School Funding in Colorado: What You Need to Know

The average Coloradan likely knows two basic truths about school funding: It’s a vitally important and contentious issue, and it’s incredibly hard to understand.

School funding is complex in every state, but arguably more so in Colorado than anywhere else. Why? Because a tangle of state constitutional amendments adopted over the past few decades interact with and conflict with one another in ways that no one foresaw. It doesn’t help that our school finance law was last updated in 1994.

So, we’re breaking down the basics of school funding in the Centennial State.

How Schools are Funded in Colorado

• Public education in Colorado is funded by a mix of local property taxes and state income and sales taxes.
• There’s also some federal funding in the mix, especially for schools serving a high number of low-income students.
• Despite all the publicity federal education policy receives, the federal share of funding is relatively small compared to state and local funding in Colorado. (For the sake of this post, we’re focusing only on state money.)

In theory, any school district should be funded by relatively equal shares from state and local sources, with additional resources for students who need it most.

In reality, though, the state has taken on an increasingly large share over the years, thanks to property tax cuts mandated by the Gallagher Amendment (explained below). Currently, almost two-thirds of school funding in Colorado comes from the state, and just over a third from local property taxes.

The imbalance varies from district to district. School districts where property values are high fund a somewhat higher share of their budgets from local sources than less affluent districts. Douglas County, for example, generates 34 percent of its revenue from local property taxes, while the much lower-income Mapleton district in Adams County picks up just 24 percent of its school funding tab.

Not every district gets the same amount of money per-student. Our state’s current school funding formula distributes funds based on many factors, most prevalent among them:

• The number of low-income students a district has
• A district’s overall enrollment

The effects of this funding formula can be seen in this per-pupil funding graphic. On average, Colorado school districts spend roughly $10,200 per student annually. But this varies dramatically on either end of the funding spectrum. On one end, Lake County School District spends more than $25,000 per pupil. On the other end, Julesburg School District spends $6,943 per student.

The following four issues double down on the complexity:

1. The Gallagher Amendment. Voters concerned about rising residential property taxes passed this amendment in 1982. It mandates that assessed value of residential properties statewide total no more than 45 percent of the state’s overall assessed value. This leaves the assessed value of businesses to make up the remaining 55 percent. The formula works well when commercial and residential property values rise or sink at similar rates. But when there’s a big housing boom, like Colorado is experiencing right now, things can quickly get out of whack. That’s doubly true if there’s a business downturn (think our recent oil and gas industry dip) at the same time. When that happens, homeowners get a property tax cut to get back to the 55-45 ratio. But the situation gets convoluted when you factor in TABOR.
2. The Taxpayers Bill of Rights (TABOR). This amendment, passed in 1992, limits how much tax revenue state and local government can collect. TABOR and Gallagher collide in a way that directly impacts school funding. As the Denver Post explained in a recent article: “Gallagher can trigger an automatic reduction in the assessed rate, but under TABOR, the rate can’t go back up without voter approval. So when commercial growth outpaces home values, and residential values drop below 45 percent, the rate doesn’t adjust.” Commercial property just gets a rate reduction to get back to the 55-45 ratio.The combined effect of Gallagher and TABOR have led to the steep decline in how much local taxes contribute to school funding, and the state has had to pick up the slack.
3. Amendment 23. Passed in 2000, Amendment 23 was designed to boost public education funding by mandating that school funding grow by inflation plus 1 percent from 2001-2011, and by the rate of inflation thereafter. The terms of the amendment were adhered to until 2009, when plunging tax revenues caused by the Great Recession prompted the legislature to adopt something called the Negative Factor.
4. The Budget Stabilization Factor (previously known as the “Negative Factor”). You’ve likely heard one of these terms before. As explained by Chalkbeat Colorado, once the legislature decides how much per-pupil funding schools should receive based on our school finance formula, “they compare that amount to available tax revenue. The difference is that year’s ‘stabilization factor.’” While there have been legal challenges to the Negative Factor, Colorado courts have upheld that the legislature is following the law by increasing the base per-pupil funding amount.

So, to summarize:

• Colorado funds its schools through a mix of local, state, and federal dollars.
• Its current school funding formula is not only dated (last updated in 1994) but extremely complicated based on a number of related amendments and bills.
• There are vast inequities in how Colorado funds its schools, with per-pupil spending varying drastically across districts.

Thankfully, efforts are underway to update how the state funds schools and address the inequities in the current system. A recently-launched interim legislative committee will start meeting over the summer to study Colorado’s school finance formula with the goal of making changes in the 2018 and 2019 legislative session. Representative Alec Garnett (D) will serve as the Chair and Senator Owen Hill (R) will serve as the Vice Chair. The first meeting is scheduled for late July 2017.

Colorado Succeeds continues to push policymakers to adopt a system where:

• Money follows students to the public school they attend;
• Public school type does not influence the amount of money a school receives;
• Students are counted on multiple days, rather than the antiquated, single count day method;
• Local school leaders have greater autonomy to allocate portions of their school’s budget;
• Funding is weighted more to the needs of the students, for example at-risk and English language learners. (Colorado has made some progress on this.)

Colorado should fund kids, not systems. We’ll keep pushing the state until it does so.