I.
The state allocates more taxpayer money to K-12 education ($5.4 billion) than anything else, yet school finance in Wisconsin is complex to the point of being nearly impenetrable. […]
We are nearing the point at which the way state aids are allocated to schools is simply too complicated for the average citizen to understand. If that’s the case, how can citizens be expected to hold elected officials accountable? How can they influence the process?
- Understanding School Finance in Wisconsin: A Primer (Michael Ford, 2013)
This month, the Wauwatosa School District will continue discussing its budget for the following school year. Despite a presentation during last week’s school board meeting entitled, “2022-2023 Proposed Preliminary Budget,” I actually had a difficult time understanding how much the school district thought it might spend next year and where it would get the money to pay for it.
A few numbers did appear during the presentation—there was one that was around $85 million dollars and then another around $65 million dollars—but from what I can gather1, total spending will probably be closer to $130M than either of those figures. That’s a lot of money.
[Update 6/3/22: I realized the following paragraph is mostly wrong, because it doesn’t compare the school district and the city’s budgets on equal terms. Both have what’s called a General Fund which is what most people talk about when they talk about budgets. The school expects to spend around $85M from its General Fund. The city expects to spend $70M from its General Fund. But each has a number of other funds. If you add them all up (which is also perhaps fraught because there can be inter-fund transfers), the school district spends around $130M but the city spends around $120-140M as well, so they are roughly equal in terms of revenue and spending.]
The school district is separate from the city, but if they were combined, the city would be spending $130M on education and then about half of that—$70M—on everything else that cities are supposed to do. Instead of a city with a school district inside, in terms of financial flows, we have a school district with a city grafted to it.
A big portion of this money comes, of course, from local property taxes. The proposed budget over the next several years has what people in public finance call a “mill rate” of about $8 per $1,000 of assessed property value. You might remember that the City of Wauwatosa only charges a mill rate of $7 per $1,000 in property. If the budget for the school is nearly twice that of the city but property taxes are only 15% higher, how does this whale of public bureaucracy stay afloat? What keeps its great, barnacled flukes flipping and flapping?
The simple answer is that the state of Wisconsin spends a lot on education too: $8B of its $19B budget. Most of this money is distributed to local school districts.
I want to talk about what the state spends that money on, and how, and then I want to talk about how much the school district is getting and spending, but first I want to talk about Donald Trump.
II.
It’s not what you think.
In the opening to a chapter of political scientist James Q. Wilson’s (1932-2013) 32-year-old, eminently readable but eye-glazingly entitled 450-page book Bureaucracy: What Government Agencies Do and Why They Do It, he relates the following anecdote:
On the morning of May 22, 1986, Donald Trump, the New York real estate developer, called one of his executives, Anthony Gliedman, into his office. They discussed the inability of the City of New York, despite six years of effort and the expenditure of nearly $13 million, to rebuild the ice-skating rink in Central Park. On May 28 Trump offered to take over the rink reconstruction, promising to do the job in less than six months. A week later Mayor Edward Koch accepted the offer and shortly thereafter the city appropriated $3 million on the understanding that Trump would have to pay for any cost overruns out of his own pocket. On October 28, the renovation was complete, over a month ahead of schedule and about $750,000 under budget. Two weeks later, skaters were using it.
Some people, Wilson says, will see this as just another illustration of the obvious superiority of private enterprise over public bureaucracy, but he wants to make a different point. Mayor Koch and Donald Trump both faced problems of accountability, efficiency, fiscal integrity, and equity but their constraints were much different.
The City was required by law to give every bidder for the job a fair shot—they had to put out detailed requirements, couldn’t talk to contractors outside the bidding process, and had to follow a transparent process for selecting among them. Trump could select whoever he thought was best suited for the job. The City wanted to refurbish the ice rink but, since the idea was originally floated shortly after the Arab oil embargo, it also wanted to minimize fuel costs for the refrigeration system. Unfortunately the one they chose wasn’t up to the task, and the project was delayed. Trump didn’t have this constraint—by 1986, the City just wanted the job done. When the project was delayed and went over budget, nobody in government lost their jobs. If Trump had cost overruns, he’d have to pay for them out of his own pocket.
Private business has narrow goals and few constraints in realizing them. Government, by design, has expansive goals and many constraints. Wilson continues:
When we complain about skating rinks not being built on time we speak as if all we cared about were skating rinks. But when we complain that contracts were awarded without competitive bidding or in a way that allowed bureaucrats to line their pockets we acknowledge that we care about many things besides skating rinks; we care about the contextual goals—the constraints—that we want government to observe. A government that is slow to build rinks but is honest and accountable in its actions and properly responsive to worthy constituencies may be a very efficient government, if we measure efficiency in the large by taking into account all the valued outputs.
III.
It is helpful to keep this in mind when trying to understand school finance, because it turns out that the state, and often by consequence the school district, wants not only to educate its residents but to do many other things as well: to provide property tax relief, to encourage direct democracy, to be just and egalitarian by helping poorer districts more than wealthier ones.
It wants not only to educate the most motivated or most capable residents but the blind, the deaf, the mentally disabled, the malingering, the criminal, the hospitalized, and…those secluded on islands among vast lakes of ice2. It wants to do these things not simply because some bureaucrat thought it’d be a great idea but because at some point, somewhere, some member of the public or some constituency group righteously and perhaps justifiably demanded that the government also consider this other righteous and perhaps justifiable goal, and the government, because it is ostensibly democratic, complied.
The complicated laws and formulas that distribute and direct money to local school districts, the state budget with 80 separate3 buckets of money devoted to various education initiatives, are not the product of incompetence or some idiot’s master plan to befuddle and confuse the average resident, but mostly just reflect the government trying to do all the things people ask it to do, at once.
So how does it work?
Well, you could watch this video from the Department of Public Instruction (DPI) about how school funding works and why it needs to change, but I wouldn’t recommend it. I think sometimes there's a misconception that if you illustrate something with pictures that look like they were drawn by a child then it will be understandable by a child. But I don't think this is true, because...I'm much smarter than a child, and I still didn’t understand.
There's a number of vague statements from school board members and small business owners/moms about how we're really not spending enough money on education and that the solution is to spend more money. I admit that a child could understand this but I don’t think they would really understand anything. And the DPI's preferred mechanism to increase spending is to keep taxes down but have the state pitch-in more money. So I think DPI is being the child here, and if I was its parent I would say, “Okay, DPI, but where does the state get its money from?"
So, I did watch the video. But I tried to read a few other things as well. And I’ll try to explain what I learned.
As I said, one of the state’s goals in distributing money for education is to provide property tax relief. To do this, the state decides not only how much it will give an individual school district, it also sets a limit (called the Revenue Limit) on how much additional revenue the district can raise from property taxes. Essentially, the state of Wisconsin tells its school districts: This is how much money you're allowed to raise per student. We'll give you some of it based on a byzantine formula that is one part math and one part political wrangling, and you can get the rest (but no more!) via property taxes.
The money the state gives to local school districts via this formula is known as Equalization Aid. In the last budget it was a little over $5 billion dollars.
First, to determine each district’s revenue limit, it takes:
The amount the district spent per student last year, and
The number of students in the district (this is more complicated than it looks but basically means students that reside in Wauwatosa whether they go to school there or not),
And multiplies them.
(3) is how much revenue the district is allowed to raise via a combination of Equalization Aid from the state and local property taxes.
Wauwatosa spends about $11,000 per student and has 5,900 students, giving it a revenue limit of just under $65M dollars.
There are a lot of caveats, and occasionally the state will add $100 or $200 to (1) to account for inflation but it’s not guaranteed and hasn’t happened very often in the recent past. This irritates people who have to make the budget, because they don’t know if the state will give them that extra money and how much it will be. And they can’t entirely predict how many students they’ll have. For Wauwatosa, this can cause swings in projected revenues of several million dollars.
Next, because the state wants to give more Equalization Aid to poorer districts and less money to richer districts, it asks:
How much property the district has per student. For example, if the city has property worth $7B dollars, and 5,900 students live in the district, there is $1.2 million dollars of property per student
If you have a high property value per student you get less from the state (and therefore must generate more from local taxes) and if you have a low property value per student you get more from the state (and therefore need to generate less from local taxes). The goal is that if two districts spend about the same amount of money per student, they would have rough equal property tax rates even if one was much poorer than the other.4
But this is only half the story.
Because there are dozens of additional sources of funding called categorical aids for various purposes that don’t count against your revenue limit. If you have students that need special education you can get extra money, if you want to offer student mental health programs you can get extra money, you can get extra money for library books, money for bilingual education aids and programs for the deaf and blind, reading assessments, robotics leagues, and did I mention money for transporting marooned island-children over vast lakes of ice? And sometimes the state gives you extra money just for kicks. It’s called Per-pupil Aid. It’s worth $742 for every student in the district, and you don’t even need to ask for it. This isn’t all it’s cracked up to be though, because not all categorical aids get funded every year, and it’s hard to predict if the money you got this year can be depended upon next year.
And then you have students from outside the district that don’t live in Wauwatosa. These don’t raise your revenue limit but their originating school district still gets money for them and that money is (partially) transferred to your district where they attend school there. For instance, the Wauwatosa School District has 1,317 (Source) students who live outside the district but they only receive 76% of the money they would get for resident students.
And of course, because the State of Wisconsin also wants to encourage direct democracy, if you decide you still need more money and want to collect it via higher property taxes, you must do it via referendum.
Unless of course you need money for something like property tax chargebacks (not sure what this is), community service funds (not sure what this is), and capital expansion (I can guess) in which case you can levy additional property taxes for it without it counting against your revenue limit.
As you can see, there are a lot of variables here that can make budgeting difficult because different buckets of money might or might not get filled, the state might have more or less equalization aid to distribute, it may or may not bump up your per-pupil revenue limit to keep up with inflation, property values can decline, and students can dis-enroll.
The end result is you make a lot of guesses, present your budget to the School Board, and Mr. Meiers says:
There are six to seven fundamental assumptions here which run contrary to everything I have come to understand while serving on the board. So, with that out there—other board members—you will think what you think, but I'm shooting off a big distress flare here. A lot of things have to go perfectly for this whole thing to work, and some of these things have never happened before—realistically. We would have non-resident enrollment at the highest level ever. We would have resident enrollment at the highest level in over 20 years. We would have an increase in pupil aid which we've been praying for for many many years. It has cuts in health care benefits, decrease in base wages. I don’t know how. It’s late. I’m done for today.
IV.
So how much revenue will the school district have next year? How much will it spend? How much money does it already have?
The unflappable5 Roger Dixon, who gave the budget presentation on May 23 and who will be replaced as Finance Director by Mr. Keith Brightman as of June 1, made the following comment in passing: “Wauwatosa is unique in its significant fund balance. […] you've managed it very well.”
But he never mentions where this fund balance is or how much money it consists of. I think he’s referring to the fund balance in the district’s General Fund where most revenue accrues. And based on this other document from the year before, I think it’s around $30M dollars.
And the school district has another chunk of money in its Capital Projects fund. This is the money it borrowed to build and renovate most of the schools and which residents agreed via referendum to pay back over the next 20 years. It was $127M in 2019 but is closer to $4M now.
It also has $10M in its Debt Service fund.
And a few million dollars spread across various other funds.
The total here is about $47M.
And what are the district’s projected revenue?
$57M will come from property taxes. $42M of that will be for general operations subject to the revenue limit, $13M was approved by referendum for new school buildings and will go toward paying down the associated debt, and $2M is for a few things that apparently can be funded with property taxes but don’t count towards the revenue limit.
Another $40M will come from the state. I think this is a combination of equalization aid and some categorical aid.
$2M from federal and other miscellaneous revenue.
$14M for special education (from the state?)
$5M for food service and community service
The total here is about $118M
And what are the district’s projected expenses?
$85M for things like paying teachers and making the sure the building is cleaned.
$20M for debt service
$14M for special education
$5M for capital projects approved by referendum
$5M for food service and community service.
The total here is $129M
It kind of makes sense? I mean, they’re spending more than they’re bringing in, but you would expect this since the revenue from the referendum occurred in 2019 but was expensed over multiple years. And maybe if I hadn’t rounded all the numbers the expenses and revenue would line up better. I’m not sure. In any case, I think this whale will keep floating for another year.
Next year’s budget will be discussed in more detail on June 13.
For example, see the second to last table in the 2020-2021 Budget Publication called Total Expenditures and Other Financing Uses
Only one school district gets reimbursed for lake-ice transportation, and I don’t know enough about Wisconsin to guess which one that might be.
Well, 99, but 19 of them were not allocated any money in the 2021-2023 budget.
If you want to know exactly how this works, read Appendix 1 of this report or read through the example here.
He really was. I liked this exchange at about the 4 hour 10 minute mark
Nice analysis. There really needs to be reassessment in the legislature of how funding is done. The current system is 30 years old, with three US census’s (censi?) having been done bbthat time. Unfortunately I don’t get the sense there’s much appetite for such an endeavor.
I suspect the lake-ice district might be Bayfield, or perhaps Ashland,
with the community on Madeleine Island