The Problem - Insufficient Operating Funds

Inequities in the School Funding Formula, property tax reform and recent reductions in state tuition support have resulted in significant shortfalls in the operating budgets of most, if not all, school corporations in the state. As a result, school corporations have been forced to rearrange funding priorities such as shifting utility and other expenses from the general fund to the capital projects fund, implementing energy efficiency programs, reducing health and other benefits, implementing wage freezes, offering early retirement packages to veteran teachers, reducing custodial expenses and invoking many other cost-saving strategies. In addition, the magnitude of the shortfalls in the general fund for many school corporations also is requiring them to cut teachers, eliminate non-certified staff and increase class sizes. Consequently, these measures are having a direct impact on students.

The Potential Solution - Referendum Tax Levy For Operating Funds

There are two options for school corporations to consider with respect to resolving a significant shortfall in their operating budgets. First, as discussed above, school corporations can continue to eliminate programs, cut more certified staff and increase class sizes - all of which adversely affect the ability of the schools corporations to provide quality education to their students. Second, school corporations may seek additional funding by placing the issue of the reduced funding directly to the public in the form of a request for a Referendum Tax Levy. This referendum process allows school corporations to levy property taxes for their general funds for up to seven (7) years. The amount of the levy is not limited by statute but must be approved by a majority of registered voters in a referendum conducted at the May primary or November general election. By successfully completing this referendum process, a school corporation can reduce, if not eliminate, many of the cost cutting measures it would otherwise have been required to implement thereby assuring its ability to continue to provide the same quality of education to its students.

The Process - Five (5) Steps

Step 1 School Board adopts resolution authorizing the referendum and certifies a copy of the Resolution to the County Council.

Step 2 The County Council certifies the public question set forth in the Resolution to the County Election Board (this must occur at least sixty (60) days prior to the primary election or by August 1st for the general election).

Step 3 The County Clerk holds a meeting of the County Election Board to make arrangements for the referendum.

Step 4 The referendum is conducted. If the school corporation wins, a Referendum Levy Fund is established and the school corporation may levy a tax for the general fund expenses beginning in 2011. If the school corporation loses, it may not request another referendum for at least one year.

Step 5 If a Referendum Tax Levy is imposed, it may be in place for up to seven (7) years. Thereafter, the Referendum Tax Levy may be renewed or extended, but any extension or renewal must be approved by the registered voters by Referendum.

Conclusion

School corporations faced with operating budget shortfalls should consider the referendum as an alternative to cutting programs, benefits, staff and other cost cutting measures. The referendum is bound to be controversial and care should be taken to make certain that the school corporation's story is told to the public. Interestingly, the statute which prohibits a school corporation from participating in the petition/remonstrance process or referendum for a building project does not appear to apply to the referendum tax levy process.

For additional information concerning the referendum process, please contact the Education Law Group of Bose McKinney & Evans LLP at (317) 684-5000.