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Capital Comments by Larry DeBoer - School Capital Projects

Back on Election Day, May 6, nine out of 10 Indiana school referenda passed. Eight were tax referenda, where voters approved new taxes for school operating costs. Two were for capital projects, to raise money to renovate school buildings. One of those passed, and one failed.

Indiana has required referenda to approve big capital projects since November 2008. That was one of the changes enacted with the big property tax reform that year. Since then, school corporations have proposed 48 capital referenda, and voters have approved 21, which is 44 percent.

What makes school corporations propose capital referenda? Perhaps schools compare the facilities they need to the facilities they have. If reality falls too far short of need, voters are asked to approve new construction.

Enrollment growth probably creates need. More kids need more classrooms. If a school corporation outgrows its existing buildings, new construction might be necessary. Sure enough, about two-thirds of the capital referenda have been proposed by growing school corporations.

Ability to pay probably counts, too. Places with higher incomes can better afford to buy new facilities. Again, sure enough, about two-thirds of the capital referenda have been proposed in counties in the top half of per capita income.

Only seven of 48 capital referenda have been proposed by school corporations with falling enrollment in lower-income counties. All seven were defeated. This means, though, that there are about 150 school corporations with enrollment growth or higher income that have not proposed capital referenda. It seems like the number of capital projects referenda is pretty small.

Illinois, Michigan and Wisconsin make their school referenda data easily available, so let's compare Indiana's proposals and results to those states. From November 2008 to November 2013, Illinois school districts proposed 98 capital referenda, and passed 49 (that's 50 percent). Illinois has twice as many pupils as Indiana, and twice the number of referenda. Not much difference there.

Michigan school districts have proposed 293 capital referenda since the second half of 2008, and passed 186 (63 percent). Michigan has about 50 percent more pupils than Indiana does, but proposed six times as many referenda. Wisconsin school districts proposed 277 capital referenda during that time, passing 130 (57 percent). Wisconsin has about 15 percent fewer pupils than Indiana but many more referenda. Michigan and Wisconsin hold a lot of capital projects referenda. Indiana and Illinois hold fewer.

Michigan and Wisconsin districts not only propose many more capital referenda than those in Indiana, they pass a higher share. Michigan voters have passed 63 percent and Wisconsin voters 57 percent, compared to 44 percent in Indiana. One reason might be that Indiana's referenda proposals are bigger. The average capital project proposed in Indiana has been $47 million. The averages in Michigan and Wisconsin have been $20 million and $12 million, respectively. Bigger projects require higher tax rates, and higher tax rates cut the odds that voters will approve.

All three of our neighbors used to have many more capital referenda than they've had recently. From 1996-2002, Illinois averaged 84 per year. Since then, they've averaged 21 per year. In Michigan, the 1996-2002 average was 60 per year; since then it's been 30. And in Wisconsin, the earlier period saw 120 per year, and since then, 44. Economic growth fell off in the 2000s in the entire Great Lakes region. That may be more evidence that lower ability to pay reduces the number of referenda proposed.

One of the purposes of requiring referenda for bigger capital projects in Indiana was to put a check on capital spending growth. It seems to have worked. From 2000-2008, property taxes for school corporation debt service grew 8.7 percent per year. Since the referenda requirement came along, debt service taxes have grown only 2.6 percent per year. The referenda requirement seems to have discouraged school corporations from proposing capital projects, and voters have approved less than half of those proposals. That's good for taxpayers.

Of course, on the other side of the budget, less spending on construction may mean older, more-crowded, less-advanced school buildings. And if lower-income districts are reluctant to propose capital projects, and their voters are reluctant to pass them, we may find ourselves with a school equity problem.