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Recent Developments in Education Fiscal Capacity

Since fiscal year 2008, a new tax capacity model produced by the Center for Business and Economic Research (CBER) at the University of Tennessee has been used in combination with the county-level fiscal capacity model used since the inception of the Basic Education Program funding formula in 1992 (the TACIR model). While the TACIR model, described in A User’s Guide to Fiscal Capacity in the Basic Education Program Formula, uses a statistical technique known as multiple regression analysis, the CBER model is an arithmetic model. In order to smooth year-to-year changes, the TACIR model has historically used three-year averages of the fiscal capacity variables and CBER has adopted that practice. The TACIR model includes additional factors addressing each county area’s service burden, ability to pay, and ability to export its tax burden. Both models produce indices of each county’s percent of the state’s total fiscal capacity.

During the transition from the TACIR to the CBER model, the results of both are to be used in calculating fiscal capacity. In the first year of transition, FY 2008, each model was used to calculate 50% of each county’s fiscal capacity. If the CBER calculation produced a percent of total fiscal capacity number that was more than a 30% change from the TACIR calculation, then the CBER percentage was adjusted such that the change was only 30%. The two indexes were then averaged to get the final fiscal capacity calculation. The stated intent of the administration was for the weight of each measure to shift toward CBER annually until its calculation was the only one used, but the percentages have remained at 50/50. The Department of Education has not announced an official transition schedule for future fiscal years.

A compendium of publications on fiscal capacity and related topics, including information on a prototype system-level fiscal capacity model, is maintained on the TACIR web site. The prototype model was developed by TACIR, working with the Comptroller’s Offices of Research and Education Accountability in consultation with outside experts, at the request of the Governor’s Task Force on Teacher Pay and the Basic Education Program Review Committee (BEPRC) in response to the third decision by the Tennessee Supreme Court striking down the state’s method of funding public schools.