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Three rural school districts left in budget lurch over school finance quirk

Three rural Colorado school districts are facing surprise mid-year budget cuts to the tune of six figures because of unexpected consequences of the state’s school funding law and recession-era cuts.

Until this year, the Pawnee, Meeker and DeBeque school districts have been funded entirely through their own local tax revenues. But because of a dramatic drop in the their tax bases this year, the districts have turned to the state — and discovered that because of cuts in state funding that have accumulated since 2008, there is little relief to be found.

That means the three districts will see cuts of between 11 and 16 percent of their per-pupil funding take effect all at once, halfway through the school year.

Meeker School District, a rural Western Slope district and the largest of the affected districts with 649 students, has declared a fiscal emergency. In DeBeque, a district of 132 students also on the western slope, the way forward still remains uncertain.

As for Pawnee, they only discovered the change in their status Wednesday when a Chalkbeat Colorado reporter contacted them.

“It did come as a little bit of surprise,” said Pawnee’s superintendent Brett Robertson.

Meeker’s superintendent also discovered the cuts only recently, when he visited the Colorado Department of Education (CDE) website.

“[I] just found out the Monday back from break,” said Mark Meyer. The CDE told him it would have been difficult to flag the districts in advance. In fact, Pawnee’s change in status was only discovered after Meeker and DeBeque came forward.

Their unique situation has raised concerns about the unintended consequences of the state’s funding formula.

“This was not the intent when they passed all this stuff,” said Robertson, referring to the series of bills that now govern school finance. “I don’t think the state meant this to happen.”

How it happened

A complex confluence of factors — including the ups and downs of the mineral and energy markets, the timing of tax collection and the state’s complicated funding formula — led to the shortfalls the three districts are facing.

Prior to 2008’s recession, school districts received funding based on enrollment, called the “base” funds. On top of that, districts received additional funds — known as “factors” — that provide them with extra support for things like infrastructure costs for small districts or high levels of at-risk students. Both of those pools of money, base and factors, changed annually based on inflation and enrollment growth.

After calculating a district’s budget, the state then used revenue projections for the following year to estimate how much local tax revenue a district could produce, a number known as the “local share.” The state made up the difference between required budget and local revenues — the “state share”.

But in 2008, fears that school funding would deplete the state’s general fund led the legislature to re-interpret school finance laws. Now, only the base level state funding increases by inflation and enrollment growth, rather than both the base level and the share determined by factors. To the factors, they added one called the “negative factor,” which determines the amount by which a school budget will be cut each year.

That decision has meant that school districts are now receiving just over 15 percent less than under the original interpretation of the law. For most districts, that amount has been cut gradually, allowing them to plan how many fewer staff members to hire and which programs to cut in advance.

But the three impacted districts are experiencing those cuts all at once, leading to what some observers called “a fiscal cliff.”

All three districts have been traditionally supported by the tax revenues from mineral and oil holdings located in their counties. Not only have they not received state funding, they even paid the state for programs known as “categoricals,” as a way to mimic cuts in other districts (those programs include support for English language learners, special needs students and student transportation).

But this year, dips in the energy and mineral markets meant that the school districts’ revenues dropped, defying predictions by state analysts. The state didn’t discover the shortfall until November, when the assessments of the value of those holdings are released.

As a result, the local revenue was no longer enough to cover the districts’ planned budget.

Prior to the recession-era adjustments, the state would have backfilled the shortfalls, which were roughly 15 percent. But that deficit equals what the state would have cut from their budget had they planned to receive state support. So all three districts are facing slashed budgets and no backfill from the state.

‘We haven’t made any decisions’

Where the three districts plan to make cuts remains an open question.

“We didn’t see this coming,” said Alan Dillon, DeBeque’s superintendent. “We haven’t made any decisions about what we’re going to do.”

In Pawnee, Robertson is looking into covering a portion of the deficit with repurposed mill levy funds raised to pay for state programs, which due to its drop in local revenues it no longer needs to pay for.

“If there is a silver lining, once you qualify for state funding, you don’t have to pay for categoricals,” said Robertson. But given the fact he only discovered the cuts on Wednesday, he is mostly asking questions.

“I need some time to work on it and formulate some good questions,” he said.

The district’s ability to cut enough to make up the deficit is limited, as staffing and school budgeting decisions have already been in effect for half the school year.

“They have little to no capacity to make adjustments,” said Tracie Rainey, head of the Colorado School Finance Project, a policy analysis group that provides information to districts and lawmakers.

Meeker’s declaration of fiscal emergency allows the district to cease all non-contractual expenses and cut spending by planning furlough days and altering the school year schedule.

“We’ve really tightened up,” said Meyer. “We’re not allowing quite a lot of expenditures at this time.”

Those expenditures range from professional development for district staff to printer paper and heating.

“[It is] a lot of little things that add up,” said Meyer. But Meyer worries the repercussions of the cuts will extend beyond his schools.

“The economic impact it will have on our tiny town of Meeker is huge,” he said.

Meeker’s school board approved a budget that will allow the district to dip into its savings to pay off its deficit. It’s an option being considered in DeBeque, as well, but neither district considers it a long-term fix.

“Can we weather the storm for a year? Yes,” said Dillon. “But that doesn’t make it right and it keeps us from doing some of the positive things.”

Calls for a legislative fix

Meyer hopes his district’s situation will spur a change in the state’s formula.

“You hope that maybe the legislature does some things to fix the formula not just for [us] but for the whole state of Colorado,” Meyer said.

Their situation has already proved a rallying point for others who would like to see a change in the state’s formula.

“What’s happening in these three districts highlights the impacts of bad policy that is the negative factor,” said Paula Stephenson, who heads the Rural Caucus, a lobbying group for rural districts.

Stephenson hopes to see a legislative fix as well, even for the short-term.

“There needs to be some kind of relief that allows them to get through this year,” she said. But she anticipates pushback.

“If there’s a one-time exception made this year [for these districts], then what kind of precedent does that set?” said Stephenson. For her, the permanent solution needs to be rolling back the negative factor.

“To me it highlights how critical the need is to address the negative factor,” she said.

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