Follow the money

Before we can begin to look at average per-student spending at schools, we first need to understand revenue. It takes a lot of money for Hamilton County Department of Education (HCDE) to oversee a school system of roughly 6,000 employees and 42,000 students. In our second post, we’ll be exploring the different revenue streams for education.

What’s in a number?

During the course of our research we uncovered different revenue totals for education in Hamilton County. This isn’t surprising given that numbers change depending on whether a document reflects estimated or actual receipts. We started by looking at revenue in HCDE’s “A Guide to Understanding the Budget” for the 2014–15 school year. If you’re interested in knowing more about the education budget, we highly recommend taking a look at this short report, which manages to clearly explain the weighty 250-page official budget document.

We also found 2014–15 education revenue reported in these documents:

• HCDE State Budget Document: This report provides line item breakdowns of revenue according to the funds they are slated for.
• Hamilton County’s Comprehensive Annual Budget Report (CABR): This budget report is an overview of how the county plans to spend its money for the upcoming fiscal year.
• Hamilton County’s Comprehensive Annual Financial Report (CAFR): This financial report is an overview of how the county actually spent its money.
• Tennessee Department of Education Annual Statistical Report: This report offers state- and county-level statistics on revenue. It also provides other education-related statistics, such as average salaries, teacher qualification and average daily attendance of students.

These differing reports on revenue underscore how complex understanding the education budget can be. For the purposes of this analysis, we will use numbers reported in the CAFR because they reflect audited receipts for the 2014–15 school year.

A funding mix

A local education system is funded by federal, state and local governments. Looking across the U.S., state and local governments each provide about 44 percent of funding to public elementary, middle and high schools. The federal government typically provides around 12 percent of funding. Historically, federal money has always played a smaller role in education than state and local funding. Prior to the 1970s, states also tended to play a smaller role in education budgets. Today, however, state spending has increased and even surpasses local government spending in some school districts.

The below chart represents revenue sources for education in all Tennessee counties, Hamilton County and the other counties with more than 25,000 students¹.

Federal funds

While diverse federal agencies, such as the Department of Agriculture and the Department of Labor, provide funds towards education, the Department of Education is the largest contributor towards spending in the U.S. In 2014, the department provided roughly $79 billion towards K–12, which represented less than 3 percent of the total federal budget. The biggest programs it administers are Title I grants totaling $14.4 billion and Individuals with Disabilities Act (IDEA) grants totaling $11.5 billion. The department’s funds are distributed to states and school districts through formulas or competitive grants.

Federal funds vary widely across states. Those receiving the lowest amount of federal money as a percentage of their education budgets include New Jersey and Connecticut (4 percent). States receiving the highest amount of federal money include Louisiana, South Dakota, New Mexico and Arizona (15 percent). In 2015, 12 percent, or $1.1 billion, of Tennessee’s education receipts were composed of federal funds.

Hamilton County tracks with the statewide percentage of federal receipts. In 2015 HCDE’s budget was composed of roughly 12 percent, or $50 million, of federal money. Thirty-three percent went to Title I grants; 19 percent went to IDEA grants.

State funds

States fund education primarily through income and sales tax revenue. These funds are usually determined by formulas based on the number of students in a district. State funds as a percentage of total education budgets vary widely. State funding is lowest in South Dakota (31 percent) and highest in Vermont (88 percent). The rate is 47 percent in Tennessee.

In Tennessee, state education funds come primarily from the sales tax. They’re distributed across counties according to a formula known as the Basic Education Program (BEP). The BEP formula is intended to calculate enough funds to cover a basic education for Tennessee students. This formula is driven primarily by student enrollment and covers three broad categories: instruction, classroom and non-classroom.

For example, for every 20 students in K–3, the state will contribute funding toward one teacher. One other important thing to note about the BEP is that while the state calculates the funds necessary for a basic education, the burden of paying for that education falls on both state and local governments. The BEP determines how that breakdown looks. As a county’s ability to pay increases, the proportion of state funds decreases.

Hamilton County’s education budget is composed of roughly 34 percent, or $137 million, of state funds.

Local funds

Local government contributions to the education budget come primarily from property tax revenue. As a result, wealthier counties tend to have more resources at their disposal than poorer counties. This is why the BEP shifts a greater burden on to wealthier counties that can afford to pay more for education.

Nationally, local funds as a percentage of total education budgets vary widely. Local funding is smallest in Hawaii (2 percent) and greatest in Washington, D.C. (90 percent), which is followed distantly by New Hampshire (59 percent). The overall percentage for Tennessee is 41 percent.

In Hamilton County, local funds account for 54 percent ($216 million) of the education budget. Sixty-one percent of those funds comes from property tax while 31 percent comes from local option sales tax.

Challenges

Keeping track of money coming into Hamilton County can at times be confusing because of the different funders, programs, formulas and earmarks. We caught a glimpse of just how complex the education budget can be when we came across the different total revenue figures. We want to highlight two other challenges that complicate education funding.

The first challenge is the BEP, which critics say underestimates the true cost of educating students. One example they cite is that the BEP formula has not kept up with inflation or pay increases. The BEP formula estimates average annual teacher salary at $40,000, when it’s actually closer to $50,000 across the state. In Hamilton County, the average salary for a licensed educator in 2015 was $50,685. Critics also say the BEP underfunds technology and intervention programs for the worst performing schools.

As a result of perceived underfunding, HCDE is currently involved in a lawsuit along with six other school districts against the state of Tennessee². The suit charges that the state has failed its constitutional mandate to provide “a system of free public education” for students in Tennessee. Instead, the suit charges that BEP creates a system that “shifts the cost of education to local boards of education, schools, teachers and students, resulting in substantially unequal educational opportunities across the state.” This lawsuit is part of a wider push to review the BEP, which includes promises of reform by Gov. Bill Haslam.

Another issue we encountered when trying to understand how much money goes into education in the county is off-budget support. Donations and fundraisers can go a long way towards providing extra resources to schools. We were unable to calculate all these different revenue streams because there are so many — from dedicated foundations, club boosters, parent teacher associations (PTAs) and even county commissioners. For example, we learned that until mid-2015, commissioners spent a large amount of their discretionary funds on schools³. In 2014 alone, commissioners spent over $750,000 on 45 schools. Community and parent support can make a big difference in a school’s resources. It can give districts where parents have the time and money to raise funds a leg up over school districts where parents have less resources.

What’s next?

Now that we have a handle on the money that comes into Hamilton County, our next post will look at the most important thing that that money pays for: teachers. We’ll be looking at teacher salaries in Hamilton County, which make up over 80 percent of the education budget.

Footnotes