Idahoans care about the quality of their children’s education, and the quality of the school facility where their children receive their education. However, Idaho has a school funding problem. In 2005, the Supreme Court found that Idaho’s school funding plan was unconstitutional because the current “system based upon loans alone is not adequate to meet the constitutional mandate to establish and maintain a general, uniform, and thorough system of public, free common schools in a ‘safe environment conducive to learning’ for Idaho’s poorest school districts.” [1] Since that ruling, school districts are required to spend 2 percent of their building replacement costs on maintenance. [2] A 2022 Office of Performance Evaluations report determined that the 2 percent doesn’t go far enough, and it will take about $1.3 billion to get Idaho’s schools back up to perfect condition. [3] Fixing this school facilities funding issue has been a top priority among Idaho lawmakers, and House Bill 521 is a step towards the solution.
What is House Bill 521 and why is it important?
House Bill 521 aims to provide both school facilities funding and tax relief in three main ways. First, it establishes a school modernization facilities fund that that would allocate 10-year bond funding to school districts to pay for facilities maintenance. Second, it updates the school district facilities fund that provides school districts with funding to pay off bonds and levies, reducing taxes for all property owners. Third, it cuts the individual and corporate income tax from 5.8 to 5.695 percent. In addition to these significant changes, the bill touches on several other topics.
What are the policy and funding implications of the school modernization facilities fund?
The proposal guarantees funding for school districts to pay for school facility needs:
The school modernization facilities fund would be allocated $125 million from sales tax revenues annually over the next 10 years, resulting in $1.25 billion in new school funding. The state would use the fund to bond and then allocate the funding to school districts based on their average daily attendance (ADA) to pay for school maintenance. [4] School districts would be awarded a minimum amount of $2,500 annually, or $25,000 in total over the 10-year period.
Most school districts would not receive enough funding to pay for a needed new school building:
Small school districts – primarily rural school districts – will not receive enough from the fund to build new facilities without needing to bond for additional funding under this proposal. Schools will receive funding based on their ADA, which could be problematic because schools are very expensive to build regardless of student attendance. School districts with fewer students would receive very little funding compared to school districts with more students. Large schools located in urban areas could build new facilities faster without bonding.
For example, the cost of building a new elementary school is about $30 million. [5] Only nine of Idaho’s 115 school districts would receive enough money from the fund to pay for a new elementary school right away. The remaining 106 school districts would still need to go to their voters to ask for a bond to pay for the remaining cost of building an elementary school. Urban school districts would receive an average of $13.8 million, while rural districts would receive an average of only $2.3 million over the 10-year period. [6]
School districts created prior to statehood would be left behind:
School districts established prior to statehood are called ‘charter districts’ and include only Boise, Emmett, and Lewiston school districts. These charter districts are unique because their founding documents allow their board of trustees to raise revenue with a maintenance and operations (M&O) levy to cover their budgets without voter approval. These dollars cannot be used for new construction or renovation. The house bill states that these charter districts would have a funding cap of $40 million, with dollars they would have been awarded in excess of $40 million to be distributed to the other school districts. However, the Boise School District is the only school district this provision would apply to due to its large student population.
The funding cap created in this provision may prevent residents living within charter districts – especially the Boise School District – from experiencing property tax relief at the same rate as other Idaho residents. Although charter districts can raise funds for M&O levies, which can pay for a wide variety of expenses including teacher salaries, materials, and books, these funds cannot be used to pay for building a new school or renovating an old building. Therefore, charter districts are being left behind with this legislation because they still need to go to the voters for bond approval to pay for new school facilities.
How school districts choose to receive their funding could impact them in times of economic recession:
School districts could elect to receive their funding distribution as a lump sum or in annualized amounts. There are benefits and drawbacks between the annualized and lump sum distributions that districts should consider.
- The annualized distributions provide less flexibility for districts in how they spend their fund allocation. The school districts must first pay off their debt before paying for new facilities. In times of economic recession, their payments may temporarily cease.
- The lump sum distributions provide more flexibility for districts in how they spend their fund allocation. However, school districts could lose out on rainy day funds or federal recovery funds in times of economic recession. [7]
For example, school district A needs immediate repairs and takes the lump sum allocation to bond, while school district B does not need repairs and takes the annualized distribution to save for future needs. An economic recession hits and the federal government sends out emergency funding to school districts. School district A would lose out on this additional funding because they must pay for debt service first while school district B would get all its federal funding to pay for additional students supports like tutoring, counseling, and student meals.
What are the policy and budget implications of the school district facilities fund?
Homeowners would receive more property tax relief:
The school district facilities fund was created in House Bill 292 during the 2023 Legislative Session to reduce property taxes for all property owners by providing school districts with state funding to pay off bonds and levies. House Bill 521 would increase the sales tax allocation from 2.25 percent to 3.25 percent into the school district facilities fund [8] and allocate 5/8ths of the state’s lottery dividends to increase the available funding for tax relief to homeowners. [9] The 5/8ths of the state’s lottery dividends currently funds the bond levy equalization program and the school building maintenance matching funds, which are discussed further in the next section.
The school district facilities fund continues to distribute funding on a per-pupil basis, except for districts with bonds passed prior to January 1, 2024. Those districts must first receive at least as much as they would have from the bond levy equalization support program in FY 2025 and 2026 to offset the loss of bond levy equalization funds. [10]
School districts would no longer receive funding assistance tailored to regional challenges:
The proposal eliminates the calculation that was built into school facilities funding to assist school districts with the greatest need, further driving geographical disparities in education across the state. It also eliminates two funds that utilized this calculation, the bond levy equalization fund, and the school building maintenance fund.
These two funds distribute dollars to districts that have passed bonds based on a calculation that adjusts for:
- the school district’s property value,
- the county’s unemployment rate,
- The county’s per capita income.
This calculation assists school districts in struggling areas of the state by making them eligible for additional state financial assistance to pay for the cost of annual bond payments. The current proposal will repeal this calculation and only cover bond levy equalization payments for an additional two years, then areas of the state that are worse off and have low market values, high unemployment, and lower per capita income will receive funding in the same way as areas that are better off.
Expands uses of the fund so school districts could also buy land to build a new school and pay for construction, renovation, or maintenance needs:
The school district facilities fund currently dictates that districts must spend their allocation in this order of priority:
- Payment of existing school bonds
- Payment of supplemental school levies
- Saved in a reserve account for future school facility construction or renovation needs
- Used to secure and make payments on a new school facilities bond [11]
The bill amends this order of priority and adds some additional permitted uses for funds (additions indicated in italics below):
- Payment of existing school bonds
- Payment of supplemental school levies
- Payment of school plant facility levies
- Used for construction of a new school facility, renovation, or maintenance needs; used to secure and make payments on a new school facilities bond; or saved in a reserve account for future facility needs. [12]
Other Considerations
- House Bill 521 includes a provision to reduce the individual and corporate tax rate from 5.8 to 5.695 percent. While this could significantly reduce Idaho’s revenue, between $59.1 and $74.5 million, most Idaho households would not see a meaningful change in their tax bill from this rate reduction. [13] Check out the Center’s analysis on how the proposed income tax reductions would impact Idaho families here: House Bill 521 Further Cuts the Income Tax, Disproportionately Benefiting Wealthy Idahoans – Idaho Center for Fiscal Policy (idahofiscal.org)
- House Bill 521 creates a school modernization facilities fund that provides additional funding to school districts based on their average daily attendance, including school districts that have had difficulty bonding, by providing a $25,000 minimum amount that they can receive over the 10-year period. [14] This assists all school districts, regardless of how small their student population is.
- House Bill 521 eliminates the August election date. [15] The bill sponsor stated that districts will need less opportunities to ask the voters to approve bonds due to the additional funding. However, this change will make it more difficult for small school districts that will not receive enough to build from the school modernization fund to bond for additional funding to make up the difference.
- House Bill 521 provides fixes to the homeowner property tax relief code sections that were established last year to address timing concerns from county clerks [16] and calculation concerns from county assessors. [17] These changes aim to make getting property tax relief to taxpayers more efficient.
Conclusion
House Bill 521 takes a step towards the state meeting its obligation to fund its public schools. The proposal does create $1.25 billion in new funding, close to the $1.3 billion the Office of Performance Evaluation determined Idaho needed to get its schools up to perfect condition. However, the fund distributes the dollars based on average daily attendance instead of targeting the funding to the school districts struggling the most to replace or repair their dilapidated school buildings. Most school districts will still need to bond for additional funding to meet their needs and eliminating the August election date would make it harder to do so. Idaho will still need to take additional steps to support Idaho’s poorest school districts.
[1] ISEEO v Idaho. 142 Idaho 450 (2005). ISEEO_v_idaho.pdf (ed.gov)
[2] Kevin Richert. “Analysis: Idaho’s school building problems have been neglected for years.” Idaho Ed News. February 3, 2022. Analysis: Idaho’s school building problems have been neglected for years (idahoednews.org)
[3] Office of Performance Evaluations. “K-12 Public School Buildings.” Idaho Legislature. Pg. 21. January 2022. 2107 Public K-12 School Buildings – Idaho State Legislature
[4] Idaho Legislature. “H0477 – Seventy Seventh Legislature (2024): Taxation, school facilities funds.” Pg. 9. February 8, 2024. HOUSE BILL 521 – Idaho State Legislature
[5] Ryan Suppe and Kevin Richert. “Statehouse roundup, 2.20.24: School leaders back $2 billion facilities bill but ‘temper expectations’.” February 20, 2024. Statehouse roundup, 2.20.24: School leaders back $2 billion facilities bill but ‘temper expectations’ (idahoednews.org)
[6] Idaho Center for Fiscal Policy analysis of a spreadsheet created by the Office of the Governor on how much funding each district would receive from the proposed school district modernization fund. School districts were coded as urban if they were located within a county with an urban center as defined by the U.S. Census Bureau.
[7] Idaho Legislature. “H0477 – Seventy Seventh Legislature (2024): Taxation, school facilities funds.” Pg. 9. February 8, 2024. HOUSE BILL 521 – Idaho State Legislature
[8] Idaho Legislature. “H0477 – Seventy Seventh Legislature (2024): Taxation, school facilities funds.” Pg. 23. February 8, 2024. HOUSE BILL 521 – Idaho State Legislature
[9] Idaho Legislature. “H0477 – Seventy Seventh Legislature (2024): Taxation, school facilities funds.” Pg. 26. February 8, 2024. HOUSE BILL 521 – Idaho State Legislature
[10] Idaho Legislature. “H0477 – Seventy Seventh Legislature (2024): Taxation, school facilities funds.” Pg. 4 and 5. February 8, 2024. HOUSE BILL 521 – Idaho State Legislature
[11] Idaho Legislature. “H0477 – Seventy Seventh Legislature (2024): Taxation, school facilities funds.” Pg. 4 and 5. February 8, 2024. HOUSE BILL 521 – Idaho State Legislature
[12] Idaho Legislature. “H0477 – Seventy Seventh Legislature (2024): Taxation, school facilities funds.” Pg. 4 and 5. February 8, 2024. HOUSE BILL 521 – Idaho State Legislature
[13] May Roberts, “House Bill 521 Further Cuts the Income Tax, Disproportionately Benefiting Wealthy Idahoans .” Idaho Center for Fiscal Policy. February 19, 2024. House Bill 521 Further Cuts the Income Tax, Disproportionately Benefiting Wealthy Idahoans – Idaho Center for Fiscal Policy (idahofiscal.org)
[14] Idaho Legislature. “H0477 – Seventy Seventh Legislature (2024): Taxation, school facilities funds.” Pg. 10. February 8, 2024. HOUSE BILL 521 – Idaho State Legislature
[15] Idaho Legislature. “H0477 – Seventy Seventh Legislature (2024): Taxation, school facilities funds.” Pg. 7. February 8, 2024. HOUSE BILL 521 – Idaho State Legislature
[16] Idaho Legislature. “H0477 – Seventy Seventh Legislature (2024): Taxation, school facilities funds.” Pg. 15. February 8, 2024. HOUSE BILL 521 – Idaho State Legislature
[17] Idaho Legislature. “H0477 – Seventy Seventh Legislature (2024): Taxation, school facilities funds.” Pg. 13. February 8, 2024. HOUSE BILL 521 – Idaho State Legislature
