Backgrounder
K-12 School Funding in FY 2002-03 & FY 2003-04

October 22, 2002

The Colorado Department of Education alerted school district superintendents in early October that there may be K-12 funding cuts in the coming year. We want Association leaders to be prepared to discuss this matter with the school board and administration, and to communicate with our members, particularly as rumors are already circulating. We will update this backgrounder after the November Election and as the new Legislature begins to prepare for its 2003 session (starts January 8) and more definitive information becomes available.

Amendment 23

1. It requires the Legislature to increase K-12 per-student and categorical funding by at least the rate of inflation plus 1% through 2011-12. After that, funding must increase annually by at least the rate of inflation. Per-student (per-pupil) funding is the base funding the state gives to school districts through the School Finance Act. Categorical funding is the funding the state gives to districts for student transportation, special education, vocational education, and programs for English learners and expelled students, among others.
2. It created the State Education Fund with a steady source of funding exempt from the TABOR spending limits. Annually, the fund gets a portion of state income tax revenue in an amount equal to one-third of 1% of federal taxable income.
3. It requires that the state's General Fund contribution to the School Finance Act be increased by at least 5% annually through 2011-12. This is called "maintenance of effort."

Our interpretation of Amendment 23 is that:

1. it protects both per-student and categorical funding and requires the Legislature to fund both at the rate of inflation plus 1% through 2011-12, and after that at least at the rate of inflation;
2. the State Education Fund will continue to be funded from the state income tax as long as citizens pay state income tax;
3. the "maintenance of effort" requirement ensures that the State Education Fund is not used to replace the state's General Fund contribution to K-12 education;
4. even if the Legislature does not continue a 5% maintenance of effort or if legislators deplete the State Education Fund too quickly, the Legislature still must fund the per-student and categorical increases.

Amendment 23 does have an "escape clause." If personal income does not grow by at least 4.5% between the last two calendar years, the Legislature can waive the minimum 5% maintenance of effort requirement and not be required to contribute at least 5% from the General Fund that year – but contribute less than 5% from the General Fund and take some money from the State Education Fund. But the Legislature cannot waive the base and categorical funding requirements of inflation plus 1%.

Amendment 23, as a constitutional amendment, cannot be repealed or changed unless the voters approve. This would have to be done by a change or repeal through an citizen initiative or a legislative referendum.

The Legislature decides how to spend the State Education Fund. There will be $378 million in this fund after the FY 2002-03 allocations are spent.

This year's allocations were set during the 2002 session, but all the money has not yet been spent from the $234 million the Legislature planned to spend. The Improvement Grants for Unsatisfactory Schools ($2.8 million) has been sent to districts, but some monies – such as the second year of textbook funding – have not been sent to districts and are being held back by CDE at this time. The appropriations include money that goes directly to districts (e.g., summer school grants, teacher pay incentives, school capital construction, charter school capital construction) and money that goes to CDE (e.g., Spanish CSAP refreshment, changes to the School Assessment Reports, funding for the longitudinal growth pilot program, the National Board Certification grants for individual teachers).

CDE's recent "warning" to superintendents stated that these Education Fund appropriations "could be looked at as possible areas of reduction or elimination." Reducing or eliminating them would require legislative action in the 2003 session. CDE also said, "Other funding sources that could be reduced or eliminated are those funded by the State Public School Fund, which includes programs as National Academic Contests funds, school lunch matching funds, and new contributions to BOCES."

K-12 School Finance Act

The School Finance Act is the law the Legislature uses to distribute money to school districts. It provides base funding for each student ($4,441.51 in 2002-03). Added to the base funding is additional money determined with three factors unique to each district: the cost-of-living, personnel costs, and student enrollment ("size factor"). The base funding and the size factors are added to get a total per-student amount for each district. Districts also get state money for at-risk students (the number of students eligible for the federal free lunch program) and for online learning programs. The state also makes a "minimum total program guarantee" to districts (at least $5,435 per student in 2002-03).

(Note: The size factor is especially important to declining enrollment districts as state funding is tied to student enrollment. Even a small decline in enrollment costs a district a great deal of money and often requires the elimination of jobs and cutbacks in programs and general operations costs.)

Amendment 23 does not protect any of the factors in the School Finance Act, leaving open the possibility that the Legislature may decide to reduce these factors and give districts less money based on such reductions. These funding cuts are typically called "rescissions."

What's Next?

We anticipate that the Governor will release his proposed budget in November after the election. Legislative Council and OSPB (state planning and budget office) will release the figure the state will use for the rate of inflation for the next fiscal year.

The rate of inflation (based on the Denver-Boulder Consumer Price Index) was 4.7% for 2001. According to a state estimate this September, the inflation rate could be as low as 1.9% in 2002, rising only to 2.8% in 2003. An inflation rate this low will have a significant impact on the amount of money created by the Amendment 23 requirement that the Legislature fund K-12 education at the rate of inflation plus 1%.

The Amendment 23 maintenance of effort is 7.9% for FY 2002-03, set in the last legislative session. The Legislature agreed to drop this to 5.8% next year. If the Amendment 23 "escape clause" ever kicks in – because personal income growth is less than 4.5% in the last two years – the maintenance of effort does not have to be at least 5%. If this happens, the Legislature can take more money from the State Education Fund to pay for K-12 base funding, and the Education Fund will deplete faster.

There are competing interpretations of exactly when the personal income growth is measured, i.e., which two years? If Coloradans' personal income has dropped significantly, as is expected, this may be the year that the various interpretations are sorted out and an agreement is reached so everyone has the same understanding of exactly how the Amendment 23 escape clause works.

Watch for an update in the Leader Mailing in November or December on K-12 School Funding and what we can expect the Legislature to do. We'll include our positions on funding and what we think needs to be done, as well.

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