Historically, states have largely relied upon local revenues to fund public schools. As these funds typically come in the form of property taxes, disparities between the resources available to students in property-rich and property-poor districts are created.
States have frequently sought to address this issue by using state aid, usually derived from sources like sales and income taxes, to shore up the finances of property-poor districts. However, this method still often results in property-wealthy districts collecting and retaining resources in excess of the amounts estimated by the state as sufficient for providing education to their students.
Wyoming’s policymakers have addressed this problem by adopting a unique ‘recapture’ mechanism that pools excess revenue beyond what the state deems adequate, so every school district can be funded fairly.
While this approach has delivered immense benefits for the state and promoted the equitable funding of schools, it carries its own caveats. The policy was also driven by a host of factors unique to Wyoming—including the state’s resource-rich nature and unique high reliance on energy industry revenues that supplement state aid and help maintain the value of residential and commercial properties where the industry is present.
A case study of Wyoming’s experience is nonetheless informative for policymakers who are contemplating school finance system reforms that would boost equity.
How It Works
Wyoming determines a revenue entitlement for each school district using a resource-based allocation system that accounts for factors such as staff salaries and course materials. While this method does have its flaws, the state has an effective system for equalizing local dollars.
Once the revenue entitlement is calculated, each district is required to tax $25 for every $1,000 in assessed local property wealth, and each county has to tax $6 for every $1,000 of assessed property wealth. This county tax is distributed to each school district in the county in proportion to its student enrollment. The two taxes, in addition to other miscellaneous local sources like federal forest reserve revenues and railroad car company taxes, account for each district’s local contribution for K-12 education. This local contribution is then subtracted from the state’s estimated cost of providing education in that school district, and the difference is made up through state aid.
Where a district’s local contribution exceeds the state-determined revenue entitlement, excess revenues are “recaptured” by the state in order to backfill districts that do not raise their revenue entitlements through local contributions alone.
Notably, the state does permit school districts to raise some excess revenue that is not considered part of the state aid formula and is therefore not subject to recapture. However, these additional revenues can only be levied for specific purposes, sometimes require voter approval, and account for a relatively minuscule revenue segment when compared to the extra local revenue school districts in other states can retain.
Wyoming districts may levy up to $2 for every $1,000 in local property wealth to pay for recreational facilities, 50 cents for every $1,000 for cooperative education services, and an additional tax for paying down debt, whereby they’re only permitted to carry debt valued at up to 10 percent of their total local assessed property wealth. Additional mills that can be levied with voter approval include $2.50 for every $1,000 for adult or vocational education, and levies for purchasing land or building, renovating or maintaining school buildings.
In this manner, no school district is able to raise a significant amount of revenue in excess of their state-determined entitlement regardless of the district’s property tax rate, their property wealth levels, or their access to energy industry royalties relative to other districts.
It should be noted that even though the state equalizes revenue between districts of varying property wealth, this doesn’t necessarily translate into greater amounts of per-pupil revenue for school districts that have a higher concentration of students living in poverty. Despite factoring student poverty into the revenue entitlement calculation formula, as of the 2013-14 school year, the average student in poverty attending a Wyoming public school attracted $340 less in cumulative local and state dollars than the average student not in poverty. This reflects that Wyoming’s school finance is not strictly “progressive” despite the improvements in equity spurred by equalizing local revenue differences between districts. This underscores the importance of state policymakers addressing both funding equalization and allocation when reforming funding formulas.
A significant majority of the state’s K-12 education funding (65 percent of school operations funding in the 2016 school year) comes from property taxes, mineral royalties and coal lease payments generated by the energy industry. These revenues also supplement school construction. The lucrative energy industry has ensured historically generous levels of funding for the state’s schools, with Wyoming ranking sixth amongst U.S. states for its average per-pupil public education spending in 2016.
Since half of the state’s land is in federal hands, royalties from the federal government have been a substantial revenue source, even relative to other energy-rich states. In 2012, 47 percent of all federal royalties in the United States were paid to Wyoming, and the state ranked first in the nation for the royalties received. That year alone, over $1 billion was raised in mineral royalties and coal lease payments. Much of these funds are allocated to school districts through the state funding formula.
Even though there had been a state-wide property tax designed to reduce the funding differences between school districts since the 1940s, the energy industry’s growth in some districts resulted in massive disparities in the amount of per-pupil funding received by each district by 1971. For instance, the district that was home to an oil field generated $351 per pupil, but an urban district in the state’s capital could only raise $6.53 per-pupil at the same tax rate.
These royalties, and the disparities that they created, helped create a favorable political climate for change.
Distributing royalties offset the role of sometimes unpopular property tax redistribution as reallocating federal payments outside the area in which they are generated, instead of the redistribution of taxes on voters’ own properties, is more acceptable to voters. Royalties’ lucrative nature also created a favorable political climate for revenue redistribution since the funds that they inject into the school finance system are large enough regardless of whether a school district is benefiting or net-losing from the recapture.
Wyoming’s Constitution and Court Decisions
Wyoming’s constitution was also instrumental in driving education funding reform. While some state constitutions, like that of Vermont, mandate the provision of public schooling, Wyoming’s constitution guarantees a “complete and uniform” public schooling system, and explicitly calls for the “equitable allocation” of resources between districts. That’s why the National Conference of State Legislatures regards the Wyoming constitution as containing one of the strongest possible formulations of a fiduciary duty incumbent upon the state to provide public education.
Conversely, legal scholars have generally failed to establish a correlation between the language of these clauses and litigation outcomes—connoting a possibly significant role for the state’s Supreme Court and its jurisprudence in driving outcomes. In Wyoming, these provisions led to two landmark court decisions, Washakie and Campbell County, that created the impetus for significant reform to the state’s school finance system. In each case, the court deemed the system at the time fell short of the resource adequacy and resource equity standards stipulated by the state constitution. Notably, the Wyoming Supreme Court even ruled that “local control” —the desire of individual school districts to have greater say in the distribution of revenues raised locally—was not a protected interest under the state constitution.
In comparison to other states, Wyoming’s equitable and effective pooling of resources between wealthier and less wealthy districts reduces the relative impact of revenue losses for the state’s poorest districts. This makes the state a good model for others to study.
Equitable school funding is particularly important as the country deals with the recession and coronavirus pandemic. Historically, recessions, like the 2008-09 great recession, are generally followed by widening wealth disparities between wealthier and poorer school districts. States that fail to equalize local revenues will do a disservice their most in-need students.