School districts across Indiana were affected when tax caps limited revenues to pay for a range of services and projects. Under current law, school corporations can spread those losses over several funds, including debt service, school pension debt, capital projects, transportation and bus replacement.
But the new “protected levy” law, passed in 2012 and delayed until this July of this year, removed that flexibility. It requires districts to apply their property tax revenues to debt payments before other expenses.
The Legislative Services Agency, the non-partisan research arm of the General Assembly, found the new law impacts school districts differently. About one-third of school districts won’t see immediate reductions in revenue available for transportation and capital projects when the new law goes into effect this summer. But the LSA report also noted that an increasing number of school districts may face this funding dilemma in years to come as the tax caps continue to erode school revenue.
Reasons vary as to why some schools are impacted more than others.
Sen. Luke Kenley, R-Noblesville, the powerful Senate Appropriations chairman who backed the protected levy law as a way to protect bondholders, said some districts got themselves into this fix by overbuilding and taking on too much debt before the tax caps cut into their revenues. Other districts, he said, suffer from poor financial management.
“You have schools where somebody hasn’t managed money well in the past and now they’re in a jam,” Kenley said.
In Muncie, where school officials have been criticized for not making tough cuts in the past, the situation is critical. Muncie schools stand to lose nearly 90 percent of their transportation funds under the new protected levy law. Last November, voters turned down a referendum that would have raised local taxes to keep school buses running. In response, Muncie schools asked state officials to let them drop bus service next year — a request that’s been denied.