Here’s how Nebraska funds its public schools. It involves a lot of ‘bells and whistles’
By Elizabeth Rembert , Food, Energy and Agriculture Reporter Nebraska Public Media, Harvest Public Media
May 2, 2023, 5 a.m. ·
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Nebraska’s funding system for its public schools has kept politicians, taxpayers and educators arguing for decades. It’s probably kept people confused for just as long.
I (Nebraska Public Media’s Elizabeth Rembert) will admit that I’ve been one of those people. As a native Nebraskan, I’ve been hearing the debate all my life about how the state pays for its public schools. But that’s not to say I’ve been understanding it all my life.
But then I decided I was tired of feeling like I was in the dark and asked some experts to explain the system.
Larry Scherer was legal counsel to the legislative education committee that designed the current system way back in 1990. He said he didn’t expect the framework to inspire more than 30 years of conflict.
“I did not anticipate – I don’t think anybody anticipated – that it would be this contentious and as dividing as it’s been,” he said.
When I told Scherer I suspect I’m not the only one who doesn’t get it, he admitted it’s a confusing framework.
But he also said it’s not impossible to grasp.
“It’s pretty simple,” Scherer said. “With a lot of bells and whistles.”
To him it’s simple, but let’s dive into those bells and whistles to see for ourselves.
What it takes to educate students
First, let’s start with what it costs to educate students. Henry Milone, a fifth-grader at Ezra Millard Elementary in Millard near Omaha, is a big fan of his school.
“The teachers are nice,” Milone said. “If we had a big test, at the end of the day we'll be able to get a second recess time.”
His favorite subject is math, where they’re learning decimals right now. Milone describes what the classroom looks like.
“The desks are set up kind of in rows, but then there's just tables kind of everywhere,” he said. “And then up front there’s a whiteboard and projector screen.”
All those nice teachers, desks, tables, whiteboards, projectors are expenses that go into a bucket called basic funding.
Connie Knoche has worked in school finance at Omaha Public Schools, Lincoln Public Schools and in the Nebraska state government.
Now she heads up education policy at OpenSky Policy Institute, a non-profit think tank. She said basic funding pretty much drives a school’s costs.
To calculate basic funding, Knoche said a school takes all of its expenses and then subtracts things called special allowances.
Special allowances are dollars that go to transportation as well as programs for students with specific needs, like children living in poverty, kids learning English as a second language and students needing special education. There were 18 of these in the 2023-2024 period.
After those are subtracted from the bottom line, “what you're left with, in theory, is what they need to open the doors of a school,” Knoche said. “And that would include lights, teachers, custodial, just everything that a school would have to do to open their building.”
Once the basic funding is set, that amount is compared to 20 school districts of similar sizes: 10 smaller and 10 bigger. All those numbers are averaged and we then have a smoothed-out idea of what it takes to run a school on a per-student basis.
But the students still have to get to school. And we can’t forget about programming like ELL and special education. Those special allowances – transportation and special services – are added back in as individual budget lines.
“You have basic funding, and then you add on a host of allowances,” Scherer said. “And that comes out to be what your school district needs.”
So, those are all the expenses. Now, who’s going to pay for it?
To answer that question, let’s make up a fictional school district. We’ll call it Williams Public Schools, and we’ll say it’s in suburban Omaha. It’ll help us understand what budgets generally look like for urban districts.
Let’s say the basic funding, transportation and special allowances at WPS add up to $1 million, just for the sake of easy math.
According to Scherer, “the primary resource of every school district is property taxes.”
Schools in Nebraska rely heavily on local property taxes. As a result, the state doesn’t spend a lot of its own revenue on education. By one measure, the Cornhusker State ranks 49th in the nation for sending state dollars to schools.
But back to Williams Public Schools – local government bodies like county boards set local property tax rates. Here in the WPS area, we’ll say it’s at $1 per $100 of property value. So, someone living in a house valued at $200,000 pays $2,000 in property taxes.
Generally property taxes in urban districts cover about a third of the school’s budget. So, let’s say it adds up to $300,000.
Williams Public Schools will also get some money from the state.
“State aid includes net option funding, income tax, special ed reimbursements,” Knoche said. “Every school district gets money from the state.”
Let’s tackle net option funding first. What if your kid decides they don’t want to go to Williams Public Schools, they want to go to Omaha Public Schools instead? You’ve already paid property taxes toward the Williams Public Schools district, not toward Omaha Public Schools.
“So then the state says, if you have more kids coming to your school than you have leaving, then we'll pay net option funding,” Knoche said.
Williams Public Schools gets another $100,000 from net option funding.
The state also gives districts a small part of resident’s income taxes. That adds $100,000 to the pile.
Also, the state will chip in $100,000 for special education programs.
So far, we have $300,000 from property taxes, and $100,000 each from income taxes, net option funding and special ed. In total, we have $600,000 of our million-dollar budget covered.
Federal programs will throw in $50,000, and other local sources like motor vehicle taxes and public power district sales taxes will give us another $50,000.
Now we’re at $700,000 which still doesn’t meet our costs of $1 million dollars.
“That’s where the state aid is also supposed to come in and smooth things out,” Scherer said.
The state plugs the hole in the budget with something called equalization aid.
Only 84 of the state’s 244 school districts get it right now. But those schools educate about 80% of Nebraska’s students.
This process of subtracting the available money from a school’s needs and making up the difference with equalization aid is known as the TEEOSA formula. It’s an acronym for the Tax Equity and Educational Opportunities Support Act, which Scherer worked on back in 1990.
Often, when rural school districts get TEEOSA’d, they don’t get any equalization aid. Why?
“The deal is they have so much property wealth, the state basically says, ‘Well, you can take care of those kids,’” Scherer said.
Let’s make up a rural school district to understand why that is. This one will be Elizabeth Public Schools. EPS’s basic funding, transportation and special allowances will also add up to $1 million – again to make the math easy.
This time the property tax is 50 cents per $100 of property value.
Notice how that’s half the rate in the urban Williams Public Schools district. But in rural Nebraska, there are a lot of farmers and ranchers.
“Farmers need quite a bit of land to make an income,” Scherer said. “Whereas, the urban person can be making money without much property at all.”
That 50 cents adds up pretty quickly when you own millions of dollars of land.
“For lots of people, it’s got to hurt when property taxes come due,” Rebecca Firestone, OpenSky’s executive director, said. “It’s a big bill that they have to pay in one chunk. And there’s no control over that number when land values grow.”
In rural districts, property taxes generally cover about 75% of the school budget. The state throws in $200,000 from net option funding, income taxes and special education reimbursements.
We get $50,000 from federal grants and local sources and we’ve funded our school, mostly through property taxes.
There’s no hole for the state to fill.
“What they get a big fat zero on is equalization,” Scherer said. “And that’s because there’s a relatively low number of students compared to the property valuation. So there’s a lot of corn for every student.”
There’s one more piece of the school funding puzzle that creates a bit of a twist. The state typically overestimates how much money will come from taxes on that corn, or houses, or whatever people own.
That’s because when the state estimates how much money will come from your taxes, it says you’ll cough up money based on about 100% of your residential or commercial property’s value.
But when you pay property taxes on your house or business, you’re paying taxes on anywhere from 92-100% of its assessed value, based on where you live.
It’s similar for ag land – people pay property taxes on somewhere between 62-75% of assessed value. But when the state estimates the tax revenue schools will get, it uses calculations around 75% of the land’s value.
As a result, many schools have to rely even more on property taxes to make up that gap. Urban districts get less equalization aid than they actually need and rural districts get further away from seeing any equalization dollars.
“That's where it seems unfair to the rural side is that they don't receive this major source of income out of state aid,” Scherer said.
It’s a big part of what’s kept a lot of people riled up for a long time.
“Schools that don’t get equalization aid think they should,” Knoche said. “And schools that get equalization aid think they’re not getting enough, you should give us more.”
The debate has only gotten more scrambled as farmland values have skyrocketed, according to Firestone.
“The formula is working the way the formula is set up to work,” she said. “But things have gotten out of whack because land valuations have grown so much.”
And with population booming in Nebraska’s urban and suburban areas, needs are quickly outpacing resources in districts like Omaha Public Schools and Gretna Public Schools as more students pour into their classrooms.
A new proposal in the legislature suggests changing the entire system. Now we’ll be able to follow that debate with a new understanding of the current formula.
“The big picture is we're trying to figure out how to do the best job at educating all the kids in the state,” Firestone said. “Tax policy and education policy are really about what we need dollars to deliver for kids.”