Deep Cuts Go Deepest in Poorest Rural Places

Last Updated: June 26, 2009

This article appeared in the June 2009 Rural Policy Matters.
When states slash education budgets — as most states are now doing — it’s low-wealth rural districts that often take the biggest hits, even though they are usually the districts with the lowest levels of per-pupil spending to begin with. 
The primary culprit in this double inequity is property wealth, or rather the failure of school finance policies to make up for the reality that property in rural areas is by and large much less valuable than property in urban and suburban areas and therefore generates much less revenue for schools.
This revenue trap is made worse by lower rural incomes and higher poverty levels in many rural areas, and — in states where local sales taxes are part of school funding — by low levels of local sales in small communities.
Most rural schools are left with no way to close the funding gap with more urban places.
Many states do have mechanisms for sending more money to low-wealth districts. But only in a few states does the extra funding come anywhere near closing the gap. 
The upshot is that most rural schools spend less per pupil and draw a larger percentage of funding from state sources. So, reductions in state funding (as in the current recession) have a proportionately larger impact on low-wealth rural schools, which have even fewer possibilities than other schools of making up the loss. It’s a downward cycle.
Making matters worse, the mechanisms that make up some of the difference in property revenue are coming under increased fire in some states.
That’s what happened in Washington State, where last minute filibustering saved — at least for the time-being — funding that makes up a portion of the difference in local revenues between high and low wealth school districts.
The story reveals much about the challenges facing rural districts and why public policy matters, even in states where the school finance system looks a lot different than it does in Washington.  

A Step Toward Equalization

Like many states, Washington caps the amount local districts can spend on schools. In this case, the state’s cap of choice is to limit the local share of school funding to 24% of most state and federal funds that the district receives. In other words, if District A receives $10 million in state and federal funding, it can spend up to $2.4 million in funding from local tax revenues. There are some minor variations in the formula, and some wealthy districts are grandfathered at higher local percentage caps, but in general contributions to schools from local property taxes (property tax is called a “levy” in Washington) cannot exceed the 24% cap. 
But because property values are much lower in rural places, tax rates must be much higher to reach the 24% cap. Neal Kirby, principal of Centralia Elementary School and Chair of the Committee for Levy Equalization explains: “A 24% levy in Granger school district [where 96% of students qualify for free or reduced lunch], would require $8.80 per $1,000 in property value in 2008; in the wealthy Bellevue district a 24% levy is achieved with just 72-cents per $1,000.”
To put that difference in perspective, Kirby explains, “To fund a 24% levy, a $150,000 home in Granger would have to pay over twice the taxes of a $1 million home in Bellevue.”
That’s where the state’s levy equalization provision comes into play. It allows low wealth districts to tax at the average state rate (the rate required to reach the 24% cap) and funds the difference — but only for half (12%) of the allowable 24% local contribution. The lower the per-student property values of a district, the higher the state match per student, generally. Wealthy districts do not get money from the fund because they can easily reach the 24% cap, even with low tax rates.

Equalization Threatened

This year, with the state looking to make big spending cuts, levy equalization was under attack, and a number of proposals were put forth to reduce or eliminate equalization funding. 
“The levy system is grossly unfair,” says Kirby, “and cutting equalization makes it worse.”
For example, “In 2008 the state average tax rate was $1.06 per $1,000 assessed valuation to collect a 12% levy,” says Kirby. “Due to low per student property values, Yakima School District would have needed a 2008 tax rate of $3.47 to get a 12% levy. Because of levy equalization, the local taxpayers paid $1.06 per thousand, and the state provided a match to insure the funds raised are equal to a 12% levy.” 
He continues, “The second half of the allowable 24% levy is not matched by the state and taxpayers would pay the full $3.47 for the second half of the levy. Without levy equalization, Yakima would have paid a tax rate of $6.94, but with the state match for the first half, the rate for a 24% levy is reduced to $4.53 ($1.06 for the half matched by the state and $3.47 for the half not matched).”
Although levy equalization lowers the differences, it but does not bring full equity. Bellevue’s 72-cent rate raised the full 24% levy in 2008, but Yakima’s much steeper tax rate, even with equalization, reached just 17.6% of state and federal funds.
Some critics of equalization charge that many poorer districts are not funding the full 24% allowed by law. But residents of those districts point to their much higher tax rates as evidence of their tax effort and willingness to support their schools. 
Kirby says that the Washington districts that benefit most from equalization have higher percentages of students living in poverty and higher percentages of Hispanic and Native American students. But their overall lower funding levels mean they also tend to have larger classes, fewer programs, lower teacher salaries, fewer supports for teachers and students, tougher working conditions, greater teacher workloads, and, not surprisingly, higher rates of teacher turnover. 
Adding insult to injury for low-wealth rural schools, were legislative proposals to raise the levy cap to 28% (35% for grandfathered districts). “That would be a boon to wealthier districts that can keep tax rates low and boost their school budgets,” Kirby says “But it would not help poorer districts because, like Yakima, most aren’t at the 24% cap.”
So it was that during the most devastating recession in generations, a number of proposals circulated in the Washington state legislature to reduce funding to the most financially strapped school districts while enabling the wealthiest districts to increase spending on their own schools. 

Last Minute Showdown 

“In the last hours of this session, the House Republican caucus with a handful of Democratic allies essentially filibustered until the Speaker tabled the bill so they could finish other items,” before the end of the session, explains Kirby. That filibuster kept the equalization provision intact, and because the law requires full funding, low-wealth districts will actually see a $66 million increase, bringing equalization funding to $489 million for the biennium.
Rural residents across the state breathed a collective sigh of relief for their schools. But the battle may not be over. If state revenues continue to fall a special session could be called to re-write the state budget, in which case levy equalization could be back on the table.
“And, regional salary funding is a hot topic in Washington right now,” adds Kirby. Proponents advocate for even more state funding to the richest districts (and less to some of the poorest) on the very shaky assertion that living in poor and rural areas costs less and therefore that teachers, despite much tougher working conditions and greater professional challenges, can be paid less to work there.
But that is another story of rural inequity, related to property wealth to be sure, but with its own policy arc and its own set of challenges.
Interested in other ways citizens can be involved? Don’t miss Rural North Carolinians Get Involved in State Budget Process.
Read more from the June 2009 Rural Policy Matters.