FAIR EDUCATION FUNDING: Recommendations of the Education Finance Working Group Tom Melcher Schools for Equity in Education Meeting November 30, 2012

Agenda School Finance Trends and Issues Equity in Education Funding Concepts Working Group Recommendations: Impact on Equity in Education Funding 2

Percent Change in Enrollment, FY 2003 – FY 2011, School Districts and Charter Schools Source: MDE 3

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12 State Share of Revenue for Major Equalized Levies Source: MDE

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State General Fund Budget End of 2012 Legislative Session ($ in millions) FY FY Beginning Balance $1,289$ 1,068 Revenues 33,867 35,861 Spending* 34,086** 36,902 Balance before Reserves 1, Cash Flow Account Budget Reserve Stadium Reserve Budget Balance $ 26 ($1,047) * Net spending after school shifts ** Reflects $318 million K-12 Education shift buyback 14

15 School Shift Summary February 2012 Forecast Aid Payment 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

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Education Funding Equity What is the State’s Role? Equity for Students: All school districts have the resources needed to provide an adequate basic education for all students, regardless of geographic location: – Basic formula covers the cost of providing an adequate basic education for students without special needs. – Additional funding for excess costs: high-need students ( e.g., special education, compensatory education, ELL). unique district characteristics (e.g., transportation costs in remote areas). 17

Education Funding Equity What is the State’s Role? Equity for Taxpayers: Tax burden to provide adequate basic funding is uniform throughout the state, regardless of local tax base. This can be accomplished with either: – full state funding or – A mix of state funding and a uniform local property tax levy. Additional revenue to supplement basic programs is limited and equally available to all districts, regardless of geographic location. – If supplemental revenue is funded with local property tax, equalization aid is provided to neutralize wealth-related disparities 18

Working Group Recommendations Improving Equity for Students and Taxpayers 1.Basic Formula Proposed $6,300 formula allowance includes: $253 inflation adjustment for all districts $300 / PU roll-in of referendum revenue – New revenue for districts with referendum below $300 / PU, closing the revenue gap by bringing up the lowest revenue districts – More stable and predictable revenue for other districts – Referendum cap reduced by $300 to prevent future expansion of disparities As well as adjustments for pupil weighting changes and roll-ins. 19

Working Group on Education Finance: Improving Equity for Students and Taxpayers 2.Uniform General Education Levy – All districts in the state make the same tax effort to raise the same $6,300 per pupil – Replaces several existing school levies that are not fully equalized. As a result, districts with low tax base per pupil currently must exert higher tax effort to generate the same amount of revenue per student (e.g., referendum, safe schools). 20

Working Group on Education Finance: Improving Equity for Students and Taxpayers 3.Levy Equalization Equalizing factors increased and indexed to state average tax base per student: – Operating Referendum Tier 1: First $700: 125% of Average RMV/PU ($669,768) Tier 2: Next $700: 75% of Average RMV/PU ($401,861) State share increases from 11% to 19% of revenue 21

Working Group on Education Finance: Improving Equity for Students and Taxpayers 3.Levy Equalization – Debt Service Equalization Tier 1: 75% of Average ANTC/PU ($5,229) Tier 2: 125% of Average ANTC/PU ($8,715) State share increases from 2.6% to 4.0% of revenue – Deferred maintenance 170% of Average ANTC / PU ($11,156) State share increases from 16% to 72% 22

Working Group on Education Finance: Improving Equity for Students and Taxpayers 4.Equity Revenue Current formula: – does not target funding to districts with greatest need: – districts with no referendum do not qualify for sliding scale revenue – All districts receive $46/PU regardless of need – 25% increase for metro districts not tied to need Proposed formula: – sliding scale from $100/PU to $0 as referendum goes from $0 to $1,400 / PU – Applies to all districts statewide 23

Working Group on Education Finance: Improving Equity for Students and Taxpayers 5.Special Education Funding Increases special education aid by $194 million, reducing average cross subsidy / ADM from $660 to $415 Funding allocations based partly on student counts and partly on an improved excess cost formula that recognizes all sp ed costs including fringe benefits requires serving school district or charter school to cover 10% of unreimbursed special education costs for open-enrolled students ; resident district share reduced from 100% to 90% 24

Working Group on Education Finance: Improving Equity for Students and Taxpayers 6.Basic Skills Funding All funds allocated based on student need rather than allocating a portion based on extended time hours in approved programs, and districts provided greater flexibility in the use of compensatory revenue to close achievement gaps: – Extended time revenue rolled into compensatory and allocated at the rate of $260 times free + ½ of reduced price lunch count instead of being allocating based on hours of extended time instruction – Districts required to spend 85% at site generating revenue, rather than 95% – ELL funding extended from 5 to 7 years and concentration formula expanded 25

Working Group on Education Finance: Improving Equity for Students and Taxpayers 7.Facilities Maintenance Funding Under Current Law: – The largest 25 districts have access to unlimited deferred maintenance funding under the alternative facilities program while other districts are limited to a maximum of $60 / pupil for deferred maintenance – Health & safety funding is limited to narrowly defined statutory purposes and requires excessive paperwork Proposal: – Roll H&S funding into the Deferred Maintenance formula, increasing the maximum to $230/PU – Increase funding for districts not in alt facilities by $34 million; increases district flexibility and reduces paperwork 26

Working Group on Education Finance: Improving Equity for Students and Taxpayers 8.Regional Cost Adjustment Rolls a portion of referendum revenue into a new location equity levy: – $400 / PU for 7 County metro area – $200 / PU for non-metro regional center districts (>2,000 PU) – Levy equalized at same level as Tier 1 of referendum Also provides regional cost adjustment aid equal to: – 1.5% of basic + basic skills revenue 7 County metro districts – 0.5% of basic + basic skills revenue for non-metro regional center districts (>2,000 PU) 27

Working Group on Education Finance: Improving Equity for Students and Taxpayers 9.Integration Revenue Sunsets after FY 2013 if there is no change in law Old formula is outdated and doesn’t recognize current distribution of students of color Proposal: – $500 x pupil units x percent minority for districts required to have a desegregation plan – Funding guaranteed to at least equal 60% of FY 2013 level 28

Working Group on Education Finance: Improving Equity for Students and Taxpayers 10.All Day Kindergarten – Increase pupil weight from.612 to 1.0 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. ($63 million) 29

Working Group on Education Finance: Improving Equity for Students and Taxpayers 11.Other Pupil accounting simplified – Pupil weights at 1.0 elementary, 1.2 secondary – Resident pupil units eliminated; referendum converted to rate per adjusted pupil unit; – No marginal cost PU; Separate revenue component for enrollment decline Aid reduction for pension rate changes eliminated; – districts with below average reduction held harmless Phase-in of revenue and property tax changes over 4 – 6 years – Annual change equals total change divided by number of years of phase-in 30

Proposed School Revenue Increase With and Without Phase-in 31

Proposed Change in Revenue/ADM After Full Phase-in 32

Impact on Disparity in Revenue / ADM Basic + Referendum + Equity + Regional Adjustment 33

Proposed Change in Property Taxes After Full Phase-in 34

Approximate School Tax on $150,000 Residential Homestead by Wealth Quintile 35

For general questions, please contact: Tom Melcher, Director School Finance Division For full text of the 2012 working group report and associated district-by-district runs, as well as information from 2012 working group meetings, s ee MDE web site at: nanWork/index.html nanWork/index.html Questions? 36