $40-50 million for neighborhood schools each year. Consequently, the Back Schools Funding could grow from $40 -$50 million in year one to $400-500 million by year ten.
1. Establish a public education statutory funding floor.
“If we don’t know where we want to go, we will end up
exactly where we are heading.”
Education funding in Utah has long been characterized by a relatively high student-to-taxpayer ratio. Indeed, this is a significant factor in Utah’s ranking as 51st in the U.S. for per pupil funding.
Utah’s large student population challenges our ability to provide per pupil funding any where near the national average, but we can do – and have done – better.
Utah’s constitutional requirement to spend all income tax revenue, including both personal and corporate income, for education expenses has historically provided a minimum level of funding. This constitutional mandate effectively ranked education funding, to the extent of revenue generated by state income tax, first among key state budgetary demands. This constitutionally imposed “education funding floor,” by no means an extravagant level of funding and often supplemented with other general fund revenues, nevertheless equipped our neighborhood schools to provide an impressive education on a shoestring budget.
Two recent changes, taken in combination, effectively eroded the protection afforded to public education by the constitutional education funding floor. The first change was an amendment to the Utah Constitution allowing income tax revenue to fund not only public education, but also higher education. This change broadened the class of permissible income tax expenditures, thereby diluting the insulating protection offered to public education. The second change was the implementation of a flat tax reduction of the overall income tax rate from 7% to 5%, significantly reducing the dollar value of the funding floor. The combined effect of these two changes weakened the protection of the constitutionally guaranteed funding floor to a level well below what is generally viewed as adequate for the long-term sustainability of our state public education system.
The Prioritizing Public Education Funding Program creates a statutory funding floor for public education that is higher than the currently diminished constitutional funding floor. This statutory floor is equal to $750 per enrolled public school student, adjusted for inflation. When education funding levels are less than the statutorily specified floor amount, certain contingency provisions specified below become in force until funding levels are restored to levels greater than the floor amount.
2. Develop funding tools to achieve the public education statutory funding floor.
“Small change today can have a great
impact tomorrow.”
Recognizing that current public education funding levels are substantially below the Prioritizing Public Education Funding Program proposed statutory funding floor, the following provisions will be in force in order to steadily grow revenue until the statutory floor is reached.
Property tax. Under the Prioritizing Public Education Funding Program, the current property tax rate under the school minimum basic levy would be frozen at current rates. With property values expected to climb as the economy recovers from the economic recession, the basic levy tax rate, according to current statutory directive, would decrease to offset increased revenue generated by rising property values. Under the Prioritizing Public Education Funding Program, when education funding is at a level less than the statutory floor, the basic levy is frozen at its present value. By freezing the basic rate at current values, revenue generated by statewide property tax would grow in proportion to gradually increasing property values. Estimates are that this change in the calculation of the basic rate would generate roughly an additional $10 million in compounding value each year.
Income tax exemptions. The Prioritizing Public Education Funding Program will freeze the value of the income tax personal exemption at a current dollar amount rather than the current inflation adjusted amount. By setting this exemption at its current dollar value, the value of the personal exemption not keep pace with inflation. The declining value of the income tax personal exemption will equate to a growth in income tax revenue of approximately $5-10 million each year.
Sales tax growth. As sales tax receipts grow due to economic recovery, the Prioritizing Public Education Funding Program will direct 30% of sales tax revenue growth to fund public education until the statutory funding floor is reached. When funding levels reach the statutory education funding floor, sales tax revenue growth is no longer statutorily directed to public education funding but available for annual legislative appropriation. Sales tax growth is projected to generate an additional amount of approximately $30 million each year, depending on economic conditions.
Compounding effect. The aggregate value of the mechanisms described above will equal new revenue of roughly $40-50 million each year. Such new revenue in year one will equal around $40-50 million. Within ten years after implementing the Prioritizing Public Education Funding Program, new revenue to public education is expected to be as much as $400-500 million per year.
Local property tax participation. The legislation also increases the maximum property tax rate allowed under the voter-authorized district property tax levy from .002 to .0024.
3. Enact protections to maintain the integrity of current public education funding.
Frequently, the Legislature passes legislation that impacts the education funding by granting tax exemptions or other economic development incentives that reduce revenue to the education fund.
At the local level, municipal government occasionally seeks incentives for local development through an RDA and solicits the support of the local school district to offer a share of school property tax increment to support the local development. In order to secure the school tax pledge, local government must secure the support of the locally elected school board.
The proposed legislation would require compilation and public disclosure of proposed legislation that would have a negative fiscal impact on revenues deposited into the education fund for review and comment by public education funding advocates.
For example, a recent legislative committee recently heard a proposal for legislation that would expand corporate income tax incentives to encourage development of Utah’s energy resources. Since such an incentive would offer a corporate income tax credit, it would have an immediate impact on the state education fund. Arguably, such an incentive may spur development of an industry that the short-term fiscal impact may be outweighed by the long-term benefit of new growth in corporate income tax revenues as a result of a growing industry. Under this proposal, the newly empowered state school board would perform a cost/benefit analysis and make support or oppose such a proposal.
In another example, a bill passed during the 2011 Legislative Session classified gold coin as currency, which exempted the sale of gold coin from capital gains tax. Individuals who had invested in gold in recent years held a commodity with significant appreciation in value. Through this legislation, such individuals gained an exemption from their outstanding capital gains tax liability. The Legislative Fiscal Analyst projected the impacts of such an exemption would equate to a loss of approximately $500,000 per year to the state education fund. While the Legislature determined that incentivizing gold as an alternative currency was desirable policy, such policy does not present an investment opportunity to the state education fund. Members of the public advocating to maintain the integrity of existing public education funding would evaluate whether such legislation furthered educational goals for the state or presented a prudent investment opportunity to further grow state education funds. The loss of education funding through legislative tax exemptions occurs too frequently without review and input from the education community. Legislation that advances a public policy goal of the legislature that is irrelevant to education goals is more appropriately funded from general fund revenues rather than education revenues. The Legislature should pause before expending education funds to advance non-educational objectives. The integrity of education funding should be watched vigilantly by education proponents.
Prioritizing Public Education Funding Program
The Prioritizing Public Education Funding Program generates new revenue to fund public education without raising taxes by capping certain income tax exemptions at current values, freezing the basic levy at the present rate and prioritizing schools to receive a percentage of future sales tax revenue growth, and enacts statutory protections against eroding current education funding.
The various funding components of Back to Schools Funding, collectively, are expected to generate an additional approximately $40-50 million for neighborhood schools each year. Consequently, the Back Schools Funding could grow from $40 -$50 million in year one to $400-500 million by year ten.
1. Establish a public education statutory funding floor.
“If we don’t know where we want to go, we will end up
exactly where we are heading.”
Education funding in Utah has long been characterized by a relatively high student-to-taxpayer ratio. Indeed, this is a significant factor in Utah’s ranking as 51st in the U.S. for per pupil funding.
Utah’s large student population challenges our ability to provide per pupil funding any where near the national average, but we can do – and have done – better.
Utah’s constitutional requirement to spend all income tax revenue, including both personal and corporate income, for education expenses has historically provided a minimum level of funding. This constitutional mandate effectively ranked education funding, to the extent of revenue generated by state income tax, first among key state budgetary demands. This constitutionally imposed “education funding floor,” by no means an extravagant level of funding and often supplemented with other general fund revenues, nevertheless equipped our neighborhood schools to provide an impressive education on a shoestring budget.
Two recent changes, taken in combination, effectively eroded the protection afforded to public education by the constitutional education funding floor. The first change was an amendment to the Utah Constitution allowing income tax revenue to fund not only public education, but also higher education. This change broadened the class of permissible income tax expenditures, thereby diluting the insulating protection offered to public education. The second change was the implementation of a flat tax reduction of the overall income tax rate from 7% to 5%, significantly reducing the dollar value of the funding floor. The combined effect of these two changes weakened the protection of the constitutionally guaranteed funding floor to a level well below what is generally viewed as adequate for the long-term sustainability of our state public education system.
The Prioritizing Public Education Funding Program creates a statutory funding floor for public education that is higher than the currently diminished constitutional funding floor. This statutory floor is equal to $750 per enrolled public school student, adjusted for inflation. When education funding levels are less than the statutorily specified floor amount, certain contingency provisions specified below become in force until funding levels are restored to levels greater than the floor amount.
2. Develop funding tools to achieve the public education statutory funding floor.
“Small change today can have a great
impact tomorrow.”
Recognizing that current public education funding levels are substantially below the Prioritizing Public Education Funding Program proposed statutory funding floor, the following provisions will be in force in order to steadily grow revenue until the statutory floor is reached.
Property tax. Under the Prioritizing Public Education Funding Program, the current property tax rate under the school minimum basic levy would be frozen at current rates. With property values expected to climb as the economy recovers from the economic recession, the basic levy tax rate, according to current statutory directive, would decrease to offset increased revenue generated by rising property values. Under the Prioritizing Public Education Funding Program, when education funding is at a level less than the statutory floor, the basic levy is frozen at its present value. By freezing the basic rate at current values, revenue generated by statewide property tax would grow in proportion to gradually increasing property values. Estimates are that this change in the calculation of the basic rate would generate roughly an additional $10 million in compounding value each year.
Income tax exemptions. The Prioritizing Public Education Funding Program will freeze the value of the income tax personal exemption at a current dollar amount rather than the current inflation adjusted amount. By setting this exemption at its current dollar value, the value of the personal exemption not keep pace with inflation. The declining value of the income tax personal exemption will equate to a growth in income tax revenue of approximately $5-10 million each year.
Sales tax growth. As sales tax receipts grow due to economic recovery, the Prioritizing Public Education Funding Program will direct 30% of sales tax revenue growth to fund public education until the statutory funding floor is reached. When funding levels reach the statutory education funding floor, sales tax revenue growth is no longer statutorily directed to public education funding but available for annual legislative appropriation. Sales tax growth is projected to generate an additional amount of approximately $30 million each year, depending on economic conditions.
Compounding effect. The aggregate value of the mechanisms described above will equal new revenue of roughly $40-50 million each year. Such new revenue in year one will equal around $40-50 million. Within ten years after implementing the Prioritizing Public Education Funding Program, new revenue to public education is expected to be as much as $400-500 million per year.
Local property tax participation. The legislation also increases the maximum property tax rate allowed under the voter-authorized district property tax levy from .002 to .0024.
3. Enact protections to maintain the integrity of current public education funding.
Frequently, the Legislature passes legislation that impacts the education funding by granting tax exemptions or other economic development incentives that reduce revenue to the education fund.
At the local level, municipal government occasionally seeks incentives for local development through an RDA and solicits the support of the local school district to offer a share of school property tax increment to support the local development. In order to secure the school tax pledge, local government must secure the support of the locally elected school board.
The proposed legislation would require compilation and public disclosure of proposed legislation that would have a negative fiscal impact on revenues deposited into the education fund for review and comment by public education funding advocates.
For example, a recent legislative committee recently heard a proposal for legislation that would expand corporate income tax incentives to encourage development of Utah’s energy resources. Since such an incentive would offer a corporate income tax credit, it would have an immediate impact on the state education fund. Arguably, such an incentive may spur development of an industry that the short-term fiscal impact may be outweighed by the long-term benefit of new growth in corporate income tax revenues as a result of a growing industry. Under this proposal, the newly empowered state school board would perform a cost/benefit analysis and make support or oppose such a proposal.
In another example, a bill passed during the 2011 Legislative Session classified gold coin as currency, which exempted the sale of gold coin from capital gains tax. Individuals who had invested in gold in recent years held a commodity with significant appreciation in value. Through this legislation, such individuals gained an exemption from their outstanding capital gains tax liability. The Legislative Fiscal Analyst projected the impacts of such an exemption would equate to a loss of approximately $500,000 per year to the state education fund. While the Legislature determined that incentivizing gold as an alternative currency was desirable policy, such policy does not present an investment opportunity to the state education fund. Members of the public advocating to maintain the integrity of existing public education funding would evaluate whether such legislation furthered educational goals for the state or presented a prudent investment opportunity to further grow state education funds. The loss of education funding through legislative tax exemptions occurs too frequently without review and input from the education community. Legislation that advances a public policy goal of the legislature that is irrelevant to education goals is more appropriately funded from general fund revenues rather than education revenues. The Legislature should pause before expending education funds to advance non-educational objectives. The integrity of education funding should be watched vigilantly by education proponents.