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VOL. 124 | NO. 150 | Monday, August 3, 2009

Compromise 101: Who’s going to fund the schools?

By Bill Dries

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Emma Jean King checks inside classrooms at Colonial Middle School to find out if air-conditioning units are working before students return to school. The number of maintenance workers at the school has been cut in half because of cuts in school funding. -- PHOTOS BY LANCE MURPHEY

In the year he’s been head of the Memphis school system, Superintendent Kriner Cash has been virtually unflappable.

Since the Memphis school board hired him in July 2008, Cash has doggedly pitched a detailed plan for the school system’s renewal with dozens of specific goals in a well-traveled PowerPoint presentation.

A funding controversy and resulting lawsuit between the school system and the Memphis City Council had not diverted Cash from his mission of staying above the political fray and about a reform plan.

That changed last month when Cash came to City Hall.

He urged the council to approve the school system’s full budget request of nearly $900 million and restore the city’s share of funding it cut last summer regardless of the still-pending lawsuit over the issue. He also said without full funding, the state of Tennessee would cut its funding for the school system – more than $400 million– and that the state had to have a budget by the end of July.

But just before the committee session with Cash, the council met behind closed doors with its attorney, Allan Wade, for about 45 minutes.

When that meeting ended and the meeting with Cash began, council members disputed just about every important dollar figure and timeline he and his staff members cited.

The school system’s position is the city’s share of funding under state laws governing maintenance of effort is $84 million. The council’s figures put it at $71 million – a $13 million gap. That’s if there is a state requirement that city government must continue to fund the school system at a certain level.

The council’s calculations are based, in part, on the school system’s 2007-2008 budget. Cash and his staff questioned why the school system hadn’t used the just-completed 2008-2009 budget in its calculations.

Wade countered that the more recent budget wasn’t official because city funding of the school system for that budget year is still tied up in the appeal of the lawsuit.

Cash again insisted he needed a budget approved by Aug. 1 or the school system risked losing state funding. Wade said that wasn’t true based on conversations he had with the state comptroller’s office and last year’s funding standoff, when the deadline was Oct. 1.

Education Committee Chair Janis Fullilove then called for a two-week delay in budget approval. It was a measured performance by Fullilove, coming at a time of personal turmoil that Fullilove has rarely been able to leave outside City Hall. On this day, Fullilove was deliberate, focused and on topic.

That’s when Cash got ruffled and began looking to school system attorney Dorsey Hopson in frustration. They were still conferring when the gavel fell and the meeting ended.

“We’re not going to reduce our budget,” Cash told reporters minutes later outside the committee room. “I cut $16 million out of this budget from last year to get us to here, to be responsible to taxpayers, to make sure that we are not putting any additional burden on taxpayers. That was what our whole premise was.”

A few feet away, school board member Betty Mallott vented her frustration when she encountered Wade in the hallway.

“We thought there would be a vote today,” she said to Wade. “We gave you the information in April.”

Gerianne Armstead, left, and Morgan Breland, both 13, spend time on the computer during an eight-week summer camp at Colonial Middle School. Last year’s decision by the Memphis City Council to cut city school funding has left some questioning whether single-source funding of Memphis and Shelby County schools could better serve both school districts.

There have been discrepancies before. But the council has never been willing to call the school system on the differences or question its math to the extent it is has over the past two years.

Fairness doctrine

The council’s decision last year to cut city schools funding prompted the school system to take the city to court over whether the funding cut violated state “maintenance of effort” standards. That is the case now on appeal.

The council vote began a political tumult in which even broader long-held assumptions about the intersection of politics and education are being challenged. That includes the idea of single-source local funding for Memphis and Shelby County schools.

Shelby County government already provides most of the local funding for city schools and all of the funding for Shelby County schools.

If county government became the single source of funding for both school systems, proponents of the idea argue it shouldn’t affect the level or source of funding for county schools.

There would be a three-year phase-out of city government funding to the Memphis school system with the county assuming that share of city school funding during the three years.

But during that phase-in period, the county property tax rate for education would increase as the city property tax rate would decrease.

A recently disbanded ad hoc committee attempted to keep all of the different players at the table. And the strategy to do that was to pursue two plans.

The plan that would make Shelby County government the single source was called Plan B. Plan A was to give taxing authority to the two school boards meeting as a joint body to set the education tax rate, with the Tennessee Legislature having final approval.

In the end, neither plan emerged unscathed. And advocates of each plan are accusing opponents of not acting in good faith.

But the group’s contentious debate ignited a drive by some on the panel not only to pursue Plan B, but in the process avoid as much as possible the need for approval by the state Legislature. The Shelby County Commission voted to endorse the plan. The Memphis City Council and the Memphis school board haven’t weighed in yet.

Meanwhile, the Shelby County school system is campaigning against the idea in the suburbs.

“Taxpayers living outside the city limits of Memphis would now be making up for the funding increase,” Shelby County school board Chairman David Pickler said at the end of June in Collierville as he made his first pitch to leaders of the Suburban Chamber of Commerce Alliance.

“Shelby County schools would not receive any less money, but they would not receive an additional dime. But yet the taxpayers who live outside the city of Memphis would receive on the education portion of the tax rate an increase that … could go from $1.98 to as much as $2.81,” he said.

Despite repeated assurances that the two public school systems would not consolidate, Pickler is telling elected and civic leaders in the county’s six suburban municipalities – Arlington, Lakeland, Germantown, Collierville, Bartlett and Millington – that Plan B could lead to such consolidation.

A trust fund for excess revenue to be administered by the Shelby County Trustee also would not guarantee the money would go to education, Pickler said – a point hotly contested by proponents of Plan B.

The aging Colonial Middle School sits idle before students return to school. Advocates of single-source funding for city and county schools face opposition from those who say the plan would unfairly penalize county taxpayers.

Pickler defends the idea of taxing authority for the school boards.

“The reality is that this would not be imposing or giving to the two school boards taxing authority,” he said, referring to a requirement that the Tennessee Legislature approve any tax rate or change in the tax rate. “This would be consistent with what is done in most of America. Eighty-one percent of all school boards across the nation do in fact have some limited taxing authority. This would also ensure that all of the money that’s earmarked for education would in fact go directly to education in that year.”

Pickler is hammering home the exclusion of the county’s six suburban mayors from the committee. He also claims despite declarations of support for the taxing authority plan, most of those on the ad hoc committee opposed it and were trying to kill it.

The ad hoc committee included City Council members, county commissioners and members of both school boards. County Commission Chairwoman Deidre Malone, who was a non-voting member, chaired it.

Malone and others say Pickler and the county school system were pursuing taxing authority legislation in Nashville without the ad hoc group being part of the move to Capitol Hill.

Once in committee in Nashville, the legislation began changing in ways that caused Memphis school board members to back away. A local referendum on the taxing authority provision became optional in the bill.

City school leaders didn’t, though, become advocates of the other plan.

“Just as long as we’re able to meet the obligations based upon the budget that we present – that’s more important versus where it comes from,” city school board president Martavius Jones told The Memphis News. “We don’t care where it comes from, to be honest with you, just as long as we’re able to fund the initiatives we have.”

Cooks in the kitchen

City Council member Harold Collins backs the idea of county government taking over all funding responsibilities for both public school systems. But for the plan to succeed politically, he said the city school system has to be on board.

“Memphis City Schools need to say they are in agreement on single-source funding before the City Council does,” he said. “I think the chain of events is not correct yet. It’s unfortunate that all four of the legislative bodies don’t agree. But getting three of the four to agree is significant.”

Shelby County Commissioner Mike Ritz went a step further. He said the county school system’s support isn’t necessary.

“As long as we don’t violate state law, they don’t have to be a part of the contract,” he said.

Ritz, who was a member of the ad hoc committee, is now working to secure inter-local agreements among city and county governments that would bring about single-source funding. He’s working on a framework and a pitch that could win the support of two to three members each of the City Council, County Commission and the Memphis school board.

Ritz’s original task was to flesh out a specific funding scenario that would avoid needing approval from the state Legislature. He told The Memphis News that’s just not possible.

“We can’t do everything in Plan B, but there’s a good part of what was in that scenario that I believe we can do by agreement,” he said.

But an agreement that includes the city school system will be difficult until or unless the matter of how much funding the school system gets from whatever source is resolved.

“We just want Memphis City Schools to be funded as we have traditionally,” Jones said. “We feel that the funds that we’ve operated with still are not quite sufficient in order to advance some of the initiatives that we are looking to do. We think that there needs to be a greater investment in education.”

Assistant Cheryl Butler lets summer camp students into the cafeteria at Colonial Middle School following a field trip.

Pickler has been careful to say that his fight isn’t with the city school system and its need for funding. Both school systems need more funding, he said.

A selection of Pickler’s comments on the opinion page of a recent edition of The Memphis News drew a critical tweet from County Commissioner Mike Carpenter, another member of the ad hoc committee. Carpenter said Pickler’s comments were “disingenuous and full of half-truths.”

The county school system’s budget passed with no votes to spare last month as Malone cited the breakdown of the committee’s work with lots of opposition from the county school system.

“They were invited to the dance and participated in the dance and we thought they were going to be supportive,” Malone said before voting against the budget. “At the last minute they voted against the single-source funding piece and then the plan that they brought to the table.”

But Pickler argues that the show of support for his plan by the others on the committee was superficial at best and didn’t translate at all in helping with what was already a tough sell in Nashville to a Legislature loath to delegate taxing authority.

Malone is just as adamant in arguing that Plan A was supported.

However, Ritz said he never supported the idea of taxing authority for the two school boards.

“I think there was a good minority of us that thought, frankly, the citizens would never vote to give them the power to tax city residents or county residents, and Plan B was going to be the long-term plan,” he said.

But Ritz said he could at least support the concept as long as a referendum was attached. The legislation the county school system took to Nashville changed once it got to Capitol Hill and the referendum became non-binding. Pickler said the change was the work of legislators.

“We never saw it until after it had been submitted to the state,” Ritz said. “Quite frankly, the only person who tried to make an end run was Pickler.”

On tax equity

Ron Belz, president and chief operating officer of Belz Enterprises, along with Cato Johnson, senior vice president of corporate affairs at Methodist Healthcare, were the business community presence on the panel.

Belz was unsparing in his assessment of Plan A. Sitting a few feet from Pickler in March, Belz listened as Pickler made an impassioned pitch for it and against Plan B.

Belz then said Plan A, as pitched by Pickler, was “full of holes” and read like a “poorly written novel.”

“I don’t see anything here that would make me feel comfortable that there would be any coordination about where this kind of structure would leave our county in terms of our indebtedness,” he said.

He and others were also dismayed to learn the legislation making its way through committee at that point would have deleted any tax abatement through PILOTs (payments in lieu of taxes) on the half of the Shelby County property tax rate that would go to education.

Belz said it effectively would kill economic development in Shelby County.

But Memphis school board member Jeff Warren agreed with no tax breaks on the education tax rate. He said making businesses pay 100 percent of the rate would “show this community we value education” and stabilize the funding source for education.

Pickler points to the exclusion of any elected representatives from the six suburban municipal governments, whose residents would pay more in county taxes without the corresponding reduction in city taxes Memphis residents would see during the three-year phase-in of Plan B.

For locations, click here.

“What’s the deal there? Clearly there are some hidden agendas there,” said John Threadgill, chairman of the Bartlett Chamber of Commerce. “The growth of Shelby County has taken place in the suburban areas. … Politically, it’s controlled by the two-thirds inside the city of Memphis. What you can’t help but see is a lot of maneuvering taking place that is basically for the benefit of the folks inside the city of Memphis to the detriment of the folks in the suburban area.”

The mayors of Lakeland, Bartlett, Arlington, Millington, Germantown and Collierville have said they are willing to listen to proponents of Plan B. But they may be the toughest audience those proponents will ever face. The six mayors and their legislative bodies are a united political front against any kind of government consolidation. That includes a single source of funding for what would remain two school systems even if most of those paying the increased tax rate would still live in Memphis.

All but Lakeland have their own property tax rates. And many of the suburban municipalities are keeping those tax rates low with sales tax revenue becoming a part of the funding equation. The county schools in their communities are an integral part of each city and town’s identity even if they are paid for out of county property tax revenues. The mayors contend it is inequitable to give city schools a bigger share of those tax revenues when they already get more money from county government than county schools.

Shelby County Mayor A C Wharton Jr. publicly questioned the mindset in March as he put in a plug for county government being the single source of funding for both school systems.

“There isn’t such a thing as a Collierville school. Nor is there such a thing as a Germantown school or a Bartlett school,” he told the Memphis Kiwanis Club. “They are county schools located in or near those municipalities that we all pay for.”

While the City Council hasn’t voted on Plan B yet, a vote on whether there is tax equity now between city and county residents would fail by a wide margin on the 13-member body.

“The reality is city residents have been paying double, basically,” council member Kemp Conrad told The Memphis News. “I think there have been a lot of things we’ve been addressing to even out the tax rate where we’ve been providing services the county also uses but hasn’t been paying for. That is something that will happen.”

Conrad said he understands Threadgill’s point as well. The discussion is a perennial in local politics whether education is attached or not.

“The argument has been made for many, many years that the folks in the suburbs are getting a free ride,” Threadgill told The Memphis News. “That’s not true anymore. The tax burden now is heavier on the suburban taxpayer than it is on the city of Memphis, if you look at all of the taxes that make up the sources of revenue.”

Collins said the county property tax rate, which is also paid by Memphians in addition to the city rate, probably will go up with no corresponding reduction for county taxpayers who live outside of Memphis.

“But county residents need to understand they’ve benefited from the low property tax because of the citizens of Memphis,” he said. “They’ve used that to recruit businesses and residents as a tool against the city of Memphis. Until the county residents and Mr. Pickler recognize that Memphis is 70 percent of the county of Shelby and we all deserve equal taxation, then we’ll have these problems.”

Barring such a recognition, fellow council member Shea Flinn said the resolution may be more abrupt and may come from an appeals court – probably the Tennessee Supreme Court – rather than around a table.

“What we have now is basically a poker game with all of the chips in the middle of the table,” he told The Memphis News, referring to the pending lawsuit. “And someone’s going to come up with the big whammy there. Either we’re going to have the ability to just cut (city schools) funding completely or the citizens of Memphis are going to be taxed doubly for perpetuity. … The single-source funding discussion that the ad hoc committee spent so much time wrestling with is probably the best plan for an orderly draw down of those funds.”

Compromise takes time

Pickler said he’s finished with Plan A but not with trying to change the way the school systems are funded.

“Our No. 1 goal for 10 years has been special districts. We know it is a legislative long shot at best, perhaps,” Pickler said of a long-cherished legislative proposal that would make Shelby County schools a special school district like the Memphis city schools are already.

As things stand now, the county school district does not have special school district status, meaning in the unlikely event that the city school board decided to give up its charter and go out of business, what had been the city school system would become the responsibility of the county school system. With both school systems classified as special districts, the likelihood of even an eventual merging of the two would go from remote to extremely remote.

Like taxing authority, legislators hesitate to grant special district status, not because of the Memphis-Shelby County political debate in particular, but because of the complexity such districts create for state funding.

Pickler is still courting city school system leaders for support of what some have called Plan C.

“We were never able to really move forward the legislation (on Plan A) because we couldn’t reach a consensus on the tax rate or the funding formula,” Pickler said. “We will continue to engage in dialogue with Memphis City Schools. … Whether it has some elements of Plan A in it or not, we don’t know. We think that there’s a lot of work that can be done and we still believe that the two boards working together that we could be successful in getting something passed in Nashville.”

Jones sees room for the two schools systems to work together. And he said he believes their work together to secure a larger share of state funding should come before a plan for local funding.

“The state of Tennessee doesn’t fund Shelby County children at the same level that it does other counties,” Jones said. “We are perceived to be in a better position to pay, or (to) have a higher level of wealth, than some comparable counties in the state. The beginning of this whole financial dilemma that we find ourselves in somewhat begins and ends with the state.”

So far, state officials have relied on the City Council and the city school board to come to at least a tentative agreement without having to weigh in – beyond letters and official declarations that state money will continue to flow at its current level of more than $400 million to the city school system.

There are more than enough sides and players at the local level.

“Everybody is emotional,” Threadgill told The Memphis News after the first of many pitches Pickler has made in the suburbs. “Clearly the facts are not known – at least not all the facts.”

Pickler touched on every politically sensitive nerve suburban civic leaders have and his presentation has been well received. Even though Threadgill said he believes suburban leaders shouldn’t have been left out of the ad hoc committee discussion, he said he is still willing to listen to proponents of the plan that would mean a higher county tax rate.

“It’s probably going to be convincing too,” he said. “It’s time to put these two (plans) together and throw it all out on the table.”

PROPERTY SALES 36 154 6,546
MORTGAGES 34 94 4,129
BUILDING PERMITS 201 554 15,915
BANKRUPTCIES 43 126 3,396