Weakening economy is putting the squeeze on school budgets
By Naomi Dillon
02/08 -- Although we’re barely into the New Year, school districts across the country already are gearing up for a financially rocky and uncertain period in 2008.
The economic downturn has been led by a slump in the housing market, which after seeing astronomical growth for several years -- largely fueled by lax lending practices -- has slowed down considerably and is expected to decline even further in the near future.
The burst in the housing bubble stands to have a considerable impact on school districts, said David Parkhurst, director of the economic development and commerce committee for the National Governors Association (NGA).
“Property taxes fund many district budgets, and I think when you couple the private market corrections on credit availability, along with the drop in housing values, you have a lump of coal for a lot of school districts rather than a nice gift,” Parkhurst said.
In December, NGA and the National Association of State Budget Officers released a joint fiscal survey of the states that warned of impending budget deficits as revenues decline. Those findings mirrored two other financial outlooks released in December, one from the National Conference of State Legislatures and the other from the Center on Budget and Policy Priorities.
“It’s a ticking time bomb,” said Mike Griffiths, a school finance analyst with the Education Commission of the States. “It’s like seeing a car coming at you and bracing for the impact.”
Since property tax assessments, which determine tax bills, are conducted annually in some areas and every other year or every three years in others, the true extent of the housing market collapse won’t be felt by school districts until later. But it’s coming, along with a host of interrelated economic upsets, said Griffiths.
“People aren’t tapping into equity as much. This year, $300 billion in equity will go untapped,” Griffiths said. “That type of money generates sales tax numbers, so then you’ll start to see flat or decreasing sales tax revenues.”
The only way to counteract these declines would be to increase tax rates, he said. But for the 30 some states that operate under tax caps, that will be difficult, leaving spending cuts as the only option for school boards.
Complicating matters is the uncertainty of the situation. Unlike the housing crash of the 1980s, this time around the large numbers of adjustable and subprime mortgages, which were doled out like hotcakes to unqualified buyers, are creating a great deal of volatility.
“This is new to everyone, and anybody who can tell what’s really going on is not being truthful,” Griffiths said.
One thing is for sure, however. Many of the regions that experienced the greatest growth now face the greatest losses.
For years, Clark County, Nev., and, by extension, its school system, has been the fastest-growing region in the country. Between April 2000 and July 2002, the U.S. Census Bureau reported the population in the area grew by 17 percent, putting enormous strains on the public schools. The district is near the end of a 10-year, $4.9 billion construction program that built 101 schools.
Now things are starting to change. After experiencing 25 to 30 percent increases, home values in Clark County are starting to flatten and even decline, said Jeff Weiler, the district’s chief financial officer.
And with property taxes still tied to the extraordinarily high assessed values, many homeowners are starting to feel the pinch, and there’s been a large number of foreclosures in the area.
In addition, the state already has threatened to cut funding. The school district has responded by holding off on major purchases and instituting a hiring freeze among administrators. But there isn’t much flexibility.
“Nevada is a very low tax state and we’re quite proud of it,” Weiler said. “The consequence is our per-student expenditures are very low, somewhere between 48th and 49th in the nation. There’s no more room to cut.”
Weiler said the district is banking on the continual construction boom in Las Vegas to provide some revenue. “There’s hope that we can figure this out,” he said. “It’s been very political to be quite honest.”
In Florida, school districts are facing a one-two punch from local and state revenue sources. One of the hottest housing markets in the country, Florida has seen its home sales and property values plummet.
“My better half is in the real estate business, and she’s reduced the price on everything she’s got by 15 percent since April and even more on some of the high-end stuff,” said Wayne Blanton, executive director of the Florida School Boards Association.
“So when that house is assessed lower, you get less money. Then you multiply that times millions of homes and businesses, and you start to see how it makes a huge decrease in education funding,” said Blanton.
He said the projected loss in local revenue for school districts statewide is about $2 billion next fiscal year.
What’s more, after cutting education revenue by 1.4 percent in this year’s budget, the legislature has warned school districts to expect an 8 percent decrease in funding.
If that’s not enough, Gov. Charlie Crist is lobbying hard for a constitutional amendment on the Jan. 29 presidential primary ballot that would provide property tax relief to homeowners.
Some opponents of the proposal -- which would double the homestead exemption from $25,000 to $50,000 -- argue that it would save homeowners a paltry sum but would cripple public service agencies, like school districts, that depend on state funds.
“This constitutional amendment would immediately impact the tax base used under the state formula to pay K-12 education,” said Bill Graham, the chair of the Palm Beach County school board. “They’re in la la land. They think they are going to make it up with sales tax and various other things they don’t give a lot of detail on, but none of those are stable revenue sources.”
His district has felt the impact of a downshift in the housing market and is doing everything it can to minimize the negative outcomes, Graham said. “We use good people, do a lot of data analysis, and do the best we can.”
| Reproduced with permission from School Board News. Copyright © 2008, National School Boards Association. Opinions expressed in this newspaper do not necessarily reflect positions of NSBA. This article may be printed out and photocopied for individual or educational use, provided this copyright notice appears on each copy. This article may not be otherwise transmitted or reproduced in print or electronic form without the consent of the Publisher. For more information, call (703) 838-6789. |