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The basis for the current public school funding system was established by the Tax Equity and Educational Opportunities Support Act passed in 1990. Commonly referred to by its acronym TEEOSA, LB 1059 established the principle of “Equalization Aid” paid by the state to individual school districts. The TEEOSA formula is intended to make up the difference between the costs to educate students in a district and the local taxable resources. Over the past 25 years the original act and formula have been amended and expanded significantly.
State Aid to Schools through TEEOSA is the single largest component of the Nebraska General Fund Budget. During this fiscal year $952 million of Equalization Aid will be distributed to Nebraska school districts. Representing 21.6% of the state budget, these dollars will be distributed among 80% of Nebraska public school students, primarily in urban areas. The vast majority of rural districts across the state will receive no equalization aid through the TEEOSA calculation.
The complexity of the TEEOSA formula is impossible to exaggerate. Found in Nebraska Revised Statutes 79-1001 to 79-1033, the act currently is over 26,000 words that span 50 pages of statute. While the basis for TEEOSA is a rather simple concept, Equalization Aid equals Educational Needs minus Tax Resources, over 25 individual components are factored into the equation. Local school boards struggle to predict the amount of equalization aid they will receive during development of their budgets, and state fiscal projections are notoriously unpredictable.
Determining the “Educational Needs” of a district is the first step of TEEOSA calculation. The state average cost is just shy of $12,000 per pupil, although the average for schools in District 38 is 25% higher at approximately $15,000 per student. Calculating need starts with a comparison of 20 schools of similar enrollment, establishing the basic funding level for a district.
The figure is then complicated by over 20 different metrics unique to each school. Allowance for additional transportation costs, more than one elementary school, greater than average instructional time, and student growth are factored into the needs calculation. The number of students with limited English proficiency and students in poverty are also considered through multiple metrics in the formula. Schools with small elementary class sizes receive additional needs, as do districts that must accommodate overcrowding through construction of a new facility.
The “Resources” side of the equation has fewer individual components. However, the largest proportion of the calculation is one of the most controversial elements of the TEEOSA formula. Determined by a theoretical tax rate, the Yield from Local Effort Rate estimates the potential property tax revenue available to a district based on the total value of local property.
The debate over how agricultural land, homes, and commercial property should be valued for tax purposes significantly impacts this calculation. In most rural districts, the rapid increase in the assessed value of ag land has resulted in a Yield from Local Effort Rate that exceeds the needs of the district. Thus, no equalization aid is provided via the TEEOSA formula.
District resources also include Net Option Funding, which are state dollars allocated for students who attend schools other than the district they reside in through open enrollment. Each district is also supposed to receive Allocated Income Tax paid by taxpayers living in the school district.
Once each of the metrics has been calculated for every individual district in the state, the formula determines the amount, if any, of state equalization aid for each district. Proposing changes to the formula is political, as each component represents a special interest. Nebraska’s education system, property base, and economy have all changed significantly over the past quarter century. To be transparent and effective, the school funding formula must reflect those changes as well.