This year’s budget process has marked a turning point in the discussion about local education funding. The school system is no longer the main driver of the proposed property tax increase.
For most of the past decade there’s been angst between the Wake County Board of Education and Board of Commissioners over how much to increase the county’s portion of spending on public education. The angst was over the push-pull between setting a tax rate that would generate enough revenue to pay for the ever-increasing cost of doing business in a county with explosive growth without pricing property owners out of the market.
That changed recently when County Manager David Ellis presented a bold budget proposal to commissioners that would increase the tax rate by 6.36 cents per $100 of property valuation, an almost 10 percent increase. It would be the largest hike in the county in recent memory, but it still isn’t the largest single-year increase nor the highest rate the county has set in the past 20 years.
It still isn’t the largest single-year increase nor the highest rate the county has set in the past 20 years.
In 1999, the tax rate jumped from 63 cents to 73 cents, and in 1993 it grew from 66 cents to 76 cents. But only a few years before that the rate was higher and the increases were larger: 1990-1991 the tax rate reached 88 cents, and in 1988 the rate went from 59 cents to 72 cents. Periodic property revaluations allowed the county to lower the tax rate as properties gained value. (Sources: Current year to 2009, 2008 and prior)
While some might have sticker shock from this year’s increase, the fact is that county government is fixing two problems at once: correcting a mistake made a decade ago when the tax rate was slashed from 67.8 cents to 53.4 cents and paying for population growth which is outpacing the county’s ability to pay for it. On the tax cut, that was a 21 percent reduction in taxes at the beginning of the Great Recession and the tax rate remained the same for five years even though the county’s population and county government’s cost of doing business continued to grow steadily.
As shown in Fig. 1, county revenue barely grew between fiscal years 2009-2014, but the costs to operate both county government and schools continued to increase as more people moved here. While working with the same amount of money each year, both divisions of local government cut services and personnel to balance the budget. That only goes so far.
While it may look like the county is on a sharp upward trend in tax burden, it’s worth pointing out that the difference between “the peaks” in tax rates on Fig. 1 (fiscal 2008 and the proposed fiscal 2020) is about 5.9 percent, or an increase of only 4 cents. A 4-cent increase over a dozen years is still a very small growth in tax rates for any growing region, but especially the second-fastest growing county in America.
A 4-cent increase over a dozen years is still a very small growth in tax rates for any growing region.
On top of that, 3.8 cents of this year’s proposed tax increase go to pay for voter-approved bonds for parks, Wake Tech Community College improvements, and WCPSS renovation and construction. If not for the bond referendum, this year’s proposed tax rate would bring the county back to even with fiscal 2008.
It’s important at this point to make a distinction between capital and operating expenses. Capital costs cover the construction, renovation, and upfit of buildings, land purchases, and major upgrades including the technology infrastructure and device inventory. Operating costs pay salaries, buy supplies, pay utility and maintenance costs, and purchase insurance coverage, among others. The bond referendum last autumn only paid for capital costs. For example, capital will be used to buy lots of land for and to build more recreation trails at about $1 million per mile, but operating costs will be used to pay staff to maintain them.
If not for the bond referendum, this year’s proposed tax rate would bring the county back to even with fiscal 2008.
School Funding Trends
When it comes to operating funds, WCPSS has set a conservative increase of $48.9 million over the current budget. Of that, almost $20 million will pay for cost increases caused by changes in state law that must be funded locally to continue to offer the same level of service or to comply with new regulations such as class size reduction. Smaller classes mean more teachers are needed in grades K-3, and the state hasn’t fully funded the cost of that.
Also included in that $20 million is about $7 million that passes right through the school system budget to the dozens of Wake County-based charter schools. The total appropriation to charter schools this year will top about $40.5 million.
While overall student enrollment growth has slowed to 30-year lows – matching trends in declining birth rates – the school system will still spend $8.2 million to open four new schools next school year that will alleviate overcrowding in the southern and southwestern parts of the county, which continue to have big enrollment gains.
These schools are being built years behind the demand for students in that part of the county, but the pace of building and opening new schools is also slowing. WCPSS will only open one new school in the 2020-21 school year with the majority of school bond spending going toward renovating and expanding existing schools that are outmoded, overcrowded, or both.
In addition to opening new schools, another $2.5 million will pay for deferred maintenance of existing buildings. Also, the school system is facing a $2.7 million increase in costs to serve students with special needs. (Source: WPCSS Board of Education Proposed Budget)
Those costs above account for about $33 million of the budget increase, and the school system has no way to control those. Ellis, the county manager, has proposed a budget increase of $36.5 million, which just covers those expenses plus about 10 percent more than the minimum needed. That’s a good start, but it is the floor, not the ceiling.
While Wake County government has steadily increased its spending on WCPSS operating costs, the actual portion of the tax rate and the base revenue generated from property taxes going to the schools have shrunk. Base revenue is the total valuation of all private property times the tax rate. In 2018-19, base revenue was $147.6 billion. As shown in Fig. 2 (“Local WCPSS Appropriation vs Its Percentage of the Wake County Base Tax Revenue”), the blue line indicates that as recently as fiscal 2007 about 56 percent of the base revenue went to the school system’s operating budget. That number has shrunk to just above 48 percent for this year and is projected to drop to 46.54 percent in the next budget.
While more dollars are going to the schools annually, the portion of county revenue going to the schools is shrinking significantly. In other words, when folks suggest that school spending is “out of control” it doesn’t show up in the numbers. Taxes are increasing, and school spending is a significant portion of that, but it’s not as large as it once was.
While more dollars are going to the schools annually, the portion of county revenue going to the schools is shrinking significantly.
The fast-paced residential growth may not be driving school enrollment like it once was, but growth is still impacting the cost the of doing business in the county. Residents without kids in the schools still utilize other county services like EMS, fire and rescue, and the sheriff’s department. The market isn’t providing low-cost housing, but there’s a growing need as the amount of affordable homes and apartments is shrinking. Library visits and circulation continue to grow to try to keep up with demand. Finally, residents have sent a clear message to lawmakers that they want greenways, open space, and parks. This becomes even more important as more land is gobbled up for development.
While schools are getting the attention on the tax increases, they are not the sole driver of the need to raise taxes. All other county services are feeling the squeeze that growth brings, and growth isn’t paying for itself. Few people utilize all services the county provides, but everyone likes to have them available when they need or want to use them, which is why it is smart to support this tax increase. It will correct the mistake made years ago and set the county on a path to properly provide services to all residents.