K-12 Education Finance The K-12 Education Finance Omnibus Act (2001 First Special Session, Laws of Minnesota, hapter 6) authorized $8.7 billion in state aid for K-12 Education. This compares with the November forecast of current law 2002-03 K-12 education spending of $8.3 billion, an increase of $392.2 million, or 4.7 percent. When compared to spending in FY 2001 of $4.2 billion, the FY 2002 appropriation of $4.3 billion is an increase of 1.8 percent. The FY 2003 appropriation of $4.5 billion is an increase of 3.3 percent over the FY 2002 appropriation. Education property taxes are slightly higher than current law. Property taxes for FY 2002 (the pay 2001 property taxes already being levied) decreased by $17.2 million from FY 2001, or 1.0 percent, to $1.9 billion. Property taxes for FY 2003 (payable 2002) are estimated to increase by $154 million, or 8 percent over FY 2002, to $2.0 billion. The enacted FY 2003 levy amount is $234,000 more than current law levies for FY 2003. However, there are significant other changes that are in the Omnibus Tax Act, which greatly reduce school levies for property taxes paid in calendar year 2002 for FY 2003. These changes are not included in this summary. The following summarizes the provisions in chapter 6, with the costs expressed as a biennial total increase over the FY 2002-03 base, unless otherwise noted: General Education Approximately $290 million to pay for increases in the basic formula each year. The basic formula amount increases by 2.6 percent between FY 2001 and FY 2002, and by 2.6 percent between FY 2002 and FY 2003. For FY 2002, the formula increases from $3,964 in FY 2001 to $4,068, and for FY 2003 increases again to $4,601. There are three components to the changes in the formula between FY 2001 and FY 2003, of which the latter two may not increase district revenue: a 2.6 percent increase each year, an increase due to conversion of excess levy referendum, and a roll-in, as explained in the following table: FY 2002 FY 2003 Prior Year Formula $3,964 $4,068 urrent Year Formula $4,068 $4,601 Net hange $104 $533 Referendum onversion $0 $415 Assurance of Master Roll-In $0 $14 Net Increase $104 2.6% $104 2.6% Approximately $70 million to pay for a conversion of districts referendum revenue to basic formula revenue, effective in FY 2003 and later. The formula amount increases $415 to accomplish this, and each district in the state with $415 or more per pupil of excess operating referendum levy will have $415 per pupil of their referendum revenue eliminated. Those districts will, generally, not see K-12 Education Finance, Page 1
a revenue change from this conversion. Any district with less than $415 in excess levy referendum will have all of its excess levy eliminated, but will see a net increase in revenue, as the formula increase is greater than the loss in referendum revenue. The cost of the proposal comes from those districts who get a revenue increase, as well as the cost of other formulas which key off of the basic formula increasing due to the $415 additional on the formula. Approximately $26 million for increased equity funding. More districts will qualify for equity revenue, as the limit for qualification is increased from those with revenue below the 90 th percentile in their region, to include those below the 95 th percentile in their region. In addition, qualifying districts will receive more revenue, as the formula is changed from $30 times the district s equity index to $55 times the index. $1.1 million in lost State interest due to a speeding up of State payments to school districts to offset slower payments from the elimination of the general education levy in the tax bill. $131,000 in lost interest income to the Permanent School Fund due to a diversion of certain revenues. $2.0 million to increase supplemental revenue for the Anoka-Hennepin and Duluth school districts. $273,000 in tornado relief for the Yellow Medicine East school district, to offset declining enrollment. $410,000 for the Little Falls school district, to allow them to pay back a $500,000 penalty from 1998 and 1999 over 5 years, and to allow them to study the creation of a laboratory school for innovative teaching techniques, in conjunction with MNSU and St. loud State University. Education Excellence $2.5 million beginning in FY 2003 for a new 7 th grade test. $250,000 to expand the international baccalaureate and advanced placement programs. $2.3 million in changes to the integration revenue program. The Minneapolis school district had its integration revenue amount reduced, on a per pupil basis, to what the St. Paul school district receives, school districts which have more than 15 percent of their students in protected classes had their maximum revenue per pupil increased from $93 to $130, and districts which do not currently qualify for integration revenue, but which are a member district of a multidistrict integration collaborative, now qualify for revenue. $400,000 to increase First Grade Preparedness at the same rate by which the basic formula increased. $500,000 for the ISEEK (Internet System for Education and Employment Knowledge) program. K-12 Education Finance, Page 2
$8 million for an alternative compensation program for teacher pay. Districts must develop educational improvement plans to qualify for $150 per pupil in alternative compensation aid. The plans must include measures for improving school district, school site, teacher and individual student performance. Further, districts are expected to move away from the traditional steps and lanes method of compensation and provide incentives for teachers to develop their knowledge and skills and for school districts to recruit and retain highly qualified teachers, and to support teachers' role in improving students' educational achievement. $200,000 for reading competency grants. $2.5 million to hire an independent school evaluation service to evaluate and report on academic and financial performance of individual school districts. $20,000 for a study of Limited English Proficiency programs. $10,000 for a study of student transportation and transportation related costs. $12.6 million in additional levy authority for FY 2003 for school districts to continue funding areer and Technical programs. Special Education programs recommended for reduction or elimination Reduce Magnet School and Program Grants, savings $1.3 million Reduce Education & Employment Transitions / School-to-Work, savings $3.4 million Eliminate the Learn & Earn Program, after FY 2002, savings $725,000 Reduce Best Practices Grants, savings $1.3 million Special Education $50,000 for a study of attention deficit disorder and attention deficit hyperactivity disorder, and the number of students diagnosed as such and taking sympathomimetic medications, such as Ritalin. $500,000 to develop, administer and train districts in the use of an internet based application for the individual interagency intervention plan. $350,000 for regional training sites for HIV/STI education in schools. Facilities And Technology $30.8 million in savings ($1.7 million aid, $29.1 million in levy) in debt service equalization, due to the increased enforcement of debt redemption fund balance reductions. $2.9 million in savings in the Telecommunications Access Revenue Program. $800,000 for statewide licenses to on-line databases for school media centers, public libraries, state government agency libraries, and public or private college or university libraries K-12 Education Finance, Page 3
$100,000 for grants to school districts and charter schools for additional pupils taking courses online. Nutrition Programs $285,000 to convert the Fast Break for Learning program from a grant program to a formula-based program. Perpich enter for Arts Education $697,000 over its base budget for salary increases, statewide professional development and whole school arts curriculum development. Minnesota State Academies for the Deaf and Blind $1.2 million over its base budget for salary increases, program improvements, and safety reforms. Department of hildren, Families and Learning $3.1 million for salary increases, upgrading the system used for teacher licensure, adding staff for the minor maltreatment, care and treatment and charter school areas, and a pass-through grant for the Duluth hildren s Museum. Implications The overall level of funding in this act, both aid and levy, as well as the changes in the Omnibus Tax Act will mean that the state share of education funding for FY 2002 will be 72.4 percent, and in FY 2003 will be 87.3 percent. The tax bill has significant implications for debt service and excess operating referenda. In addition to changes in equalization rates, changes in the tax bases upon which those levies are assessed will have an impact on the ability of voters to pass levies of these types. However, the conversion of the $415 from referendum to basic formula will, for the vast majority of school districts, eliminate the need for them to go to the voters for this funding. Their referendum will be eliminated entirely, and they would not, to maintain the same level of funding, have to go to the voters to renew that funding. There are many accountability measures in this act which will have an impact on how districts operate, both academically and financially. For example, districts will now be required to settle contracts in a way that keeps their budgets in balance for a three-year period. In addition, those contracts must be settled without the incentive of finishing prior to the current January 15 th penalty date, which is suspended for one year. Further, the commissioner of children, families and learning must develop a system for measuring and reporting students' academic achievement and individual student progress. The system components must measure the adequate yearly progress of schools and individual students and to include statewide measures of student academic achievement that identify schools with high levels of achievement and schools with low levels of achievement that need improvement. There are also many reporting mechanisms in this act which will give the districts, the public, and the Legislature additional information on how districts are functioning. For example, the current report on how districts spend their basic skills revenue has been expanded to include a component analysis of whether increased basic skills funding resulted in increased achievement. In addition, the independent K-12 Education Finance, Page 4
evaluation of school finance and education outcomes will provide significant additional information on how districts are performing. Finally, the funding for alternative teacher compensation has the potential to be the basis for a significant revision in how teachers are paid. learly, at the current level of funding, the impact of the program will be limited. It will provide, however, significant information about the possibility for alternative compensation models being successful, and my lay the groundwork for complete revision of the teacher pay system. For additional information on K-12 Finance issues, contact Greg rowe at 296-7165 or Greg.crowe@house.leg.state.mn.us K-12 Education Finance, Page 5