The Gannon equity decision and the impact of state aid changes on local property rates and per pupil revenues

The Kansas Supreme Court issued an opinion Feb. 11, 2016 on the “equity” portion of the Gannon school finance lawsuit. The court found the Kansas school funding system unconstitutional because of changes made in state aid for local option budgets and capital outlay funds and the resulting unequal tax burden placed on taxpayers in various school districts.

Local option budgets provide additional operating funds and capital outlay funds provide for local needs such as building construction, remodeling and equipment. Because these funds are based on property taxes, state aid compensates for the wide disparity in property tax values and the amount of funding raised by each mill across the state.

However, the Legislature changed state aid provisions in the Spring of 2015 through SB 7, reducing state funding in a way that required districts with less property wealth to increase taxes at a higher rate than districts with greater property wealth to raise the same amount of money.

In addition, those reduced rates were “locked in” to the new block grants for each district for the next two school years (2015-16 and 2016-17). As a result, if local property values decline in a district, it will be forced to raise local taxes even more to keep the same spending power. On the other hand, if district wealth increases, a district will able to lower its tax rate.

The Kansas Supreme Court found the Legislature had not provided any reason why Kansas taxpayers should be treated differently to raise the same amount of revenue to fund public education in their district, and ordered the Legislature to correct this inequity.

What does this mean for local taxpayers?

KASB has prepared a new report showing the impact of these changes on each district and the resulting inequity in the tax burden. [Click here to access the report]

First, the report shows the mill levy required to fund the legal Local Option Budget under the old formula compared to the new formula. In most cases, school districts had to increase their mill levy between two and four mills. However, some districts had no increase because they did not qualify to receive LOB aid.

Second, the report shows the amount of revenue each district would receive if it levied the statewide average of 5.837 mills for capital outlay under the old formula and the new formula. Most districts had losses ranging from $20 to $80 per pupil, but some districts did not lose any funding because they did not receive state aid in the first place.

In the case of capital outlay, some districts may have been able to replace the lost state aid by raising their mill levy. However, this is dependent on local voters giving authorization for the higher level. The report shows the increase required to make up the state aid reduction difference if all districts were at the statewide average.

Finally, the report illustrates why the Supreme Court found the Legislature’s actions unconstitutional. Changes to these two aid formulas resulted in significantly different tax and funding consequences across the state, based entirely on the wealth of the district and with no basis in educational needs.

February 17, 2016