Executive Summary

The 1973 General Assembly’s tax restructuring legislation ushered in a new era of State and local government finance. This era brought about a greater role for the State in financing primary and secondary education. In 1973, 66 percent of education instructional and transportation costs were paid for by local taxes, namely the property tax. The remaining 34 percent were State revenues. Today, the State contributes roughly 60 percent of these costs while local revenues represent approximately 40 percent.

The majority of State and local assistance is provided via the Basic Grant, which funds the general instructional costs of schools. A school corporation’s Basic Grant is determined by a legislatively enacted tuition support formula. This formula determines both regular tuition support as well as additional funding for At-Risk programs, special education, vocational education, grants for enrollment growth, and a newly enacted grant awarded based on the number of students receiving an honors diploma. The makeup of a school corporation’s Basic Grant will vary depending on differences in property wealth and local factors, such as high or low percentages of students “At-Risk” of completing their education.

The 1997 General Assembly adopted a new tuition support formula for the 1997-98 and 1998-99 school years. This formula includes a foundation grant that establishes a minimum funding level per pupil. A qualifying tax rate is also included to prompt low taxing corporations into increasing their rates and reducing overall variance in school General Fund property tax rates. For those school corporations who tax at a rate above the qualifying rate, there is a guaranteed revenue yield provision. This provision ensures equal access to education revenue regardless of the school corporation’s property tax wealth.

The tuition support formula is the primary tool used by the State to correct for the variation in revenues and tax rates across all 294 school corporations. The State found it necessary to address this variation in order to ensure that all Indiana students have equal education opportunities. This requirement of an equal education opportunity is derived from the State’s constitutional responsibility to provide a free education that is openly available to all. Other states, which have similar responsibilities, have faced legal challenges arguing that unequal funding prevents children from having equal education opportunities.

In Indiana, the estimated variation between 1997 Basic Grant spending for the highest and lowest spending school corporations was nearly $3,000 per pupil. However, in comparing school corporations’ spending at the 90th and 10th percentiles, the difference was less than $840. The tuition support formula adopted in 1997 is anticipated to further improve this measurement of variation. Within the last five years, Indiana has also dramatically reduced the variation in General Fund tax rate variation, which for taxpayers is another measure of equity. Projections of the formula for the next two years suggest that variance between the rate at the 90th percentile and 10th percentile will fall to $0.61 per $100 of assessed valuation. As recently as 1987, the difference was $1.51.

Significant variation continues to exist when the total school tax rate is compared. The total school rate includes not only the General Fund rate, but also the rates for the Debt Service, Capital Projects, Transportation, and the Special Education Preschool Funds. The variation in the Debt Service Fund rates is the most significant. The State has yet to address this issue. It may, however, find it necessary to do so as other states’ courts have suggested that there is more to equal education opportunities than instructional costs. Presumably the condition of the school building and other resources also make a difference. This report illustrates that the State’s efforts to address the variation in per pupil spending and General Fund tax rates have met with large success. However, the legislature may now need to expand its scope when looking at equity issues in education.