Now available, archive of TACIR's Weekly Economic Updates

Fiscal Capacity for Education

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.

The results of both the TACIR and the CBER model are used in calculating fiscal capacity.  When the CBER model was introduced for FY 2008, 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; however, in 2016, statute was changed to keep the percentages at 50/50 (Tennessee Code Annotated, 49-3-307(a)(10)(C)).  In other words, the two indexes are averaged to get the final fiscal capacity calculation.

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.