Revenue caps are bad

We don’t like state revenue caps on school spending, never did. They are a classic one-size fits all, topdown state government edict that infinitely complicates trying to run a school.

The referendum that the Edgar Board of Education is cooking up provides a great example of why revenue caps are bad.

Edgar Public Schools has been losing enrollment for years and, as required by the revenue cap formula, the school board has to not just trim property taxes and spending, but cut both severely. The school board faces a miserable dilemma. Either it can gut school programming (goodbye all sports and co-curriculars) and watch enrollment slim further, forcing further cuts, or, alternatively, the school board can retain programming and run a monstrous budget deficit. So far, the school board has approved an $80,000 deficit this year. Within two years, the annual red ink will total nearly half a million dollars, wiping out the district’s fund balance.

The school board lost a revenue cap referendum back in February and, looking forward to April 2021, is considering a “no tax increase” alternative referendum. The way the measure would work is that the school board would extend its debt payment schedule from between three and five years, lower taxes used for debt service and use the savings to provide more money for school operations. It’s not a terrible plan and is taxpayer friendly, but it is bad government.

The catch in the plan is that the school district will need to pay an extra $164,000 in interest to extend its loan payments.

Arguably, this is not a huge sum, given that the district saved $3 million in interest when it used the nearly no-interest Qualifi ed School Construction Bonds to pay for school remodeling. Still, the added interest is a pile of wasted money. It is money that the taxpayer could save or, otherwise, the school could spend on teachers and supplies.

The laugh, of course, is on the state. Under its state aid obligations, the Department of Public Instruction will be required to reimburse the school district something like two-thirds of the added interest.

Revenue caps are meant to enforce prudent spending, that is, if they don’t force wasteful spending in the first place.