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How Much Funding has the State Cut from Your School?

October 05, 2010 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

!! Note !!

For more recent data, please see the January 2011 report.

 

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Per pupil state aid to Minnesota school districts has taken a double-digit inflation-adjusted nosedive in recent years, roughly 14 percent. Local governments, trying to keep funding at reasonable levels, have raised school property taxes significantly. Still, on a statewide basis, property tax hikes have not been sufficient to replace aid losses; therefore, real (i.e., inflation-adjusted) per pupil revenue has also declined. This comes as the concentration of special need students has increased and new achievement standards have been imposed.

In April, Minnesota 2020 released an on-line report documenting real per pupil operating revenue changes for each of Minnesota's 337 school districts during the period from fiscal year (FY) 2003 through FY 2011 based on projections from the Minnesota Department of Education. Using estimated debt service levy and aid amounts provided by the House Research Department, Minnesota 2020 is today releasing a new report expanding the previous analysis to include debt service information.

This new report includes (1) a table with summary information on real per pupil state aids and property tax levies for all Minnesota school districts incorporating the new debt service information for FY 2003 and FY 2011 and (2) graphs showing projected real per pupil aid and levy amounts for each Minnesota school district covering the entire period from FY 2003 to FY 2011.

State debt service aid to Minnesota school districts has been declining since the 1990s. With the decline in real per capita state revenue during the "no new tax" era, state policymakers were in no position to reverse or even halt the decline in debt service aid to Minnesota school districts over the last eight years.

Based on House Research Department information, debt service aid provided to Minnesota school districts in FY 2003 was $32 million--just more than five percent of all school debt service revenue.  Based on projections for FY 2011, state aid for debt service will decline to $9 million statewide, just more than one percent of all debt service revenue. In constant 2010 dollars,* total school district debt service revenue is projected to decline by about five percent from FY 2003 to FY 2011, while debt service aid is projected to decline by 80 percent.

However, the steep drop in debt service aid did not have a dramatic impact on growth in school debt service levies over the last eight years because state aid has consistently been a fairly small component of debt service revenue, never exceeding much more than five percent in any one year.  Thus, despite the decline in debt service aid since FY 2003, per pupil debt service levies in FY 2011 are projected to be no more than they were in FY 2003 after adjusting for inflation.

Because statewide debt service levies have been essentially flat since FY 2003, the percentage growth in school levies is considerably lower if debt service levies are included.  From FY 2003 to FY 2011, real per pupil school operating levies are projected to grow by 140 percent; however, if debt service levies are included, the rate of school levy growth is "only" 56 percent.†

The projected rate of decline in school revenue is modestly greater after debt service revenues are factored in.  Statewide real per pupil school operating revenue is projected to drop by 3.5 percent from FY 2003 to FY 2011.  After adding in debt service revenue, the statewide rate of revenue decline grows to 4.0 percent.

The decline in real per pupil state aid from FY 2003 to FY 2011 after factoring in debt service is 13.9 percent.  This matches the rate of decline calculated using data from the Price of Government report from Minnesota Management & Budget.

Figure 1 shows the projected statewide change in operating and debt service revenue, levy, and aid in constant FY 2011 dollars per pupil.  The inclusion of debt service into the equation has not altered the long-standing pattern observed throughout the "no new tax" era: cuts in real per pupil state aid have lead to growth in school property taxes and decline in real per pupil school revenue.

 



Nearly every school district in Minnesota has undergone a decline in real per pupil state aid since FY 2003.  Figure 2 shows the distribution of Minnesota school districts by the projected percentage change in real per pupil state aid from FY 2003 to FY 2011, including both operating and debt service levies.

 



All but four of Minnesota's 337 school districts are projected to experience a loss in real per pupil operating and debt service aid from FY 2003 to FY 2011.  To make matters worse, 278 districts (82 percent) will experience aid losses in excess of ten percent.

Nearly all Minnesota school districts have experienced property tax increases over the last eight years.  However, in the vast majority of districts, the property tax increase has not been sufficient to replace the aid loss, so real per pupil revenues have declined.  Figure 3 shows the distribution of Minnesota school districts by the projected percentage change in real per pupil operating and debt service revenue from FY 2003 to FY 2011.

 



Of Minnesota 337 school district, 245 (73 percent) will experience a loss in real per pupil school operating and debt service revenue.  In 154 districts, the projected revenue decline will exceed five percent and in 66 districts the loss will exceed ten percent.

In terms of education funding, Minnesota is at a cross-roads.  We can continue with the "no new tax" policy of the last eight years, in which case state budget problems will continue to be disproportionately passed along to schools, resulting in both higher property taxes and less investment in today's children and tomorrow's workforce.  This policy has resulted in per pupil current spending in Minnesota that is below the national average.

On the other hand, we could reverse the policies that have caused Minnesota to lose more real per capita own-source revenue than any other state in the nation.  In order to stop the perennial decline in school funding, new state tax revenues should be on the table as policymakers wrestle with the state budget deficit.

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