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No mention of TIFs in school funding rebalance proposal

By Brian Brus

The Journal Record

OKLAHOMA CITY – A proposed rebalancing of Oklahoma’s state aid formula for school district funding has missed a variable that’s allowing schools in larger cities to benefit at the expense of smaller city districts, Meridian Technology Center Superintendent Doug Major said.

Major is concerned about the slight even though his own district was fortunate enough to work around the problem.

“It does seem a little unfair,” Major said. “There was a bill submitted last year to address it, but there didn’t seem to be any legislative will at the time to address it.

“I think part of the reason is because TIFs (tax increment finance districts) are still fairly new … and in rural areas they’re only just now starting to explore how to use them,” he said. “They’re still controversial, and there’s not much check-and-balance in place. Just the other day, someone from Bethany called me to ask about how to challenge a TIF.”

Senate Bill 362, authored by state Sen. Gary Stanislawski, R-Tulsa, is an effort to rebalance the district financing formula following task force recommendations with a focus on a few key factors such as expenditures for students who do not natively speak English. In March, the bill was referred to the Senate’s Appropriations and Budget Education Subcommittee, and then recommended to the full committee by the end of the month.

Like most legislation, some of the points have partisan leanings. As such, Deputy Superintendent of Finance Matt Holder has no opinion; he’s just trying to stay on top of the changes. The state district funding equation is complicated by its nature, Holder said, because it must remain flexible enough to ensure each student’s educational opportunities are equalized regardless of economy or personal background. If passed, SB 362 would readjust weights on several of those variables for how state funds are distributed.

For example, as the bill was originally written, the weighted value for each enrolled student with a speech or language impairment would have been adjusted by a 0.1 increase in that district’s 2020-2021 school year, leading to a total of 0.15 weight each year thereafter. Instead, the legislative committee substituted a flat increase of 0.15. Similar adjustments have come out of committee for English learners and economically disadvantaged students. Also under SB 362, weighted measures for nonresident, transferred pupils enrolled in online courses are removed from the formula, as is salary incentive aid.

The state funding equation still doesn’t refer to TIFs, however, which suggests to Major that people haven’t grasped their impact yet. A tax increment finance district is another arcane government structure that doesn’t seem as though it was designed with school districts in mind at all.

A TIF district is based on the idea that investing taxpayer money in problem property can turn it around and consequently attract more private development for the surrounding area. Under state law, municipalities are allowed to access funds for such development by defining a region and locking property values at a base level over several years while setting aside ad valorem tax revenue as it increases over the base.

Ad valorem is the traditional source of local revenue for schools throughout the United States. In Oklahoma, ad valorem is levied in mills against real, personal and public service property. One mill is $1 per $1,000 of property valuation subject to taxation. Because each school district has a unique property tax base, the state compensates to ensure students are not penalized simply for being in the wrong place at the wrong time.

When a TIF works correctly, cities see growth in the area, and then the TIF sunset clause allows the diverted ad valorem to revert to where it normally goes. In the meantime, however, affected districts see a portion of their local funds locked down for several years. That alone has caused some consternation in cities such as Stillwater and Oklahoma City.

Stillwater’s latest TIF led to a resident petition drive calling for a citywide vote on whether to overturn it. The City Council created the district a year ago to raise about $32.5 million to improve the infrastructure connecting Main Street with the Oklahoma State University campus under the Stillwater (Re)Investment Plan. The petition went to court review, and ultimately a new agreement with Major’s career-tech school, Payne County and Stillwater Public Schools was reached with City Hall. The entities were allowed access to some of the tax growth within the TIF boundaries.

Under the state equation, districts that receive less ad valorem get slightly more state assistance. So a TIF artificially forces a district to rely on more state aid, sponging a little money from other districts in the balance, a concern often raised by former Oklahoma City Councilman Ed Shadid. However, that’s not necessarily a problem, per se; it’s a feature the equation accounts for, Holder said.

The larger problem, said state Sen. Jason Smalley, R-Stroud, is what happens when well-meaning municipal officials send some of their TIF-captured ad valorem back to districts through other channels. That compensation is not reported to the state formula for district funding. In essence, the district receives compensatory aid from the municipality and from the state, thus gaining an unfair benefit over smaller districts.

Smalley said he tried to address the situation last year under SB 1279, and he plans to revisit it again someday. TIFs are a powerful tool with unintended consequences that need to be fine-tuned.

“Local municipalities are trying to back-fill some of that financial support for their districts – I don’t want to use the word buy-off,” Smalley said. “But we had so much pushback from Tulsa regarding economic development, it just didn’t go anywhere.

“It’s creating a sponge effect. … It draws some of those moneys being sent from the Legislature down to municipalities for per-pupil expenditures,” he said. “Is it helping students across the state, or only helping them in one small area? There’s a double-dipping impact that needs to be looked at.”

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