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Pillen's historic K-12 plan would boost Nebraska's low ranking for state school aid

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Pillen's historic K-12 plan would boost Nebraska's low ranking for state school aid

The first two meetings of Gov. Jim Pillen’s task force studying state aid to schools didn’t offer a lot of hope that something could get done.

Pillen had campaigned on a pledge to send state dollars to all school districts in the state, including the mostly rural, land-rich districts that now often don’t qualify for aid. But that naturally raised concerns among other districts that the money might come from them.

Pillen’s initial meetings last month with K-12 educators and other stakeholders produced some good discussion and ideas — but little in the way of clear solutions.

But the task force’s third and final meeting on Dec. 30 played out quite differently, participants said.

Pillen took control from the start. And he laid out a package of proposals that was well crafted, decisively presented and historic — an approach that also offers some early insight into how Nebraska’s new governor does business.

The rural school districts would get new aid dollars, Pillen said, though not as much as they wanted. But all districts would come out ahead, thanks largely to a massive infusion of new state funding to educate children with disabilities.

To help ensure that school districts use those new dollars to reduce property taxes rather than increase spending, Pillen backed a cap on annual school district property tax growth. But he also insisted it be flexible enough to leave control in the hands of elected local school boards.

And to make sure those big new state funding obligations could be covered during leaner times, Pillen called for immediately setting aside $1 billion of the state’s budget surplus into a new trust fund designated for those future costs.

“(Pillen) said, ‘I’ve got the meeting today, here’s the agenda, here’s what I’ve heard, and here’s what I think we can do,’ ” recalled Ken Bird, a retired Westside Community Schools superintendent who was in the room that day.

Bird said it didn’t take long for most in the room to digest the package, realize its appeal, and become cautiously optimistic — even excited.

“It’s a big deal,” Bird said last week.

* * *

When it comes to how we pay to educate kids in Nebraska, the school finance and property tax reduction package Pillen laid out during a news conference last week was indeed big.

Pillen’s plan would increase state tax-dollar support for K-12 education next year by $270 million, or 21%. By percentage, it would be the biggest school funding increase in a quarter century. In sheer dollars, it would be the biggest ever.

That stands out in a state that currently ranks 49th in the country in state tax-dollar support for schools.

The proposal also seems to have threaded the needle across the state’s diverse public education community. It has received positive early reviews, including from some who had been concerned about Pillen’s earlier statements about education.

“The philosophical approach we heard over and over during his press conference was if we want to deliver for our kids, and deliver property tax relief, the state is going to have to increase its investment in schools,” said Millard school district teacher Tim Royers, speaking for the Nebraska State Education Association. “That is something we and other school groups have said for years.”

Royers said the Republican governor’s stance is particularly refreshing given that Pillen’s predecessor, Pete Ricketts, for years tried to slap lids on school budgets as a way to control property taxes. That approach suggested that school overspending — not state policymakers’ bottom-of-the-barrel funding for schools — was the source of the problem.

The key to Pillen’s plan, many agree, is his decision to pair the $113 million in new aid to mostly rural districts with the $157 million increase in special education dollars that benefits all.

The special education increase — a whopping 66% boost over current funding — is itself historic. With it, the state would at long last keep a decades-old pledge to pick up 80% of local school districts’ costs to educate children with disabilities.

“I do think the magic that holds it all together is the billion dollars (trust fund) and the special ed money,” said Sen. Lou Ann Linehan of Omaha. “And it’s definitely the right thing to do.”

It certainly helps that the state is currently flush with cash. Making everyone happy is a lot easier when there’s plenty of money to go around. And there are still many devilish details to work out as the proposals move through the Legislature in the weeks ahead.

But it seems that when it comes to the state’s public education community, Pillen has passed his first test.

“We have a governor who is trying to help fund education,” said Mike Dulaney, executive director of the Nebraska Council of School Administrators. “And from where we sit, that is a good thing.”

* * *

While Nebraskans have griped for decades over high property taxes, the state’s low funding for public education is a big, little-understood reason for those local tax bills.

According to an analysis of 2020 Census data, the latest available, Nebraska ranks 49th in the percentage of the tab for schools that comes from state dollars.

For every dollar that supports public K-12 schools, the State of Nebraska pays 36 cents. Nationally, the average is 51 cents. In Iowa, it’s 57 cents. The low state support leaves the vast majority of the load to fall on local taxpayers — mainly through property taxes.

Nebraska in recent years has used surplus funds to provide hundreds of millions in property tax rebates and credits to help offset some of that tax burden.

Still, there’s no doubt Nebraska has lagged badly in state funding for schools. If Nebraska picked up the same share of school costs as the national average, it would need to provide almost $700 million more. To match Iowa’s share, it would cost nearly $1 billion more.

The state has tried with some success over the years to reduce its reliance on local funding for schools, most significantly in the 1990s. That’s when the foundation of today’s current school aid law was laid.

The goal of 1990’s LB1059 was not only to increase state support for schools, but to equalize funding and tax burdens across school districts, which at the time were subject to huge disparities.

While the formula for distributing state aid is complex, its basic function is simple.

First, a school district’s needs are determined based on student enrollment and other factors, including the percentage of students in poverty or who are learning English as a second language.

Then each district’s available local funding is calculated. Schools are required to levy property taxes up to a minimum common levy level. Any district needs not covered by that minimum levy are then back-filled with state aid dollars.

Initially funded by increases in state sales and income taxes, the new system increased state aid to schools three-fold over its initial five years. There was another 22% infusion of new state dollars into schools in 1998.

The fact that the system has remained in place for three decades suggests it has had some success in easing unrest over property taxes and stabilizing school funding. But in more recent years, the property tax burden has crept back up, largely due to two circumstances that weren’t anticipated.

At times, to balance the state budget during economic downturns, governors and the Legislature have provided schools less state money than the aid formula called for. But the biggest cause for slippage has been a huge escalation in real estate values.

Home values in many cities have shot up. And in rural areas, farmland values skyrocketed. Prices for good ag land climbed by double digits every year between 2008 and 2015 and continue to be hot.

Those valuation increases have had the effect of shifting education costs from state taxpayers to local taxpayers. That’s because when values rise, school districts can produce more property tax revenue under those required minimum levies. Thus the state’s aid formula calculates that fewer state dollars are needed to meet school needs.

The effect has been most severe in rural school districts with rapidly rising property tax bases, dozens of which lost all their state equalization aid dollars. In the 2007-08 school year, more than 80% of the state’s school districts received equalization aid. Today, 65% of districts receive no aid — most of them small and medium-sized rural districts.

“Over the course of 15 years, we have had such a sharp increase in ag values, it’s led to a sharp decrease in schools receiving equalization aid,” said Aaron Plas, superintendent of the Columbus Lakeview school district.

Pillen was certainly aware of the issue. Before going on to college and to play football at the University of Nebraska in the 1970s, he graduated from Lakeview, and the owner of a large family farm operation still makes his home in the area.

Pillen took up the cause of the rural districts on the campaign trail, saying the current aid formula “picks winners and losers” and “quits on kids.”

“Time to blow it up and simplify it,” he said of the formula in a post-election interview with the World-Herald.

Such rhetoric naturally caused concern among many in K-12 education, since school districts count on having stable funding. And politically, Pillen faced a tough sell in the Legislature.

While only a minority of school districts receive equalization aid, those districts actually educate nearly 80% of public school students, including the vast majority of those from disadvantaged backgrounds. Senators from Omaha, Lincoln and other Nebraska cities who represent those districts would surely be protective of those dollars.

But determined to tackle the issue, the governor-elect appointed his school finance reform task force. It included representatives of school districts big and small, among them the superintendents of the Omaha and Lincoln districts, as well as state senators and agricultural interests.

The goal, he said, was to come up with a system “that invests in every Nebraska student.”

* * *

The first meetings of the task force in December were pretty low-key. No data or plans were offered. A state budget official early on summarized the state’s rosy revenue projections.

Then Pillen facilitated discussion, wanting to know what within public education needed to be fixed.

“There were lots of concerns raised and issues discussed,” Sen. Tom Briese of Albion said.

As the discussion went around the room, Briese and others representing rural and agricultural interests naturally backed Pillen on the unfairness of the current finance system.

Pillen also noted projections that the value of real estate and ag land will continue to climb sharply over the next decade. That issue isn’t going away.

Lagging special education funding was brought up. Bird, the elder educational statesman in the room, provided a history of the promise when the state first created the program a half century ago: that the state would cover 80% of the cost.

Today, even with matching federal special ed dollars the state receives, local districts are forced to pick up 42% of the program’s cost, Bird said.

Bird said the discussions were good, but they produced no semblance of a working plan. He went into the third and final meeting feeling “less than optimistic, bluntly.”

Pillen and his staff, though, had clearly gotten to work. Because when the group got together for that third and final time, just days before Pillen’s inauguration, he offered a package for consideration.

Pillen said he would keep his promise that all students should be backed by state aid. His plan would guarantee every district a minimum of $1,500 per student in state dollars, commonly known as foundation aid.

It’s unclear where that figure originated, though it’s almost half the average per-pupil funding for districts that receive equalization aid now.

While districts that already receive more than $1,500 per student in equalization aid wouldn’t receive those new funds, Pillen said their aid wouldn’t drop. He proposed paying for the foundation aid with $113 million in new state funding.

And all districts would benefit from the $157 million required to fund special education at the 80% level.

“He made the comment: ‘This is history; it’s going to be a heavy lift, but we need to do it,’ ” Bird recalled. “I couldn’t agree with him more.”

Seward Superintendent Josh Fields, a task force member, said the special ed money was a key component of the plan, ensuring “all boats can rise.”

Another piece of Pillen’s plan was critical to districts currently receiving aid: that the added special education dollars would not be counted in the school aid formula. Otherwise, some districts would merely be trading general school aid dollars for special ed dollars. The provision reflected a depth of understanding by Pillen of the complex issue.

Pillen and his staff even offered up a printout that showed how the state aid program and new special ed dollars would impact school districts. (The Governor’s Office did not immediately comply with a request for the document last week.)

Superintendents in the room could see how their districts benefited. Small districts that receive no aid now would see hundreds of thousands of new dollars from the state. For big districts like Omaha and Lincoln, it would mean millions of additional dollars.

While task force members say an educational trust fund had been little discussed during the first two meetings, Pillen made it a pillar of his proposed package.

With the state flush with state revenues and federal COVID-19 relief funds, Pillen committed to putting $1 billion into the trust fund this year. The plan calls for putting an additional $250 million in each year until it reaches $2.5 billion.

The trust fund would ensure future funding for the $1,500-per-student foundation aid and increased special education dollars.

Pillen also backed an annual 3% property tax growth lid proposal to deter districts from just spending the new aid dollars without offsetting property taxes. Pillen’s lid was a softer, less restrictive version of what Briese has pushed in the past.

After Pillen presented the plan, some in the room picked at elements of it. At least one rural school board member questioned whether the $1,500 per student was enough.

Pillen pushed back, noting it meant $200,000 extra to that board member’s district. Pillen asked if he was willing to go back to the rest of his board and turn that down. I’d like to be part of that discussion, Pillen said.

Pillen was also steadfast that the lid proposal needed to include the ability of a supermajority of the school board to override it. That’s local control, he said. School boards are elected to be responsive to their constituents and can make such decisions.

It was clear the plan had been crafted to balance a lot of interests and concerns that had been expressed in previous meetings.

Most in the room warmed to it, expressing feelings of cautious optimism. There were handshakes and even some high-fives exchanged as the meeting broke up.

“What he laid out was responsive to the concerns of previous meetings,” Briese said. “I was encouraged by the proposals and the reaction of the folks to them.”

Bird walked away from the meeting ecstatic about what it meant for schools across the state.

Looking back, Seward’s Fields and Lakeview’s Plas both said they were most grateful that Pillen was willing to sit down in a room and engage in a conversation about what’s needed to propel Nebraska education forward.

“It’s a big package,” Plas said. “Anytime we talk about increasing our investment in kids’ education, it’s exciting.”

“It’s never going to be perfect for everybody,” Fields said. “But having those conversations and the willingness to do some of the things brought forward is a giant step forward for education in Nebraska.”

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