Minnesota K-12 Education Finance System Overview 2017 MASBO Institute Presented by Tom Melcher School Finance Director, MDE March 6, 2017 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 Tom s alone. 2 1
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 are we doing? 5) State Budget Outlook 6) Where to go for additional information 3 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 4 2
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 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 7 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 4
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 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 5
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: https://www.revisor.mn.gov/pubs 11 Legal Context: Laws and Rules MDE Guidance: Superintendent E-mails School Business Bulletins UFARS Manual MARSS Manual SERVS Webinars Federal Regulations: Specific program regulations (e.g., IDEA, Title I) 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 12 6
Context: Terminology Fiscal Year: State July 1 - June 30 (Currently State FY 2017) Federal October 1 September 30 (Currently Federal FY 2017) 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, (except voluntary pre-k, where ADM is limited to 0.6). 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 Weight Voluntary Pre-K (Approved schools) 1.0 Pre-K Disabled and K Disabled 1.0 Regular K 1.0 Full time/.55 Part Time Grades 1-6 1.0 Grades 7-12 1.2 Pupil Units = ADM x Pupil Weights (Sometimes called Weighted ADM or WADM) 13 Terminology Pupil Accounting (Continued): Two Types of Pupil Units (PU): Resident Pupil Units (RPU) = Resident ADM X Pupil Weight (Resident ADM includes all MN public school students residing in the district) Adjusted Pupil Units (APU) = 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 14 7
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 (ANTC) = (Taxable market value for all types of property x Statutory class rate) / Sales ratio Used for all other school levies, including debt service levies Note: For long-term facilities maintenance revenue, a variation of ANTC excluding ½ of the value of agricultural land is used to calculate the state and local shares of the revenue 15 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 $500,000 1.00% Remainder 1.25% Agricultural Land and Buildings (homestead) (Taxes Payable 2016 for FY 18) First $2,050,000 0.50% (Was $2,140,000 for pay 16 taxes) Over $2,050,000 1.00% Commercial and Industrial First $150,000 1.50% Remainder 2.00% Seasonal Rec. Residential First $500,000 1.00% Remainder 1.25% 16 8
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 17 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% Agricultural 9% Commercial/ Indust 35% Other Residential 12% Source: HRD 18 9
Property Taxes Payable in 2016 By Type of Government $9.290 Billion County 31% Special 4% School Districts 28% City 23% Townships 2.5% State 9% TIF 2.5% Source: HRD 19 Replace with bullet points or subheading Source: MMB, Price of Govt, Feb 2016 20 10
Source: MDE 21 State and Local Tax Revenue History Source: DOR 22 11
Where the Money Comes From: FY 17 State General Fund Revenue $24.333 Billion All Other 1% Fund Balance In 13% Non-Tax Revenue 3% State Property Tax 4% Mortgage/Deed 1% Individual Income 46% Sales 23% Liquor/Cig/ Gambling 3% Corporate/Bank/ Ins 8% Source: HRD 23 Where the Money Goes: FY 17 State General Fund Spending $21.350 Billion All Other 1% Debt Service 3% Environment & Eco Dev 1% Health&Human Services 29% K-12 Education 42% Higher Ed 7% State Govt 4% Intergovt Aids 8% Criminal Justice 5% Source: HRD 24 12
Pupils 1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 Context: Minnesota School Enrollment State Total Enrollment, 1960 to 2016 921,957 854,041 695,777 671,682 158,560 124,934 92,822 85,988 851,485 801,150 66,188 18,772 District Only Charter+Dist Nonpublic Home School Source: HRD 25 Source: MDE 26 13
School Enrollment by Region FY 2015 #3 Northeast 5% #5 Northcentral #4 WestCentral 3% 4% #1 Northwest 4% #6 SW 6% #7 EastCentral 11% #9 Southcentral 4% #11 Metro Area 55% #10 Southeast 9% Source: HRD 27 Percent 6% School District 5 Year Enrollment Change by Region FY 2011 to 2015 4% 2% Northwest 0% Northeast West Central North Central Southwest East Central South Central Southeast 7 County Metro -2% -4% -6% -8% Source: HRD 28 14
Percent of Students Enrolled by School District Size Quintile FY 2015 80% 66 Largest Districts 70% 60% 50% 40% 30% 20% 10% 0% 67 Smallest Districts 67 next Smallest Districts 66 Middle Districts 66 Second Largest Districts Source: HRD 29 3) Major Components of the School Finance System Total Revenue for Education: $12.374 Billion FY 2016 Fees 4.3% General Education 53.4% Federal 5.6% Facilities 10.1% Community Ed 2.1% Special Education 9.2% Local Option 2.8% Op. Referendum 5.6% Source: HRD 30 15
General Education Revenue by Component $7.651 Billion FY 2017 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 31 4) School Funding Trends and Issues 32 16
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SCHOOL FUNDING TRENDS, FY 11 FY 17 General Education Revenue Excluding Referendum and Local Optional per ADM by Strata Current $ End of 2016 Session Estimates FY 2011 FY 2017 Increase % Increase MPLS & ST PAUL 8,588 9,364 776 9.0% OTHER METRO- INNER 6,899 7,927 1,028 14.9% OTHER METRO - OUTER 6,640 7,526 887 13.4% NONMET>=2K 6,887 7,855 968 14.1% NONMET 1K-2K 7,020 7,895 875 12.5% NONMET < 1K 7,342 8,433 1,091 14.9% CHARTER TOT 7,605 8,787 1,182 15.5% STATE TOTAL 7,061 8,019 958 13.6% 41 SCHOOL FUNDING TRENDS, FY 11 FY 17 Referendum and Local Optional Revenue per ADM by Strata Current $ End of 2016 Session Estimates FY 2011 FY 2017 Increase % Increase MPLS & ST PAUL 1,336 1,669 333 25.0% OTHER METRO- INNER 1,452 1,812 359 24.7% OTHER METRO - OUTER 1,325 1,654 329 24.8% NONMET>=2K 607 1,032 425 70.0% NONMET 1K-2K 593 878 285 48.1% NONMET < 1K 801 1,172 371 46.3% CHARTER TOT 34 161 127 377.0% STATE TOTAL 1,087 1,304 217 19.9% 42 21
SCHOOL FUNDING TRENDS, FY 11 FY 17 State Special Education Revenue per ADM Including Tuition Adjustments By Strata, Current $ End of 2016 Session Estimates FY 2011 FY 2017 Increase % Increase MPLS & ST PAUL 1,435 1,703 268 18.7% OTHER METRO- INNER 799 1,182 383 47.9% OTHER METRO - OUTER 978 1,264 286 29.3% NONMET>=2K 968 1,280 312 32.2% NONMET 1K-2K 764 1,056 292 38.2% NONMET < 1K 770 1,017 247 32.0% CHARTER TOT 1,329 1,972 643 48.4% STATE TOTAL 1,096 1,477 381 34.7% 43 SCHOOL FUNDING TRENDS, FY 11 FY 17 Long-Term Facilities Maintenance Revenue per ADM (General & Debt Funds) By Strata, Current $ End of 2016 Session Estimates FY 2011 FY 2017 Increase % Increase MPLS & ST PAUL 815 552-263 -32.2% OTHER METRO- INNER 613 673 60 9.8% OTHER METRO - OUTER 278 354 75 27.1% NONMET>=2K 260 358 98 37.5% NONMET 1K-2K 215 343 128 59.7% NONMET < 1K 205 346 141 68.7% CHARTER TOT 0 38 38 #DIV/0! STATE TOTAL 329 383 55 16.6% 44 22
SCHOOL FUNDING TRENDS, FY 11 FY 17 MISC GENERAL FUND REVENUE / ADM (e.g., Q Comp, Integration, Literacy, CTE, Charter Lease) By Strata, Current $ End of 2016 Session Estimates FY 2011 FY 2017 Increase % Increase MPLS & ST PAUL 767 918 151 19.6% OTHER METRO- INNER 551 804 253 46.0% OTHER METRO - OUTER 449 702 253 56.4% NONMET>=2K 293 462 169 57.6% NONMET 1K-2K 237 415 178 75.0% NONMET < 1K 245 399 154 62.7% CHARTER TOT 1,317 1,548 231 17.5% STATE TOTAL 445 689 244 54.9% 45 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 $ End of 2016 Session Estimates FY 2011 FY 2017 Increase % Increase MPLS & ST PAUL 12,942 14,207 1,265 9.8% OTHER METRO- INNER 10,314 12,397 2,083 20.2% OTHER METRO - OUTER 9,670 11,501 1,831 18.9% NONMET>=2K 9,016 10,987 1,971 21.9% NONMET 1K-2K 8,829 10,588 1,758 19.9% NONMET < 1K 9,364 11,366 2,003 21.4% CHARTER TOT 10,285 12,505 2,221 21.6% STATE TOTAL 9,913 11,872 1,959 19.8% 46 23
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 $ End of 2016 Session Estimates FY 2011 FY 2017 Increase % Increase MPLS & ST PAUL 14,320 14,207-113 -0.8% OTHER METRO- INNER 11,413 12,397 984 8.6% OTHER METRO - OUTER 10,700 11,501 801 7.5% NONMET>=2K 9,976 10,987 1,011 10.1% NONMET 1K-2K 9,770 10,588 818 8.4% NONMET < 1K 10,361 11,366 1,006 9.7% CHARTER TOT 11,380 12,505 1,125 9.9% STATE TOTAL 10,969 11,872 903 8.2% 47 DISPARITY IN UNRESTRICTED GENERAL REVENUE PER STUDENT 95 TH TO 5 TH Percentile Ratio, 1992 2018, December 2016 Est 48 24
Source: MDE 49 50 25
Source: MDE 51 Source: MDE 52 26
Source: MDE Source: MDE 54 27
5) State General Fund Budget November 2016 Forecast ($ in millions) FY 2016-17 FY 2018-19 Beginning Balance 2,103 2,982 Revenues 42,382 45,321 Spending 41,502 44,585 Balance Before Reserves 2,982 3,718 Cash Flow & Budget Reserve 2,280 2,280 Stadium Reserve 24 38 Forecast Balance $678 $1,400 55 56 28
6) School Finance Info on the Web School finance overviews on MN House of Representatives web site: http://www.house.leg.state.mn.us/ Financing Education in Minnesota, 2015-16 (Short version 73 pages) Minnesota School Finance: A Guide for Legislators (Long version 126 pages) 57 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) 58 29
Questions? For additional information, please contact: Tom Melcher, Director School Finance Division 651-582-8828 tom.melcher@state.mn.us 59 30