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Public schools: Even when they win they lose

Posted on September 4, 2008 by Staff

By Elaine Mejia

A Wake County superior court judge recently issued a ruling in a 10-year-old lawsuit against state government brought by several of North Carolina’s local school districts. The lawsuit alleged that the state constitution requires that the state’s public schools receive the revenue from all public “fines and forfeitures.” Revenue from criminal fines has always been given over to public schools.

The issue at hand is whether or not civil fines should also be turned over to the schools. These are fines such as those levied against operators of overweight trucks traveling the state’s highways or penalties paid by residents who owe back taxes. In 2005, the state Supreme Court determined that the schools are owed this revenue and this latest superior court ruling upholds that finding and specifies the amount owed.

So, how much money is at stake? Well, $749.7 million, to be exact, and that’s a lot of dough even for the state’s public schools, which require about $10 billion per year to operate in their current form. That’s the equivalent of more than two years of state lottery proceeds.

It should come as no surprise that within hours of the ruling, both House Speaker Joe Hackney and Senate leader Marc Basnight announced that the state does not have the funds to pay back the schools without raising taxes or cutting other programs, so they intend to replace current state funding for schools with the revenue from fines and forfeitures.
So what have the schools accomplished? They certainly made their point – the state constitution intends for them to have that money. But in reality, all they have accomplished is to replace their general-fund dollars, which come mostly from the stable and typically fast-growing personal income tax, with revenues from fines and forfeitures, a source that grows only when fines are explicitly increased and as the state’s population increases. Undoubtedly, this new revenue source will underperform relative to the needs of our public schools in the long term.

The lesson to be learned from this story is not to seek or accept a “dedicated” revenue source to support any important public service unless it meets two criteria. First, it should provide 100 percent of the revenue needed. Second, the dedicated revenue source should grow at the same pace as the anticipated costs. Accepting dedicated revenue sources that do not meet these criteria (fine and forfeiture funds and lottery proceeds being prime examples) can do more harm than good.

It’s hard not to feel sorry for public schools. Their advocates spent significant time and resources over many years pushing for the state to create a lottery. The lottery has resulted in very little money relative to the schools’ needs and it can be argued that much of the lottery revenues have merely supplanted other funding for schools. Moreover, public schools and their allies now have to deal with the impact of the lottery’s advertisements, which often feature happy school children in well-equipped classrooms.

In the wake of this latest court “victory,” the schools will now have two underperforming and yet high-profile revenue engines: the lottery and fines and forfeitures. Schools and their advocates will have to fight even harder against the public perception that the schools’ needs are met. Ironically, by winning these short-term battles public schools may be helping themselves lose the war.

Elaine Mejia is the director of the N.C. Budget and Tax Center.

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