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Maintenance of Effort - South Carolina Law states that the amount of money provided per student by the local government is equal to the previous year's funding plus an inflation factor determined by the State.

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In a nutshell, it means that the local governing body of a school district is responsible for maintaining a level of per-pupil funding that matches the level of support provided by the state.

South Carolina may be paying a larger share of the public education tab these days, but the big dog when it comes to paying for school operating costs remains local taxpayers. And its budget season again.

The state during the 1984-85 school year inked the Education Improvement Act. One portion of the legislation is called the Maintenance of Local Effort (MOE), which requires education money from the state to be matched at the local level.

In a nutshell, it means that the local governing body of a school district is responsible for maintaining a level of per-pupil funding that matches the level of support provided by the state. Starting in 1985-86, the local contribution began being adjusted annually by an inflation factor calculated by the Division of Research and Statistical Services.

The annual adjustment, according to Michael Thorsland, assistant superintendent of operational services for the School District of Oconee County, came about when the state added one cent to the sales tax and agreed to give the additional revenue to local schools. “The legislature said it was new funding and didn’t want it to take the place of county funding. They put Maintenance of Effort in to ensure counties didn’t cut off their funding,” Thorsland said.

Every year since, the county has been required to increase its contribution to local education using a formula that considers the previous year’s tax collection for schools, the inflation factor and the number of students in each district. The amount has never been lower, always higher and increasingly difficult to project.

In the past five years, Oconee County has only met its MOE obligation once, in the 2005-06 school year. When it comes up short, the county can ask for a waiver. Three of the four years Oconee missed its mark, a waiver was granted. The other year it was denied because the district’s “report card” was deemed “unsatisfactory.”

Each year, during the county’s budgeting process, a keen eye has been kept on the MOE.

Finance Committee Chairman Frank Ables has promised a good hard look at the school budget when that process gets underway next week.

And why not? This year’s tab is expected to be nearly $55 million.

The Guessing Game

By law the county auditor sets a millage rate sufficient to support a local level of per pupil funding. That amount is determined by dividing last year’s local school tax revenue by last year’s student count and then multiplying that by the state’s inflation factor and a projected student enrollment. (See accompanying chart.)

Most of the process, school officials admit, is a shot in the dark because the only known number is the state’s inflation factor.

By law, state and local funding must be reported by the state to local entities by May 1. Since annual audit reports are not complete by that date, financial data is not available to complete local calculations. As a result the South Carolina Department of Education collects estimates anticipated local revenues.

After that, school districts play their own guessing game.

“We have to estimate what we think next year’s student population will be,” School District of Oconee County Finance Director Gloria Moore said. “In order for us to talk to County Council (in presenting the budget to them), we have to guess a year ahead of time.”

The imperfections become obvious all too quickly.

Once, Oconee was given a waiver because tax collections proved higher than expected. Another time there was a greater increase in students that expected. Last year, the county got a waiver because Duke Energy made up a three-year under assessment with a one-time payment of $8.4 million, skewing the school’s revenue number for this year.

Superintendent Mike Lucas agrees, adding, “It wasn’t the county’s fault — it was the way the money was calculated coming in.”

Still, the state holds the county’s feet to the fire.

“For those districts that do not qualify for a waiver, we monitor their budget to determine if they are budgeting sufficiently to meet Maintenance of Effort,” said Len Richardson, director of the state Office of Finance.

All waiver applications must include the signatures of the local school board chairman and the district superintendent. Depending on the waiver criteria selected, signatures of the county treasurer or the county auditor may be needed to verify the information provided. Eligibility for a waiver hinges on meeting several criteria.

This Year’s Tab

For the 2009 budget beginning July 1, Oconee school officials estimate an increase in the required effort of $2,174,579.

“All of this is an estimate,” Moore said, adding that the exact value of a mill is not known when the budget is passed. “Even when it involves set millage, there is an estimated assessed value. You expect it to be close, but it’s still an estimate.

“If the assessed value changes, this (figure) could be entirely different.”

As if the MOE and its calculations aren’t vague enough, Moore said it could get worse. The shift from property taxes to sales taxes approved by the legislature last year, could conflict with MOE.

“Because we look at how much millage can increase from year to year, there could be a conflict between Maintenance of Effort and calculation from Act 388,” Moore said.

Richardson agrees.

“Last year, when Act 388, or the Property Tax Relief Bill, was passed, it gave districts the ability to exceed millage caps in order to meet MOE,” Richardson said. “Ultimately, that provision was removed so, basically, you have two laws on the books — MOE and Act 388 — that conflict with one another.

“School districts may have the dilemma of which law to follow because each may be in conflict with one another.”

Richardson feels the state legislature will ultimately have to choose one of three options — change MOE as it currently stands to at least make it workable for school districts, give districts the ability to exceed their millage caps in order to meet it or eliminate it completely.

Richardson, who met recently with the Senate Finance Committee, said the latter option — or at least the suspension of MOE — was discussed.

But Thorsland feels the elimination of MOE would have an adverse effect on school districts.

“It would mean that any district that has to go before county council for approval, the county council would not have a minimum funding requirement and could do as they see fit,” Thorsland said. “It would give county councils much more purview over a school district’s budget.”

Oconee County’s takes up its budget on Monday, while the Oconee school district on Tuesday will conduct a work session to discuss its budget.