EDUCATION IS A STATE FUNCTION 

The Tenth Amendment to the Federal Constitution indicates that responsibilities not specifically granted to the federal government by the constitution automatically become the obligation of the states. Since education is not mentioned, it becomes a responsibility not of the federal government but of the states. Further, Article 10 of our state constitution provides for the establishment of school districts "as nearly uniform as practicable." Through legislative action, in Chapter 121.01 of Wisconsin statutes, it has further been declared that "Education is a state function" and that the state shall "guarantee a basic educational opportunity to each pupil." In accepting the responsibility for education the State of Wisconsin has also maintained that it should provide financial support to school districts in order to "provide property tax relief." 

DISPARITIES EXIST IN WISCONSIN 

Wisconsin contains 426 separate school districts each with its own unique characteristics. In fad, there is considerable disparity among school districts in terms of their ability to provide educational programs. The major source of revenue for school districts continues to be the local property tax and yet the ability to generate revenue by this means varies greatly from one district to another. Last year, across Wisconsin, the tax base available to school districts ranged from $73,947 to $1,285,844 per pupil with a state average of $204,206. With such extreme disparity in available tax base it is no wonder that spending per pupil in 1994‑95 varied from $5113 to $12,915 per pupil with the state average being $6966. The statistic that perhaps surprises people the most is the fact that tax effort exhibited by communities across Wisconsin varies dramatically. 1994 local mill rates (tax liability per $1000 in property value) for K‑12 school districts in Wisconsin ranged from $5.74 to $29.02 with the state average being $16.60. 

Graphs 1‑3 show the distribution of Wisconsin school districts in terms of available tax base, spending, and tax effort. Each of the graphs illustrates the number of districts at each threshold. 

Table 1 shows where districts within Marathon and Wood Counties as well as Stevens Point fall in comparison to these state statistics.

EQUALIZATION AID FORMULA 

Given the wide disparity in available tax base, the State of Wisconsin has chosen an equalized approach to the distribution of state school aids. This is a method whereby a local community's ability to pay is measured by comparing its available tax base to an amount guaranteed by the state. To do this, the state guarantees that every district will be treated as if it has a predetermined (guaranteed) amount of tax base at its disposal. What it actually has is then compared to that guaranteed amount. If it has less, the state makes up the difference. If it has more, it receives no state equalization aid. To determine how much aid a district receives, the district's available tax base is compared to the guaranteed tax base to develop a ratio of sharing. For example, if the state guaranteed that all districts would be treated as if they had $300,000 in available tax base, a district with $150,000 in equalized value per pupil would have 50% of what the state guarantees. This would result in the district and the state sharing costs at that ratio, 50/50. For $5000 in spending, therefore, the district would need to generate $2500 from property taxes and the state would contribute $2500. The current school aid formula contains two levels of sharing and the approved formula for 1996‑97 has three tiers. 

The school aid formula contains a built‑in disincentive for higher spending by sharing in higher costs at a lower ratio or in some cases not at all. This is facilitated by guaranteeing a lower property value against higher spending. If the "secondary" guarantee dropped to $200,000 per pupil in the example, the district with $150,000 per pupil tax base would then contain 75% of what the state guarantees. As a result, the state would only pay for 25% of costs at the secondary level. Districts spending above the primary level (in 1994‑95 that was $5617) may sacrifice some of their primary aid if their property values exceed the secondary guarantee. This is a phenomenon called "negative aid" which is used to redirect the distribution of the state dollars to communities in greatest need. 

While Wisconsin's system of paying state aids is better than many, it, too, has its drawbacks. The equalization approach is designed to treat taxpayers equitably from one community to another. Wisconsin's method stops short of full equalization however. True or complete tax base equalization would result in taxpayers in any two communities that spend the same would pay identical tax rates (mill rates). In such a system, any variance in tax rates would only be the result of different levels of spending as opposed to tax base. Additionally, every community would have the identical ability to sponsor educational programs. As it is now, given the disparities in local abilities to raise revenues, educational opportunities vary as well. While the basic formula applied in Wisconsin is designed to reduce inequities from one community to another, there are some situations within and outside the formula which do just the opposite. 

FACTORS CONTRIBUTING TO INEQUITABLE FUNDING IN WISCONSIN 

While wealthier school districts in Wisconsin do not benefit from the Equalization Aid Formula because their available tax base exceeds the state's guarantee, they do receive Minimum Aids instead. This aid provides a guarantee that all districts will receive state general state support of at least $100 to $400 per pupil, depending upon the income of the community and the relative tax rate. The total cost of this program is $22 million and results in earmarking dollars which represent property tax relief for only about fifty of the wealthiest communities in the state. These dollars are distributed in direct conflict with the principles of equalization. 

Beginning in 1996‑97 the state plans to eliminate Minimum Aids but intends to provide even more dollars to the wealthiest communities by adding a third tier to the existing equalization aid formula. The new "first" level of sharing, however, differs greatly from the application of equalization in Wisconsin to date. R does so by guaranteeing all districts aid through the use of a guaranteed value high enough to include every single district. Then, unlike the current formula, districts are not made to sacrifice aid from the first level if their wealth exceeds the guarantees at the second and third levels of sharing. This creates a windfall for wealthy districts. As revealed in a Legislative Fiscal Bureau analysis of this effect, 111 Wisconsin school districts or 26% gain and 316 or 74% lose with the application of the three tier formula and the increase of another $150 million in School Levy Credit approved this past summer in Wisconsin Act 27. 

Table 1 shows the impact of the 3‑Tier formula on Central Wisconsin school districts by showing whether the district gains or loses in the shift from the existing two tier to the new three tier formula. A district with a loss or negative number fairs better under the current formula. 

Another major factor in disequalizing tax efforts in school districts across Wisconsin is the School Levy Tax Credit. These are the "below the line" credits found on each of our tax bills. In essence, the state is paying a portion of our tax bills for us. The inequity, however, lies in the manner in which these dollars ($319 million this year and $469 million in 1996‑97) are distributed. If the same dollars were included in the school aid formula, they would be paid to communities on the basis of ability to pay. The credits are, instead, distributed on the basis of the percentage a community's school levy is of the total property tax levied for school purposes across the entire state. Hence, a very wealthy community with little state support and an expensive educational program may have, in terns of dollar levy, a high proportion of the state total. Its residents, therefore, become eligible for a higher percentage of the credits than might taxpayers in a poorer community whose tax rate may be much higher even though they are spending much less on their educational programs. 

Distributing these dollars in the form of a credit instead of a direct equalized school aid provides state money to all taxpayers in every community. These credits are consequently shared with out of state residents with second homes in Wisconsin as well. If the same dollars were equalized, they would be directed instead to the communities in greatest need of tax relief. 

While there are many more examples of ways in which our method of distributing school aids and credits needs to be re‑examined in the interest of tax fairness and educational equity, the major issues have been summarized here. Table 2 compares two Central Wisconsin school districts with two suburban Milwaukee communities to show the contrast in available tax base, spending and tax effort. In addition, Example 1 shows the tax impact on a $200,000 home in each of these school districts. 

REVENUE LIMITS 

This is the third year of the state imposed Revenue Limits on Wisconsin public school districts. These limits restrict the amount of revenue a district may raise from its two most important resources; state school aids and local property taxes. Restricting these revenues serves to restrain the spending of local districts. By curtailing local spending, the state has lowered its cost of getting to and potentially adhering to the promised two‑thirds level of state funding. 

For the first two years of the Revenue Limit higher spending school districts were advantaged by a greater allowable per pupil increase in revenues (i.e. spending) than were lower spending communities. This is how it worked. Districts were given the option of using the state determined allowable per pupil increase, which was generated by applying the previous years inflation rate to the prior year's base, or they were able to apply the consumer price index(cpi‑u) to their own base, whichever was greater. Below is a chart showing the range in what they had available: 

1993‑94 (1ST Year of the Revenue Limits)

Allowable Increase                                      $190 or cpi‑u
                                                                       Cpi‑u = 3.2%
Range available to individual districts =      $190 ‑ $355

These per pupil amounts were added to the prior year's actual cost per pupil. Therefore, districts who traditionally spent at a lower ratio or those who happened to have budgeted at a lower than normal increase, or those who under spent their 1992‑93 budgets are disadvantaged for the duration of the revenue limits since the original base cost per pupil will continue to influence the allowable revenue per pupil each year of the limits.  

1994‑95 (2ND Year of the Revenue Limits)

Allowable Increase                                       $194.37 or cpi‑u
                                                                       Cpi‑u = 2.3%
Range available to individual districts =    $194.37 ‑ $261 

Again, higher spending districts were offered an option that advantaged them in the second year as well as for the duration of the limits. 

1995‑96 (3RD Year of the Revenue Limits) 

Allowable Increase                                  $200.00 applies to all districts
with an exemption for low‑spending districts (discussed later).
The allowable increase is set in statute rather than being determined by the cpi‑u. 

1996‑97 (4TH Year of the Revenue Limits) 

Allowable Increase                                           $208.00
The allowable increase is set in statute rather than being determined by the cpi‑u. 

Wisconsin ACT 27 included a number of changes to the Revenue Limits. First, it made the state controls permanent. The original law called for the sunset or elimination of the limits in 1997‑98 unless action was specifically taken to retain them. Many were not pleased with the imposition of the limits from the start, largely due to their inequitable application across school districts as well as the fad that similar restraints were not placed on other governmental entities also responsible for taxing locally. It was understood, however, that there was a desire to constrain local spending at a time when the state had made a promise to substantially increase state sharing in local school district costs. 

The use of the sunset in the original law provided for an opportunity to review the impact of the limits on both educational programs and property taxpayers as the end of that five‑year period drew to a close. The legislature could have then chosen to eliminate them, extend them or to modify and extend them for another prescribed period of time. Instead, the decision was made to make them permanent. This decision was made before the conclusion of the second year of the limits, well before their impact could really be studied on a statewide basis. 

Another change in the application of the limits is that low‑spending school districts were granted an exemption to the cap. Districts whose revenue is below $5300 per pupil in 1995‑98 or $5800 in subsequent years are allowed to bring their revenues up to those levels. While this flexibility enhances local control, it is being said that the gap in spending per pupil across Wisconsin will be narrowed as a result and that school funding will somehow become more equitable in the process. In reality, the gap may not be narrowed. It is unlikely that every district that is offered this flexibility will make use of it. After all, these are traditionally low‑spending districts who, until two years ago, had the authority to tax and spend at whatever level they desired. If they chose not to increase spending dramatically in the past they may be just as unlikely to raise spending abruptly now. Further, in order to take advantage of this provision, the local taxpayers have to be willing to tax themselves sufficiently to cover the entire cost of the increase in the current year since the increase in state aids due to greater spending will not be paid until the following year. 

Narrowing the gap in spending among Wisconsin school districts is also dependent upon the behavior of the high‑spending communities. If residents of high-spending communities approve, through referendum, of increased spending on capital projects or to specifically exceed the revenue limits, the cost per pupil on the upper end will grow beyond the allowable per pupil revenue increase. 

The disparity in spending aside, those districts that spent at a higher level prior to the inception of the revenue limits will continue to have the greatest flexibility as to how they deliver programs to children in their communities. Having had a higher base in 1992‑93 will continue to benefit them for the duration of the caps, which presently

are designed to be in place forever. If, by chance, the behavior of both low and high-spending districts would serve to lessen the disparity in spending in school districts across Wisconsin, the permanent revenue limit would only serve to lock the the existing inequities in place. 

Table 1 shows the 1994‑95 revenue limit per pupil experienced by school districts in Marathon and Wood Counties and in Stevens Point. It also includes the range in allowable spending across Wisconsin. Table 2 includes the allowable revenue per pupil for the two suburban Milwaukee school districts as well. 

CONCLUSION 

We have an opportunity in Wisconsin, with the commitment to raise state funding of elementary and secondary education to the two‑thirds level, to make our system of taxation more equitable. With so much additional money being added to the school aid formula, an appropriate redistribution should take place. Property tax relief could be aimed at the communities most in need by equalizing all of the new dollars as well as those in the current allocations. The result would be a reduction in the disparity in tax efforts across the state with a likely lessening of the wide spending variance as well. Educational opportunities for children across Wisconsin should not be based on where they are born. 

If decision‑makers in Madison are truly committed to providing a significant increase in the amount of school aid, then some form of spending control may also be important. Any such control, however, should not penalize youngsters in one community over another and should be equitably applied across all school districts. Those same decision‑makers should perhaps reconsider the permanence of such controls as well, so that their impact on educational programs and taxpayers alike would receive periodic review.