Weber, Bruce A.

English

Research Papers in Economics

FINANCING  K-12  EDUCATION  IN OREGON
Bruce A.  Weber
Oregon State University
Oregon has set in motion  a very ambitious educational reform pro-
gram at precisely the same time that it is shrinking its tax system and
rapidly equalizing  school spending.  It is  hard to imagine a more cha-
otic  educational  policy  environment.  And  in  November,  Oregon
voters are faced with several initiatives that could further change the
fiscal landscape  in Oregon.
This paper has two objectives:  1) to describe  the system of K-12
education and education  finance in  Oregon,  focusing on the impacts
of four major  policy  shocks set in motion  in the  last five  years;  2)  to
identify four school finance  policy questions that face voters and leg-
islators during the coming year.
Financing K-12  Education in Oregon
Since  1989,  Oregon has  initiated  four shifts in  educational and tax
policy  that are  having a major impact on the organization,  educa-
tional goals and financing of Oregon schools.
Equalization
In  1987-1988,  the average  current expenditure per pupil in Oregon
was $4,011.  Around  this mean was  a range  of $17,220  in spending
from $2,241  to $19,461  (Weber).  Large disparities  in per pupil spend-
ing were one  of the  issues addressed by  the  1988 report of the  Gov-
ernor's Commission on School Funding Reform.
The  1989  legislature  addressed  this issue by  developing  a  state
school  fund  distribution formula  that essentially  equalizes  spending
per student (Figure 1).
Because immediate  implementation  of the formula  would  have re-
quired  very large decreases  in school aid to some districts, during
implementation,  the  legislature  imposed  caps  on  individual  district
gains  and  losses  in  funding  per student.  Because  of the  severe  im-
pact  of  full  equalization  on  some  large  districts,  the  legislature  has
not put the full funding formula into effect yet.
Nonetheless,  significant  progress  toward equalization  has been
made  in  the  last seven years.  Average  operating revenues  per  stu-
dent in Oregon in  1994-1995  are projected  to be $4,184.  The range in
163Figure 1. Oregon's Equalization Formula
REVENUE  PER  WEIGHTED  STUDENT
Districts over 5,000 students
$6,000
$5,000
.................... o  ............. =.
$4,000
$3,000  /
$2,000
$1,000
$0  Low revenue  High  revenue
districts  districts
Hold harmless  Permanent  formula  Old distribution
Excludes  cash  balances
Source: Legislative Revenue  Office
projected revenues per student is  $7,692 ($3,842 to $11,534),  less than
half of the earlier range  (Legislative Revenue Office,  1994a).  Most
districts  are  now  within  10  percent  of the  state  average  (Oregon
School  Boards  Association).  Even though  the  1987-1988  figures  are
not strictly comparable  with the 1994-1995  figures,1 the conclusion
that the  range  in revenues  per student  has  been  halved  in the  past
seven years  is an  accurate  portrayal of Oregon's progress  toward
equalization.
Measure  5
In November  of 1990,  Oregonians passed  Ballot Measure  5, an ini-
tiative that places  new  limits  on  property  taxes and  requires  the
state  general  fund  to replace  lost  property  taxes  for  schools  during
the five-year  phase-in period.
The limit on school property tax rates phases in from $15.00/$1,000
assessed  value  in  1991-1992  to  $5.00/$1,000  in  1995-1996.  During the
first two  years  of Measure  5  implementation,  school  property  taxes
164statewide  declined  5  percent.  This reduction  varied  among districts
depending  on the local rate of growth in assessed  values and on how
high rates were prior to Measure  5.  Figure 2 shows that school prop-
erty  taxes generally  increased  in the fastest  growing  regions  of the
state  and decreased  elsewhere.  By  1995-1996,  it  is projected  that
school operating property  taxes will be about half of what they were
in  1990-1991,  prior to Measure  5's  passage  (Legislative Revenue  Of-
fice,  1994b).
Given the  modest Measure  5 replacement  requirement  in the
1991-1993  biennium (about $500  million  in a $5.9 billion budget) and a
significant growth  in general  fund  revenues  generated  by  a rapidly
growing economy,  the state  moved aggressively  toward equalization
in spending  per student  during the  first two years  of Measure  5 im-
plementation.  State school aid increased 80 percent and per pupil
expenditures  increased  12  percent between  1991-93  (Hill and
Weber).  An attempt  to  hold  high-spending  districts  harmless  led  to
large increases  in state  aid in some  districts and no district receiving
less  state  aid than  it had  received  before.  Figure  3  shows  spending
per pupil increased most dramatically between  1991-1993 in the rural
areas of the state.
Although Measure  5 required the state general fund to replace lost
school property taxes,  it did not require  the state  general fund  to
continue  the  same  level  of "basic  school  support,"  the other  major
source  of  school funding  besides the  property  tax.  (In  1990-1991,
prior to Measure  5,  the state provided about one third of school gen-
eral operating  revenues,  and  the property  tax two  thirds).  Thus,
while the property tax plus replacement  revenue  for schools  con-
tinues to grow since Measure  5, the nonreplacement part of state aid
is declining  as  it competes  in  the state general  fund with  state serv-
ices.
Indeed,  in 1993-1994,  total school operating revenues  declined 5
percent because  increases  in  state aid were not  large enough to  off-
set declines in school property taxes.
Measure  5 has transferred to the state general fund the major bur-
den  of financing  K-12 education  in  Oregon.  In fiscal  year  1994-1995,
state aid  will provide  56 percent  of school operating  revenue  and
property taxes only 44 percent (Legislative Revenue  Office,  1994a).
Changes in Curriculum and Structure
The  1991  legislature,  which convened two months after the pas-
sage  of Measure  5,  passed  the  Oregon Educational  Act  for the  21st
Century,  an ambitious strategy for providing  "the best educated cit-
izens in the nation  by the year 2000,  and a work force equal to any in
the world by the year 2010"  (Oregon School Boards Association).
This  bill  replaced  the state's  requirements  for  "common  curricu-
165Figure 2.  Percent Change in School and ESD Property Tax,  FY 91-FY 93
I:.-}J  .%  :ii-  !::  ......  iiNifiii  ;ii::.-:'~  :ii~iiiiiiiii  ~:i'  - -. i  i:  -..  . ............  I  J
(*.:','.,,'':H"'.''^  ^.--','.:  ,- i.-"-'-""'--  *  . .... .:' ..
/i^^  l..  .. lil......ii.!.  ,  ,.  .ncrease
__  Figure 3.  Percent Change in Per-Pupil Expenditure, FY 91-FY  93
(  t:--e  '--  2K  ~~~~~~~~~~~~~~~~~~~~~~.... ...  ...... ......  . ...  ...  ...  ..  ...  .............  :.-
... /  :  --. I  . _  ...  .. :'',;  :  i  : -. :.k:-:-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~..::..-.....
J  I  ',.-  :',.,,,,.-.'.,,.'.  :','s,,'
: r  ... '-'^  . ....  ........
:  O  j  !  :::':::::::::::::::  '  : : '::::::.  :
]  ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.''-...-'.''.'.'.-'.'.'''."  - '-.  ,  ..  ....,
ii|J::  :^  .'  .......  '8':::'':':' ..................................  ........
- - i  t  ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~X.-R1: -. :.....
)*f  f:^  :::  ;  :^  w  I1-  S  *;:;*.-  R  . ;---21
'..',.,,'t  \  _:-.''.,'.'.,''.','.''  ',:,  __  j  \-.''''"'':""'''':"
.: : : ::. .4  u \ .........  / ~~~~~~~~~~~~..................  : : \ ::.:........  ::1  . --. 7::.
\ :::::  : -_}....  ::.::.:.:  .:.-  ewf  :.::::::::::  .........................  /  :.:::::::.:::::.*..  .::..::  :::::.  .::::  :
< o.M'  2<'  ''.".','",  .................  ':':'''"'''.  A  ,':'""",::.':'  ................  '3SZ  '''.'-wM  :''  a:..............."-
1.0tz  I,,  ,.,.,  .........  ,,,.,.,,.,  ...  ,,  ,,',  ,.,,,:.  .................  _'  ,'  ':'-:  .... "........  ..  ......
[:::::::l  Yst  {::::'::::':  ....................  :::::::  :i~~~~~~~~  ........................  - o'':.::................I.I..
{ ~  ~  ~  ~  ~ ~  ~  ~  ~  ~  ~  ~~~.  .....  .. 1.-  :  ,:.:'''  .:::':-  -:'-j  -. Cl{I  P: -:  ::-:
r  :.::.  ...........  ..........  ....  .... - ............  .ti:jI6
1. ".:':'1 f s t .: .....................  . :  .:.  :-.:  .. ::l......  _.
I ~  ~  ~  ~  ~  ~  ~  ~~~~...  ......... S  J  :. :::  .... w& ' -:':..  ........ ''  /
2  ,'::  I
\  D  ~~~~~~.  ...  .....  ..  .. ...... ..  ..... .......
L  I /,  C)  ,,  56  t  c,,  X  . e  -0.  ........
r....  JO  . .. . . .
Source:  Hill and Weber
166lum goals"  and  "essential learning skills"  with new  "outcome  based
requirements"  demonstrating  mastery  of specific  knowledge  and
skills necessary  to attain "Certificates  of Initial Mastery"  after the
traditional  10th  grade.  During  the  traditional  11th  and  12th  grades,
programs  will be offered  to help students achieve outcomes required
for a "Certificate  of Advanced  Mastery"  in one of six "endorsement
areas":  arts and communications,  business and management,  health
services,  human  resources,  industrial and engineering  systems,  and
natural resource systems.
At the same  time school  districts  are attempting major  curriculum
reform,  many  smaller  districts  are being required  to  consolidate.
The  1991  legislature  enacted  SB917,  which  will  reduce  the  number
of school districts from 295 in 1992-1993 to  178 by 1996-1997.
Summary
During the past five years,  Oregon has set in motion a set of funda-
mental  changes in state policy  that will radically  affect  schools.  It
has:  1) reduced property taxes without increasing other taxes in a
way that will reduce state/local  taxes as  a share of income  from  12.1
percent  of personal income  in 1991  to  10.3 percent in  1996;  2)  shifted
to the  state  the major  responsibility  and  essentially  all  the  decision
making about school funding;  3)  moved rapidly to equalize school
spending per student among districts while keeping the overall level
of school spending relatively constant,  thus triggering large spending
increases  in some districts and declines in others;  4)  set up an am-
bitious curriculum reform agenda without allocating much in new re-
sources  to implement it  while requiring  a simultaneous  major  re-
structuring of school districts.
Current Oregon School  Finance Policy  Issues
These policy decisions  of the past five  years have set up a chal-
lenging agenda for the 1995  legislature. This agenda is likely to be af-
fected  by several initiatives on the November  ballot that would have
a major impact on their budget choices.
The Fiscal Context
Figure 4  illustrates the  fiscal context within which the  1995  legisla-
ture  will  operate.  The state  general  fund  finances  state  services
(such  as  higher education,  human services,  corrections)  and  school
aid.  As Measure  5  rate limits have phased in for schools,  the  "re-
placement  requirement"  has  increased  from  $.5  billion in  1991-1993
to $2.8  billion  in  1995-1997.  Think  of this as  the  money schools need
to be "held harmless" in their "property tax revenues."
What is  left  in the  state  general  fund  (gray shading)  is  what  is
available  for  school support  and for  state  services.  Between
167Figure 4.  The Impact of Measure 5 on Oregon's  General Fund Resources
8  - $7.3  billion
$6.8 billion  l
$5.9 billion  $1.5  $2.8
6-5  billion  .b. $bilo$.5  billion  billion
3  $49  $--
a -------  $
1989-91  1991-93  1993-95  1995-97
1989-91  1991-93  1993-95  1995-97
*3 Resources available to provide state services,  including basic school support.
D Resources going to public schools because of Measure  5.
Source:  Oregon Department  of Administrative  Services
1991-1993  and  1993-1995,  this amount has decreased  by $.1  billion,
not adjusted for population  growth  or inflation.  It will decrease in
1995-1997  by an additional $.8 billion.  Absent additional taxes, the
state  will have  to cut  current spending  on state  services and/or
school support in the next biennium.
There  are four  major  policy  questions  affecting  education  facing
Oregon  voters  and legislators:  1) How much  should  the  state  spend
for schools?  2) How  much  equality  in school  funding is  desirable?  3)
What curriculum best prepares students for citizenship  and the
workforce?  4)  What level of taxes is required to support desired pub-
lic  services and schools?
How  Much for Schools?
The 1995-1997  state general fund  will have $800 million less than in
the  current biennium to  fund schools and state  services.  It will have
about  $1.0  billion less that  it would need  to  provide  current  service
levels  to the  1995-1997  Oregon population.  A fundamental  choice  fac-
ing the Oregon legislature  is how much of the cuts to take from K-12
education.
Oregon  voters  have  the opportunity  in  November  to make this
choice  for the  legislature.  Measure  15,  called  "Kids  First"  by  its
proponents and  "Some Kids First"  by opponents,  would require the
state legislature  to fund schools and community  colleges at  no less
than the  1993-1995  base  amount,  plus adjustments  for  inflation  and
168enrollment  changes.  Passage  of this measure  would force deep  cuts
in state programs unless taxes were raised.
How  Much Equality?
The Oregon  legislature  has established  a  policy  of equal spending
per student  across  all  districts.  Because  moving  to that  goal would
require  large  cuts  in  traditionally  high  spending  districts,  the  state
has resisted  putting the formula  fully into  effect.  Even  if Measure  15
were  to pass,  full equalization  would require  large cuts  in some  dis-
tricts. Failure  of Measure  15 will make full equalization  even harder.
There  is some  question  about how  tight the  relationship  is be-
tween spending  and educational  outcomes (Fisher) and, thus,  about
whether increasing  school spending  is an effective  way  of improving
education  in low-spending  districts,  or whether  cutting  spending
hurts educational outcomes in high-spending  districts.
There  are strong  political pressures,  however,  not to  require  fur-
ther cuts in the large urban districts.  At the same time, low-spending
districts are threatening  court action if the state  does not implement
its equalization formula in the next legislative session.
What Curriculum?
As  parents and educators are beginning to realize  the implications
of Oregon's  curriculum  reform,  there  is growing  resistance  in some
quarters  to the changes. It is likely there will be challenges to the re-
form  in the next legislature.  At issue  is what  kind of curriculum best
prepares  students for  lifelong learning,  citizenship  and the work-
force.
How  Much in Taxes?
Oregonians face two November ballot measures  on taxes:  1) prohi-
bition  of new  or increased  taxes without  voter approval;  2)  substitu-
tion of a 2 percent tax on all transactions for all current taxes, proba-
bly reducing total tax revenues in Oregon.
Even if neither of these measures passes,  Oregon's tax burden will
shrink as Measure  5  completes its five-year phase-in,  from its cur-
rent level of 11.5 percent of income (placing Oregon around the mid-
dle in  a ranking  of the fifty states) to its projected  10.3 percent  in
1996  (placing Oregon around 40th in this ranking).
Recent  Oregon survey research shows that Oregonians  are pro-
foundly distrustful  of elected leadership  (only  one in ten believes
state elected  officials  can be trusted  to do the job they are elected  to
do) and believe there is enormous waste in government  (the average
estimate of survey respondents  was that 32 percent of state spending
is  wasted) (Sahr and  Steel).  In this kind  of political  climate,  Orego-
169nians are  unlikely  to  vote for large tax  increases  to prevent  Oregon
tax burden from shrinking.
Ultimately  the question facing  Oregonians  is  whether we  can
achieve  our statewide goals under our current tax system-whether,
by taxing  ourselves  at  10.3 percent  of our income,  we  can have  the
public services  we desire  and the level  of public  education that pre-
pares our students for productive work and citizenship.
NOTES
1. The "current expenditure  per pupil" figures  available  for  1987-1988  are not strictly  comparable  to the "operat-
ing  revenues  per weighted  student"  figures  in  1994-1995.  Special education  students  and  those  with English  as a
second  language are weighted  more than other students,  making the number of "weighted students"  about  16 per-
cent greater than  the number of "pupils."
REFERENCES
Fisher,  Monica.  "Does  education  spending  matter?"  Perspectives. Corvallis,  OR:  Oregon  State  University  Ext.
Serv.,  Summer,  1994.
Hill,  Kenneth B.,  and Bruce A.  Weber.  "State  and Regional  Impacts  of Measure  5 and  School Equalization:  Local
Property  Taxes,  State  Spending,  and  School  Aid."  Paper  presented  at  the  28th  annual  Pacific  Northwest  Re-
gional  Economic Conference,  Seattle,  WA,  1994.
Legislative Revenue  Office.  The Current State and School Revenue Picture. Res.  Rep.  1-94,  Salem, OR,  1994a.
Legislative Revenue  Office.  What's Going On With Oregon State and Local Finance? Salem,  OR,  1994b.
Oregon  School Boards  Association.  Covering Education: A  Reporter's Guide  to Education in Oregon. Salem,  OR,
1994.
Sahr, Robert,  and Brent  Steel.  Pacific Northwest Survey  of State Government Issues. Corvallis,  OR:  Oregon  State
University  Program for Governmental  Research  and  Education,  1993.
Weber,  B.  A.  Oregon School Funding, Assessing the  Options. Oregon  State  University  Ext.  Serv.  Circular  1329,
Corvallis,  OR,  1989.
170

Boards Association. Covering Education: A Reporter's Guide to Education in Oregon.

Does education spending matter?&quot; Perspectives.

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FINANCING K-12 EDUCATION IN OREGON

FINANCING K-12 EDUCATION IN OREGON

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