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FAIR EDUCATION FUNDING:Recommendations of the
Education Finance Working Group
Tom Melcher
Schools for Equity in Education MeetingNovember 30, 2012
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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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Working Group on Education Finance:Improving Equity for Students and Taxpayers
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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Working Group on Education Finance:Improving Equity for Students and Taxpayers
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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Working Group on Education Finance:Improving Equity for Students and Taxpayers
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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Working Group on Education Finance:Improving Equity for Students and Taxpayers
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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Working Group on Education Finance:Improving Equity for Students and Taxpayers
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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Working Group on Education Finance:Improving Equity for Students and Taxpayers
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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Working Group on Education Finance:Improving Equity for Students and Taxpayers
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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Working Group on Education Finance:Improving Equity for Students and Taxpayers
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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Working Group on Education Finance:Improving Equity for Students and Taxpayers
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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Working Group on Education Finance:Improving Equity for Students and Taxpayers
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
Annual Increase with 5 year phase-in 126,660,025 1.4% 153
Annual Increase with 6 year phase-in 105,550,021 1.2% 127
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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
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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%
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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
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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
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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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