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Education funding is central to the tax policy discussion in Nebraska. Who, how, and how much are questions that receive very different answers. The issue of fair, equitable, and reasonable school funding is not unique to Nebraska. Most states are grappling with similar issues. Texas, Arizona, and Kansas have recently had judicial opinions intervene in the legislative process for school funding, further complicating the challenges.
School funding quickly becomes politicized and controversial at both the local and state level. Too often discussions are short on facts and heavy on rhetoric that impede productive discussion that will lead to solutions to the funding challenges. Every Nebraskan supports a quality public education for our children. Teachers, administrators, and school boards need tools available to be effective. Parents and taxpayers have a right to transparent, accountable outcomes. On these fundamental concepts everyone agrees.
One fallacy which persists and obscures the school funding discussion is a concept referred to as the “three legged stool”. The idea suggests that education funding should be a three legged stool, with equal distribution among property, sales, and income tax. Proponents argue school funding in Nebraska has become imbalanced because one “leg” of the stool, property taxes, is currently longer than the other two.
The three legged stool is a great visual. It is simplistic and relates to an object we all can picture and relate to. The problem with the concept as applied to school funding is that it has no basis in reality. Nebraska has never funded K-12 education through an equal proportion of those taxes. No other state does either. Of the roughly $600 Billion spent nationally on K-12 education, 10% is federal dollars, with the remaining 90% equally split between local revenue (property taxes primarily) and state revenue (sales and income taxes). Nine states don’t even have a personal income tax, including Nebraska’s neighbors Wyoming and South Dakota. Per the concept, they would be missing a leg entirely, and a two legged stool is just a short ladder.
The term “Three Legged Stool” has its roots in financial planning for retirement during the early years of social security, not tax policy. It implies stability, so that retirees would have three stable, equal sources of income during retirement. An effective marketing tool for selling financial planning services, the three legged stool is invalid when applied to school funding.
In reality, equal funding between property, sales, and income tax would lead to greater instability in school revenue year to year and leave local school boards uncertain about their budgets. While property tax revenues are set using prior year valuation and consistent, sales and income tax revenues fluctuate from projections, influenced by a host of economic factors. Sales tax revenue in particular is especially volatile. A “three legged stool” in which one leg is stable while the other two change in length month to month does not provide a very comfortable sitting experience.
Moreover, state General Fund dollars are not segregated by sales tax versus income tax. They also do not constitute equal revenue amounts or exhibit parity in their variation. While the image makes for engaging political rhetoric, it does not translate into good public policy. We must move beyond distracting political visuals and address fundamental funding questions based on actual facts in an honest, frank manner.
A fundamental inequity exists in the system when most Nebraska’s rural districts do not receive any of the nearly $1 Billion of state equalization aid, shifting most of the burden of local education to local property taxpayers. Tax policy changes that do not address this structural imbalance will not provide meaningful, comprehensive, or lasting solutions.