City school funding heading the right way?

First in a two-part series.

For Charlottesville officials, the past few months have been an exercise in adapting to the atypical — the second-smallest real-estate assessment growth on record was accompanied by hard choices to delay projects and cut empty positions within City Hall.

Now, an efficiency study of the city government has called into question a system that has been used for years to fund the largest part of Charlottesville’s budget — public schools — as work starts on the proposed $142.5 million spending plan for fiscal 2010.

The city’s guidelines call for the school division to receive up to 40 percent of new real estate and property tax revenues. That has helped per pupil spending in the school budget shoot up sharply, from $8,286 in fiscal 1999 to $14,269 this fiscal year, according to the review.

Local funding has increased steadily even as student enrollment has continued a slow decline. This comes largely because the funding formula makes no provision for enrollment numbers, just as it ignores the schools’ performance.

The efficiency report concludes that “the nuances of the housing cycle do not have a large bearing on what is ‘fair’ to either the schools or city when considering support to local education.”

As such, the report recommended that the formula should be reviewed so the city and schools can develop a balanced approach that considers tax capacity, enrollment and school programming needs.

“I think they made a good point about the fact that the formula isn’t adjusted for population in the school system,” Mayor Dave Norris said. “There have been questions raised in recent years about the fact that we have fairly high per pupil spending, and yet our students lag behind many other school systems in terms of achievement.”

Norris added that while he does not have a particular interest in changing the formula, he wants to see funding put to the best uses.

Division-wide enrollment in Charlottesville has been dropping steadily for decades. Current budget documents show that 4,430 students were enrolled during the 1989-1990 academic year. This year, only 3,875 students are enrolled.

But as the guideline has dictated, the local government contribution to schools has risen as the city, until this year, saw huge real estate tax windfalls from soaring assessments.

At its peak in 2006, Charlottesville saw a 15.34 percent average assessment increase among existing residential and commercial properties.

Former City Councilor Rob Schilling argued that the city has not used its dollars efficiently when funding the schools.

“It’s time for it to go, it never should have happened,” Schilling said of the formula.

Schilling, a Republican and longtime critic of council spending, said it is an “insane idea” for the city to fund any department — whether it be police, fire, social services or schools — based on a fixed percentage of unknown revenue.

“It is not reflective of a needs-based budget,” he said, adding that government officials need to justify the amount of funds being spent.

“That’s the only way that’s fair to the taxpayers,” Schilling said.

A separate efficiency study done exclusively on the Charlottesville school division noted that the student dropout rate in 2008, 3.1 percent, was higher than those of the study’s peer divisions — Fredericksburg, Williamsburg and Winchester.

That study also found that after the 2006-07 academic year, there were higher percentages of Charlottesville students who went on to attend two-year colleges or had other continuing education plans, but lower percentages of students decided to attend four-year colleges or had employment plans.

“Are we really using those dollars as effectively as we can?” Norris asked.

‘Emotion-based actions’?

School division funding is the largest chunk of Charlottesville’s budget, usually taking up more than 30 percent of the city’s spending.

In the last 10 fiscal years, the city’s contribution has grown from being more than 63 percent of the school’s general fund to more than 71 percent of the school’s general fund.

The amounts translate to $25.2 million in city money for the schools’ $39.8 million general fund in fiscal 2001, compared with an estimated $40.3 million local contribution to the school’s proposed $56.6 million general fund for fiscal 2010.

Former City Council candidate Barbara Haskins, an independent who ran on a platform of fiscal responsibility, said she thinks the way schools are funded represents the overall attitude in the city budget — that spending money will fix problems, even if the solutions are ineffective.

“It’s emotion-based actions,” said Haskins, who lost her bid for the City Council in the 2007 election. “There’s no willingness to use data to make decisions.”

The property taxes assumption for the budget guidelines was first officially incorporated with the fiscal 2005 budget; from fiscal 1997 until then, the guideline said either roughly or no more than 40 percent of all new revenues should be given to schools.

There is still ardent support for the current system because of the collaboration it inspires between the government and school system, officials say.

“Ours has worked for years and it’s created a partnership between the city and the schools,” City Manager Gary O’Connell said, referring to the system.

“You don’t see the School Board and the governing body battling each other as you do in other jurisdictions,” School Board Chairman Ned Michie said. “I think that’s a great benefit to our city and our division, to not have to get into that kind of squabble.”

Year-to-year increases in local schools funding over the last 10 years have averaged about $1.6 million, but have individually been as much as $4.3 million.

Since fiscal 1997, the schools have actually been getting less funding than the guideline suggests. The most recent comparison figures, from fiscal 2006, show that 40 percent of the city’s new real estate and property tax revenues totaled $2,000 more than the approximate $1.5 million increase given to the schools that year.

The city is proposing to give $40.3 million for fiscal 2010 toward the school system’s entire $68.3 million budget. Though the contribution is slightly more than the $39.8 million given last year, the schools’ budget is proposed to shrink by about $1.5 million, partly because of staff cuts and less state aid.

A philosophical question

O’Connell said that the system’s approach and 40 percent target have been questioned before, but the essential philosophy behind the formula is to achieve agreement on the division’s necessary resources between the city manager and schools superintendent, which he said has occurred repeatedly in Charlottesville.

“There are not many jurisdictions that can say that’s the case,” he said.

Ed Gillaspie, the school division’s finance director, said school spending has largely increased because of rising staff salaries and the cost of benefits, such as health insurance.

“That’s really what drives the bus,” Gillaspie said, referring to the school division’s investment in its employees.

“We value our employees and we want to pay them adequately,” Michie added.

Plus, Gillaspie said, the formula is key in planning what resources are available and establishes the environment in which decisions are made.

“But it doesn’t drive, what are your needs?” Gillaspie said. The Charlottesville School Board, he said, determines the needs of the division after examining many factors, including programs and student enrollment.

“We’re certainly not ignoring what enrollment is,” Gillaspie said. The division’s budget for next year, in light of declining enrollment, is slashing teaching and administrative positions and increasing student-to-teacher ratios in some of its schools.

Approaching the formula from the perspective of real estate and property tax revenues has its advantages, supporters say. Real-estate tax revenue is the city’s largest revenue source, often indicating what sort of fiscal situation the government will face in coming years, and therefore how much officials will be able to spend on departments and programs.

“When the local economy is sluggish and revenues are affected, the schools cannot be exempted,” Norris said.

Councilor David Brown agreed, saying if the city has to tighten its spending because of declining tax revenues, the schools will have to do the same.

“The schools are somewhat in step with the rest of the city,” Brown said.

But officials concede that such is the risk of mainly relying on one source of revenue to fund such a large piece of the budget.

“To the degree the city government has multiple sources of revenue, it tends to smooth our year-to-year available revenues,” Gillaspie said. “If you’re tied to one thing too strongly, the services get buffeted by it.”