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Balancing the equalization formula
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Despite its many strengths, the equalization formula had three major issues: sustainability, predictability, and ability to meet program goals. Under the old equalization formula, earnings increased from $549 million in fiscal year 2009 to a predicted $832 million in FY13 — a 52 percent increase in earnings over those four years. In contrast, appropriations were cut to $436 million in FY10 and have remained at the same level since then because of state budget constraints.

Had the legislature not changed either the formula or appropriations level, the formula would have only been funded at 52 percent of earnings in FY13. This was linked directly to predictability, with fluctuating property values leading to rapid changes in the wealth rankings and sudden jumps in formula earnings.

The final, and possibly most pressing, issue stemmed directly from the first: when state appropriations are lower than formula earnings, as now, earnings are prorated (reduced by the same percentage) across all systems, regardless of the fact that need at the lowest-wealth systems is more acute. This meant that the greater a system’s earnings per student, the larger the actual dollar amount per student cut from that system. Systems at the bottom of the wealth ranking, with the least ability to help themselves, were being hit worst — directly counter to the goals of the equalization program.

 The State Education Finance Study Commission proposed to solve all three of these problems by changing the benchmark. Formerly the system benchmarked at the 75th percentile rank in wealth per full-time equivalent student; the new benchmark is the statewide average wealth per FTE (minus outliers). The new benchmark will solve all three problems:

• First, the state average is much more stable over time as a benchmark than the 75th percentile system, enabling greater predictability for both the state and local systems.
• Second, using state average as a benchmark generates lower total earnings over time, making future required funding much more realistic and sustainable. The new earnings for FY13 will be $492 million, which at current levels will be about 89 percent funded (compared to 52 percent funded before the passage of HB 824).
•  Finally, the greater the percentage of earnings funded, the more funds are actually directed to the lowest-wealth systems, thus ensuring that the formula meets equalization program goals. Compared to the old formula-generated allotments for FY13, the 77 lowest-wealth systems will receive $49 million more from the state, with the lowest-wealth system, Pelham City, receiving 45 percent more in its actual allotment.

In the legislative process, a change was made in order to guarantee continuing local effort: HB 824 set a minimum local millage rate that any system must meet to qualify for the grant. As of July 1, 2015, systems will have to levy at least 12 mills to qualify for equalization (only one system will be impacted). Over four years, the requirement will increase to a final rate of 14 mills by July 1, 2019, giving systems time to adjust. This will prevent systems from artificially keeping their own property taxes low at the expense of the state, since the average effective millage rate across all jurisdictions is 15.3 mills.

The combined effects of these changes will be to make equalization earnings more sustainable, so the state can theoretically fund a higher proportion of what the formula dictates. It will also be more predictable in the long run, allowing both the state and local systems to plan for the future in their budgeting. Finally, it will drive funding to those systems that need it most, serving the grant’s core objectives to fund equal educational opportunity across Georgia.

July revenues up 7.4 percent — Analysis next week.

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