Revenue Controls

Wisconsin Act 16

In 1993, Wisconsin Act 16 capped the amount of revenue school districts can raise from property taxes and state aids at 1992-93 levels.(1) The Legislature sought to control increases in property taxes by limiting the total amount of money that public school districts could raise from one year to the next.(2) For example, during the 1993-94 school year, the annual increase was limited to $190 per student.

Beginning with the 1994-95 school year, the per-pupil dollar amount was to be adjusted for inflation. However, in 1995, the original legislation was changed; the revenue controls were made permanent, and the per-pupil increases were set at a fixed dollar amount ($200 per student in 1995-96, $206 for 1996-97, and slightly less than $209 per student in 1998-99). In 1995, the state also committed to fund two-thirds of the costs of public education.(3)

As a result of the state paying a greater share of school costs, property taxes for the average Wisconsin homeowner declined approximately 5.6 percent from 1995 to 1996. Between 1996 and 1997, property taxes also showed a slight drop. However, by 1998, property taxes were again increasing at an annual rate of close to 5 percent.(4) It is estimated that in 1998 schools collected approximately 47 percent of the local property tax; the remaining 53 percent will be for “other” (including county and municipal governments, and technical colleges).(5)

Studies by WEAC and WASDA on the Impact of Revenue Caps

Over the last five years, the Wisconsin Association of School District Administrators and the Wisconsin Education Association Council have surveyed public school superintendents to learn how revenue caps are affecting districts. Each year, a report has been issued. This paper summarizes the results of the 1997-98 study, although it makes reference to earlier studies as is appropriate.

The response rates of superintendents consistently have been high: 79 percent in 1994, 77 percent in 1995, 70 percent in 1996, 72 percent in 1997, and 74 percent in 1998. Over the five years, the average number of districts returning questionnaires has been 315 out of 426. In 1997-98, 314 districts representing 722,000 of the state’s 881,000 students (82%) participated. The set of districts participating in each of the five years is not identical. Nonetheless, superintendents from the same districts tended to participate during each of the five years.

The questionnaires sent to superintendents during each of the five years have been relatively short (two pages) and have included a core set of questions that have been nearly identical in wording. As appropriate, new questions have been included each year to obtain answers to specific and unique concerns. All responses have been treated anonymously.

Significant Findings in 1997-98

1. Districts experiencing a decrease in student population continue to report more cuts than districts with stable or increasing enrollments. This could become a more serious problem in the future because enrollments in Wisconsin’s public schools are expected to peak in 1999 and then begin to decline (see point 2, following Table 1). In 1997-98, the following areas were the most likely targets for cuts:
   
   a)delaying building maintenance or improvement projects (48.9%),
   
   b)spending less for improvements of buildings and grounds (47.9%),
   
   c)spending less for maintenance of buildings and grounds (45.3%),
   
   d)delaying/reducing purchase of computers and other technology (44.1 %)(6) ,
   
   e)increasing administrator workload (42.8%),
   
   f)delaying/reducing hiring of new staff (35.4%), and
   
   g)using the fund balance to support the budget (35%).
   
   
2. There were 269 written responses to the question, “In a sentence or two, describe the impact of the revenue caps over the past four years on your school district.” The vast majority of superintendents gave specific examples of ways that the revenue caps were harming programs and services. Many said they were struggling to maintain the status quo, and not able to make needed improvements. Even among those who said the revenue caps had not been harmful, many wrote that they expected problems in the future.
3. In 1997-98, 84 percent of districts reported making at least one cut in programs or services to comply with the revenue caps. On average, districts made between five and six cuts.
4. There has been a steady increase in the number of districts using their fund balances to support the revenue caps. In 1993-94, 20.8 percent used the fund balance; 35 percent did so in 1997-98.
5. Nearly one-half of superintendents (47.9%) favor repealing the revenue caps. Less than 10 percent would like the law to remain in its current form.
6. Eighty-seven percent of superintendents say they would like school boards to have more flexibility to exceed the caps. Two-thirds of superintendents favor keeping the revenue caps if there are greater increases in spending allowed from year to year.
7. Almost two-thirds of superintendents favor the use of alternative taxes, such as sales or income taxes, to support public education.

In each of the five studies, superintendents were presented with a list of cost-cutting actions and asked to indicate which ones had been implemented in their districts during the previous school year. On the following page, Table 1 shows the number of cost-cutting actions taken by school districts for each of the last five school years.(7)

Overall, districts report an average of 5.7 cuts in 1997-98 (the median number of cuts is five). Furthermore, 84 percent of districts report at least one cut in 1997-98.

As these figures are considered, two points are important:

1. This table does not speak to the magnitude or impact of cuts. For example, if a district raises student fees by a few dollars each year, this is treated the same as a district that doubles or triples student fees. In addition, cuts in programs or services are not likely to have the same consequences in resource-poor and resource-rich districts.
2. These cuts are occurring during a period in which the number of students enrolled in Wisconsin’s public schools continues to increase. Thus, among the 314 districts participating in this study, 88 percent report that enrollment has increased over the past three years. According to data reported by the U.S. Department of Education, public school enrollment in Wisconsin is projected to peak in 1999 and then begin to drop. For example, between 1995 and 2007, Wisconsin’s public school enrollment is expected to decline by 5.2 percent. If the existing revenue caps legislation still is in place, this study suggests that the number of cuts made by districts will increase significantly.

Note that the number of cuts reported by superintendents in 1997-98 is fewer in 24 of 25 categories than in 1996-97. The only category showing an increase in the two-year period is use of the fund balance to support the budget. Although there is this slight decline over the last two years, keep in mind that the effects of cuts are cumulative over time. This suggests that for the majority of districts conditions did not improve between 1997 and 1998.

Among the factors that may account for this decline in the number of cuts are the following:

1. Many districts made extensive and significant cuts in earlier years. As several superintendents stated in their written comments, they managed to comply with the cuts in earlier years by tightening their budgets to the greatest extent possible. In short, for many districts, there may not be many more programs or services that can be cut without damaging opportunities for students.
2. Many districts passed referendums over that made it possible for them to better withstand the impact of revenue caps.(8)
3. Each year since 1994, a greater number of districts reported making use of their fund balance to deal with the revenue caps.
4. The 1997-99 biennial budget provided temporary “hold harmless” provisions (in the form of state dollars) for districts with declining enrollments in excess of 2 percent.(9)
5. Most districts presently have stable or increasing student populations, meaning they are in a better position to deal with the revenue caps. This will change as more district feel the impact of declining enrollments.

Relationship Between the Number of Cost-Cutting Measures and Changes in Student Enrollment

Over the past several years, superintendents from districts with stable or decreasing student populations have been most critical of the revenue caps. By contrast, superintendents from districts in which the student population is increasing have tended to report fewer cuts in programs or services. The data collected in 1997-98 again show that districts with declining enrollments are affected most by the revenue caps. However, the differences among districts based on enrollment trends are not as dramatic as they were in previous years. The data collected in this study do not explain why these differences are smaller than in prior years. As shown in Table 2, the 31 districts that had a decrease in student population over the previous three-year period report between six and seven cuts. Districts with increasing student populations report between five and six cuts.

Perceptions About the Long-Term Effects of The Revenue Caps

In 1994, 90 percent of superintendents said that the long-term consequences of the revenue caps would be negative for their district’s programs and services. Answers to a similarly worded question in this year’s study show that two-thirds of superintendents say the effect has been negative.

In this year’s study, 309 superintendents answered the question, “In your opinion, what has been the long-term effect of the revenue caps on your district’s programs and services over the past four years?” Of this number, 38 superintendents (12.3%) reported that the effects have been “Positive” or “Somewhat Positive.” About one in four (23.9%) answered “Neutral,” while 197 superintendents (64%) said that the effects had been “Somewhat Negative” or “Negative.”

Opinions of Superintendents about Specific Changes in the Revenue Caps Legislation

Superintendents were asked five questions about the existing revenue caps law. Only a small proportion of superintendents (9.5%) favored keeping the revenue caps law as it is, making no changes for the foreseeable future. Eighty-two percent opposed the status quo. On another question, nearly one-half of superintendents (47.9%) said they favored an outright repeal of the revenue caps law (31% oppose repeal of the law, while 21 percent said they neither opposed nor favored repeal).

Between these two extremes, superintendents were asked to respond to other options. Two-thirds favored keeping the revenue caps law in place, but allowing greater increases in spending from year to year. Likewise, 87 percent said they would like to change the revenue caps law by allowing school boards greater flexibility to exceed the caps. Finally, slightly fewer than two-thirds of superintendents (62.3%) favored the use of alternative taxes (such as sales or income taxes) to support public schools.

Significant Findings from Previous Studies

1. At the end of the first year of the revenue caps, more than 90 percent of superintendents thought the long-term consequences would be negative. When asked five years later about the effects of the revenue caps, 64 percent of superintendents said the effects have been negative, while 24 percent said the effects have been "neutral."
2. Districts with declining enrollments tended to report significantly more cost- cutting actions than districts with increasing or stable student populations. Superintendents from declining enrollment districts also have been more critical of the revenue caps than superintendents from districts in which the student population has been stable or increasing.
3. Consistently, it has been found that there are no significant differences among rural/small town, suburban, and urban school districts as to the number of cost-cutting actions taken. Further, the number of cuts is unrelated to per-pupil spending amounts. This does not mean that cuts have the same impact in poor and rich districts, or that all cuts impact students in the same way. This is an issue deserving further study.
4. In 1997, superintendents reported that the revenue caps, along with the Qualified Economic Offer law, were having a negative effect on school employees. Of the more than 200 written comments about employee morale, all but a few superintendents indicated that morale had deteriorated since 1993.
5. Although cuts have occurred in each of the areas listed in the questionnaires, districts have tended to target five or six areas over the years:

• delaying/reducing purchase of computers and other technology,
• spending less for improvements of buildings and grounds,
• spending less for maintenance of buildings and grounds,
• delaying building maintenance or improvement projects,
• increasing administrator workload, and
• delaying/reducing hiring of new staff.

Conclusion

During the first five years that the revenue caps were in effect, the vast majority of Wisconsin’s public school districts, and especially districts with declining enrollments, made cuts in programs and services. Due to the fact that Wisconsin’s public school population will drop by more than 5 percent between 1999 and 2007, most districts will experience the kinds of problems faced until now only by declining enrollment districts. To some extent, declining enrollments will lower the rate of increase in the local property tax; however, property taxes will continue to increase.

As legislators and others continue their deliberations over property-tax burdens, revenue controls, qualified economic offers, and educational accountability, conditions in local school districts are unlikely to improve. The opinions and experiences of superintendents represent almost all of the empirical data available on how the revenue caps are affecting the programs and services offered by school districts. More than any other individual, the local school superintendent is in a unique position, for he or she is responsible for working with the school board to develop the annual budget, all the while having to address the needs and concerns of parents, students, school employees, and members of the larger community. Their views are important and deserve to be heard.

— WEAC Division for Instruction and Professional Development

(1) Wisconsin Act 16 (1993) also changed the state’s mediation-arbitration law for teachers. The law stipulates that a combined salary and fringe benefit offer of at least 3.8 percent, constitutes a Qualified Economic Offer, which is not subject to mediation-arbitration. For administrators who are not covered by the collective bargaining agreement, the total amounts available for increases in salaries and fringe benefits can be one of the following: (1) 3.8 percent of the total prior year’s costs of salaries and fringe benefits for such employees, or (2) the average total percent increase in total salary and fringe benefit increases per employee provided by the school district for the most recent 12 month period ending on June 30.

(2) Superintendents from low spending districts consistently have argued that this legislation has penalized them for spending less than other districts or for having a “bare bones” budget during the base year of 1992-93.

(3) This is an average figure for all districts. The percent varies by the property value of districts.

(4)“Success Rate Drops for School Referendums,” Milwaukee Journal Sentinel, November 12, 1998. Also see “Property Tax Gains Up to 5.2 Billion.” Wisconsin State Journal, Madison, Wisconsin, July 16, 1998. According to figures released by the Department of Revenue in December 1998, school taxes increased 5.61% during 1998: “School Tax Rise ‘Shocks’ Zeuske,” The Capital Times, December 11, 1998.

(5) Information provided by Robert Lang, director of the Legislative Fiscal Bureau.

(6) This was the area of greatest change between 1996-97 and 1997-98: 60.9% to 44.1%.

(7) As these data are reviewed, note that the percent figures shown in this table treat each cost cutting action as being equivalent. In other words, there is no distinction between a district that eliminates a few hundred dollars from a program and a district that eliminates the program entirely.

(8) According to data provided by DPI, 389 referendums were passed since the revenue caps went into effect. Most were for building and maintenance; however, 92 were passed to exceed the revenue controls.

(9) The revenue controls were modified by providing: (1) $3.2 million for holding school districts harmless from declining enrollments which exceed 2% in the 1997-98 school year, and modify the provision to authorize a 75% hold harmless provision in 1998-99; (2) $3.9 million for school districts to recognize 20% of their summer school enrollment; (3) $3 million for a one-time per pupil revenue control inflationary increase from $206 to $209 in the 1998-99 school year; (4) $2 million to increase the low revenue limit exemption from $5,600 per pupil to $5,900 in 1997-98 and to $6,100 in 1998-99; and (5) a modification of the Transfers of Service Law to provide more flexibility under the revenue controls. The Governor made a partial veto reducing the Legislature’s request to allow school districts to spend $217 per pupil in the second year. The governor also partially vetoed the Legislature’s request for declining enrollment relief beyond the current biennium, committing to address this issue in the future.

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