Over the last three posts I’ve shared three different ways of understanding why the state aid formula does not correct in the subsequent year for the underpayment of a state dedicated revenue source in the prior year. Simply stated the subsequent year adjustment in state aid is the formula’s attempt to prevent another loss or underpayment that year because it predicts or estimates that the dedicated revenue will be down again. If that comes to pass at least the district doesn’t lose again, but it is not made whole for the prior year loss. If you underpay me the only way I can be made whole is for you to overpay me. The formula works in the opposite way when a state dedicated revenue source is over paid or more is received than predicted or charged in the formula. The subsequent year’s aid is reduced to offset the anticipated greater revenue from the dedicated source.
This fairly straight forward result, that a subsequent year adjustment does not correct a prior year loss or gain, has apparently baffled school administrators I call “Believers”, some even with districts that were grossly underpaid by the Tax Commission. Several apparently can’t tell they were hurt and have bought in to the “formula will make you whole” delusion. Using Tulsa Public Schools’ numbers as an example–they lost $3.2 million–I’ll show a way to perhaps wake up the Believers that can be done with any underpaid district’s data. So here’s food for thought, a nuclear option.
Take a look at the TPS foundation aid calculation for this year.
The target foundation revenue for the district is $112,792,793. Local TPS property taxes are expected to generate $40,882,097 and the five state dedicated chargeables, including motor vehicle collections, another $28,138,886 for a total of $69,020,983. That amount is subtracted from the foundation aid target leaving the difference of $43,771,810 to be received in foundation aid. If all works out then the district will have the $112,792,793 it has budgeted for teachers, utilities, etc. to have school this year. What if instead of just a $3.2 million revenue failure over two fiscal years, for some reason TPS collects nothing from those five state dedicated revenue sources, a shocking loss of $28,138,886. That would hurt, right?
According to the “formula will make you whole” true believers the loss will be a huge disruption in the current year, but not to worry because all that money will come back the next year in greater state aid. So think about that, planned expenditures of $112 million but only about $84.6 million in new revenue—somehow that $28 million gap has to be filled. It looks like TPS carries about a $30 million fund balance so they can just use it and count on it being replenished the following year with that nice $28 million bump in state aid. Let’s think through how that’s going to work out.
We’ll assume the next year is not too different from the current year so the foundation aid calculation will look like this:
Foundation Program Target $112,792,793
Less Chargeables:
Ad Valorem Chargeable $40,882,097
County 4 mill $0
School Land $0
Gross Production $0
Motor Vehicle $0
REA $0
Total Chargeables: $40,882,097
Net Foundation Aid $71,910,696
See the magic. State aid is up the full $28 million needed to replenish the general fund balance. So the true believers are right, and I am wrong—not. It’s great that aid has increased to offset the loss, but it’s not offsetting last year’s loss; that hole still remains. What it does is offset the ongoing absence of any revenue from the state dedicated sources and, together with the $40 million from local property taxes, provides the $112 million needed to have school the current year. And after having school there is nothing left over to put back into the fund balance. I’m sure the TPS administration would notice losing $28 million, as they surely noticed the actual $3.2 million loss. Either sum is a lot of money and worth speaking up for. The mathematics, which the true believers apparently don’t understand, is the same whether it is one dollar, $3 million, or $28 million. The first year is a loss till the state dedicated revenue returns to the prior level.
The true believers are simply wrong. The only way TPS would get back the $28 million is if the state dedicated sources start flowing to it again and are $28 million more than the chargeable amount used for that year’s foundation aid calculation. If you under pay me, I can’t be made whole until you over pay me.
As always lunch is on me if you are the first to ID the location of the photo.