School Finance Working Group

School Finance Issues/Pressure Points

From Working Group Brainstorming and MDE School Finance Division Input – Updated 11-22-19

1. Basic Formula
a. The basic formula has not kept pace with inflation since 2003. Overall, the portion of total school district and charter school state aid and levy revenue funded through the basic formula has fallen from 70 percent to 53 percent, while the portion funded with referendum and local optional revenue (LOR) has increased from 5 percent to 12 percent.
b. Increased reliance on operating referendum elections and local optional revenue to fund programs has created:
i. growing variations in unrestricted revenue per student for general education programs among districts
ii. wealth-based disparities in property tax burdens among districts to fund comparable levels of revenue per student for general education programs
iii. potential funding instability, as a substantial portion of general unrestricted revenue must be renewed by voters every 10 years or less
iv. increased complexity of funding calculations
2. Special Education Cross Subsidy
a. Growing amount of special education cost not funded with categorical aid puts added pressure on unrestricted general revenues (basic formula, referendum, LOR), exacerbating the issues outlined above.
b. Uneven distribution of special education costs funded with unrestricted general revenue creates significant variation among districts in the portion of unrestricted general revenue available to fund general education programs.
3. English Learner (EL) Cross Subsidy
a. Growing amount of EL cost not funded with categorical aid puts added pressure on unrestricted general revenues (basic formula, referendum, LOR), exacerbating the issues outlined above
b. Uneven distribution of costs funded with unrestricted general revenue creates significant variation among districts in the portion of unrestricted general revenue available to fund general education programs.
4. Achievement Gap
a. What changes should be considered in school finance policies/formulas to help close the achievement gap?
i. Achievement and Integration Aid
ii. Basic Skills Revenue (Compensatory and EL)
iii. American Indian Education Aid
iv. Funding for Rigorous Coursework (e.g., Advanced Placement (AP), International Baccalaureate (IB), Career and Technical Education (CTE)
v. Targeted Grants
vi. Other
5. Pupil Support Staff to Student Ratios
a. What changes should be considered in school finance policies/formulas to help bring down Minnesota’s high ratio of pupil support staff (e.g., counselors) to students?
6. Some Funding Streams Are Not Equally Available to All School Districts
a. Q Comp (Capped)
b. Early Learning (e.g., voluntary prekindergarten/ school readiness plus (VPK / SR+), Early Learning Scholarships) (Capped)
c. Long Term Facilities Maintenance (Alternative Facilities districts are not limited to a statutory maximum revenue per pupil unit while other districts are subject to a limit).
d. Full Service Community Schools
7. Funding Streams Vary Among Different Types of Local Education Agencies
a. Charter schools receive the referendum equalization aid allowance and first tier local optional aid allowance, but not other portions of referendum and LOR funding. They also do not receive other revenues funded with levy (e.g., safe schools revenue), and receive a limited amount of extended time revenue based on 25 percent of the statewide average extended time revenue per adjusted pupil unit. Offsetting this is their ability to bill the resident school district for 90% of unfunded special education costs (100% for charter schools that serve > 70% special education students).
b. Safe Schools (Intermediate members receive added revenue; members of other coops do not.)
c. Building Lease Levies (Intermediate members receive added revenue; members of other coops do not.)
d. Tribal contract schools are funded differently from other schools. They receive tribal contract aid to guarantee a minimum amount from the combination of general education aid and federal Bureau of Indian Education (BIE) funding, but do not receive other state aids such as permanent school trust fund payments.
e. Minnesota’s school finance system currently adjusts for some geographic and economies of scale factors affecting the cost of delivering education, (e.g., transportation sparsity, elementary and secondary sparsity, small school revenue), but not for geographic wage variations. Approximately 12 states adjust school funding for regional cost differences. Should Minnesota school funding be adjusted for regional cost differences?
8. Pupil Transportation Funding
a. Wide variation in portion of expenditures funded with categorical aid creates significant variation among districts in the portion of unrestricted general revenue available to fund general education programs. Transportation sparsity formula has not been updated in many years.
9. Fees
a. Address unpaid student lunch debt?
b. Move toward universal free meal programs?
c. Reduce reliance on fees more generally?
10. Enrollment Options
a. Address financial impacts of enrollment options programs (e.g., concurrent enrollment, PSEO, open enrollment)?
b. Should referendum revenue follow students to an Area Learning Center (ALC) or Alternative Learning Program (ALP)?
11. Property Tax Levy Equalization
While the state share of overall school funding is higher than in most states, state aids are not used as efficiently as they could be to neutralize the effects of tax base disparities among districts. As a result, districts with low tax base per student must levy a significantly higher tax rate to generate the same level of revenue per student as districts with higher tax base per student. Current state levy equalization formulas should be reviewed and adjusted to make the overall approach to levy equalization more efficient and more consistent among programs. More specifically:
a. Some major levies are not equalized at all, creating significant variations between high and low wealth districts in tax rates required to raise a given amount of revenue per student and making revenue inaccessible to districts with very low tax base per student:
i. Safe Schools
ii. Achievement and Integration (30% levy portion)
b. Some levies are equalized at a very low rate, making equalization ineffective:
i. Debt Service Equalization
ii. School Age Care
c. Most levy equalization formulas are not indexed to the state average tax base per pupil, causing the state share of revenue to decline significantly from year to year as tax base grows with inflation. This is especially significant for operating referendum and local optional levies.
d. Reintroduction of a uniform local levy for basic revenue would greatly reduce the variation in tax rates between low and high tax base districts to raise comparable amounts of revenue per student.
12. School Finance System Complexity
a. Roll Local Optional Revenue into the basic formula?
b. Roll selected categorical funding streams into the basic formula?
c. Simplify Equity Revenue by eliminating separate calculations for metro and nonmetro districts?
d. Simplify special education funding?
e. Phase out some grandfather / hold harmless provisions?
f. Are current grade level pupil weights still appropriate?