It’s time to graduate from the Great Recession-era school funding caps: An opportunity for partnership with policymakers to bring fair funding to Rappahannock County public schools

What should the “wealthiest” county in Virginia look like? Judging by state educational funding for Rappahannock County, we should be overflowing with resources. Yet our school division, which receives the lowest per-pupil state funding in Virginia, tells a different story. This funding shortfall doesn’t reflect wealth; it reflects broken formulas. Our students deserve reasonable and appropriate financial support from the commonwealth, and the quickest way to address the current disparity is to lift the cap on Supplemental Basic Aid, an outdated restriction imposed during the Great Recession. While work on long-term reform is underway, removing this cap now is essential to bring immediate, fairer funding to our schools.

‘SIFTing’ through the facts

In the spring of 2021, we — the county administrator and school superintendent of Rappahannock County — established the School Innovative Finance Taskforce to understand why our county receives such a low investment from the Commonwealth in our local education. We knew our state funding was not reflective of our needs, but we needed to dive deep into available data to understand the reasons why. Through SIFT, we learned a great deal about Virginia’s funding formulas, which, while intended to support fair distribution, end up significantly disadvantaging counties like ours.

In concept, we recognize the logic of distributing revenue based on need and each locality’s capacity to pay. Virginia uses the Local Composite Index (LCI) to calculate this capacity, setting a measure that helps determine how much funding a school division should receive based on local “wealth.” However, Rappahannock County’s maximum LCI score of 0.8000 — the highest in the state — overstates our community’s financial reality, creating an illusion of wealth that simply does not hold up under scrutiny. We are one of only nine localities assigned this top LCI score, which leads to unreasonably low funding from the commonwealth.

The LCI problem: Rappahannock’s ‘wealth’ on paper vs. reality

The Local Composite Index (LCI) uses three main metrics — property value, adjusted gross income (AGI), and taxable retail sales — to measure a locality’s ability to fund its schools. However, for sparsely populated, rural, agrarian counties like Rappahannock, formula results are misleading.

1. Property value: The LCI calculation assumes all property could be taxed at full market value. But in Rappahannock, less than 15% of land is taxed at this level. Nineteen percent is in Shenandoah National Park, another 20% is under conservation easement, and of the remaining land, much is used for agriculture and forestry, qualifying for reduced assessed values to, as the state puts it, provide for “the preservation of real estate for agricultural, horticultural, forest and open space use in the public interest.”
2. Adjusted gross income: AGI is calculated as the mean (not median) income, and in Rappahannock, this metric is heavily skewed by a small number of high-income residents. Imagine a billionaire walking into a small diner — suddenly, the “average” mean income of the patrons skyrockets, even though it’s just one outlier. Despite a high AGI, we lack the power to levy income-based taxes as such is not permitted by state law.
3. Taxable retail sales: Rappahannock’s limited commercial activity — without any big-box stores, grocery chains, or significant industry — yields little in taxable sales, unlike in suburban and urban localities.
4. Average daily membership: Finally, for calculating the final LCI, the formula’s denominator includes only population and average daily membership (ADM) of enrolled students. Small populations and low ADMs, such as ours at roughly 7,400 and 725, respectively, result in a larger LCI value.

When these factors are considered together for Rappahannock, our LCI exceeds the 0.8000 maximum value, erroneously suggesting levels of wealth and a local ability to generate tax revenue that is simply not available. This invalid conclusion guides the state to allocate minimal educational funding leaving our local citizens struggling to make up the difference to ensure our youth are not left behind. Our citizens already contribute 88% of our real estate tax revenue to education, which is not appropriate or sustainable.

JLARC to the rescue?

In its very comprehensive report, JLARC concluded: “Despite being 50 years old, the LCI formula remains a reasonable measure of local ability to pay.” As such we expect that there will be no changes to the LCI formula any time in the near future. While JLARC’s conclusion regarding the reasonableness of the LCI formula might fit the majority of school divisions, we think that Rappahannock and tiny rural school divisions like ours located on the doorstep of NoVa are an outlier primarily because of a couple of critical issues that the study identified and for which it includes recommendations:

1. Recommendation for long-term consideration:

• The current formula does not adequately account for small divisions’ inability to gain economies of scale (JLARC Recommendation 13): 

• The current formula does not adequately account for high local labor costs due to our proximity to Northern Virginia (JLARC Recommendation 12):

2. Recommendation for near-term consideration:

• The current formula still uses recession-era cost reduction measures. (JLARC Recommendation 4) Eliminate all of the recession-era caps!

The two identified long-term recommendations recognize the significant headwinds that Rappahannock County Public Schools faces. We are caught in the nexus of a Venn diagram that plots cost pressures from low-to-no economies of scale and a high local cost of labor together with an erroneous measure of our ability to locally fund services (LCI formula suggesting that our acres of agriculture and forestry land somehow relates to an enhanced local ability to generate revenue). When these high-cost and low-revenue influences come together, our tiny school division is very disadvantaged. The near-term recommendation of eliminating Great Recession-era caps will at least provide stop-gap support to our community until the long-term recommendations can be considered/implemented.

The Supplemental Basic Aid program

In 2008, the General Assembly recognized that the LCI formula was not proper for certain tiny school divisions, and in response they expanded the Supplemental Basic Aid program that was previously restricted to school divisions with fewer than 350 students (which at the time was only one school division that today has an ADM of 200). The program expansion provided the opportunity for four additional school divisions, including Rappahannock, to participate because:

1. They had fewer than 1,100 students.
2. At least 65% of total local revenue was generated from the locality’s real estate taxes.
3. They had a local composite index of 0.6000 or greater.

We can all remember the Great Recession revenue concerns during the 2008 budget discussions and, together with many other budget-balancing measures, the General Assembly placed a cap on this expanded funding opportunity. Enactment language for the program expansion included in Chapter 589 of the 2008 General Assembly states: “… in no event … will the sum of the basic aid payment and the supplemental basic aid payment exceed the basic aid payment the locality received pursuant to Chapter 847 of the Acts of the Assembly of 2007.”

This cap only affects the newly eligible school divisions, not the single division that was initially eligible. Today, only Rappahannock County and the original school division make use of the program, so in other words, this 17-year-old cap now affects only Rappahannock County. In monetary terms, Rappahannock County’s Basic Aid and Supplemental Basic Aid has been capped at $1,129,280 since introduction, meaning state funding has remained flat despite the CPI increasing 31% over the same period:

Of critical importance is that just like what happened with basic aid funding in FY24, the cap put in place by the 2008 enactment language will absorb increased Commonwealth funding that might result from the work being contemplated by the Joint Subcommittee to Study Elementary and Secondary Education Funding. Rappahannock County is the ONLY school division that will not benefit from increased commonwealth funding due to this outdated 2008 cap.

Taking action

Thanks for sticking with us as we laid the foundation. This is a no-brainer, right? Well, it has not turned out that way, but our work on this continues and with increased rigor.

With a refreshed understanding of the LCI formula and the 2008 Supplemental Basic Aid cap, the SIFT team went to work with our local delegate to try to get the recession-era cap removed. During the 2023 General Assembly session, HB 1443 was introduced to strike the 2008 cap enactment language, with the remedy being included in the House budget (HB 1400). After receiving only unanimous votes in House committees and the full House, at crossover, HB 1443 was passed by indefinitely in the Senate Finance and Appropriations Committee by a vote of 10-Y 6-N with an explanation that the committee wanted to allow the JLARC report on the school funding formula to be released before modifying funding.

During the 2024 General Assembly session, HB 702 (that paralleled the 2023 bill) was introduced and funding was included in the budget bill proposed by Gov. Glenn Youngkin. We were optimistic that the new bill would be well-received owing to the release of the JLARC study having shined a bright light on the inadequacies of the commonwealth’s investment in local education, particularly in small divisions that were in areas with a high cost of living paired with JLARC’s advocacy to eliminate Great Recession-era caps. To our dismay, the bill was laid on the table and both House and Senate committees removed the funding from the governor’s proposed budget. Some have suggested that (in general) removing the 2008 Supplemental Basic Aid cap for Rappahannock County was not needed and all that was necessary was for Rappahannock County to increase our real estate tax rate to raise more local revenue so we can pay our fair share rather than further burden the commonwealth.  Implications were that Rappahannock County was “wealthy,” and that we simply did not have enough local skin in the game.

SIFT went back to work this summer to review and consider the 2023 and 2024 sessions. We explored the question ourselves: Are we paying our fair local share to educate our youth? It certainly feels like it when our transfer to the school division consumes approximately 88% of the real estate tax revenue collected (not including designated fire levy tax revenue). There being no industry and limited commercial enterprise in our sparsely populated community, any tax rate increase falls on the backs of our citizens, many of whom are older (the median age in our community is 52.7 years, tied for seventh most senior in the commonwealth).

We dug into all available data including the annual Virginia Department of Education’s superintendent’s report (latest version for FY2023) to learn how our local school funding contribution compared with that of other localities/divisions, and what we found was shocking:

• Rappahannock County invests the sixth highest local contribution amount in the state when expressed on a per pupil basis ($15,230/pupil). This metric ranges from a low of $1,886/pupil to a high of $20,328/pupil. The mean contribution is $6,252/pupil and the median is $5,311/pupil:

• Not only was our revenue from the commonwealth low, but we did not realize that we receive the absolute lowest amount of operational school funding from the commonwealth when expressed on a per pupil basis. Commonwealth per-pupil operational funding ranges from Rappahannock County’s low value of $2,013/pupil to a high of $9,534/pupil. The mean commonwealth contribution is $6,348/pupil and the median is $6,402/pupil.

So, resoundingly YES, we are definitely investing our fair share for local youth education. Even when the capped amount of Supplemental Basic Aid received is included in the amount we receive from the commonwealth, it is still the absolute lowest per pupil amount provided to any school division. The fact that Supplemental Basic Aid only brings us up to the bottom of the barrel is a clear indication that it is critically needed and should not be artificially capped. 

Third time’s a charm?

Based on this review, we find that our request to remove the 2008 cap is very reasonable and validated. If the 2008 Supplemental Basic Aid cap is eliminated, we expect that our revised revenue would jump all the way up to about the 13^th lowest in the commonwealth on a per-pupil basis (possibly an extra $1,300,000 spread across our fewer than 800 students bringing per pupil state funding up to approximately $3,800). We would happily accept being ranked 118 rather than 131 when it comes to the commonwealth’s investment in the education of our youth!

During the 2024 General Assembly session and the more recent meetings of the Joint Subcommittee to Study Elementary and Secondary Education Funding, we heard that the DHCD fiscal stress metrics of revenue capacity and revenue effort are better measures of a locality’s ability to pay. So, we dug into those numbers.

• The revenue capacity calculation seeks to consider the amount of revenue that a locality could collect per capita, if they applied state average tax rates in their community. It considers five tax areas:
  • Real estate taxes (applied to the true value of land, not land use value)
• • Public service corporation taxes (utility property taxes)
• • Personal property taxes
• • Local sales taxes
  • “Other local taxes,” which essentially means all other local revenue that does not fit into the four tax categories above.
• Revenue effort is a calculation that expresses the extent to which a locality is tapping its revenue capacity.

Regarding real estate tax revenue, the data included in the most recent fiscal stress calculations indicate that the citizens of Rappahannock County are already being taxed more than most localities. A simple comparison of tax rates is insufficient to determine the actual tax being levied because it must be compared alongside of the assessed value of the land being taxed. When real estate tax revenue collected is presented on a per capita basis, it is clear that Rappahannock County citizens are paying more than most, especially considering the fact that there is essentially no industrial property and very limited commercial property in the county. The vast majority of this revenue is collected from the homes and farms of individual citizens because there are no factories or big box stores bumping up the real estate tax collection values. It is very likely that the highest earning localities are benefiting from extremely high assessed values for business and industrial property.  The following chart shows how Rappahannock County compares to all 132 other localities in the commonwealth and certainly does not indicate that the real estate tax levied on our citizens is too low. What it shows is that on an actual dollar per capita basis that considers both tax rates and assessed value, Rappahannock County citizens are paying more than the citizens in 119 localities (localities are shown by their federal information processing standard “FIPS” code to draw comparisons while not overtly identifying localities by name in the next four charts formulated from the most recently released fiscal stress data).

Personal property taxes are another area where fiscal stress calculations result in discrepancies between formula driven expressions of wealth and reality. The statewide revenue capacity and effort analyses assume all localities could collect the same average revenue on a per vehicle basis, a method skewed by localities that tax non-vehicle assets like business equipment and data centers. For example, the top revenue-producing county, Mecklenburg, benefits from taxing data centers — an option unavailable to Rappahannock County and most of our peers. Almost all of our personal property tax revenue comes from vehicles, meaning no reasonable tax rate on local vehicles could ever match the per capita revenue of counties with these additional tax sources.

Yet, the fiscal stress formulas suggest our revenue effort is low, implying we could generate more revenue by increasing personal property tax rates. This ignores the reality of our local economy and infrastructure as well as that of many other rural bedroom communities like ours that do not have the infrastructure to support intensive business/industrial uses. Inferring from the flawed revenue effort calculation that Rappahannock County need only increase the personal property tax rate levied on our residents’ vehicles to somehow mimic revenue levels of counties taxing data centers, is unrealistic and does not make sense.

Lastly, the metric used in the fiscal stress calculations called “other local taxes” is intended to identify the extent to which each locality is imposing other than real estate, public service corporation, personal property, and local sales tax. This category is supposed to be a proxy for other wealth in the community that would be tapped by BPOL taxes, prepared food and beverage taxes, lodging taxes, etc. The method of calculation is highly suspect because it attempts to draw a linear relationship between the median adjusted gross income (AGI) of a locality’s citizens with the amount of “other” tax revenue that it should be able to collect.  Regardless of wealth in a community as measured by its citizen’s AGI, that wealth is often times not tapped in localities that are bedroom communities like Rappahannock County. The AGI also has a significant impact on the LCI formula and we see that many of the highest LCI localities are bedroom communities that also have small populations. For example, the northern neck counties of Lancaster (pop. of 10,495 and LCI 0.8000) and Northumberland (pop. of 11,634 and LCI 0.7672) tend to be retirement communities like Rappahannock County and rank with the 11^th and 21^st lowest “other local revenue” per capita out of all localities in the commonwealth. Rappahannock County (pop. 7,406 and LCI 0.8000) ranks 57^th lowest in the state, meaning that comparatively we are doing a pretty good job of extracting other revenue where structurally there is very little available. The fact is, regardless of the median AGI of Rappahannock County’s citizenry, there is no BPOL tax collected because there simply are not enough businesses to justify the expense that would be incurred by the process to impose the tax (remember there are no factories, no big box commercial, etc.).  We do collect prepared food and beverage taxes as well as lodging taxes, but without national chain retail, restaurants, or hotels we will never collect the amount of other local taxes that many of our peer localities collect. Further, even though the revenue effort calculation would suggest based on our AGI that we are leaving revenue on the table, there is no tax rate increase in our toolbox that we could levy that would somehow drastically increase our other local tax revenue.

We have shared here and with DHCD that we think that there is a lot of room for improvement in the fiscal stress methodology and, as with the LCI, there are inherent disadvantages for small rural localities, particularly bedroom communities. Notwithstanding our concerns and the detailed discussion above regarding the inputs to the revenue capacity formula, we can agree to accept it for the purposes of this review, and in doing so, Rappahannock County rather amazingly finds itself with a revenue capacity that ranks 121 out of 133 localities, or the 13^th highest in the commonwealth. Our revenue capacity is calculated by DHCD to be $3,954 per capita. The lowest revenue capacity for any locality is $1,272 and the highest revenue capacity is $5,886. The mean revenue capacity is $2,574 and the median revenue capacity is $2,429. Viewing the revenue capacity for all localities is helpful to understand where Rappahannock County fits in:

Is Rappahannock County the wealthiest locality in the commonwealth of Virginia? No!

Even considering formulas that overstate the wealth of our tiny rural community, our calculated revenue effort and revenue capacity nonetheless indicate that we have the 13^th highest ability to collect local revenue in the commonwealth, not the highest. If we have the 13^th highest revenue capacity in the commonwealth, why then do we receive the absolute lowest amount of operational funding from the commonwealth on a per pupil basis? Why do the localities who have a higher revenue capacity than Rappahannock County receive more per pupil funding from the commonwealth? Combining the revenue capacity and state operational per-pupil funding charts only serves to accentuate the discrepancy and does not provide any better clarity of why the commonwealth funds Rappahannock County as if it is the wealthiest locality in the commonwealth:

We think it is logical for the Joint Subcommittee to Study Elementary and Secondary Education Funding to endorse lifting all 2008 Great Recession-era funding caps to include the 2008 cap on Supplemental Basic Aid. Doing so would align commonwealth funding to Rappahannock County consistent with its relative standing ascribed by the revenue capacity calculation.

Rappahannock County does not ask for special treatment. We ask only for a statewide funding model that is responsive to and based in reality — we know our reality to be a rural economy with a limited tax base, high land values that are being taxed at levels producing high tax revenue per capita, and an LCI that artificially designates us as one of the wealthiest localities in the commonwealth. Correcting this could bring an additional $1.3 million to our schools, enough to significantly enhance resources and educational opportunities for our students, but primarily would allow us to meet Standards of Accreditation and Standards of Quality requirements without over-burdening our older than state average citizenry (in our tiny locality each penny of real estate tax rate brings in only $192,000, generating $1.3 million locally would require nearly a seven-penny tax rate increase). While reforming the LCI and other aspects of the funding model is essential, doing so will be complex and time-consuming, and there is no guarantee that even a revamped formula would provide a fairer assessment of tiny counties like ours. The Commonwealth has already taken some steps, such as convening JLARC to examine the school funding formula. But with potential implementation timelines stretching to a decade, we cannot afford to wait and watch our educational resources stagnate or decline, especially in the face of the relentless effects of inflation.

We invite state representatives and General Assembly members to visit Rappahannock County and see for themselves the contrast between our “theoretical wealth” and the reality of our community. Until we can generate revenue from scenic views, we rely on a state system that should, by design, support rather than hinder small, rural counties. It’s time for Virginia’s leaders to address these longstanding discrepancies between formula inferred wealth and reality to ensure a fair and realistic funding system that truly serves all of its students.

We understand the reluctance to make one-off changes to the state code, but in this case the necessary change would be removing the one-off cap buried in code enactment language in 2008. Without removing the cap, any incremental funding improvements that are recommended by the Joint Subcommittee to Study Elementary and Secondary Education Funding that are eventually approved by the General Assembly and governor will be subject to the cap as shown in the stacked bar chart above, muting their benefit to only Rappahannock County.

It’s time for the General Assembly to undo the one-off 2008 Supplemental Basic Aid cap and take this first, simple step toward leveling the playing field for our youth. This adjustment would offer a much-needed stopgap solution, helping Rappahannock County receive funding commensurate with our ability to general local tax revenue while also removing our barrier to the more extensive funding reforms all school systems deserve. Virginia’s leaders have a chance to do right by Rappahannock County’s children — not 10 years from now, but today.

Garrey W. Curry Jr., is Rappahannock County administrator, and Shannon Grimsley is superintendent of Rappahannock County Schools.