Could Oregon’s state school funding mechanism change next year?

The way Oregon funds its schools could be changing next year.

Oregon Gov. Tina Kotek is proposing a few changes to how the state calculates the billions of dollars that go to Oregon schools every year.

The changes would affect a key financial calculation called the “current service level” — a funding baseline that takes into account both the costs of operating similar education programs, as well as what revenues are anticipated. Lawmakers use the current service level to set the education budget in two-year increments, called a biennium.

Kotek’s office estimates her changes to how the current service level is calculated would lead to an estimated increase of about $515 million in the State School Fund for the 2025-2027 biennium.

“This is how we reset the calculation from my standpoint,” Kotek said.

“I believe it is more predictable and accurate and that’s what our districts need.”

Across the state, pandemic relief funds are running dry, and many districts face an additional drop in funding due to declining student enrollment, despite record funding from the state. When school district leaders had to make difficult budget decisions this past spring, some of them directed attention toward lawmakers in Salem, arguing they needed to give schools more money to meet student needs.

Kotek said her plan brings more money to school districts and creates a better structure for how schools get funded in Oregon.

“I think we should just stop arguing about the process and say, look, these are things we need to do, they are important to making sure our number is accurate,” she said.

What the proposal says

According to the proposal from Kotek’s office, these changes will “inform” the governor’s recommended budget, which is due Dec. 1 of this year. Lawmakers are required to adopt a budget by June 30, 2025. The State School Fund, which is the mechanism that sends money to school districts, makes up a big part of the state budget — 28% in the last budget cycle.

Kotek’s education initiative director, Pooja Bhatt, is presenting the proposal at a virtual meeting Wednesday to the state’s task force on Statewide Educator Salary Schedules. The task force includes state lawmakers and representatives from statewide educator groups.

There are three proposed changes to increase the current service level. First, the distribution of funds would change from 50% of funds in the first and second years of the biennium to 49% in the first year and 51% in the second year.

The governor’s office says this will increase the current service level because that calculation is built off the second year of funding, which will increase if districts receive 51% of funds in the second year.

“The change will also support school districts in planning to cover rising costs that occur in the second year of the biennium after the [State School Fund] has already been set,” according to a one-pager from the governor’s office.

Another change would shift the compensation model used to assume staff salaries. Currently, the model takes into account 20 years of salary data. The proposal would shorten that to 10 years and result in an estimated $240 million increase in current service level, according to the governor’s office.

The third change relates to local property taxes. Currently, about one-third of the State School Fund comes from local revenue, with the rest from state revenue. But the revenue calculations don’t include “fluctuations” in local property tax revenue for the second year of funding. The governor’s office wants to change that.

“This says, ‘There are other things we can do to make this more accurate,’” Kotek said.

“It’s not going to solve every issue, but I do think that these have been some long-standing issues.”

Five-hundred fifteen million dollars is a relatively small piece of the pie considering lawmakers allocated $10.2 billion in state funds to schools in the last budget. But Kotek said she’s responding to what school leaders have asked for.

“I made a commitment to look at how we are calculating this number for your everyday needs,” Kotek said. “We’re getting closer to what you need, I think this is more predictable and accurate. It’s addressing some long-standing issues, and projecting another half-billion dollars to go into the State School Fund is a significant thing for our districts.”

This additional funding doesn’t bring the state much closer to the funding requested from the Quality Education Model Commission, a group that researches how much it would cost to provide quality educational services for all Oregon students. In a 2022 report, the group called for $11.9 billion in funding. Kotek said that model needs a reset, too. The commission agreed, requesting an update to the QEM in that 2022 report.

“Like the school funding formula, we haven’t looked at the QEM in a while,” Kotek said.

Looking past the money

By getting past the technical questions of how money for schools gets calculated, Kotek said the focus can shift to outcomes.

“What do our students need? Are they getting what they need from the money that we are spending?” she said.

Outcomes — including graduation. Before becoming governor, Kotek set a different graduation rate goal for Oregon — that Oregon’s graduation rate reaches 90% by 2027, instead of the state’s long-running goal of 100% graduation by 2025.

The state’s most recent graduation rate was 81.3% for the Class of 2023. When asked how Oregon can get to 90% graduation, Kotek said getting students involved in career and technical education classes and tracking student progress in ninth grade were two things that are working.

“We have some tools, let’s make sure we’re continuing to spend dollars in an appropriate fashion to help those students,” Kotek said.

“I am optimistic. We know how to do this. I am going to be a full partner with our districts. And I am going to hold people accountable to make sure that they are putting the best things in front of their students to help them graduate.”