5/3/2016. Minnesota E-12 Education Finance System Overview. Presentation Materials. Topics MASBO
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1 Minnesota E-12 Education Finance System Overview MASBO Presented by Tim Strom Minnesota House of Representatives Research Department May 5, 2016 Presentation Materials The materials in this presentation are prepared jointly by Tom Melcher of the Minnesota Department of Education, and Tim Strom, Minnesota House of Representatives Research Department, to provide a context for school finance in Minnesota. Any errors or omissions in this version of the presentation are Tim s alone. 2 Topics 1) a. Education finance principles b. How does funding actually work? 2) Context for school finance 3) Major components of school finance system 4) Trends and Issues: how is Minnesota doing? 5) State budget outlook 6) Where to go for additional information 3 1
2 1A) Education Funding Principles: Goals of State School Finance System 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 3 Education Funding Principles: Goals of State School Finance System 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. 5 Education Funding Principles: Goals of State School Finance System Stability, transparency, efficiency and effectiveness: 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. 6 2
3 1b) How Does Funding Work in Minnesota? Funds are Mainly Based on the Count of Students Served State statutes (state law) set the funding levels state law sets of mix of state aid and local levies Funding is based on the number of students actually attending the school, the greater the student count, the larger the funding Each school district and charter school s funding is different depending on student characteristics State and federal special education formulas, while significant, underfund the total cost of special education services Resident school districts are responsible for most unfunded special education costs of open-enrolled and charter school students State statutes allow revenues to be raised through voter approval 3 2) Context for School Finance Legal MN Constitution State & federal laws Agency guidance Terminology Pupil accounting Property tax base Overall public finance system Property Taxes State Budget Variations in school district characteristics School funding, staffing & financial condition trends 8 Legal Context: Minnesota Constitution Article 13, Section 1 it is the duty of the legislature to establish a general and uniform system of public schools. The legislature shall make such provisions by taxation or otherwise as will secure a thorough and efficient system of public schools throughout the state. 9 3
4 Legal Context: Minnesota Supreme Court Skeen v. State of Minnesota, August 20, 1993 education is a fundamental right in Minnesota. our decision requires the state to provide enough funds to ensure that each student receives an adequate education and that funds are distributed in a uniform manner the determination of education finance policy, in the absence of glaring disparities, must be a legislative decision because it involves balancing the competing interests of equality, efficiency, and limited local control the State of Minnesota provides an adequate and uniform education which meets all state standards. It merely allows localities to augment this basic amount 10 Legal Context: Laws and Rules Minnesota Statutes: 120A Compulsory Attendance, School Calendar 122A Q Comp, Staff Development 123A ALCs, District Reorganization 123B Fee Law, Facilities Funding, UFARS, SOD,Transportation 124D Enr. Options, PSEO, Charter Schools, Community Ed, Integration, Nutrition 125A Special Education and Special Programs 125B Technology, Telecommunications/Internet Access Equity Aid 126C General Education Funding, Levies, District Borrowing, Capital loans 127A MDE responsibilities, Payment Metering Session Laws: Education Omnibus Bill and other legislation includes amendments to statutes, uncodified (one-time) laws, and appropriations. Statutes & Session Laws available online at: 11 Legal Context: Laws and Rules MDE Guidance: Superintendent s School Business Bulletins UFARS Manual MARSS Manual SERVS Webinars 12 4
5 Legal Context: Laws and Rules Federal Regulations: Special Education (IDEA) 34 CFR 300: Title I 34 CFR 200: OMB Omni Circular: Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance), published December 2013, and effective for Federal awards made on or after December 26, 2014 combines and codifies requirements of older OMB Circulars (e.g., A-87, A- 133) and EDGAR 13 Context: Terminology Fiscal Year: State July 1 - June 30 (Currently State FY 2016) Federal October 1 September 30 (Currently Federal FY 2016) Pupil Accounting: Average Daily Membership (ADM) = the average number of pupils enrolled in the school district throughout the school year. Regular ADM limited to 1.0 for each student. Extended Time ADM (Students served more than full-time in a learning year program) limited to 0.2 ADM per student; used only for extended time revenue. Pupil Weights: Grade Level FY 15 and Later Weight Pre-K and K Disabled 1.0 Regular K 1.0 Full time/.55 Part Time Grades Grades Pupil Units = ADM x Pupil Weights (Sometimes called Weighted ADM or WADM) 14 Terminology Pupil Accounting (Continued): Two Types of Pupil Units (PU): Resident Pupil Units = Resident ADM X Pupil Weight (Resident ADM includes all MN public school students residing in the district) Adjusted Pupil Units = Resident PU + PU for nonresidents attending the district under alternative attendance programs (e.g., open enrollment) - PU for residents attending another district or charter school under alternative attendance programs 15 5
6 Terminology Property Tax Base Two tax bases used for school levy calculations: Referendum Market Value = Estimated market value, excluding: Ag Land & Buildings (Note: house, garage, and one acre are not exempt) Seasonal Recreational Residential Used only for operating referendum, local optional, transition and equity levy calculations Adjusted Net Tax Capacity = (Taxable market value for all types of property x Statutory class rate) / Sales ratio Used for all other school levies, including debt service levies 16 Terminology Property Tax Base (continued) Taxable Market Value = Estimated Market Value Market Value Exclusion Market value exclusion = 40% of first $76,000 of value, less 9% of value over $76,000 (no exclusion for homes valued at $413,800 or above) Net Tax Capacity = Taxable Market Value X Class Rate Class Rates are statutory percentages applied to taxable market value: Residential Homestead: First $500, % Remainder 1.25% Agricultural Land and Buildings (homestead) (Taxes Payable 2016 for FY 17) First $2,140, % (Was $1,900,000 for pay 15 taxes) Over $2,140, % Commercial and Industrial First $150, % Remainder 2.00% Seasonal Rec. Residential First $500, % Remainder 1.25% 17 Terminology Property Tax Base (Continued) Sales Ratio = Estimated Market Value / Actual Sales Price (Computed by State Revenue Department based on comparison of assessor s estimates of market values with actual sales prices.) Adjusted Net Tax Capacity = Net Tax Capacity / Sales Ratio 18 6
7 Context : Overall Public Finance System Property Taxation Taxable Market Value Taxes Paid ($642 Billion) ($9.290 Billion) by Property Type, Taxes Payable in 2016 Seasonal Rec 4% Residential Homestead 47% Seasonal Rec 3% Residential Homestead 41% Agricultural 23% Other Residential Commercial/ 12% Indust 14% [CATEGORY NAME] 9% Commercial/ Indust 35% [CATEGORY NAME] 12% Source: HRD 19 Property Taxes Payable in 2016 By Type of Government $9.290 Billion County 31% Special 4% School Districts 28% City 23% [CATEGORY NAME] 2.5% State 9% Source: HRD [CATEGORY NAME] 2.5% 20 School vs Non-School Property Tax Levies, Replace with bullet points or subheading Source: MMB, Price of Govt, Feb
8 School District Certified Levy By Type, Source: MDE 22 State and Local Tax Revenue History Source: DOR 23 Where the Money Comes From: FY 16 State General Fund Revenue $ Billion Fund Balance In 9% Non-Tax Revenue 3% State Property Tax 4% All Other 1% Mortgage/Deed 1% Sales 23% Individual Income 48% Liquor/Cig/Gmbln g 3% Corporate/Bank/In s 8% Source: HRD 24 8
9 Pupils 5/3/2016 Where the Money Goes: FY 16 State General Fund Spending $ Billion All Other 1% Debt Service 3% Environment & Eco Dev 1% Health&Human Services 28% K-12 Education 42% Higher Ed 8% State Govt 4% Intergovt Aids 8% Criminal Justice 5% Source: HRD 25 Context: Minnesota School Enrollment State Total Enrollment, 1960 to ,000, , , , , , , , , ,000 0 School District Charter Nonpublic Home School Source: HRD Source: MDE 9
10 School Enrollment by Region FY 2015 #3 Northeast 5% #5 Northcentral #4 WestCentral 3% 4% #6 SW #1 Northwest 6% #7 4% EastCentral 11% #9 Southcentral 4% #11 Metro Area 55% #10 Southeast 9% Source: HRD 28 Percent 6% School District 5 Year Enrollment Change by Region FY 2011 to % 2% Northwest 0% Northeast West Central North Central Southwest East Central South Central Southeast 7 County Metro -2% -4% -6% -8% Source: HRD 29 Percent of Students Enrolled by School District Size Quintile FY % 66 Largest Districts 70% 60% 50% 40% 30% 20% 10% 67 Smallest Districts 67 next Smallest Districts 66 Middle Districts 66 Second Largest Districts 0% Source: HRD 30 10
11 3) Major Components of the School Finance System Total Revenue for Education: $ Billion FY 2016 Fees 4.3% General Education 53.4% Federal 5.6% Facilities 10.1% Community Ed 2.1% Local Option Special Education 2.8% Op. Referendum 9.2% 5.6% Source: HRD 31 General Education Revenue by Component $7.651 Billion FY 2016 Transition.4% Gifted.2% Local Option 4.6% Referendum 9.1% Basic 71.4% Small Schools.2% Op. Capital 2.7% Equity 1.4% EL.7% Trans Sparsity.8% Op. Sparsity.3% Compensatory 7.1% Declining.1% Extend time 1.0% Source: HRD 32 4) School Funding Trends and Issues Show trend in basic formula vs inflation here 33 11
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14 40 41 SCHOOL FUNDING TRENDS, FY 11 FY 17 General Education Revenue Excluding Referendum and Local Optional per ADM by Strata Current $ FY 2011 FY 2017 Increase % Increase STATE TOTAL 7,062 8, % MPLS & ST P 8,588 9, % SUBURBS INNER 6,899 7,970 1, % SUBURBS OUTER 6,640 7, % NONMET>=2K 6,887 7, % NONMET 1K-2 7,020 7, % NONMET < 1K 7,347 8,467 1, % CHARTER TOT 7,639 8, % 42 14
15 SCHOOL FUNDING TRENDS, FY 11 FY 17 Referendum and Local Optional Revenue per ADM by Strata Current $ FY 2011 FY 2017 Increase % Increase STATE TOTAL 981 1, % MPLS & ST P 1,336 1, % SUBURBS INNER 1,452 1, % SUBURBS OUTER 1,325 1, % NONMET>=2K % NONMET 1K % NONMET < 1K 796 1, % CHARTER TOT N/A 43 SCHOOL FUNDING TRENDS, FY 11 FY 17 State Special Education Revenue per ADM Including Tuition Adjustments By Strata, Current $ FY 2011 FY 2017 Increase % Increase STATE TOTAL 1,096 1, % MPLS & ST P 1,435 1, % SUBURBS INNER 799 1, % SUBURBS OUTER 978 1, % NONMET>=2K 968 1, % NONMET 1K , % NONMET < 1K % CHARTER TOT 1,329 1, % 44 SCHOOL FUNDING TRENDS, FY 11 FY 17 Facilities Maintenance Revenue per ADM (General & Alt Facilities Debt) By Strata, Current $ FY 2011 FY 2017 Increase % Increase STATE TOTAL % MPLS & ST P (49) -6.0% SUBURBS INNER % SUBURBS OUTER % NONMET>=2K % NONMET 1K % NONMET < 1K % CHARTER TOT n/a 45 15
16 SCHOOL FUNDING TRENDS, FY 11 FY 17 MISC GENERAL FUND REVENUE / ADM (e.g., Q Comp, Integration, Literacy, CTE, Charter Lease) By Strata, Current $ FY 2011 FY 2017 Increase % Increase STATE TOTAL % MPLS & ST P % SUBURBS INNER % SUBURBS OUTER % NONMET>=2K % NONMET 1K % NONMET < 1K % CHARTER TOT 1,317 1, % 46 SCHOOL FUNDING TRENDS, FY 11 FY 17 Total General Ed, State Spec Ed, Facilities Maint & Misc General Fund State Aid & Levy / ADM By Strata, Current $ FY 2011 FY 2017 Increase % Increase STATE TOTAL 9,847 11,814 1, % MPLS & ST P 12,830 14,369 1, % SUBURBS INNER 10,248 12,315 2, % SUBURBS OUTER 9,609 11,472 1, % NONMET>=2K 8,945 10,886 1, % NONMET 1K-2 8,767 10,432 1, % NONMET < 1K 9,297 11,235 1, % CHARTER TOT 10,285 11,775 1, % 47 SCHOOL FUNDING TRENDS, FY 11 FY 17 Total General Ed, State Spec Ed, Facilities Maint & Misc General Fund State Aid & Levy / ADM By Strata, Inflation-Adjusted (CPI) 2017 $ FY 2011 FY 2017 Increase % Increase STATE TOTAL 10,872 11, % MPLS & ST P 14,165 14, % SUBURBS INNER 11,314 12,315 1, % SUBURBS OUTER 10,609 11, % NONMET>=2K 9,876 10,886 1, % NONMET 1K-2 9,679 10, % NONMET < 1K 10,265 11, % CHARTER TOT 11,355 11, % 48 16
17 Source: MDE 49 Special Education Cross Subsidy per ADM FY 2003 FY 2017 Estimate (Feb 2015 Forecast Estimates) Source: MDE 50 Long Term Facilities Maintenance Revenue / ADM Districts Eligible for Alternative Facilities Revenue vs Other Districts, FY 17 FY 19, Current Dollars, 2015 End of Session Estimates 51 17
18 Source: MDE 52 Source: MDE 53 Pupil-Teacher Ratios,
19 Source: MDE 55 5a) State General Fund Budget End of Session vs February 2016 Forecast ($ in millions) End of Session Feb 2016 FY FY Beginning Balance $1,421 $ 2,103 Revenues 42,629 42,288 Spending 41,834 41,524 Balance Before Reserves 2,216 2,868 Cash Flow & Budget Reserve 1,344 1,946 Stadium Reserve 7 21 Forecast Balance $865 $ b) State General Fund Budget February 2016 Forecast ($ in millions) FY FY Beginning Balance $2,103 $ 2,868 Revenues 42,288 45,702 Spending 41,524 44,519 Balance Before Reserves 2,868 4,052 Cash Flow Budget Reserve 1,596 1,596 Stadium Reserve Forecast Balance $900 $2,
20 58 6) School Finance Info on the Web School finance overviews on MN House of Representatives web site: Financing Education in Minnesota, (Short version 70 pages) Minnesota School Finance: A Guide for Legislators (Long version 126 pages) 59 School Finance Info on the Web MDE web site: Data Center / Data Reports and Analytics: Minnesota Funding Reports (MFR) Aid entitlement reports Levy limitation reports IDEAS aid payment reports Spreadsheets What-If (general education revenue calculations) Financial Profiles School Support / School Finance UFARS and MARSS Manuals School Business Bulletins Memos / guidance One-Time Reports (e.g., Governor s budget runs) 60 20
21 Questions? Tim Strom Legislative Analyst Minnesota House of Representatives Research Department (651)
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