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Inside the equalization formula
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In the 2012 legislative session, the House and Senate passed a revision of the Quality Basic Education Equalization (QBE) formula (HB 824), which assists low-wealth K-12 school systems in funding an adequate classroom education. While this goal was a good one, some issues with the formula had cropped up in recent years that made it difficult for the equalization funding to achieve its objective. These issues include the following:

• The rate of growth in “formula earnings” — the total dollar amount generated by the formula — had been unsustainably high in recent years, while state revenues were declining.
• Yearly earnings were unpredictable due to property value fluctuations.
• Since the state has held funding for equalization at the same level since fiscal year 2010, allotments of funding had to be “pro-rated” among all systems, meaning that each system’s earnings were reduced by an identical percentage. Because of this underfunding, less money was going to the very lowest-wealth systems that needed it most, while the multiplier in the formula benefited growing systems.

 These issues promised to become even more pressing in future years and needed to be dealt with expediently. Last year, the State Education Finance Commission spent several months studying the equalization formula and came up with a multi-part solution to address these issues. The legislature adopted the recommendations of the commission with few changes.

How the formula works
To understand the changes made to equalization, it is first necessary to be familiar with the essentials of the formula, which have remained the same. In order to determine the amount of funding any system receives, the Georgia Department of Education (DOE) calculates (1) relative system need, and (2) the amount of the state match. Need is determined by dividing the total property value of a jurisdiction by the number of students served by that system (technically, the number of weighted full-time equivalents).

The result tells the state how much potential revenue a system could generate per student. (In education, it’s imperative to look at numbers on a per-student basis to make accurate comparisons.) Systems are ranked in order of revenue-raising capacity per student (often referred to as “wealth”), and those systems below the benchmark specified in Georgia law are eligible for equalization.

Once need is determined, the amount of the state match is calculated. The benchmark valuation in property wealth per student is also the “guaranteed valuation,” up to which the state will supplement systems’ earning capacity.

This means that every system is guaranteed that every mill of tax increase will garner at least the benchmark value per student, because if local property tax values are insufficient to generate that amount, the state pays the difference. The state equalizes, or supplements, a system’s effective millage (a measure of actual tax collections) greater than 5 and up to 20 mills.

Two misconceptions about equalization
Two of the biggest areas of confusion are funding source and purpose.  First, equalization is entirely state funded, so no funds are taken from any one system and given to another. There is no such thing as a “donor system” in any literal sense, because a system’s local property taxes remain within that system, and the state supplements on top of both local property taxes and state QBE funding.

Second, equalization is meant to address school system wealth, not student wealth. When a school system is referred to as “low-wealth,” this refers not to the income of the families that are served by that system, but instead to the ability of a system to generate revenue from its property tax base to fund classroom education. In other words, “system wealth” is not a synonym for “student wealth,” nor is it meant to be — these are separate issues. The object of the equalization formula is to equalize school systems’ ability to fund classroom education, not to adjust for students’ family income. Therefore, although certainly an important factor in students’ education and achievement, income is outside the scope of the equalization program.

Finally, because equalization is distributed on a per-student basis, allotments will differ vastly based on system size. This can be perceived as an inequity unless one remembers that the purpose of the program is to supplement systems’ ability to serve each student. For example, Gwinnett is often considered to be “making it big” in equalization because of that county’s high allotments — $43.6 million for FY13 under the new formula. However, Gwinnett serves over 162,000 students — about one out of every 10 students in Georgia — which works out to $268 per student in equalization for Gwinnett.

In contrast, the allotments of the 10 smallest counties receiving equalization average to a paltry $413,000 per county — but with 862 average students per county, they will receive about $479 per student in equalization funds in FY13. (For comparison, the statewide per-student average for equalization counties is about $436.)

While it is true that small counties lack the built-in efficiencies that larger counties enjoy, the equalization formula is not designed to make up for this fact; instead, we have Sparsity Grants that help to fill that role. Again, both need and earnings for Equalization must be considered at the per-student level.

Next week: Problems and solutions of HB 824.

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