Education Funding

Maine Settles on Formula To Distribute Aid—Till Next Year

By David J. Hoff — June 13, 2001 3 min read
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Maine legislators have settled a dispute over how to distribute general aid for schools based on money collected from property taxes. But some participants in the debate say that what has become a rite of spring will result in changes next year.

The annual debate that pits towns with high property values against poorer ones has become so intense that momentum is growing to start collecting school money from other tax sources.

“It’s a constant fight, even though our formula is very fair,” said Rep. Patrick E. Colwell, the majority leader in Maine’s Democratic-led House. “It’s always the most contentious thing we do here.”

Patrick E. Colwell

Mr. Colwell said the historic emphasis on property values in the formula would be the subject of debate in next year’s session. The Senate also is preparing for such a discourse, according to an aide to the Democratic leadership who asked not to be identified.

For the coming school year, school districts with high property values will be spared steep cuts in state general aid because lawmakers created a $5.2 million “cushion” to protect them. Without the cushion, some districts would have lost up to one-third of their state aid. With it, districts’ losses will be limited to 13 percent of last year’s grant.

The state coffers account for about two-thirds of the state’s K-12 spending.

The formula became law as part of the fiscal 2002 budget legislation that Gov. Angus King, an Independent, signed last week.

Out of a Bind

The current formula favors towns with low property values as a way to compensate for their inability to raise sufficient money for schools. In the mid-1990s, the state supreme court declared that the formula met the state’s constitutional standards for fairness.

But the conflict over how to distribute state general-purpose school aid always becomes fierce because changes in property values vary across the state. Coastal and urban areas have seen property-value increases in recent years, far outpacing those in rural and inland areas.

The legislature allocated $701 million in general-purpose aid this year, with an additional $5.2 million for the cushion.

Under Gov. King’s budget proposal, which had no cushion or “hold harmless” provision to protect districts from losses, the city of South Portland, for example, would have lost one-third—or $1.5 million—of its state aid, according to Polly Ward, the business manager for the 3,300-student district.

The formula worked against the city because recent retail development and increases in home prices raised the total value of property there, while the district’s enrollment dropped at a rate faster than the state average, Ms. Ward said.

Even with its share of the $5.2 million cushion, the district stands to lose $550,000 of its state aid. It will have to raise property taxes by $1.33 per $1,000 of assessed value, Ms. Ward said. The increase would allow the district to boost its overall spending about 2 percent.

While the hike in property values gives the appearance that the city is able to raise extra money, it’s not always easy for it to do so, said Rep. Kevin J. Glynn, a Republican from South Portland.

Although residents and business owners have higher net worths because of the property-value increases, they don’t necessarily have more income to pay higher taxes, he said.

Changing Rules

Rep. Colwell said that next year’s legislative session will include deliberation over what he calls the “Michigan model” of school financing. In 1993, Michigan capped the amount that local districts could raise in property taxes and offset that aid with money generated by a 2-percentage-point increase in the state sales tax. (“Mich. Law Bans Property Tax Use To Fund Schools,” August 4, 1993.)

The switch to supporting schools with other taxes would eliminate some of the problems that South Portland and similar communities suffer, Mr. Colwell said, but it might generate new problems.

The benefit of property taxes is that they are a stable source of income and don’t fluctuate much from year to year, he said. If a recession hits, sales-tax receipts slip as consumers postpone purchases that pad the state coffers.

But legislators will be given the chance to weigh those arguments next year, he added.

“I’m optimistic that we’ll have a very serious debate about school funding then,” said Mr. Colwell.

A new formula may help towns that lose out in the property-tax-based formula, but it won’t solve the problem, Rep. Glynn added. The answer may be as simple as increasing the amount of money the state spends on schools.

“The funding formula is designed to be infused with cash,” Mr. Glynn said. “When it’s not, the losers are big losers.”

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A version of this article appeared in the June 13, 2001 edition of Education Week as Maine Settles on Formula To Distribute Aid—Till Next Year

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