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Illinois School Board Journal
January-February 2001

A financial conundrum:
Reconfiguring the education
funding formula in Illinois

by Ginger Wheeler

Ginger Wheeler is a free-lance writer from Glen Ellyn, Illinois, whose work has appeared in national magazines, local newspapers and on the World Wide Web.

Solving the education funding conundrum that exists in Illinois today could be on a par with bringing about peace in the Middle East. Nevertheless, in July 2000, Illinois Governor George Ryan tapped a high-profile few to the state legislature's Education Funding Advisory Board (EFAB) to recommend changes to the current funding formula, which sunsets in June 2001. The board consists of individuals from different regions of the state, as well as those who have experience in educational, legislative, business and child welfare advocacy. But how likely EFAB is to make any headway in this most political, emotional and expensive topic is anyone's guess.

At issue is the formula that determines what share of Illinois' $6 billion education budget each school receives to supplement what is raised through local property taxes. Elementary and secondary education make up about 20 percent¹ of Illinois' general funds appropriation -- the single largest portion of the Illinois state budget -- and $2.9 billion flows to school districts in the form of general state aid, per the formula.

The formula contains a number of factors that play a role in the ultimate payout, but EFAB's primary mission, for this year, is to look at the formula's poverty grant calculation and the foundation level -- the amount the state says should be spent on each child for a basic education. Not the frills ... just the basics. What defines "basics" is up for discussion, as well as whether or not the "foundation level" actually funds the basics at all.

EFAB chairman C. Robert Leininger, Illinois' former state superintendent of education, said the board was created in 1997. His appointment as chairman came in June 2000 from Governor Ryan. Now he and his fellow board members face a dilemma.

"We have six months to solve a school problem that we've been trying to solve for the past 30 years," he said. A report containing preliminary recommendations was due January 1, 2001. A second report is due January 1, 2003, but the board agreed to make themselves work harder by providing reports to the General Assembly this spring and in January of 2002 to help with funding recommendations for FY 2002 and 2003.

To garner recommendations, the board, which is operating with staff help from the Illinois State Board of Education, spent $9,200 to hire a team of researchers from Illinois State University to determine whether the current foundation level of $4,425 is indeed adequate. Additionally, the board hosted hearings around the state to gather input from education stakeholders on education funding. Participants and written testimony from individuals, educators, administrators, business people and legislators who participated in the hearings can be found on EFAB's Web site.

According to Leininger, in order to help the board pinpoint recommendations required for its long-range report due in January 2003, EFAB has hired Augenblick & Myers Inc., a Denver-based consulting firm, for a reported $150,000, to complete a more thorough study due in June. Augenblick & Myers was recently under contract to study Illinois' education funding system as part of an assignment on behalf of Network 21, the newly formed education funding arm of the Metropolitan Planning Council, a Chicago-based business coalition. They also had bid on the short-term study for EFAB, but ISU was selected.

Leininger said the firm will help EFAB make detailed recommendations in January 2003. "That's going to be the big one," he said. "Regional cost differences will be one of the issues. The distribution formula of state funds should take that into account." He added that a "Robin Hood" strategy -- taking from the wealthy to supplement the poor -- is something the board is opposed to.

"I truly believe EFAB will look at the funding formula as a whole and research and evaluate every component," said Peg Agnos, the lobbyist from the Legislative Education Network of DuPage (LEND).

In the short term, members of Network 21 had pledged to share information from their study with EFAB, and they did on December 12. EFAB heard from both the ISU group, whose study was coordinated by Professor Robert Wiggall and from Network 21, whose Augenblick & Myers study was presented by William Burns and MarySue Barrett of the MPC. The two sets of recommendations were remarkably similar: Raise the foundation level to a number that would support achieving the Illinois State Standards and alter the poverty grant so that more children are included and those schools with higher concentrations of poverty get a little more.

Armed with that information, the board took tentative steps to reach those goals by recommending that the General Assembly raise the foundation level by $135 to not less than $4,560 and lower the threshold for the poverty grant so that if 15 percent of the children in a school qualify, the school would receive some aid. Leininger said he wanted the recommendations to be realistic and responsible, but also set the stage for the future, so that when EFAB makes the "Big One," the General Assembly will recognize the board as a credible source.

As far as the January recommendations, board member Senator Lisa Madigan (D-Chicago) said she didn't expect anything dramatic to occur due to the lateness of the appointments. "There's not enough time to make a grand recommendation," she said. "We'll hear some passionate debate on how we fund education. Some (board members) want something more substantial to occur." She added that she expects the result will be an increase in the foundation level and a recalculation of the poverty grant.

As to what would be done this session, many predicted the outcome.

"They'll probably raise the foundation level by $100," said Max Pierson, a former public school superintendent and currently a professor of educational administration at Western Illinois University.

But many in public education see this figure as woefully inadequate. Even raised by $100, the foundation level falls short of the $4,900 that Paul Vallas, CEO of Chicago Public Schools, said it would be today if inflation had been taken into account by state legislators. Vallas also believes EFAB can, and should, be the forum in which the state systematically develops workable solutions to many vexing school finance problems in Illinois. In his testimony, Vallas intimates that the state legislature is not meeting its constitutional duty to adequately fund education in Illinois, and that lawsuits to demand parity, similar to those filed in many other states, could be on the horizon.

However, because past lawsuits in Illinois have failed, retired state Senator Art Berman said the burden to change education funding lies with the governor and the state legislature. The language of the Illinois constitution says: "The State has the primary responsibility for financing the system of public education." To most people, Berman said, that language means paying 51 percent of a child's education. "Everyone except seven people who sit on the Illinois Supreme Court," he added.

In two cases, Berman said, "the Supreme Court interpreted that language to mean the primary responsibility was only advisory, not mandatory, which meant that the primary responsibility -- goal or standard -- was only a suggestion to the Illinois General Assembly. It is not an entitlement that every child in Illinois can take advantage of."

Pierson and Madigan both echoed that sentiment. "Other states have been faced with finding another way to fund education," Madigan said, "usually because of lawsuits." Pierson pointed to California's 1971 Serrano vs. Priest as a benchmark lawsuit that stakeholders have used to demand equity throughout a state in terms of per pupil spending. Since Serrano, he said, "45 states have been sued to equalize operational funding under state constitutional clauses."²

However, like Vallas, Pierson acknowledged that the EFAB board could have a real impact on education funding. "They got started too late to do anything significant this year," he said. "Next year, or the year after, we might see some real leadership."

Leininger pledged to see EFAB's work through. "We've got a job to do and we're going to do it," he said. "Whether anybody pays any attention ... that's up to the residents and the citizens of Illinois. Our job is finding it a way to make it reality."

All the experts agree however, that legislative changes are going to be difficult.

A majority of suburban legislators would oppose tax increases because they think the money would subsidize downstate schools, Pierson said. "It's hard to get reelected when you raise taxes. Just ask Gene Hoffman." Hoffman, who hailed from Elmhurst, a supposedly "safe" legislative district, lost his bid for reelection in a primary race after championing the income tax solution to education funding inequities. "He did a great job," Pierson said, lamenting the loss of a tireless advocate for education funding reform. Leininger and Berman echoed the same sentiment.

Under the current system, downstate schools are not the only ones feeling the crunch. Arguments could be made that the old regional attitude of funding needs and issues (downstate vs. suburban vs. Chicago) is no longer accurate. In the new century, unique needs include downstate rural vs. downstate urban vs. inner-city poor vs. inner-city wealthy vs. suburban tax capped vs. suburban new construction districts. Each group has it own unique issues and problems with the current funding formula. Whether it is reliance on the formula's "hold harmless" clause, the poverty component or a double whammy, no district seems to get all it needs to fully fund education, according to testimony provided to EFAB.

The two issues, Pierson said, are "adequacy" and "equity." Adequacy tends to become the minimum, he said. Is $4,400 an adequate number when the average cost of educating a child in Illinois is $6,400, according to the 1999 Illinois State Board of Education publication, State, Local and Federal Financing for Illinois Public Schools?

"Literally thousands of children are not provided an adequate education to be successful in the 21st century," said James Ward, a professor of school finance from the University of Illinois. "Even the poorest districts (in New York) are better funded than most districts in Illinois."

Even the term "adequate" is up for debate. However, Ward contends that no state has it absolutely right.

Equity is another subject of debate. Bill Hinrichs, senior policy advisor to the Illinois State Board of Education and the acknowledged "go-to guy" for Illinois school funding, sums it up in "Is Equity Dead in Illinois?" In the paper, Hinrichs said equity is "almost certainly on its last legs" in Illinois. Hinrichs ties the new Illinois State Standards to equity and recommends "sufficient resources be made available to provide every child with the opportunity to meet those standards."

But are the new state standards, then, the definition of adequate, too?

Boosting the budget takes funds, and funds come from taxes. "An awful lot of people out there don't realize the federal government has almost nothing to do with education funding and the state pays a large proportion," said John Augenblick of Augenblick & Myers, the consulting firm EFAB will work with to determine the numbers next spring. "Every state has a component of local support but the vast majority is the property tax."

However, switching to an income tax to fund education is problematic. Augenblick said the mindset of taxpayers in general is that income taxes fund federal programs, sales taxes fund state programs and property taxes fund local programs with local control, including schools. "People have a limited tolerance for any tax," he said. "When the state dips into income taxes, they're stepping on federal toes."

However, dozens of testimonials EFAB heard requested that the board find a way to fund education other than property taxes. Indeed, wealthy districts with high equalized assessed valuations (EAVs) have been unable to access their full taxing rates due to tax caps. Chicago has the highest property tax burden in the nation for businesses in both per-square-foot and per-employee costs. Suburban Chicago has the second highest suburban tax burden and the fifth highest per-employee cost in the nation, according to the Building Owners and Managers Association of Chicago.

"The over-reliance on local property taxes in Cook County and statewide deters business growth, affects the availability of affordable housing and unfairly links the opportunity for a quality education to where a child lives in the state," said MPC President Barrett in a recent press release.

Madigan agreed: "Is it fair that one gets a significantly better education because of their zip code?"

To determine fairness per zip code, one needs only to examine curriculum offerings, Pierson said. He and WIU's Bob Hall have gathered data on Illinois' schools curriculum offerings and presented their findings to the National Rural Educational Association a few years ago. They found that wealthier suburban districts tend to offer more vocational, technical, math, business and language courses.

"I am not sure that these discrepancies are totally due to the funding system," Hall said. "Obviously if rural areas want to offer the same educational opportunities afforded to students in the suburbs, it will require more money for the school." Pierson and Hall said their research is a few years old, but that they believe it is still current. "Comparing any subject for breadth of offerings is an issue of educational funding," Hall said.

Does the fact that suburban students can choose between 29 different English department courses versus five in a rural school translate to student achievement on tests and in life? "Everybody hasn't come to an agreement that there is a relationship between spending and performance," Augenblick said.

People do agree that poverty is a greater indicator of failure than spending. "Poverty has a direct and measurable impact on achievement," said State Superintendent Glenn W. "Max" McGee.

In his testimony to EFAB, Burns, who is MPC's education and tax policy manager, noted the irony under the current funding system "that poor school districts must exert more taxing effort (higher rates) to fund basic education costs ... (yet) higher tax rates serve as a disincentive for economic development and business growth."

Leininger contends everything that has been done in the last 15 years has been disequalizing. "The rich have been getting more and the poor have been getting less." He attributes this to formula "tinkering" by the General Assembly. "They wouldn't let the formula work," he said.

In poor areas, it costs more to educate children due to social problems that interfere with learning. Doolittle West, an inner-city Chicago school with a 98 percent poverty level, has children who can't afford basic school supplies and field trips. The school has a truancy rate of one or two per class (6 percent) and a mobility rate of 32 percent. Some children eat three hot meals a day at the school courtesy of the federal government, a further indication of the poverty in the area.

Despite the problems, the school has pulled itself out of academic probation since 1999. The joyful sounds of learning reverberate through the halls. Some teachers have computers, TVs and VCRs in their classrooms. The building has been improved with new windows and T-1 lines. Volunteers show up daily to assist where needed. Including federal funds, the school actually has more money to spend per child than some suburban elementary schools from wealthy districts. But it could use more help. The teachers can only do so much for each of the 26 children³ in their classes.

Are the poverty grants making a difference in cases like these? Ward and others speculated that EFAB would increase the requirements to allow more schools access to poverty counts. McGee has requested that the board study the current "steps" for poverty funding and make a recommendation to narrow them. "Our most needy children are not getting the programs and services they need," he wrote. Under the current system, a school with 19.9 percent of its children counted as low income receives no dollars to assist with their education. The board recommended lowering the threshold to 15 percent, but held up recommendations to tinker with the formula beyond that. Again, the talk turned to setting the stage for future improvements.

Rural areas have issues, too. Many schools are experiencing a growth in special education students, which people speculate could be due to substance abuse such as fetal alcohol syndrome or a more vigilant identification of learning disabilities. Colchester CUD 180 reports that 20.5 percent of its budgeted expenses will go toward special ed needs, an increase of 4 percent in two years. According to Superintendent Jerry Meyer, his district is experiencing a poisonous combination of higher EAVs, lower enrollments and higher special education costs, which results in fewer services for students. "Our chemistry textbooks are 20 years old," he said.

In cases such as Colchester's, the "hold harmless" aid kicks in. "Though the formula works as it was designed, several problems have arisen because of it," McGee said. "School districts have become reliant on the 'hold harmless' funding. It is truly the 'lifeblood' of their schools and without it, student learning would be seriously compromised."

The "hold harmless" clause is destined to sunset next spring as well, causing administrators to blanch at the thought. "So many districts receive funding under 'hold harmless' that it's getting bigger and bigger," Ward said. "It's the monster that devours the system."

"Hold harmless" means school districts will not receive less general state aid than they did in FY 1998, according to the Illinois Economic and Fiscal Commission publication on education funding. "Hold harmless" costs rose from $44 million to $55.8 million and receded to $48 million in three years. But the State Board of Education's Bill Hinrich's writes it could easily top $600 million within eight years.

Along with the poverty grants and "hold harmless," another component of the current funding system that will sunset in June 2001 is the continuing appropriation guarantee. "It's not sexy, so no one ever writes about it," Berman said, "but it is important that people understand this critical component of education funding." The Illinois Economic and Fiscal Commission says: "This guarantee allows districts to know the exact level of funding that they can count on in current and out-year budgeting." Berman explained that continuing appropriation guarantees the flow to school districts, not the amount.

The continuing appropriation was adopted in 1997. The "hold harmless" aid falls under the continuing appropriation's umbrella -- so as goes continuing appropriation, so goes "hold harmless," said Berman. "It must be included in the short term and long term to keep children at this level." The board voted last month to recommend adopting the Continuing Appropriation clause with no sunset and to push the hold harmless sunset back another year, until June 2002.

When talking about education funding things get complicated. Berman jokes that only six people in the state really understand the formula. "They better not all get on the same plane," he said.

Although the formula itself is easily understood, the variables that go into it are subjective. When folks analyze the formula, talk can turn to adequacy, equity, school standards, achievement, special education costs, taxes, poverty, salaries, social custom, racism, economics, cultural, regional and societal differences in mindset and costs, and a host of other subjects as controversial, including politics.

So just what does EFAB Chairman Leininger have in mind to solve this problem and sell the solution to the General Assembly? The EFAB board is well aware of the political challenges surrounding the reform of Illinois' education funding system. The numbers tell the story: Hoffman's primary election defeat in 1990; Edgar's defeat of Dawn Clark Netsch in '94; the defeat by 2 percent of Berman's constitutional amendment that would have changed the language of the Illinois state constitution in '94; and Governor Edgar's failure to reform the system in '97 by a defeat in the Illinois Senate.

The message is clear. "People don't want tax increases," Berman said. But, Leininger thinks EFAB's solutions can be sold. "My plan is to convince the board that the first thing we do, in the fall of 2002, is to go to the business community and sell them," Leininger said. He's already in extensive discussions with a half dozen business leaders and the support is there. Business leaders realize their future employees will come from the Illinois public schools, plus they want property tax relief as much as homeowners. Leininger said the movers and the shakers of the business community will sell the long-term solution to the General Assembly.

But that won't be soon. Ward said the General Assembly will be preoccupied this spring. "Redistricting will be the dominant issue," he said. "No one will deal with school funding when that issue is on the front burner." Pierson also cautioned that the political leadership will have to get on board, too. "(Pate) Phillip, Governor Ryan and (Michael) Madigan need to make (education) a priority instead of funding tobacco tax rebates," he said, adding it will be a tough sell. "People who vote for tax increases tend not to be elected."

But Pierson agrees that the private sector would get behind improvements in education funding. "They want a more highly educated workforce," he said.

How can the tendency by the electorate to reject tax increases and the politicans who propose them be changed? Again, another tough sell, according to Pierson. "There is going to have to be a significant change in attitudes of people, similar to what we had during the '70s," he said. "We were in a state of mind that showed concern about things other than self. It takes a whole state of Illinois to educate one boy and girl. An undereducated child is not going to be able to reach his or her potential and becomes a drain on state resources." People must understand and believe it, then equity will become an issue, he said.

"Head Start is expensive, but it's an economic winner," Pierson said, as an example. "Kids who get an early start do better, stay in school longer and provide more money back to the state."

Berman agrees, using his favorite statement: "It makes much more sense to spend $5,000 or $6,000 or $7,000 on a child's education than to spend over $30,000 on that young person in an Illinois prison."

Statistics back this up. Newsweek reports that expenditures on state-prison activities doubled since 1985, now topping $27 billion nationwide. Reports say that the majority of prison inmates come from disadvantaged, minority communities and that more than 50 percent of inmates may have unidentified learning disabilities. A 1993 survey by the Correctional Education Association showed the majority of inmates have lower literacy skills and lower education attainments than adults in the nation as a whole. Stephen Steurer, executive director of CEA was quoted as saying: "While direct correlation between educational disadvantage and crime has not been verified, this description of the prison population suggests the probability that low literacy skills, poverty, and crime are related."

John McCarron's comments in the Chicago Tribune (October 16, 2000) tie education funding to smart growth, a popular concept among voters. "A smart state might change the way it funds public schools so the resources available to educate a child are not dictated by the value of real estate in that child's school district," he wrote. "That alone would temper the annexation gold rush."

Funding alone will not solve all the problems in bringing children in Illinois up to standards, but McGee said the funding should be absolutely tied into the learning standards. He advised school board members to "ask questions of educators about how they're getting the best results, institute school improvement plans, ask tough questions about involving parents."

Everyone seems to agree educational success is a combination of many variables.

"We have to work together," Berman said. "Education is not a partisan issue."

Leininger said the members of EFAB are committed, dedicated, connected and ready for improvement in education funding. "This is the time for statesmanship to do what's right for kids, because the people of Illinois deserve it." He said to expect big things from EFAB. "In subsequent years, things will happen to get people's juices flowing."

Footnotes:
1 According to Comptroller Daniel W. Hynes' April 2000 publication, "Fiscal Focus""
2 Standard & Poors "CreditWeek Municipal," September 11, 2000
3 Average based on Doolittle West's available information on the school report card that did not include fourth-grade numbers