Funding Minnesota Schools

1. Funding Minnesota Schools Presentation to Robbinsdale LAC September 29, 2009

2. Financing Minnesota’s Public Schools Minnesota’s public schools are financed through a mix of state aid and local property taxes. Most of the financing is based on the number of pupils served by each school district. This packet sets the context for school funding. The first several pages highlight Minnesota’s general fund budget and the portion used for K-12 programs. The next group of pages provide a cursory review of school districts’ role in the property tax system and contrasts school district funds from state and the local property tax levy. The next several pages display enrollment trends and some general school district characteristics. The last few pages show graphs of school revenue and expenditures by category.

3. Summary of State Resources The state raises revenue through a variety of taxes including: • Individual income tax; • Sales tax; • Corporate income tax; • Statewide business property tax; and • Other smaller taxes. House Research Department

4. Summary of State Spending The state spends its revenue on programs including: • K-12 education; • Health care and human services spending; • Higher education; • Local government aids; and • Other smaller programs. House Research Department

5. Unallotment • The Governor has used extraordinary powers granted to him under the unallotment statute (Minn. Stat. section 16A.152, subd. 4) to reduce spending in a number of areas and to implement delays in school aid payments that mimic the property tax recognition and aid payment shifts. • The Governor has lowered the portion of each district’s state aid that is paid in the current year from 90% to 73% of the district’s aid entitlement beginning in FY 2010. • In the next year, the Governor intends to withhold state aid in May and June to cause aid savings similar to the savings that would result if the property tax recognition shift had been enacted in law. House Research Department

6. Unallotment • These aid payment shifts save the state about $1.7 billion in the 2010-11 biennium and while they affect school districts’ cash flow and borrowing needs, do not affect school district revenue. • The Department of Finance has not yet reissued fund statements, so the following graphs show state aid prior to the unallotment activities. House Research Department

7. Where the Money Comes FromFY 10-11 General Fund $31.463 Billion House Research Department

8. Where the Money GoesFY 10-11 Spending $33.789 Billion House Research Department

9. Where the Money Comes FromFY 10 General Fund $15.353 Billion House Research Department

10. Where the Money GoesFY 10 Spending $16.309 Billion House Research Department

11. Property Tax Overview Property taxes have been a major part of school district funding for most of the last 100 years. Changes made by the 2001 Legislature have substantially reduced the share of property taxes that go to school districts but school districts are still the second largest user of property taxes. House Research Department

12. Taxable Market Value by Property TypeTaxes Payable in 2009 $581 Billion House Research Department

13. Taxes Paid by Property TypeTaxes Payable in 2009 $7.713 Billion House Research Department

14. Property Taxes Payable in 2009By Type of Government $7.713 Billion House Research Department

15. Student Enrollment and Counting Students • Public school enrollment in Minnesota peaked in1972 at the height of the baby boom. • Public school enrollment fell sharply from 1973 to 1985 then increased at a moderate rate from 1985 to 2001. • Statewide enrollment peaked in 2002 and has been slowing declining since that time. • Enrollment changes are very different across the state. • Most school districts have faced declining enrollment during the last 5 years. • Minnesota has a few very large school districts and many very small school districts. House Research Department

16. Minnesota School Enrollment1960 to 2015 House Research Department

17. School Enrollment by RegionFY 2009 House Research Department

18. School District 5 Year Enrollment Change by Region FY 2005 to 2009 EastCentral 7 County Metro SouthCentral Southeast NorthCentral Southwest Northwest WestCentral Northeast House Research Department

19. Percent of Students Enrolled by School Size Quintile FY 2009 68 Largest Districts 68 Second Largest Districts 68 Middle Districts 68 next Smallest Districts 68 Smallest Districts House Research Department

20. State Aid For Schools The percentage of state aid for school districts, as measured by aid plus levy (which excludes federal funds and other local funds such as fees for food service, etc.) had been fairly constant during the 1970s, 1980s and early 1990s. The state aid began increasing in the late 1990s, and the 2001 overhaul of the state’s property tax system increased the state share of K-12 funding to nearly 90% of the total. Since that time, the state share has been steadily decreasing so that the state share for FY 2008 is now about 82% of total revenue. House Research Department

21. Percent of K-12 Aid & Levy From State AidFor Fiscal Years 1984 to 2009 House Research Department

22. Total Revenue for EducationTotal Revenue $10.389 Billion FY 2009 House Research Department

23. General Education Revenue$6.539 Billion in FY 09 General Education Revenue consists of several components including: • Basic Aid--$4,868 million • Extended Time--$62 million • Compensatory Revenue--$348 million • Limited English Proficiency (LEP) Funding--$41 million • Training and Experience Revenue--$1 million • Operating Sparsity Revenue--$23 million • Transportation Sparsity Revenue--$61 million • Operating Capital Revenue--$195 million • Equity Revenue--$94 million • Gifted and Talented Revenue--$11 million • Qcomp Revenue $66 million • Transition Revenue--$30 million • Pensions Adjustment Reduction– ($31 million) • Referendum Revenue--$722 million House Research Department

24. General Education Revenue byComponent $6.539 Billion FY 2009 House Research Department

25. School District RevenuePer Student 1984 to 2009 House Research Department

26. Revenue per Student LessBuilding Debt and Special Ed Expenses House Research Department

27. Inflation Adjusted Revenue per StudentLess Building Debt and Spec Ed Expenses House Research Department

28. Special Education • Minnesota’s school districts receive special education funding through a formula that partially reimburses the district’s costs. • Federal funds are significant, but meet only a small portion of school’s special education costs. • The “cross-subsidy” describes the gap between state funding and a district’s special education spending. House Research Department

29. Special Education Revenue and Expenses 1999-2013 House Research Department

30. Minnesota ARRA Stimulus Allocations • Stabilization Fund--$816 million ($500 million is for K-12 education and is a one-time offset against the state’s general education payments for FY 2010, $168 million is for higher education, $100 million is for human services programs and $38 million is for corrections programs) • Special Education Grants--$205 million of which $190 million is for Part B grants • Title 1 grants--$122 million of which $95 million is for direct grants to school districts House Research Department

31. Additional Resources Additional information on Minnesota’s school finance system is available online. The following sources may be of help: • Detailed description of Minnesota’s school finance system http://www.house.leg.state.mn.us/hrd/topics.asp?topic=7#Finance_105 • Federal stimulus documents on MDE’s website http://education.state.mn.us/MDE/About_MDE/News_Center/Fed_Stimulus_Update/index.html • Fiscal worksheets prepared by the House fiscal analysis department http://www.house.leg.state.mn.us/fiscal/commpage.htm#K12 House Research Department