Minnesota School Finance Trends and Issues October 2012

Agenda Background Information Who we serve: student demographics How schools use their financial resources School revenue sources and trends Role of the property tax in education funding Current school finance problems / issues School finance reform options being considered by work group Discussion: Funding Education for the Future 2

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Percent Change in Enrollment, FY 2003 – FY 2011, School Districts and Charter Schools Source: MDE 4

SCHOOL DISTRICT GENERAL FUND EXPENDITURE PERCENTS BY PROGRAM, FY

SCHOOL DISTRICT GENERAL FUND EXPENDITURE PERCENTS BY OBJECT, FY

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21 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 23

24 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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PreK-12 Education Finance Reform Options Being Considered by Working Group 1.Every Child has Access to High Quality Kindergarten and Pre-Kindergarten – All-day kindergarten funding for students in poverty with option to use funding for PreK – Increased funding for PreK scholarships 27

PreK-12 Education Finance Reform Options Being Considered by Working Group 2. Improve Equity and Uniformity Across Districts – Strengthen basic general education formula – Reduce reliance on referendum levies – Combine several existing school levies into a uniform general education levy -- no net increase in property taxes – Improve state equalization of school levies 28

PreK-12 Education Finance Reform Options Being Considered by Working Group 3. Reform special education funding based on student service needs – Increase state aid to reduce cross subsidies – Allocate a portion of funding based on district enrollment – Target excess cost aid to districts with greatest need – Excess costs shared between resident district and serving district or charter school 29

PreK-12 Education Finance Reform Options Being Considered by Working Group 4. Increase achievement for all and reduce achievement gaps – Simplify compensatory education funding – Allow districts greater flexibility to use compensatory funding to close achievement gaps – Reward growth in student achievement – Clarify uses of integration revenue and allocate funding based on need 30

PreK-12 Education Finance Reform Options Being Considered by Working Group 5. Simplify funding formulas – Reduce the number of student counts and pupil unit weightings – Roll several categorical formulas into the general education formula – Simplify and improve facilities funding 31

PreK-12 Education Finance Reform Options Being Considered by Working Group 6. Provide a smooth transition to the new funding system – Revenue increases are phased in over 4 – 6 years – Hold harmless ensures no districts will receive a reduction in funding 32

Funding Education for the Future Questions for Discussion Question 1: How should education funding be structured to meet the needs of all kids? What changes would you suggest for better use of resources and closing gaps? Question 2: What would be your suggestions for addressing special education needs and the state’s cross subsidy(the amount of mandated special education costs that are not currently funded by state or federal government?)? 33

Funding Education for the Future Questions for Discussion Question 3: What role should property taxes play in funding our schools? Question 4: Are there ways to simplify education funding while still holding districts and schools accountable for spending decisions and student results? 34

Funding Education for the Future Questions for Discussion Question 5: How can education funding be more flexible and nimble to reflect changes in our student populations, the delivery of services and ongoing changes in expectations for student success? Question 6: What are some of the unmet needs you see in education? Question 7: What new ideas do you have for improving the delivery of education and how education is funded? 35