New funding law gives schools flexibility


School administrators now have more flexibility in how they spend funds, thanks to a new school funding law that went into effect Jan. 1.

The law, labeled HEA 1009 and initially passed in 2017, changes the school funding structure by eliminating the capital projects, bus replacement, transportation and general funds and replacing them with the education and operations funds. The law also allows administrators to transfer money between the education and operations fund, giving them more flexibility in their spending.

In the past, to move money among school funds, administrators first had to transfer money to the rainy day fund, which is like a savings account for schools.

The law does not offer any additional funding for schools.

To prepare for the change, schools transferred all the money in their general funds into the education fund and all the money from their capital projects, bus replacement and transportation funds into the operations fund. Going forward, any expenses directly related to the classroom will be paid out of the education fund, which is funded by the state and dependent on enrollment. All other expenses — facilities improvements, costs associated with busing, utilities and maintenance, to name a few — will be paid out of the operations fund, which is funded by local property taxes.

Some of the expenses that will now be paid from the operations fund, such as salaries and benefits for central office staff and maintenance employees, used to come out of the general fund and were covered by state funding. To continue paying those expenses using state funding, administrators will have to regularly transfer funds from the education fund to the operations fund.

“To me, it’s kind of like robbing Peter to pay Paul,” Greater Jasper Superintendent Tracy Lorey said.

The impetus for the change, according to news reports from 2017 and 2018, was schools requesting more flexibility in accounting, as well as a desire to clearly see what is spent directly on student instruction. With the education fund, schools will have a clear report of such expenditures.

Although the change has meant a lot of work for local school treasurers as schools make the change, in the long run, school administrators don’t see the law changing much. They will still have the same expenses and the same amount of money to pay for them.

“It’s not any additional money,” said Northeast Dubois Superintendent Bill Hochgesang. “And we were already doing the best we could by transferring (surplus funds) to the rainy day fund and using it to give stipends and other things (to teachers).”

In the long run, Hochgesang said, he could see the new flexibility leading to schools waiting longer to perform maintenance projects on their facilities so they have more money to put toward staff pay.

Under the old structure, schools used the capital projects fund to pay for smaller maintenance projects, and they paid for larger projects by taking out loans that were repaid using the debt service fund. Both the capital projects and the debt service funds were funded using property tax money under the old structure, though only the capital projects fund is rolled into the operations fund in the new structure. The debt service fund is not affected by the change.

Under the new structure, money that would have been in the capital projects fund will be in the operations fund and able to be transferred to the education fund to pay staff in a way that the old structure didn’t allow.

In Hochgesang’s example, schools could opt to use funds that used to be in the capital projects fund for staff and to use the debt service fund to pay for all maintenance projects. To use the debt service fund, schools typically wait until previous debt is paid off, then take out more debt to complete maintenance projects. Northeast Dubois is currently undergoing the process as the corporation has roughly $3 million of debt about to be paid off.

Regardless of how the new funding structure does or does not change school funding, it does offer more flexibility at the local level.

For the first time since the state government took over funding the general fund and teacher salaries in 2008, schools can use funds raised through property taxes to pay staff, a fact that will likely come into play as the debate about teacher pay in Indiana comes up in the upcoming legislative session.

More on