Have Colorado Schools Achieved Equality?

Public education has traditionally been funded through local property taxes. Great variation in the taxable value of property per student led to inequalities in public education that were successfully challenged in Lujan v. State Board of Education. Colorado's current school funding formula uses state sales and income tax revenues to balance out inequalities in taxable property in our 176 school districts. For example, while Aspen School District has the highest taxable assessed property value per pupil ($994, 855) and Sanford (Conejos and Alamosa counties) School District the lowest with only $10,257, state funds give more to Sanford and other property poor districts than to property rich districts such as Aspen. School districts are assisted based on their ability to fund student needs based on their property tax base, as well as the variation in student needs due to rural transportation costs, greater instructional costs for at-risk students, and the economies of scale which make administration and special programs less costly per pupil in large districts.

However, recent research at the Center for Colorado Policy Studies shows that equalization along these lines has not succeeded as fully as one might expect. A detailed study by Dr. Tom Brown provides a district by district analysis of total taxable property, bonded debt limits, state contributions to operating revenues, and related factors.[1] The study outlines the operation of the current school funding formula, as well as the resulting disparities from application of that formula. It explores possible links to the variation in the share of residential property relative to commercial property, and the application of the "Gallagher amendment", the TABOR amendment and other property tax restrictions. [2]

Two exceptions to uniformity are immediately apparent: (1) money for constructing, remodeling, and modernizing school facilities is paid only by local district bond and property tax proceeds, and (2) local districts are allowed to raise more revenue through property tax override levies. The amounts of money that each of these could generate is directly dependent upon a local district's assessed property value. Since voter approval is needed, it depends on the priority that local voters place on K-12 education, but also on the ability to afford additional taxes.

Bond monies are specifically limited by statute to 20% (or 25% for rapidly growing districts) of total taxable assessed property value. The average bond limit among all districts is about $53 million, or $17,289 per pupil. Yet fifty Colorado counties have a per-pupil bond limit of less than half that, severely restricting their ability to build facilities for students. Of the twenty five school districts with a per-pupil bond limit below $6500, over a third are in El Paso County[3]. The remaining districts with very low bonding capability are concentrated in southern Colorado, many in the same areas with lower operational funding. Districts in the resort town or in mining or oil drilling areas have extraordinarily high bond limits, reaching as high as $198,000 per pupil in Aspen and over $60,000 per pupil in other ski towns.

Revenue from mill levy overrides is limited to 20% of total program costs. Overrides appear to be passed where there are either substantial numbers of affluent residential property tax payers or where there is a strong commercial or agricultural property tax base to bear the cost. On a per-pupil basis, the Aspen schools are highest at $199,000 and Sanford is lowest at $2,000. Only 62 of the 176 school districts have an override mill levy. The highest of these is Adams County with a levy of 17.452 mills. Kit Carson School District (in Cheyenne county) generates almost $2,300 per pupil in override revenue, the highest of any district.

HOW CONSISTENTLY DOES THE STATE BACKFILL GAPS IN SCHOOL FUNDING?

Property tax revenues vary considerably from one school district to the next, but average $3,692. As property values vary, individual districts can generate varying amounts of revenue. In school year 1996-97, Telluride school district (in San Miguel county) collected $11,638 of local revenue per pupil, while Sanford had only $853. If absolute uniformity existed in the system, one would expect that school district revenues from the state would follow the opposite pattern and Telluride would receive the least with Sanford receiving the most state monies.

This operates to a degree, but not as fully as one might expect. While the average level of state aid was $7,304, Edison (in portions of El Paso, Pueblo, and Lincoln counties), one of the poorest, received the most per-pupil state revenue at $8,285, and Eagle County (Vail), one of the wealthiest, got the lowest per pupil state aid of $10. If absolute uniformity were achieved, local revenues plus state revenues would equal the same per-pupil amount for each of the state's 176 school districts. Equalization would make the total of state and local per-pupil revenue for each school district equal, but our study shows that it does not. Briggsdale district (in Weld and Morgan counties) had a total of $17,815 per pupil, while Pueblo 60 had only $4,900.[4] Clearly, more accounts for the variation in school district revenues than the amount of local revenues.

DOES TOO MUCH RESIDENTIAL PROPERTY RELATIVE TO COMMERCIAL IMPACT THE FINANCES OF A SCHOOL DISTRICT?

As the proportion of residential property value in a school district increases, local tax revenues per pupil decline. This is due to the "Gallagher amendment[5]" requirement that a lower percentage (9% today) of assessed residential property value be taxed than of commercial property (27%). On average, a one percent increase in the residential proportion means a decrease of $19.62 in its local per-pupil revenues. Under equalization, state revenues should then increase. Instead, state revenues go down even more sharply than local revenues. For every one percent increase in a school district's proportion of residential property, revenues from the state fall by $30.67 per pupil. With both state and local revenues moving in the same direction, it follows that a district's total per-pupil revenues, also move downward as its proportion of residential property rises. For every one percent rise in the percentage of residential property value in a district, the total of its state and local per-pupil revenues can be expected to go down by $50.29. [6] This explains part of the disparity in school district funding.

In addition, construct new schools or doing major remodeling or repairs requires the district to issue bonds. These must be secured by the district's ability to repay them from its own property tax revenues. Even though local revenues and bond limits are both a function of total assessed property value in each district and both affected by the Gallagher amendment, they show different patterns. While revenues decrease as the percentage of residential property goes up, total district bond limits increase. For each one percent increase in the percentage of residential property value in a district, its bond limit may be expected to rise by about $2.5 million.

These results are affected by the fact that residential property values are considerably higher, on average, in heavily residential districts than in districts with more commercial property. Interestingly, the proportion of residential property in a school district has very little effect on district enrollment. For each one percent rise in the percentage of residential property, the district enrollment can be expected to go up by much less than one student. While the number of residences in a school district may suggest how many students the district will have, the number of students does not vary much with the value of that property. This reflects the fact that higher valued properties are often owned by families without school age children.

ADJUSTMENTS TO THE OPERATING FORMULA TO ADDRESS DIFFERENT NEEDS

The Colorado school finance formula attempts to account for relative wealth or affluence in school districts. In theory, when taxpayers are less affluent, they will be less able (and perhaps less willing) to vote for larger property tax levies for schools. The state school financing plan attempts to provide more money for less wealthy districts. The formula takes property values into account and uses the number of students eligible for federal free or reduced-price lunches as a measure of at-risk children requiring a greater expenditure of school district dollars.

For each one percent increase in eligible students, state revenue goes up by $37.45 per pupil, but local revenues go down by $34.27 per pupil. While it appears that the financing formula works to slightly increase the funds available to districts with higher percentages of eligible students, our statistical tests show no significant relationship between the percent of eligible students and overall per-pupil funding. [7] These results, which also contribute to the disparities in school funding, are presented in greater detail in Colorado's School's: The Great Divide.


REGIONAL VARIATIONS IN COLORADO SCHOOL DISTRICT FINANCES: THE GREAT DIVIDE?

In order to look at these regional variations, the state is divided into five regions (Figure 1). In the southern region of the state, where the average student body is 41% minority and 55% of the students are on free or reduced lunches, the average bond debt limit per pupil is 80% of what it is along the Front Range and 33% of what it is in western Colorado. While state revenue per pupil is higher than for any other region at $4,469, total operating revenues are 97% of those in Eastern Plains school districts despite a much lower percentage of students on free and reduced lunches.

Table 1. Regional Variations in Public Education Finance[8]

School District Financial Statistic

Statewide

Front Range

Eastern

Mountain

Western

Southern

Average 96-97 Total State & Local Revenue per Pupil

$6,782

$6,267

$7,141

$7,027

$7,060

$6,953

Average 96-97 State Revenue per Pupil

$3,343

$3,165

$3,795

$2,160

$2,663

$4,469

Average 96-97 Local Revenue per Pupil

$3,439

$3,102

$3,346

$4,867

$4,397

$2,484

Average Bond Debt Limit per Pupil

$16,800

$10,908

$11,928

$39,726

$27,137

$8,790

Average 2000 Override Mill Levy

1.749

2.755

0.494

2.415

1.459

1.001

Average 2000 Bond Redemption Levy

6.402

10.398

6.286

4.760

4.002

3.097

Average % Students Eligible for Federal Lunch Program

34.67

29.47

34.24

25.07

26.98

54.45

Average % Minority Students

24.5

27.0

15.9

13.1

14.8

41.0

CONCLUSIONS:

1. The adjustments made to operating revenues per school district do not fully offset the economic disadvantages of students in certain low property tax value districts, as outlined above and in greater detail in the Brown study, Colorado's Schools: The Great Divide?, Center for Colorado Policy Studies Working Paper #106.

2. The greater difficulty of passing mill levy overrides in low property value districts places these students at a disadvantage in operating funding.

3. The greater difficulty of raising money for school construction through bond issues in low property value districts places these students at a disadvantage in the condition of their schools. This is particularly true where federal property (such as a military installation) brings in many students but provides no tax base for a bond issue since federal impact money is only for operating expenses.

4. There are systematic and significant regional variations in the amounts of money available for educating Colorado's public school students that are correlated to the share of low income and minority students in the population. Although there is a stated commitment to assistance in these areas, students in much of southern Colorado have less access to educational dollars than most students in other parts of the state. This is also the most heavily Hispanic area of Colorado.


Tom Brown (B.A. 1963, University of Texas at El Paso; J.D. 1969, University of Louisville; Ph.D. 1999, University of Colorado) is County Administrator for Alamosa County as well as a research associate with CCPS. He has conducted extensive research in the area of Colorado local government taxation and finance. Working closely with local officials across the state, Dr. Brown has completed several analyses of the impact of the TABOR amendment on local governments, several of which are available on the Center website. Dr. Brown previously practiced law in the areas of federal civil appeals, anti-trust litigation, and complex reorganization bankruptcies.

Daphne Greenwood (B. A. 1972, Northern Illinois University; M. A. 1974, University of Houston, Ph. D. 1980, University of Oklahoma) is Professor of Economics and Director of the Center for Colorado Policy Studies at the University of Colorado at Colorado Springs. She has published in numerous policy areas, including public finance, the distribution of wealth, education and health care policy. Dr. Greenwood was previously corporate economist with Esmark, Inc., visiting scholar at the U. S. Treasury Department, Honors Professor at the U. S. Naval Academy. From 1991-94 she served in the Colorado House of Representatives.

[1] Brown, Tom. 2001. Colorado's Schools: The Great Divide?, Center for Colorado Policy Studies Working Paper #106. August. http://www.uccs.edu/ccps

[2] On the local school district side of the equation, for almost two decades, the Gallagher amendment has regularly lowered the percentage of residential property value considered taxable-from an initial 21% to 9.15% in 2001 and 2002. The TABOR amendment limits the amount of revenue that a school district may keep to last year's amount plus inflation and the percentage increase in pupil enrollment. And under a third statutory limit dating to 1915 (now effectively made a constitutional limit by TABOR), the amount of a district's property tax revenue can increase by no more than 5.5 % from one year to the next, as further explored in the full paper.

[3] These are Calhan, Edison, Ellicott, Falcon, Fountain, Miami-Yoder, Peyton and Widefield districts.

[4] See Appendix C in the full paper for a list of each school district with its 1996-97 per-pupil local, state, and total state and local revenues.

[5] For more on the Gallagher amendment see. Colorado's Schools: The Great Divide?, Center for Colorado Policy Studies Working Paper #106. August. http://www.uccs.edu/ccps .

[6] Appendix A in the full paper shows the relative importance of residential property for each school district. It ranges from a low of less than 3% for Kit Carson (Cheyenne County) to a high of more than 75% for Platte Canyon (Park County).

[7] See Appendix D in the full paper for the number of students enrolled in each district's K-12 programs, the number of students eligible for the federal free or reduced-price lunch program, and the percentage of eligible students.

[8] Comparable data available only from 135 of the 176 school districts