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KEEP YOUR FINANCES ABOVE THE RED LINEE‐12 Education Funding Update
MSBA Summer Seminar
Tom Melcher - School Finance Director
August 7, 2017
TOPICS FOR DISCUSSION
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1. Education Funding Principles
2. Education Funding Trends ‐‐ How are we doing?
3. Highlights of 2017 E‐12 Education Finance Legislation
4. What is the Outlook for the Future?• Issues Not Addressed by the 2017 Legislature• State Budget Status• Minnesota’s Tax Effort for E‐12 Education
5. Questions and Answers
EDUCATION FUNDING PRINCIPLES
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Adequacy and Equity for Students:• Ensure that all local education agencies have the resources needed to provide an adequate basic education for all students, regardless of geographic location:
• Basic formula covers the cost of providing an adequate basic education for students without special needs.
• Additional funding for excess costs:• high‐need students • unique district characteristics
EDUCATION FUNDING PRINCIPLES
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Equity for Taxpayers:• Tax burden to provide adequate basic funding is uniform throughout the state, regardless of local tax base. This can be accomplished with either:
• full state funding or • A mix of state funding and a uniform local property tax levy.
• Additional revenue to supplement basic programs is equally available to all districts, regardless of geographic location (state aid or equalized levy).
• Equalizing factors are indexed to state average tax base / student to maintain stable state share of funding.
EDUCATION FUNDING PRINCIPLES
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Ensure that the education funding system:
• Provides stable, predictable and sustainable revenues over time;
• Allocates resources through understandable statewide formulas that are rationally related to educational need and minimize burdensome paperwork;
• Provides incentives and flexibility for local education agencies to increase achievement for all and close achievement gaps in an efficient and effective manner.
HOW ARE WE DOING ON FUNDING ADEQUACY?State Investment In E‐12 Education
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Spending for Current Biennium over Base Budget:Legislative Session Biennium $ by Session $ ‐ Biennial Total
2011 FY 12 ‐ 13 223,400,000 2012 FY 12 ‐ 13 ‐ 223,400,000 2013 FY 14‐15 620,113,000 2014 FY 14‐15 54,000,000 674,113,000 2015 FY 16‐17 526,403,000 2016 FY 16‐17 80,035,000 606,438,000 2017 FY 18‐19 483,252,000 2018 FY 18‐19 483,252,000
HOW ARE WE DOING ON FUNDING ADEQUACY?General Education Formula Increases
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Percent increase
$ / PU increase
Formula Allowance
FY 2012 1.0% 50 5,174 FY 2013 1.0% 50 5,224 FY 2014 1.5% 78 5,302 FY 2015* 2.0% 105* 5,831 FY 2016 2.0% 117 5,948 FY 2017 2.0% 119 6,067 FY 2018 2.0% 121 6,188 FY 2019 2.0% 124 6,312 * Adjusted for New Pupil Weights
HOW ARE WE DOING ON FUNDING ADEQUACY?General Ed Formula Adjusted for Pupil Weight Change and Inflation (CPI)
2017 End of Session
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HOW ARE WE DOING ON FUNDING ADEQUACY?Referendum and Local Optional Revenue per Student
End of 2017 Session Est.
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HOW ARE WE DOING ON FUNDING ADEQUACY?State Special Education Aid per Student
End of 2017 Session Est.
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HOW ARE WE DOING ON FUNDING ADEQUACY?Other State‐Local General Fund Revenue per Student
End of 2017 Session Est.
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HOW ARE WE DOING ON FUNDING ADEQUACY?Total State‐Local General Fund Revenue per Student
End of 2017 Session Est.
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HOW ARE WE DOING ON FUNDING ADEQUACY?Inflation‐Adjusted General Fund Revenue per Student by Source
End of 2017 Session Est.
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HOW ARE WE DOING ON FUNDING ADEQUACY?Revenue / ADM Leaves Out an Important Consideration: Added Cost of Serving Special Populations
Special Populations As Percent Of Public School Enrollment
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HOW ARE WE DOING ON FUNDING ADEQUACY?State and Federal Aid as Percent of Special Education Cost
8/1/2017 15
HOW ARE WE DOING ON FUNDING ADEQUACY?Average Special Education Cross Subsidy per ADM, FY 2003 – FY 2019
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HOW ARE WE DOING ON FUNDING ADEQUACY?Minnesota vs US Average and Neighboring States
Inflation‐Adjusted Current Spending Per Pupil, FY 2015 $
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HOW ARE WE DOING ON FUNDING ADEQUACY?Pupil‐Teacher Ratios, 2003 ‐ 2017
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HOW ARE WE DOING ON FUNDING ADEQUACY?Pupil‐Teacher Ratios Excl Sp Ed Teachers by Strata, 2003 and 2017
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HOW ARE WE DOING ON FUNDING ADEQUACY?Unreserved General Fund Balance
Of School Districts And Charter Schools As Percent Of Expenditures
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HOW ARE WE DOING ON FUNDING ADEQUACY?Percent Of School Districts And Charter Schools In SOD
Or With Negative General Fund Balance
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HOW ARE WE DOING ON FUNDING EQUITY FOR STUDENTS?Disparity in Unrestricted General Revenue per Student
95th to 5th Percentile Ratio, December 2016 Estimate
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HOW ARE WE DOING ON FUNDING EQUITY FOR STUDENTS?Funding Increases by Strata During the Dayton Administration
Gen Ed Revenue Excluding Referendum and Local Optional / ADM
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FY 2011 FY 2019 Increase % IncreaseMPLS & ST PAUL 8,620 9,846 1,226 14.2%SUBURBS‐INNER 7,056 8,505 1,449 20.5%SUBURBS‐OUTER 6,766 8,025 1,258 18.6%NONMET>=2K 6,921 8,220 1,298 18.8%NONMET 1K‐2 7,049 8,307 1,258 17.8%NONMET < 1K 7,359 8,796 1,438 19.5%CHARTER TOT 7,724 8,854 1,130 14.6%STATE TOTAL 7,138 8,456 1,318 18.5%
HOW ARE WE DOING ON FUNDING EQUITY FOR STUDENTS?Funding Increases by Strata During the Dayton Administration
Referendum and Local Optional Revenue / ADM
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FY 2011 FY 2019 Increase % IncreaseMPLS & ST PAUL 1,329 1,715 386 29.0%SUBURBS‐INNER 1,458 1,964 506 34.7%SUBURBS‐OUTER 1,325 1,709 384 29.0%NONMET>=2K 606 1,069 464 76.6%NONMET 1K‐2 589 912 324 55.0%NONMET < 1K 801 1,216 415 51.8%CHARTER TOT 34 137 103 306.4%STATE TOTAL 982 1,375 393 40.0%
HOW ARE WE DOING ON FUNDING EQUITY FOR STUDENTS?Funding Increases by Strata During the Dayton Administration
State Special Education Aid / ADM
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FY 2011 FY 2019 Increase % IncreaseMPLS & ST PAUL 1,435 1,943 507 35.3%SUBURBS‐INNER 799 1,336 537 67.2%SUBURBS‐OUTER 978 1,434 456 46.6%NONMET>=2K 968 1,475 506 52.3%NONMET 1K‐2 764 1,206 442 57.9%NONMET < 1K 770 1,129 359 46.6%CHARTER TOT 1,329 2,245 916 68.9%STATE TOTAL 1,096 1,655 559 51.0%
HOW ARE WE DOING ON FUNDING EQUITY FOR STUDENTS?Funding Increases by Strata During the Dayton Administration
Long‐Term Facilities Maintenance Revenue (LTFM) / ADM
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FY 2011 FY 2019 Increase % IncreaseMPLS & ST PAUL 815 726 ‐89 ‐10.9%SUBURBS‐INNER 613 861 248 40.4%SUBURBS‐OUTER 278 549 271 97.5%NONMET>=2K 260 521 261 100.4%NONMET 1K‐2 215 556 341 158.5%NONMET < 1K 205 553 348 169.7%CHARTER TOT 0 142 142 #DIV/0!STATE TOTAL 329 575 246 74.9%
HOW ARE WE DOING ON FUNDING EQUITY FOR STUDENTS?Miscellaneous General Fund Revenue / ADM
(e.g., Q Comp, Integration, Literacy, CTE , Charter Lease, Misc Levies)
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FY 2011 FY 2019 Increase % IncreaseMPLS & ST PAUL 630 640 10 1.6%SUBURBS‐INNER 322 507 185 57.3%SUBURBS‐OUTER 261 415 154 58.9%NONMET>=2K 190 322 133 69.9%NONMET 1K‐2 195 266 71 36.6%NONMET < 1K 164 273 109 66.2%CHARTER TOT 1,198 1,344 146 12.2%STATE TOTAL 302 456 154 50.9%
HOW ARE WE DOING ON FUNDING EQUITY FOR STUDENTS?Total General Ed, State Spec Ed, LTFM &
Misc General Fund State Aid & Levy / ADM ‐‐ Current $
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FY 2011 FY 2019 Increase % IncreaseMPLS & ST PAUL 12,830 14,870 2,040 15.9%SUBURBS‐INNER 10,248 13,172 2,925 28.5%SUBURBS‐OUTER 9,609 12,132 2,523 26.3%NONMET>=2K 8,945 11,607 2,662 29.8%NONMET 1K‐2 8,811 11,247 2,436 27.6%NONMET < 1K 9,299 11,967 2,669 28.7%CHARTER TOT 10,285 12,722 2,437 23.7%STATE TOTAL 9,847 12,516 2,669 27.1%
HOW ARE WE DOING ON FUNDING EQUITY FOR STUDENTS?Total General Ed, State Spec Ed, LTFM & Misc General Fund
State Aid & Levy / ADM ‐‐ Adjusted for Inflation using CPI (2019 $)
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FY 2011 FY 2019 Increase % IncreaseMPLS & ST PAUL 14,107 14,870 763 5.4%SUBURBS‐INNER 11,268 13,172 1,905 16.9%SUBURBS‐OUTER 10,565 12,132 1,567 14.8%NONMET>=2K 9,835 11,607 1,772 18.0%NONMET 1K‐2 9,688 11,247 1,559 16.1%NONMET < 1K 10,224 11,967 1,743 17.0%CHARTER TOT 11,309 12,722 1,413 12.5%STATE TOTAL 10,827 12,516 1,689 15.6%
HOW ARE WE DOING ON EQUITY FOR TAXPAYERS?PK‐12 Education Revenue by Source
A Higher State Share Means More Uniformity and Less Reliance on Local Property Taxes
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HOW ARE WE DOING ON EQUITY FOR TAXPAYERS?State Share of Referendum + Local Optional and Debt RevenueA Higher State Share Helps to Neutralize Differences in Local Tax Base / Student
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HOW ARE WE DOING ON EQUITY FOR TAXPAYERS?Average School Property Tax Impact by Strata, Pay 17 Levy
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NTC Levy as Percent of ANTC
RMV Levy as Percent of RMV
Approximate Avg School Tax on $200,000 Home (Rough Est.)*
Average School Tax on $200,000 Home
as % of State Average
State Total 23% 0.19% 795 100.0%‐
MPLS & ST PAUL 23% 0.17% 753 94.8%OTHER METRO, INNER 26% 0.21% 883 111.1%OTHER METRO, OUTER 24% 0.22% 870 109.5%NONMET>=2K 26% 0.17% 812 102.2%NONMET 1K-2K 21% 0.15% 691 87.0%NONMET < 1K 13% 0.21% 656 82.5%* ($200,000 -MV Exclusion)*1% Class Rate* NTC Rate) + ($200,000* RMV Rate)
HOW ARE WE DOING ON FUNDING STABILITY / PREDICTABILITY?Operating Referendum $ Approved as Percent of $ Proposed
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HIGHLIGHTS OF 2017 E‐12 EDUCATION FINANCE LEGISLATION Appropriation Increases > $2 M for Biennium
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Enacted Change Biennial Cost ($ Millions)
2% and 2% on the General Education Formula 371.5
Voluntary Pre‐K / School Readiness Plus (One‐Time) 50.0
School Building Bond Agricultural Credit 35.5
Early Learning Scholarships (Ongoing) 20.7 Compensatory Pilot Project Revenue Restored to FY 17 Level and Permanently Rolled into Compensatory Revenue 9.3
HIGHLIGHTS OF 2017 E‐12 EDUCATION FINANCE LEGISLATION Appropriation Increases > $2 M for Biennium (Continued)
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Enacted Change Biennial Cost ($ Millions)Intermediate Mental Health Grants 4.9 Transportation Sparsity Revenue Increase @ 18.2% of Prior Year Cross Subsidy 3.8 American Indian Tribal Contract Aid Restored to FY 17 Level (One‐Time) 3.7 Maximum Effort Loan Aid (Based on Interest Paid) 3.3 Rural Career Tech Education Consortium Grant 3.0 Reading Corps Grant 2.7
HIGHLIGHTS OF 2017 E‐12 EDUCATION FINANCE LEGISLATION Facilities Funding
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• School Building Bond Agricultural Credit ‐‐ Property tax credit on all property classified as agricultural, excluding the house, garage, and one acre of an agricultural homestead, equal to 40 percent of the tax on the property attributable to school district bonded debt levies.Provides an open and standing appropriation to pay for the credit. Effective for taxes payable in 2018.
• Maximum effort loan aid ‐‐Makes payments over a five‐year period to school districts with a maximum effort loan outstanding as of 6/30/16 equal to the interest paid on the loan between 12/1/90 and 6/30/16. For a district with a capital loan outstanding as of 6/30/17, the aid is increased by the amount of interest paid on the loan between 6/30/17 and 6/30/21. Aid must be used to reduce property tax levies over up to 20 years.
• Payments to Nonoperating Funds – changes the payment schedule for nonoperating fund aids (e.g., debt service equalization) from 12 monthly installments to six monthly installments from July – December.
HIGHLIGHTS OF 2017 E‐12 EDUCATION FINANCE LEGISLATION Uses of Compensatory Revenue
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• A percentage of total compensatory revenue (regular + amount from pilot grant), roughly equal to the increase over the FY 17 base, must be used for extended time activities:
• FY 18: 1.7%• FY 19: 3.5%• FY 20 and later: 3.5% + the percentage change in the formula from FY 2019
HIGHLIGHTS OF 2017 E‐12 EDUCATION FINANCE LEGISLATION Voluntary PreK (VPK) / School Readiness Plus (SR+)
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1. Creates a new School Readiness Plus program for FY 2018 and FY 2019 only.
2. Changes the VPK cap from a limit on the state total aid entitlement to a limit on number of participants.
• For FY 2018, creates a combined cap of 6,160 participants for VPK and SR+
• The cap of 6,160 covers the 3,160 FY 2017 VPK participants that have renewed their application for FY 2018, plus 3,000 new participants
• For FY 2019, creates a combined cap of 7,160 participants for VPK and SR+.
• For FY 2020 and later, SR+ sunsets and the cap for VPK is set at 3,160 participants.
3. For sites first qualifying in FY 2018 or 2019, under VPK or SR+, the new funding must be used to supplement not supplant existing spending for prekindergarten activities.
HIGHLIGHTS OF 2017 E‐12 EDUCATION FINANCE LEGISLATION Voluntary PreK (VPK) / School Readiness Plus
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• Application Process:
• All applications submitted in January to renew a FY 2017 VPK program were funded first.
• Districts and charters submitting applications in January 2017 for new or expanded VPK programs were asked to verify that they still wish to have their application considered and sign a new statement of assurances; they also had the option to switch their application from VPK to SR+. No new applications were be accepted for VPK in June.
• All districts and charters were eligible to apply for SR+ until July 1.
• All applications for new or expanded VPK programs and for SR+ were combined into a single priority list for each group (Minneapolis / St Paul districts, suburban districts, nonmetro districts, charter schools).
HIGHLIGHTS OF 2017 E‐12 EDUCATION FINANCE LEGISLATION Voluntary PreK (VPK) / School Readiness Plus
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The number of participant slots for each group is determined as follows:
Group NameMinneapolis ‐
St Paul Metro SuburbsNon‐Metro Districts Charter Total
% of FY17 K 9.56% 39.59% 42.97% 7.88% 100.00%Awarded Slots 588 2,439 2,647 486 6,160 Renewal Slots 240 1,208 1,464 248 3,160 New Slots 348 1,231 1,183 238 3,000 New Applications 527 3,685 7,324 558 12,094 Unfunded 179 2,454 6,141 320 9,094
HIGHLIGHTS OF 2017 E‐12 EDUCATION FINANCE LEGISLATIONVoluntary PreK (VPK) / School Readiness Plus
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• Application Process (continued):
• All applications meeting program requirements were rank‐ordered based on three criteria:
1. Free and reduced lunch concentration of students in kindergarten at the site as of October 1 of the previous fiscal year;
2. Proximity of a three‐ or four‐star Parent Aware rated program; and
3. Whether the district has implemented a mixed delivery program.
• MDE was required to notify applicants by August 1, 2017 whether they have been selected for participation.
HIGHLIGHTS OF 2017 E‐12 EDUCATION FINANCE LEGISLATIONSchool Readiness Plus
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• SR+ Program Student Eligibility:
• A child who is four years of age as of Sept 1 and who demonstrates one or more risk factors is eligible to participate in the program free of charge.
• A child who is four years of age as of Sept 1 and who does not demonstrates any of those risk factors is eligible to participate on a fee‐for‐service basis.
• A district must adopt a sliding fee schedule for students not demonstrating risk factors, but must waive the fee for participants unable to pay
• SR+ Requirements include:(1) Providing at least 350 hours of instruction per year.(2) Ensuring appropriate student‐to‐staff ratios (same as VPK) & the presence of a licensed
teacher; (3) Various program requirements similar to VPK.
HIGHLIGHTS OF 2017 E‐12 EDUCATION FINANCE LEGISLATIONVPK / SR+ Statistics
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Statewide Breakdown of New Approvals by Program Type:
Number of Districts & Charters
Number of Sites
Number of Participants
VPK ‐ School 47 78 2,410 VPK‐ Mixed Delivery 3 3 69 SR+ ‐ School 8 11 475 SR+ ‐ Mixed Delivery 1 1 46 Total 59 93 3,000
HIGHLIGHTS OF 2017 E‐12 EDUCATION FINANCE LEGISLATIONVPK / SR+ Statistics
8/1/2017 44
Lowest Points on Ranking for Funded New Applications:
Minneapolis ‐St Paul
Metro Suburbs
Non‐Metro Districts Charter
90.32 50.00 57.63 85.71
HIGHLIGHTS OF 2017 E‐12 EDUCATION FINANCE LEGISLATIONVPK / SR+ Statistics
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Estimated Revenue: Minneapolis ‐
St PaulMetro Suburbs
Non‐Metro Districts Charter Total
State Aid 2,640,075 7,034,711 7,115,559 1,793,489 18,583,833 Levy 319,535 1,230,107 768,782 ‐ 2,318,423 Total 2,959,609 8,264,817 7,884,341 1,793,489 20,902,256
Average Revenue per Participant:
Minneapolis ‐St Paul
Metro Suburbs
Non‐Metro Districts Charter Total
State Aid 7,586 5,715 6,015 7,536 6,195 Levy 918 999 650 ‐ 773 Total 8,505 6,714 6,665 7,536 6,967
HIGHLIGHTS OF 2017 E‐12 EDUCATION FINANCE LEGISLATION Lead In School Drinking Water
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• Requires the commissioners of health and education to develop a model plan to test for lead in school drinking water.
• Requires school districts and charter schools to adopt the model plan or an alternative plan to test school water for lead at least every five years.
• A school district must begin testing by July 1, 2018, and complete testing of all schools within five years.
• Allows school districts to include lead testing and remediation in their 10‐year facilities plans and to use long‐term facilities maintenance revenue for lead testing and remediation.
• Requires school districts and charter schools to make lead test results available to the public and to notify parents that this information is available.
HIGHLIGHTS OF 2017 E‐12 EDUCATION FINANCE LEGISLATIONReview and Comment
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• Directs the commissioner to include comments from district residents in the review and comment on capital project proposals.
• Requires a school board to hold a public meeting to review the commissioner's review and comment on a proposal before the bond election.
HIGHLIGHTS OF 2017 E‐12 EDUCATION FINANCE LEGISLATION Minnesota State High School League Tickets and Admissions
8/1/2017 48
• Tickets and admissions to games, events, and activities sponsored by the MSHSL are once again exempt from the sales tax.
• Effective for ten years, beginning after June 30, 2017, and ending July 1, 2027.
•What is the Outlook for the Future?Issues not addressed by the 2017 Legislature
1. 2% and 2% on the formula was nearly enough to keep pace with inflation, but did not make up ground lost to inflation between 2003 and 2014.• The inflation‐adjusted General Education Formula Allowance decreased by $739 or 10.7% between FY 2003 and FY 2014, resulting in over‐reliance on operating referendum revenue, which creates inequities for students and taxpayers and budget instability for districts.
• Formula increases in excess of inflation for FY 15 – FY 17 reduced the decline since 2003 to $581 or 8.4%, but with inflation beginning to creep up, no further progress was made for FY 2018 or FY 2019
2. Special education cross subsidy is more than $800 per student and continues to grow, taking resources from the regular classroom and creating inequities among districts.
3. TRA, PERA and other state pension funds are significantly underfunded – changes are needed to ensure long‐term stability.
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•What is the Outlook for the Future?Issues not addressed by the 2017 Legislature
4. Increases in voluntary pre‐kindergarten / school readiness plus are funded for just two years – with no change in law, programs initially funded in FY 2018 and FY 2019 will be de‐funded in FY 2020.
5. Funding for Q comp is capped, with a waiting list, creating inequities among districts.
6. Minnesota’s ratio of students to counselors and other pupil support staff is one of the highest in the nation.
7. Funding for Equity in Telecommunication Access aid is severely prorated, creating inequities for rural districts where telecommunications costs are highest.
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What is the Outlook for the Future?Cost Of Addressing School Funding Issues – Sample Options
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$ in Millions
Current Biennium
(FY 2019) Cost
20-21 Biennium
TailsBasic Formula: Additional 1% on Formula in FY 19 ($62/ PU) 61 137Special Ed Funding: Eliminate 10% of Cross Subsidy 65 157VPK / School Readiness +: Keep Participation for FY 20 & Later at FY 19 Level 0 58
Q Comp - Eliminate Cap 21 115
What is the Outlook for the Future?Cost Of Addressing School Funding Issues – Sample Options (2)
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$ in Millions
Current Biennium
(FY 2019) Cost
20-21 Biennium
TailsSchool Counselors --Bring ratio to national average - 50% local match 21 46
Improve Debt Service Equalization (Governor's 2017 Proposal, implemented in FY 2020) 0 37Telecommunication Access Equity Aid: Eliminate Aid Proration 6 13
Total, Selected Options for 2018 Session 174 563
WHAT IS THE OUTLOOK FOR THE FUTURE?State General Fund Budget
End of 2017 Special Session with June 2017 Court Order ($ in millions)
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FY 2016-17 FY 2018-19Beginning Balance $2,103 2,708Revenues 42,435 45,006Spending 41,830 45,557Balance Before Reserves 2,708 2,157
Cash Flow & Budget Reserve 1,953 1,953Stadium Reserve 25 40Forecast Balance $730 $ 163
CAN MINNESOTA AFFORD TO INVEST MORE IN E‐12 EDUCATION?Long‐Term Trend in State‐Local E‐12 Spending as a Percent of Personal Income
8/1/2017 54
CAN MINNESOTA AFFORD TO INVEST MORE IN E‐12 EDUCATION?Minnesota’s Tax Effort For E‐12 Education vs Neighboring States and US Average
Current E‐12 Education Spending per $1,000 of Personal Income
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Questions?
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