This summer, Associate Professor of Economics Matthew Hendricks has been examining the effects of a 2015 change in Oklahoma’s apportioning of motor vehicle revenues, such as tag fees, to public schools. He has been joined in this inquiry by John Reaves, a TU undergraduate majoring in economics and political science, and Gary Watts, an attorney and TU College of Law alumnus (JD ’77) who formerly worked as the chief financial officer for Sand Springs Public Schools.
Understanding losses and gains
Motor vehicle revenues are one of the five sources – known as “lagging chargeables” – of the over $4 billion Oklahoma’s government gives to the state’s public schools annually. When a lagging chargeable revenue source decreases from the prior year, state aid increases by a commensurate amount the next. Many people believe this increase offsets the loss and that the district’s cumulative revenue over two years will not be affected. “Our research shows,” said Henricks, “that this conventional wisdom is incorrect.”
Hendricks, Reaves and Watts argue that when a lagging chargeable revenue source differs from the prior year amounts, Oklahoma’s state aid formula does not offset those losses or gains. “Only a subsequent opposite deviation in the chargeable revenue source will offset the loss or gain,” Reaves pointed out. “When a lagging chargeable changes permanently, so does cumulative district revenue.” Thus, a permanent decrease in motor vehicle collections causes a permanent loss of revenue for a school district.
Evidence for this claim is found in the 2015 change in Oklahoma’s apportionment of motor vehicle revenues, which benefitted 146 districts while harming 271. “We show that this change, which was followed by a 2017 amendment to the law, permanently increased cumulative revenue for the overpaid districts and permanently decreased cumulative revenue for the underpaid districts,” said Watts. “This distortion was fixed by court-ordered correcting payments, but it is now being undone because school officials are including these one-time payments when calculating state aid.”
Beyond identifying a problem in school district funding, Hendricks and his co-researchers believe their study of school district revenue data from 2012 to 2020 holds important policy implications. “This and other future distortions can be avoided,” Hendricks observed, “by changing practices and laws to more closely conform to the amounts charged for the five revenue sources with amounts that actually will be received.”
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