One of the complicated issues involved in the recent City-County discussion about revenue sharing is the Local Composite Index, the formula by which the Commonwealth allocates state education funds to localities. Many have argued that this formula does not accurately measure a locality’s true “ability to pay.” Here’s a look at what the LCI really is.
The Local Composite Index was developed by a Governor’s Task Force in 1973 on Financing the Standards of Quality. The LCI aims to allocate school funding to those localities based on a locality’s ability to raise its own revenue; the formula is supposed to operate to provide greater assistance to localities with fewer resources so that all children will have the opportunity to receive a good education.
The LCI for each locality is a number generated by a formula which involves three indicators: the true value of real property, adjusted gross income, and taxable retail sales. Charlottesville’s LCI for FY 2011 and 2012 is .6560; Albemarle’s is .6872. Each factor is weighted differently in the formula. The number is then used to calculate the locality’s share of state funds. The maximum possible index is .8000. The higher the number, the greater the theoretical local ability to raise revenue for education, and therefore the less money provided by the state.
How are these indicators measured?
1. True Value of Real Property represents the potential for property tax revenue from residential and commercial lands in a locality. This is a Department of Taxation calculation using the assessed value of property and a sample of property sales in past year. The Department takes the median value of those two numbers. This measure seeks to assess an accurate market value of real property in the locality.
2. Adjusted Gross Income is the sum of reported incomes in yearly tax returns, before deductions and other exemptions.
3. Taxable Retail Sales is the total value of sales upon which sales tax can be levied; this number represents taxable transactions occurring in locality.
Overall, these factors are intended to assess a locality’s ability to access revenues and its ability to pay the local share of the state’s Standards of Quality for education. The SOQs are another complicated issue, and you can read more about them here: http://www.doe.virginia.gov/boe/quality/index.shtml.
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Thanks for posting this information, David. One observation - the information above seems to indicate that the LCI is (partially) based upon the same metric the Revenue Sharing agreement is, specifically the true value of all real property in the jurisdiction (as opposed to the actual value of taxes levied and collected).
ReplyDeleteThere seems to be a philosophical argument that can be made that, given that Dillon's Rule essentially prohibits all potential tax incentives that a locality could set up - save those expressly provided for by GA enabling language - it would make sense to not then turn around and financially "punish" (in a way) those localities that choose to make use of such tax incentives.
I can see instances perhaps in that it makes sense - for instance, property tax relief programs designed to reduce the tax burden of the elderly likely should count against that locality in the LCI, as jurisdictions with larger elderly populations that make greater use of this type of program likely need less school funding anyway - but with many programs that have no age bias (such as land use), you're ultimately taking funding away from School Districts whose citizens have deemed it worthwhile to engage in socially desirable behavior such as rural preservation.
I can see the flip side of this argument, understand the practical difficulties associated with basing the LCI upon actual collected revenues, and indeed see the possibility of some perverse incentives that might come out of this. But there's surely a middle ground that exists here.