Common School Fund

The Common School Fund has been in the news lately because of its connections to civil forfeitures and some controversy over whether proceeds from civil forfeitures should be going to defray law enforcement costs or to the common school fund or some combination thereof.

I’m not going to get into that right now, but I did want to do some research into what the Common School Fund actually is and does. According to a brief summary from a tax and appropriations handbook, it goes something like this:

The Common School Fund was created by Article 8 of the Indiana Constitution. The common school fund may be used as follows:

#Assist local school corporations and school townships in financing school building construction and educational technology programs through school loans.

#Make advances to school corporations and to school townships to aid disaster loss.

#Make advances to school corporations and to school townships for certain anticipated transfer tuition costs.

#Make advances to charger schools for certain operational costs under IC 20-49-7.

#Until December 31, 2010, IC 20-49-8.2 allowed the fund to be used to assist school corporations that experienced a shortfall of at least 5% in the collection of property tax levies because of certain reassessment errors or changes.

As of August 1, 2010, the outstanding loan balances were about $474.4M for construction loans, $59.1M for technology loans, and $56.3 M for charter school loans. Revenues, aside from loan repayments, deposited into the Common School Fund are from fines and forfeitures, unclaimed funds, and escheated estates. Loan repayments and investment proceeds from the Treasurer’s Office also go into the funds.

Fines and forfeitures have contributed about $6 – $8 million per year between 2006 – 2010, and escheated estates have resulted in about $600,000 in total over that period. Loan repayments have amounted to about $30 – $50 million per year. For fiscal year 2010, the total equity of the fund was $545 million and the unobligated reserves for the fund was about $83 million.

What I had not gleaned from previous discussions of the common school fund is that this is a fund for making loans to schools which, to be sure, helps them out. But, (without getting into the time value of money), it’s not a subsidy that really reduces the amount of money schools have to come up with on their own. They have to pay back the money from the common school fund.