School officials and state legislators from around the state are searching for ways to keep the school buses running — and children safe on the streets — pending the loss of millions of dollars for school transportation.
More than 50 school districts in Indiana stand to lose at least 20 percent of their revenues for transportation, new buses and other big-ticket projects under a new law that requires them to first pay off their debts.
The law, slated to go into effect later this year, comes as many cash-strapped districts are still struggling to adjust to property tax caps passed by lawmakers in 2008.
The new law would severely impact the schools in counties that saw dramatic drops in the value of their commercial and industrial bases last year — a drop that has already cut deeply into the taxes they collect to keep buses running and repair leaky roofs.
The two biggest districts in Clark and Floyd counties aren’t immune to the impacts, though one has more to lose than the other.
Fred McWhorter, chief business officer at the New Albany-Floyd County Consolidated School Corp., said the total impact of protecting debt service and pension funds from circuit breaker impact is about 9 percent of its transportation fund.
He said about half of that comes from protecting the other two funds within their capital projects fund, but it comes out to about $400,000.
“It definitely could impact how we deal with transportation, bus replacement and capital projects,” McWhorter said. “We’ll have to find ways to reduce our budget to compensate for that, which could mean reduced services. An alternative would be to dip into the rainy day fund. You can only do it for so long. It’s just a temporary stopgap.”
He said the joint school board meetings held among the four districts in both counties have talked to local legislators — Rep. Ed Clere, R., New Albany and Sen. Ron Grooms, R., Jeffersonville — about continuing to allow pension and debt service funds to take an impact from property tax caps.
“We’re hopeful they reconsider the need for the protected taxes,” McWhorter said. “It doesn’t affect the tax bill at all to the individual taxpayer, it’s all how the money is allocated once it’s collected. If they do this protected taxes fix, all it does is allocate those funds to CPF and transportation where we need it, not the debt services fund. Essentially, it’s taking away local control. I’m sure our community would rather have bus service than extra money in the bank for debt service.”
Though part of the intent was to help districts with their bond ratings with various agencies, he said it actually hurts them because those agencies look at budgets as a whole, not just how much they owe.
In Greater Clark County Schools, the overall CPF budget could suffer a 25 percent loss. Tom Dykiel, chief financial officer, said losing more than $1.5 million in that fund has an effect on what it’s able to do in terms of replacing old buses and managing maintenance projects on school grounds.
But because it ended this year in the black with all of their CPF funds, he said it’ll be able to replace anywhere from four to six buses. As some of their fleet ages, the district has concerns for the safety of students and drivers.
The real hit is going to impact what it can do in building maintenance, though.
He said in spite of a $1.8 million bond issue, the district could replace two out of three boilers in schools because it didn’t have the money in CPF.
He said he hopes legislators revisit the changes to help schools more.
“I hope they allow us to put it on all five because with debt service and pension, you can do a year and a half budget,” Dykiel said. “You’re not really hurting those funds like you are the others where you can only do a year at a time, that’s the major difference.”
School districts across Indiana were affected when tax caps limited revenues to pay for a range of services and projects. Under current law, school corporations can spread those losses over several funds, including debt service, school pension debt, capital projects, transportation and bus replacement.
But the new “protected levy” law, passed in 2012 and delayed until this July of this year, removed that flexibility. It requires districts to apply their property tax revenues to debt payments before other expenses.
The Legislative Services Agency, the non-partisan research arm of the General Assembly, found the new law impacts school districts differently. About one-third of school districts won’t see immediate reductions in revenue available for transportation and capital projects when the new law goes into effect this summer. But the LSA report also noted that an increasing number of school districts may face this funding dilemma in years to come as the tax caps continue to erode school revenue.
Reasons vary as to why some schools are impacted more than others.
Sen. Luke Kenley, R-Noblesville, the powerful Senate Appropriations chairman who backed the protected levy law as a way to protect bondholders, said some districts got themselves into this fix by overbuilding and taking on too much debt before the tax caps cut into their revenues. Other districts, he said, suffer from poor financial management.
“You have schools where somebody hasn’t managed money well in the past and now they’re in a jam,” Kenley said.
Some state legislators looking for a solution for the problem said poor financial management isn’t the only reason for the districts’ woes. Schools confronting declining property values and a large share of residential taxpayers — who proportionately pay less in property taxes than business — also find themselves in a pinch.
There’s no consensus yet on what the fix needs to be. State Sen. Randy Head, R-Logansport, has proposed creating a grant program, administered by the state Department of Education, that would help hard-hit schools replace revenue lost by the property tax caps.
Other proposed legislation would give schools more flexibility in paying off debts by easing some of the restrictions imposed by the new protected levy law. Some school officials, meanwhile, are asking legislators to create another local-option income tax to funnel more money directly to school districts.
Rep. Todd Huston, R-Fishers, has a bill that would give more flexibility to school corporations to deal with the impact of the loss of revenue from the tax caps. Among other things, his bill would delay implementation of the protected tax levy law for three years and it would differentiate between debt incurred before and after the tax caps went into effect. Doing the latter could put more money back into school transportation funds.
Huston’s bill was heard by the House Ways and Means Committee Tuesday, where it received cautious support.
Kenley, meanwhile, said he’s confident that a temporary solution will be found during the short, legislative session that must wrap up by March 15. But he also expects legislators will return next year, during the longer budget session, to re-examine larger issues of school funding.
“We’ve got to determine what’s causing some of these (funding) problems and we need to look at them in the long run,” Kenley said. “We don’t want schools not to be able to provide transportation for their students.”
— Maureen Hayden covers the Statehouse for the CNHI newspapers in Indiana. She can be reached at email@example.com. Follow her on Twitter @Maureen.Hayden