Report on SC's Education Funding Fix

From StatehouseReport 5/14:

Why there's a wait to fix education funding

By Bill Davis, Editor
MAY 14, 2010 -- This was supposed to be the year the General Assembly tackled the issue of public K-12 education funding. It wasn’t. Next year will be. They swear.

What happened?

After Act 388 went into effect three years ago, the majority funding source for public K-12 education flipped from residential property taxes to a  1-cent state sales tax increase. In turn, several larger counties got surprised, fiscally, losing tens of millions of dollars in state education support.

One of those counties was Charleston, home to arguably the most powerful legislator in the state, Senate President Pro Tempore Glenn McConnell, a Republican.

After listening to the wails of his local school district as it tried to patch up the massive funding leak, McConnell swore to address the formula funding in the state’s Education Financing Act. That act, a relic of the 1970s, established the amount of state money that a county received based on its ability to contribute locally to its education budget.          

Prior to Act 388, a major source of school district funding was from local property taxes. But after Act 388, everything changed because new and volatile sales tax revenues didn’t cover the stable amount that had come from property taxes. So down went school budgets in places like Charleston and Beaufort counties. And yet McConnell did nothing this year to push through change.

That’s not to say no education reforms were pushed through, as the legislature gave counties more “flexibility” in spending state dollars to run their school districts. Basically, legislators loosened the reins, but replaced the team dragging the wagon with smaller horses.

Education spending, in actual dollars, in the new 2010-11 budget will drop to spending levels rivaling the mid-90s, unadjusted for inflation, according to several sources.

Worse next year

It could get worse next year, as the state is facing an expected $1.1 billion shortfall in its General Fund budget, thanks to a dragging economy, lagging tax collections and the evaporation of federal stimulus monies.

McConnell said this week from his corner office in the Gressette Building that the reason he did nothing this year was because he was looking for political leverage to get something done right, and something that was sweeping.

The recession, according to McConnell, has provided him with strong enough leverage to bring the counties who were benefiting more from the EFA formula to the table, because “now everyone is suffering.”

Formula funding may be antiquated and slanted, but it was entrenched and unassailable until the recession dragged everyone down to the same level,  McConnell said.

But the recession has changed that.

Recession could lead to real change

Senate Finance Chairman Hugh Leatherman (R-Florence) said this week that the recession could become the largest agent for change in next year’s budget-writing session. And perhaps beyond, the Taxation Realignment Commission’s mid-November report could divine a path to an entirely different state funding structure altogether.

TRAC’s effects are already being heard in the House, where Rep. Phil Owens (R-Easley), chair of the Education and Public Works Committee, said “something has to be done.”

Owens claimed that 54 percent of the state General Fund budget goes to education, and that legislators should consider applying every solution -- including resorting to zero-base budgeting, where even the most basic questions of what the state should be providing would be picked over.

Like Leatherman, Owens said he hoped the TRAC commission does good, well-researched work, in part, because the state is headed to an overall fiscal crisis, and also because the last effort to reform the EFA died in committee two years ago.

A study committee in the House looking into EFA two years ago not only failed to report out a bill for consideration, but never submitted a final report, according to several still-miffed legislators in both the House and Senate.

That the TRAC commission recently switched to a workgroup/issues format borrowed from the success of the Sentencing Reform Commission has emboldened hope in some legislators, who worry that the already-delayed TRAC report will receive the same dusty fate so many similar efforts have suffered in the past.

House Minority Leader Harry Ott (D-St. Matthews) said this week he knew why, despite all past rhetoric and promises, the General Assembly failed to act on public K-12 education funding this year. To him, it was simple and plain.

“We’re driving this train into the abyss,” said Ott, saying that the legislature won’t act until the crisis really hits home next year. “To extend the train analogy: the only light we see at the end of the tunnel, is another freight train, and we’re going to collide with it next year.”

Crystal ball: If Ott is right, then next year will be as bloody a budget fight as has been projected. But then the question will be, if you saw this coming last year, why didn’t you act then? Regardless of irony and history lessons unlearned, if TRAC puts out a solid report followed by legislative action, then South Carolina could see a major tax structure overhaul next year. If not, then expect the legislators to play it safe and put up Band-aid bills. And considering the amount of fiscal bleeding expected, it could be a whole, lot of Band-aids.