Budget & Finance

Ohio Program That Bails Out Fiscally Ailing Schools Raises Concerns

By Karla Scoon Reid — April 07, 2004 2 min read
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Ohio’s latest school funding tussle finds the state bailing out bankrupt school districts, a practice that critics contend defies a court ruling that was among the decisions declaring the state’s education finance system unconstitutional.

Some observers characterize the cash advances as yet another symptom of the Buckeye State’s flawed method of paying for its schools. Over the past five years, 18 districts have received a total of about $59 million in loans.

At least one lawmaker, however, calls the advances a necessity.

“So what are we going to do?” said Sen. Robert A. Gardner, a Republican and the chairman of the Senate education committee. “Are we going to close the schools down in April?”

That’s exactly what William L. Phillis, the executive director of the Ohio Coalition for Equity and Adequacy of School Funding, said may need to occur to spur the legislature to make substantial changes to the way Ohio funds its schools.

He said the state supreme court’s 1997 ruling that the school aid system was unconstitutional also ordered the elimination of a practice that forced districts to borrow money from the state and pay interest to meet ordinary expenses. (“Justices Reject Ohio System of School Finance,” April 2, 1997.)

Mr. Phillis, whose Columbus-based coalition filed the funding lawsuit in 1991, contends that the “school district solvency assistance fund” is essentially the same loan arrangement with a new name. He predicts that more districts will rely on state bailouts: According to a state report, half of Ohio’s 612 school districts are projecting budget deficits by 2006.

Interest-Free Advances

Tim Keen, the state’s assistant budget director, argues that the solvency-assistance fund, which was established in 1997, is not a loan program. School systems are not charged interest, and instead receive cash advances on future state funding, he said.

Districts seek advances for many reasons—management problems or shifting tax bases, for example—most of which are not related to the school aid formula, he said.

Mr. Keen added that the state had heightened its financial-monitoring processes to identify financially troubled districts before they go bankrupt.

And though school systems’ budget projections appear gloomy, he said the financial forecasts are a planning tool to help districts identify upcoming problems. He said that in the end, it’s likely only a handful of districts will face budget deficits in 2006.

But statewide, districts are projecting larger deficits than in previous years, and more districts are reporting potential shortfalls, said Barbara Shaner, the director of legislative services for the Ohio Association of School Business Officials.

Districts will respond to bleak financial forecasts by reducing spending and passing school levies, Ms. Shaner said. Yet, she noted that in March, 52.6 percent of the proposed 228 local school funding measures were rejected by voters—the highest failure rate in the past decade.

“We’re having the situation where districts have progressively gotten into fiscal emergency because of the way the funding system works,” Ms. Shaner said. “If you’ve got to borrow against the future—whether you pay interest or not—it can’t make it easy for you to get back on your feet again.”

Sen. Gardner, though, stressed that the state has increased K-12 funding by up to 2.5 percent annually over the past few years. The elementary and secondary education budget is $7.9 billion for fiscal 2004.

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