The Bottom Line: How the Hawai‘i DOE Gets and Spends its Money

The state Department of Education manages a $1.99 billion operating budget. But how is that budget funded? We dove into the numbers and found out what stakeholders have to say about it.
The Bottom Line


When the Hawai‘i State Teachers Association backed a push to take a portion of property-tax revenue for education last year, it sparked a heated debate: How do we increase funding for the state Department of Education? Does the DOE even need more money?


A proposed constitutional amendment would have allowed the state to tax investment properties for education. It made sense to supporters, considering Hawai‘i is the only state in the nation that does not use property-tax revenue for public education, according to a 2013-14 National Center for Education Statistics report. But the counties, which have the authority to tax properties, not the state, filed suit, arguing it was unclear and unfair. The state Supreme Court later invalidated the proposal.


While some groups believe the DOE needs more funding to improve schools and give teachers raises, others want to ensure the department’s multibillion-dollar operating budget is spent efficiently before more is allocated. This is not a new issue, but remains a fundamental question.


SEE ALSO: How Did Hawai‘i’s Public Schools Rank in 2017–2018?


What the numbers say

It’s probably an understatement to say that managing a department of about 22,000 full-time employees serving 180,000 students is challenging. The DOE oversees a $1.99 billion operating budget, which pays for personnel and other school bills and programs. It is compiled by DOE leadership and approved by the state Board of Education and the governor. The state Legislature reviews the budget as well and then appropriates funds.


A point of contention among several education stakeholders, including the HSTA, is that there is no dedicated pot of money set aside for public education.


Instead, about 81 percent of the DOE’s operating budget comes from the state general fund, which includes revenue from the general excise tax and income taxes. This means that dollars for schools can be at the mercy of fluctuating economies, politics, and every other department fighting for money from the same pot.


DOE funding sources


The remaining 19 percent is from federal dollars (14 percent), special funds (4 percent)—revenue-generating activities such as summer school, use of school facilities and adult education—and trust funds (1 percent), including gifts and donations. The DOE takes up the third-highest share (15 percent) of the state’s operating budget, trailing the Budget and Finance and Human Services departments. Most of the DOE’s operating budget—$1.4 billion—covers personnel.


So, where does that money go?


DOE officials say about 93 percent of the budget goes directly to schools. That includes funding for special education; prekindergarten programs; adult education; and the weighted student formula, which requires funds go to schools based on the number of students and their needs, not by achievement. But not all of that 93 percent funds instruction. About 12 percent pays for electricity, sewer, water, repairs, food service and other school bills.


Paying for Education: California’s lottery revenue for schools totals $32 billion since 1984.


Many education officials argue that it can be difficult for the DOE’s own employees, not to mention the general public, to understand the budget. The department disperses its funds among seven major program areas, which are broken down in the budget. But with such huge lump sums, it’s challenging to understand how the money trickles down to each school and classroom. The sheer amount of information and numbers (the entire budget is 119 pages long) can also be daunting and intimidating.


“The Department of Education is so murky. If you look at it in one bucket, it’s overwhelming: billions of dollars,” says Catherine Payne, state Board of Education chair. “[The public and Legislature] want to know, specifically, money that was provided, how it was used and what are the outcomes in quantitative data.”


Ray L’Heureux, chairman and president of the Education Institute of Hawai‘i—a group of reformist former educators—says, “If you poll the man on the street … I think there’s a mistrust of where that money is going. That lack of transparency put that seed of doubt that any more money being  given to the department by the Legislature would fall into that bucket of infinity.”


Budget spent


A need for improvement

Does the DOE need more money? Some politicians and education reform officials disagree. Some point to three statistics: per-pupil spending, teacher salaries and retention, and a 2005 adequacy study.


Hawai‘i’s per-pupil spending (the amount school districts take in and spend, divided by the number of students) is about $13,750 as of 2016, according to the DOE. The national average is $11,800, which ranks us 15th highest in the nation. But HSTA’s president, Corey Rosenlee, says it’s unfair to compare Hawai‘i to other states because we have the only statewide school district in the country. The other 49 states (plus Washington, D.C.) have a combined 13,587 school districts, meaning these states’ averages include highs and lows from dozens, if not hundreds, of districts.


A fairer comparison, he says, is looking at school districts with similar high costs of living, such as New York City and Washington, D.C. According to 2016 U.S. Census data, New York City’s per-pupil spending is about $24,100 and Washington, D.C.’s is $19,150.


Hawai‘i was ranked as the worst state for teachers last year based on salaries (adjusted for cost of living), turnover, pupil-to-teacher ratio, public school spending and other factors, according to WalletHub. Indeed, when asked if the department needs more money, Brian Hallett, the DOE’s budget director, pointed to the 2005 adequacy study. Commissioned for the DOE, the study determined that an additional $278 million was needed to support the department’s goals and visions.


“Our schools do a tremendous job with what they have,” Hallett says. “But I think it’s hard to argue that additional funds wouldn’t help to provide more opportunities and more support.”


DOE Employees


But state Rep. Sylvia Luke, Finance Committee chair, and Sen. Michelle Kidani, Education Committee chair, both say they aren’t 100 percent sure how the DOE spends every dollar, even after extensive questioning and hearings. (Note: We spoke to both in December, prior to the legislative session.) Kidani says that whether the DOE, or students and teachers, need more money are two different questions. She says students and teachers definitely need more.


However, Luke argues that if the department wants more, it needs to show progress in meeting certain standards, such as the 14 student success indicators in the DOE’s Strategic Plan. Chronic absenteeism remained at 15 percent from 2015 to 2018. The statewide target is 9 percent by 2020. But high school graduation has improved from 82 to 83 percent. The goal is 86 percent.


“The bottom line is, it is true: We provide a lot of money to the Department of Education,” Luke says. “We need to make sure the money is spent in the way that shows success for our kids.”


A big hill to climb

So, how do we fix this problem? And who has the power to do so?


Rosenlee says HSTA will not propose the constitutional amendment again and is looking into other options. Payne, the BOE chair, agrees that “anything that is an additional tax is probably not going to go over very well right now. I feel we should just not fight battles that we’re going to lose and use our energy on some other things.”


Kidani has introduced a bill this year that would create a lottery to fund education and other causes. Previous bills to create lotteries for various causes have not passed the state Legislature.


To help engage legislators, Payne says the BOE is forming an ad hoc committee that will regularly attend legislative meetings alongside the DOE, answer questions and submit testimony. Payne, a former principal, says she hopes the interactions will be a good starting point but says there’s still “a big hill we have to climb.”


Paying for Education: Wyoming redistributes some property-tax revenue from richer school districts to lower-income ones.


There is also disagreement as to who has the power to fix the department’s funding issues. Legislators say every state agency is in need of additional money and that the DOE needs to specifically show how it needs it.


Luke is considering requiring each state department to start off with nothing and justify each of its requests to the Legislature, a tactic typically called zero-based budgeting.


The Education Institute of Hawai‘i is paying for a “fiscal transparency study,” which will gather the DOE’s budget data and plug it into a spreadsheet so the department and others can more easily decipher where the money goes. They have hired a Mainland firm, which has conducted similar studies in other school districts. The Education Institute’s L’Heureux insists that it’s not an audit (the DOE is already audited annually) but rather a tool that can be used to help them, the DOE, legislators and citizens figure out where their tax dollars are being allocated.


DOE serves


But the only way the tool will be beneficial is if the department and legislators use it, he says.


“I think [the DOE] viewed it as us standing on their front lawn and calling their baby ugly, which is not the case,” L’Heureux says. “We’re really standing on their front lawn telling them we want to help.”


Payne and Hallett, DOE’s budget director, point to a proposal to create a pilot program to lease underutilized DOE land to developers as a way to generate revenue. It sounds promising, but Rosenlee has his doubts that it will work. He wonders if any developers will commit to such a proposal and how much revenue it would generate.


Paying for Education: In some states (Connecticut, Illinois, Maine, Massachusetts, Nebraska, New Hampshire, New Jersey and Rhode Island), property-tax revenue makes up more than half of each state’s local school funding.


Ultimately, Rosenlee says he’s doubtful that any of the proposals would solve the real problem of improving our public schools. He says the answer is to find a dedicated pot of money to support education that would be added to funds the DOE already gets. That way there will be more money to pay for schools, and officials couldn’t argue that they have no funding left.


“The state basically has to take on the full responsibility of paying for education, yet they do it without the tax base used across the country,” Rosenlee says. “Our system is broken in the way we fund it.”


SEE ALSO: Inside HONOLULU: Why Do We Rate Public Schools?