Tom Melcher November 13, 2012 School Finance Reform Options

2 1.May 2011 Working Group Recommendations 2.Additional School Finance Reform Options Topics for Discussion

1.Invest in early learning, with resources targeted first to all- day kindergarten for students living in poverty. – Beginning in FY 2013, provide all-day K funding for students eligible for free or reduced-price lunches who participate in a free all-day K program open to all kindergarteners at their school. – Fund classroom observation of teachers and feedback as part of a proposed statewide early childhood quality rating and improvement system (QRIS). Funding Education for the Future May 2011 WORKING GROUP RECOMMENDATIONS

2. Roll a portion ($400) of referendum levies into the general education formula – Provide a more adequate, uniform and stable funding base for all districts and charter schools. – Lessen reliance on local referenda. May 2011 Recommendations

3.Establish a uniform general education levy by consolidating and replacing existing school levies, including a portion of existing referendum levies rolled into the formula. – There will be no increase in total school levies with a component of the levy spread on tax capacity and a component spread on referendum market value. May 2011 Recommendations

4.Simplify funding formulas and student accounting to make E-12 education funding more understandable and transparent. – Simplify student weightings – Separate declining enrollment funding from pupil weighting system – Eliminate obsolete / inequitable funding categories: Training and experience revenue Equity revenue (in combination with referendum roll-in) Transition revenue Charter Lease Aid Grandfather – Reduce the number of separate categoricals May 2011 Recommendations

5.Reform basic skills funding – Align funding more closely with educational need to better support high academic achievement for all students and closing achievement gaps. – Roll extended-time funding into compensatory formula and allocate based on concentration of poverty – Allow districts flexibility in the use of an additional 10% of compensatory revenue. – Extend eligibility for LEP funding from 5 to 7 years and expand sliding scale for concentration aid May 2011 Recommendations

6. Refocus integration funding. – Provide all districts required to submit an integration plan with $600 per student of color enrolled in the district (current average level of integration revenue per student of color) – Better define uses of integration revenue to support achieving integrated schools and closing the achievement gap. – Funding would be included in the basic skills portion of the general education revenue, and would be 100% state aid (no levy). – Some transition funding was recommended. May 2011 Recommendations

7.Recognize and reward growth in student achievement. – Create a noncompetitive grant program to recognize schools with outstanding growth in student achievement and disseminate best practices. – (Note, this recommendation is obsolete due to enactment of Literacy Incentive Aid in 2011) May 2011 Recommendations

8. Reform special education tuition billing. – Require the serving school district or charter school to cover a portion of unfunded costs for open-enrolled students. (Instead of allowing the serving district or charter school to bill the resident school district for 100% of unfunded special education costs) – Provide an exception for charter schools with an extremely high concentration of special education students. Coops and intermediates also exempted. May 2011 Recommendations

9.Recognize regional cost differences. – Roll a portion of referendum revenue into a new location equity levy for the seven county metro area ($400/PU) and for non- metro regional centers ($200/PU). – Reduce referendum grandfather cap by the amount rolled in from referendum. – Location equity revenue would be funded primarily through an equalized levy spread on referendum market value. – Additional location equity allowance equal to 1% of basic + basic skills revenue for metro districts and 0.5% of basic + basic skills revenue funded through state aid May 2011 Recommendations

10.Restore inflation-adjusted general education formula to FY 2003 level – Prices as measured by the Consumer Price Index (CPI) will increase 25.1% between FY 2003 and FY 2013 – Including the $100 added to the formula in the 2011 E-12 Education Act, the formula has increased 13.5% since FY 2003; an additional $532 would be needed to restore buying power to the FY 2003 level. – If $400 of the increase is covered by a roll-in of referendum revenue, an additional $132 would be needed to restore the buying power of the formula to the FY 2003 level. May 2011 Recommendations

11.Reduce charter school lease aid. – Reduce charter school lease aid formula from 90% of costs not to exceed $1,200 per pupil to 85% of cost not to exceed $1,133 per pupil, to partially offset revenue gain to charter schools from referendum roll-in 12.Phase in revenue increases and uniform general education levy to assure a smooth transition. May 2011 Recommendations

14 1.Special education funding reform 2.Facilities funding reform 3.Improved school levy equalization 4.Further simplification of school funding Additional School Finance Reform Options

Cost of Reforms under Consideration (Preliminary Rough Estimate) Annual Cost of 2011 Recommendations (fully phased-in) = $344 M + Special Education Aid Increase = $100-$200 M + Facilities Aid Increase = $25 - $50 M = Total increase prior to phase-in and payment shifts = $469 - $594 M The above Increases would be phased in over 4 – 6 years. The costs above assume a zero levy target statewide. Levy equalization increases would be offset by changes in other levies. Could be combined with tax reform proposals being developed by Revenue Department to reduce school property tax levies. 15

Special Education Funding Reform 1.Increase state aid to reduce cross subsidies 2.Allocate a portion of funding based on district enrollment 3.Target excess cost aid to districts with greatest need 4.Excess costs shared between resident district and serving district or charter school 16

17 education.state.mn.us 1.Special education-regular aid –Current percentage reimbursement model replaced with a new formula combining census-based funding for high incidence / lower cost programs and weighted student funding for low incidence / higher cost programs 2.Excess cost aid –Continues to cover a portion of excess costs 3.Tuition billing –Continues but serving district/charter covers a portion of unfunded costs Special Education Funding Reform MDE Draft Proposal -- Formula Structure

education.state.mn.us 18 Replace current percentage reimbursement formula with a combined formula using: –census-based funding for higher incidence/lower cost programs; and –a weighted student formula for lower incidence/higher cost programs. Use prior year data instead of current year data (except for 1 st year charter schools). Pay weighted student aid directly to coops and intermediates Special Education Funding Reform MDE Draft Proposal Special Education – Regular Aid

19 education.state.mn.us Census-based funding is provided for the following disability types: These disability types account for 54% of special education child count and 34% of special education expenditures. Special Education Funding Reform MDE Draft Proposal Census-Based Funding Component of Regular Aid

20 education.state.mn.us Formula for census based funding was derived using regression analysis. Funding per ADM served equals: –a basic rate per ADM, plus –an adjustment based on district poverty concentration (high poverty districts have higher incidence of special education students and higher average cost per ADM for special education), plus –an adjustment based on district size (large districts have higher average cost per ADM) Special Education Funding Reform MDE Draft Proposal Census-Based Funding Component of Regular Aid

21 education.state.mn.us Special education serves a disproportionate number of students living in poverty: Statewide in 2011, 37% of all Minnesota students were eligible for free or reduced price lunches. –49% of special education students –34% of non-special education students Disability types with the highest percentages of students in poverty were: –Emotional or Behavior Disorders 65% –Specific Learning Disability 59% –Developmental Cognitive Disabilities57% Relationship Between Poverty and Special Education Incidence

22 education.state.mn.us Free and Reduced-Price Lunch Eligibility Special Education and General Education,

23 education.state.mn.us The federal census-based special education funding formula recognizes the relationship between special education incidence and poverty by allocating 15% of federal funds based on poverty. The census-based portion of the proposed Minnesota special education formula would have a similar adjustment for poverty, but the adjustment would be based on statistical analysis rather than using a flat 15% factor. Relationship Between Poverty and Special Education Incidence

24 education.state.mn.us Weighted pupil funding is provided for the following disability types: Cost Level 2 (24% of child count, 24% of cost): Cost Level 3 (14% of child count, 23% of cost): Special Education Funding Reform MDE Draft Proposal Weighted Pupil Funding Component of Regular Aid

25 education.state.mn.us Cost Level 4 (8% of child count, 20% of cost): Special Education Funding Reform MDE Draft Proposal Weighted Pupil Funding Component of Regular Aid

26 education.state.mn.us Census-based allowance per prior year ADM served = __% of the formula allowance (currently $____), plus __% of the formula allowance times prior year poverty concentration, plus __% of the formula allowance times prior year total ADM served. Census-based aid = allowance times prior year ADM served. Weighted pupil aid = __% of the formula allowance times cost level 2 prior year December 1 count served, plus __% of the formula allowance times cost level 3 prior year December 1 count served, plus __% of the formula allowance times cost level 4 prior year December 1 count served. Special Education Funding Reform MDE Draft Proposal Special Education – Regular Aid

27 education.state.mn.us Total special education-regular aid = Lesser of (Census-based aid + weighted pupil aid) or ___% of prior year non-federal special education expenditure. –This aid could be paid as a component of general education revenue with a requirement that it be reserved for special education (similar to compensatory, English Learners (EL), and gifted & talented components of general education revenue), or continue to be paid as a separate categorical. –Aid for first year charter schools will be based on current year ADM, child count and expenditure data. Special Education Funding Reform MDE Draft Proposal Special Education – Regular Aid

28 education.state.mn.us Similar to current excess cost formula, except: –Use prior year data –Use total special ed cost as calculated for tuition billing including previously nonreimbursable portions(e.g., fringe benefits) –Pay aid to coops and intermediates as well as districts and charter schools –Calculate aid before tuition billing; don’t recalculate based on tuition bills. Special Education Funding Reform MDE Draft Proposal Excess Cost Aid

29 education.state.mn.us Similar to current excess cost formula, except: –Include general ed revenue attributable to students educated 60% or more outside of the regular classroom in calculation of excess cost –Larger general education aid deduction to target more aid to districts with large cross-subsidies Special Education Funding Reform MDE Draft Proposal Excess Cost Aid (Continued)

30 education.state.mn.us –School districts are guaranteed to receive at least as much net special education aid in FY 2015 as they would have received under the old formula. –For FY 2016 and later, districts receiving hold harmless funds in FY 2015 will receive a transition allowance equal to the FY 2015 hold harmless per AMCPU. This will be added to the district’s existing transition revenue, aid and levy. Special Education Funding Reform MDE Draft Proposal Transition Revenue

31 education.state.mn.us 25 large districts currently qualify for unlimited deferred maintenance funding, while other districts qualify for a maximum of $60 / PU Average deferred maintenance + health & safety revenue per PU for the 25 large districts is $426, versus $226 for other districts Health & safety funding is currently based on cost – based system that uses a narrow statutory definition of health & safety and requires excessive paperwork Facilities Funding Reform Background

32 education.state.mn.us Combine deferred maintenance and health & safety revenues into a new pupil-driven facilities formula. Funding would be increased by $25 - $50 million to narrow the funding gap between the 25 large districts and other districts. Districts would have flexibility to use the funds for either deferred maintenance or health & safety, as determined locally. Districts would not be required to submit budgets to MDE for approval. Facilities Funding Reform MDE Draft Proposal

33 education.state.mn.us Additional state aid would be provided to restore the state share of operating referendum revenue and debt service equalization revenue. Equalizing factors would be equalized to prevent future erosion of state support. If there is a zero levy target, equalization cost would be covered by adjusting the uniform general education levy rate to hold the net cost to zero. School Levy Equalization Reform MDE Draft Proposal

34 education.state.mn.us To provide greater flexibility for local decision-making and more uniform funding for all students in the state, the working group may want to consider rolling other categorical formulas into the general education formula. Transition revenue would be provided to ensure that no district is a “loser” on the overall school finance proposal as a result of roll-ins. Further Simplification of School Funding MDE Draft Proposal