Wealth and Revenue Changes 1994-95 to 1998-99

December, 2001

One of the many factors that affect school districts' financial decisions is the economic environment in which they operate. The period from 1994-95 to 1998-99 was unusual for several reasons. Most significantly, property values fell in several areas of the State. The statewide average Actual Value (AV) per pupil for operating aid fell from $299,800 to $246,400 after fifteen years of increases. (See the Appendix for technical definitions.) Conversely, 1998-99 saw a $1 billion increase in State Aid and the introduction of the School Tax Relief program (STAR), which provided an additional $582 million. Changes in enrollment (either growth or decline) and inflation also affect financial decisions. Thus, despite large aid increases, 246 districts experienced (inflation adjusted) per-pupil revenue losses during this period. This research note will examine the changing economic circumstances during these years and the effect on school district revenues.

This period was apparently a very good one for school districts. State aid increased $2.1 billion between 1994-95 and 1998-99. The initiation of STAR provided an additional $580 million in State funds, for a total of $12.5 billion in State revenue, an increase of 27.5%. Local revenue increased $1.9 billion (14.2%) to $15.4 billion. Federal revenue increased $300 million to $1.3 billion. In all, school district revenue exceeded $29.3 billion in 1998-99, a 20.2% increase from 1994-95.

The property tax is the dominant source of local revenue for most districts. Loss of property value, without an increase in the tax rate, will cause a reduction in local revenue. Between 1994-95 and 1998-99, AV/Pupil dropped in 329 school districts. The loss of property value was primarily a downstate phenomenon. Many of these districts have property wealth several times the state average (see Table 1). The statewide average AV/pupil dropped by $53,400 (from $299,800 to $246,400), approximately 18%.

The change in income/pupil during this period was more varied. Statewide, the average income/pupil increased from $83,300 to $86,400 or about 3.7%. The Downstate Small Cities districts (-$9,171) and the Big 4 (-$3,808) experienced substantial decreases. The Upstate Small Cities districts (-$67) had an insignificant decrease. Despite modest gains, the Upstate Suburban and Rural districts remained below the statewide average income/pupil. Downstate Small Cities and Downstate Suburban districts remained well above the statewide average.

The Combined Wealth Ratio (CWR) is a measure of relative wealth, indexing each district against the statewide average on a combination of two factors, property wealth per pupil and income wealth per pupil. During times when the statewide average is decreasing, a district whose property value remained the same gained in relative wealth. For example, the 1994-95 to 1998-99 increase of $22,488 in average AV/pupil for rural districts represents about a 10% increase, yet their property wealth index went up at almost three times that rate—the difference caused by the statewide average decrease of about 18%. The combination of substantial decreases in AV/pupil and income/pupil caused the Downstate Small Cities districts to experience the greatest change in CWR, -0.150. However, their mean CWR, at 1.771, continued to be well above the statewide average. Loss of property value in NYC (-$85,296) was not offset by a modest gain ($1,954) in income/pupil, resulting in a 0.071 drop in CWR to 0.927. The other district types experienced a moderate increase in CWR. Upstate Small Cities and Upstate Suburban districts had a mean CWR of about 0.700. However, CWR is a relative measure; the higher CWR shown by the Rural districts (up 0.139 to 0.770) can be attributed as much to other districts losses as to Rural increases.

The combined effects of inflation and enrollment growth are shown in Table 3. For example, Downstate Small Cities districts appeared to enjoy a per-pupil revenue increase of $887 (current dollar basis). However, inflation and growth in enrollment converted the $887 increase into a $318 decrease (constant dollar basis). Statewide, a $1,328 increase was reduced to $442.

As shown in Table 4, local efforts to raise revenue generally increased during this period. However, the loss of property value tended to overwhelm modest increases in local effort; 381 districts experienced a decrease in local revenue/pupil. The STAR program is intended to reduce local property taxes, thus some reduction in local revenue/pupil must be attributed to the success of STAR. However, STAR revenues (which replace local revenue with State revenue) were not sufficient to cover the decline in local revenue in downstate districts. Overall, 246 districts lost total revenue on a per-pupil CPI-adjusted basis, as shown in Table 4. The 246 were evenly divided between above and below-average CWR. (See Table 5.) Notably, 96 districts on save harmless lost revenue; the fact that more than half of these districts are above-average wealth indicates that local revenue was lost.

Although the loss of property value was a downstate phenomenon, loss of revenue occurred throughout the state; more than one-third of all major districts lost revenue on an inflation-adjusted per-pupil basis. It is clear that the initial impression of good times for school districts was misleading. What appeared to be large revenue increases became decreases when inflation and enrollment growth are factored in. How did these 246 districts respond to the loss of revenue? One hypothesis might be that the response would vary depending on the wealth of the district. District wealth and reaction to revenue loss will be examined in a future research note.

DISTRICTS TYPES. School districts were classified into one of seven categories, based on geographic location and population density. The categories were Downstate Small Cities, Downstate Suburban, Upstate Small Cities, Upstate Suburban, Rural, Big 4 (Buffalo, Rochester, Syracuse and Yonkers) and New York City. Downstate districts are located in the counties of Nassau, Suffolk, Rockland, Putnam and Westchester.

COMBINED WEALTH RATIO (CWR). Operating and other selected aids are distributed in part based on a combined wealth ratio, which compares district wealth per pupil to the State average wealth per pupil. The State average CWR is defined as 1.0. A district with a CWR of less than 1.0 has wealth below the State average. Conversely, a district with a CWR of more than 1.0 has wealth above the State average.

The CWR was calculated as follows: (.5 multiplied by the Pupil Wealth Ratio) + (.5 multiplied by the Alternate Pupil Wealth Ratio). Each wealth ratio was computed by dividing the district's wealth (FV or income) per pupil (pupils being a weighted pupil count called TWPU) by the State Average wealth/pupil as defined in law.

TWPU or Total Weighted Pupil Units is a weighted count based on the adjusted average daily attendance of K-12 pupils resident in the district plus additional weightings for pupils with special educational needs, pupils with disabilities, and secondary school pupils; half-day kindergarten pupils are weighted at 0.5. The Pupil Wealth Ratio is equal to Selected Full Value of property divided by TWPU.

Depending upon the aid year and specific districts, the property value used may be for a single year, a two-year average or a two-year average for which the increase in property value cannot exceed a specified percentage. The Alternate Pupil Wealth Ratio is calculated by dividing the Adjusted Gross Income of a district by TWPU. For the 1998-99 school year, the State average AV/TWPU was $246,400 and the average Income/TWPU was $86,400.

REVENUES. Three revenue sources (State, Local, and Federal) are displayed for three funds (General Fund, Debt Service Fund and Special Aid Fund). In 1994-95, revenues from the Risk Retention Fund were also included. However, beginning with the 1997-98 school year, the Risk Retention Fund no longer existed. The revenue sources and the account codes used to calculate them are described below. Due to the implementation of the School Tax Relief program (STAR) it was necessary to have three distinct categories for revenues from State Sources.

• STAR. Represents revenues from the State for school tax relief (STAR) payments (A1085). Under this program the State provides revenues to school districts so that homeowners may receive an exemption (in whole or in part) from the district property tax. Only senior citizens were eligible for the exemption in the 1998-99 school year.
• State Aid. Represents revenues received by a district from New York State. This item was the sum of account codes AT3999 and FT3999.
• State Sources. Represents the sum of revenues from STAR and State Aid or the sum of account codes A 1085, AT3999 and FT3999.
• Local Revenue. The calculation for local revenue was: grand total General Fund revenues, interfund transfers, and proceeds of long term debt (AT5999) plus total revenues and interfund transfers for the Debt Service Fund (VT5599) plus total local revenues for the Special Aid Fund (FT2999) plus interfund transfers to the Special Aid Fund (F5031 in 1991-92 and FT5059 in other years) plus total revenues, interfund transfers and proceeds of obligations for the Risk Retention Fund (CST5999) minus the sum of the following items: revenues from State sources (AT3999); revenues from Federal sources for the General Fund (AT4999); proceeds from the advance refunding of bonds (V5791); interfund transfers for debt service (A5050); interfund transfers from the General Fund to the Special Aid Fund (A9901.95); interfund transfer from the General Fund to the Debt Service Fund (A9901.96); interfund transfer from the General Fund to the Risk Retention Fund (A9902.9); and interfund transfer from the Special Aid Fund to the Risk Retention Fund (F9902.9).
• Federal Sources. This item consists of revenues from the Federal government. The data displayed were calculated as: Federal aid payments applicable to the General Fund (AT4999); plus, Federal revenues to the Special Aid Fund (FT4999).
• Grand Total. The grand total displayed represents the total revenues raised by a district for the General Fund, Special Aid Fund, Debt Service Fund, and Risk Retention Fund. The following calculation for grand total was used: grand total General Fund revenues, interfund transfers, and proceeds of long term debt (AT5999) plus total revenues and interfund transfers for the Debt Service Fund (VT5599) plus total revenues from Federal sources for the Special Aid Fund (FT4999) plus total revenues from local sources for the Special Aid Fund (FT2999) plus revenues from State sources for the Special Aid Fund (FT3999) plus interfund transfers from the Special Aid Fund (FT5059 for 1992-93 through 1995-96) plus total revenues, interfund transfers and proceeds of obligations for the Risk Retention Fund (CST5999) minus interfund transfers to the Special Aid Fund (A9901.95) minus transfers to the Debt Service Fund (A9901.96) minus interfund transfers for debt service (A5050) minus the General Fund interfund transfer to the Risk Retention Fund (A9902.9) minus the interfund transfer from the Special Aid Fund to the Risk Retention Fund (F9902.9) and minus proceeds from the advance refunding of bonds (V5791).

This SED Research Note was produced by the Fiscal Analysis and Research Unit.

This report may be accessed on the Internet at: http://oms.nysed.gov/faru. Hard copies may be obtained by writing to the Fiscal Analysis and Research Unit at: 301 Education Building, 89 Washington Ave. Albany NY 12234.