Public school finance basics

A reader on Lebanon Chatter asked me to explain some basics of school finance, specifically how the different funds in the corporation budget work. I'm happy to do this, and hope it's helpful.

The information below, in green, comes directly from LCSC Assistant Superintendent/CFO Charles Tait's explanation on the school web site. I have edited a bit for ease of reading; please go to his page for more detailed information.

Indiana Public School Funding establishes seven (7) main funds. Each of these funds receives local support through License Excise taxes, Commercial Vehicle Excise taxes and Financial Institute taxes. The General Fund receives revenue from the State of Indiana based upon several key data components – student count, vocational programming student enrollment, special education programming enrollment, at risk student component, number of students that graduated with Academic Honors Diploma, special funding to support high ability student programming, professional development for staff, and funds to support remediation programming for students.

The General Fund and the Special Ed. Preschool Fund are 100% state funded [i.e., none of these funds is supplied through local property taxes]. The other funds – Debt Service, Pension/Severance Debt, Capital Projects, School Transportation and Bus Replacement are funded through local property tax.

Seven Main Funds:
1. General Fund – This includes expenses for salaries of teachers, administrators, support staff, fringe benefits, supplies, heat, lights, maintenance and other day-to-day operation expenses. [90% of LCSC's general fund is spent on wages, salaries, and benefits; the remaining 10% goes primarily to supplies, professional development, and utilties.]

2. Debt Service Fund – Expenditures from this fund may be used to make bond and/or lease rental payments and state technology and construction loans. Interest on loans taken for the purpose of any other fund can be paid from the debt service fund. For taxation purposes this fund is only used when there is a need to retire debt. The tax rate must be sufficient to raise the amount necessary to meet the debt obligations during the year.

3. Pension/Severance Debt Fund – used to budget and account for receipts and expenditures necessary to meet the annual debt obligations for the pension/severance for the local school corporation.

4. Capital Projects Fund – used for land acquisition and development, fees for professional services, educational specification development, building acquisition, construction, and improvement, rental of buildings and equipment, purchase of mobile or fixed equipment, certain emergencies, maintenance of equipment, construction, repair, replacement, remodeling or maintenance of a school sports facility as long as the expenditure does not exceed 5% of the property tax levy, certain staff services, allocating funds for future projects, and transferring funds to the Repair and Replacement Fund.

5. School Transportation Fund – exclusive fund for the salaries of drivers, the transportation supervisor, mechanics and garage employees, clerks and other transportation related employees. It will also pay for the cost of contracted transportation services, transportation related insurance, fuel, lubricants, tires, repairs, contracted repairs, parts, supplies, and other transportation related expenses.

6. School Bus Replacement Fund – exclusive fund to pay for the replacement of school buses, either through a purchase agreement or under a lease agreement. A ten (10) year plan must be submitted and approved for the purchase and replacement of school buses. [School buses are currently on a 12-year replacement cycle.]

7. Special Education Preschool Fund – each school corporation is required by state law to provide each pre-school special needs child with an appropriate special education. This fund is used for the revenue and expenses to operate the preschool program.

School corporations are not allowed to mix monies from these funds, or move money from one fund to another during the budget year to cover a shortfall. All of the money for teacher salaries comes from the general fund, and 100% of the general fund comes from the state--not from local property taxes. Until 2009 some of the general fund did come from local property taxes, but the property tax reform package that passed the General Assembly in 2009 included moving all of the general fund to the state. There is no way for the school corporation to use local tax revenues to pay teacher salaries.

Would I like the legislature to change the way these funds work? Generally, I'd like to have more local control for our schools, and if our community would be willing to pay more taxes for teacher salaries I'd like to have that option. But if the change just involves letting schools move money from one fund to another, it would probably end up being a shell game. The state could continue cutting the general fund, and put the burden on schools to raise local taxes and move money around, rather than meeting the obligations the law puts on the state.

If you're interested in more details about our local budget process, I wrote a column in March 2009 that was published in the Lebanon Reporter and that I reprinted in this blog post. If you're really interested in more detail than that, please drop me an e-mail and maybe we can arrange to get into the tall weeds of school finance over a cup of coffee!

Thank you for reading!