Why Are We Still Doing Referendums?

Public school finance spins a complex and intricate web of policy decisions. When we’ve written about Delaware school funding and funding equity in the past, we’ve focused on resource allocation, how we count students, and property reassessment. Yet another important piece of the puzzle is the local tax rate and school referendums.

School districts and charter schools get their funding from a mix of state, local, and federal money. When we say “resource allocation,” we generally refer to the state portion, which in Delaware makes up the largest share of school funding (about 63 percent). The state portion pays for teacher and school personnel salaries, energy costs, among other costs. Local taxes make up the local source of school funding and typically fund capital projects, general operations, charter payments, and more.

For Context

There are four components of the local tax rate for traditional district schools. Two are set by elected school board action and two are set by referendum of voters. Local school board members claim authority over half of the components (match tax and tuition). In vo-tech districts, school boards can increase current expenses to a limit, without a referendum.

A referendum presents a rare opportunity for Delaware homeowners to decide whether or not to increase their tax rates. Not surprisingly, it can be a tough sell.

Recently, referenda efforts have been difficult to pass, especially on the first attempt. Districts can go back to their voting base a second time, but often do so with reduced requests. From 2010-2017, 14 referenda have been approved, 10 failed—a passing rate just over 50 percent.

Calls for Change

Legislation to address referendum reform came and went during the 150^th General Assembly. The unsuccessful proposal (HB129, w/HA2) would have allowed school boards to increase current expense component of the local tax rate without a referendum (with some limits):

• First, the local school board could only set the rate for current expenses, which include operational costs such as the local share of teacher and staff salaries and benefits, instructional supplies, and more.
• Second, the suggested increase in tax proposed by the local school board would be capped at whichever of the following is lower: a rate equal to the percent change in the Consumer Price Index (CPI-W), or a rate of two percent annually.

Legislators are expected to revisit this proposal next session, with a recent revival in referendum reform led by the Redding Consortium, whose members voted the issue as one of their top priorities this year. The Funding and Governance Work Group, chaired by Rep. Nnamdi Chukwuocha and Eugene Young, presented potential referendum reform legislation, similar to HB129 (GA 150), to the full consortium during their December meeting.

National Models

While most states do require voter approval for some types of school tax increases, very few states require referendums for operating expenses, according to school finance expert Mike Griffith. That makes Delaware an outlier in how it funds education locally. Consider: Delaware districts have to ask voters to pay for rising costs they can’t really control, basic operating expenses like salaries, supplies, and utilities.

Which is why losing a referendum in Delaware can be a devastating blow for a district, financially.

But other states have figured out ways around this. According to a review of all state codes, most states put one or more measures in place to limit disparities in district property tax rates. Delaware is one of 11 states with no such bounds on property tax rates. In 26 states, the state sets a level above which school districts may not raise property taxes without voter approval.

Neighboring states are also in this group of 11 states with no bounds, but employ something like the proposed House Bill 129. In New Jersey, no floor or ceiling for local property tax rates exist, however, school districts cannot increase property taxes by more than two percent a year unless approved by voters or in exceptional cases. In Pennsylvania, there is also no floor or ceiling for local property tax rates. Property tax increases are subject to a limit and are based on an inflation index calculated by the state each year. In order to increase above the limit, school districts need voter approval via referendum or turn to the state’s Department of Education and apply for an exception.

 Reasons to Reform Referendum in Delaware

1. Expenses go up each year—without action from a district, rising costs and inflation causes expenses to go up from year to year. Districts should be allowed to raise local revenue to keep up with operating costs.
2. If school boards collect and increase taxes on a more regular basis, rather than having to go to referendum each time they seek an increase, it would mean a steadier, more predictable flow of funds for school districts that match the rate of inflation and other rising costs.
3. Each referendum means a district has to spend money on a new marketing campaign to win voters—not typically a good use of district leaders’ time and funding, and overall costly and distracting from the business of education.

More Responsible Local Financial Planning

In addition to referendum reform and as part of an effort to update the local tax code, other states have proposed further democratic measures and protections for taxpayers to ensure responsible local financial planning.

• Improved transparency and public use of online per-pupil expenditure reporting such as:
  1. report spending detail at the school site and central office, which is key information for understanding funding differences across districts, schools, and charters;
  2. report contextual information such as student demographics, and school-level student outcomes data with school-level per-pupil expenditures;
  3. add statewide comparisons on funding across schools;
  4. provide regular training for school boards and other stakeholders on interpreting and using the data to guide decision-making.
• Add improved required financial training for school board members. Training could be improved by creating a penalty or recourse if new school board members do not complete training and requiring training upon re-election, not just initial election.
• Consider an overall ceiling, instead of an annual percentage similar to vo-tech districts and other states. For example, Colorado and Michigan impose ceilings for every $1,000 of local property wealth.
• Reduce school board member terms to four years, which was proposed in 2018 through House Bill 278. Terms in most other states are three to four years (e.g. NJ: three years, PA: four years).
• Align school board elections with November general election, an idea proposed in a 2012 house bill. Potential benefits could increase voter turnout for school board elections, which has averaged a paltry eight percent over the last 50 elections as of 2017, and save the state money via consolidation.

Related Topics: Delaware education, delaware schools, referendum, school finance, school funding, taxes