Supreme Court case ‘a virtual earthquake’ for public schools

Thomas Jefferson wrote in 1802 that the First Amendment created “a wall of separation between Church and State.” A case before the U.S. Supreme Court today could not only tear down that wall – it could declare that efforts by the states to enforce the wall are unconstitutional.

Supreme Court Building

Supreme Court Building

The case, Espinoza v. Montana Department of Revenue, concerns a Montana program that provides tax credits for donating to tuition scholarships for private schools, most of which are religious schools. A type of school voucher program, it’s not as blatant as the Indiana program that directly funds tuition for students in religious schools, but it accomplishes the same purpose.

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Tax caps cost schools hundreds of millions

It seemed like such a good idea at the time. Indiana legislators enacted property tax caps over a decade ago. Then, in 2010, we added them to the state constitution by a referendum vote of 72% to 28%. I don’t recall much talk at the time about consequences for school funding, but we’re seeing them now.

In some school districts, the consequences look to be devastating.

According to data from the Indiana Department of Local Government Finance, public schools are losing about $268 million in revenue this year as a result of caps. That’s over one-tenth of their total levy, the amount of property tax revenue the districts would otherwise be able to raise.

The impact of the caps varies widely, with big losses for some large and urban school districts: $18.3 million for Indianapolis Public Schools, $17.7 million for Gary Community Schools and $12.3 million for Wayne Township (Indianapolis) schools.

Chart showing schools with biggest tax cap losses.

School districts with the largest losses from property tax caps. Source: Indiana Department of Local Government Finance.

Gary schools are losing almost half of their potential local property tax levy.

When it comes to lost revenue per pupil, the biggest losers include Gary Community Schools, $3,535; Muncie Community Schools, $,1,620; Beech Grove School Corp., $1,450; Anderson Community Schools, $1,298; and Westfield-Washington School Corp., $1,134.

It’s probably no accident that Gary and Muncie are the two Indiana districts to be labeled financially “distressed” and taken over by the state. Muncie was later transferred to Ball State University.

Chart of school districts with largest property tax cap losses per pupil.

School districts that lose the most money per pupil from property tax caps. Source: Indiana Department of Local Government Finance.

Terry Spradlin, executive director of the Indiana School Boards Association, noted that the state’s 290 school corporations have lost nearly $1 billion to tax caps in the past four years. The legislature has provided districts some flexibility for managing the losses, but it’s still a struggle.

“These are significant issues that are long-term, and there are no easy solutions,” Spradlin said.

Under Indiana’s school funding system, the state pays most school operating costs, including salaries and benefits for teachers and other school employees. But school corporations rely on local property taxes to pay for transportation, capital projects and construction debt.

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Property tax caps: the “other referendum”

Indianapolis attorney Fran Quigley writes this week in the Indy Star that approving the proposed Indiana constitutional amendment on property tax caps amounts to buying a used car without test-driving it.

“So far, the engine has been coughing and a funny-colored smoke is belching from the exhaust,” he writes in a guest opinion column. “It seems every day we are hearing more bad news from Indiana communities: teacher layoffs in Anderson, extra-curricular school programs canceled in Bloomington, bus routes and libraries at risk in Indianapolis.”

For voters in Bloomington, the constitutional amendment is the “other referendum” that will be on the ballot Nov. 2. It seems almost certain that the Monroe County Community School Corp. will propose an increase in local property taxes to help fund operating costs. At the same time, there will be a statewide vote on whether to enshrine property tax caps in the constitution. It could make for some confusion.

Political experts say the tax-cap measure will pass in a landslide. Results have been mixed on school-funding referendums around the state.

The property tax caps – 1 percent of assessed value for owner-occupied residences, 2 percent for farms and rental homes and 3 percent for business property – are already in state law. Supporters of the amendment say they want to protect the caps from some future legislature that would undo them.

The more likely rationale is that the law is vulnerable to a challenge by farm and business groups under Article 10 of the Indiana Constitution, which requires a “uniform and equal rate of property assessment and taxation.”