Funding Minnesota Schools Presentation to Robbinsdale LAC September 29, 2009

Financing Minnesotas Public Schools Minnesotas 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 Minnesotas 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.

09/29/09 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. 3House Research Department

09/29/09 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. 4House Research Department

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 districts state aid that is paid in the current year from 90% to 73% of the districts aid entitlement beginning in FY –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. 09/29/095House Research Department

Unallotment These aid payment shifts save the state about $1.7 billion in the 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. 09/29/096House Research Department

Where the Money Comes From FY General Fund $ Billion 09/29/097House Research Department

Where the Money Goes FY Spending $ Billion 09/29/098House Research Department

Where the Money Comes From FY 10 General Fund $ Billion 09/29/099House Research Department

Where the Money Goes FY 10 Spending $ Billion 09/29/0910House Research Department

09/29/09 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. 11House Research Department

Taxable Market Value by Property Type Taxes Payable in 2009 $581 Billion 09/29/0912House Research Department

Taxes Paid by Property Type Taxes Payable in 2009 $7.713 Billion 09/29/0913House Research Department

Property Taxes Payable in 2009 By Type of Government $7.713 Billion 09/29/0914House Research Department

09/29/09 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 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. 15House Research Department

Minnesota School Enrollment 1960 to /29/0916House Research Department

School Enrollment by Region FY /29/0917House Research Department

School District 5 Year Enrollment Change by Region FY 2005 to /29/09 Northwest Northeast WestCentral Southwest EastCentral SouthCentral Southeast 7 County Metro NorthCentral 18House Research Department

Percent of Students Enrolled by School Size Quintile FY /29/09 68 Largest Districts 68 Second Largest Districts 68 Middle Districts 68 next Smallest Districts 68 Smallest Districts 19House Research Department

09/29/09 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 states 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. 20House Research Department

Percent of K-12 Aid & Levy From State Aid For Fiscal Years 1984 to /29/0921House Research Department

Total Revenue for Education Total Revenue $ Billion FY /29/0922House Research Department

09/29/09 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 23House Research Department

General Education Revenue by Component $6.539 Billion FY /29/0924House Research Department

School District Revenue Per Student 1984 to /29/0925House Research Department

Revenue per Student Less Building Debt and Special Ed Expenses 09/29/0926House Research Department

Inflation Adjusted Revenue per Student Less Building Debt and Spec Ed Expenses 09/29/0927House Research Department

Special Education Minnesotas school districts receive special education funding through a formula that partially reimburses the districts costs. Federal funds are significant, but meet only a small portion of schools special education costs. The cross-subsidy describes the gap between state funding and a districts special education spending. 09/29/0928House Research Department

Special Education Revenue and Expenses /29/0929House Research Department

Minnesota ARRA Stimulus Allocations Stabilization Fund--$816 million ($500 million is for K- 12 education and is a one-time offset against the states 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 09/29/0930House Research Department

09/29/09 Additional Resources Additional information on Minnesotas school finance system is available online. The following sources may be of help: Detailed description of Minnesotas school finance system Federal stimulus documents on MDEs website Fiscal worksheets prepared by the House fiscal analysis department 31House Research Department