FAIR EDUCATION FUNDING: Recommendations of the Education Finance Working Group

FAIR EDUCATION FUNDING:Recommendations of the

Education Finance Working Group

Tom Melcher

Schools for Equity in Education MeetingNovember 30, 2012

Agenda

School Finance Trends and Issues

Equity in Education Funding Concepts

Working Group Recommendations: Impact on Equity in Education Funding

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Percent Change in Enrollment,FY 2003 – FY 2011, School Districts and Charter Schools

Source: MDE

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State Share of Revenue for Major Equalized Levies

Source: MDE

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State General Fund Budget End of 2012 Legislative Session

($ in millions)

FY 2012-13 FY 2014-15

Beginning Balance $1,289 $ 1,068Revenues 33,867 35,861Spending* 34,086** 36,902 Balance before Reserves 1,068 26

Cash Flow Account 350 350 Budget Reserve 653 653Stadium Reserve 34 66Budget Balance $ 26 ($1,047)

* Net spending after school shifts ** Reflects $318 million K-12 Education shift buyback

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School Shift SummaryFebruary 2012 Forecast

Aid Payment Shift @ 64.3 – 35.7 (vs 90-10) $1.873 Billion

Property Tax Shift (@ 48.6% of Gross Levy) $563 Million

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Total School Shift (as of 6/30/2013) $2.436 Billion

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Education Funding Equity What is the State’s Role?

Equity for Students:

•All school districts 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 ( e.g., special education, compensatory

education, ELL).• unique district characteristics (e.g., transportation costs in

remote areas).

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Education Funding Equity What is the State’s Role?

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 limited and equally available to all districts, regardless of geographic location.

– If supplemental revenue is funded with local property tax, equalization aid is provided to neutralize wealth-related disparities

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Working Group RecommendationsImproving Equity for Students and Taxpayers

1. Basic Formula Proposed $6,300 formula allowance includes:

• $253 inflation adjustment for all districts

• $300 / PU roll-in of referendum revenue– New revenue for districts with referendum below $300 / PU, closing the

revenue gap by bringing up the lowest revenue districts– More stable and predictable revenue for other districts– Referendum cap reduced by $300 to prevent future expansion of

disparities

1. As well as adjustments for pupil weighting changes and roll-ins.

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Working Group on Education Finance:Improving Equity for Students and Taxpayers

2. Uniform General Education Levy

– All districts in the state make the same tax effort to raise the same $6,300 per pupil

– Replaces several existing school levies that are not fully equalized. As a result, districts with low tax base per pupil currently must exert higher tax effort to generate the same amount of revenue per student (e.g., referendum, safe schools).

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3. Levy Equalization

• Equalizing factors increased and indexed to state average tax base per student:

– Operating Referendum• Tier 1: First $700: 125% of Average RMV/PU ($669,768)• Tier 2: Next $700: 75% of Average RMV/PU ($401,861)

• State share increases from 11% to 19% of revenue

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3. Levy Equalization

– Debt Service Equalization• Tier 1: 75% of Average ANTC/PU ($5,229)• Tier 2: 125% of Average ANTC/PU ($8,715)• State share increases from 2.6% to 4.0% of revenue

– Deferred maintenance • 170% of Average ANTC / PU ($11,156)• State share increases from 16% to 72%

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4. Equity Revenue• Current formula:

– does not target funding to districts with greatest need:– districts with no referendum do not qualify for sliding scale revenue– All districts receive $46/PU regardless of need– 25% increase for metro districts not tied to need

• Proposed formula: – sliding scale from $100/PU to $0 as referendum goes from $0 to

$1,400 / PU– Applies to all districts statewide

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5. Special Education Funding

• Increases special education aid by $194 million, reducing average cross subsidy / ADM from $660 to $415

• Funding allocations based partly on student counts and partly on an improved excess cost formula that recognizes all sp ed costs including fringe benefits

• requires serving school district or charter school to cover 10% of unreimbursed special education costs for open-enrolled students ; resident district share reduced from 100% to 90%

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6. Basic Skills Funding

• All funds allocated based on student need rather than allocating a portion based on extended time hours in approved programs, and districts provided greater flexibility in the use of compensatory revenue to close achievement gaps:

– Extended time revenue rolled into compensatory and allocated at the rate of $260 times free + ½ of reduced price lunch count instead of being allocating based on hours of extended time instruction

– Districts required to spend 85% at site generating revenue, rather than 95%

– ELL funding extended from 5 to 7 years and concentration formula expanded

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7. Facilities Maintenance Funding

• Under Current Law:– The largest 25 districts have access to unlimited deferred

maintenance funding under the alternative facilities program while other districts are limited to a maximum of $60 / pupil for deferred maintenance

– Health & safety funding is limited to narrowly defined statutory purposes and requires excessive paperwork

• Proposal:– Roll H&S funding into the Deferred Maintenance formula,

increasing the maximum to $230/PU– Increase funding for districts not in alt facilities by $34 million;

increases district flexibility and reduces paperwork

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8. Regional Cost Adjustment

• Rolls a portion of referendum revenue into a new location equity levy:– $400 / PU for 7 County metro area– $200 / PU for non-metro regional center districts (>2,000 PU)– Levy equalized at same level as Tier 1 of referendum

• Also provides regional cost adjustment aid equal to:– 1.5% of basic + basic skills revenue 7 County metro districts– 0.5% of basic + basic skills revenue for non-metro regional center

districts (>2,000 PU)

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9. Integration Revenue

• Sunsets after FY 2013 if there is no change in law• Old formula is outdated and doesn’t recognize current distribution of

students of color

• Proposal:– $500 x pupil units x percent minority for districts required to have a

desegregation plan– Funding guaranteed to at least equal 60% of FY 2013 level

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10. All Day Kindergarten

– Increase pupil weight from .612 to 1.0 for students eligible for free or reduced-price lunches who participate in a free all-day K program open to all kindergarteners at their school. ($63 million)

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11. Other

• Pupil accounting simplified– Pupil weights at 1.0 elementary, 1.2 secondary– Resident pupil units eliminated; referendum converted to rate per

adjusted pupil unit; – No marginal cost PU; Separate revenue component for enrollment

decline

• Aid reduction for pension rate changes eliminated; – districts with below average reduction held harmless

• Phase-in of revenue and property tax changes over 4 – 6 years– Annual change equals total change divided by number of years of

phase-in

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Proposed School Revenue IncreaseWith and Without Phase-in

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Total $ Percent $ / ADM

Proposed Revenue Increase After Full Phase-In633,300,125 7.0% 763

Annual Increase with 4 year phase-in 158,325,031 1.7% 191



Proposed Change in Revenue/ADMAfter Full Phase-in

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PERCENTCURRENT PROPOSED DIFF. CHANGE

STATE 10,912 11,675 763 7.0%Metro Districts 11,470 12,236 766 6.7%Rural Districts 10,080 10,837 757 7.5%MPLS & ST PAUL 13,631 14,446 814 6.0%OTH METRO, INNER 11,420 12,271 851 7.5%OTH METRO, OUTER 10,887 11,612 724 6.7%NONMET>=2K 9,991 10,767 776 7.8%NONMET 1K-2K 9,821 10,548 727 7.4%NONMET < 1K 10,547 11,295 748 7.1%CHARTER 10,321 11,090 769 7.4%

REVENUE / ADM

Impact on Disparity in Revenue / ADMBasic + Referendum + Equity + Regional Adjustment

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Percentile Current Proposed Change

1 6,090 6,701 6115 6,233 6,786 554

95 8,064 8,484 42099 8,257 8,620 363

95th to 5th 29.4% 25.0% -4.4% 99th to 1st 35.6% 28.6% -6.9%

Proposed Change in Property Taxes After Full Phase-in

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PERCENTCURRENT PROPOSED DIFF. CHANGE

STATE 2,378 2,378 0 0.0%Metro Districts 3,061 3,062 0 0.0%Rural Districts 1,669 1,669 (0) 0.0%

MPLS & ST PAUL 3,066 3,134 68 2.2%OTH METRO, INNER 3,319 3,396 77 2.3%OTH METRO, OUTER 2,975 2,931 (44) -1.5%NONMET>=2K 1,879 1,856 (24) -1.3%NONMET 1K-2K 1,761 1,768 7 0.4%NONMET < 1K 1,918 1,967 49 2.5%CHARTER - - - 0.0%

SCHOOL TAX / ADM

Approximate School Tax on $150,000 Residential Homestead by Wealth Quintile

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ANTC/ Current Proposed ProposedAMCPU Burden Burden Change

STATE 6,383 531 531 0

Lowest 3,668 641 578 -634,786 591 547 -44

Middle 5,781 603 589 -147,018 501 513 12

Highest 10,687 443 492 49

For general questions, please contact:

Tom Melcher, DirectorSchool Finance [email protected]

For full text of the 2012 working group report and associated district-by-district runs, as well as information from 2012 working group meetings, see MDE web site at: http://

education.state.mn.us/MDE/Welcome/AdvBCT/EducFinanWork/index.html

Questions?

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Documents

FAIR EDUCATION FUNDING: Recommendations of the Education Finance Working Group