When Pulaski County adopted a historic 13-cent real estate tax increase in 2018, the locality identified itself as one both willing and able to fund a major school capital project.
Pulaski County voters stepped up to generate the revenue necessary to build a new middle school. Through their passage of the November 2017 referendum, county residents voiced a desire to do more.
In some localities, it’s simply a matter of political will. But for those in economic distress or with low property wealth, it can be impossible.
But it is challenging to assess a locality’s ability to pay for school construction projects, differentiating between those who are unwilling and those who are unable. This isn’t something Virginia measures. There’s little need, given that localities are largely on their own for building and renovating school facilities, regardless of their wealth.
Funding formula flaws
Still, a number of measures can help to provide insight to a locality’s capacity to fund capital projects.
Local property taxes account for the bulk of revenue in most localities, making it an important indicator of their ability to pay. But that figure doesn’t always tell the full story, said Hamilton Lombard, a demographer with the Weldon Cooper Center for Public Service at the University of Virginia.
He provided Bath County as an example: The real estate tax rate is relatively low in Bath County, but it has other major revenue drivers not captured by real estate tax, namely the Dominion Resources pumped storage electric facility and The Omni Homestead Resort.
The state uses a formula known as the composite index to assess a locality’s ability to pay for its school operations and determine how much the state should contribute. Lombard said it’s a good metric overall, particularly when comparing localities within a given region.
But it’s less useful when comparing Northern Virginia to Southwest Virginia. That’s because of the immense gap between the highest and lowest median incomes across the state, which Lombard said are in Loudoun and Dickenson counties, respectively. The median income in coalfields’ locality Dickenson County is roughly $30,000; meanwhile in suburban D.C. community Loudoun County, it’s about $130,000.
“You don’t find any other state in the U.S. that has that large a gap between two counties income-wise,” Lombard said. “So when you try to do a top down funding, it’s very hard when you have such a huge gap in trying to have a formula that works everywhere.”
The state also maintains what’s known as the fiscal stress index, which demonstrates a locality’s ability to generate additional local revenue based on its existing tax base compared to the rest of the state.
The main criticism of that measure, Lombard said, is independent cities tend to appear more fiscally stressed. City taxes may be higher, but he said citizens get more in return in terms of services provided.
The factors that inform such indexes and formulas — median household income, taxes collected, real property value, among others — illustrate the vast differences in wealth and fiscal health between localities across the state.
School construction spending was particularly hard hit when budgets tightened in the face of the 2007-09 Great Recession.
A 2015 report on Virginia’s K-12 spending from the Joint Legislative Audit and Review Commission found 90 of the state’s school divisions were spending less per student to operate K-12 facilities than they had 10 years prior. Twenty divisions spent at least 20% less per student, and some at least 40% less.
Often this was achieved by deferring facilities maintenance, renovation or construction, which the report indicates ultimately increased costs for most school divisions.
A 2018 report by the Center on Budget and Policy Priorities found school capital spending fell by 33% in Virginia between 2008 and 2016. Chris Duncombe, policy director at the Commonwealth Institute for Fiscal Analysis, said the figure illustrates this is a challenge for school divisions across the state.
“There’s a lot of horror stories about deteriorating buildings and these numbers just help corroborate that,” he said. “This is systemic.”
Though capital projects are largely funded by local governments, Duncombe said state policy still has an effect on their ability to finance them.
For example, he said, the reduction in state funding for education caused localities to shift money they might ordinarily set aside for capital projects to operational costs in an effort to stem losses of teachers or support staff.
Local school divisions were additionally burdened when the state “zeroed out” the limited support it provided for capital projects during the recession, Duncombe said, much of which has still not been restored.
Virginia is just outside the top 10 states when it comes to per capita income, but in the bottom 10 for state per pupil funding. The commonwealth spends $4,907 per student, while the national average is $7,097, according to the 2019 edition of JLARC’s study comparing Virginia to other states.
“The state has not borne the appropriate responsibility in funding public schools across the commonwealth,” Duncombe said.
Finding the money to make greater investments in school facilities may seem challenging, but Duncombe said the state’s $797 million surplus from the fiscal year that ended June 30 could have been a good starting point. However a significant portion of that surplus, the majority of which is the product of changes to federal tax law, was directed to taxpayer relief.
“So there are revenues coming into the state that could have been used for public education, but they have been allocated toward tax cuts,” Duncombe said.
What other states do
Many states wrestle with how to assess a locality’s ability to pay for school capital projects, said Mary Filardo, executive director of the 21st Century School Fund, a Washington, D.C.-based group that advocates for better school facilities.
Effort has to be taken into consideration. Some localities have property values so low that the government would have to adopt tax rates unreasonably burdensome to their residents to generate the money necessary to fund a big project, Filardo said. Others have the ability, but simply don’t make the effort, perhaps because of a lack of political will.
“It’s a very different scenario when you have taxable wealth that you’re not bothering to tax and not taking care of your buildings,” Filardo said.
States that provide funding for school facilities often develop methods to measure a locality’s ability to pay to ensure funding is distributed equitably.
Though the formulas vary by state, they are crafted with the same question in mind, Filardo said: “How should state funding be allocated so that we’re rewarding local effort but we’re not penalizing the lowest wealth communities?”
For example, Arkansas developed a “wealth index” formula to determine what the local government’s match should be on a given project. A 2018 report from an advisory committee indicated the formula provided an advantage to districts where enrollment was growing, though the poorest districts are often those losing enrollment. The committee recommended making changes to the wealth index to address the issue.
Meanwhile Oregon developed a school capital improvement matching program just a few years ago designed to incentivize communities to pass local general obligation bonds. The state will chip in funding — typically up to $4 million, but for some districts as much as $8 million — if a district manages to pass its bond.
State Sen. Bill Stanley, R-Franklin, proposed a ballot referendum that would ask Virginians whether they wanted the General Assembly to issue $3 billion in state general obligation bonds to fund school modernization projects. But the initiative failed to gain legislators’ support.
Had Stanley’s referendum been successful and bonds issued, perhaps Virginia would be working to create a similar formula, Filardo said. If the state had that money, it would have to come up with a system to distribute it.
“Generally what starts to happen is, the states say you have to have a plan, you have to have an assessment. How are we going to know where the needs are and allocate according to need if we don’t have this?” Filardo said.
Lawsuits prompt change
Though some localities could probably step up and do more to improve their school facilities, as Pulaski County did, experts say the state should be contributing funding to these projects.
“I think it’s not reasonable to rely on districts to be solely responsible for any expense, be it on the operating side or on the capital side,” said Kathleen Gebhardt, a fellow at the National Education Policy Center in Colorado.
Gebhardt said she believes it can be difficult to change these policies because this is simply the way things always have been done. Some probably don’t realize the problem. Because operations are equalized in their state, they believe facilities are too, she said.
In some instances, states are prompted to change their funding models and contribute to school capital projects because of legal challenges. A number of school funding lawsuits are active currently.
“It’s a last resort when the elected officials who are responsible to run the system consistently and repeatedly refuse to act in the face of conditions that are simply not acceptable,” said David Sciarra, executive director of the New Jersey-based Education Law Center. He served as counsel in a landmark school funding case in that state.
Sciarra argues having suitable facilities is essential to meeting the state’s standards of quality, as required by Virginia’s Constitution. He said states like Virginia have “delegated their obligation” to local governments.
“You cannot deliver the standards of quality in buildings that are not sufficient to do that,” he said.
Sciarra advocates for the adoption of uniform facilities standards addressing health and safety, enrollment capacity and the amount of instructional and non-instructional space needed to deliver curriculum. Then, each district would conduct a facilities assessment based on those standards to determine need based on the condition of their schools.
“That is a critical, crucial first step that states need to take,” Sciarra said. “And a lot of states refuse to take that step because they don’t want to know.”
Sciarra said it’s important to remember Virginia has chosen to run its education system this way.
“That’s a decision that the governor and legislature can change tomorrow,” he said. “It’s not a local decision. It’s something the local communities are left with doing as a result of the state’s sort of, if you will, unwillingness to step up to the plate and address this particular aspect of the state system.”