The referendum ballot language is established by Indiana law and reads, "For the seven calendar years immediately following the holding of the referendum, shall Michigan City Area Schools impose a property tax rate that does not exceed seventeen ($0.17) cents per one hundred dollars ($100) of assessed valuation and that is in addition to all other property tax levies imposed by the school corporation?"
Only those who pay property tax in the Michigan City Area Schools district will pay the referendum tax. Commercial rental property owners may choose to pass the tax on to their tenants. Senior citizens, homeowners, mortgage holders and some other types of taxpayers receive exemptions that lower their assessed value and lessen the impact of the tax rate compared to others. By law, the rate is applied to the net assessed value of the property after these deductions. The law does not allow certain classes of taxpayers to be exempt from the rate. For instance, charging only property taxpayers with children in the schools would be considered tuition and against the law established by the Indiana Constitution that says education is tuition free and available to all.
The Michigan City Area Schools are already operating on a lean budget. Staffing levels are low and class sizes are growing. The current financial crisis left teaching positions unfilled, compromised services, and has resulted in yearly deficits funded by reserves and interest paying bonds creating a situation that cannot continue.
The school district has and will continue to cut costs wherever possible. In the last two years, $7.4 million in annualized reductions have taken place. Since 2010, more than 100 teaching, administrative and non-teaching positions have been eliminated. It is important to note that 92% of the General Fund is for personnel expenses. As General Fund revenues decrease, the number of teachers and staff are reduced. Unless additional revenue is available to supplement declining state revenue, Michigan City Area Schools will continue to be forced to educate more students with fewer teachers. The Umbaugh and Associates study indicates class sizes will increase dramatically without an additional source of revenue. Their analysis indicated one fourth of the faculty and staff would face cuts in the next seven years without additional changes in revenue.
Michigan City Area Schools will voluntarily establish a Citizen Finance Committee made up of property taxpayers and business owners from within the school district. This committee will meet annually to review the coming year's budget and make a recommendation on the amount of the referendum rate to put in place. The rate approved by the voters is a maximum rate and this committee after reviewing the budget can make recommendations to the school board to set a lower rate. During the seven years of the referendum, if the Indiana Legislature voted to significantly change the funding formula or make other types of school funding changes this committee could even recommend that rate be eliminated.
The board hired a third-party certified public accountant firm, Umbaugh and Associates, to project revenue and expenses for the school corporation through 2020. The Umbaugh study indicates class sizes will increase dramatically without an additional source of revenue. Their analysis indicated one fourth of the faculty and staff would face cuts in the next seven years without additional changes in revenue.
The school board voted on a rate not to exceed $0.17 per $100 of assessed value. Based on Michigan Cityʼs current assessed value, this rate would raise additional revenue of just under $5.6 million per year for the General Fund of the schools. The average homeowner living in a $112,700 home would see an increase of about $5.80 per month, about 19 cents per day, in their property tax at this rate.
The projections show that this amount if combined with some careful expense controls and some projected changes in the funding formula over the next seven years, should be adequate in providing for the continued excellence demanded by the residents of the Michigan City Area Schools district.
The rate of $0.17 per $100 of assessed value brings Michigan City to a per pupil funding level that will allow the continued improvement toward a high-achieving, efficient school corporation that led to Michigan Cityʼs increasing graduation rate and iStep scores. The selection of this rate allows for some factors that were not in the projections. For instance there will be a natural turnover during the seven-year period as retiring teachers with many years of experience may be replaced with teachers beginning their careers. With this rate, the board is allowing for some potential changes in the school funding formula.
The state will have to make some adjustments over the life of this referendum to the funding formula. The previous state superintendent testified that the foundation or base amount of the funding formula needs to be raised. The state revenues are projected to return to 2008 levels by 2014. The legislative committee that heard these recommendations did not recommend any changes at the time, but most agree that some changes will have to be made gradually as state revenue allows. This rate will completely cover the deficit for the next two years and these changes as well as careful expense monitoring should allow the Michigan City Area Schools to continue without disruption of class sizes and drastic cuts.
If the community supports and approves the referendum not to exceed $0.17, the modest increase for the average Michigan City area homeowner (home with an assessed value of $112,700) will be around a $0.19 per day or approximately $70 per year. However, if the legislature provides Michigan City more funding in any given year, the impact could be much less. Two factors determine the cost to homeowners. One is the amount specified in the referendum. The other is the value of each property after all deductions are applied.
The Umbaugh and Associates Study indicated most all homeowners will pay less in property taxes than they did last year, even when a referendum question not to exceed $0.17 is approved by Michigan City voters. In addition, continuing the improving excellence of the Michigan City Schools will help maintain higher property values within the district. While higher property values benefit homeowners and landlords alike, landlords will see a somewhat larger increase in taxes paid due to differences in deductions allowed by the state.
Business owners will have to judge whether their businesses will be harmed more by a moderate tax increase (if the referendum goes forward and passes) or by the deterioration of schools (if the referendum doesn't doesn't pass).
Unless the school district finds additional sources of revenue, Michigan City Schools will not be able to maintain its current academic, co- and extra-curricular programs. The continued improvements toward academic excellence will be in jeopardy. The added effect of a financially failing school district would likely be a decrease in property values for school district homeowners. By 2020, without additional revenue, the state's new funding formula will result is losses of over $39 million in 2013 dollars.
Student extracurricular activities provide our most significant benefit return for minimal financial investment. For stipends costing a mere penny for every dollar of revenue, students learn essential life skills universal to all careers. Since Michigan City Area Schools are operating with a budget deficit we already rely on fund raisers, corporate sponsors, donations, participation fees, volunteers and gate receipts.
Research is clear; student extra-curricular activities from our award winning Robotics Team to our basketball team are linked to higher grade point averages for our students. While our school board, faculty and staff are committed to providing a well rounded education, continued review of additional revenue and volunteer opportunities to cover this one-percent of the budget will be another part of the expense control required. Additional revenue ideas and fundraising opportunities will continue to be explored. If the referendum passes, cutting these programs will not be necessary.
When cutbacks occur in staffing due to funding shortfalls, the term RIF is used. This refers to Reduction-in-Force which is based on seniority and certification. Certification is making sure teachers are certified to teach the classes and programs that will be offered the next year. For instance, if the music programs were going to be reduced, a music teacher who is not certified to teach other subjects might be more at risk of being cut. Generally, less senior teachers are reduced before a more senior teacher. Exceptions to this may be made because of certification.
Reductions are based on the budget, enrollment, the schedule of classes, and rules from the Indiana Department of Education. The number of staff reductions can be potentially reduced by retirements. Teachers who are eligible for retirement have already received their early retirement compensation as the result of a previous retirement buyout.
The state distributes money from revenue it collects in income tax, sales tax, gaming revenues, etc. to the 366 Indiana school corporations, virtual schools and charter school associations based on a funding formula the state legislature creates and passes bi- annually as part of the state budget process.
All funding issues begin with the 100 legislators in the Indiana House. The state funding formula provides about 98% of Michigan Cityʼs schools' General Fund. Over 90% of this fund pays for teachers and staff of the corporation. The funding formula begins with a per pupil "foundation" or base amount, which in 2012 was at a ten year low.
The foundation amount is multiplied by the "complexity index" to determine additional funding required for the education of "at-risk" children. In the past, the complexity index has used census data to help determine the needs of a community. Now the index only uses the percentage of students eligible for free and reduced lunch offered under the federal program in the school system. There is little accountability under this method.
A significant inequity in the funding formula occurs when the money for an at-risk student does not follow the child to another school district. For example, the top funded districts receive $2000 extra for each at-risk student. When these students move to Michigan City, the millions of extra dollars do not follow those students. There are no adjustments to the funding formula for a school corporation based upon achievement scores. Most discussion on "merit pay" centers on individual teacher pay and not the amount given to schools to fund those teachers. There is also no accountability for achievement results from those school corporations and charter school associations with higher levels of at risk students from the additional money they generated.
The challenge in making changes to this formula lies in the political structure of the legislature. The top 10 most rapidly growing school districts in Indiana are represented by 13 legislators in the Indiana House. The top 10 most rapidly declining school districts are represented by 26 legislators. This 2 to 1 margin makes a political solution unlikely as these legislators would be voting to take money away from the districts they represent. The average public school in the state have lost 29% of their funding since 2002. 70% of Indiana public schools receive less than average funding while 70% of Charter schools receive above average state funding. In the 2013 state budget session, Indiana legislators forgave $91.2 million in debts to the state by charter schools.
The 2008 Property Tax Reform legislation has now made the inequities in the funding formula a serious funding crisis by making the formula the only source of funding to pay for classroom instruction. Changes to the foundation amount, adding an index for academic results and some other tweaks to the formula are all possible, but will most likely be gradual changes over the next several years.
The restructured health benefits and increased health premiums have been applied to all staff including administrators. The teacher salary schedule has been frozen since 2009. Administrators, non-teaching staff and support staff have experienced furloughs (unpaid days off) and/or reduced hours.
The continued expense control required with the modest referendum rate will result in looking at all areas of the General Fund expenses. Seven administrative positions have been eliminated in the last two years. Expenses for the salaries and benefits of the central office administration of Michigan City Area Schools run well below the state average at only 17 cents of every dollar.
By state law, school districts can't use other school funds (Debt Service, Transportation, Capital Projects Funds) to pay General Fund expenses such as salaries. For example, money used to build buildings and outdoor athletic facilities cannot be used for teacher salaries and instructional supplies.
These laws also limit creative funding reduction ideas like four day school weeks, cutting transportation to save teachers, changes in food service, charging parents tuition and more.
No teaching positions have been lost because of past building projects. Facilities in the schools are shared with the whole town, including youth programs, service club use, fundraisers and instructional swimming.