Top legislators this week said they feared the teacher strike in Denver was a symptom of chronic underfunding for Colorado public schools and expressed concern that teachers in other districts will get restless if the state doesn’t tackle school financing.
They pointed out that the state put a budget-balancing tool in place in 2009, in the midst of the Great Recession, that has deprived school districts of anywhere from $672 million to $1 billion in state aid annually.
But they didn’t point to specific solutions.
Now, as Denver teachers return to the classroom after negotiating a deal that boosts pay, action is brewing at the state Capitol that could bring big changes in the way money is distributed to Colorado’s 178 school districts and reshape public education statewide.
One proposal on track to hit the desks of state budget writers in the next two weeks would increase education revenue by as much as $451 million annually. A variation of the plan wouldn’t raise additional money but would impact property taxpayers statewide and change how the money is distributed to school districts.
If enacted, either proposal would become one of the most significant pieces of education legislation in Colorado in years.
The version that raises new money has the backing of education advocates. It would result in, on average, an extra $517 per pupil for teaching students annually.
Both versions would force wealthy school districts that currently receive a disproportionate share of state aid to raise their local property taxes or see declines in per-pupil funding. The state aid that those districts currently receive would be redistributed, with poorer school districts among the biggest beneficiaries.
The impacts would vary across the state. In Denver, one version of the proposal would free up an additional $46 million in a mixture of new state and local revenue for educating students. That amount is nearly six times the $8 million gap between the compensation packages the district and union were debating in Denver.
“This is the only legislative fix that I’ve seen on the table,” Leslie Colwell, vice president of education initiatives for the Colorado Children’s Campaign, a nonprofit group that advocates for children’s health and education issues, said of the robust version that would raise additional revenue. “If we’re going to talk about long-term sustainability for state funding for education, this is a proposal that some legislators should have some courage around. It not only brings in more revenue, but makes the property tax system more fair.”
Tackling the formula behind unequal distribution
Last month, members of the Joint Budget Committee, the statehouse committee that writes the state budget, unanimously agreed to have their staff draft legislation, but it’s unclear which version will emerge. It’s likely that both versions will be debated in committee. Once a draft is ready, the budget committee will meet again and decide whether to unanimously endorse a final version and urge the full legislature to approve it. State Sen. Bob Rankin, a Republican from Carbondale, has pushed the committee to pursue the legislation but hasn’t committed to what version of the plan he supports. Democratic members of the also have expressed support to funding changes but also haven’t committed to any final details.
In a recent interview, state Rep. Chris Hansen, a Democrat from Denver who serves on the JBC, expressed frustration with the state’s current level of funding for education.
“We need to do a better job at the legislature of funding K-12,” Hansen said. “And this situation in Denver, I think, puts a spotlight on that issue…This is something we have to be really focusing in on this session.”
The legislation that the JBC will consider tackles one of the most vexing issues in state financing. Under the current system, residents in the state’s poorest school districts end up paying higher property-tax rates than property-rich school districts nearby. Meanwhile, those wealthier districts receive a disproportionate share of state aid to make up for the lack of education funding collected from local property taxes.
“If the local share is below the minimum threshold of what is an appropriate level for funding all students, the state has to come in and backfill,” said state Sen. Rachel Zenzinger, a Democratic member of the JBC from Arvada. “The state’s backfill has grown and grown and grown, and we’re to the point where we are backfilling communities that quite frankly don’t deserve to be backfilled anymore because they are perfectly capable of doing their own share.”
The inequities are rooted in constitutional amendments meant to restrict taxes that conflict with efforts to ensure schools are properly funded.
The voter-approved Taxpayer’s Bill of Rights is one factor contributing to differing tax rates among school districts. TABOR, which places restrictions on the revenue governments can raise, triggered deep cuts in property-tax rates for school districts in mountain resort towns and booming oil and gas communities when the economy was flush. Yet, those tax rates didn’t go back up when the economy cooled or returned to normalcy. Another voter-approved measure, known as the Gallagher amendment, capped the allowable residential share of property taxes, which over the years reduced the taxable value of a home.
Those tax-restricting measures conflict with another key requirement. The state requires all school districts to spend a minimum amount to educate each student, with variations built into that formula to account for such factors as cost of living, the number of special-needs students and district size.
When property-tax collections aren’t sufficient to cover that mandated per-pupil minimum, the state backfills the difference.
The tax-restricting measures pushed tax rates down in property-rich areas while tax rates remained high in poorer areas, where property values remained stagnant.
While homeowners in 39 school districts in the state pay a property-tax rate of 27 mills toward their mandated minimum per-pupil funding, others pay far less, under the current system.
Beneficiaries of the current system include schools in wealthy mountain resort towns such as Aspen, Vail and Telluride. Vail homeowners pay a property tax rate of 11.62 mills for their minimum per-pupil funding level. That rate doesn’t cover the state mandated per-pupil amount. As a result, the state backfills to the tune of $24 million annually. In Aspen, the property-tax rate for the per-pupil minimum is 4.41 mills, and the state ends up providing $4 million annually. In Telluride, the tax rate is 6.05 mills, and the state share ends up being $5 million each year.
Colorado school district funding proposal
The chart below (click here see it in fullscreen) shows how a legislative proposal to create a uniform property tax rate of 27 mills for minimum per-pupil funding in Colorado would affect school districts across the state. The proposal, which would raise an additional $451 million annually to educate students in Colorado, is being drafted for consideration by legislative budget writers. Currently, school district property tax rates for minimum per-pupil funding range from a low of 1.68 to a high of 27 mills. The mill levy is the tax rate that is applied to the assessed value of a property. One mill is $1 per $1,000 of assessed value. The uniform tax rate would be phased in gradually, which means the exact figures will fluctuate do to changing assessed values and conditions over the years. School districts that would see property tax rates increase also would have to seek approval by voters but would risk seeing a drop in minimum per-pupil funding without approval.
Source: Joint Budget Committee and Legislative Council staff
Another twist: extra “override” money
In an extra twist, local school districts also can ask voters to pass what is known as an “override,” which provides extra local property-tax funding that is not considered in the minimum per-pupil cost calculation.
Wealthier districts where the base education property-tax rates are low have a better chance of passing mill-levy overrides, critics say, and those districts get to keep their state education subsidies even with overrides.
“Our property-tax system treats property taxpayers differently depending on where they live for no good policy reason,” said Colwell, the education advocate. “In most cases, it requires our poorest districts to invest more into education than others. It’s really the foundation of inequality in school finance, on top of which we layer mill-levy overrides and a 25-year-old funding formula that doesn’t target investments based on the needs of kids.”
Over the years, the property-tax cuts triggered by TABOR meant that the state ended up taking on an increasing role in funding education, throughout Colorado, with wealthier school districts, where property tax rates decreased, among the beneficiaries of the extra state aid.
In 1988, 57 percent of the mandated minimum cost to operate schools were picked up by local property taxpayers. At that time, the state was responsible for 43 percent of that cost. By 2007, the situation had reversed, with the state picking up 64 percent of the costs and local property taxpayers picking up the remaining tab.
The state in 2007 froze property-tax rates for the mandated per-pupil minimum to prevent those rates from falling more. That freeze has kept the state’s share of school funding from growing significantly since then, but it also locked in property-tax discounts in the wealthy districts.
Now, the JBC is ready to debate whether the low property-tax-rate areas need to raise their tax rates to the same level as other districts in the state.
“Our current trajectory, based on way things are now, without reform of the issue, is unsustainable,” Zenzinger said.
A look at competing solutions
There are competing versions of the legislation the JBC will consider.
The version with the backing of education advocates would raise an additional $451 million annually. It would set a uniform property-tax rate for the mandated per-pupil minimum at 27 mills, which would be phased in over time. School districts that could fully fund their mandated minimum per-pupil cost at a lower tax rate would tax only to the level necessary to fully finance that minimum cost.
In school districts that would see property-tax rate increases, local voters would have to approve the increase. If those voters say no to the increase, per-pupil funding levels would drop since the state backfill would be redistributed throughout the state.
The other version, which also would be phased in gradually, would not raise any additional revenue for educating students statewide. It would set the uniform mill-levy rate at 22.6 for raising local revenue for the per-pupil minimum. Homeowners in districts with a property-tax rate currently higher than 22.6 mills would see property-tax reductions. State aid would be redistributed to those districts to meet the per-pupil minimum.
School districts with tax rates lower than 22.6 mills would see their state aid redistributed across the state. Homeowners in those districts would have to decide whether to raise local property-tax rates to 22.6 mills to replace the reductions in state aid.
“That’s what we’re trying to figure out, which direction there is the political appetite for,” said state Sen. Dominick Moreno of Commerce City, the Democratic chairman of the JBC.
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