Protected Taxes and School Transportation
In January, I wrote Circuit Breakers, Protected Taxes, and Idled School Buses, about the Indiana statute that required schools who have lost revenue from the circuit breakers (including the 1%-2%-3% tax caps in the Indiana Constitution) to prioritize debt funds over any other fund when applying the losses from the circuit breakers. This is due to what in the statute are called protected taxes.
The legislation underlying protected taxes measn that school corporations facing circuit breaker losses had to first fully fund debt funds, even beyond the amount needed to make required debt service payments, which typically meant that capital projects and transportation funds had to bear the full brunt of the circuit breaker losses. This has even led to some school corporations considering ending school bus service entirely.
HEA 1062 Gives a Temporary Reprieve
This week, however, the Indiana General Assembly passed, and the Governor signed, House Enrolled Act 1062, giving school corporations hit heavily by circuit breakers a three-year reprieve. HEA 1062 allows school corporations that are experiencing at least a 10% hit to their transportation funds due to circuit breaker losses to apply circuit breaker losses proportionally to all funds, rather than funding debt service first, for the years 2014, 2015, and 2016.
Rearranging the Deck Chairs?
Welcome as this statute is, it is only a short-term fix for what will be an ever-growing crisis for school corporations around the state. All this action does is give school corporations a little flexibility in how they arrange the deck chairs on the Titanic. In 2013 (the latest year for which the numbers have been determined), the circuit breakers sucked $245M of funding out of our school systems, a number that will undoubtedly increase in years to come, and is nearly impossible to reverse, given the fact that the 1%-2%-3% circuit breakers have been enshrined in the Indiana Constitution.
Just for an illustration of the harm that the circuit breakers are doing to our schools, I pulled together some of the higher circuit breaker cuts for various school corporations around the state (for 2013). I also included their 2014 amounts budgeted for transportation for comparison.
We are fortunate in Monroe County that, due to our relatively low property taxes and high assessed values, our school corporations have been relatively insulated from the effects of the tax caps. Just for comparison, here are the same numbers for our two Monroe County school corporations:
However, we can’t assume that we will always be insulated from this erosion of revenue. The 2014 circuit breaker numbers will be released shortly, and we will be able to assess the impacts on all local units of government.
Note: the sources for these numbers were:
- 2013 Impact of the Property Tax Caps
- Department of Local Government Finance Gateway System – Budget Estimate – Financial Statement – Tax Rate Reports