State aid to Muncie schools drops
MUNCIE, Ind. — The demographics and tax base of Delaware County present local governments with one of the toughest fiscal environments in the whole state, a longtime expert in state and local government policy says.
That's apart from any local tax or budget decisions, such as school tax levy referenda, TIF districts and teacher benefits.
"It's easy to see why Muncie schools are in financial difficulty and are closing school buildings, with declining enrollment, declining state aid and lost (property tax) cap credit revenue," Larry Deboer, an agricultural economist at Purdue University, told The Star Press.
In 2008, the Muncie district received $36.3 million in state aid, and had a general fund tax levy of $15.96 million, or $52.3 million total. The next year the state eliminated the levy and state aid was $52.3 million. "No loss, but no gain either," DeBoer said. "Of course, inflation eroded the purchasing power of that money."
Since then, however, "state aid has declined a lot, to $43.3 million in 2015, which is the latest data I've got," DeBoer said. "That's 3.1 percent per year in nominal terms. Adjusting for inflation would make it more than 5 percent per year in real terms. That's a significant loss in state aid."
The main reason is the declining enrollment in the Muncie district. "They had 7,284 students in 2009, and 6,106 in 2015, a 16-percent loss in six years," he said. "Each lost student causes a full per-student decline in aid. That works against declining enrollment schools, mostly urban and rural, and in favor of growing suburban school districts."
State aid fell from $7,177 per pupil in 2009 to $7,096 in 2015, even as aid per pupil statewide was increasing, DeBoer said.
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In addition, the Muncie district has lost a large amount of its property tax levy to the tax caps, because it's located within a high tax rate city, according to DeBoer. This is a loss of capital projects fund and transportation fund dollars. The district lost 42 percent of its levy to the caps, "surely one of the biggest losses among all school corporations. The caps do work against urban school districts, since the rates their taxpayers pay have the added city rate, and higher ratepayers are more likely to be eligible for the cap credits."
The decline in enrollment dates back a long way, DeBoer noted. In the 1960s, at the height of the Baby Boom, the Muncie district had more than 18,000 students.
The state eliminated the local school general fund property tax levy in 2008-09, though Muncie still has property tax levies for bus replacement, debt service, capital projects and transportation. It also can have a levy for pension debt but isn't currently imposing it.
Meanwhile, a study published by DeBoer in December identified Delaware as one of the most "fiscally disadvantaged" counties in the state, along with Blackford, Henry, Madison, Grant, Wayne, Cass, Howard, Fayette and Miami counties, all 10 of which are contiguous.
The study's capacity-cost index" compared the capacity of Indiana local governments to raise revenue to the costs of providing local government services.
"A positive index indicates that governments can provide average services at lower-than-average tax rates, or can provide above average services at average tax rates," the study reported. "A negative index indicates that governments must charge higher rates to provide average services, or must provide a lower service level at average tax rates."
All 10 of the contiguous, most fiscally disadvantaged counties have large, negative capacity-cost indexes, or not enough to support service costs. "Delaware falls short by the largest percentage, with a revenue capacity of 20.9 percent below the state median," the study found. Each of the 10 counties has unique characteristics, "but it is clear that the region’s disadvantage lies in its lower-than-median revenue capacity."
Indiana local governments derive 87 percent of their revenues from four sources: property taxes, local income taxes, state aid to schools and state aid for roads. Revenue capacity and service costs can be measured independently of any budget or tax decisions made by local officials. The difference between the two — the “capacity-cost index” — can show the conditions under which local tax and service decisions are made.
What all 10 east-north-central counties share in common was a high degree of dependence on manufacturing in the 1970s. Property taxes on factories and factory equipment and income taxes on manufacturing incomes provided a large part of those counties' revenue capacity.
"The loss of manufacturing cost these counties substantial revenue capacity … In every county … revenue capacity was less than service costs. The east-north-central-corridor is the most fiscally disadvantaged in Indiana."
A recently published study by Ball State University economist Michael Hicks noted that the Muncie school district's physical plant "is far too large for its current and future student population. Overall occupancy rates are now less than 75 percent in the current facilities, and headed toward 68 percent in 2030. The excess property costs have meant deferred maintenance on all facilities. One result is an excess supply of physically poor assets. Sale of the excess supply of current assets will not remedy debt or cash flow problems. Only three schools or 25 percent of capacity were ranked in good shape in the 2015 facilities assessment, while six required significant maintenance."
Muncie has a current supply of classrooms that can accommodate 2,025 more students than are currently enrolled. That number will grow to nearly 2,500 students or 100 excess classrooms by 2030, according to the study. This 100 excess classrooms translates to between three and five excess schools.
Contact Seth Slabaugh at (765) 213-5834.