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Balancing Future Funding Needs

Balancing Future Funding Needs. Defining a Plan to Ensure Funding for Transportation, Health Care, Higher Education Human Services and Public Safety by Stabilizing the State Education Fund March 2007 Prepared by the Office of State Planning and Budgeting. State Education Fund Background.

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Balancing Future Funding Needs

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  1. Balancing Future Funding Needs Defining a Plan to Ensure Funding for Transportation, Health Care, Higher Education Human Services and Public Safety by Stabilizing the State Education Fund March 2007 Prepared by the Office of State Planning and Budgeting

  2. State Education Fund Background • Amendment 23 was approved by the voters in 2000 and required the creation of the State Education Fund (SEF). • The SEF was established in 2002 to pay for the ongoing requirements of Amendment 23. • 1/3 of 1% of taxable income is credited to the SEF. • When personal income grows by 4.5% or more, Amendment 23 requires General Fund support for K-12 to increase by at least 5%. • The requirement for the 1% increase in addition to inflation and growth increases ends in 2012. • The requirement for an annual K-12 increase to cover inflation and enrollment growth is continuous. • Since 2001, the amount paid out of the SEF has been more than the new revenues being deposited into the SEF. To comply with Amendment 23, the SEF must be shored up.

  3. State and Local Share of Total Program Funding • In 1994 the local school districts paid 47% of K-12 costs and the state paid the remaining 53%. • In 2007 local school districts will pay 36% and the state will pay 64%. • One reason for the shift is that the 1994 School Finance Act effectively “re-Bruced” districts that had “de-Bruced.” • The 1994 Act requires school districts to lower their mill levy if revenues exceed their TABOR limit. This has occurred even though voters in 175 out of 178 school districts voted to de-Bruce. • Many worry that as the state share of funding increases and the local share decreases, local control of schools will also erode.

  4. State Share Increasing

  5. State Education Fund in Peril • State responsible for increasing portion of K-12 Funding. • As the state share has grown (and will continue to grow) it places a greater burden on the state General Fund and the SEF. • In 2002 the SEF ending balance was $299 million. In 2007 the ending balance is projected to be $199 million. This decline is due to several factors, including: • During the recession the SEF was used to help offset budget cuts. • General Fund increases for K-12 have not been adequate to maintain solvency of the SEF.

  6. Projected SEF Ending Balance

  7. State Budget Threatened • Amendment 23 requires that state General Fund support for K-12 total program increase by at least 5% per year. • If this 5% approach is taken (as had been the policy of many people in the past), the SEF could go broke in 2011. • Over the period of two years (2011 – 2012) $600 million in new state General Fund would be needed for K-12 total program spending. That would be 58% of new state General Fund dollars over the two year period. Of this $600 million, $212 million would be needed solely due to SEF insolvency. • Because some parts of the budget must increase annually (such as Medicaid and Corrections) this additional $212 million obligation would result in dramatic impacts on higher education and human services. • This $212 million is an ongoing obligation. That means that $212 million will be built into the K-12 funding base and that the cumulative state General Fund cost of the $212 million in just five years will be over $1 billion. • The need to put additional state General Funding into K-12 to offset SEF insolvency will severely limit the state’s ability to fund higher education, human services and corrections.

  8. Stabilizing the Local Share • Stabilize the local school district share of K-12 funding. • In 1994 the Legislature set a uniform mill levy for all districts of 40.08 mills to ensure that the property tax burden was uniform across the state. • Today mill levies across districts range from 2 mills to 38 mills. This has occurred, in large part, due to the unforeseen “re-Brucing” effect of language in the 1994 School Finance Act. • Former Senator Norma Anderson, the sponsor of the 1994 Act said that this impact was not her intent. • In 2004 Senator Anderson amended the School Finance Act to fix this problem by stabilizing the local share. • Legislative Legal Services issued a memo detailing the constitutionality of the amendment. • The Governor’s counsel has affirmed the legality of the proposal. • This plan was approved with a 29-6 vote in the Colorado Senate. The plan was later removed from the School Finance Act in conference committee.

  9. Impact of Stabilizing the Local Share • If the SEF is not stabilized, K-12 will consume much of the state budget allowing fewer dollars for other priorities like health care, higher education and public safety. • With a stabilized mill levy the average home owner in Colorado will not see a $16.25 reduction in their tax bill in 2007. • This equals about 4.5 cents per day for the average homeowner ($255,000 home value). • Makes the SEF solvent. The projected balance would not fall below $97 million.

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