Rebuilding from Colorado’s K-12 Funding Cuts: A History Lesson
By Chris Stiffler
One of the biggest issues at the Capitol is how to put more money into K-12 education. After a decade of a struggling economy, K-12 suffered significant cuts during the Great Recession through a mechanism called the “negative factor,” which has further contributed to Colorado funding its students well below the national average.
In fact, Colorado spends $1,872 less per student than the national average. With our tax collections finally rebounding, Colorado is in a position to start restoring the cuts K-12 schools experienced. But this isn’t as easy as it sounds.
Because of the complicated interactions with our constitution and how the state finances education, legislators are in a tough situation: they want to put more money into schools but they also must do it without blowing up the entire state budget or completely draining the State Education Fund. To understand this, we have to understand some Colorado school finance history.
Under Amendment 23, which voters passed in 2000, K-12 funding was required to grow by at least the rate of inflation and to account for student population growth. With falling tax revenues and budget pressures that accompanied the Great Recession, legislators determined in 2009 that Amendment 23 only applied to certain parts of the school finance formula and that other parts didn’t have to grow by inflation each year. This is where the “negative factor” comes in. Now, the legislature determines the amount of funding required under Amendment 23 and compares it to the amount of funding available.
When there isn’t enough money available, the gap gets filled with the negative factor — essentially a negative amount of money that is given to school districts. This mechanism allows compliance with the constitution while simultaneously decreasing funding below the original intent of the amendment. The negative factor subtracted 15.5 percent of school districts’ funding this year. After a few years of cutting via the negative factor, total funding for K-12 education in Colorado is now more than $1 billion below where it would have been without the negative factor.
The State Education Fund was also created with Amendment 23, intended as a savings account to protect Colorado school funding from economic downturns. Unfortunately, over the last decade, the money in the State Education Fund was drained to help maintain education funding when flagging general fund collections were used to support other programs.
Thus, the State Education Fund was never able to grow into the large reserve envisioned originally. The savings account became a checking account.
This year, with recovering tax revenues, the State Education Fund now has more than a $1 billion balance (due in large part to the $1.1 billion general fund surplus from FY 2012-13 that got transferred to the SEF thanks to SB13-260). So why don’t legislators reverse the billion-dollar negative factor using the $1 billion in the State Education Fund? The answer is complicated, and here’s why.
That $1 billion sitting in the SEF is one-time-money — only available this year — unlike the billion-dollar negative factor that is an annual shortfall. The $1 billion in the SEF can’t be counted on next year. So a school district can’t hire a new teacher not knowing if the money will be available next year to pay the teacher’s salary.
To further complicate things, money spent on K-12 adds to the school funding “base,” which then has to grow by inflation each year according to Amendment 23. If the state puts too much extra money into the base this year not knowing if that money will be available next year, it could create budget pressure next year, which would result in either taking money away from other programs funded out of the general fund or requiring cuts to education again.
In addition, keeping a large balance in the SEF helps the fund act as it was originally intended before the tight budget periods of the last decade: as a reserve fund that earns interest. With a large reserve fund built up, K-12 will be better able to weather the next economic downturn by smoothing funding during downturns in the economy, and funding wouldn’t have to be cut when general fund money isn’t available.
So, repaying K-12 education is a balancing act. The governor and legislators are trying to put as much money as possible back into Colorado schools without creating budget problems in the future. But they’re also simultaneously preparing school funding to weather the next economic downturn instead of suffering drastic cuts like K-12 did during the Great Recession.
