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A Decade of School Funding Cuts Reversed

November 11, 2013 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

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After a decade of cuts in real (i.e., inflation adjusted) per pupil state support for K-12 education, the FY 2014-15 budget passed during the 2013 legislation session provided a significant increase in state aid. The increase in state funding projected to occur from FY 2013 to FY 2015 under the recently approved budget is sufficient to replace about one-third of the real per pupil school district aid loss that occurred over the previous decade.

A new Minnesota 2020 report—“Minnesota School District Finances: FY 2003-FY 2015”—examines trends in total school district operating revenue, property tax levies*, and state aids** over a thirteen year period, including projections based on the new state budget approved during the 2013 session. All amounts presented here and in the report are expressed in constant FY 2014 dollars.

Statewide per pupil state aid to Minnesota school district peaked in FY 2003 when the state took over funding of general education and eliminated local general education property taxes. In that year, total school district state aid was $10,061 per pupil, while levies were just $711 and consisted exclusively of voter-approved referendum and non-general education levies.

However, in subsequent years per pupil state aid declined steadily, a victim of the “no new tax” fiscal agenda that dominated state budget decisions, while school property taxes soared. State support for K-12 education bottomed out in FY 2012, the first year under the biennial budget imposed by the conservative-dominated legislature after the 2011 state government shutdown. From FY 2003 to FY 2012, state aid to school districts declined by $1,812 (18.0%) per pupil, while property tax levies increased by $966 (135.9%). Because the increase in levies was not large enough to replace the drop in state aid, total school district revenues declined by $846 (7.9%) per pupil.

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To make matters worse, several times during the period from 2004 to 2011 the legislative enacted school aid payment shifts which delayed state aid payments to school districts, which had the effect of depleting school budget reserves and forcing some districts into short-term borrowing. The negative impact of these payment delays are not reflected in this analysis.

The turn-around in state support for public education began in FY 2013† and gained momentum in the FY 2014-15 budget enacted during the 2013 session, providing a boost to school district budgets and relief to property taxpayers. From FY 2012 to FY 2015, state aid to Minnesota school districts is expected to jump by $646 (7.8%) per pupil, while levies are projected to fall by $72 (4.3%) per pupil; total revenue per pupil is expected to increase by $575 (5.8%) per pupil. In addition, the repayment of school aid payment shifts enacted in previous years helped to bolster school district finances.

The projected increases in state support for education is badly needed, but insufficient to completely replace the decline in aid that occurred over the previous decade. For example, the projected increase in state aid from FY 2012 to FY 2015 is sufficient to replace just 35.7 percent of decline that occurred from FY 2003 to FY 2012. Furthermore, even after these aid increases, total per pupil school district revenue in FY 2015 is still projected to be 2.5 percent less than in FY 2003.

“Minnesota School District Finances” contains per pupil operating revenue, aid, and levy information covering the period from FY 2003 to projected FY 2015 for each school district in the state. Not surprisingly, there is a great deal of variation in revenue, aid, and levy trends among districts. However, some trends stand out. For example, 326 of the 332 districts (containing 98.5% of statewide school district enrollment) are projected to receive a per pupil state aid increase from FY 2012 to FY 2015 and 322 districts (containing 97.3% of enrollment) are projected to experience an increase in total per pupil revenue. Meanwhile, 172 districts (containing 72.8% of enrollment) are projected to see a decline in per pupil levies.

In the vast majority of districts, the projected aid and revenue increases will not be sufficient to replace the aid losses over the preceding decade. Projected FY 2015 per pupil state aid will be less than FY 2003 aid in 318 districts (containing 97.8% of enrollment), while projected FY 2015 per pupil revenue will be less than FY 2003 revenue in 224 districts (containing 70.8% of enrollment).

While total real per pupil state aid and total revenue remain significantly below their historic peaks, the budget enacted by state policymakers during the 2013 session made a major stride to restoring a decade of school funding cuts. The new Minnesota 2020 report shows that this is true not only on a statewide basis, but for the vast majority of Minnesota school districts.

 

* While these projections estimate likely levies, they were done prior to the recent election, and are subject to further updates. Minnesota 2020 will release updated figures when levy, revenue, and aid numbers are finalized through the Department of Education.

**All information in the report and this article is based on the newly released 13 year revenue trend spreadsheet from the Minnesota Department of Education (MDE). The data in this spreadsheet excludes debt service revenue, but includes virtually all school operating revenue. “Revenue” as used in MDE’s 13 year revenue trend spreadsheet is equal to the sum of levies plus state aid. See the Minnesota 2020 report for other technical notes regarding the analysis presented here.

†The increase in real per pupil state aid in FY 2013 offset aid reductions enacted in FY 2012. Nonetheless, total real per pupil state operating aid to Minnesota school districts for the entire FY 2012-13 biennium declined slightly relative to the preceding biennium (FY 2010-11).
 

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2 Comments:

  • herb davis says:

    November 18, 2013 at 2:38 pm

    It might be better to do property tax reform and tax everyone at the same rate. As it stands, farms, no matter how big and how profitable are having their tax reduced by the differential treatment and bracket manipulation. The same could be said for forests and religious exemptions as well as tax subsidies offered by JOBZ and municipal incentives. The system is complicated for obvious obfuscation.

    I know this isn’t any different than the income tax deduction/credit scams that complicated that tax for the same apparent reasons.

    • David Schmidt says:

      January 25, 2014 at 8:49 am

      In response to Mr. Davis, I posit that most farms [large publicly own corporations not included], are already overtaxed and not very profitable-and whatever profit there is-is heavily taxes. Property taxes have always had special treatment for farms by the very nature of farming. Paying property taxes on a quarter acre, single family home in Lakeville is one thing. However, to tax a 320 acre farm anywhere near that rate would put the farmer out of business. The nature of farming is a very labor intensive,  overhead intensive, and capital intensive operation. Shall I start counting the various taxes? 1) self employment tax of 15%, 2) income tax on any income, 3) sales tax on any machinery and trucks bought and sold, 4) depreciation on capital purchases [the inability to fully deduct the cost of a machine up front if paying cash encourages more costly financing or leasing as well opportunity costs for the taxes required today that will be “deducted over x many years” with inflationary bite], 5) annual truck registration taxes, 6) any building permits to improve or even maintain structures, 7) costs to lawyers CPAs in order to avoid expensive taxes when passing on the farm to the next generation, 8) property taxes and property “assessments” [tax by another name”, 9) if the farmer hires help, technically he is to pay FICA tax, worker’s comp, unemployment tax, etc. 10) Taxes or “fees” required for business registration and state/local/federal business compliance.  And the list goes on.

      I don’t know about religious exemptions or how that compares to other not-for profit or charitable organizations’ property taxes.

      However, regarding the phrase “income tax deduction/credit scams”, this is the nature of a comprising constitutional republic. Were we to simplify the tax code, I don’t believe the liberals in congress would be willing to lower the marginal tax rate to match the current effective tax rate. Generally speaking, the simplified effective “income tax” rate, with no deductions, would have to be about 10-12% for the middle class [$90k in MPLS is middle class, $200,000 in NYC is middle class]. Remember, FICA already takes over 6% from what we see, and over 7% that’s is hidden in the employers bookkeeping. Minnesota demands their 5-9% pound of flesh. Add income tax and 20% is probably close to many peoples actual taxes. (I suggest 2 1/2 months (6 months if you’re “successful”] forced labor at the point of the government gun, or prison, is far too much as it is). We are not lacking for taxes.