Changes in Minnesota School Finance Context Since Working Group Report Issued in May 2011 Tom Melcher June 25, 2012

Topics for Discussion Funding Changes: Basic Formula Literacy Aid Small Schools Aid One-Time Compensatory Aid Other Integration (Sunset and Task Force Recommendations) Aid Payment and Property Tax Levy Shifts Alternative Compensation Participation Approaching Cap Staff Development Needs (Teacher/Principal Evaluation) State General Fund Budget Outlook for FY 2014 – FY 2015

Basic Formula FY 2012: $50 (1%) increase, from $5,124 to $5,174 FY 2013: Additional $50 increase, from $5,174 to $5,224 Inflation Projections for FY 2012 and FY 2013: CPI: 2.7% for FY 2012; 1.4% for FY 2013 IPD: 2.5% for FY 2012; 1.7% for FY 2013

Literacy Aid Begins in FY 2013 Includes Proficiency Aid and Growth Aid Proficiency aid = $530 x grade 3 enrollment on October 1 of the previous year x three year average percent of third graders proficient on third grade reading MCA. Growth aid = $530 x grade 4 enrollment on October 1 of the previous year x three year average percent of fourth graders making medium or high growth on the reading MCA. For FY 2013 only, state total aid is capped at $48,585,000 (97.8% proration projected)

Small Schools Aid New component of general education revenue, beginning in FY 2013. School districts with fewer than 1,000 AMCPU qualify for revenue on a sliding scale: Allowance / AMCPU = $522.40 x (1,000 – AMCPU) / 1,000 Charter schools are not eligible for this revenue.

One-Time Compensatory Aid One-time aid for FY 2013. The 20 largest districts in the state are eligible for this aid if their regular compensatory revenue per compensatory pupil unit (free + ½ of reduced price lunch count) is less than $1,400 per compensatory pupil unit. The aid equals the amount needed to bring the district’s compensatory aid up to the $1,400 level. This revenue must be used for basic skills purposes as defined in Minn. Stat. §126C.15, subdivision 1. The allocation by building is to be determined locally.

One-Time Compensatory Formula, FY 2013

One-Time Compensatory Aid February 2012 Forecast Estimates   Current Comp. $/ Additional $ Adj Count /Adj Count Poverty (Free + to Reach Estimated Conc. 1/2 Red.) $1,400 Revenue 276 MINNETONKA 6% 242 1,158 685,441 194 LAKEVILLE 11% 448 952 1,113,551 112 EASTERN CARVER CO. 14% 630 770 1,018,097 284 WAYZATA 15% 666 734 1,137,581 272 EDEN PRAIRIE 18% 743 657 1,102,436 728 ELK RIVER 19% 764 636 1,527,203 196 ROSEMOUNT 804 596 2,910,280 833 SOUTH WASHINGTON CO. 17% 831 569 1,666,751 11 ANOKA-HENNEPIN 27% 1,156 244 2,551,260 621 MOUNDS VIEW 1,224 176 482,603 535 ROCHESTER 31% 1,332 68 347,220

One-Time Compensatory Aid February 2012 Forecast Estimates   Current Comp. $/ Additional $ Adj Count /Adj Count Poverty (Free + to Reach Estimated Conc. 1/2 Red.) $1,400 Revenue 191 BURNSVILLE 37% 1,502 622 NORTH ST PAUL-MAPLE. 41% 1,561 271 BLOOMINGTON 35% 1,565 279 OSSEO 34% 1,744 281 ROBBINSDALE 42% 1,748 742 ST. CLOUD 44% 1,778 709 DULUTH 1,939 1.2 MINNEAPOLIS 63% 2,475 625 ST. PAUL 69% 2,572

Other Funding Formula Changes 2011 Legislation Permanent School Fund / Endowment Charter schools eligible for payments (~$28/ADM); Funds allocated on adjusted ADM instead of resident ADM Training & Experience Revenue repealed Late Contract Penalty repealed Early Graduation Scholarships / Military Service Awards Charter school lease aid grandfather and state charter school startup aid repealed

Integration Revenue 2011 Legislation The current integration funding formula remains in effect through FY 2013. Integration revenue statute is repealed beginning in FY 2014; however, funding for a replacement program remains in the base budget for FY 2014 and FY 2015 The current integration rule remains in effect with no sunset. Interdistrict desegregation transportation funding remains in the base for FY 2014 and later Integration Revenue Replacement Advisory Task Force established to develop recommendations for repurposing integration revenue

Integration Revenue Task Force Recommendations Create the “Achievement and Integration for Minnesota (AIM)” program funded through existing categorical revenue..… Ensure accountability and oversight at the Department (MDE)… Clearly focus and define limited uses of AIM revenue… Examine the merits of one collaborative Metropolitan Integration School District …..

Integration Revenue Task Force Recommended Fiscal Principles 1. Cap the existing revenue program at the current level. 2. Level the fiscal disparities between demographically similar districts: Reduce the disproportionality between tiers starting in FY 14. Create incentives for districts to cooperate to reduce racial enrollment disparities using voluntary measures (public school choice). 3. Set aside .02 percent (%) of revenue to ensure oversight and accountability at the Minnesota Department of Education. MDE will withhold revenue for districts not making progress towards goals.

Integration Revenue Task Force Recommended Fiscal Principles (Continued) 4. Create a fiscal model that is predictable over time and stable in two-year increments. 5. Define percentages of allowable expenditures in statute: At least 80 percent (%) of revenue is spent on students. Twenty percent (20%) spent on professional development and administration. Administrative costs may not exceed 10 percent (%).

School Shift Summary February 2012 Forecast Aid Payment Shift @ 64.3 – 35.7 (vs 90-10) $1.873 Billion Property Tax Shift (@ 48.6% of Gross Levy) $563 Million _____________ Total School Shift (as of 6/30/2013) $2.436 Billion

Repayment of School Shifts M.S. 16A.152 requires unrestricted state general fund budget balances to be allocated in the following order: $350 Million to state’s cash flow account $653 million to state’s budget reserve account Pay back school aid payment shift Pay back school tax shift Current payment percent remains at 64.3% to begin FY 2013 Re-evaluated with November forecast: If state budget improves, increase current percent ($73 M for each 1% increase) If state budget gets worse, current percent remains 64.3 unless changed by legislation

Alternative Teacher Compensation Status Update MS 126C.10, Subd. 34, limits state total basic alternative teacher compensation (Q Comp) aid to $75,636,000. New teacher evaluation requirements have triggered increased interest. Basic aid was $43,027,000 in FY 2012, and is projected to increase to $49,759,000 in FY 2013 and to $63,425,000 in FY 2014. (FY 2014 projection includes Anoka, Minneapolis, Bloomington, Burnsville and West St Paul, but not St Paul. Adding St Paul would make the total $69,963,000.) When basic aid reaches the cap, MDE will no longer be able to approve new districts, creating an equity issue. A decision will be needed on whether to accept the equity issue, increase the cap, or go with a new approach.

Teacher Evaluation Process (2011 Legislation) The annual teacher evaluation process: establishes a three-year professional review cycle and includes at least one summative evaluation performed by a trained evaluator agreed upon teacher value-added assessment models and state and local measures of student growth for 35 percent of teacher evaluation results; student engagement and connection measures requires qualified and trained evaluators to perform summative assessments; requires support to improve the performance of teachers is to be coordinated with staff development activities; may allow time for peer coaching and teacher collaboration; may include mentoring and induction programs;

Teacher Evaluation Process Panel Requires a teacher evaluation process be adopted in all districts. Requires MDE to develop a default model to be used should the district and teachers fail to adopt a model by “joint agreement” MDE model expected to be ready to present to the Commissioner in December 2012 It will be piloted in school districts during 2013/14 school year Full implementation the 2014/15 school year

Principal Evaluation Model Requires each district to adopt and maintain an annual principal evaluation as a duty of the superintendent MDE developed a model that may be used by districts. Model completed and reported to legislature on February 1, 2012 Model to be piloted in 16 school districts during 2012-13 school year and all districts must implement in 2013/14 school year Requires district to support and provide professional development to improve a principal's instructional leadership and organizational management skills

Staff Development Needs (Teacher/Principal Evaluation) What will be the implementation and staff development costs for both the Principal and Teacher evaluation processes? Trained evaluators Assessment costs (35%) Staff Development requirements Cost of surveys (principal’s, student connectedness)

State General Fund Budget End of 2012 Legislative Session ($ in millions) FY 2012-13 FY 2014-15 Beginning Balance $1,289 $ 1,068 Revenues 33,867 35,861 Spending* 34,086** 36,902 Balance before Reserves 1,068 26 Cash Flow Account 350 350 Budget Reserve 653 653 Stadium Reserve 34 66 Budget Balance $ 26 ($1,047) * Net spending after school shifts ** Reflects $318 million K-12 Education shift buyback

Questions? For general questions, please contact: Tom Melcher, Director School Finance Division 651-582-8828 tom.melcher@state.mn.us For full text of report and district-by-district runs: See MDE web site at: http://education.state.mn.us/MDE/Welcome/AdvBCT/EducFinanWork/index.html