Oklahoma school funding: Even worse than you thought (Guest post: Ryan Gentzler)

Ryan Gentzler is an OK Policy Research Fellow, a Master of Public Administration student at the University of Oklahoma, and a Research Associate with the Early Childhood Education Institute.

In October, the Center on Budget and Policy Priorities published an update to its study of cuts to state aid to public K-12 schools since the recession, showing that Oklahoma has widened its lead in making the largest cuts in the nation. From 2008 to 2015, we’ve slashed state aid to schools by 23.6 percent, or $857 per student. But the situation is even worse than it appears at first glance. Oklahoma’s public schools are more dependent on state revenues than those in many other states. As a result, school funding in Oklahoma is more vulnerable to economic downturns and to fiscal decisions that erode the state’s revenue base.

Oklahoma schools rely more on state revenue than most neighboring states

With state and local revenues combined, Oklahoma ranks 49th among the 50 states and DC in per student revenues. The chart below compares total state and local revenue among Oklahoma and surrounding states, according to data from the National Center for Education Statistics adjusted for inflation.*

During much of the 1990s, state revenue for Oklahoma schools was equal to or above most of our surrounding states. However, those state revenues stagnated and fell below the national median quickly after 2000. During the period for which data is available, the national median state revenue per student rose by about 25 percent, from $4,462 in 1989 to $5,587 in 2011, while Oklahoma’s per student state revenue actually fell, from $4,355 to $4,216.

Meanwhile, Oklahoma’s local revenue going to schools has always been well below the national median and most surrounding states. Our local funding is due mostly to Oklahoma’s comparatively low property taxes, by far the biggest source of local revenues in all states. The maximum property tax that Oklahoma school districts are allowed to levy is 35 mills applied to 35 percent of a property’s value (about $1,225 per year for a property with an assessed value of $100,000). This limit keeps Oklahoma’s property taxes low, putting the state at 43rd in the country in the proportion of its total state and local revenues coming from property tax. Raising the limit on property taxes – either the tax rate or taxable value of property – could provide significantly more revenue for schools, but this would require a statewide referendum.

For now, because Oklahoma’s local revenues are so low, maintaining high state revenues is the key to funding schools adequately. Conversely, when state revenues drop, Oklahoma schools suffer even more harshly than in most other states.

High reliance on state revenue makes schools more vulnerable to recessions

Because Oklahoma’s schools rely heavily on state aid, they are especially vulnerable to economic shocks – and shocks have been more common in recent years. Much of the focus in recent years has been on recovering to 2009 funding levels, but it’s important to remember that even before the Great Recession, revenues hadn’t fully recovered from shortfalls in Fiscal Years 2002 and 2003. Oklahoma’s state revenues fell faster than the country as a whole during periods of fiscal stress from 2002-2005 and from 2009-2011. Even in the years between crises, state revenue growth did not keep up.

The toll taken by recessions could be mitigated in the future by improving our worst-in-the-nation revenue forecasting process, but the real problem is that the state simply doesn’t raise enough revenue to fund schools adequately.

State revenue sources have been continually undermined

The problems with Oklahoma school funding are partly structural – stemming from a heavy reliance on state revenues – but they are also rooted in fiscal decisions made by the State Legislature. As has been relentlessly documented by the Oklahoma Policy Institute and other organizations in the state, instead of finding ways to shore up revenue sources in the face of a turbulent economy, the Legislature has cut tax rates and expanded credits. Examples abound: Business tax breaks that grew to $760 million in 2014 alone; personal income tax cuts, put into effect by a trigger mechanism; and a voter-approved property tax exemption costing an estimated $40 million a year. While these tax breaks are done in the name of economic competitiveness, the evidence is clear that beyond a certain point, they make Oklahoma much less competitive over the long term.

In short, the recent pattern for the Oklahoma Legislature has been to grow funding by inches while cutting by yards, and it was that way long before the Great Recession took its toll. Recognizing that funding issues have been hindering the progress of Oklahoma schools, State Superintendent-elect Joy Hofmeister has made it a priority to increase teacher salaries with a dedicated revenue source. This is an important first step, but the roots of the school funding crisis run deep. To be competitive with other states will take a serious and sustained commitment by the Legislature to adequately fund our schools – a commitment that has been sorely lacking for the past two decades.

*The revenue figures presented are adjusted according to the NIPA index for state and local governments and calculated with 2009 as the base year.