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Commission to form ad hoc committee to study fiscal-capacity effects of virtual schools
Summary
After a presentation on the fiscal capacity index, members raised concerns that virtual school enrollment and destination sales tax shifts materially alter county shares of state education funding; the chair asked staff to model options and to convene an ad hoc committee of legislators and local officials.
Michael Mount, the commission’s research director, presented the annual fiscal capacity report and explained how the commission’s county-level model measures local governments’ ability to fund education. Mount described model variables — including sales tax base per student, equalized property assessment per student and per-capita income — and noted how large developments and destination-sourced sales affect county shares.
Mount said the model treats virtual-school enrollment as increasing a county’s service responsibility without contributing to other tax-base factors, which can increase a county’s fiscal capacity index and therefore its state funding share. ‘‘Holding all else equal… enrollment in a virtual school increases the fiscal capacity index of counties that operate virtual schools,’’ Mount explained, describing the mechanism by which some counties receive more state funding while others receive less.
Senator Yarbrough pressed the commission on the magnitude of the effect, noting that ‘‘those two counties alone have something like 6,000 of the virtual school students in the state. It’s, like, $40,000,000,’’ and asked whether the commission could model alternative treatments of virtual enrollment. Several mayors and representatives echoed concerns that destination-sourced sales taxes driven by tourism produce sales-tax bases that do not flow proportionally back to counties’ school funding.
Chairman Ken Yeager said he would convene an ad hoc committee of legislators and local officials to examine options for adjusting the model or otherwise addressing the incentives created by the current treatment of virtual students and destination sales tax. Director Lippert and staff agreed to prepare modeling options and reported they could present an update at the next meeting or the one after.
Why it matters: the fiscal capacity index helps determine the state share of student funding under the Tennessee Investment in Student Achievement formula; changes in how the model treats virtual enrollment or destination sales tax could shift millions in state support among counties.
Next steps: staff will prepare modeling scenarios for the commission and organize an ad hoc working group of legislators and local officials to evaluate alternatives, potential side effects and statutory or administrative paths forward.
