1. STATE EQUALIZATION & GENERAL AID ERIN FATH – ASSISTANT DIRECTOR DPI SCHOOL FINANCIAL SERVICES TEAM AUGUST 14, 2013 WASBO New School Administrators and Business Support Staff Conference

2. Equalization & General Aid 2 So … you’ve just learned about Revenue Limits and that the amount of Equalization / General Aid your district receives will impact the levy your district can set. During this presentation, you will: 1. Learn how Equalization/General aids are calculated (including the resources on the DPI web site). 2. Have the opportunity to ask questions to further your understanding of equalization/general aid (and revenue limits/levy). 3. See how your district’s aid amount figures into the revenue limit worksheet to produce your district’s levy each year.

3. Equalization & General Aid 3 Why do you need to know how to calculate Equalization/General Aid when DPI calculates it for you? Because you will be asked by your board members, your community and the media. So you can better understand AND explain why your aid has changed. Because you may want to do your own analysis and run “what if” scenarios …

4. 4 Knowing where your district is in the formula will help you better explain how changes in local finances might affect your state aid. What if we over/under spend our budget? How does that affect our aid? If we go to referendum, how will our aid change? Equalization & General Aid

5. Handouts 5 District Specific Data 1.July 1 Estimate of 2013-14 Equalization Aid (“General Aid Worksheet”) 2.Percentage Method Aid Computation: Bar Graph 3.Positioning on the Equalization Aid Graph 4.Longitudinal Analysis of Equalization/General Aid

6. Equalization & General Aid 6 Under Article 10 of WI State Constitution the State Legislature is responsible for establishing school districts, which are to be: “as uniform as practicable……” “free and without charge to tuition to all children” How does the State of Wisconsin achieve this?

7. Equalization & General Aid 7 The State provides financial assistance to school districts in order to: 1. To reduce the reliance upon the local property tax as a source of revenue for educational programs. 2. To guarantee that a basic educational opportunity is available to all pupils regardless of the local fiscal capacity of the district in which the reside. A student should not be unfairly disadvantaged as a result of where he or she lives

8. Equalization & General Aid 8 Three types of aid that the State provides to districts: 1. Unrestricted “General Aid”: Equalization Aid a. Distributed primarily by formula on the basis of relative fiscal capacity of each school district – this is Equalization Aid. b. Also includes “Special Adjustment Aid” and “Integration Aid” c. High Poverty Aid is funded from a separate appropriation, but treated like General Aid for revenue limit & spending purposes. 2. Categorical aids – targeted purpose 3. School levy tax credit –reduces property tax bills. This presentation will discuss just General Aids, with a primary focus on Equalization & Special Adjustment Aids.

9. Why Equalization Aid? One of the primary funding mechanisms for public K-12 education in Wisconsin is the local property tax, but …. Property values vary greatly from district to district 9

10. Property Value per Member 10 51% of districts w/ Equal. Value / Member <$500k 2013 Certified Values, DOR

11. Why Equalization Aid? 11  How, then, to establish funding for schools that provides “equal opportunity,” and is “uniform as practicable”?  The fundamental purpose of the Equalization Aid formula is to “level the playing field” by providing assistance (distributing aid) to poorer districts to make up for what they can’t get from their property tax base.

12. Why Equalization Aid? 12 Because property values vary so greatly across the state, the resources districts can raise from just their tax base also vary.

13. Why Equalization Aid? 13 Districts with less property value per member are aided at a higher proportion than districts with higher values per member

14. Equalization Aid – General Concept 14 State “shares” in district cost Aid is based on a district’s ability to pay, as measured by its property wealth per member The formula operates under the principle of equal tax rate for equal per pupil expenditures – levels the playing field by providing more aid to districts with fewer resources (property value)

15. Analogy: Needs-Based College Scholarship State “shares” in district cost, just as the College shares in the student’s costs (tuition/books/housing) Aid is based on ability to pay (measured by districts’ property value per member) just as the scholarship is based on need … ability to pay (measured by student’s financial resources) State aid attempts to level the playing field for districts just as a needs based scholarship attempts to level the playing field for individual students 15

16. Equalization Aid 16 “State Factors” The total amount of money allocated for general aid Cost ceilings State property value guarantee levels What are the factors that affect aid? “District Factors” The number of pupils (membership) in your district Your district’s shared (aidable) costs Property values in your district

17. District Factors 17 1. Pupils – Membership 2. Shared Costs 3. Property Tax Base – Wealth * * * All Prior-Year Data (2012-13 data is used for 2013-14 aid.) * * * Equalization Aid is a cost-reimbursement formula

18. District Factor #1 – Membership (prior year) 18 Average of: 3rd Friday in September (FTE)* and 2nd Friday in January (FTE)* plus (+) Summer School (FTE ) Includes Foster Care/Part-Time/YCA pupils (as applicable) FTE = full-time equivalent: 2 halftime (.50) K students = 1 FTE Summer School = 48,600 minutes = 1 FTE 2013-14 aid based on membership derived from: Summer 2012* FTE, September 2012 & January 2013 *NOTE that summer starts the school year for membership data purposes

19. District Factor #2 – Shared Costs (prior year) 19 Total General Fund (Fund 10) Expenditures plus (+) Total Debt Service Funds (Funds 38 & 39) Expenditures minus (-) All categorical aid, grant revenue, local misc revenue equals (=) Shared Cost (a.k.a. “Aidable Costs”) – these are the costs in which the state shares with the district via equalization aid

20. District Factor #3 – Wealth (prior year) 20 Property Tax base is used to determine wealth and ability to support district expenditures This measure of district wealth uses equalized valuation (fair market value), NOT assessed value Equalized property values are calculated by and provided to DPI by the Department of Revenue. Timing: DOR assessments on Jan 1, 2012 became “final” in May 2013 – we use these “May values” for the 2013-14 aid calculation.

21. District Factor #3 – Value Per Member 21 Crucial Statistic: District “wealth” Value per Member = Total Equalized Value ÷ Membership District A: $400,000,000 ÷ 800 = $500,000 District B: $400,000,000 ÷ 1,000 = $400,000 District B would have a higher proportion of it’s shared costs aided, per member, than district A, because of its lower value per member.

22. District Factors/Equalization Aid 22 VERY IMPORTANT: The equalization aid formula is driven by the relationship between an individual district’s factors and state averages (costs & property values). Because changes in other districts’ factors will affect state averages, it is not simply the factors in your district that affect the amount of aid that your district will receive. Let’s look at the State factors …

23. State Factors 23 1. Total amount appropriated for aid 2. Costs Ceilings 3. Property Value Guarantees

24. State Factor #1 – Aid Appropriation 24 The amount of dollars appropriated by the State Legislature & approved by the Governor for use as general aids to schools. Aid Year General Aid (Billions) % Change from Prior Year 2001-02 $4.052 2002-03 $4.2013.7% 2003-04 $4.2731.7% 2004-05 $4.3181.0% 2005-06 $4.6146.9% 2006-07 $4.7232.4% 2007-08 $4.7230.0% 2008-09 $4.8001.6% 2009-10 $4.653-3.1% 2010-11 $4.6530.0% 2011-12 $4.262-8.4% 2012-13 $4.2940.7% 2013-14 $4.3411.1% 2014-15 $4.4161.7%

25. State Factor #1 – Aid Appropriation 25 The change in the State’s appropriation for General Aid does NOT EQUAL the change in your district’s general aid payment. Rather, your district’s General Aid amount will depend on: Your district’s prior-year Shared Costs per Member, and how those costs break out into the Secondary and Tertiary level costs Your district’s Equalized Value per Member, and how it compares to the Primary, Secondary and Tertiary Guarantee Values *Other Factors: Special Adjustment and Chapter 220 Integration Aid eligibility; reductions for the Independent Charter schools; prior year adjustments.

26. State Factor #2 – Costs Ceilings 26 Equalization Aid is calculated at three levels – the line between those levels are called “cost ceilings”: *Not all districts have shared costs at the tertiary level. PRIMARY COST CEILING: $1,000 per member, set in statute PRIMARAY COSTS: the first $1,000 in per-member shared costs x total membership SECONDARY COST CEILING: 90% of the statewide average shared costs per member (statute); July 1 st aid est: $9,261 SECONDARY COSTS: shared costs per member between $1,000 and the secondary cost ceiling x total membership There is no ceiling on the total amount of shared costs that are aidable. TERTIARY COSTS *: shared costs per member above the secondary cost ceiling x total membership

27. State Factor #2 – Costs Ceilings 27 Example District: Shared Costs per Member = $10,000 $1,000 (Primary Cost Ceiling) $9,261 (Secondary Cost Ceiling)

28. State Factor #3 – Guarantee Levels 28 Within each level, the proportion of shared costs that are aided by the state is based on a district’s property value per member (“wealth”) compared to state determined levels*: PRIMARY GUARANTEE $1,930,000, set in statute SECONDARY GUARANTEE This value “floats” such that the general aid appropriation is fully expended July 1 st aid estimate for 2013-14: $ 1,049,683 TERTIARY GUARANTEE 100% of the statewide average property value per pupil (formula set in statute) July 1 st aid estimate for 2013-14: $536,510 *These are the guarantee levels for K-12 districts; guarantees levels are adjusted for K-8 and UHS districts.

29. Remember the Scholarship Analogy? 29 The scholarship example we used as an analogy still works, but we do it three times to determine each district’s aid: 1.PRIMARY AID – the state’s share of the first $1,000 of shared cost. 2.SECONDARY AID – the state’s share of the district’s shared cost over $1,000 up to the secondary ceiling (est. $9,261). 3.TERTIARY AID – the state’s share of cost over the secondary ceiling.

30. Putting it all Together 30 LEVEL Dist Val / Member Guar Val / MemberDist Share State Share Cost Ceiling Aid / Member PRIMARY$500,000$1,930,00025.91%74.09%$1,000$741 SECONDARY$500,000$1,049,68347.63%52.37%$8,261$4,326 TERTIARY$500,000$536,51093.19%6.81%$739$50 TOTAL AID PER MEMBER51.17%$10,000$5,117 Example District: Shared Costs per Member = $10,000 Value per Member = $500,000 Cost Ceilings and Guarantee Values = July 1 st aid estimate values

31. Putting it all Together 31 Example District: Shared Costs per Member = $10,000 $1,000 (Primary Cost Ceiling) $9,261 (Secondary Cost Ceiling) Local (prop tax) State (Equal Aid) TOTAL

32. Putting it all Together 32 What happens when a district’s value/member exceeds the guaranteed value per member? NEGATIVE AID July 1 st Aid Estimate: 184 districts are negatively aided at the tertiary level because their property value/member is greater than the tertiary guarantee. Of these districts:  43 Districts received just Primary Aid; and  20 districts receive no Equalization Aid (i.e., do not qualify for even Primary Aid). [All but 2 of those districts qualify for Special Adjustment Aid – more in later slide].

33. Negative Aid 33 NEGATIVE TERTIARY AID Occurs when: District has costs at the Tertiary Level District has Equalized Value/Member > TGV Negative aid reduces the district’s aid at the secondary level But the district’s Equalization Aid can not go below the amount of Primary Aid generated by the formula – this is the “Primary Guarantee”

34. Negative Tertiary Aid 34 District’s value per member is greater than the Tertiary Guarantee District has costs at the tertiary level Negative Tertiary Aid reduces the amount of aid at the Secondary Level District Value per Member:750,000 LEVEL Guar Val/Mem Dist ShareState ShareCost CeilingTotal Aid PRIMARY$1,930,00038.86%61.14%$1,000$611 SECONDARY$1,049,68371.45%28.55%$8,261$2,359 TERTIARY$536,510139.79%-39.79%$739-$294 TOTAL EQUALIZATION AID:26.76%$10,000$2,676

35. Negative Tertiary Aid 35 Example District: Shared Costs per Member = $10,000 $1,000 (Primary Cost Ceiling) $9,261 (Secondary Cost Ceiling) Local (prop tax) State (Equal Aid) TOTAL

36. Negative Aid – Primary Aid Only (1) 36 District’s value per member is greater than the Tertiary Guarantee District has costs at the tertiary level A district is always eligible for at least the Primary Aid generated by the formula District Value per Member:1,035,000 LEVEL Guar Val/Mem Dist ShareState ShareCost CeilingTotal Aid PRIMARY$1,930,00053.63%46.37%$1,000$464 SECONDARY$1,049,68398.60%1.40%$8,261$116 TERTIARY$536,510192.91%-92.91%$739-$687 Sum of aid at each level-$107 TOTAL EQUALIZATION AID:4.56%$10,000$456

37. Negative Aid – Primary Aid (1) 37 Example District: Shared Costs per Member = $10,000 $1,000 (Primary Cost Ceiling) $9,261 (Secondary Cost Ceiling) Local (prop tax) State (Equal Aid) TOTAL

38. Negative Aid – Primary Aid (2) 38 District’s value per member is greater than the Secondary Guarantee District has costs at the tertiary level A district is always eligible for at least the Primary Aid generated by the formula District Value per Member:1,500,000 LEVEL Guar Val/Mem Dist ShareState ShareCost CeilingTotal Aid PRIMARY$1,930,00077.72%22.28%$1,000$223 SECONDARY$1,049,683142.90%-42.90%$8,261-$3,544 TERTIARY$536,510279.58%-179.58%$739-$1,327 Sum of aid at each level-$4,648 TOTAL EQUALIZATION AID:2.23%$10,000$223

39. Negative Aid – Primary Aid (2) 39 Example District: Shared Costs per Member = $10,000 $1,000 (Primary Cost Ceiling) $9,261 (Secondary Cost Ceiling) Local (prop tax) State (Equal Aid) TOTAL

40. Negative Aid – Primary Aid (3) 40 District’s value per member is greater than the Secondary Guarantee District has NO costs at the tertiary level: Shared Cost/Member = $9,000 A district is always eligible for at least the Primary Aid generated by the formula District Value per Member:1,500,000 LEVEL Guar Val/Mem Dist ShareState ShareCost CeilingTotal Aid PRIMARY$1,930,00077.72%22.28%$1,000$223 SECONDARY$1,049,683142.90%-42.90%$8,000-$3,432 TERTIARY$536,510279.58%-179.58%$0-$0 Sum of aid at each level-$3,209 TOTAL EQUALIZATION AID:2.23%$9,000$223

41. Negative Aid – Primary Aid (2) 41 Example District: Shared Costs per Member = $9,000 $1,000 (Primary Cost Ceiling) $9,261 (Secondary Cost Ceiling) Local (prop tax) State (Equal Aid) TOTAL

42. No Equalization Aid 42 District’s value per member is greater than the Primary Guarantee District has costs at the tertiary level A district would be eligible for Special Adjustment Aid, if they received any General Aid in the prior year District Value per Member:2,000,000 LEVEL Guar Val/Mem Dist ShareState ShareCost CeilingTotal Aid PRIMARY$1,930,000103.63%-3.63%$1,000-$36 SECONDARY$1,049,683190.53%-90.53%$8,261-$7,479 TERTIARY$536,510372.78%-272.78%$739-$2,016 Sum of aid at each level-$9,531 TOTAL EQUALIZATION AID:0.00%$10,0000

43. 43 Know Your District’s Position in the Aid Formula If a districts is positively aided at the Tertiary Level, an increase in shared costs will increase aid at the tertiary level – more shared costs to be aided* If a district is negatively aided a the Tertiary Level, an increase in shared costs will decrease aid at the tertiary level – more shared costs to be negatively aided* *Relative to the aid it otherwise would have received (i.e., all other things being equal).

44. Conceptualizing the Equalization Aid Formula 44 This chart is available on the DPI website at: http://sfs.dpi.wi.gov/sfs_aid_grid Equalized Value Per Pupil (July 1 st, 2013 Estimate) Cost Ceilings (July 1 st, 2013 est) Up to $536,510 per pupil Above $555,348 up to $1,049,683 Above $1,049,683 up to $1,930,000 Above $1,930,000 per pupil Primary Level: Up to $1,000 per Pupil Positive Aid Zero Aid* Secondary Level: Above $1,000 up to $9,261 per Pupil Positive Aid Negative Aid Tertiary Level: Over $9,261 per Pupil Positive AidNegative Aid *May be eligible for special adjustment aid if any general aid was received in prior year.

45. Equalization Aid 45 Regardless of what is happening at the state level with funding, your district’s general aid is a function of: Your district’s “factors” The relationship between your district’s factors and the statewide averages, which are affected by …. Every other districts’ factors

46. Equalization Aid is part of “General Aid” Type of Aid # of Districts Receiving * 13-14 Aid [July 1 st Est.] (Prior to Choice/Charter deductions) % of General Aid Appropriation Equalization404$4,246,601,70897.8% Special Adjustment77$26,038,4850.6% Inter-District23$23,209,8980.5% Intra-District4$45,742,0201.1% Total General Aid422$4,341,592,111100.0% NO GENERAL AID2 *Aid types are not mutually exclusive, so numbers will not add to the 424 total districts in Wisconsin. *In the July 1 st Aid estimate: 345 districts received Equalization Aid but no Special Adjustment Aid; 18 districts received Special Adjustment Aid only; and 59 districts received both. All districts that receive Inter- and Intra- District aid also received Equalization Aid. 46 All four General Aid types are used for the Revenue Limit computation (though most districts receive only Equalization Aid)

47. Special Adjustment Aid 47 To ensure that districts don’t see a dramatic drop in aid amounts from year to year, the aid formula includes “Special Adjustment Aid.” Sometimes called “hold harmless aid” Equal to 85% of the gross general aid (equalization + special adjustment + Inter/Intra District aids) for which the district was eligible in the previous year* Acts as a parachute for districts with declining aid (often result of rapidly declining enrollment). Very property wealthy districts may be “out of the aid formula” but continue to receive Special Adjustment Aid for years. *Less any prior year Revenue Limit Penalty (because that amount was deducted from the district’s prior year general aid payment)

48. From Gross Aid Eligibility to Actual Aid Payment 48 Reductions/adjustments to general aid eligibility: 1. Independent (“2r”) Charter Schools: cost is spread over all districts via an equal % reduction to gross general aid (equalization/special adjust/inter/intra aids) July 1 st aid estimate for 2013-14 aid: -1.479% May change in the October 15 th aid certification (small change) 2. Prior Year (“October to June”) adjustment: the difference in general aid amounts calculated between the October 15 th aid certification and the final aid run of the prior year (+ or – value) 3. Parental Choice Program: reduction in aid to partially offset the cost of the program – but affects Milwaukee only

49. Equalization Aid Takeaways 1.One pot of money is split over 424 school districts based on district membership, shared costs and values; changes in individual district data affect every other district’s aid. 2.Aid Membership = average of September + January FTE, plus 100% of Summer FTE. This is different from Revenue Limit Membership. 3.Depending on district value per member, some districts increase their aid by increasing expenses, while others decrease their aid by increasing expenses (negative vs. positive tertiary aid). 4.Special Adjustment Aid ensures that districts receive at least 85% of the [gross] general aid awarded the prior year. 5.Reductions for the Independent Charter schools & prior year aid adjustments impact the actual aid payment. 6.Be aware of what is happening to your district over time … 49

50. GENERAL AID AND THE LEVY 50 You know your district’s general aid estimate for the 2013-14 year – now what? The amount of General Aid (and High Poverty Aid, if applicable) has a direct impact on the allowable controlled levy.

51. SETTING THE LEVY 51 A district’s maximum controlled levy is, in effect, determined by State Law: Revenue Limit Calculation (including exemptions, e.g., referenda, declining enrollment, energy efficiency) Equalization / General Aid Formula & High Poverty Aid 11.2012-13 Revenue Limit With All Exemptions (Ln 9 + Ln 10)10,000,000 12.Total Aid to be Used in Computation (12A + 12B)5,050,000 A. July 1 2012-13 General Aid ESTIMATE 5,000,000 B. State Aid to High Poverty Districts (not all districts) Source 628 50,000 REMEMBER TO USE OCT 15 CERT WHEN SETTING THE LEVY. 13.Allowable Limited Revenue: (Line 11 - Line 12)4,950,000 (10, 38, 41 Levies + Src 691. Src 691 is DOR Computer Aid.)

52. SETTING THE LEVY 52 A district’s actual levy involves decisions by the Board: Fully utilize the allowable revenue authority? Levy outside the revenue limit? (e.g., Fund 80) 14.Total Limited Revenue To Be Used (A+B+C)Not >line 134,950,000 Entries Required Below: Amounts Needed by Purpose and Fund: A.Gen Operations: Fnd 10 including Src 211 & Src 6914,900,000 (Proposed Fund 10) B.Non-Referendum Debt (inside limit) Fnd 38 Src 21050,000 (to Budget Rpt) C.Capital Exp, Annual Meeting Approved: Fnd 41 Src 210 0(to Budget Rpt) 15.Total Revenue from Other Levies(A+B+C+D):100,000 A.Referendum Approved Debt (Non Fund 38 Debt-Src 210) Entry Required B. Community Services (Fnd 80 Src 210) 100,000(to Budget Rpt) C.Prior Year Levy Chargeback (Src 212) (to Budget Rpt) D.Other Levy Revenue - Milwaukee & Kenosha Only (to Budget Rpt) 16.Total Levy + Src 691, "Proposed Levy" (Ln 14 + Ln 15) 5,050,000 17.Est Src 691 (Comp Aid) Based on Ln 16 & Values Entered(to Budget Rpt)7,500 18.Fnd 10 Src 211 (Ln 14A-Ln 17), 2012-13 Budget 4,892,500 Line 18 (not 14A) is the Fund 10 Levy certified by the Board. 19.Total Fall, 2012 All Fund Tax Levy (14B + 14C + 15 + 18)5,042,500 Line 19 is the total levy to be apportioned in the PI-401.Levy Rate =

53. Equalization Aid – Explaining Changes Over Time 53 How can I explain changes in my district’s aid? 10-Year Longitudinal Analysis of General and Equalization Aid Formula Components http://sfs.dpi.wi.gov/sfs_buddev_eq “Longitudinal Data – Equalization Aid” See “Explaining General Aid (including Equalization Aid) Changes”

54. 10 Year Longitudinal Analysis 54

55. 10 Year Longitudinal Analysis 55

56. 10 Year Longitudinal Analysis 56

57. 10 Year Longitudinal Analysis 57

58. Understanding & Explaining Equalization Aid 58 More analytical tools http://www.dpi.wi.gov/sfs/buddev_eq.html “Understanding and Explaining Equalization Aid”  October 15, 2012 Equalization Aid Computation – Percentage Method - Algebraic Format  October 15, 2012 Equalization Aid Computation – Percentage Method - Bar Graphs  October 15, 2012 Aid Formula Position K-8  October 15, 2012 Aid Formula Position UHS  October 15, 2012 Aid Formula Position K-12

59. Understanding & Explaining Equalization Aid 59 More analytical tools In addition to the “production” worksheets on our website, DPI has available blank executable worksheets: General Aid Worksheet Equalization Aid – Algebraic Method Special Adjustment Aid Shared Costs, Membership Revenue Limits http://sfs.dpi.wi.gov/sfs_workexe From the School Financial Services Homepage left-hand side, grey scan bar Worksheets DPI Executable Worksheets

60. Or call (all 608 area codes) : 60 Bob Soldner, Director ……………………….. 266-6968 Erin Fath, Assistant Dir ……………………..267-9209 Brad Adams, Consultant ……………………267-3752 Bruce Anderson, Consultant..…………….267-9707 Dan Bush, Consultant (Spec Ed).………..267-9212 Gene Fornecker, Auditor …………………..267-7882 Brian Kahl, Auditor ……………………………266-3862 Michele Tessner, Auditor …………..……….267-9218 Questions? Visit our web site: http://sfs.dpi.wi.gov/