Issues in Finance

Issues in Finance

GAEL Secretary and Support Personnel Conference

September, 2007

Taxes and the Budget

Snapshot of State Spending FY 1991($7.6B)

FY 2007($17.6B)

Education 51.4% 53.8%

Medicaid and PeachCare 9.0% 12.5%

Health and Social Services 12.3% 8.9%

Criminal Justice 9.6% 9.9%

Transportation 6.6% 3.8%

Debt Service 4.6% 4.9%

Homeowners Tax Relief Credit 2.5%

All Other State Agencies 6.5% 3.8%

Over 75% of the state budget is spent on education, healthcare, and criminal justice. These three areas drive the state budget and are increasing both in cost and population faster than overall inflation and population growth.

Existing and Emerging Needs

Georgia is the 9th largest and 5th fastest growing state.

Populations served by state government programs are growing faster than overall population.– Overall population growth 1990-2005 = 39%– Medicaid population growth 1990-2005 = 126%– Prison population growth 1990-2005 = 153%

There are existing education, healthcare, transportation, and other service demands, as well as the emerging needs of our growing population.

Linking Taxes and the Budget

Georgia needs a tax system that fairly raises sufficient revenues to meet the education, healthcare, criminal justice, environmental, and transportation needs of a modern, growing 21st century state.

Adequacy of Funds

Georgians are paying less in state taxes as a percent of income.

Fairness of Tax System

Georgia has a regressive tax system.

Budget Outlook FY 2008 and Beyond

Continued Federal Budget Cuts Continued Population Growth and

Demographic Changes– Education

– Healthcare

– Transportation School Funding Lawsuit

Tax Cut Culture But at What Cost? Potential tax cuts

– Property tax caps– Eliminate ad valorem tax on cars– Eliminate or further reduce corporate income tax– Eliminate income tax on seniors– Additional sales tax exemptions

TABOR – Limits on growth of state and local revenue growth– House and Senate Study committees

Policy Solutions

Comprehensive Tax Reform and Modernization – Solidify tax base (Relevant to 21st century economy)

• Raise sufficient revenues• Withstand downturns

– Fair and equitable state tax system– Targeted tax cuts

Contact Info

Alan Essig

100 Edgewood Ave

Suite 1040

Atlanta, GA 30303

404-420-1324

www.GBPI.org

How are Public School Systems Funded?

Federal Funds = 7.40%State Funds = 51.26%Local Funds = 41.34%

*According to the Georgia Department of Education website.

State Funding

QBE = Quality Basic Education Act - includes the “formula” used to earn funds through a partnership involving state and local revenues

Some state revenue for public education is allocated through a set called “categorical grants” - for example, that’s how transportation is funded.

The state pays each system an amount of money for each student based on a QBE “foundation formula.”

What is added to the QBE “foundation formula”?

The QBE foundation formula is “weighted” to allow for differences in cost between grade levels, classes and/or students with different needs.

The QBE foundation formula for FY05 = $2,362, which is the revenue earned from the state for one regular high school student. This amount is then added to or “weighted.”

Qualifying for QBE Funds

Districts are required to levy the equivalent of at least five mills in property taxes as a basic local commitment.

All districts then have revenues equal to the “local five mill share” (LFMS) deducted from their total QBE earnings, and the state pays the balance of the earnings.

Local Funding

Property taxes make up the primary source of revenue for local school systems. These funds are used for the operating budget.

Special Purpose Local Option Sales Tax (SPLOST) funds can be used for capital expenditures like buildings and technology, but NOT salaries and other operating expenses.

What Did Georgia School Systems Spend on Instruction

in 2004?The average that Georgia’s local school systems

spent per FTE* in 2004 = $7,261.37

Of that amount, $5,031.41 went directly to instruction

*Per FTE or Full Time Equivalent student ** According to Georgia Department of Education website.

Funding Challengesin Georgia

• Underfunded Mandates Three of many examples:

- Textbooks - State does not pay the full cost of a textbook

- Instructional equipment and supplies used by teachers in the classroom

- Sick leave - funds used to pay for substitute teachers

Salaries - State does not pay the cost of many benefits associated with teacher salaries (e.g. Social Security costs)

Increasing enrollments - means increased need for teachers (salaries/ benefits), classrooms, textbooks, etc.


Recruitment and retention of highly qualified teachers

Need to educate an increasingly diverse student population

Competition for funding at the state level - Medicaid, Public Safety, etc.


Limited sources of revenue- School systems have little flexibility in

using state or federal funding- Use of SPLOST or bond revenues has

limited flexibility- Wide variance among systems in

wealth limits ability to raise revenue


Current IssuesChallenging Boards of Education

State Funding Adequacy in Funding Court Case SPLOST and Bond Referendums Accountability for Student Achievement NCLB Promotion and Retention Changing Demographics Class Size Highly Qualified Teachers Charter Schools/Vouchers SACS and BOE Governance Fluctuating Economy

Local revenues are the only place the local Board has any discretion….

Local Revenues usually makes up 25% to 45% of the Total

General Fund Revenues….

85% to 90% of the total General Fund Expenditures is in salaries, most of which are mandated

Key Points

State Budget – Revenue $20,230,620,936 FY 2008 Proposed

Corporate Income Tax

4%Individual Income Tax

45%

Motor Fuel4%

Sales32%

All Other11%Lottery

4%

State ExpendituresFY 2008 Proposed

Other12%

Health20%

Debt5%

Education55%

Public Safety8%

General Information

180 School Systems (159 County/21 City) Plus Others Approximately 2,159 Schools

– Elementary - 1,284– Middle - 450– High - 415– K-12 - 10

Full-Time Equivalent Students = 1,607,836 Certificated Personnel = 123,638+ Other:

– Pending Lawsuit (Adequacy)– Governor’s Education Finance Task Force (Weights Task Force)– Adequacy vs. Equity

Full-Time Equivalent Students

System FTEs Rank

Gwinnett 155,813 1

Cobb 107,910 2

DeKalb 99,878 3

Richmond 32,532 10

Tift 7,482 45

Dodge 3,418 90

Bacon 1,748 135

Taliaferro 244 180

State Total 1,528,098 100%

Top 15 Systems = 50% of FTEsTop 45 Systems = 75% of FTEsTop 90 Systems = 90% of FTEs

QBE Austerity Reductions By YearFY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008

Equipment Replacement (2,853,878) (2,853,878) (2,853,878) (2,853,878) (2,853,878) (2,853,878)Maintenance and Operations (2,889,356) (2,889,356) (2,889,356) (2,889,356) (2,889,356) (2,889,356)Media Materials (14,132,148) (14,132,148) (14,132,148) (14,132,148) (14,132,148) (14,132,148)Staff Development (16,194,438) (16,194,438) (16,194,438) (16,194,438) (16,194,438) (16,194,438)Central Administration (2,700,000) (2,700,000) (2,700,000) (2,700,000) (2,700,000) (2,700,000)Additional Instruction (2,100,000) (2,100,000) (2,100,000) (2,100,000) (2,100,000) (2,100,000)

FY 2004 Reductions (156,764,424) (156,764,424) (156,764,424) (156,764,424) (156,764,424)FY 2005 Reductions (176,070,678) (176,070,678) (176,070,678) (176,070,678)FY 2007 Restoration (Class Size) 163,164,787 163,164,787FY 2008 Restoration (Redirects) 29,763,895

TOTAL (40,869,820) (197,634,244) (373,704,922) (373,704,922) (210,540,135) (180,776,240)

Documents

Issues in Finance