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Wednesday, July 01, 2009

NOTES FROM THE SENATE, JULY 1, 2009

THE FORMULA GAME: WINNERS AND LOSERS

Last week we began a look at funding for formula driven agencies. As the state budget has shrunk over the past 18 months, formula funding for K-12 and Higher Education increased due to Georgia ’s population and resulting enrollment growth.

As revenues have shrunk but growth increased formula allocations, there are winners and losers in K-12 and Higher Education. This week we will focus on K-12 formulas, Quality Basic Education and Equalization – who wins and who loses.

Education Funding Formula Reductions

The state funds K-12 education through two primary formulas: Quality Basic Education (QBE) and Quality Basic Education Equalization (Equalization). QBE is the basic foundation program, which provides a set amount of funding per student. Equalization provides funding to help shore up a system’s tax base.

Quality Basic Education

Between FY02 and FY05, declining economic conditions forced the state to make across the board austerity reductions to state agencies in order to maintain a balanced budget. The total QBE formula earnings are reduced by this amount. While the Department of Education’s budget has grown in conjunction with student population since FY05, the formula has never been fully funded. This “austerity reduction” does not necessarily mean that education funding declined but that school districts could have earned more in QBE funding if the formula had been fully funded. For example, school districts could have earned around $143 million in additional funds if the formula were fully funded in FY08.

QBE funding trends are as follows:

· FY06, $5.49 billion

· FY07, $6.15 billion

· FY08, $6.58 billion

· FY09, $6.60 billion (adjusted for use of surpluses to cover the State Health Benefit Plan)

· FY10, $6.76 billion (adjusted for federal stimulus funds)

This represents 23% growth from FY06 to FY10, including stimulus. In the FY10 budget, the QBE formula was reduced by $654 million. However, this reduction was offset by $413.1 million in federal stimulus funds and transfers of funding from other education programs.

The FY10 total will maintain QBE per pupil spending at $4,148, which is equivalent to FY08 inflation adjusted per pupil spending and is greater in both real and nominal amounts than the prior five years of funding. This increase in QBE will help offset reductions in other education programs such as Pupil Transportation, Graduation Coaches, and the Equalization formula.

Equalization

In addition to the primary Quality Basic Education formula used to fund school systems statewide, approximately three out of four school systems also receive funding through the Equalization program. While funding for QBE has held steady, the state has made some reductions in the growth of Equalization funding. However, some school systems have also seen reductions in funding simply because their formula based allocations have changed over time.

Equalization is designed to narrow the spending gap per pupil by reducing the disparity between the tax bases of Georgia ’s school systems. This system ensures that school districts can raise equivalent amounts on a per mill per student basis. This formula ensures that all school systems can raise the same amount per mill per student (up to 15 mills) as the system at the 75th percentile system in the state.

This formula has seen significant growth in the past two years. Already a $458 million program in FY08, the FY10 formula earnings exceeded $630 million. Again, as with QBE, these numbers reflect amounts called for under the formula, not the actual budgeted amount for the program.

What has happened is that several large fast growing counties have seen growth in student population outstrip the ability of their tax base to keep up, and in the past two years, they have become eligible for increasingly larger portions of the funding.

Ten systems alone accounted for over $100 million of this growth, with the top two, Gwinnett and Clayton, growing by nearly $50 million.

As a result from FY08 to FY10:

· Gwinnett saw formula earnings increase 493%

· Bibb saw formula earnings increase 330%

· Clayton saw formula earnings increase 113%

· Henry saw formula earnings increase 109%

However, many growing school districts with strong tax bases have not seen the same kind of growth in their Equalization funding from FY08 to FY10:

· Schley saw formula earnings increase 9%

· Effingham saw formula earnings decrease 1%

· Long saw formula earnings decrease 31%

· Bryan saw formula earnings decrease 35%

Several large or growing districts with strong tax bases do not receive any Equalization funding at all. These include Fulton , Atlanta , Cobb, DeKalb, Cherokee and Forsyth counties.

Next Week: Equalization continued --- budgetary choices and who are the winners and losers.

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