School Finance

State revenues remain on steady course; K-12 funding debate looms

New state revenue forecasts don’t significantly change the amount of money available to spend on K-12 schools, the issue expected to dominate education debates during the upcoming legislative session.

The quarterly revenue forecasts issued Friday also included the annual projections on school enrollment provided by legislative economists.

Statewide school enrollment projections show increases of 1.5 percent in 2014-15 and another 1.4 percent the following year. Assessed property values are expected to rise 2.2 percent next year, 5.9 percent in 2015 and 2.9 percent in 2016.

Enrollment is important for school districts because it’s the key factor in determining how much state funding they receive. And growth in property values influences how much money districts can raise locally.

Overall, “Colorado’s economy is continuing to expand and should see solid growth through the remainder of 2013 and 2014,” said the forecast from Legislative Council staff economists.

The projection from the executive branch Office of State Planning and Budget also cited growth but noted, “The economy is always vulnerable to adverse, often unexpected, events that could strain budget conditions.”

Economic activity drives state tax revenues, and both forecasts see little change in revenues from September’s predictions. The December forecast sets the table for budget discussions during the first part of the 2014 legislative session, and the March forecast drives final budget decisions.

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Natalie Mullis, chief legislative economist, told lawmakers, “Right now is when you have the greatest budget flexibility,” because in future years automatic diversions to transportation and constitutionally required tax refunds may limit spending on other programs.

The December forecast is closely watched by the education community because it includes a school finance projection from legislative staff.

Economist Todd Herreid’s presentation to the Joint Budget Committee laid out these key projections:

  • To maintain current 2013-14 per-pupil funding of $6,652, lawmakers will need to add $55 million to the budget to account for enrollment growth higher than projected last spring, when the budget was written.
  • Schools will need an increase of $260 million over current spending of about $5.5 billion to cover 2014-15 enrollment growth and inflation, as required by the state constitution. That would take average per-pupil funding to $6,845.
  • The increase would have to rise to $297 million if lawmakers want to maintain what’s called the “negative factor” at current levels.

The negative factor is a formula lawmakers have used in recent years to keep K-12 funding at a level necessary to balance the overall state budget. It’s estimated that use of the factor has left school funding at least $1 billion lower than it would have been otherwise.

School districts and education interest groups are going to push hard to reduce the amount of the negative factor, something that might meet resistance from the Hickenlooper administration and the JBC because of their concerns about pressuring other parts of the state budget and about creating a level of K-12 spending that could be vulnerable to cuts during future downturns.

During a pre-session meeting with reporters Thursday, Hickenlooper said he was open to discussions about reducing the negative factor but didn’t indicate how high he might be willing to go.

A key focus of negative factor debates will be the State Education Fund, a dedicated account used to support both base school funding and special programs.

Map shows projected enrollment changes by district. (Click for larger view.)

Because some recent state surpluses have been channeled into the fund, it’s expected to have a balance of more than $1 billion this year. That’s a tempting target for lawmakers interested both in trimming the negative factor and in funding pet projects. But the JBC and the administration want to carry a reasonable State Education Fund balance into future budget years as a cushion.

The legislative staff enrollment projections show continuation of regional differences that have existed for several years.

While statewide growth is projected at 1.4 percent, growth of 1.7 percent is forecast for Denver-area districts, and 1.6 percent is expected for the northern Front Range, while several rural areas are expected to see very small or no enrollment growth.


Colorado schools are getting a major bump in the state’s 2018-19 budget

Students waiting to enter their sixth-grade classroom at Kearney Middle School in Commerce City. (Photo by Craig Walker, The Denver Post)

Colorado’s strong economy has opened the door for state lawmakers to send a major cash infusion to the state’s public schools.

As they finalized the recommended budget for 2018-19, the Joint Budget Committee set aside $150 million, an additional $50 million beyond what Democratic Gov. John Hickenlooper had asked for, to increase funding to schools.

“We believe this is the most significant reduction in what used to be called the negative factor since it was born,” said state Rep. Millie Hamner, the Dillon Democrat who chairs the Joint Budget Committee.

Colorado’s constitution calls for per pupil spending to increase at least by inflation every year, but the state hasn’t been able to meet that obligation since the Great Recession. The amount by which schools get shorted, officially called the budget stabilization factor, is $822 million in 2017-18. Under state law, this number isn’t supposed to get bigger from one year to the next, but in recent years, it hasn’t gotten much smaller either. 

But a booming economy coupled with more capacity in the state budget created by a historic compromise on hospital funding last year means Colorado has a lot more money to spend this year. In their March forecast, legislative economists told lawmakers they have an extra $1.3 billion to spend or save in 2018-19.

The recommended shortfall for next year is now just $672.4 million. That would bring average per-pupil spending above $8,100, compared to $7,662 this year.

Total program spending on K-12 education, after the budget stabilization factor is deducted, should be a little more than $7 billion, with the state picking up about $4.5 billion and the rest coming from local property taxes.

The budget debate this year has featured Republicans pressing for more ongoing money for transportation and Democrats resisting in the interest of spreading more money around to other needs. The positive March forecast reduced much of that tension, as a $500 million allocation for transportation allowed a compromise on roads funding in the Republican-controlled Senate. That compromise still needs the approval of the Democratic-controlled House, but suddenly a lot of things are seeming possible.

“We knew we were going to have more revenue than we’ve ever had to work with,” Hamner said of the status at the beginning of the session. But that presented its own challenges, as so many interest groups and constituencies sought to address long-standing needs.

“The fact that we’ve been able to reach such incredible compromises on transportation and K-12 funding, I think most members will be very pleased with this outcome,” Hamner said. “Where we ended up is a pretty good place.”

The big outstanding issue is proposed reforms to the Public Employees Retirement Association or PERA fund to address unfunded liabilities. A bill that is likely to see significant changes in the House is wending its way through the process. The Joint Budget Committee has set aside $225 million to deal with costs associated with that fix, which has major implications for teachers and school districts budgets.

The Joint Budget Committee has also set aside $30 million for rural schools, $10 million for programs to address teacher shortages, and $7 million for school safety grants.

The budget will be introduced in the House on Monday. Many of the school funding elements will appear in a separate school finance bill.

Going forward, there is a question about how sustainable these higher funding levels will be.

“It does put more pressure on the general fund,” Hamner said. “If we see a downturn in the economy, it’s going to be a challenge.”

What's fair

Colorado’s state-authorized charter schools could get more money next year

Students at The New America School in Thornton during an English class. (Photo by Nic Garcia)

Charter schools authorized at the state level by the Charter School Institute are likely to get more money in the 2018-19 budget year. That’s one year before most other charter schools will see benefits from last year’s charter school funding equity bill.

That bill was a major compromise out of the 2017 session, and it requires school districts to share money from voter-approved tax increases with the charter schools they’ve authorized, starting in 2019-20. The bill also created the mill levy equalization fund to distribute state money to the Charter School Institute’s 41 schools. Because no local school board approved these schools, they wouldn’t otherwise be eligible for revenue from these increases, known as mill levy overrides.

Charter School Institute administrators came calling for their money this year, though, with a request for $5.5 million from the general fund. They arrived at this number by identifying institute schools within the geographic boundaries of districts that already share some extra revenue with their local charters and assuming institute schools got a similar share.

Institute Executive Director Terry Croy Lewis called it a “first step” toward parity that would bring institute and district-authorized charter schools to the same level in advance of the new law going fully into effect in 2019. Lewis said it seemed like a fair approach because the parents at institute-authorized schools often live within the geographic boundary and pay taxes at the same rates as parents whose children go to traditional schools or district-authorized charters.

However, the charter equity bill says that extra money for institute schools has to be distributed on an equal per-pupil basis. The original approach, which created more equity among schools in the same geographic boundary, created more disparities among institute schools in different regions – and the law might not have allowed it.

“I don’t think you can define equity in this conversation because equity cuts a lot of different ways,” said state Sen. Dominick Moreno, a Commerce City Democrat and member of the Joint Budget Committee.

Budget analyst Craig Harper suggested to the Joint Budget Committee that separate legislation might be necessary to allow the distribution proposed by the Charter School Institute, something no lawmakers wanted to see after the bruising fight over the charter school equity bill.

Instead, the Charter School Institute revised its proposal to distribute the money among its schools on a per-pupil basis, regardless of geography and whether the local district already shares money.

What sort of difference does this make?

In the first distribution scenario, Early College of Arvada, located in the Westminster district, would have gotten nothing – because Westminster doesn’t currently share money with its own charters. Under the new proposal, the school would get $131,233 based on its pupil count. Meanwhile, Colorado Early College – Fort Collins, which would have gotten $621,357 because the Poudre district already shares money, would instead get just $374,952

Lingering confusion over the distribution question led JBC members to postpone a decision several times before they voted 4-2 this week to include the $5.5 million request in the 2018-19 budget.

It still has to survive the extended battle over the budget that takes place in the full House and Senate each year.