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January 21, 2014

School debt levy redirects funds across Indiana

INDIANAPOLIS — School officials and state legislators from around the state are searching for ways to keep the school buses running — and children safe on the streets — pending the loss of millions of dollars for school transportation.

More than 50 school districts in Indiana stand to lose at least 20 percent of their revenues for transportation, new buses and other big-ticket projects under a new law that requires them to first pay off their debts.

The law, slated to go into effect later this year, comes as many cash-strapped districts are still struggling to adjust to property tax caps passed by lawmakers in 2008.

The new law would severely impact the schools in counties that saw dramatic drops in the value of their commercial and industrial bases last year — a drop that has already cut deeply into the taxes they collect to keep buses running and repair leaky roofs.

Goshen Community Schools, for example, stand to lose 47 percent of their revenue for transportation and capital projects, or a $3.5 million loss. School officials, who’ve already seen a 20 percent drop in property tax revenues due to the tax caps, have cut back bus routes and informed more children they’ll have to walk or find another way to get to school.

“This is a working community,” said Goshen Superintendent Diane Woodworth. “We know parents have to leave home before their kids go off to school, so they rely on those school buses.”

Woodworth has asked teachers to urge students affected by the bus cuts to stay on the sidewalks when they walk to school — especially on dark, winter mornings when streets are snow-covered and slick. School nurses have stocked extra clothing for children who arrive wet after walking through rain or melting snow.

“It’s frightening some mornings to see those children out walking in the dark,” Woodworth said. “I just pray, ‘Please, children, stay on those sidewalks.’”

School districts across Indiana were affected when tax caps limited revenues to pay for a range of services and projects. Under current law, school corporations can spread those losses over several funds, including debt service, school pension debt, capital projects, transportation and bus replacement.

But the new “protected levy” law, passed in 2012 and delayed until this July of this year, removed that flexibility. It requires districts to apply their property tax revenues to debt payments before other expenses.

The Legislative Services Agency, the nonpartisan research arm of the General Assembly, found the new law impacts school districts differently. About one-third of school districts won’t see immediate reductions in revenue available for transportation and capital projects when the new law goes into effect this summer. But the LSA report also noted that an increasing number of school districts may face this funding dilemma in years to come as the tax caps continue to erode school revenue.

Reasons vary as to why some schools are impacted more than others.

Sen. Luke Kenley, R-Noblesville, the powerful Senate Appropriations chairman who backed the protected levy law as a way to protect bondholders, said some districts got themselves into this fix by overbuilding and taking on too much debt before the tax caps cut into their revenues. Other districts, he said, suffer from poor financial management.

“You have schools where somebody hasn’t managed money well in the past and now they’re in a jam,” Kenley said.

In Muncie, where school officials have been criticized for not making tough cuts in the past, the situation is critical. Muncie schools stand to lose nearly 90 percent of their transportation funds under the new protected levy law. Last November, voters turned down a referendum that would have raised local taxes to keep school buses running. In response, Muncie schools asked state officials to let them drop bus service next year — a request that’s been denied.

Some state legislators looking for a solution for the problem said poor financial management isn’t the only reason for the districts’ woes. Schools confronting declining property values and a large share of residential taxpayers — who proportionately pay less in property taxes than business — also find themselves in a pinch.

There’s no consensus yet on what the fix needs to be. State Sen. Randy Head, R-Logansport, has proposed creating a grant program, administered by the state Department of Education, that would help hard-hit schools replace revenue lost by the property tax caps.

Other proposed legislation would give schools more flexibility in paying off debts by easing some of the restrictions imposed by the new protected levy law. Some school officials, meanwhile, are asking legislators to create another local-option income tax to funnel more money directly to school districts.

Rep. Todd Huston, R-Fishers, has a bill that would give more flexibility to school corporations to deal with the impact of the loss of revenue from the tax caps. Among other things, his bill would delay implementation of the protected tax levy law for three years and it would differentiate between debt incurred before and after the tax caps went into effect. Doing the latter could put more money back into school transportation funds.  

Huston’s bill was heard by the House Ways and Means Committee Tuesday, where it received cautious support.  

Kenley, meanwhile, said he’s also confident that a temporary solution will be found during this year’s short, legislative session that must wrap up by March 15. But he also expects legislators will return next year, during the longer budget session, to re-examine larger issues of school funding.

“We’ve got to determine what’s causing some of these [funding] problems, and we need to look at them in the long run,” Kenley said. “We don’t want schools not to be able to provide transportation for their students.”

Maureen Hayden covers the Statehouse for CNHI, the Tribune-Star’s parent company. She can be reached at maureen.hayden@indianamediagroup.com. Follow her on Twitter @Maureen.Hayden.



 

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