Who has to approve a change to the data sources used in Tennessee's TACIR fiscal-capacity model that drives the BEP school-funding formula?

Plain-English summary

The Basic Education Program (BEP) is the formula Tennessee used in 2020 to decide how much state money flowed to each local K-12 school district. State funds covered a defined percentage of each district's BEP-formula needs, and local revenues filled the rest. To make the system fair across rich and poor counties, the formula adjusted for each county's "fiscal capacity," meaning its ability to raise tax revenue. Two models computed fiscal capacity: one developed by the Tennessee Advisory Commission on Intergovernmental Relations (TACIR) and one developed by the University of Tennessee's Center for Business and Economic Research (CBER). The two were weighted equally.

The chair of TACIR asked the AG who had to sign off if TACIR wanted to change the underlying data sources its model relied on (for example, switching from Comptroller Division of Local Finance data on tax-equivalency payments to a different source). AG Slatery answered that two state offices had to approve, and two other actors did not.

Approval was required from: (1) the State Board of Education, which had a statutory duty under § 49-1-302(a)(4)(A) to develop and adopt the formula, and (2) the Commissioners of Education and Finance and Administration, who under § 49-3-356(a) must approve the equalization formula the State Board adopts.

Approval was not required from: (a) the General Assembly, because legislative approval under § 49-3-351(a)(3) is reserved for changes to the BEP "components" (the cost categories that generate funding, like instructional salaries and classroom needs), not for changes to the equalization machinery that distributes those funds; or (b) the BEP Review Committee, which under § 49-1-302(a)(4)(B) has only a recommend-and-report role.

The AG reasoned that the data sources are part of the equalization formula because changing the data source can change a county's measured fiscal capacity and therefore the percentage of state funding the district receives. Anything that operationally alters the equalization formula falls under § 49-3-356(a)'s adopt-and-approve regime.

Currency note

This opinion was issued in 2020. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Tennessee's school-funding statutes have been substantially revised since 2020, so the specific BEP statutes, percentages, and committees identified here may have been amended or replaced. Confirm the current funding framework before relying on any procedure described below.

Common questions

Q: What did TACIR's fiscal-capacity model actually do under the BEP?
A: It estimated each county government's ability to raise tax revenue. The estimate was used to decide what percentage of a district's BEP funding came from the state versus the local taxing authority. A county with lower fiscal capacity received a higher state share; a county with higher fiscal capacity received a lower state share.

Q: Why were data sources legally significant rather than just an internal model choice?
A: Because they could change the answer. Switching the data source for tax-equivalency payments, for example, could move the modeled value of a county's tax base, which would move the state-vs-local share for that district. The AG treated that downstream effect as enough to bring data-source changes within the equalization formula governed by § 49-3-356(a).

Q: What kind of change would have required legislative approval?
A: Under § 49-3-351(a)(3), changes to the BEP "components," meaning the cost categories that generate funding under the formula, required submission to the House and Senate education committees and approval by both chambers. Examples would be changes to staffing ratios, salary assumptions, or classroom-cost estimates.

Q: Why didn't the BEP Review Committee's approval matter?
A: Because § 49-1-302(a)(4)(B) gave the committee a review-and-recommend role, not an approval role. The committee was supposed to study the formula annually and make recommendations. Implementing a recommendation was a State Board decision, not a Review Committee decision.

Q: Was this opinion limited to the TACIR model, or did it also cover the CBER model?
A: The question asked about the TACIR model. The opinion's reasoning rested on the TACIR model being part of the equalization formula; the CBER model was likewise weighted equally under § 49-3-307(a)(10)(C), though the opinion addressed only the TACIR data-source question put to it.

Background and statutory framework

At the time of this opinion, the BEP was Tennessee's K-12 funding formula. The opinion describes it as having 45 separate cost components reflecting the costs of providing a basic education, with the State paying defined percentages of district needs set in Tenn. Code Ann. § 49-3-307(a)(2)(B). Those statutory percentages were averages; actual state shares for each district moved up or down based on the district's local fiscal capacity.

Two fiscal-capacity models, TACIR and CBER, computed the local capacity number, weighted equally. § 49-3-307(a)(10)(C). The TACIR model was a multiple-regression-analysis model that considered factors like the county's tax base, including estimated values of tax-equivalency payments (payments in lieu of taxes). The data feeding those estimates came from the state Comptroller's Division of Local Finance.

The State Board of Education's role in this system was structural. § 49-1-302(a)(4)(A) charged the Board with developing and adopting policies, formulas, and guidelines for fair fund distribution. § 49-3-351(a) said state BEP funds would be allocated under the State Board's formula. § 49-3-356(a) added that the equalization formula adopted by the State Board had to be approved by the Commissioners of Education and Finance and Administration. The legislature reserved a more limited approval role: under § 49-3-351(a)(3), changes to the formula's cost components had to clear both legislative chambers; everything else, including data-source choices for the fiscal-capacity models, ran through the State Board and Commissioners.

The BEP Review Committee, under § 49-1-302(a)(4)(B), advised on the formula and produced annual recommendations. It was an advisory body, not a co-decisionmaker, and the AG's analysis turned on that distinction.

Citations

• Tenn. Code Ann. § 49-1-302(a)(4)(A), (B)
• Tenn. Code Ann. § 49-3-307(a)(2)(B)
• Tenn. Code Ann. § 49-3-307(a)(10)
• Tenn. Code Ann. § 49-3-351(a), (a)(3)
• Tenn. Code Ann. § 49-3-356(a)
• Tenn. Code Ann. § 4-10-104(10)

Subject

Approval Needed to Change Data Sources in TACIR Fiscal-Capacity Model for BEP Funding Formula

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2020/op20-01.pdf

Original opinion text

Approval Needed to Change Data Sources in TACIR Fiscal-Capacity Model for BEP Funding Formula

Question
Whose approval is required for changing the data sources in the Tennessee Advisory Commission on Intergovernmental Relations fiscal-capacity model used to equalize funding through the Basic Education Program funding formula?

Opinion
Changes to the data sources in the Tennessee Advisory Commission on Intergovernmental Relations fiscal-capacity model must be adopted by the State Board of Education and approved by the Commissioners of Education and Finance and Administration. Legislative approval is not required for such changes, nor is approval of the BEP Review Committee.

ANALYSIS

The Basic Education Program (BEP) is the funding formula through which state education dollars for the K-12 public school system are generated and distributed to Tennessee schools. The BEP formula has 45 separate "components" related to the basic needs of students, teachers, and administrators within a school system and reflective of the various costs of providing a basic education. The formula generates funding through these components.

The funds generated under the BEP formula are distributed to the local school districts that operate Tennessee's public schools. A portion of these funds is provided by the State at the percentages set in Tenn. Code Ann. § 49-3-307(a)(2)(B). The remaining funds are provided by local governments. Id.

The percentages in Tenn. Code Ann. § 49-3-307(a)(2)(B) represent the average percentages of state funding across all Tennessee's districts. But under the formula, districts do not all receive the same percentage of state funding. That is because the BEP formula takes into consideration the fiscal capacity of the various local governments, see Tenn. Code Ann. § 49-3-307(a)(10), and allocates to each district a different percentage of state funding based on the unique fiscal capacity of its local government. If a local government cannot generate significant tax revenue, the State pays a greater percentage of that district's BEP funds as compared to the state average. Conversely, if a local government can generate significant tax revenue, the State pays a lesser percentage of the district's funds. By considering the fiscal capacity of local governments, the BEP works to equalize funding levels across Tennessee's districts.

Tennessee uses two models to measure the fiscal capacity of local governments. See Tenn. Code Ann. § 49-3-307(a)(10). One model was developed by the Tennessee Advisory Commission on Intergovernmental Relations (the "TACIR model"). The other model was developed by the University of Tennessee's Center for Business and Economic Research (the "CBER model"). The TACIR model and the CBER model are weighted equally under the BEP formula. Tenn. Code Ann. § 49-3-307(a)(10)(C).

The Tennessee Code does not specify the data sources that TACIR must use to measure the fiscal capacity of local governments. It provides only that "[t]he [BEP] formula shall . . . recognize the ability of local jurisdictions to raise local revenues as determined by the multiple regression analysis model developed by the Tennessee advisory commission on intergovernmental relations pursuant to § 4-10-104(10)." Tenn. Code Ann. § 49-3-307(a)(10)(B).

The TACIR multiple-regression-analysis model used to measure fiscal capacity assesses several factors related to a county's ability to fund education, including a county's tax base. In assessing a county's tax base, the TACIR model considers the estimated value of tax equivalency payments, also known as payments in lieu of taxes. The TACIR model estimates these payments using data from the Comptroller's Division of Local Finance as the "data source."

The Tennessee Code does not directly address the process for changing the data sources in TACIR's fiscal-capacity model. However, the Tennessee Code does specify that the State Board of Education must adopt, and the Commissioners of Education and Finance and Administration must approve, the BEP formula, which includes its fiscal-capacity models. The BEP formula is largely the domain of the State Board of Education, which has a duty to "[d]evelop and adopt policies, formulas and guidelines for the fair and equitable distribution and use of public funds among public schools." Tenn. Code Ann. § 49-1-302(a)(4)(A); see also Tenn. Code Ann. § 49-3-351(a) ("State funds appropriated for the BEP, kindergarten through grade twelve (K-12), shall be allocated pursuant to the formula devised by the state board of education pursuant to § 49-1-302."). As part of this duty, the State Board must adopt a formula that distributes funds for "equalization purposes." Tenn. Code Ann. § 49-3-356(a). The formula adopted for equalization purposes ("the equalization formula") must also be approved by the Commissioners of Education and Finance and Administration. Id.

The requirements of Tenn. Code Ann. § 49-3-356(a) are ongoing such that the equalization formula, in its current form, must have been adopted by the State Board and approved by the Commissioners of Education and Finance and Administration. This necessarily means that any changes to the equalization formula must be adopted by the State Board and approved by the Commissioners.

The TACIR model is undoubtedly part of the equalization formula that Tennessee uses for distributing funds to local school districts. See Tenn. Code Ann. § 49-3-307(a)(10)(B). The TACIR model measures the fiscal capacity of local governments, and those measurements determine the percentage of state funding that each district receives under the BEP formula. Because the TACIR model is part of the equalization formula, under Tenn. Code Ann. § 49-3-356(a), any changes to the model must be adopted by the State Board and approved by the Commissioners of Education and Finance and Administration.

Moreover, the data sources used in the TACIR model should be considered part of the equalization formula for purposes of Tenn. Code Ann. § 49-3-356(a). And because data sources are part of the equalization formula under Tenn. Code Ann. § 49-3-356(a), any changes to the data sources must be adopted by the State Board and approved by the Commissioners of Education and Finance and Administration. The data sources are integral to the calculation of a local government's fiscal capacity because they affect what data is considered in measuring fiscal capacity. A local government's fiscal capacity may change depending on the data source that is used. For instance, the estimated value of a local government's tax equivalency payments may be different if measured by data from the Comptroller's Division of Local Finance as opposed to another source.

Neither legislative nor BEP Review Committee approval is required for a change in data sources. Legislative approval is needed for changes to BEP "components" under Tenn. Code Ann. § 49-3-351(a)(3). "Components" in § 49-3-351(a)(3) refers to the cost components that generate funding under the BEP formula; it does not refer to the fiscal-capacity models used in distributing those funds. Since the data sources in the TACIR model are not "components" within the BEP formula, this provision for legislative approval is not applicable to changes in data sources.

The BEP Review Committee has the responsibility for reviewing the BEP formula and proposing changes to the formula, see Tenn. Code Ann. § 49-1-302(a)(4)(B), but its approval is not required for actually making changes to the formula, including a change in data sources. The Review Committee must provide an annual report that includes "recommendations on needed revisions, additions, and deletions to the formula." Id. Although the Review Committee can recommend changes to the TACIR model, its approval is not required to implement changes.

In sum, changes to the data sources in the Tennessee Advisory Commission on Intergovernmental Relations fiscal-capacity model must be adopted by the State Board of Education and approved by the Commissioners of Education and Finance and Administration. Legislative approval is not required for such changes, nor is approval of the BEP Review Committee.

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

JOSEPH P. AHILLEN
Senior Assistant Attorney General

Requested by:
The Honorable Mike Carter
State Representative
Chairman of TACIR
425 5th Avenue North,
Suite 632 Cordell Hull Bldg.
Nashville, TN 37243