Policy Update: Nebraska: Belt-Tightening

Vital Statistics
645	Public school districts
1,379	Public schools
293,000	K-12 enrollment
13.6%	Minority students
13%	Children in poverty
13.9%	Students with disabilities
$1.7 billion	Annual K-12 expenditures (all revenue sources)

The finance debate largely overshadowed Nebraska's momentous decision last year to create its first statewide assessment system and provide incentives for schools to meet state standards.

In 1997, a school finance law shifted part of the burden for funding Nebraska's schools from local property taxes to the state budget.

The law raised state aid by $110 million for the 1998-99 school year, bringing the state education budget up to $573 million. But that was not enough to compensate for an estimated $200 million in lost property taxes stemming from a tax-relief measure passed in 1996.

The 1996 law capped property taxes at $1.10 per $100 of assessed value as of July 1998. In 2001, the limit will drop to $1. The limit can be exceeded only with voter approval.

The 1997 finance law also replaced a formula that gave smaller schools more money per student with one that gives more money to districts with a low population density and schools that are located a significant distance from each other.

The law also provides extra funds for students who are poor or who are not fluent in English. Previous subsidies for special education students and transportation costs continue.

According to state officials, 192 of the state's K-12 districts lost local revenue under the property-tax cap in 1998-99. Only 72 picked up enough additional state aid to break even or come out slightly ahead. Some 62 were facing budget cuts exceeding 10 percent, and 22 faced cuts of more than 20 percent. The biggest losers were small districts that were located near each other or in areas with relatively dense populations.

Observers agree that Nebraska's more than 300 elementary-only districts were hit hard by the law, but the state could not specifically quantify the impact.

Critics of the finance policy call it a backdoor attempt to force rural districts to consolidate. Supporters acknowledge that it was designed to encourage mergers among small districts that exist by choice rather than because of sparse population or long distances.

As a result of the finance changes, at least 40 districts reorganized before the start of the 1998-99 school year. Another 25 districts asked voters to override the tax limits; 16 of them succeeded.

Some districts also came up with creative financing schemes or dipped into their reserve funds. Several began charging fees for students to participate in after-school activities or to attend previously free school events.

Most analysts agree that if the finance picture does not change, many more small districts will be forced to fold their tents, especially once the tighter tax cap hits.

"I think resources and quality in those districts will be stretched to the point where the patrons themselves will have to look at that question," says Craig Christensen, the president of the Nebraska State Education Association, an affiliate of the National Education Association.

It's an open question whether Nebraska's unique nonpartisan, unicameral legislature will raise state aid enough to make up for even part of the lost funding come 2001.

The issue came up last year, when Sen. William R. "Bob" Wickersham quietly attached a provision to a noncontroversial bill that made minor adjustments in the state-aid formula.

His provision would have committed the legislature to closing the pending gap, estimated at about $70 million. Gov. Ben Nelson, a Democrat, vetoed the bill because of the amendment, which lawmakers did not have a chance to debate because of procedural restrictions.

A poll of lawmakers by the Omaha World-Herald found that 31 of Nebraska's 49 legislators said the state should not replace all the revenue losses with state aid, although some favored replacing some of the lost funds.

"These decisions should be made at the local level, without outside interference," argues Errol Wells, a school board member in Elba in the central part of the state, who is the president of Friends of Rural Education, or FRED, a vociferous group of rural school supporters. "These are schools that are getting good results" in test scores and dropout rates, he says. "We think our schools deserve the funding they need to survive."

A group of small school districts has filed a lawsuit that contends the 1997 school finance law is unconstitutional because it prevents elementary-only districts from levying their own taxes.

Under the law, such districts are forced to obtain revenues through the high school or K-12 districts with which they are affiliated.

But there is a strong, countervailing pressure in Nebraska to reduce taxes and spending.

"It's a question of where the votes are," Wells acknowledges, "and the urban areas have the votes."

Nebraskans' anti-tax sentiment was put to the test in the 1998 elections, when a proposal to limit increases in state spending was on the ballot.

The measure, which failed to pass, would have allowed only those increases required to maintain current services in light of inflation or population gains. It also would have locked in property taxes.

While school funding and district consolidation will continue to dominate discussions of education policy, the emerging system of academic standards and student assessments is likely to draw more attention as state officials begin to implement it.

The 1998 Quality Education Accountability Act empowered the state school board to create or adopt a state testing program by the 2000-01 school year. The program is to be based on subject-area standards the board adopted in 1997 and 1998.

That's a big step for a state as enamored of local control as Nebraska, and it's being taken with deliberation.

The state standards will not be mandatory. Rather, districts must adopt either those standards or their own, equally rigorous ones.

Under the law, districts also are eligible for "incentive payments"--$50 to $100 per student in the 1998-99 school year--for meeting a list of state criteria, such as minimum student performance on college-entrance exams or a minimum proportion of teachers possessing advanced degrees. In later years, districts must meet more of the criteria to receive payments.

"This is going to generate a lot of discussion about particular practices, like teacher preparation," says Clark, the education department spokesman.

He says it's too soon to predict whether the state will craft its own assessments or adopt ones already available from a commercial test publisher.

Either way, the impact may be less dramatic than in more demographically diverse states with a large number of low-performing schools and districts.

The districts that are likely to perform poorly are those that serve American Indian reservations and have a hard time holding students through graduation, Clark says, as well as individual buildings in larger districts that serve Nebraska's small but growing population of immigrant students.