Tennessee: Public School Finance Program

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Gary Peevely,
Research Director Research and Policy Center on Basic Skills Center of Excellence at Tennessee State University

Denise Kissane Dunbar,
Assistant Professor Department of Educational Administration Tennessee State University

I. GENERAL BACKGROUND State The state’s school funding formula is the Basic Education Program (BEP), a weighted regression formula that determines the full amount of funding needed by Tennessee’s K–12 schools. The BEP was part of Tennessee’s 1992 Education Improvement Act (TENN. CODE ANN. § 49-3-351) that addressed inadequacies and inequities in Tennessee’s school funding.

The purpose of Tennessee’s basic support program, the Basic Education Program (BEP), is to address the inadequacies and inequities in public education that were the driving force behind the landmark 1988 Tennessee Small Schools lawsuit.

Prior to the 1990s in Tennessee, public schools were funded using minimum foundation program mechanisms that were based on the weighted average daily attendance, but the level of equalization was small. The result was an inequitable distribution of learning resources to meet the needs of Tennessee’s children. The Education Improvement Act (EIA) of 1992 provided the following: Created the BEP, the Education Trust Fund, and the BEP account. Provided for a phase-in of full funding over a six-year period. Established that an unexpected balance of the BEP account would not revert to the General Fund, but rather remain in the Education Trust Fund. Required that the state provide 75% of funds generated by the BEP formula in classroom components and 50% in non-classroom components. Authorized the creation of a funding formula that provided unprecedented flexibility to school systems to determine how state funds should be spent to meet local needs. Required BEP funds earned in classroom components to be spent solely in the classroom. Authorized incentive grants for schools that exceed performance standards. Set out conditions and requirements for local education agencies to receive BEP funds. Mandated class size 2 reductions. Provided for education on a fair and equitable basis by recognizing the differences in the ability of local jurisdictions to raise local revenues. Tennessee has no state income tax and is dependent on sales and use taxes and property taxes to fund public education.

Tennessee’s system of funding with sales tax was found to be inadequate and inequitable by the state Supreme Court in Tennessee Small School Systems v. McWherter, 851 S.W. 2nd 139 (Tenn. 1993). The state is not wealthy; it has rural counties with child poverty rates among the highest in the nation. For example, Hancock County’s child poverty rate was 49.9% in the 1990 U.S. Census Report. Hancock County was used as an example in a small school system lawsuit against the state and subsequent ruling that the state’s method of funding education as unconstitutional paved the way for the BEP. The BEP was designed to embody the concepts of adequacy and equity of education funding. Adequacy of funding programs is determined through the annual application of inflation and reevaluation of unit costs based on actual expenditures. Equity in funding is established through fiscal equalization among the local education agencies. The BEP, including improvements, accounts for approximately 90.7% of the recommended state allocation for K–12 public education. The remaining K–12 education funds are designated for curriculum and instruction, driver education, adult and community education, technical assistance and administration, and special schools. After five years of graduated funding, full funding for the BEP was reached during the 1997–98 school year. Tennessee has provided more than $1 billion in new state funds for local school system budgets since the 1992 passage of the Education Improvement Act, including funds for teachers’ salaries, technology and other school improvements.

Funding Summary 1998–99

Total State School Aid (All Programs) $ 2,216.2 million
Grants in aid 1,919.5 million
Teacher retirement contributions 129.7 million
FICA 167.0 million

Total Local School Revenue $ 2,274.1 million
Property tax 1,846.2 million
Other local source tax revenue 193.9 million
Local source non-tax revenue 234.0 million

Total Combined State and Local School
Revenue $ 4,490.3 million
State Financed Property Tax Credits
Attributable to School Taxes 0

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