March 6, 2006

Executive Summary

Superintendent of Public Instruction Marilyn Howard recommends $1.047 billion in overall support for K-12 education (an 6.0% increase over the current year), while Governor Kempthorne and the Legislature's Joint Finance and Appropriations Committee (JFAC) each recommend $1.035 billion (a 4.9% increase). JFAC's recommendation will go to the House and Senate for floor votes.

Our briefing materials ask you to consider these recommended levels of overall support against several relevant benchmarks including the state's estimate that enrollment in public schools will be 3% higher next year, Idaho's rank of 47th in the nation in per student funding, Idaho's rank of 25th in the nation in public school spending per thousand dollars of personal income, and achievement benchmarks showing that Idaho students perform above average on national standardized tests.

Our briefing materials also ask you to consider the school facilities funding issue currently before the Legislature. The Idaho Supreme Court recently ruled that the Legislature must revise its system of school facilities funding in order to meet its constitutional obligation to provide a "general, uniform, and thorough system of public, free common schools."

A Republican proposal recommends that the State contribute $8 million in ongoing annual funds and $25 million in a one-time appropriation that expands State facilities funding programs. A Democratic proposal recommends that the State contribute $63.5 million in ongoing annual funds and $35 million in a one-time appropriation to expand State facilities funding programs. A separate proposal before the Legislature would amend the Idaho Constitution by reducing the supermajority required to pass a school facilities bond from two-thirds to 60% of school district voters.

Our briefing materials ask you to consider these proposals in the context of a review of the Supreme Court's ruling, an analysis of the current State system of funding school facilities, and a description of the total facilities costs that school districts confront.

I. Introduction

As it does every year, the state government must decide this year how much financial support to provide for Kindergarten through 12th Grade education for the next year. This year, the state government confronts the additional question of how to revise its system of school facilities funding. These briefing materials aim to provide you with information relevant to three questions:

1. Is the overall amount that the state will spend on K-12 education too much, too little, or about right?
2. Is the increased amount that the state will contribute to school facilities funding too much, too little, or about right and is the manner in which that contribution is made appropriate?
3. Do you support a proposed Constitutional amendment to reduce the supermajority required to pass a school facilities bond from 2/3rds to 60% of school district voters?

It will be helpful to recognize that you're about to wade into the sometimes complicated discussion about education funding. In Section II you will find a discussion of overall support for K-12 education. In Section III you will find a discussion of State support for school facilities in particular. We've made this as straightforward as we're able, but the materials will certainly demand your full attention. It's worth it: The state is profoundly affected by its education funding levels.

II. Funding for K-12 Education

Marilyn Howard, the Superintendent of Public Instruction, recommends $1.047 billion for Kindergarten through 12th grade education next year. Governor Kempthorne and the Joint Finance and Appropriations Committee (JFAC) of the Legislature each recommends a budget of $1.035 billion. JFAC's recommendation will now go to the House and to the Senate for floor votes.

Is Governor Kempthorne's and JFAC's recommended K-12 budget too low, too high, or about right? Is Superintendent Howard's recommended budget more appropriate?

We will try to provide you with several benchmarks or comparisons for your consideration in answering these questions.

Comparisons to the Last Two Years

The first benchmark against which to measure next year's proposed budgets are the K-12 budgets of the last two years. As summarized in Table 1, Superintendent Howard's proposal increases funding 6.0% over the current fiscal year (2005-2006), Governor Kempthorne's and JFAC's budgets increase funding 4.9%. The current year's budget was a 2.3% increase over the last fiscal year's budget (2004-2005).

In comparing the recommended budgets to previous budgets it is important to note that enrollment in public schools is increasing. The state currently estimates that enrollment will be 3% higher next year than this year. This means that the state would need to increase K-12 funding by 3% to maintain the effective level of support provided last year, without factoring in inflation. If one includes an adjustment for inflation (currently around 2% or 3%) as well as increased enrollment, then the state would need to increase funding for schools by around 5% to provide the same effective level of support as last year.

Table 1
Comparison of Proposed K-12 Budgets with K-12 Budgets for Last Two Years

Source: FY 2007 Idaho Legislative Budget Book, pp. 16 -17.

Comparisons to Other Areas of the State Budget

The second benchmark we provide is Governor Kempthorne's budget recommendation for everything but K-12. (We do not provide a similar comparison of JFAC budgets because it has not yet set its recommended budgets for each agency.) Governor Kempthorne proposes a budget of $1.274 billion for everything but K-12. This is a 6.8% increase over this year, compared to the 4.9% increase that he proposes for K-12. Table 2 summarizes the proposed increases in various aspects of the overall budget compared to K-12.

As can be seen from that table, the increases for Health and Human Services and for Public Safety drive most of the increase in the rest of the budget. Both are large portions of the budget that are increasing significantly. With respect to the Health and Human Services budget, the increase is driven in large part by the rising health care costs, particularly the state's obligations under the federal Medicaid program, which pays for medical assistance for those with low income. With respect to the Public Safety budget, the increase is driven mostly by the increasing costs associated with housing the state's rising prison population. Although reforms are being discussed that might address both of these critical pressure points in the budget, they provide little hope of relief in the short term. While there may not be any easy solutions to these rising costs in the near term, many argue that it is unwise to let healthcare and prison costs constrain investment in education, since better educated children tend to grow up to be healthier, more productive, and less prone to crime.

Table 2
Comparison of Governor's Proposed K-12 Budget with His Other Proposed Budgets

Source: Source: FY 2006 Idaho Legislative Budget Book, p. 17.

Comparisons to K-12 Support in Other States

As seen in Table 3, Idaho ranks 47th among the 50 states in how much it spends on each student in public schools. However, Idaho also ranks 25th in how much it spends on K-12 education as a proportion of the personal income of its residents (see Table 3). How can we be so generous in terms of the proportion of our income we pay for K-12 education through taxes, and yet provide so much less per student that most states? There are primarily two reasons. First, Idaho has lower levels of personal income than most states. Second, Idaho has a higher proportion of its population who are school age. In other words, relative to other states, Idahoans have fewer adults earning less but supporting more children.

Table 3
Idaho Expenditure on K-12 Education Compared to National Averages

Source: U.S. Census Bureau (2004). 2002 Census of Governments: Volume 4, Government Finances. Data are from 2001-02. http://ftp2.census.gov/govs/school/02f33pub.pdf

Comparisons to Student Achievement in Other States

Student achievement can be measured in a variety of ways. One of the most definitive tests used to compare the academic achievement of students in different states is the National Assessment of Student Progress (NAEP). As seen in Table 4, Idaho is above average in its NAEP scores. Comparing Idaho's per student spending (Table 3) with the achievement of our students (Table 4) indicates that we get a better bang for our educational buck than most states. While Idaho is well below the national average in terms of per student expenditure, it is above average in achievement.

Table 4
Idaho Student Achievement on the National Assessment of Student Progress
(NAEP) Compared to National Averages

Source: Education Week (January 5, 2006). See also: http://nces.ed.gov/nationsreportcard/

Challenges to Funding K-12 at Higher Levels

Of course, decisions about how much to increase funding of K-12 education are necessarily made in the context of limited resources. If Idahoans wish to increase the funding for K-12 education over what the governor or JFAC have recommended, the additional dollars must presumably come from cuts to other areas of the budget, tax increases, or a combination of both. We'll take a brief look at the budget cutting options and then the tax options.

It is challenging to find places to cut the budget right now in order to free up additional dollars for K-12 for three reasons:

• Budget Pressures from Rising Health Care and Prison Costs: As discussed above, there appear to be few options in the short term for avoiding significant budget increases for healthcare programs, such as Medicare, and for rising prison populations. These budgets are such a large percentage of the overall budget—health and human services are 22% and public safety is 10% of the total budget—that the large increases in these areas significantly constrain the budget cutting options.
• Size of Public School's Budget: The public schools' budget is such a large percentage (45%) of the overall state budget that it takes relatively large cuts elsewhere to provide a relatively small percentage increase in the public schools budget. Only 23% of the state budget is not in K-12 education, heath and human services, or public safety. A 5% decrease in these other areas would provide about a 2.5% increase in K-12 education funding.
• Already Tight Budgets: The recent economic downturn and somewhat sluggish recovery have put pressure on all areas of the budget for the last several years makes finding acceptable places to cut the budget more difficult than it otherwise would be.

Finding acceptable tax increases is also difficult. This is particularly true in a year in which the dominant issue before the Legislature is the need for property tax relief. Property taxes rose 8.6% overall last year and an average of 5.8% annually for the five years before that. Property taxes specifically on homes have been going up even faster—11.7% on average last year. These increases have given rise to significant pressure to reduce the property tax burden, particularly on homeowners. In fact, the only issue that we as members of The Common Interest rated as more important this year than K-12 education funding, was property tax relief. Over 35 property tax bills have been introduced this session.

Two major pieces of property tax legislation appear likely to pass that would have a significant effect on K-12 education. First, it appears likely that a signficant expansion of the Homeowner's Exemption will pass. This legislation would not affect how much state money is available to support schools, but would significantly reduce the amount of money local school districts raise through property taxes. About 25% of local school funding comes from property taxes and about 70% comes from state funding (primarily raised through sales and income tax).

Second, it appears likely legislation that eliminates half of the school property tax and replaces most of that revenue with a half-cent increase in the sales tax will pass. Proponents of this measure argue that it only shifts the source of funding for schools and that it will not decrease overall school funding. Opponents, which include school boards, school adminstrators, and teachers, observe that the legislation does not require that the new revenue from the half-cent increase in sales taxes go to schools. Rather, schools must compete with other aspects of the state budget, including the ever-increasing budgets for Medicaid and prisons, for that revenue. Given the level of commitment that the Legislature has shown for education in the past, many argue, the effect of this measure will be to decrease support for schools. For a review of the entire property tax issue, including its possible effects on schools, go to our PROPERTY TAX BRIEF.

Two separate measures not related to property taxes would increase the sales tax by one cent and dedicate that revenue to schools. The first is a bill that has been introduced this session. The second is a voter initiative effort being led by the Idaho Education Association, the union for teachers in the state.

The Idaho sales tax was increased from five cents on every dollar to six cents three years ago as a temporary measure to deal with decreased tax revenue because of the economic downturn. That temporary 1-cent increase expired last June. If it were restored, it would bring in more than $200 million in additional revenue per year.

Another option for providing more funding for K-12 education is to close some of the many tax breaks currently on the books. Those who support this approach argue that special interests have managed to pass many tax breaks that do not serve the public interest.

As you think about what level of overall K-12 education funding you would prefer, it may be useful to consider whether you would prefer funding that does not necessitate budget cuts or higher taxes—funding at about the level that JFAC and the Governor have proposed. You might also consider whether you think higher levels of funding are appropriate and, if so, whether the additional funding should come from budget cuts in other areas, or tax increases, or some combination of both.

Please note that our review of the K-12 education budget focuses on the general fund portion of that budget, rather than on the dedicated funds and federal funds portion, because the general fund is the largest portion of the K-12 budget (71%) and the portion over which there is the greatest budgetary discretion.

III. School Facilities Funding

This year, the Legislature must also address the particular question of State funding for public school facilities. A Republican proposal recommends that the State contribute $8 million in ongoing annual funds and $25 million in a one-time appropriation to expand State facilities funding programs. A Democratic proposal recommends that the State contribute $63.5 million in ongoing annual funds and $35 million in a one-time appropriation to expand State facilities funding programs. The Legislature also has before it a proposal to amend the Idaho Constitution by reducing the supermajority required to pass a school facilities bond from two-thirds to 60% of school district voters.

Are the proposals for additional State school facilities funding too high, too low, or about right? How does the State provide that funding to school districts in the most appropriate manner? Should we amend the Constitution to reduce the supermajority required to pass a school facilities bond from two-thirds to 60% of school district voters?

To assist you in answering these questions, we will consider the proposed legislation in the context of an analysis of the Supreme Court decision that demands legislative action, an analysis of the current school facilities funding system, and an analysis of facilities costs that school districts confront.

The Supreme Court Decision: ISEEO v. The State of Idaho

Last December, the Idaho Supreme Court ruled in Idaho Schools for Equal Educational Opportunity (ISEEO) v. The State of Idaho that the State had "failed in its constitutional duty to provide a thorough education for Idaho's public school students in a safe environment conducive to learning." Specifically, the Supreme Court upheld a district court's determination that the legislature had failed to establish a sufficient system for funding school facilities. As a result of the Supreme Court's 2005 ruling, the Legislature must now create a system to meet its constitutional obligations.

This Supreme Court decision is momentous, in part, because the Court has been working to establish the Legislature's specific obligations regarding school facilities funding for over fifteen years. ISEEO v. The State of Idaho first entered the courts in 1990 and has come before the Supreme Court no less than five times. Of course, the Legislature's responsibilities regarding public education in general—the basis of the ISEEO v. The State of Idaho lawsuit—are defined in the Idaho Constitution. Article IX, Section 1 of the Constitution reads:

The stability of a republican form of government depending mainly upon the intelligence of the people, it shall be the duty of the Legislature of Idaho to establish and maintain a general, uniform and thorough system of public, free common schools.

During the case's third appeal in 1998 (ISEEO III), the Supreme Court ruled that "a safe environment conducive to learning is inherently part of a thorough system of public, free common schools" and remanded the case to the district court for that court to determine whether or not the Legislature had established a means for funding facilities that provided such an environment. In 2001, the district court determined that the Legislature's system of school facilities funding was unconstitutional because "reliance on loans alone to pay for major repairs or the replacement of unsafe school buildings was inadequate for the poorer school districts."

As the Supreme Court has ruled on the Legislature's obligations, the Legislature has taken actions in an effort to meet those obligations. The Supreme Court's most recent ruling acknowledges several of the Legislature's "significant strides." For instance, the Court refers to the Legislature's increase in public school appropriations in the 1990s, its more recent establishment of a loan and grant fund through which seven school districts received $10 million to renovate existing facilities and construct new facilities, and its increase in the facilities levy payback period from ten to twenty years in order to make such levies more palatable to voters.

Despite its acknowledgement of these actions, however, the Supreme Court found that the Legislature is currently still in violation of its constitutional obligations and agreed with the district court's conclusion that the current system of school facilities funding "based upon loans alone is not adequate to meet the constitutional mandate to establish and maintain a general, uniform, and thorough system of public, free common schools in a 'safe environment conducive to learning' for Idaho's poorest school districts." The Supreme Court demanded that the Legislature take action.

Defining the Problem: Understanding the Current Facilities Funding System and School Districts' Costs

Although the Supreme Court concluded that "the current funding system is simply not sufficient to carry out the Legislature's duty under the constitution," it did not dictate what the Legislature must do in order to establish a constitutional funding system. That is the challenge the Legislature now confronts and the challenge these briefing materials seek to explain. This explanation depends on a basic understanding of how the current facilities funding system works and the extent of the costs that districts confront.

The Current Facilities Funding System

Idaho public school facilities are currently funded almost entirely by local property taxes. This system of facilities funding has its roots in a long-standing national tradition of funding public education with property taxes. Interestingly, as additional taxes—income taxes and sales taxes—have been introduced to support Idaho's public education system in general, school facilities have remained almost entirely dependent upon property taxes. As a result, school districts that need funds to maintain existing buildings or construct new buildings typically try to pass bonds to do so. These bonds allow the districts to borrow money for renovation or replacement construction which they pay back by increasing the district residents' property taxes.

As critical as it is for Idaho's school districts to maintain existing buildings and build new facilities, it is not always easy to pass a bond. In the current era of rapidly rising property taxes, many Idaho residents resist voting to increase property taxes yet again. And because Idaho requires a supermajority of two-thirds in order to pass a facilities bond, this resistance can result in failed bonds. Poorer school districts and school districts with aging populations find it particularly difficult to convince two-thirds of their residents to support bonds in order to pay for school facilities.

Although school districts' reliance on property taxes to maintain and construct school facilities has meant that the burden for facilities has been primarily a local one, the State does contribute to the support of school facilities in two ways. First, the State supports school facilities through the Bond Levy Equalization Program. Through this program, the State contributes to the interest payments that school districts make on bonds passed after September 15, 2002. Since 2002, the State has contributed at least 10% and up to 50% of the interest payments that school districts assume as a result of bonded debt. These State contributions vary according to the school districts' relative wealth. Second, the State contributes income from the lottery to pay for school facilities. In fact, Idaho legalized the lottery with its public schools in mind. According to statute, half of the lottery's net income is distributed into the school district building account. School districts may draw on these funds to pay for bonded debt on a scale drawn according to the average daily attendance of their students. We should note that while the State contributes to the support of school facilities in these two ways, the funding source is one and the same. The State's contribution to the Bond Levy Equalization Program is actually money that is skimmed off of the lottery income before the balance of that income is distributed to school districts through the school district building account.

School Districts' Facilities Costs

Despite these sources of State support, the Supreme Court pointed to the substantial costs that school districts confront in order maintain existing facilities and construct new facilities when it ruled that the Legislature has not yet fulfilled its constitutional obligation. Arguably, the Legislature must understand these costs in order to create a system of facilities funding that will pass constitutional muster. Regrettably, there is no current, comprehensive accounting of the various costs that school districts confront. In this section, we'll review the costs—known and only guessed at—that school districts confront as they attempt to provide a "safe environment conducive to learning" for their students.

• Bonded Debt Costs

We'll start with the known costs. First, we know the costs that Idaho schools have already incurred—and must still repay—to renovate or replace school facilities. As discussed earlier, school districts pass bonds. These bonds allow the districts to borrow money for renovation or replacement construction which they must then pay back. As of May 2004, bonded debt for Idaho school facilities totaled $795 million. As a result of the Bond Levy Equalization Program, the State currently assists school districts in the repayment of some of this debt on a sliding scale. School districts receive repayment assistance for at least 10% of the interest on the debt and up to as much as 50% of the interest payments on bonds passed after September 15, 2002. As of May 2004, the State was paying $21 million annually to reduce bonded debt.

• Maintenance Costs

Second, we know the annual estimated cost of maintaining existing school facilities. Experts suggest that a reasonable estimate of annual maintenance costs for all school buildings is between 2% and 4% of the value of existing buildings. In the "School District Facility Maintenance Spending, FY05 Analysis," the Legislative Services Office (LSO) reports that the total square footage of school facilities is 36 million. Valuing each square foot at $80, the LSO reports a total facilities value of $2.850 billion. Arguably, then, a reasonable estimate of maintenance costs for Idaho school facilities lies between $57 million and $114 million per year.

• Unsafe Facilities Renovation & Replacement Costs

Although we can estimate annual maintenance costs for Idaho's existing school facilities and we know exactly what costs the State and school districts have incurred and continue to incur in order to repay bonded debt, there is one significant cost we don't know and that is the total amount needed to renovate or replace school facilities that are currently unsafe. We do know that the amount is probably substantial. In its recent ruling, the Supreme Court noted that "overwhelming evidence...document[s] serious facility and funding problems in the state's public education system." The Court referred, specifically, to Idaho's 1993 Statewide School Facilities Needs Assessment which determined that "57% of all Idaho school buildings had 'serious' safety concerns" and to a 1999 update to that assessment which determined that "53 of the buildings needing serious and immediate attention in 1993 had deteriorated even further." Other studies confirm that the costs of addressing imminent safety concerns could be substantial. A 1992 legislative study suggested that $700 million was required to address current safety concerns while, more recently, a 2001 task force that reviewed paperwork from building safety inspectors concluded that, omitting roofs and asbestos, $256 million was needed. Analysts with the ISEEO have estimated that the current cost may actually range from $600 million to $900 million dollars.

The fact that the Legislature doesn't know what costs it will confront as it attempts to revise its school facilities support system in order to fulfill its constitutional duty was troubling enough to cause Justice Jones of the Supreme Court to dissent in part from the Court's recent decision. Justice Jones argued that the Court's decision, based on evidence presented on discrete school districts, rather than on the state as a whole, meant that the Legislature couldn't know which, if any, efforts would be sufficient to meet its constitutional obligations:

That some schools are in severe disrepair does not compel or even support a conclusion that the statewide system of funding is unconstitutional. Without reliable information about all schools, the Legislature will be unable to ensure that any adjustment to the scheme will enable all districts to provide the kind of facilities they are required to provide under the Constitution.

In his partial dissent, Justice Jones recommended the appointment of a special master to determine the total costs of establishing a "safe environment conducive to learning." Interestingly, in 2002 the district court judge ordered the appointment of a special remedial master to determine these very costs, arguing that the court "must have current, accurate information about existing safety hazards and the most cost effective means of addressing the hazard." It was the State, however, that opposed this decision and sought a Writ of Prohibition which has, to date, effectively prevented efforts to discover the exact cost of ensuring the safety of existing Idaho school facilities.

Pending and Proposed Legislation

Although the costs that school districts confront to maintain and construct facilities that provide "a safe environment conducive to learning" are not entirely known, the Supreme Court has ruled that the legislature must act. Accordingly, we now review the pending and proposed legislation that addresses this issue. In this section we will consider House Joint Resolution No. 4, which proposes to amend the Idaho Constitution, as well as House Bill 743 and House Bill 691, which both propose revisions to the State's school facilities funding system. We do not address additional bills that would shift school districts' reliance on property taxes to other tax streams here because The Common Interest addresses them in the briefing materials on property taxes.

House Joint Resolution No. 4

At the conclusion of the recent Supreme Court ruling, the Court outlined steps that legislatures in other states had taken to fulfill their constitutional obligation to support education. Reducing the supermajority necessary to pass a bond was among these. House Joint Resolution No. 4, sponsored by Representative Steve Smylie, a Republican and a candidate for Superintendent of Public Instruction, takes just such a step by proposing to allow a school district to pass a bond so long as it "obtains the assent of no less than sixty percent, rather than two-thirds, of the qualified electors of the district." House Joint Resolution No. 4 requires that such a vote must occur on one of four dates during the year. On two of those dates--the primary and general election dates--districts could expect a substantial voter turn-out.

Supporters of House Joint Resolution No. 4 point to those Idaho school districts that would have passed a bond had the supermajority been so reduced. For instance, the recent Supreme Court decision referred to Jerome School District #261 where a bond lost with 64.5% voter support in 1996, with 66.3% voter support in 1997; and with 62.5% voter support in 1998. Under House Joint Resolution No. 4, all three bonds would have passed. Opponents argue, however, that the Idaho Constitution rightly sets a stringent supermajority in circumstances where all district residents' taxes will increase as a result of a passed bond. They note that allowing a bond to pass with only a sixty percent majority on two dates on which voter turn out might be low even further reduces the bar.

Any proposed amendment to the Idaho Constitution, including House Joint Resolution No. 4, must receive two-thirds support in both the House and and Senate. If it receives this support in the Legislature, the proposed amendment would then appear on the ballot for the November election where it must receive a simple majority to pass.

House Bill 743 & House Bill 691

While House Joint Resolution No. 4 does not claim, in and of itself, to satisfy the Legislature's constitutional obligation, two house bills claim to fulfill the Legislature's charge irrespective of whether or not House Joint Resolution No. 4 passes. These bills are the Republican sponsored House Bill (HB) 743 and the Democrat sponsored House Bill (HB) 691. HB 743 and HB 691 share a three-part approach to revising the Legislature's support of school facilites. These three parts include 1) a modification of the current Bond Levy Equalization Program, 2) the establishment of a school building maintenance program, and 3) the establishment of an emergency mechanism that will allow the state to renovate or replace school facilities that are currently unsafe when a school district fails to do so itself.

While we'll consider the structural differences in the proposed funding programs in the following paragraphs, it is worth noting here that the primary difference between HB 743 and HB 691 is cost. While HB 743 would increase school facilities funding by $8 million in ongoing annual contributions and $25 million in a one-time appropriation, HB 691 would increase school facilities funding by $63.5 million in ongoing annual contributions and $35 million in a one-time appropriation. As we compare the bills' parallel programs, we'll capture the relative recommended funding levels in accompanying tables.

• Bond Levy Equalization Program

The Republican sponsored HB 743 would modify the current Bond Levy Equalization Program in two significant ways. First, it would lift the restriction on state contributions so that the poorest school districts could receive more than 50% of their interest payments. While all but the six richest districts would continue to receive a state contribution of at least 10% of their interest payments on bonded debt, the poorest school districts would actually receive state contributions that addressed interest as well as principal. Second, HB 743 would establish a funding source other than lottery proceeds to fund the Bond Levy Equalization Program. By dedicating the current cigarette tax revenues that aren't needed for the Capitol restoration costs, HB 743 would secure a sustainable funding source for the Bond Levy Equalization Program. This portion of HB 743 would result in an increased $500,000 of state spending on school facilities annually.

Supporters of HB 743 argue that this modification of the Bond Levy Equalization Program is a substantial improvement, both in the amount of support offered to school districts and the source of that support. Opponents of HB 743 argue that, while it is an improvement upon the current program, $500,000 is not nearly enough given the magnitude of the need.

The Democrat sponsored HB 691 would modify the current Bond Levy Equalization Program in four significant ways. First, it would lift the restriction on state contributions so that the poorest school districts could receive more than 50% of their redemption payment (interest and principal). Second, it would reduce the guaranteed state contribution to all districts to 5% of their redemption payment. As a result, state contributions for all districts would address principal as well as interest payments on a sliding scale according to the districts' wealth. Third, HB 691 would allow districts that are still making payments on bonds passed prior to the enactment of the Bond Levy Equalization Program in 2002 to receive state funding. Finally, HB 691 would provide a funding source for the Bond Levy Equalization Program by dedicating 5% of all state sales tax to public school facilities. This portion of HB 691 would result in an increased $35 million of state spending on school facilities annually.

Supporters of HB 691 argue that this modification to the Bond Levy Equalization Program is a substantial improvement, both in the amount of support offered to school districts and the source of that support. They further argue that it makes the program fair to those districts who shouldered the responsibility to fund their own school facilities by passing bonds prior to the program's inception.

Opponents of HB 691 argue that it is prohibitively expensive. Although the bill's sponsors would dedicate 5% of all state sales tax to fund school facilities, opponents argue, the sponsors fail to make the hard choices regarding what programs currently funded by those revenues would need to be cut or what additional taxes would need to be raised.

Table 1
Current Costs & Recommended State Contributions to Bond Levy Equalization Program

• School Building Maintenance Program

The Republican sponsored HB 743 would also establish a school building maintenance program in order to prevent the facilities crises that currently arise as a result of long-delayed maintenance. HB 743 would require every school district to set aside 2% of the value of its existing buildings for maintenance. To assist school districts in meeting this new requirement, the state would share in these costs on a sliding scale ranging from a 0.1% contribution to the wealthiest districts to a 1% contribution to the poorest districts with an average state match of 0.5%. The state would fund this match primarily through lottery funds. This maintenance requirement would result in an increase of $7.5 million of state spending on school facilities annually. HB 743 would also require that school districts submit a ten year maintenance plan for state approval. Following the plan's approval, school districts would be required to report on performed maintenance and any revisions to the maintenance plan on an annual basis.

Supporters of HB 743 argue that this maintenance requirement is a substantial improvement upon the current facilities funding system in two ways. First, it would significantly increase state funds to assist districts in maintenance work. Second, it would reduce the acute safety crises school districts confront by delaying needed maintenance by requiring districts to spend these funds exclusively on facilities maintenance and by requiring districts to develop and abide by an extended maintenance plan.

Opponents of HB 743 argue that while this maintenance requirement imposes stringent requirements on districts, it does so without offering substantial enough funding. While the state contribution to the maintenance fund under HB 743 would be 0.5% of the 2% school districts would be required to save, opponents point out that the majority of these funds would be lottery funds—meaning funds that the districts already have. In fact, the state would actually contribute only slightly more than half of 0.5% in new funding for this program. As noted above, the total value of Idaho school facilities is $2.850 billion. Two percent of this value—or the estimated annual maintenance—is $57 million while 0.5% of this value amounts to $14 million. Opponents argue that the state's intended contribution of new funds—totaling only $7 million, or just over half of 0.5% of the total required maintenance amount—would thus actually impose a requirement on school districts that most of them could ill afford.

Like HB 743, the Democrat sponsored HB 691 would establish a school building maintenance program in order to prevent the facilities crises that currently arise as a result of long-delayed maintenance. And HB 691 would similarly require every school district to set aside 2% of the value of its existing buildings for maintenance. However, under HB 691, the State would assist school districts in meeting this new requirement by matching district contributions on a dollar-to-dollar basis. As a result, school districts would contribute 1% to the maintenance program and the state would contribute 1% to the maintenance program. This maintenance requirement would result in an increase of $28.5 million of state spending. Under HB 691, the State would fund this program, like its Bond Levy Equalization Program, out of the 5% of all state sales tax that it would dedicate to public school facilities. HB 691 would also require that school districts submit a ten year maintenance plan. Following the plan's approval, school districts would be required to report on performed maintenance and any revisions to the maintenance plan on an annual basis.

Supporters of HB 691 argue that this maintenance requirement is a substantial improvement upon the current facilities funding system in two ways. First, it would significantly increase state funds to assist districts in maintenance work. Second, it would reduce the acute safety crises school districts confront by delaying needed maintenance by requiring districts to spend these funds exclusively on facilities maintenance and by requiring districts to develop and abide by an extended maintenance plan.

Opponents of HB 691 argue that the program is prohibitively expensive. Opponents again argue that although the bill's sponsors would fund maintenance out of the 5% of all state sales tax dedicated to school facilities, the sponsors fail to make the hard choices regarding what programs currently funded by those revenues would need to be cut or what additional taxes would need to be raised.

Table 2
Current Costs & Recommended State Contributions to Facilities Maintenance

• Emergency Safety Mechanism

The final component of Republican sponsored HB 743 would be the creation of an emergency mechanism through which the state could intervene to address unsafe facilities that school districts themselves have been unwilling or unable to address. This mechanism would place $25 million from the State's general fund in a Public School Facilities Cooperative Fund. In response to safety concerns identified by school district superintendents or through the state's school building inspections, this mechanism would allow the state to develop a plan for renovation and/or construction and appoint a district supervisor to oversee the implementation of this plan on the school district's behalf. If district residents failed to pass a bond to finance the state's plan, then the state would fund the plan, up-front, through the Public School Facilities Cooperative Fund. The district, would, however, be held responsible for its share of the plan's cost. Implementation of the plan would automatically result in a property tax levy in the school district. The amount that district taxpayers would pay would depend on the levy rate and the relative wealth of the school district. Wealthier districts would be likely to pay 100% of the project cost while poorer districts would pay less. No levy would run for more than twenty years. So, even if the district's taxpayers hadn't repaid their portion within that time, the levy would end.

Supporters of HB 743 argue that this mechanism would ensure the safety of every Idaho public school facility without unduly punishing districts that passed a bond of their own volition by unduly rewarding districts that had been unwilling or unable to pass a bond.

Opponents offer three arguments against HB 743's emergency mechanism. First, they argue that the emergency mechanism is unlikely to be used because neither building inspectors nor district superintendents would reliably report serious safety issues. Opponents argue that building inspectors wouldn't report serious safety issues because these inspectors systematically fail to recognize the most serious safety problems. Opponents argue that current state building inspections—not necessarily performed by structural engineers—reliably identify malfunctioning emergency exit signs, for example, while failing to recognize that buildings are seismically unsound. Opponents argue that the emergency mechanism would actually discourage school district superintendents from self-reporting safety issues for a variety of reasons. First, district superintendents would risk a loss of accreditation through self-reporting. Second, district superintendents would knowingly dilute school funds through self-reporting because the emergency mechanism would ultimately make the district bear the expense of maintenance and/or construction through the imposition of increased property taxes. Third, district superintendents might resist the appointment of a state district supervisor who, hired at the district's own expense, would have the power to alter any facilities plans the district had developed as well as the power to fire the district superintendent.

Second, opponents argue that even if the emergency mechanism were invoked, it would proceed too slowly to address the critical safety issues that now confront Idaho's public schools facilities. Because the emergency mechanism would require state approval of any maintenance and/or construction plans, and would then require that the state-approved plan be submitted to district voters at a new bond election, months, if not years, might pass between the identification of a safety concern and the implementation of a solution.

Third, opponents argue that the emergency mechanism may, in fact, be unconstitutional. Imposing a bond on district residents who had refused to pass a bond may violate Idaho's constitution. These opponents argue that even if its emergency mechanism is constitutional, HB 743 still relies on loan repayment to address school facilities safety issues and point to the recent Supreme Court ruling that "reliance on loans alone" is an "inadequate" facilities funding solution.

Like HB 743, the final component of Democrat sponsored HB 691 would be the creation of an emergency mechanism through which districts or the state could access funds to address unsafe facilities that school districts themselves have been unable or unwilling to address. This mechanism would place $35 million for this purpose from the State's general fund in the School District Building Account. School districts or the State Department of Education could access these funds to renovate or replace unsafe school facilities. Upon receipt of application, the State Department would disburse the funds to the district. The department would require the school district to report on its use of the funds the following year. The department would also determine, in negotiation with the district, the portion of the funds that the district must repay and establish a repayment schedule. HB 691 does not specify the interest rate at which the State would loan this money. However, if the district failed to make scheduled payments, the department would charge 12% interest on the past-due amount and "take immediate action with the district to bring about resolution of the unpaid amount."

Supporters of HB 691 argue that this mechanism would ensure that every Idaho public school facility is safe. Supporters argue that both school districts and the State Department of Education would willingly avail themselves of the emergency mechanism for two reasons. First, the process would be easily and swiftly accessible and would leave control over maintenance and/or new construction plans at the district level. Second, the process would not impose a bond on district residents. The district's payments would not be assessed as a levy on property taxes, but would remain the responsibility of the school district. These payments could even take the form of lease payments through which the State Department of Education would become the owner of a particular school district facility which the district then leased from the state.

Opponents offer two arguments against HB 691's emergency mechanism. First, they argue that the emergency mechanism places substantial trust as well as state funds in the control of school districts whose past record on maintenance and construction may prove them unfit for that trust. Opponents argue that these school districts can't be trusted to spend facilities funds on facilities without state oversight. Second, opponents argue that the emergency mechanism is, like the other components of HB 691, prohibitively expensive.

Supporters of HB 691 respond to all opponents' arguments regarding expense by saying that the recent Supreme Court ruling requires the state to contribute substantial financial support to the maintenance and construction of public school facilities. Supporters of HB 691 argue that after fifteen years of delay, the state must appropriate such significant funds.

Table 3
Current Costs & Recommended State Contributions to Facilities Maintenance