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HISTORY OF COMMUNITY COLLEGE STATE AID DISTRIBUTION FORMULA

Funding History:

A unique feature of Nebraska’s community college system, unlike most other systems in the country, is that the Legislature created a funding partnership that was originally designed to have 40 percent of the funding from local property taxes, 40 percent from aid from the state, and the remaining 20 percent from tuition and other sources of revenue.However, funding began to decline almost immediately, but especially in the mid to late 1980s during an economic crisis that overshadowed the state, causing a significant increase in the property tax levies around the state.Tuition and other sources of revenue also continued to increase and eventually comprised more than 20 percent of the total funding until the late 1990s.

Although the state funding percentage dipped to a low of 32 percent in FY 1988-1989, the Legislature did appropriate some additional funds to the colleges to be used specifically for equipment upgrading, faculty training, employment training, and other related projects.These funds were appropriated in a new program called the Community College Aid Cash Fund (Program 99) and distributed through a grant process.The appropriations ranged from $300,000 to $400,000 per year, but were discontinued in FY 2002-2003.

In 1996, the Legislature sought to decrease property taxes even further by passing LB 1114 which gradually phased in levy reductions for various political subdivisions.

Then, in 1997, the Legislature reaffirmed its commitment to community college education and set about to increase state funding to the colleges, while at the same time, offering property tax relief for taxpayers.A new program with a new distribution formula was created, the Property Tax Relief and Equalization Program (Program 152), that would help to equalize the burden on property tax payers around the state, by providing additional state aid to those colleges that cannot raise 40 percent of their budgets through property tax levies, under newly imposed levy limits.This new formula in Program 152 provides almost dollar-for-dollar tax relief and works in tandem with the enrollment-driven distribution formula in the original Program 151.

In 1999, the state was reaping the benefits of a growing economy and with a budget surplus, the Legislature was able to appropriate additional state dollars to offset the levy reductions.Because of the unique features of the formula in Program 152, the senators gave the community colleges an additional $30 million dollars for FY 1999-2000 and again in FY 2000-2001.The colleges were then able to decrease the total statewide average levy (operations and capital levies) from 7.496 cents per $100 to 3.755 cents per $100 in FY 1999-2000 and were able to further reduce the average statewide levy to 3.311 cents in FY 2000-2001.Unfortunately, in late 2000, state revenues began to decline significantly, so much so that the Legislature realized that it could no longer provide property tax relief through the community colleges.Thus, the levies have increased each year to 7.5964 cents per $100 in FY 2005-2006.

With the passage of LB 342 by the Legislature in 2007, there is no longer an aspect in the community college formula for full funding.The Local Effort Rate (LER) or local tax levy will change depending on the amount of money appropriated by the Legislature.The basis of the new formula is Needs minus Resources equals state aid.The needs of the community colleges are based on the most recent years expenditures plus 3% automatic growth and any additional growth as experienced by the colleges in growth of the previous three years average growth in REU’s.The LER will also be dependent each year on valuations change and the amount of tuition and fees the colleges collect.

The following chart illustrates the interdependence of each of the three funding sources upon the other.As can be clearly seen, as state aid increases, property taxes decrease.

Nebraska Community Colleges Revenue as Percent of Total FY 84-85 - FY 06-07
One of the main features of the new formula is an equalization of the property tax levy across the state as the colleges will only be allowed to vary from the established LER by 20% above or 20% below the LER.This will give the local boards some flexibility in how much property tax to levy.This formula will also allow each of the colleges to have access to the resources needed to operate their college.The resources will be made up of property taxes levied, tuition and fees collected, and state aid appropriated.If one of the sources falls short of expectations, there will still be the ability to get extra resources from the other sources.The LER will always be set as a direct result of the amount of state aid appropriated by the Legislature.

Visionary leaders in the Legislature and, especially in the communities across the state, began with a strong foundation to build a vibrant, growing, postsecondary education system that has effectively made the transition into the new century.The original partnership established among the state, local citizens, and students, is a partnership that works well in Nebraska.This ideal mix of support, especially financial, provides the colleges with a very stable source of funding that will allow the system to effectively plan for the future.