Under pressure to comply with the McCleary ruling, the Washington state Legislature recently modified the way K-12 schools are funded. The primary objective of the new funding model is to move all basic education funding to the state level so equitable educational opportunities are available across the state.
After the new model was introduced, one might think from reading some media stories and news releases that all school districts are flush with new money. The reality of how the new funding model impacts districts, now and into the future, is more complicated. Some districts benefit greatly from salary and levy model changes while others may not. This funding variability and the fact that, for just one year, districts will see an inadvertent funding surplus, makes it difficult for shareholders in some districts to develop responsible, sustainable budgets.
The goal of this letter is not to delve into all the details of the funding formula, but rather to call attention to why some districts are able to do seemingly great things for their staff and community while others are left with more limited options. We are hopeful that the Legislature will continue to revisit the model to ensure their primary objective of equitable educational opportunities is accomplished.
In general, Washington has adopted a model in which all basic education, as determined by the state, will be completely funded through state revenues. A few key things to know about this new model are:
State property taxes are the primary source of the increased state education funding. Accordingly, state property taxes have increased and will remain higher under the new model.
Local levies are capped and cannot be used to fund basic education expenses such as teacher salaries.
The new model attempts to allocate more funding to higher cost-of-living areas.
The Legislature did not specify how new money is to be allocated. As a result, stakeholders are left to interpret how to use the new money in each district.
Net new money and funding variation among districts
Net new money is the amount a district receives from state and local levy sources under the new funding system less what the district would have received under the old system. This net new money, when sustainable, is what should allow districts to fund new expenditures, such as class size reduction and staff compensation.
Due to the nuances in the new funding formula as well as the changes in local and state levy funding, the amount of net new money varies in magnitude from district to district. This variation means spending increases in one district cannot necessarily be compared to increases in another district, especially as they relate to compensation. Unfortunately, due to the lack of clarity involving the new funding and how each district benefits, the perception is all districts have the same ability to increase spending. This is not the case.
Overlapping funding models
Beyond the details of the new funding model, one of the primary sources of confusion is that, for 2018-19, there is overlap between the new and old models. Both the increased state money and the local levy money are available for school funding for 2018-19, resulting in a one-time surplus for districts. However, this inadvertent surplus in funding disappears with the implementation of state-mandated levy caps in 2019-20. Therefore, districts must be cautious how they budget the surplus since committing the one-time money to ongoing expenses would result in budget problems in subsequent years.
Elephants in the room
Lost in the discussion involving the new funding model and how to spend the net new money are significant benefit and pension contribution increases – increases that are becoming unsustainable. To truly achieve basic education funding, the state formulas need to address rising health benefit costs and pension contributions in addition to funding competitive wages.
For example, the state is adopting a new health benefits policy that seeks to drive more affordable health coverage for employees and their families. While we applaud the Legislature’s efforts, there will be significant cost increases to districts as they work to fund the new policy structure. These cost increases are unsustainable without additional funding from the state and/or without using some of the net new money to offset the associated budget impact.
Relative to state pensions, even prior to the new funding, employee and district pension contributions were predicted to grow significantly. Unfortunately, the most recent studies used to determine these contributions do not account for a large influx of money into wages. As a result, not only will contribution rates continue to increase due to historical trends, the increases will be amplified due to what effectively amounts to pension spiking (sudden jumps in employee wages). And, since it’s a statewide pool of money, if one district provides 15 percent raises to current total salary and another district only 3 percent, the district and employees in the 3 percent district will see their contributions jump disproportionately – they will actually subsidize the spiked pensions for those in the 15 percent district. This is neither fair nor sustainable.
We are concerned that the state’s financial obligations to health and pension benefits are not fully accounted for in the basic education funding model.
Stakeholders are faced with significant budgeting challenges as they deal with the surplus year of 2018-19 and look toward a future of escalating health care and pension costs. Many districts are taking the position that all net new money go toward sustainable increases in staff total compensation – wages, health benefits and pension contributions. Each district is different but, in general, increases will be limited to the amount of sustainable, net new money a district receives from the state. It must be remembered that a district can only give what is sustainably provided them by the state, and without adequate financial support the new model will fail to satisfy basic education funding commitments.
Shelley Redinger, Spokane Public Schools superintendent
Ben Small, Central Valley Schools superintendent
Gene Sementi, West Valley Schools superintendent
Kelly Shea, East Valley Schools superintendent
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