The Problem with Mill Levies

Ken DeLay

School finance is the fulcrum on which Colorado state and local tax policy is balanced. About 40% of the state’s annual operating budget and about 50% of Colorado's local property taxes every year fund our public schools. Both local and state tax revenues are crucial for healthy and fully funded public schools, and if either side of this balance goes awry, the other side will pay.

Thirty years ago, acknowledging this symbiotic relationship, the legislature stepped in to ensure the relationship between state and local taxpayers would be one of equal partners, in which each would share equally the costs of supporting our most important state institution – our public schools. Both the 1988 School Finance Act and the original 1994 School Finance Act required half of the bill for funding public education to be paid by state taxpayers and the other half to be paid by local property taxpayers.

These finance acts also required a uniform school mill levy in every school district in the state, required the state to "equalize" local funding regardless of the extent to which local property taxes were insufficient to pay the funding a school district was entitled to receive, sharply limited any additional amounts school districts could raise from local taxpayers, and insured that every similarly situated student in the state would be funded at the same level regardless of where the student lived.

Together the Gallagher and TABOR Amendments in Colorado's Constitution have conspired to frustrate every one of the policy requirements in the 1988 and 1994 laws. Almost all of these policy failures can be traced to a single factor. If Colorado still had a uniform mill levy paid in every school district, and if that uniform mill levy were high enough to fund 50% of the total school finance bill in Colorado, all the other sage policy goals of the 1988 and 1994 legislatures would also still be in place. As additional benefits, the Budget Stabilization Factor would also disappear, and the state’s General Fund budget would have several hundred million dollars of additional discretionary revenues.

Raising local property taxes back to a level necessary to fund 50% of Colorado's school finance obligation is probably beyond reach without significant changes to Colorado's Constitution. However, the Joint Budget Committee (JBC) believes there may be a pathway to re-establish a uniform mill levy across Colorado at or near the current school finance mill levy cap of 27 mills. Even this limited repair of our school finance system has the potential to put more than 400 million new dollars into school finance. An additional $400 million in school finance could lower the Budget Stabilization Factor to an amount less than $200 million, perhaps as low as $100 million.

The details of that pathway have not yet been completely worked out by the JBC. Moreover, no matter how those details are resolved, there will be inequities and challenges for some local school districts that the JBC must address in its legislation. Most troubling, some school districts may not be able under any circumstances to raise their local mill levies to the required level, and it will be important that any legislation protect or hold harmless these districts. The education community and CASB are not likely to support legislation which does not fairly come to grips with these inequities and challenges.

We must also follow the money. If the legislature finds a pathway to require a uniform school mill levy, the new revenues flowing into school finance from local taxpayers will replace revenues now coming from the state’s General Fund budget. Under current law, the legislature is not required to reinvest those state revenues back into education. We must insist they do so. Any legislation advanced by the JBC must include an ironclad requirement that any state dollars freed up by a new uniform mill levy will stay in education. The Governor’s budget for 2019-20 proposes lowering the Budget Stabilization Factor to $600 million. Cutting that shortfall by another $400 million would be a huge step in the right direction but still well short of what is needed.

We do not yet have a draft of the JBC bill to return Colorado to a uniform statewide school mill. However, we know enough to develop some policy benchmarks against which this legislation must be weighed:
Will every state General Fund dollar replaced by local tax revenues be reinvested in school finance and our public schools?
Will school districts which do not have the ability to reach the required mill levy be protected and held harmless?
Will the window of time afforded to school districts to meet the new required mill levy be reasonable?
Will the pathways made available to school districts to reach the required mill levy be fair and reasonable to local taxpayers and school districts?
Will the new school finance funding and the new uniform mill levy be sustainable and stable in the future?
All children deserve equal access to an education allowing them to reach their potential. The JBC proposal to re-establish a uniform school finance mill levy to recalibrate and rebalance the contributions between local and state support toward our public schools is, like the educational funding system it aims to fix, necessarily complex. We support the goal of creating a more stable and fair local property tax system to support and better fund all our public schools. We will work to make sure this is what the JBC gives us.

February 5, 2019