Nevada relies heavily on regressive sales tax to fund its K-12 education system, a new report makes clear.
The Nevada Legislature last year passed an 11th hour bill to revamp the decades-old funding formula for K-12 education. The existing funding formula — called the Nevada Plan — can only be described as labyrinthian. It was drafted back when the population of the entire state was less than today’s K-12 student population. Money flowed in various directions, making the budget as a whole complicated and opaque.
Its replacement, the bulkishly named Pupil-Centered Funding Plan, was crafted with transparency in mind. Gov. Steve Sisolak and legislators have called it a crucial first step, saying ironclad transparency is needed before additional revenue can be infused into a system many feel is woefully inadequate.
An 11-member Commission on School Funding is currently deep in the weeds working on the Pupil-Centered Funding Plan. In support of that ongoing effort, a report from the Kenny Guinn Center for Policy Priorities analyzes the dedicated funding sources that will contribute to the new funding formula’s base per-pupil allocation.
What the report shows is there are three primary revenue sources that will contribute to the state’s per-pupil base level of funding: the General Fund, the Local Schools Support Tax (a retail sales tax) and property tax. Nine other dedicated revenue sources — marijuana taxes and fees, room tax, interest from the State Permanent School Fund, net proceeds of minerals and proceeds from forfeiture account — contribute but in significantly less amounts.
Here’s what it looks like in chart form, using revenue from 2018:
The Local Schools Support Tax — a 2.6 percent retail sales tax that makes up more than a third of the statewide 6.85 percent sales tax rate — would contribute approximately $1.5 billion into the State Education Fund. That’s approximately 39 percent of total funding.
Property tax would contribute $677.8 million, approximately 18 percent of total funding.
The General Fund would contribute $1.2 billion, approximately 32 percent of the overall budget. The General Fund is not funded through a single revenue stream the way the other bars on that chart are. Revenue comes from a variety of places, but the single largest source of revenue for the General Fund is sales tax.
The nine other funding sources would contribute $435.5 million combined, or approximately 11 percent of total education funding. That figure includes $42.5 million generated from the recreational marijuana retail tax and $27.5 million in wholesale marijuana taxes, which applies to both recreational and medical marijuana.
The chart puts into perspective the limitations of the marijuana revenue, which has become something of a scapegoat in recent years whenever the issue of inadequate funding in Nevada arises. It also highlights the heavy reliance on sales tax, which the report notes “is more prone to volatility based on economic conditions at the time.”
Also included in that $435.5 million figure is $180.5 million generated from room tax. Room tax is a statewide tax on transient lodging, but because of a population stipulation in the law the room tax funding that is dedicated to education is only generated in Clark and Washoe counties. Sometimes referred to as IP 1, the 2009 Legislature approved the room tax funding for education after a successful 2008 voter signature initiative petition, which notably was supported by the casino industry.
The room tax money has been criticized by education advocates as something of a bait-and-switch because its injection only resulted in fewer General Fund dollars being allocated to the education budget. The Guinn Center report documents this supplanting in this chart:
The chart shows that when dedicated revenue sources for education rose in 2012 — the first year the room tax went toward education — the General Fund revenue contribution to education decreased. However, the bigger picture is that the IP 1 funds make up less than 5 percent of total K-12 education funding.
The Guinn Center notes that some groups within the education community believe the wholesale marijuana tax money also supplanted General Fund dollars but that “because the funding from marijuana taxes is relatively minor compared to other sources, the change in General Fund contribution is less pronounced than the effect of IP 1.”
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