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What’s the Deal with Education Funding in Colorado?

Most local lawmakers agree that the way P-12 education is funded in the Centennial State should change. So what's standing in the way?

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If there’s one thing state legislators can agree on, no matter their party affiliation, it’s that the way schools are funded in Colorado should change. But the failure of Amendment 73—which would have increased taxes to fund P-12 education—in the 2018 midterms was a reminder that solutions are hard to come by.

Education has been funded mostly the same way in Colorado since 1994, when the Public School Finance Act—which dictates how the state collects and distributes revenue for education—was adopted. Twenty-four years later, local lawmakers and policy experts say the problem with this system is twofold: First, there just isn’t enough money to go around (you’ll find sympathy for this idea more readily among Democrats than Republicans). Colorado spends about $7 billion per year on P-12 education, or about $7,662 per pupil per year, which is considerably less than the national average (approximately $12,526). Calculated by per-pupil funding by per-million dollars of income, the State Legislature’s Interim Committee on School Finance found Colorado’s rank ranges from 39th to 47th in the country.

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Second, the Public School Finance Act, or rather, the formula it established to determine how to distribute money to Colorado’s 178 school districts, is the object of universal disdain. Funds are distributed first by how many pupils each district has. The per-pupil baseline is adjusted across districts to reflect a few key factors—cost of living and personnel cost of living (so districts that are expensive to live in get a little more money per pupil), size of a school district (smaller districts get a little more per pupil, to reflect the different economy of scale), plus additional funding (12–30 percent of that district’s per-pupil rate) for at-risk pupils, which is determined by how many students qualify for the federal free lunch program. Once districts receive that funding, they have a great deal of control over how it’s spent.

“We’re still allocating in ways that are not demonstrably linked to achievement,” says Leslie Colwell, vice president of education initiatives at the Colorado Children’s Campaign, a nonprofit group that advocates for education and healthcare for kids. “We allocate more than $1 billion for the cost of living factor, and that overwhelming goes to districts where it’s expensive to live, but those are also districts that have the ability to raise funds locally.”

Legislators in both parties are pushing for a complete overhaul of the 1994 formula to reflect a paradigm shift in how we fund schools. House Majority Leader-elect Alec Garnett (District 2) says that rather than allocating funds to school districts based on the number of students and giving extra money for special needs and at-risk populations, funds should be allocated on a per-pupil basis, with greater insight into each student’s needs. He says our definition of “at-risk” students is too obtuse, and calls for tiers of poverty levels, as well as recognizing the different stages of language acquisition for English language learners.

But Garnett says the only way such a formula can be effective is if it’s paired with increased funding. “If you don’t have additional revenue on top of the formula, what you’re doing is you’re kind of moving the deck chairs around on the Titanic, but you’re picking winners and losers,” Garnett says. “The problem with finance is when you’re dealing with winners and losers, there is a real chance that you could have a negative impact on a generation of kids.”

In rewriting the formula, Garnett has an ally in Republican state senator-elect Paul Lundeen (District 9). Lundeen served two terms in the state House (District 19), and was a key member of the Education Committee. “We’ve gotten to the point where Republicans and Democrats are looking at each other and saying, ‘Yeah, we are not providing equal opportunity to students, and part of the reason is that the formula’s broken,” Lundeen says. “Let’s reevaluate that formula and let’s make that formula about students first. In that conversation, I think we find unity.”

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But unlike Garnett, Lundeen suggests rewriting the formula first, and asking voters to raise revenue later. “It’s just a logical method of optimizing and managing what we have,” Lundeen says. “It’s what the taxpayers said when they voted no in a significant way on Amendment 73. They said show us that you’re optimizing the [education funding] that we’re already spending, first, and then there’s a second conversation that may be engaged.”

With so much consensus around the problem, what’s keeping this antiquated system for funding education in place? In the simplest terms, lawmakers point to four factors that limit funding options and stifle policy change: 

1. The Gallagher Amendment

The Gallagher Amendment is a state constitutional provision that affects how property taxes are assessed in Colorado. It’s crucial to understanding why the state’s education budget isn’t bigger. Gallagher, adopted by voters in 1982, requires that 45 percent of an area’s property taxes come from residential properties and 55 percent come from commercial properties. Due to skyrocketing residential property values in Colorado’s booming housing market, the Gallagher Amendment has caused residential property tax assessment rate to drop from 21 percent in 1982 to about 8 percent today, which has choked revenue. (This is exacerbated by TABOR, which we’ll get to in a moment.) Currently, property tax revenue accounts for $2.3 billion of the state’s $7.3 billion education budget.

Since the 1980s, the Gallagher Amendment has proven sticky. But it might be due for redress: The Alternatives to the Gallagher Amendment Interim Study Committee floated three proposals to change or repeal the amendment earlier this year. State Rep. Daneya Esgar (D-District 46), who chaired the committee, expects this work to continue in the upcoming session.

2. TABOR

Colorado’s Taxpayer Bill of Rights (TABOR) has also substantially limited revenue growth from taxes, which lawmakers and experts say has hurt education funding. TABOR does this in two ways. First, it requires all new taxes be approved by voters. Second, it limits tax revenue growth to inflation plus population growth, meaning tax revenue can only grow in small increments. So, if the economy takes a dip (and tax revenue shrinks) and then bounces back, tax revenue can only grow by a small percentage more than the shrunken revenue of the year before, even if the economy has grown substantially more than that. 

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“Even though Colorado’s economy is doing incredibly well right now,” says Tracie Rainey, executive director of the Colorado School Finance Project, “Unfortunately that benefit doesn’t get translated to additional dollars for K-12 public schools.”

Not only does income tax revenue not grow in step with the Colorado economy, but when the Gallagher Amendment drives residential property taxes down, TABOR keeps them down. Together, Gallagher and TABOR have an exacerbating effect in limiting property tax revenue, which is why Gov. John Hickenlooper last week asked the Colorado Supreme Court to evaluate how these pieces of legislation jointly affect taxes.

Colwell says this system forms for the “basis for inequity” in the way Colorado funds education: Communities pay property taxes at arbitrarily varying rates across the state. In some cases, districts seek voter approval on mill levy overrides to fund education, which approves property tax increases for that district. In the 2018 midterms, communities across Colorado voted on 21 mill levy overrides and passed 15, according to the Colorado School Finance Project

3. Voters

In 2018, voters didn’t approve any new taxes at the state level, yet they elected a progressive governor in Jared Polis, who ran on bold education policies like universal all-day kindergarten and expanded access to Pre-K. What does that tell us about the electorate’s priorities around education funding? Rainey says voters value education, especially at the local level, but don’t trust the state with their tax dollars. 

“That was shown in the local override elections,” Rainey says. “People do realize that there needs to be more funding … But [passing localized funding solutions] doesn’t address the issue of equity, it just creates more inequity in the system.”

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Luke Ragland, president of Ready Colorado, a conservative education advocacy organization, echoed a similar point: “The most important thing to remember is that Amendment 73 wasn’t a referendum on whether people want great schools. That’s not what people were voting on. They were voting on a gigantic tax increase that had no sort of tie-in to actual student improvement.” 

4. Legislators, Leaders, and Coalition-Building 

Garnett says a narrow coalition, like the one that backed Amendment 73, is a kiss of death for education initiatives. “The problem is 73 was a small group of stakeholders. It was not the broad coalition that you would need to get something across the finish line,” he says. If you look at Referendum C and D from 2006, those coalitions were enormous.” (Referendum C passed, raising the TABOR cap, and Referendum D would have allowed the state to borrow money for infrastructure projects, but failed.)

In this enduringly purple state, where unaffiliated voters are essential, lawmakers must drum up widespread, bipartisan buy-in if a new education funding formula (and its accompanying tax increase) stands a chance of passing. This is why Democratic control is no guarantee of an education funding overhaul—if anything, legislation pushed through with only the support of one party is likely doomed to fail. 

“The best legislation is when there’s a Democrat and a Republican, and an urban and a rural combination,” says State Sen. Nancy Todd (District 28), a retired public school educator. “[But] will there be an opportunity to pass some legislation that did not pass in the past? Yes, I think there will be.”

State Rep. Janet Buckner (District 40), for example, says House Democrats intend to push for the realization of Polis’ promise for universal all-day kindergarten and expanded pre-k (source of funding, she says, is TBD), as one of their first orders of business in the next session. But expect to see Democrats reach out, at the very least as a matter of gesture, for Republican support.

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“My hope is that it will be done in a bipartisan manner,” Todd says, “That it will be a matter of being able to work across the aisle, being able to help people feel like they can be on board.”

When it comes to raising revenue for education by raising taxes, there is no other way.

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