Higher Education Existing Funding Infrastructure

Education financing in Florida is at a crisis point. The current system for K-12 financing in Florida features a combination of state and local funds. Approximately $7.75 billion is contributed by the state. This comes from general revenues, which puts this financing at risk should there be significant changes to state revenue levels. There have been stories in the news media in the past year where different bodies of expressed concern about the sustainability of Florida's ability to finance its K-12 system (Times-Union, 2012). The education system has seen its funding cut several times in recent years. As a result, the performance of Florida's schoolchildren has been poor.

At the state level, the Florida Education Finance Program (FEFP) is "the primary mechanism for funding the operating costs of Florida school districts (FLDOE, 2012). The formula on which Florida state financing is organized is based on FTE equivalency to count the number of students in the district. Then, cost factors for the different programs offered are applied. For each district, the weighted-average FTEs in each program multiplied by that program's cost factor, when all the programs are summed, will give the amount of state financing for that district. This formula provides the base amount of funding that the district will receive. Complicating this factor is that districts also contribute to their own operating costs via property tax levies. These levies are subject to a floor, known as the Required Local Effort, that restricts the degree to which the county can rely on state funding.

The state's formula holds that the state will essentially "top up" the district's funding, based on the amount of shortfall that the district has from the state's mandated minimum level of funding. The result is that wealthier tax districts (with higher property tax bases) receive a lower proportion of their operating budget from the state than do poor districts with low property tax bases. The state's objective in financing is to even out the financing levels between the different districts in line with 14th Amendment protections and Serrano v Priest.

There are some monies available as exceptions to this basic program. There are scholarship funds that are financed and administered by the state that will add to the financing a district might receive. While most of FEFP's financing comes via appropriations from General Revenue, there are appropriations from lotteries and slot machines that are situated in Miami-Dade and Broward counties. A small amount of money comes from pari-mutuel betting at race tracks and jai alai frontons.

Of special concern is the ability of districts to finance capital expenditures. This system in managed via a couple of different programs. School boards are authorized to raise additional funds for capital outlays via discretionary tax levies. There are limits set for these levies, and there are different categories for spending that are allowed under law for the use of funds obtained via the special levies. These categories include construction, upgrade and repair of physical facilities, new media collection building, school buses, conversion of space and the acquisition of equipment related to the delivery of student instruction (FEFP, 2012). School districts are also authorized to sell bonds for capital outlay projects, but they must repay these bonds through property taxes.

Goals and Objectives

In order to overhaul...

The first objective is that the 14th Amendment must be upheld. There is considerable risk in adopting any funding formula that could be found by the courts in violation of the 14th Amendment's provisions on equal access to education. The second objective is that the new funding system needs to be sustainable for the state. The present system has been subject to cutbacks in recent years not for a lack of desire to fund education, but because of broader state budget issues. The majority of General Revenue comes from a state sales tax, for example. Sales tax revenues fluctuate with the business cycle -- education costs do not. This misalign creates budget problems for the state with respect to education financing. A third objective will be to improve the education outcomes, particularly at the K-12 level but also at the college level, of Floridians. These outcomes can be quantified in terms of absolute score on standardized tests or in performance relative to other states.
b. Private institutions do not normally receive financing from the state of Florida, and that situation is not likely to change. For-profit entities have many means of financing at their disposal, where public non-profit entities rely on state and county financing.

c. i) The current method of state appropriations relies heavily on sales tax revenue, which is subject to the business cycle. This leaves the education budget subject to fluctuations as politicians adjust the budget to reflect changes in revenue. Such flexibility is not built into the education, and it cannot be built into system easily. At the appropriations level, there are two possible approaches. The first is that education appropriations can be fixed year-over-year and indexed for growth. This would make it more difficult for lawmakers to find budget cuts in the education system. This approach can be combined with stricter cost controls, so that for example specific cost factors do not increase faster than the rate of index unless there are underlying demographic changes (Stiefel & Schwartz, 2010). The other alternative is to increase the Required Local Effort, effectively offloading more of the cost burden on the counties. The latter option is riskier, because Florida housing markets are notoriously volatile, leaving many counties unable to meet the RLE during downturns in the business cycle without setting taxes at a level that would violate Serrano v Priest.

ii) The current system for dealing with capital expenditures appears to be sustainable and meets the needs of Florida students. The changes proposed for the financing of ongoing operations will not significantly affect capital expenditure financing. However, improvements to capital expenditure financing can be realized if the state sets aside a portion of General Revenue for districts to engage in capital projects. Thus, the capital project budget will fluctuate with the business cycle, allowing the state to invest more during periods of economic strength, but constrict this discretionary education spending during periods of revenue weakness.

iii) The millage system for student financing is appropriate. With more funds available on a reliable basis, the millage rates can be increased to improve the standard of service within each program category. Additionally, audits can be conducted to ensure millage payouts are reflected in program outputs. Also, best practices for maximizing outputs of each program can be established and published as a new, additional control mechanism to improve the quality of student outputs within the existing funding structure.

iv) The primary non-state funding source is at the county level and comes from property taxes. While it is tempting to recommend raising the Required Local Effort, the volatility of real estate values in Florida would put such a formula at risk of falling short of the state's commitments under the 14th Amendment. Thus, it is likely that the RLE will remain unchanged for the time being. New avenues for revenue generation should be explored, however, so that districts have additional fundraising resources such as local hotel taxes at their legal disposal. Again, though, this strategy would not be a failsafe solution since hotel revenues vary wildly between districts in the state, with many inland and rural counties having little prospect of raising revenue through a hotel tax, or any other consumption tax. Easing restrictions on bond issues, in particular the restriction that bonds must be repaid with property taxes, would also give districts more flexibility with respect to financing capital projects in particular. Restrictions on bond issues for operating costs should continue, however, as debt is not to be encouraged.

d) Florida needs to implement these changes…