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A Closer Look at the Decline of State Revenue

Overview

The Lawson R-XIV School District has placed an operating levy increase question on the August 3, 2021 election ballot that would raise the operating levy by 95 cents.  The 95-cent increase to the operating levy would generate approximately $750,000 in new revenue assuming a 100% tax collection rate. 

Since the beginning of the Great Recession in 2008, the District has been challenged by a reduction in state revenue.  The District receives approximately $700,000 less in state revenue in 2019-20 than it did in 2009-10.  This annual reduction in state revenue shifts the burden to local revenue sources in order to maintain programs & services offerings, increase salaries, and cover increased operating expenses. 

State revenues have declined for three main reasons. 

  1. The state legislature pro-rated the funding of the Foundation Formula several times between 2008 and 2020 resulting in reductions of state revenue payments to the District.
  2. The state legislature eliminated funding for key programs or grants resulting in 100% local funding to continue the services.
  3. District enrollment has declined by almost 300 students since 2008, the beginning of the Great Recession.  This equates to a 21% decrease in the student population. 

In response, the District has used attrition from retirements and resignations to eliminate 17 positions since 2008.  The attrition of the salaries and benefits paid to all District employees is $558,000 less in 2019-20 than it was in 2009-10. This does not fully offset the decline in state revenue, however, as the District has continued to add to the base salary and also absorbed increases in the cost of employee benefits over the same period for remaining positions.  These smaller salary increases have not kept pace with surrounding districts who compete for the same teacher candidate pool. 

Operating costs are more directly a result of the maintenance of facilities, utility rates, and the cost of good & services rather than with the number of students in the District. In comparing 2009-10 to 2018-19, District expenditures for purchased services and supplies increased from $2,496,133 to $2,876,406 for an increase of $380,273 dollars.  This area includes transportation, food service, utilities, technology, and operating maintenance. 

When comparing the loss of state revenue to the increased cost of operations, the District is now more dependent on local revenues to continue operations. 

  • In the first years of the Great Recession, the District performed a major roof replacement at Southwest Elementary (2011) and a remodel of the entry and office area at Southwest to provide a secure entrance (2012).  These projects were completed with capital project balances as a result of annual savings made available for the projects. 
  • To the contrary, the roof replacements at the Middle School (2015) and High School (2020) were part of voter-approved bond issues since monies for these projects were not available through annual budget planning.

The District no longer has the ability to perform major repair & replacement projects with the annual budget revenues.  The reliance on voter approval for maintenance repair projects such as a roof replacement are an uncertain practice.  

On average since 2008, the District has experienced deficit spending of approximately $100,000 per year to overcome the reduction of state revenue. The result is a 24% reduction in operating balances in that time, but the decline does include the roof and secure entry remodel at Southwest.  The certified staff is 15% smaller than it was in 2008 to align it with the decline in students, but there have been no teachers who have had their position cut during this time. Operating costs have continued to rise, as would be expected as the cost of goods and services annually see a percentage increase in cost.  The result is a greater burden on local revenue to overcome the decline in state revenue and continue the expected operations, programs & services of the District. 

For a more in-depth analysis of the decline in state revenue, please continue reading below:

The Overall Decline in State Revenue

For the Lawson R-XIV School District, state revenue currently (2020) provides 46.81% of the annual revenue for the operations of the district.  This number is down from 50.26% in 2008.  The peak dollar amount of state revenue was in 2009-10 as Lawson R-XIV received $4,907,560 in state revenues.  In 2019-20, state revenues for the District had dropped to $4,263,927.  That’s almost $700,000 in annual state revenues the District no longer receives.  As a result, local revenues have had been relied upon to bear the burden in order to continue to offer the same programs & services. 

In 2020, Missouri was ranked 49th in the nation in the percentage of school funding coming from state resources (32 percent), according to NEA data.


A Quick Review of the State’s Foundation Formula

In 2005, SB287 created the “Foundation Formula” that currently provides the majority of state funding for school districts across the state.  The Formula was designed to provide what is adequate to provide a quality education by distributing money to districts based on the number of students in the district, while taking into account the amount of local dollars provided by the District.  The “Formula” measures per pupil spending at high-performing schools and uses that to calculate how much should be spent per pupil based on average daily attendance.  This amount is known as the State Adequacy Target (SAT).  The SAT is multiplied by the Average Daily Attendance of students in a district to determine the amount of Formula dollars paid to the district.  Average Daily Attendance (ADA) is the average number of students who show up to school each day for a district.  In simple analysis, Lawson R-XIV's attendance rate is typically between 95 and 96 percent.  Therefore the District's ADA would be that percentage of the enrollment.  As enrollment declines so does the ADA used for the Formula.

When the formula was created, it contained a 5 percent cap meant to limit the growth of the SAT for adequately funding schools. The cap was removed in 2009 because the state expected a significant increase in new gaming revenues from the passage of Proposition A (2008) which removed loss limits.  By 2012, the Formula should have been fully funded.  It was not fully funded for 5 of 10 years from 2011 to 2020.  During that time, the SAT grew beyond the ability of the state to fully fund it.  In 2006-07, the first year of the Formula, the SAT was set at $6,117 per ADA.  The SAT grew to as high as $6,716 per ADA, but the state never funded at that amount. Instead, SB586 (2016) was passed into law, reinstating the 5% cap on the SAT growth and redefining ‘fully funded’ to equal the amount of money appropriated by the General Assembly.  Simply stated, a law change allowed legislators to say they fully funded the Formula.  Currently, the SAT is $6,375 per ADA. Therefore, since 2007, the increase in the SAT amounts to an annual increase of $18 per year, less than one-half of one percent annually.

“However, if the state is paying less, it could mean that local residents may pay more in property taxes to support their schools — a trend already being seen across Missouri.” - 5/18/2016 Rolla Daily News, Paul Hackbarth

Additionally, to combat the inability to fully fund the Formula, the state has employed pro-ration of the Formula at times in the past decade.  Pro-ration amounts between 91% and 98% have been applied to the Formula by the state more than half of the years since 2008.  In some instances, pro-ration amounts were announced many months after the beginning of a fiscal year or when districts approve annual budgets.   


The Great Recession and the Decline of State Revenue for Lawson R-XIV

In 2007-08, Lawson R-XIV enrollment peaked at 1357 students.  Through the beginning years of the Great Recession, enrollment declined dramatically falling to 1,199 students in 2011-12.  In the school years since, enrollment has steadily declined to 1,110 students in 2019-20, pre-COVID-19.  Enrollment is the basis for Average Daily Attendance.  Lower enrollment means lower ADA.  Lower ADA means lower state Formula revenues.   ADA is also the key multiplier in two other sources of revenue from the state.  Proposition C Sales Tax revenue and Classroom Trust Fund revenue are also calculated on a per ADA basis. 

Proposition C (1982) was passed by Missouri voters to provide additional school funding through a one cent sales tax.  Additionally, it required districts to reduce property taxes.  Essentially, it was designed to place a greater burden on the state for public education and provide greater equity in education throughout the state.  At the beginning of the Great Recession, Lawson R-XIV received $1,126,187 in Prop C monies.  In 2019-20, the District received $1,114,516 in Prop C monies.

Classroom Trust Fund is the Missouri Lottery monies for education.  Advertised as ‘Play it Forward’, lottery monies for education in Missouri are actually pass-through monies.  What does that mean?  The way the law is written allows the General Assembly to remove a dollar from Formula funding for each dollar the lottery provides. COVID-19 wrecked Classroom Trust Fund (CTF) monies in 2019-20 as casinos were shuttered.  In 2018-19, Lawson R-XIV received $463,310 in CTF monies.  Prior to the Great Recession, Lawson R-XIV received $482,928 in CTF monies. 

While the per ADA amounts for both Proposition C and the Classroom Trust Fund have both grown since 2007-08, the decline in enrollment and resulting ADA for Lawson R-XIV has resulted in little or no growth in the overall amount of monies received from these two programs. 


The First Choice of the State Legislature to Cut When Money is Needed for the Formula  

Whenever the General Assembly or Governor is faced with the possibility of withholdings or cuts to education, history indicates that Transportation Funding is their first choice.  Transportation funding is to be funded at 75% reimbursement to school district for eligible costs per law.  The state, however, has not funded transportation anywhere near that amount since the 1990’s.  The last time transportation funding was near 50% reimbursement was in 2003 and is currently around 18%. 

For Lawson R-XIV, transportation funding reached a peak in 2009-10 at $275,567.  In 2019-20, that funding amount had dropped to $101,803.  Transportation funding is based on ridership.  With smaller enrollment and a drastic drop in state transportation funding, the District has reduced three routes since 2012.  Still, the District’s contract cost for bus transportation increased $58,000 in 2020-21.  In 2007-08, the cost per route per month was $2,914.56.  In 2020-21 that amount had climbed to $4,257.74 per route per month.  Overall, contracted transportation has gone up 55% since 2007-08, while state transportation revenue has declined 56% from its peak in 2009-10.


Other State Programs No Longer Funded

There are other valuable programs that the state no longer funds at all.  Career Ladder began as a state program designed to compensate teachers for extra time and efforts before and after school.  In the beginning the state paid 80% of the program.  By 2009-10, the state had announced they would no longer fund the Career Ladder program at all.  As a result, the burden to continue the program has fallen to local revenue sources.  To date, Lawson R-XIV has maintained the Career Ladder program for our teachers, at a cost of approximately $170,000 annually. 

The state once funded a Health Services grant assisting districts with funding for school nurse programs.  In 2009-10, Lawson R-XIV received $57,445 in the Health Services Grant.  Since 2010-11, the state has not funded the grant. 

Missouri passed a virtual learning law, MoCAP, in 2018 (SB603).  The law allows any eligible student to enroll in virtual program courses of his or her choice to be paid by the school district.  The state did not provide any additional funding or create any specific funding stream for this program.  On the contrary, any costs of the virtual course enrollment are paid by the school districts.   The costs of virtual courses are not offset by savings for not educating the student on-site.  This is simply because if one or even several students choose to learn virtually rather than attend school, the same amount of teachers are still necessary for the remaining students and the cost of operating and maintaining facilities are not reduced.

 

A Potential Concern for the Future of State Funding

Individual income tax accounts for nearly 70% of General Revenue for the State of Missouri.  In 2014, the General Assembly passed SB509 which placed into law five 0.1% tax cuts to the individual income tax rate of 6.0%.  Not all of these approved cuts are in place yet.  State revenue has to rise by at least $150 million for a 0.1% tax cut to be enacted.  When a cut is enacted the estimated reduction in general revenue is approximately $125 million.  So, $150 Million of state revenue growth triggers a tax cut of $125 million.  Once all are approved, the individual rate will be 5.5%.  This was not the only individual income tax cuts, however. 
 

In 2018, before all five of the 2014 cuts had been enacted, the General Assembly passed HB2540 which included 4/10ths of a percent cut taking the individual income tax rate down to 5.1%.  Then in 2021, the state finally passed internet sales tax legislation known as the Wayfair bill, but only without offsetting the increased revenue by including another series of individual income tax cuts which will result in the latest rate of 4.8%.  All of these income tax cuts combined will lower the individual income tax rates by 20% in a matter of one decade.  It remains to be known if the state can afford to lose up to 20% of its General Revenue and still fund public education adequately along with other state services. If not, more of the burden to fund public education may fall back to the local school districts. 

According to a May 2021 report from the State Auditor, “ Missouri also continues to fund elementary and secondary education from local sources at a significantly higher level than the national average.” - ESE Funding Trends May 2021 Nicole Galloway


Lawson R-XIV’s Actions

In 2007-08, 10 of the 13 grade levels at Lawson R-XIV had 100 students or more.  In 2019-20, there was only one grade with more than 100 students.  As mentioned in the Overview above, Lawson R-XIV has primarily utilized attrition to reduce staff to appropriate match enrollment.  The majority of positions absorbed with attrition have been at the K-6 grades.  Why is this?  It is much simpler to reduce an elementary section than an upper middle school or high school position.  A section is essentially a homeroom at an elementary grade.  At grades 7-12 it is a class period. 

If the third grade had 100 students in 2008, then there were 5 sections or homerooms for the grade. Drop that number to 80 in the 3rd grade, and there are now only 4 sections or homerooms, needing one less teacher.   

If there were 100 students taking Algebra I as freshmen, there were five class periods.  With Algebra I, however, there are only 4 class periods for a class of 80, but still needing the one math teacher. 

Where it is simple to reduce a homeroom for 20 less students, it is difficult to reduce a HS teacher who is only needed to teach one less hour for 20 less students.  The result is a similar size of staff for grades 7-12 since 2008.  Since the staff size is similar, the result of needing one less hour for a core subject has resulted in offering more electives in those departments.  Should enrollment climb to 2008 levels, the teaching staff at the grades 7-12 could still remain the same but less electives would have to be offered.

When enrollment decreases, the need for a teacher may be reduced as reference above.  The responsibilities associated with operating a district are not reduced, however.  In fact, legislation and regulation from both the state and federal level have placed a greater number of responsibilities on the District, exemplified in the collecting and reporting of data.   Even so, the District has reduced administrative staff by one, from 9 to 8 since 2011 to combat the loss of state revenue.  The responsibilities covered by that position did not dissolve, rather they were distributed to remaining staff. 


Summary

In summary, the Lawson R-XIV School District has relied more on local revenues to continue to offer the same, if not more programs & services for students, increase salaries, and cover the increased costs of operations.  The result of the decline in state revenues and the shift to greater reliance on local revenues has resulted in deficit spending.  The purpose of the 95-cent levy increase will be to reduce the likelihood of deficit spending, increase salaries for all staff and cover the increased costs of programs & services such as transportation, food service, technology, and virtual learning.   The majority of the proceeds from the 95-cent levy increase will be used for salary increases for all staff.  The remaining monies will be utilized to reduce deficit spending and pay for future increases in the cost of operations.