The true cost of “true” values
Virginia’s school funding formula is supposed to measure a community’s ability to pay. In practice, it is doing the opposite in rural communities like Craig County.
The Local Composite Index, or LCI, determines how much local governments must contribute to education. It relies on “true” market value of real property (weighted 50 percent), adjusted gross income (40 percent), and taxable retail sales (10 percent). On paper that may seem balanced. In reality, it systematically overstates the fiscal capacity of rural localities while ignoring income sources unavailable to them.
Craig County is currently ranked alongside more prosperous jurisdictions and is treated as more able to pay than places such as Roanoke County, Prince William County, Stafford County, and Salem. That ranking does not reflect what taxpayers here can actually afford.
A central point of contention is the use of “true” real estate values rather than the assessed values on which localities actually collect taxes. Localities control the timing of general reassessments, but these are expensive, so many opt to hold them infrequently. Once an assessment occurs, however, they do not control the resulting values or the state sales-ratio adjustment that converts those assessed figures into the inflated “true” values used in the LCI.
The sales ratio is calculated by the Virginia Department of Taxation through its annual Assessment/Sales Ratio Study. It compares the assessed values of properties that recently sold to their actual sale prices, producing a median ratio for each locality. The state then uses that ratio to estimate “true” market value (essentially dividing total assessed value by the median ratio). The purpose is to equalize comparisons of property wealth across localities that reassess on different schedules and with different assessment practices, so the Local Composite Index is not distorted by lagging assessments.
This harms the locality because the inflated true value does not reflect the actual revenue that can be raised from the local tax base. It also reduces public service corporation revenue. The state adjusts those assessments by the same sales ratio before the locality receives the funds, equalizing utility tax rates with other local businesses and further lowering the dollars that reach the county.
Another weakness arises in localities that use Land Use Taxation. Eighty-eight Virginia counties and cities have adopted use-value assessment ordinances, allowing qualifying agricultural, horticultural, forest, or open-space property to be taxed according to its productive use rather than its full fair-market value. Yet the LCI’s reliance on estimated true real-property values can create a disconnect between the property wealth attributed to a locality by the state formula and the revenue actually available from that property.
The Joint Legislative Audit & Review Commission (JLARC) of the Virginia General Assembly has concluded that, while the LCI remains a reasonable measure of local ability to pay, a Revenue Capacity Index (RCI) could provide an even more accurate and equitable measure. An RCI would estimate the revenue a locality could raise from all its major tax bases (real estate, personal property, and other local sources). Unlike the current LCI, it would more accurately reflect the limited taxable resources available in rural counties and reduce the impact of artificial inflation caused by sales-ratio adjustments. Adopting an RCI would bring greater fairness and stability for localities across the Commonwealth.
A Rural Reality Check:
The current system also fails to account for the realities of rural education. It ignores the higher concentration of at-risk students, free- and reduced-lunch eligibility, and the social determinants of health (transportation barriers, housing instability, food insecurity, and limited healthcare access) that shape student outcomes. Truancy is often a symptom of these underlying challenges, not simply a discipline problem. A funding model that overlooks them cannot target resources where they are most needed.
Virginia remains one of only a handful of states that still fund education primarily through rigid staffing ratios rather than student-based formulas that follow the child and recognize additional needs. In a small rural division, that rigidity makes it harder to direct limited dollars to the supports that matter most.
The human and fiscal consequences are concrete: Craig County’s total local share for education rose from $1,991,699 in the 2023-24 school year to $3,010,760 in the 2026-27 school year which reflects an increase of more than $1,019,061 in just a few years. In our county, every one-cent increase in the real estate tax generates only about $65,000. Meeting this increase alone would require roughly a 16-cent tax increase. That burden falls most heavily on the same families whose children already face the greatest challenges.
The problem is then compounded because the funding formula does not adequately recognize economies of scale. JLARC found that small school divisions face substantially higher costs per student, including greater fixed costs and, in rural areas, particularly high transportation costs. Small divisions must also employ more staff per student simply to provide students with an appropriate range of courses.
Craig County has consistently invested above the required local effort. This is not about a lack of local commitment. It is about whether the Commonwealth will use a fair measure of ability to pay. Replacing or reforming the LCI with a Revenue Capacity Index, incorporating multi-year averages, weighting actual student needs more heavily, and moving toward student-based funding would better serve rural communities.
Rural families should not be asked to carry the heaviest load under a formula that overstates what they can pay while understating what their children need.
Collateral Damage: At-Risk Funding and Preschool on the Chopping Block
The sharp rise in Craig County’s Required Local Effort for the Standards of Quality did more than increase the basic local contribution. It left the county unable to sustain the additional local funding needed to preserve its Total Local Share, which includes optional programs beyond the core Standards of Quality (SOQ).
Two of the first programs affected were At-Risk student funding and the Virginia Preschool Initiative (VPI). These programs operate under different funding formulas from the basic SOQ. Both are optional and require a local contribution in order to draw down the state share. When the Required Local Effort for SOQ rose so dramatically, Craig County no longer had the fiscal capacity to also meet the local contributions required to keep these programs whole. As a result, At-Risk funding was lost entirely and the Virginia Preschool Initiative was cut in half.
At-Risk funding provides flexible resources for educationally at-risk students such as dropout prevention; truancy support; teacher recruitment and retention in high-need settings; and other targeted services. These are precisely the tools rural schools need to address the challenges reflected in free- and reduced-lunch data and the social determinants of health.
The Virginia Preschool Initiative serves at-risk three- and four-year-olds who would otherwise go unserved by Head Start. High-quality early childhood education is one of the strongest investments a community can make. Children who attend quality preschool enter kindergarten more ready to learn, with stronger literacy and self-regulation skills. They are less likely to be retained in grade, less likely to need intensive special education services later, and more likely to stay on track academically. The benefits compound over time with higher graduation rates, better long-term outcomes, and lower social costs.
Cutting these programs does not save money in the long run. It shifts costs downstream. Students who arrive at school less prepared require more intensive (and more expensive) remediation, intervention, and special education services in later grades. Truancy and disengagement that go unaddressed early become harder and costlier to reverse. The same families already stretched by higher property taxes will face the consequences of reduced early support for their children.
The sudden increase in Required Local Effort for the core SOQ simply left no room to continue funding the local contributions necessary to maintain these essential optional programs as part of our Total Local Share. Reforming how the state measures local ability to pay (particularly by moving toward a Revenue Capacity Index that reflects real taxable resources) would give rural localities the fiscal breathing room to keep investing in the supports that prevent higher costs later.
The current system forces the opposite choice.
Jordan Labiosa is a member of the Craig County Board of Supervisors.
