Even though school finance in Indianapolis has often hinged upon the limitations of the state constitution or the actions of the General Assembly, Indianapolis citizens early played a major role in the creation of the free school system and have since provided a large percentage of the financial support for local schools.

The Indiana Constitution of 1816 required the General Assembly “to provide, by law, for a general system of education… wherein tuition shall be gratis, and equally open to all,” this duty was qualified by the term “as soon as circumstances will permit.” The right set of circumstances, however, apparently never presented themselves, which left early Indianapolis with a patchwork system of private and religious schools with tuition fees that were out of reach for many families.

By the mid-1840s, public support was growing for the notion that one of government’s basic functions was to provide children with free public education. In 1847, when the town of Indianapolis sought legislative approval to incorporate as a city, the new city charter provided for the creation of a free, non-secular school system open to all and funded with local property tax dollars.

Opponents of free public education argued that it would unfairly require everyone to pay for the education of a few. The charter passed only when legislators required a public referendum to approve the levy. Subsequently, Indianapolis voters overwhelmingly endorsed “free schools” by a vote of 406 to 28. The first property tax, levied in 1847, raised $1,981, which was spent on the purchase of lots and buildings. Teachers’ salaries could not be paid from the tax fund, and so parents still had to pay tuition. 

In 1851, Indiana adopted a new constitution that dropped the qualifier and expressly stated that it was the duty of the General Assembly to provide by law for a general and uniform system of common schools that were equally open to all and did not charge tuition. The following year, legislation was enacted that imposed a state property tax for school purposes and empowered townships to levy a local property tax to construct school buildings. Townships were also permitted to levy additional taxes to operate the schools if state funding fell short. The first totally free school session in Indianapolis opened in 1853 and lasted two months until state funding ran out.

The Indianapolis school board attempted to raise additional taxes to extend the school sessions, but the Indiana Supreme Court determined that the constitutional mandate of a general and uniform system of common schools could not be met if localities were permitted to raise taxes to make their schools better than others. An 1855 measure that authorized local school boards to levy property taxes for tuition support was also struck down as unconstitutional. Although private donations were solicited to help support free schools, for the next several years the length of the free school term largely depended on the meager amounts flowing from state coffers.

As a result of the lack of funding, the Indianapolis high school was closed from 1858 to 1864. The other public schools were only open for 21 weeks in 1860, and 22 weeks in 1861. For the rest of the year private schools operated, some in the public school buildings.

Abraham Shortridge became the Indianapolis school superintendent in 1863 and successfully lobbied the legislature to create elected school boards with the power to levy taxes to support schools. Although almost identical to the unconstitutional 1855 law, this statute was not challenged. With public opinion in favor of free education, a constitutional amendment in 1867 authorized local taxes in support of tuition.

In recent years, funding for Indiana’s public schools is primarily provided through the state school funding formula, with additional funding provided by federal grants, property taxes, and other miscellaneous sources. Under the current iteration of the formula, school corporations receive a flat per-pupil foundation amount to support classroom instruction, plus supplemental funding based on the percentage of children attending the school corporation who live in poverty or who require special education services.

Until 2009, local property taxes generated a sizeable portion of the revenue flowing to schools from the school funding formula. As part of a sweeping property tax reform measure adopted in 2008, however, the General Assembly eliminated property taxes from the formula and raised the state sales tax by a penny to fill the funding gap. Indiana is currently one of only a handful of states that do not incorporate local property taxes within the school funding formula. This total reliance on state dollars leaves public schools especially vulnerable to funding cuts when state revenues fall short.

The other significant change that occurred in 2008 was the adoption of property tax caps in the Indiana Constitution. Under the caps, schools and other units of local government are still permitted to levy the full amount of property taxes authorized by law, but the amount they can collect is capped at a percentage of assessed value – 1 percent for homeowners, 2 percent for residential rental property, and 3 percent for all other real property.

The impact of the tax caps on school corporations varies widely, depending on the nature of the tax base. Among the hardest hit are school corporations in suburbs with no industrial tax base and large numbers of homes eligible for the 1 percent credit, and school corporations in urban areas where multiple layers of government levy property taxes. 

In 2019, the 11 school corporations in Marion County lost on average 14.1 percent of their property tax levies to the circuit breaker. This ranged from a high of 37.5 percent in Beech Grove to a low of 1.6 percent in Speedway. IPS lost 10.3 percent of its total levy, or $18.3 million. Because property tax levies are used to pay for transportation, capital improvements, maintenance, and technology, school corporations with the largest percentage cuts face struggles in providing these services.

Soon after the property tax caps were enshrined in the constitution, state lawmakers became aware of the potentially devastating impact of these reforms on their local schools’ budgets. A series of legislative measures have been adopted since 2008 aimed at fixing the fiscal crisis created by the tax caps. Among the most significant is legislation authorizing school corporations to levy additional dollars for operating and capital expenditures outside of the property tax caps if taxpayers approve the expenditures in a referendum.

As of January 2020, all Marion County school districts except Pike and Lawrence have held referenda to raise operating funds. Six of the 11 school districts also held at least one construction referendum. All were successful except in Franklin Township, where voters defeated an operating fund referendum in 2009 and 2011, and in Perry Township, where voters defeated a $98 million construction referendum in 2009 but subsequently approved a $50 million construction referendum in both 2011 and 2015.

Charter schools also receive per-pupil funding through the school funding formula but do not have the authority to levy property taxes. During the 2019-2020 school year, nearly 18,000 students from Indianapolis were enrolled in the city’s 52 charter schools. In addition, approximately 9,000 Indianapolis children were awarded state-funded school choice scholarships to attend accredited non-public schools. The scholarships are largely based on family income and range from 50 percent to 90 percent of the per-pupil amount that a student’s home district receives through the school funding formula.

Revised July 2021

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