Home > MSMA News > White Paper on Ballot Question 2 – September 6, 2016
White Paper on Ballot Question 2 – September 6, 2016
MSMA WHITE PAPER
For several years Maine School Management Association staff has endeavored to identify major issues affecting Maine public schools and present data and analysis of such issues to members of the Maine School Boards Association (MSBA) and Maine School Superintendents Association (MSSA) to assist them in performing their responsibility to educate the students of Maine.
The following “White Paper” is one such effort and addresses the November ballot referendum #2 titled “An Act To Establish The Fund to Advance Public Kindergarten to Grade 12 Education.” This paper is intended to present basic facts about the history and current status of state and local funding of education and to present information from a variety of sources as well as the opinions of policy leaders and people who have experience with issues associated with the referendum.
This piece does not constitute any endorsement of, or a recommendation against the referendum question. In fact, the legislative committees of both the MSBA and MSSA have voted not to take a position on the referendum recognizing that passage could mean different outcomes for different school administrative units and that boards will examine those referendum impacts and determine whether or not they want to recommend support or opposition to the voters of their school unit or take no position on the matter.
As the campaign on Question #2 evolves, we will attempt to keep boards and superintendents updated on this as well as other significant events.
Dale A. Douglass, Interim Executive Director
Ballot Question #2: Funding state aid
Question 2 on the November ballot would tax income greater than $200,000 at 10.15 percent to raise an estimated $157 million for K-12 education.
The Maine Education Association, which spearheaded the referendum, wants that money to bring state funding up to the 55 percent promised by another referendum back in 2004. Hitting that goal has long been advocated by administrators, school board members and teachers alike, but has remained elusive. Initial gains started to decline during the recession that began in 2008, and currently state share is at 47 percent.
The 2004 referendum was really about shifting a greater share of the responsibility to fund schools from local property taxpayers to the state, but the local burden in recent years has grown rather than diminished.
A central question is whether the income tax is the best mechanism to achieve the 55 percent goal.
Muskie School Professor Emeritus Charles Colgan, who is a former state economist and once chaired the Maine Consensus Economic Forecasting Commission, said you have to weigh the pros and cons of any tax used to support services.
The income tax surcharge works, he said, if your goal is to get most of the money from the wealthiest people.
“It’s the wrong tax if you want to support education on a continuing, stable basis going into the future,” he said, because income tax revenue falls quickly during an economic downturn since the income is largely based on investment.
And, that has been the case in Maine for some time with or without a differentiated rate, he said, because so much of the income tax fluctuation in Maine is driven by capital gains.
“Over reliance on the income tax to fund a lot of services puts us in severe danger whenever a recession hits,” he said, as it did in 2008 and to a lesser degree in 2001-2003. “With the first hiccup in the economy, the legislature is going to be faced with cutting you back from the 55 percent level.”
Another concern voiced by opponents of Question 2 is there is nothing that says the additional income tax raised will be used to lower property taxes. And, as of this writing, it does not appear the state’s 85 minimum receivers of state aid will get any additional funding.
It also is possible that future Legislatures could reduce the amount of traditional state aid by the same amount raised through the income tax hike. Just when school districts would actually receive the money also is unclear.
There also is opposition to the 10.15 percent rate because it would give Maine the highest rate in the country on that level of income and the second highest rate overall. The rate applies only to the amount that exceeds $200,000.
Rise and Fall of State Share
After voters passed the referendum to require the state to fund 55 percent, the Legislature created the so-called LD 1 committee, named after the law ultimately passed to implement the mandate approved by voters at the ballot box.
LD 1 did a number of things. It created a 4-year ramp up to 55 percent, with full funding promised by 2010. It also incorporated the Essential Programs and Services (EPS) adequacy spending model, coupled with a distribution formula driven by property value and enrollment, to determine state funding percentages by district.
Funding increased through 2008, but then began a decline due to the recession. The federal government eased the pain with stimulus funds, but even before those ran out, state education funding was below 2008 levels. By 2012 and 2013, state funding was below 2006 levels.
To make matters worse, the Legislature, in order to balance the state budget in 2013, decided to shift onto school districts what was then $29 million in costs to fund the retirement for working teachers – a cost that up until then had been picked up by the state. Those retirement costs continue to increase. They currently are at $38 million per year, and in the next biennial budget are expected to hit $46 million.
To add one final wrinkle, the state doesn’t use 100 percent of EPS to figure out the state’s percent share, but rather 97 percent of the cost of EPS. The chart below shows percent state share with 100 percent used as the base, and includes federal stimulus money in fiscal years 9, 10 and 11.
PERCENT STATE SHARE
FY 100% EPS
How Referendum Works
The referendum would add an additional 3 percent tax on Maine taxable income in excess of $200,000, effectively making the rate on that additional income 10.15 percent.
The additional money raised from that tax, estimated at $157 million, is supposed to be used to bring the state share of education to 55 percent.
Information prepared by the Secretary of State’s Office makes it clear, however, that down the road the Legislature could use the income tax surcharge to reduce the state’s General Purpose Aid appropriation. It reads:
“It should be noted that while the intent of this initiative is to provide additional funding to local schools over and above what would be provided without this initiative (baseline funding), no mechanism is provided to prevent future legislators from reducing baseline funding by an amount equal to a portion of future estimates of the additional funding provided by the surcharge.”
The prohibition against tying the hands of future legislators when it comes to appropriating funds is part of the Maine Constitution.
The referendum language also says the money collected from the surcharge would be put in a special public education fund and could be used only for “direct support of student learning”. It specifically excludes “school administrative staff or clerical staff”. School districts would be required to file an annual report on how the surcharge money was used.
It is not clear when school districts would actually receive money from the tax. The Secretary of State’s advisory on the referendum points out that while the proposal calls for collecting the tax in 2017, it also says transfers to the fund would not be made until 2018. One could then envision it being part of the 2018-2019 school year budget.
Based on spreadsheets produced by the Maine Education Association, it also is anticipated that the state’s 85 minimum receivers would not receive any additional funding. Currently they are at 30 percent of special education costs, although they were promised 100 percent when the 2004 referendum was passed. To pay 100 percent of special education to those communities would cost an estimated $40 million.
It is anticipated that legislation will be required to clarify these and other issues.
Pros and Cons
John Kosinski, who is the government relations director for the MEA, is the campaign manager for Question 2. The National Education Association is also part of the campaign, contributing $300,000 in June of this year and $200,000 in the last quarter of 2015.
On the “Vote Yes on 2” website, Kosinski talked about why his organization put the initiative on the ballot.
“The problem is that for too long now, our state tax policy has favored the wealthiest Mainers, at the expense of increased opportunity for our children. Our public schools have been underfunded, denying too many children the opportunities they need to succeed. We don’t think that’s fair. This initiative offers a solution that gives students a better future,” he said.
Former Education Commissioner Jim Rier, a recognized expert on Maine school funding, opposes the referendum and is treasurer of the Maine State Chamber of Commerce’s “No on Question 2” campaign.
Rier doesn’t wade into the debate on using the income tax, but instead focuses on how the money will be distributed. If more money is simply put into the formula and distributed the same way it is today, Rier says the gap will grow between the richest communities in the state and the poorer ones. That is because when money is put into the formula to buy down the required local mill rate, it takes more money to buy down a mill in communities with higher land values.
“It will make equity worse,” he said. “The ones that have been struggling will continue to struggle,” and, he predicts, the ones already spending over EPS will simply spend more.
Put another way, he said, there is no guarantee the additional funding will lower property taxes.
The current chairman of the Education Committee, Sen. Brian Langley, R-Hancock, and former chair, Sen. Rebecca Millett, D-Cumberland, were asked by MSMA to share their insight.
Langley, a former culinary arts teacher who has been on the Education Committee for six years, is concerned about the impact the referendum will have on keeping young people in the state.
“We’ve been working so hard to get the kind of programs in place that train students for high demand jobs that pay good salaries. Maine Maritime up my way is a perfect example. With this referendum, we’re saying ‘if we’re successful in educating you, you’re going to get a penalty tax’”.
“We will be pushing kids out the door and to other states,” he said.
He also believes it could send a negative message to businesses.
“The business community already supports education in so many ways,” Langley said, particularly in Career and Technical Education. “There’s a unique partnership there, but if this income tax hike goes through, my concern is it will create an adversarial relationship between business and the schools.”
He also predicts a potential backlash from those districts that get minimum state funding because of their property values – districts that line the coast.
“They pay the highest property taxes and will have a higher income tax and get nothing in return,” he said.
Millett, who has been on the Education Committee for four years, supports Question 2 because it provides a funding source for the 55 percent mandate from voters.
“When Maine voters passed LD 1 13 years ago – representing an entire generation of school children – they were clear that they wanted the state to invest in public education to relieve the pressure on property taxes and make sure that all of Maine’s children have equal access to a quality education,” she said.
“During the four years I have served on the Joint Committee on Education and Cultural Affairs, I and many of my colleagues have argued for the state to meet the legally obligated 55 percent of the cost of public education. While this resulted in additional funding above the administration’s proposed education budgets, the increases have never been enough to get us anywhere near 55 percent. The initiative did not include a revenue source to achieve this funding. Question 2 addresses that omission,” she said.
As for economist Colgan, when pressed, he said probably the best funding source is some combination of the sales and income tax. “But I’d never get elected,” he said.